The Calcutta High Court recently clarified that disputes arising from auction transactions must be settled under the arbitration clause mentioned in the relevant auction scheme, unless the party opposing arbitration can show a different scheme that does not contain such a clause.
Justice Shampa Sarkar delivered this decision in the case of Satya Narayan Shaw vs Sourav Ghosh on April 7, 2025. The case revolved around a conflict over the supply of coal, following a spot e-auction held by Mahanadi Coalfields Limited (MCL).
The petitioner, Satya Narayan Shaw, approached the court under Section 11(6) of the Arbitration and Conciliation Act, 1996. He sought the appointment of an arbitrator as per Clause 11.12 of the Spot E-Auction Scheme 2007, which governed the sale of coal by MCL.
According to Shaw, he had successfully bid for five rakes of Grade "F" coal, each carrying 3950 metric tons, during an auction held on January 27, 2010. In line with the auction terms, Shaw paid a total of Rs. 3,39,13,350, which included an earnest money deposit, the coal’s value, and additional tax.
Out of the five rakes, Shaw received only three in 2010. Later, K.R. Enterprises placed an order for the supply of five rakes from Deulbera Siding (MCL) to NALCO. A ‘No Objection Certificate’ was issued by NALCO to facilitate this transaction. Shaw then applied for a change of destination for the remaining two rakes on September 9, 2010, at the Kolkata office of Respondent No. 3, Sourav Ghosh.
The conflict started when the petitioner alleged that Respondent No. 3 unilaterally altered the Letter of Indent by adding “BOXN” alongside “BOBRN.” This was done even though the operational needs of NALCO had been clearly stated in the NOC.
"The petitioner was aggrieved by the unilateral amendment of the Letter of Indent despite clear knowledge of the NALCO requirements," the court noted.
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After the amendment, two rakes were supplied on September 11, 2010, but NALCO rejected the consignments on September 12 and 14, 2010. Following this, K.R. Enterprises canceled its order, leaving the petitioner to bear the losses.
Two writ petitions were filed before the High Court of Orissa at Cuttack concerning these issues. The second petition was withdrawn after the court granted the petitioner permission to resolve the matter through arbitration, as per the scheme.
The petitioner further argued that Respondent No. 3 refunded the money for the two rakes only after deducting certain charges. This refund was processed nearly a decade later, in August and December 2019, causing financial loss to the petitioner.
On the other hand, the respondent denied responsibility. Their lawyer argued that there was no evidence proving the applicability of the Spot E-Auction Scheme 2007 to this transaction. The respondent also claimed that the changes in the rakes and the Letter of Indent were handled by the Railways, not them. Additionally, they argued the claim was barred by limitation.
"The Scheme for the sale of coal through e-auction contains a clear arbitration clause, and unless another scheme without such a clause is shown, disputes must be addressed through arbitration."
The court also pointed out that the limitation period, as argued by the respondent, would need proper evaluation during the arbitration, especially since the petitioner was entitled to have the pandemic period (March 15, 2020, to February 28, 2022) excluded from the calculation.
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The judge concluded that the matter was not without merit and could not be dismissed as "deadwood" at this stage. Thus, the court allowed the application and appointed Advocate Mr. Ishaan Saha as the sole arbitrator.
This ruling reaffirms that once a scheme includes an arbitration clause, the dispute resolution must follow that clause unless the party opposing arbitration can clearly show another governing scheme without such a term.
Case Title: SATYA NARAYAN SHAW VERSUS SOURAV GHOSH
Case Number: AP-COM/154/2025
Judgment Date: 07/04/2025
