Safiya Malik

The High Court of Rajasthan Division Bench of Justice Avneesh Jhingan and Justice Bhuwan Goyal dismissed an appeal challenging the arbitral award that directed reimbursement of compensation cess paid on coal washery rejects. The court held that there was no patent illegality or implausibility in the arbitrator's interpretation of the contractual terms under the Coal Mining & Development Agreement (CMDA). It was further recorded that the court, exercising jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, could not interfere with plausible arbitral views supported by a reasonable reading of contractual clauses. The appeal was thus dismissed, upholding the concurrent findings of the arbitral tribunal and the commercial court.

The appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996, against an order dated 09.02.2024 that dismissed objections raised under Section 34 of the same Act. The appellant, Rajasthan Rajya Vidyut Utpadan Nigam Limited (Nigam), had entered into a joint venture with Adani Enterprises Limited (AEL), resulting in the incorporation of Parsa Kente Collieries Limited (the company). The joint venture was formed for the development and operation of coal blocks, including coal transportation to Nigam’s thermal power stations.

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Following the allotment of coal blocks to Nigam by the Government of India, a Letter of Intent was issued to AEL on 23.10.2006. The joint venture company was incorporated on 16.10.2007, with AEL holding 74% and Nigam 26% stake. On 16.07.2008, the CMDA was executed for a period of 30 years. Despite cancellation of the original coal block allotments by the Supreme Court in 2014, the blocks were re-allotted to Nigam, and operations continued under a supplementary agreement dated 29.07.2016.

Under the Finance Act, 2010, a Clean Energy Cess (CEC) was imposed on coal. This cess, an excise duty, was paid by the Nigam as per CMDA terms. With the implementation of the Goods & Services Tax regime in 2017, the CEC was repealed and replaced with a compensation cess under the Goods & Services Tax (Compensation to States) Act, 2017. A dispute arose regarding the reimbursement of the compensation cess, particularly on coal washery rejects.

Arbitration proceedings led to an interim award on 23.06.2021 and a final award on 14.08.2021, in which the tribunal directed Nigam to reimburse the compensation cess on the entire coal mined. The arbitral tribunal also restrained Nigam from recovering the reimbursed amount and awarded interest on the awarded sum to the company. Objections raised under Section 34 were dismissed by the commercial court, holding that the arbitral award was based on a plausible interpretation of the contract.

The appellant contended before the High Court that there existed a difference between cess under the Acts of 2010 and 2017, and that the Nigam was not liable to pay compensation cess on washery rejects. It was argued that clause 3.2.3 of the CMDA explicitly made the company responsible for taxes on rejects, and therefore, general clauses like 5.1.2(b) regarding reimbursables should not override specific provisions. It was further argued that the arbitral award was patently illegal as it disregarded contract terms.

The respondents argued that the cess was levied on the entire coal mined, and as per CMDA, taxes arising from a change in law were to be reimbursed by Nigam. They pointed to clause 5.1.2(b), which covered taxes applied in the future, and the absence of any notification imposing cess specifically on rejects. They maintained that the tribunal’s interpretation was reasonable and that the High Court’s jurisdiction under Section 37 was limited.

The Division Bench recorded that "there cannot be re-appreciation of evidence to conclude that the award is illegal or erroneous in law" and reiterated the principles governing the limited scope of Section 37. Citing precedent, the court noted, "the court cannot undertake an independent assessment of the merits of the award... the court under Section 37 must only determine whether the Section 34 court has exercised its jurisdiction properly and rightly, without exceeding its scope."

The court stated that "reading of the clause mentioned above and CMDA as a whole, the position emerges that after the date of agreement, a new enactment or modified enactment is covered under the definition of change in law". It further observed that the compensation cess, introduced post-CMDA, qualifies as a reimbursable tax under clause 5.1.2(b): "the compensation cess was enforced after executing CMDA and falls within the ambit clause 5.1.2(b) wherein the definition of reimbursable includes other taxes to apply in future."

Responding to the appellant’s claim that the compensation cess is not related to sales tax and hence must fall under clause 3.2.3, the court held: "the sales tax if imposed on rejects shall be borne by the company... The cess is not on the sale of rejects and shall not be covered in the clause dealing with the establishment of washery."

Addressing the issue of scope and incident of taxation, the court stated, "the incident of levy of cess under the Act of 2010 being mining of the coal and under the Act of 2017 is intrastate or interstate supply of the goods or services." The court rejected the argument that the arbitrator went beyond the terms of the contract, noting: "the arbitrator gave harmonious construction to the clauses of CMDA defining coal, rejects, reimbursable, change in law, clause for establishment of coal washery."

Further, the court addressed practical implications, stating: "if liability of the Nigam is only for the coal supplied, obligation of the company is to pay sales tax on rejects meaning thereby that on the unsold rejects no cess shall be paid." The court held that such a construction would be contrary to CMDA and "causing loss to the revenue."

On the argument of statutory liability, the court stated: "The argument that reimbursable shall include only those taxes for which the Nigam has a statutory liability to pay has lacuna. This shall result in adding words to clause 5.1.2(b)."

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The Division Bench conclusively held that the arbitrator's interpretation of the CMDA and its provisions concerning reimbursables and change in law was a plausible view supported by the text and purpose of the agreement. It observed: "The conclusion of the arbitrator is based upon reasonable construction of terms of CMDA and is plausible."

The court found no reason to interfere with the concurrent findings, stating: "There is no patent illegality calling for interference by this Court in the concurrent findings recorded by the arbitrator and the court."

Accordingly, the court directed: "The appeal is dismissed."

Advocates Representing the Parties:

For the Petitioners: Mr. R.K. Agarwal, Senior Advocate with Mr. Adhiraj Modi

For the Respondents: Mr. Sudhir Gupta, Senior Advocate with Mr. Anuroop Singhi, Mr. Nilava Bandophadya, Mr. Adhip Ray, Ms. Shweta Chauhan, Mr. Bhavya Kala, Mr. Rachit Somani

Case Title: Rajasthan Rajya Vidyut Utpadan Nigam Limited v. Parsa Kente Collieries Limited

Neutral Citation: 2025: RJ-JP:20625-DB

Case Number: D.B. Civil Miscellaneous Appeal No. 1870/2024

Bench: Justice Avneesh Jhingan, Justice Bhuwan Goyal

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