Delhi High Court: A petition was filed under Section 9 of the Arbitration & Conciliation Act, 1996 seeking an urgent interim stay on the notice dated 21-10-2023 issued by the respondent purportedly to terminate the contract and to restrain the respondent from acting on the said notice in addition to directing the respondent to deliver LNG by the terms of LNG sale and purchase agreement. Neena Bansal Krishna, J., held that the petitioner is not entitled to mandatory interim relief of directing the respondent to supply the LNG for November, 2023.
The petitioner is a Public unlisted Company having its registered office at Bandra, Mumbai is a leading steel manufacturer and has its main operations in the largest plant in Hazira, Surat for manufacturing integrated flat carbon steel. The respondent a Government Company registered at New Delhi, is primarily engaged in the distribution and marketing of gas and other aspects of the gas chain including exploration, production, transmission, sourcing, extraction, and processing of natural gas and related process, products and services. The parties entered LNG Sale and Purchase Agreement dated 02-06-2022 (LSPA) to secure the supply of LNG at the petitioner’s steel manufacturing plant whereby the respondent agreed to sell and deliver pre-determined quantities of LNG to the petitioner on “a take or pay basis” to be delivered during each Contract Year.
However, disputes arose on account of the respondent’s failure to supply LNG in August 2022 and December 2022 as per the Schedule due to operational constraints. The respondent vide its letter dated 02-11-2022 for the first time stated that the failure to supply LNG is due to force majeure because of Ukraine-Russia War. Owing to the respondent’s continuous breach of the provisions of LSPA under the guise of purported Force Majeure, the petitioner wrote various letters claiming that the respondent cannot refuse to delivery of LNG on account of force majeure. Since, the petitioner was not willing to accept the unsubstantiated claim of the respondent, it tried to intimidate the petitioner by alleging “Material Breach” on part of the petitioner for the alleged onward sale of the LNG procured under the LSPA to third party.
The respondent in its letter dated 03-03-2023 refused to provide detailed information about the Force Majeure event as mandated under Clause 13.3 of LSPA by claiming such information to be confidential but attempted to unilaterally reschedule the supply of LNG which it had failed to supply in August 2022. The petitioner has claimed that the respondent has unlawfully terminated LSPA on completely frivolous and wrongful grounds and the Notice of Termination dated 21-10-2023 is invalid, unsubstantiated and contrary to the provisions of LSPA and applicable law. There was no Agreement between the parties in respect of any revised ADP and ACQ.
The Court noted that the prima facie case is not in favour of the petitioner who has taken contradictory stands viz., on one hand, it is claiming that the LSPA is existing, but on the other hand, is claiming the benefit of revised Annual Contracted Quantity for the Contract Year-2023. Having already received a supply of 15.44 TBTu which is more than the contracted LNG for the Contract Year-2023, no prima facie case is made out in favour of the petitioner.
On the aspect of balance of convenience, the Court noted that the respondent has clarified that the LNG being provided by the respondent is only 15% of the petitioner’s entire requirements and the remaining LNG is being procured by the petitioner from other sources which has not been refuted on behalf of the petitioner. This is significant in light of the fact that the LNG could not be supplied for August, 2022 and December, 2022, but the manufacturing facilities of the petitioner have continued even then. Thus, LNG is a product that is available in the market and the respondent is not the only source of supply of LNG and the petitioner can procure this LNG from the open market. Thus, the balance of convenience does not lie in favour of the petitioner who can procure LNG from the open market and is not solely dependent upon the respondent.
On the aspect of irreparable loss and injury to the petitioner, the Court observed that the non-supply of LNG by the respondent would not lead to cessation of the petitioner’s manufacturing facilities and in these circumstances, it can, at best be said that the default in supply of LNG by the respondent may lead to incurring of additional expenditure by the petitioner. The procurement of LNG may become onerous as had happened in August and December 2022 but no irreparable loss and injury would result to the petitioner. Without prejudice to its rights to claim damages, the petitioner can procure LNG from the open market.
[ArcelorMIttal Nippon Steel India Limited v GAIL (India) Limited, 2023 SCC OnLine Del 7242, decided on 10-11-2023]
Advocates who appeared in this case :
Mr. Mukul Rohatgi, Dr. A.M. Singhvi, Mr. Rajiv Nayyar, Sr. Advocates with Mr. Nitesh Jain, Mr. Rajat Jariwal, Mr. Atul Jain, Mr. Hridhay Khurana, Ms. Prerna Singh & Ms. Sanjana Mehta, Advocates for petitioner
Mr. Balbir Singh, ASG, Mr. Vivek Kholi, Sr. Advocate with Mr. Susmit Pushkar, Mr. Kartikay Mahajan, Ms. Somiran Sharma, Mr. Bhavya Bhatia, Mr. Juvas Rawal, Mr. Raj Mohan Gupta, Ms. Prerna Jain, Mr. Satit Chhabra, Ms. Aayushi Singh, Ms. Aadya Malik & Mr. Dhrubajit Saibia, Advocates & Mr. Bhuwan Yadav & Mr. Deepak Barish, Representatives of GAIL.
Buy Arbitration and Conciliation Act, 1996 HERE
