SAIL Stops Coking Coal Shipments Citing Global Downturn, Invokes No-Liability Clause; Delhi High Court Upholds Arbitral Award, Says It Cannot Benefit From Own Breach
Arbitrators Had Decided Similar SAIL Dispute Earlier; Delhi High Court Says Prior View on Same Contractual Issue Does Not Automatically Establish Bias
Facts
The dispute arose between Steel Authority of India Limited (SAIL) and British Marine PLC, a UK-based international ocean freight transportation company. SAIL regularly imports coking coal for steel production, while British Marine operates chartered vessels including Supramax, Handymax and Panamax vessels.
Through the Ministry of Shipping’s Transchart framework, the parties entered into a Contract of Affreightment dated 5 December 2007 for shipment of approximately 3 million metric tonnes of coking coal, ±5%, over five years, principally through Handymax vessels. The shipment period extended from June 2008 to December 2012.
During 2008, SAIL issued various “STEMS” — essentially conditional bookings/orders for cargo — and British Marine transported more than 8 lakh metric tonnes of coal from Australia to India.
However, in November 2008, SAIL informed British Marine that because of the global economic situation and unpredictable market conditions, it would not be able to declare further STEMS. British Marine responded that it would take steps to mitigate its losses.
On 10 March 2010, SAIL invoked Clause 62 — the Default Clause — seeking to terminate the contract without liability on either side. Negotiations followed and an addendum was executed in April 2011, but ultimately no further substantial STEMS were issued and disputes arose.
A three-member Arbitral Tribunal was constituted. SAIL subsequently objected to two arbitrators — Captain S.M. Berry and Niranjan Chakraborty — because they had previously sat in another arbitration involving SAIL and SeaSpray Shipping where an identical contractual clause had been interpreted.
The Tribunal eventually passed an award dated 13 September 2018 in favour of British Marine. SAIL’s Section 34 challenge was dismissed by a Single Judge on 13 October 2025, leading to the present Section 37 appeal.
Appellant – SAIL’s Arguments
SAIL raised three principal objections.
First, it alleged arbitrator bias/issue conflict. It argued that because two members of the Tribunal had previously interpreted the same Clause 62 in another arbitration involving SAIL, Item 24 of the Fifth Schedule to the Arbitration and Conciliation Act gave rise to justifiable doubts regarding their independence and impartiality.
SAIL further argued that the arbitrators ought to have disclosed their earlier view and that their failure to make the prescribed disclosure under the Sixth Schedule vitiated the proceedings.
Second, on Clause 62, SAIL argued that the Contract of Affreightment was essentially an assurance to use British Marine’s services and that an enforceable shipping obligation arose only when individual STEMS were declared. According to SAIL, the contract contained no minimum guarantee and Clause 62 permitted termination without liability.
Third, SAIL challenged the damages and interest, contending that British Marine had not proved actual loss.
Respondent – British Marine’s Arguments
British Marine stressed the distinction between the Fifth and Seventh Schedules of the Arbitration Act.
It argued that an arbitrator’s having taken a particular legal view in another arbitration — even where one party is common — does not by itself establish justifiable doubts about independence or impartiality.
British Marine also argued that SAIL had failed to raise its objections promptly and relied on the principle of waiver under Section 4.
Regarding Clause 62, British Marine relied upon earlier Delhi High Court decisions involving SeaSpray Shipping and Noble Chartering, which had considered materially similar contractual disputes involving SAIL.
Issues
The Division Bench identified three central questions:
- Whether Captain S.M. Berry and Niranjan Chakraborty were disqualified under Section 12 read with the Fifth and Sixth Schedules;
- Whether the Tribunal’s interpretation of Clause 62 was legally sustainable; and
- Whether the award of damages/compensation and interest was justified.
Analysis of the Law
1. International Commercial Arbitration — Patent Illegality Ground Unavailable
The Court first emphasised that British Marine is a UK company. The arbitration was therefore an international commercial arbitration under Section 2(1)(f).
That distinction substantially narrowed the scope of judicial interference.
The Court reiterated that patent illegality under Section 34(2A) is available for domestic awards, not awards arising from international commercial arbitrations seated in India. Such an award must instead be tested principally against the restricted “public policy of India” framework.
The judgment relied upon SeaSpray Shipping, Noble Chartering, Ssangyong Engineering and OPG Power Generation in reiterating this limited supervisory standard.
2. Prior View on the Same Issue Does Not Automatically Mean Arbitrator Bias
One of the most significant aspects of the judgment concerns “issue conflict.”
SAIL’s objection was that two arbitrators had already interpreted the same contractual provision in another SAIL arbitration.
The Court rejected the proposition that this circumstance, by itself, establishes disqualification.
The Single Judge’s reasoning, which the Division Bench considered, explained that it is common in specialised arbitration for the same arbitrators to deal with similar contracts, common parties and recurring legal questions.
The mere fact that an arbitrator has previously expressed a particular interpretation does not establish that the arbitrator will approach the subsequent dispute with a closed mind. There must be material demonstrating lack of objectivity, independence or impartiality.
This is particularly relevant in specialised fields such as maritime arbitration, where the pool of experienced commercial arbitrators may itself be limited.
3. Prior Knowledge Is Not Per Se Bias
The judgment endorsed the distinction between:
prior knowledge/prior legal opinion and prejudgment coupled with inability to decide objectively.
The Court noted that consistent interpretation of the same provision across different proceedings is not inherently suspicious.
What matters is whether there is material showing that the arbitrator is incapable of approaching the subsequent case objectively and with an open mind.
Thus, issue familiarity is not equivalent to issue bias.
4. Clause 62 Could Not Permit SAIL to Terminate for Its Own Default
The contractual interpretation issue was equally important.
The Tribunal had found that Clause 62 could operate where circumstances involving the coal supplier resulted in failure or inability to supply cargo.
But that was not what had happened.
The record showed that SAIL had continued to ship coal from Australia to India through the spot market during the relevant period while failing to provide the contracted shipments to British Marine.
The Tribunal therefore rejected an interpretation under which SAIL could itself fail to issue STEMS and then invoke Clause 62 to terminate the agreement without liability.
The Division Bench upheld that interpretation.
In substance, Clause 62 could not be interpreted in a manner that allowed SAIL to benefit from its own contractual breach.
5. Contract Must Be Read as a Whole
The Court relied heavily on the principle that contractual provisions cannot be interpreted in isolation.
SAIL’s interpretation would have effectively rendered several substantive obligations under the Contract of Affreightment optional.
The earlier SeaSpray Shipping decision concerning an identical agreement had similarly found that the contractual arrangement contemplated binding minimum shipment obligations rather than giving SAIL an unrestricted option whether to perform.
The Court therefore held that SAIL’s reliance upon Clause 62 as justification for terminating the agreement was untenable.
6. Arbitrator Is Primarily the Judge of Contractual Interpretation
The Court reiterated the restricted role of courts reviewing arbitral awards.
Construction of contractual terms falls principally within the domain of the Arbitral Tribunal. Judicial intervention is not warranted merely because another interpretation may also be possible.
This principle carried additional force because the present award arose from an international commercial arbitration, where the patent-illegality ground itself was unavailable.
Damages
The Tribunal had examined British Marine’s loss and mitigation after SAIL stopped providing the contracted shipments.
The damages methodology essentially considered the difference between the contractual freight rate and the relevant spot rate, applied to the appropriate tonnage.
The High Court found this methodology rational and logical.
It rejected SAIL’s argument that the compensation offended public policy and upheld the Tribunal’s assessment.
The Court consequently found no basis to interfere with the award of compensation or interest.
Precedent Analysis
HRD Corporation v. GAIL (India) Ltd.
The Supreme Court distinguished between an arbitrator who is ineligible under the Seventh Schedule, which goes to the root of jurisdiction, and circumstances under the Fifth Schedule which merely give rise to justifiable doubts about independence or impartiality.
A Fifth Schedule objection ordinarily requires factual assessment and can ultimately be pursued against the award under Section 34.
M/s SeaSpray Shipping Co. Ltd. v. SAIL
Particularly important because it involved SAIL and an identical contractual arrangement.
The Division Bench had already upheld the interpretation that Clause 62 could not be treated as permitting SAIL to simply make its substantive shipment commitments optional.
Noble Chartering Inc. v. SAIL
This precedent similarly dealt with SAIL’s contractual shipping arrangements and reinforced both the restricted scope of challenge to an international commercial arbitration award and the approach to Clause 62.
Ssangyong Engineering v. NHAI
Relied upon for the post-2015 position that “public policy of India” is to be narrowly construed and that courts cannot undertake a merits review of an arbitral award under the guise of public-policy scrutiny.
OPG Power Generation v. Enexio Power Cooling Solutions India
Reiterated the restricted judicial review applicable to international commercial arbitration and the distinction between public-policy review and the patent-illegality ground available for domestic awards.
Court’s Reasoning
The Court ultimately rejected each of SAIL’s three lines of challenge.
On arbitrator impartiality, prior participation in a similar arbitration and prior interpretation of the same contractual provision were insufficient, without additional material, to demonstrate that the arbitrators approached the present dispute with a closed mind.
On Clause 62, the Tribunal’s interpretation was not only a possible view but was consistent with the contract read as a whole. SAIL could not withhold contractual shipments while continuing to transport coal through the spot market and then rely upon the default clause to escape liability.
On damages, the Tribunal had undertaken a detailed factual exercise and adopted a rational methodology based on the difference between contractual and spot rates. That assessment did not violate the public policy of India.
Conclusion
The Delhi High Court held that the Arbitral Award dated 13 September 2018 had rightly been left undisturbed by the Single Judge.
SAIL’s Section 37 appeal was therefore dismissed, and all pending applications were disposed of.
Importantly, when SAIL immediately sought a stay of the judgment to enable a further challenge, the Division Bench refused, observing that it had merely upheld the 2018 arbitral award and no ground for stay was made out.
Case Details
Case: Steel Authority of India Limited v. British Marine PLC
Court: Delhi High Court
Case No.: FAO(OS) (COMM) 17/2026
CNR: DLHC011094262025
Coram: Justice Prathiba M. Singh and Justice Vikas Mahajan
Reserved: 17 August 2026
Pronounced: 17 September 2026
Result: SAIL’s appeal dismissed; arbitral award in favour of British Marine upheld; subsequent request for stay also rejected.
