A) ABSTRACT / HEADNOTE

The judgment concerns an international commercial arbitration arising out of a long-term coal supply agreement between an Australian mining company and an Indian public sector enterprise. The dispute stemmed from the respondent’s failure to lift the contracted quantity of coking coal during the Fifth Delivery Period, coinciding with the global financial crisis of 2008–09. The arbitral tribunal, by majority, held the respondent guilty of breach and awarded substantial damages representing the difference between the contract price and the market price. The dissenting arbitrator took the opposite view, holding that the claimant had failed to establish availability of coal and proof of damages.

The Supreme Court examined the scope of judicial interference with international arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996, as it stood prior to the 2015 amendment. The Court decisively reaffirmed that courts cannot reappreciate evidence or substitute their interpretation for that of the arbitral tribunal if the award represents a possible view. A significant part of the judgment analyses the application of Sections 92, 94, and 95 of the Indian Evidence Act, 1872 to contractual correspondence, especially in distinguishing patent ambiguity from latent ambiguity.

The Court held that the Delhi High Court Division Bench erred in cherry-picking isolated emails while ignoring the entire chain of correspondence and oral evidence. The Majority Award was restored, reinforcing party autonomy, evidentiary finality in arbitration, and minimal judicial intervention in international commercial awards.

Keywords: International Commercial Arbitration, Patent Illegality, Latent Ambiguity, Judicial Review, Evidence Act

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute originates from a Long Term Agreement dated 07.03.2007 for the supply of metallurgical coking coal, entered into between an Australian coal producer and an Indian state-owned trading enterprise. The agreement provided for multiple delivery periods, with an option to extend for additional years. The Fifth Delivery Period assumed central importance due to drastic market fluctuations following the global financial crisis.

While the contract price for coal was fixed at USD 300 per metric tonne, the international market experienced a sharp decline, making performance commercially disadvantageous for the respondent. Despite contractual obligations, the respondent lifted only a minuscule portion of the agreed quantity and persistently sought renegotiation of price.

The arbitral tribunal, constituted under the agreement, delivered a majority award in favour of the claimant holding the respondent liable for breach and awarding damages exceeding USD 78 million. A dissenting arbitrator rejected the claim entirely.

The award survived scrutiny under Section 34 before a Single Judge of the Delhi High Court but was set aside by the Division Bench under Section 37, primarily relying on selective correspondence. This led to the present appeal, compelling the Supreme Court to reassert foundational principles governing judicial restraint in arbitral matters and the interpretation of documentary evidence.

D) FACTS OF THE CASE

The appellant agreed to supply 466,000 metric tonnes of coking coal during each delivery period. The respondent exercised its contractual option to extend the agreement, thereby activating the Fifth Delivery Period from 01.07.2008 to 30.06.2009, later extended to 30.09.2009.

The agreed price for this period was USD 300 per metric tonne, confirmed through correspondence and addenda. During this time, only 11,966 metric tonnes were lifted by the respondent. The remaining 454,034 metric tonnes were not lifted, forming the basis of the claim for damages.

The respondent contended that the appellant lacked coal availability, relying heavily on three emails from July and September 2009. The appellant countered this by producing extensive correspondence and oral evidence, particularly the testimony of its marketing manager, establishing continuous availability and surplus production.

The arbitral tribunal accepted the appellant’s version, holding that the respondent deliberately avoided lifting coal due to adverse market conditions and attempted to procure supplies at discounted prices. The tribunal calculated damages based on contemporaneous market rates and upheld limitation.

The Division Bench reversed these findings by isolating select emails and ignoring the broader evidentiary matrix, prompting the Supreme Court’s intervention.

E) LEGAL ISSUES RAISED

i. Whether the respondent committed breach of contract by failing to lift the contracted quantity of coal during the Fifth Delivery Period?
ii. Whether the claimant was unable to supply coal, thereby itself being in breach of contract?
iii. Whether the arbitral award suffered from patent illegality or violation of fundamental policy of Indian law?
iv. Whether Sections 92, 94, and 95 of the Evidence Act, 1872 were correctly applied to contractual correspondence?
v. Whether the Division Bench exceeded permissible limits of judicial review under Sections 34 and 37?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellant submitted that the Majority Award represented a reasoned and plausible view based on extensive documentary and oral evidence. It was argued that the respondent’s conduct demonstrated a consistent attempt to avoid contractual obligations due to market slump.

Reliance was placed on Associate Builders v. DDA ([2014] 13 SCR 895) to submit that courts cannot interfere merely because another view is possible. The appellant contended that the Division Bench impermissibly reappreciated evidence and ignored settled arbitration jurisprudence.

It was further argued that the interpretation of emails required application of Section 95 relating to latent ambiguity, not Section 94, and that the arbitral tribunal had correctly read correspondence as a connected whole.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondent argued that the appellant expressly admitted non-availability of coal through emails dated 22.07.2009 and 07.09.2009. It was contended that these admissions were clear and attracted Section 94 of the Evidence Act, barring extrinsic evidence.

The respondent further argued that the appellant failed to prove market price on the date of breach and that damages were speculative. Heavy reliance was placed on the dissenting arbitral opinion and the Division Bench judgment.

H) RELATED LEGAL PROVISIONS

i. Section 34, Arbitration and Conciliation Act, 1996
ii. Section 37, Arbitration and Conciliation Act, 1996
iii. Sections 92, 94, 95, Indian Evidence Act, 1872
iv. Article 34, UNCITRAL Model Law

I) JUDGEMENT 

The Supreme Court held that the Division Bench committed a fundamental error by isolating three emails and ignoring the voluminous correspondence and oral evidence. The Court reaffirmed that an arbitral tribunal is the final authority on facts and evidence.

It was held that the Majority Award adopted a legally sustainable approach in interpreting contractual correspondence by reading it holistically. The Court clarified that Section 94 applies only where language applies accurately to existing facts, which was not the case here. Instead, Section 95 permitted evidence to explain latent ambiguity regarding price.

The Court also rejected the respondent’s argument on damages, holding that contemporaneous contracts, distress sales, and internal correspondence sufficiently established market price. The appeal was allowed, and the Majority Award restored.

a) RATIO DECIDENDI

The core ratio is that judicial interference with international commercial arbitral awards is impermissible where the award represents a possible view based on evidence. The Court reiterated that neither patent illegality nor fundamental policy of Indian law can be invoked to reassess facts.

The judgment further clarifies the doctrinal distinction between patent and latent ambiguity, holding that correspondence must be interpreted contextually, especially in commercial contracts.

b) OBITER DICTA

The Court observed that economic hardship or market downturn does not excuse contractual performance. It also cautioned courts against fragmentary reading of commercial correspondence, emphasizing commercial realism.

c) GUIDELINES

i. Courts must read contractual correspondence as a connected whole.
ii. Section 94 Evidence Act applies only when language clearly fits existing facts.
iii. Section 95 permits evidence where language is meaningless without context.
iv. Arbitral tribunals are final judges of evidence quality and quantity.
v. International commercial awards warrant minimal judicial intervention.

J) CONCLUSION & COMMENTS

The judgment strengthens India’s pro-arbitration stance and reinforces evidentiary discipline in commercial disputes. It restores balance between contractual certainty and judicial restraint. The ruling serves as authoritative guidance on interpreting documentary evidence and reaffirms that arbitration is not a rehearsal for appellate litigation.

K) REFERENCES

a) Important Cases Referred

Associate Builders v. DDA ([2014] 13 SCR 895)
Smt. Kamala Devi v. Seth Takhatmal ([1964] 2 SCR 152)
Sudarsan Trading Co. v. State of Kerala ([1989] 1 SCR 665)
Murlidhar Chiranjilal v. Harishchandra Dwarkadas ([1962] 1 SCR 653)

b) Important Statutes Referred

Arbitration and Conciliation Act, 1996
Indian Evidence Act, 1872