The Calcutta High Court held that the mere silence of a party affecting the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that it is the duty of the person keeping silence to speak or unless the silence is in itself equivalent to speech.
Brief Facts:
The petitioner/award-debtor sought an unconditional stay of an Arbitral Award dated 21.6.2022 under the second proviso to section 36(3) of The Arbitration and Conciliation Act, 1996. The respondent invoked arbitration proceedings after the petitioner terminated the contract, seeking specific performance of the Gas Supply and the Purchase Agreement (GSPA) and damages. The Arbitral Tribunal held the termination of the GSPA to be wrongful and illegal and awarded a sum of Rs. 58,50,45,169/- to the respondent along with damages. The respondent presently claims an amount of Rs. 101,39,93,149/- as the outstanding amount due to the respondent/award-holder. The petitioner prayed for an unconditional stay on the grounds that the Arbitration Agreement was induced by fraud.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the petitioner submitted that the Agreement dated 11.5.2011 was executed in violation of the order passed by the Petroleum and Natural Gas Regulatory Board (PNGRB) and an order dated 25.3.2011 passed by the Delhi High Court. It was further submitted that any act done in violation of an order of the Court is non-est. The second argument is that the GSPA is vitiated by fraud and misrepresentation as the respondent/award-holder deliberately failed to disclose show-cause notices of 3.12.2010 and 15.12.2010 which were issued to the respondent to stop any incremental activity with immediate effect till the matter was decided by the PNGRB. Counsel submits that the petitioner was hence fraudulently induced to enter into the GSPA with the respondent which was clearly voidable on the ground of fraud. It is also submitted that fraud cannot be put into any straight-jacket definition and that the facts of the present case must be seen in the context of the order passed by the PNGRB and the Delhi High Court.
Contentions of the Respondent:
The learned counsel appearing on behalf of the respondent denied that there was any violation of the PNGRB or the Delhi High Court orders or fraud in the form of suppression or otherwise on the part of the respondent and submitted that one of the witnesses of the petitioner had himself relied upon the respondent’s Balance Sheets for the relevant financial years which disclosed the orders passed by PNGRB and the Delhi High Court. Counsel submits that the orders were in the public domain i.e. on the website of the respondent.
Observations of the court:
The court after hearing the parties framed two issues-
(i) Was there any restraint on the respondent, at the material point of time, to execute the agreement with the petitioner or proceed with the same, and
(ii) If yes, whether the respondent suppresses the orders of the PNGRB or the Delhi High Court for the purpose of inducing the petitioner to execute the Agreement?
The court held that the PNGRB had passed an order asking the respondent to stop incremental activity, but not restrain them from supplying CBM gas and it was observed that on appeal, this order was set aside by the Delhi High Court, which directed the PNRGB to hear the matter afresh. The court further noted that the parties executed the GSPA, during the time the order of the PNGRB had been stayed, and there was no direction on the respondent to stop the supply of CBM, except for a monetary penalty, which the respondent had deposited.
Further, the court observed that for a contract to be treated as voidable at the option of one of the parties to the contract, it must be shown that the consent to the agreement was obtained by coercion, fraud or misrepresentation. The petitioner's argument of the Arbitration Agreement being induced or affected by fraud is hence without substance and is accordingly rejected.
The court further referred to Section 17 of the Indian Contract Act and stated that in the present case, there was no instance of "active concealment" which would be tantamount to fraud.
The decision of the Court:
The court rejected the prayer for unconditional stay and directed that the petitioner can stay the award by securing Rs 70 crores, out of the total sum of Rs 89.71 crores, and furnish the same to the Registrar of the High Court.
Case Title: Janak Ram vs. The State
Coram: Hon’ble Mrs. Justice Moushumi Bhattacharya
Case No.: A.P.- COM 281 of 2024
Advocate for the Petitioner: Mr. Jishnu Saha, Mr. Sakya Sen, Mr. Arnab Das, Mr. Amritam Mandal, Ms. Akansha Yadav, Ms. Syeda Romana Sultan
Advocate for the Respondent: Mr. Ratnanko Banerji, Mr. Sarvapriya Mukherjee, Mr. Kanishk Kejriwal, Mr. Shounak Mitra, Mr. Kaushik Chakravortty
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