Arbitrators who had already construed the same clause: Delhi HC rejects SAIL's challenge to a 2018 award

A Division Bench dismisses SAIL's appeal over a coking coal shipping contract, holding a default clause aimed at supplier failure could not excuse a charterer's own shortfall.

An arbitral award pronounced in September 2018 survived a challenge that ran for eight years and reached the Supreme Court once on the way. On 17 September 2026, in Steel Authority of India Limited v. British Marine PLC, a Division Bench of Justice Prathiba M. Singh and Justice Vikas Mahajan dismissed SAIL’s appeal under Section 37 of the Arbitration and Conciliation Act, 1996, upholding the Single Judge’s refusal to set the award aside. When counsel then sought a stay to enable a further challenge, the Bench declined it in a short order the same day: the Court had only upheld an award of 13 September 2018, and no ground for staying its own judgment was made out.

Forty-five lakh tonnes, and then a financial crisis

SAIL, a public sector undertaking and India’s largest steel producer, regularly imports coking coal. British Marine PLC is a United Kingdom ocean freight transportation company operating chartered-in Supramax, Handymax and Panamax vessels.

The Ministry of Shipping’s Transchart division, which runs a centralised framework for arranging ships to carry coking coal, floated an enquiry on 27 November 2007 for shipments running three or five years, for quantities of 45 to 50 lakh tonnes by 30 September 2012, from Australia and New Zealand to Indian ports including Visakhapatnam. British Marine responded, and a Contract of Affreightment dated 5 December 2007 followed: three million tonnes, with a five per cent tolerance, over five years in Handymax vessels, shipments running from June 2008 to December 2012. The contract set out how a STEM — a booking conditional on enough merchandise actually being at the port on the loading date — was to be declared and tonnage nominated. Clause 60 referred all disputes to arbitration in India under the Maritime Arbitration Rules of the Indian Council of Arbitration, before arbitrators drawn from its maritime panel who were to be commercial men.

The contract began normally. SAIL issued various STEMs in 2008 and more than eight lakh tonnes were shipped from Australian ports. Then, in November 2008, SAIL told British Marine it would not be able to declare further STEMs, citing the global economic situation.

A default clause invoked by the party in default

On 10 March 2010 SAIL asked Transchart to inform British Marine that it could not meet its commitments and was invoking Clause 62, the default clause, to terminate the contract without liability on either side.

Clause 62 is written in familiar charterparty language. It addresses the position where suppliers or charterers fail to provide materials for shipment, or to ship them at the agreed time, or otherwise fail to perform, or where a receiver is appointed over their assets, or they compound with creditors, suspend payments or go into liquidation.

Negotiations followed the purported termination. An Addendum-2 was signed on 20 April 2011 and further quantities were agreed for shipment in May 2011, after which no more STEMs were issued. SAIL later contended there had been a novation, and sought a three-year extension that did not materialise. On 25 October 2011 it alleged breach by British Marine, and issued a termination letter on 12 September 2012.

The arbitral tribunal read Clause 62 against the nature of the contract. It held that the clause was designed to legislate for events constituting frustration of the agreement, and was directed at the supplier in Australia rather than at the respondent, or at events preventing performance such as the liquidation or insolvency of the coal supplier. On the facts, Clause 62 could only have been invoked if an Australian supplier had failed or been unable to supply material for shipment; it did not operate where the supplier was providing coal and the charterer had simply stopped taking it.

The conflict-of-interest challenge

Claims and counter-claims were filed and issues framed on 10 October 2014. At that stage SAIL objected to two members of the tribunal, Captain S.M. Berry and Mr Niranjan Chakraborty, on the ground that they had sat on another tribunal which had interpreted identical clauses in a similar dispute between SAIL and M/s SeaSpray Shipping Company Ltd. The Maritime Arbitration Committee rejected the application on 3 March 2015.

The point travelled. An order of 20 October 2016 was challenged in the Supreme Court, which disposed of the appeal on 14 September 2022, drawing attention to HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limited and leaving SAIL free to take all its objections against the award in terms of that decision, while expressly declining to express any opinion on disqualification under Item 24 of the Fifth Schedule.

Before the High Court, Mr Rajshekhar Rao for SAIL pressed that Item 24 of the Fifth Schedule makes it a justifiable doubt as to independence or impartiality if, in the past three years, an arbitrator has served on a tribunal on a related issue involving one of the parties. He added that even though SAIL knew of the earlier award, the two arbitrators still owed a duty to disclose the view they had taken in it — the award of 20 August 2014 in the SeaSpray arbitration. SAIL had also sought disclosures in the forms specified in the Sixth Schedule, which the tribunal declined on the footing that disclosures had already been made under the Indian Council of Arbitration rules.

The Single Judge had examined this against the International Bar Association Rules of Ethics for International Arbitrators, 1987, the UNCITRAL Arbitration Rules, 2013 and Section 12 of the Act, and had rejected it — in reasoning the Division Bench set out at length. A charterparty dispute requires specialised arbitrators, and the pool available is restricted; the possibility of the same legal issues recurring in different disputes cannot be ruled out. The conclusion followed that merely because an arbitrator has decided an issue in another arbitration in which one party was common is not by itself a ground to find justifiable doubts about impartiality under Section 12. It must be shown that the arbitrator’s ability to decide the issue in the second case is clouded — that he will not approach it with an open mind. It is not uncommon for the same arbitrators to sit in multiple references involving the same parties and similar questions of law, and parties often choose them precisely for their familiarity with the background, the technical detail and the complicated legal issues, which makes for more informed and expeditious adjudication. The practice is routine in institutional arbitrations under the ICC and SIAC.

For British Marine, Mr Ramesh Singh drew the distinction between the Fifth and Seventh Schedules: a view taken by an arbitrator in different proceedings, even where one party is common, does not amount to a justifiable doubt under Section 12, and the Fifth Schedule does not carry the disqualifying force of the Seventh. He added a point on timing — that under Section 4 of the Act a failure to object promptly amounts to waiver — and relied on coordinate Bench decisions of the same Court in M/s Seaspray Shipping Co. Ltd. v. Steel Authority of India Ltd. and Noble Chartering Inc. on the construction of Clause 62 itself.

SAIL’s substantive answer on Clause 62 was that the clause says in terms that there would be no liability on either party, and that the Contract of Affreightment was in the nature of an assurance to use British Marine’s services for a particular quantum — an obligation that did not arise at all unless and until a STEM was declared. On that reading a charterer who declared no further STEMs incurred nothing.

How narrow the door is

The rest of the judgment is a restatement of how little room Section 34 leaves, and it is set out with care because SAIL’s case depended on widening it.

Interpretation of a contract falls within the jurisdiction of the arbitral tribunal, which is the final adjudicator of that construction; its decision cannot be interfered with unless its view is not a possible one. A deed must be construed as a whole, the parties’ intent gathered from the language of the written contract read together rather than from clauses read literally out of context — and the tribunal had undertaken precisely that exercise. SAIL’s submission that the tribunal’s reading of Clause 62 was plainly contrary to the language of the contract, with no other view possible, was not persuasive.

The Bench also addressed the argument that an arbitrator who misinterprets a contract thereby exceeds the scope of the submission to arbitration. Following the authorities, it held that in the guise of misinterpretation of the contract and consequent errors of jurisdiction, it is not possible to say that an award is beyond the scope of submission if the alleged misinterpretation — including going beyond the terms of the contract — concerns disputes fairly comprehended within the arbitration agreement or referred to the arbitrators.

On public policy, the Explanations to Section 34(2) confine the ground to fraud or corruption in the making of the award, conflict with the fundamental policy of Indian law, and conflict with the most basic notions of morality and justice. Following Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, which reads “fundamental policy of Indian law” as explained in Associate Builders and Renusagar, the scope is extremely narrow. Perversity or irrationality does not by itself make an award contrary to public policy. Even accepting, which the Bench did not, that the tribunal’s interpretation was erroneous, the award could not be set aside on that ground. Patent illegality under Section 34(2A), introduced by the 2015 amendment and applicable to awards other than those in international commercial arbitration, fared no better.

Order

The appeal was dismissed and pending applications disposed of. The arbitral award dated 13 September 2018 stands, as does the Single Judge’s judgment of 13 October 2025 in O.M.P. (COMM) 20/2023 and OMP (ENF.) (COMM.) 50/2023. The request for a stay was refused.