Court holds arbitral award perverse, irrational and against fundamental public policy of India due to absence of agreement on essential contract terms like price and receiving terminal.
In a significant judgment dated June 24, 2026, the Division Bench of the Gujarat High Court, comprising Chief Justice Sunita Agarwal and Justice D.N. Ray, dismissed an appeal filed by Asean LNG Trading Co. Ltd. (now Petronas LNG Ltd.) challenging the refusal to enforce a foreign arbitral award against Nishu Tours and Travels Ltd. (Adani Energy Ltd.). The award related to a dispute over the sale and purchase of Liquefied Natural Gas (LNG) cargoes under a Master LNG Sale and Purchase Agreement dated August 2, 2006, and subsequent confirmation and delivery notices.
The core issue revolved around whether a binding contract existed for the sale of four LNG cargoes scheduled between April and August 2007, as the appellant contended, or whether essential terms like contract price and receiving terminal were never conclusively agreed upon, as argued by the respondent.
The arbitral tribunal had held that the confirmation notice dated March 12, 2007, constituted a binding contract for all four cargoes, with outstanding operational details to be finalized via delivery notices. It further held that the buyer was liable to pay under the “Take or Pay” clause for April, May, and June cargoes, despite the absence of final price determination or receiving terminal agreement.
However, the enforcement court and subsequently the Gujarat High Court found this reasoning to be perverse, irrational, and contrary to the fundamental public policy of India. The court observed that:
- The confirmation notice itself envisaged the execution of separate delivery notices containing vital details such as LNG ship, receiving terminal, scheduled unloading date range, quantity, quality, and payment security.
- There was no mutual agreement on the receiving terminal, with the buyer explicitly informing the seller of unavailability of slots at both Hazira and Dahej terminals.
- The contract price was indeterminate, with only a formula (Henry Hub price plus USD 1.85) or a fixed price to be offered by the seller, which was never finalized.
- Delivery notices sent by the seller were unilateral, unsigned by the buyer, and lacked finalized price or payment security.
- April cargo was sold before reaching the designated terminal; May cargo was sold before loading; June and August cargoes were never loaded.
Given these facts, the court held that there was no concluded contract, and therefore the invocation of the “Take or Pay” clause and the resulting arbitral award were based on irrelevant considerations. The award was found to shock the conscience of the court and violate the fundamental principles of contract law and public policy.
The court extensively analyzed the scope of judicial review under Section 48 of the Arbitration and Conciliation Act, 1996, clarifying that while courts have limited jurisdiction not amounting to an appeal on merits, enforcement may be refused if the award is found to be induced by fraud, perverse, irrational, or against the fundamental policy of Indian law.
The judgment reaffirmed binding Supreme Court precedents including Renusagar Power Co. Ltd., Vedanta Ltd., Associate Builders, Vijay Karia, and Ssangyong Engineering decisions, which restrict interference with foreign arbitral awards to exceptional cases where enforcement would violate fundamental public policy or shock the conscience of the court.
Rejecting the appellant’s contention that the enforcement court overstepped by reappreciating evidence or applying Indian contract law to a contract governed by English law, the court held that enforcement courts must ensure that awards do not offend fundamental Indian public policy and may refuse enforcement accordingly.
Ultimately, the Gujarat High Court upheld the refusal to enforce the foreign arbitral award, dismissing the appeal with no order as to costs.
This landmark decision underscores the critical importance of conclusively agreeing on essential contract terms such as price and delivery location in international commercial contracts and clarifies the limited but crucial role of Indian courts in policing enforcement of foreign arbitral awards under Section 48 of the Arbitration Act.
Bottom line:-
Enforcement Court may refuse enforcement of foreign arbitral award under Section 48 of the Arbitration and Conciliation Act, 1996 if the award is perverse, irrational, and against fundamental public policy of India, including when there is no concluded contract due to non-agreement on essential terms such as price and receiving terminal.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 48
