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TMI Blog2024 (7) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... ly contemplated change in law i.e. implementation of GST. Clause 1 (B) (c) of Schedule 5 of the Share Purchase Agreement was incorporated and agreed to by the parties which provides that in the event of any change in law, as a result of which tax does not accrue to the Government of West Bengal, incentives would be suitably adjusted so as not to cause of any loss to the State Government on such account and incentives would be payable only to the extent the tax accrue to the State Government - It is agreed by and between the parties that pursuant to the GST, the incentives are payable to HPL only to the extent the tax accrued to the Government of West Bengal. The Government of West Bengal has not made out any case that the Share Purchase Agreement became frustrated after the change in law. Undisputedly, the Notification dated 18-7-2017 withdrawing the exemption notifications was issued in pursuance of the statutory mandate as provided under Section 174 (2) (c) of the CGST Act. If the contention as raised by the appellants is to be accepted, it would make the provisions under the proviso to Section 174 (2) (c) of the CGST Act redundant and otiose. The legislature in its wisdom has sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h WBIDC to Essex on as is-where is basis at a price of Rs. 25.10/- per equity share. As per the Share Purchase Agreement, the entire 520 million equity shares have been transferred to Essex and the agreed consideration received by Government of West Bengal. 3. As per Essex, Government of West Bengal/WBIDC were to grant HPL certain Tax Incentives as provided in Schedule 5 of the SPA. The Essex alleged that after introduction of GST regime on and from 1st July, 2017, HPL had not been disbursed such Tax Incentives and thus the Essex initiated arbitration for refund of SGST deposited by HPL. The Government of West Bengal/WBIDC has objected with regard to the claim of Essex on the ground of maintainability as well as on merit. 4. After hearing of the parties, the Arbitral Tribunal has passed Award in favour of the Essex on 18th September, 2023: Award 121. Based on the consideration recorded above, the Arbitral Tribunal, is satisfied in recording the following summary of conclusions: (i). The prayer made in the 'Statement of Claim/Amended Statement of Claim , seeking the relief of 'specific performance is allowed, in the manner expressed at (iii), below. (ii). All objections rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarter, commencing from 01.07.2017, till the dispersal of the amounts due. (v). The Claimant - Essex has also claimed costs incurred by it, towards, the present arbitral proceedings. The Claimant - Essex, is held to be entitled to the reimbursement of the costs incurred by it towards the present arbitral proceed, adding up to Rs. 6,55,21,914.50/-. (vi). The claim of costs, incurred by the Respondents GoWB and WBIDC, towards the defence of the arbitral proceedings, is declined. 5. Mr. Kishore Dutta, Learned Advocate General submits that the Essex could not maintain a prayer for refund of tax deposited by HPL, in the face of a clear statutory bar contained in the GST regime as well as in view of the law settled by the Hon ble Supreme Court under Article 141 of the Constitution of India. He submits that HPL was promised tax incentives by the Government of West Bengal under Schedule 5 of the SPA and there is no disagreement on this aspect of the matter and this also reflected the contemporaneous intension and understanding of the parties as articulated under the Share Purchase Agreement. He submits that the parties were also ad idem the Essex s claim in the arbitration was for refund o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsiders an application for stay of the Arbitral Award for payment of money, there cannot be a straight jacket formula that in every case, the court could impose conditions and necessarily there has to be a deposit of the decretal amount. 11. Learned Advocate General relied upon the judgment in the case of Gazal Taneja Ors. vs- Mahanagar Telephone Nigam Limited and Another reported in (2013) 7 SCC 543 and submitted that this Court has the power to grant an unconditional stay of the operation of the award. 12. Learned Advocate General submits that fraud can be of infinite varieties, and the expression fraud in the making an award, cannot be narrowly construed. He submits that in the present matter, the making of Award is effected by fraud and as such, even on this ground, the Award required to be stayed unconditionally. In support of his submission, he has relied upon the judgment in the case of Union of India Anr. vs- Reshmi Metaliks Limited, reported in 2023 SCC OnLine Cal 2272 and submitted that Oxford s English Dictionary defines fraud as (1) Criminal deception; the use of false misrepresentations to gain an unjust advantage (2) A dishonest article of trick (3) A person or thing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all settled principles that clothe an Arbitral Tribunal with jurisdiction. He submits that the Tribunal clearly did not fulfil what was expected of it and its tantamounts to fraud in making of the award. 16. Per contra, Mr. Sudipto Sarkar, Learned Senior Advocate representing the Essex submits that HPL was set up as a joint venture project in 1985 in public interest for the resurgence of industries in the West Bengal which was languishing. He submits that HPL is the flagship investment in West Bengal and a source of employment for thousands of people. In 1994, TCG came in as a joint venture partner to set up the project which has not materialized by then. However, dispute arose between TCG and the Government of West Bengal concerning the management and control of HPL leading up to extensive litigation. HPL became sick, necessitating further infusion of funds for survival. The lenders insisted on the joint venture partners settling their disputes. The West Bengal Government sought to settle such dispute with TCG in public interest in order to revive HPL and accepted the proposal dated 1st March, 2014 of TCG where the following essential conditions were made : (i) TCG would purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement that: (i) HPL would be allowed to carry forward and utilize 75% of the unutilized benefit of incentives under WBIS over a period of 19 years. [75% of Rs. 4380.62 crores (unutilized benefit) amounted to Rs. 3285.47 crores approximately]. Significantly, it is only a part of such unutilized expired incentives which has agreed to be paid contractually under the SPA and not the whole of it, which would have been the case if the incentives, which had expired, were being sought to be restored by the SPA. (ii) Input tax was to be refunded quarterly by way of State support at the applicable discount of 25%. (iii) The financial benefit was to continue even if there was a change in law (such as GST) with the exception that incentive would be payable to HPL only to the extent the tax accrues to the State so as to not cause any loss to the State. 20. Mr. Sarkar submits that the Government of West Bengal and WBIDC had unequivocally represented to Essex that they had the requisite capacity to perform all obligations which constituted legal, valid and binding obligations enforceable against them. He submits that there is a cap on the quantum and the period within which the benefit has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of fraud by Essex has been alleged or made out or pleaded by the petitioners in their application. He submits that findings arrived upon by the Arbitral Tribunal in the said award was based on matters of undisputed record to the knowledge and notice of all parties and submissions made before the Arbitral Tribunal in openly conducted proceedings. He submits that the submissions made by all the parties are recorded and dealt with by the Arbitral Tribunal. 26. Mr. Sarkar relied upon the judgment in the case of WBSIDC vs- Kitco recorded in 2023 SCC OnLine Cal 2142 and submitted that the words making of award qua inducement and effectuation of fraud mean that an award must be obtained by the fraud of a party to the Arbitration or by the fraud of another to which the party to the Arbitration was privy. He submits that a Court or Tribunal cannot become fraudulent or act fraudulently on its own i.e. without being induced or affected by any litigating or third party. 27. Mr. Sarkar relied upon the case reported in (2009) 5 SCC 313 (Bank of India Anr. vs- K. Mohandas Ors.) and submitted that the true construction of a contract must depend upon the import of the words used and not upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation being G.A. (Com) 1 of 2024 by reverting the contents made in the said application. 32. The petitioners in the said application have also submitted pen drive of recordings of the Court proceedings of the present matter dated 5th March, 2024. 33. This Court has perused the application, written argument and also gone through the YouTube proceeding of the present case dated 5th March, 2024. Submissions of the Learned Counsel for the respondent on 5th March, 2024 at Time Stamp reads as follows: Time stamp 25:51 to 26:17 . Lets say mylord- I am arguing before your lordship I make an impossible argument mylord cannot be sustained at all lordship, for some reason mylord, maybe mylord (with respect lordship does not mind) gets confused mylord and accepts it that is not a fraud. It is mylord, lordship mylord, not being able to exercise jurisdiction properly, not being able to appreciate the law or the pleadings mylord and coming to an erroneous finding . 34. After going through the argument of the Learned Counsel for the respondent, this Court finds that Mr. Sarkar, Learned Senior Advocate submitted that if this Court get confused and not able to exercise jurisdiction properly and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sex prayed and has been granted is a refund of tax to HPL. 26. Since the impugned Award prima facie suffers from various blatant irregularities and illegalities, any proceeding arising out of the same for enforcement will be highly detrimental to the interest of the Petitioners. As mentioned above, the prayer granted in favour of Essex is statutory barred by the extant GST regime, and it is in any event, also contrary to the law laid down by the Hon ble Supreme Court in the case Amrit Banaspati. v. State of Punjab, (1992) 2 SCC 411 . As held in this case, the relief granted to Essex is a fraud on the Constitution and a breach of faith of the people. 37. Mr. Sarkar by referring the averments of the application of the petitioners and submitted that only in paragraph 26 of the application, the petitioners have contended that the prayer granted in favour of the respondent is statutorily barred by the extent of GST regime and contrary to the judgment of the Hon ble Supreme Court in the case of Amrit Banaspati (Supra) thus the relief granted to the respondent is fraud on the constitution and breach of faith of the people. Mr. Sarkar submitted that the arbitrators could not follow what th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected. 42. Heard the Learned Counsel for the respective parties, perused the materials on record and the judgments relied by the parties. The petitioners have prayed for an unconditional stay of operation of the Award dated 18th September, 2023, passed by the Arbitral Tribunal. The petitioners have also filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the impugned award but the petitioners have at present prays for unconditional stay. 43. Section 36 (2) and (3) of the Arbitration and Conciliation Act, 1996, reads as follows: (2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose. (3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section 3 of Section 36 of the Act of 1996. It has added the following proviso: Prided further that were the court is satisfied that a prima facie case is made out:- a) That the arbitration agreement or contract which is the basis of the award; or b) The making of the award was induced or affected by fraud or corruption; it shall stay the award unconditionally pending disposal of the challenge under Section 34 of the award. Explanation : For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to a arbitral proceedings, irrespective of whether the arbitral of court proceedings were commenced prior to or after the commencement of Arbitration and Conciliation (Amendment) Act, 2015. The second proviso to sub-section (3) of the Section 36 of the Act of 1996 has stipulated that, the court on prima facie finding that the arbitration agreement or the contract which is the basis of the award, or the making of award had been induced or affected by fraud or corruption, stay such award unconditionally pending disposal of challenge under section 34 of the Arbitration and Conciliation Act, 1996. 45. The Advocate Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) in the contract of an Arbitral Award against the State Government for payment of money. It has considered the interplay of the provisions of Section 36 (3) of the Act of 1996, Order 27 Rule 8-A of the Code of Civil Procedure, 1908 and Order 41 Rule 5 (3) of the Code of Civil Procedure, 1908. It has held that: 19. In this backdrop, we have now to consider the effect of Section 36 of the Arbitration Act, vis- -vis the provisions of Order 27 Rule 8-A CPC. Sub-section (3) of Section 36 of the Arbitration Act mandates that while considering an application for stay filed along with or after filing of objection under Section 34 of the Arbitration Act, if stay is to be granted then it shall be subject to such conditions as may be deemed fit. The said sub-section clearly mandates that the grant of stay of the operation of the award is to be for reasons to be recorded in writing subject to such conditions as it may deem fit . The proviso makes it clear that the Court has to have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure . The phrase have due regard to would only mean that the provisions of CPC are to be taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tters to the level of fraud or corruption in the making of the award, it would be profitable to refer to a few decisions where the concepts of fraud and corruption were considered and dealt with. Fraud 11. Kerr on the Law of Fraud and Mistake, Seventh Edition, describes fraud as understood by Civil Courts of Justice, to include all acts, omissions and concealments which involve a breach of legal or equitable duty, trust or confidence, justly reposed and are injurious to another or by which an undue or unconscientious advantage is taken of another. The description proceeds to include: All surprise, trick, cunning, dissembling and other unfair way that is used to cheat any one is considered as fraud. Fraud in all cases implies a wilful act on the part of anyone, whereby another is sought to be deprived, by illegal or inequitable means, of what he is entitled to. 12. In Venture Global Engineering v. Satyam Computer Services Ltd., (2010) 8 SCC 660 , the Supreme Court considered a case for setting aside of an award under Explanation 1 to section 34 (2) (b) (ii) which provides for the circumstances when an award would be in conflict with the public policy of India and includes the making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the fraud of another to which the party to the arbitration was privy. The Court in Vivendi Universal SA elaborated the concept further in the following words: an award will only be obtained by fraud if the party which has deliberately concealed the document has, as a consequence of that concealment, obtained an award in its favour. The party relying on Section 68(2)(g) must therefore also prove a causative link between the deliberate concealment of the document and a decision in the award in favour of the other successful party 19. The definition of fraud, as settled in the decisions referred to above, substantially point to a consensus that the facts concealed or suppressed must have a causative link with the facts constituting/culminating in the award or inducing the making of the award. The Supreme Court in Venture Global was of the view that disclosure of the concealed facts post-award would become relevant for setting aside of the award on a causal connection being found between the concealment and the award. 23. The above discussion on the definition of fraud and corruption makes it evident that an award-debtor, who seeks unconditional stay of an award, must discharge the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or instance tax holiday or concession to new or expanding industries is well known to be one of the methods to grant incentive to encourage industrialisation. Avowed objective is to enable the industry to stand up and compete in the market. Sales tax is an indirect tax which is ultimately passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacturer and consumer gain, one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or orders issued by Government are neither illegal nor against public policy. 12. But refund of tax is made in consequence of excess payment of it or its realisation illegally or contrary to the provisions of law. A provision or agreement to refund tax due or realised in accordance with law cannot be comprehended. No law can be made to refund tax to a manufacturer realised under a statute. It would be invalid and ultra vires. The Punjab Sales Tax Act provided for refund of sales tax and grant of exemption in circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x does not accrue to the Government of West Bengal, incentives would be suitably adjusted so as not to cause of any loss to the State Government on such account and incentives would be payable only to the extent the tax accrue to the State Government. The onus on the Government of West Bengal to show that any loss has been caused to them which they have failed to discharge. The Government of West Bengal has not provided any particulars in relation to any hardship or loss or unfair advantage. It is agreed by and between the parties that pursuant to the GST, the incentives are payable to HPL only to the extent the tax accrued to the Government of West Bengal. The Government of West Bengal has not made out any case that the Share Purchase Agreement became frustrated after the change in law. The Learned Arbitral Tribunal has categorically come to the conclusion that the claim of Essex is a contractual claim under the Share Purchase Agreement and the Government West Bengal has promised to disburse financial benefits to HPL which were previously granted to HPL under the WBIS which expired in 2004 and the benefits granted under the WBIS to HPL expired in 2012. The claim of the Essex is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as the quantum thereof is yet to be determined. In the case of Hero Motocorp Limited vs- Union of India and Others reported in (2023) 1 SCC 386, the Hon ble Supreme Court held that: 68. However, a common thread in all these judgments that could be noticed is that all these judgments consistently hold that there can be no estoppel against the legislature in the exercise of its legislative functions. The Constitution Bench in M . Ramanatha Pillai [M. Ramanatha Pillai v. State of Kerala, (1973) 2 SCC 650 : 1973 SCC (L S) 560] has approved the view in American Jurisprudence that the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity. It further held that the only exception with regard to applicability of the doctrine of estoppel is where it is necessary to prevent fraud or manifest injustice. The analysis of all the judgments of this Court on the issue would reveal that it is a consistent view of this Court, reiterated again in Godfrey Philips , that there can be no promissory estoppel against the legislature in the exercise of its legislative functions. 69. Undisputedly, the Notification dated 18-7-2017 withdrawing the exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... octrine of promissory estoppel would not come to the rescue of the persons claiming exemptions and compel the State not to resile from its promise, if the act of the State is found to be in public interest to do so. Schedule-5 reads as follows: SCHEDULE 5 Tax incentives to be granted by GoWB an and effective from the First Completion 1) The company has unavailed incentives under The West Bengal Incentive Scheme, 1999, benefits of which will be made available by extension of the same as hereunder: A. Benefits with respect to Unutilized Incentives granted under 1999 Scheme a) HPL will be allowed to carry forward and utilise 75 per cent of the unutilised benefit of incentives under WBIS 1999 over a period of 19 years. The unutilised benefit being Rs. 4380.62 crore and 75 percent thereof works out to Rs. 3285.47 crore, approximately. b) Input Tax paid would be refunded quarterly by way of State Support at the applicable discount of 25%. B. Conditions: a. This benefit would be effective on and from the date of receipt of First Tranche of Payment (First Completion) and withdrawal of legal proceedings in terms of Clause 5.7 hereinabove and no benefit pertaining to period prior to that wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de and method of the payment of incentives to the HPL was consciously guaranteed to the HPL by way of State Support. Clause 1(A)(b) ensures that the payment of the promised incentives to the HPL would be made under change circumstances out of all the available sources available with the State of West Bengal. Clause 1(B)(c) of Schedule-5 of the Share Purchase Agreement provided an assurance on behalf of the State of West Bengal that the incentives extended to the HPL would not get reduced or wiped out even in the event of introduction of the GST regime, in place of the prevailing tax regime. In the said clause, it is made clear that the Government of West Bengal would extend the incentives to HPL irrespective of any change in the tax regime. 55. In Clause 11.1(a) of the Share Purchase Agreement, the Government of West Bengal confirms and undertakes that Government of West Bengal shall not impose any new State taxes (whether direct or indirect) on the Company in any manner whatsoever and in Clause 11.1(d) of the Agreement, it is was also agreed that the Government of West Bengal/ WBIDC shall grant to the company, tax incentives as detailed in Schedule-5. 56. In the month of October, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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