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TMI Blog2023 (8) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... /2/2023 seeking amendment of the pleadings and grounds in Section 34 application. 2. In the meanwhile, the respondent/claimant Rashmi Metaliks Limited has filed an execution application being EC/99/2022 seeking enforcement of the said arbitral award. 3. Pursuant to 2015 amendment to the Act, there is no automatic stay on the enforceability of an arbitral award in the event of filing and pendency of an application for setting aside the arbitral award. Instead the award debtor is required to successfully file a separate application for obtaining a stay on execution of the arbitral award. 4. Therefore, in this judgment, I have only dealt with the Railways interlocutory application being GA/1/2021 in AP/482/2021 seeking a stay on the entire arbitral award. The remaining applications including the Section 34 petition and its amendment shall be considered at a later stage. Facts 5. The relevant facts for the determination of the matter are as follows- a. As per the Wagon Investment Scheme (hereinafter referred to as 'WIS') policy, 2005 initiated by the Indian Railways, independent investors were invited to invest in rakes or wagons and transfer it to the Railways to be mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by and between the claimant Rashmi Metaliks Limited and South Eastern Railways (hereupon, referred to as 'SER' as well as 'Railways'), whereby the rights, duties and obligations of the parties under the WIS in relation to first two rakes now came under the jurisdiction of SER. It is to be noted here that the arbitral proceedings in the present matter emanated from this Agreement entered into by and with the SER. The loading stations of the first two rakes being Rake 1 and Rake 2 were changed to Banspani Goods Shed under the SER's zonal jurisdiction, and Vizag Port and Gangavaram Port were included as unloading stations. f. Subsequently, the remaining two rakes of the contractually agreed five rakes were delivered to the ECoR on June 16, 2010. Therefore, out of a total of five rakes, the jurisdiction of three rakes continued with the ECoR, whereas, by virtue of the aforesaid agreement, the SER acquired jurisdiction over two rakes. g. The respondent/claimant alleged breach of agreement and consequent loss of profits, denial of contractually guaranteed benefits, and other differences with the SER and by a notice dated January 04, 2016, the respondent/claimant i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and against the provisions of the Act. He further submitted that the said award is based on no evidence and is against the public policy of India and the most basic notion of the morality or justice. Thus, he continued, the award is not sustainable in law and accordingly, the same is liable to be set aside. b. The counsel argued that the respondent/claimant has misled the arbitral tribunal on the question of placing indents which is the crux of their case. He further stated that it is the claimant's case that they had placed 'indents' for obtaining rakes under the WIS agreement and the Railways wrongfully and illegally failed to provide corresponding benefits to the claimant in terms of the agreement between the parties. He submitted that the claimant did not show a single copy of indents which they claimed to have placed on the Railways nor could they produce a single money receipt regarding the Wagon Registration Fee which they must have paid for placing such indents/booking the rakes under the WIS scheme. The counsel added that vide Railway Board's Rates Circular No. 14/2014 dated May 16, 2014 The fee revision instructions in the said circular came into force w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allel proceeding is pending at the East Coast Railways in respect of the same disputes. f. The counsel pointed out the concocted stand taken by the respondent as to its investment amount by stating that in paragraph 10 of the statement of claim filed with the arbitral tribunal, the respondent claimed to have invested Rs. 75 Crores being the total cost of five rakes, whereas in paragraph 34 of the same statement of claim, the respondent asserted to have invested Rs. 87.45 Crores in the rakes. g. The counsel contended that the arbitral tribunal has failed to appreciate that purported claim of loss of revenue to the tune of Rs. 1301,27,15,638/-is solely speculative, imaginary and not covered under the WIS agreement between the parties. Infact, the arbitral tribunal totally erred by not considering the counter claim of Rs. 148,69,31,950/-which was the actual loss of railway revenue that forms part of the national exchequer. h. Lastly and most importantly, the counsel orally pleaded for an unconditional stay on the enforcement of the arbitral award on grounds that the making of the award was induced by fraud and/or corruption. The counsel contended that there were reasons to suspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or documentary evidence, cross-examine the witnesses, etc., and for this reason, it is not open to the Railways to contend that the making of the arbitral award was induced or effected by fraud, when, infact, it was the Railways which had consciously and voluntarily elected to refrain from producing any evidence, oral and/or documentary, on aspects on which it now alleges to be aggrieved. The counsel then referred to the 18th sitting of the arbitral proceedings held on February 05, 2020 and informed the Court about the time when the Railways conveyed the arbitral tribunal about their decision to not produce any witness. d. Supplementing the foregoing contentions, the counsel stated that the documents now sought to be relied upon by the Railways were in their possession, custody and control at all material times, and that any concealment and/or suppression has been on the part of the Railways whereby they failed to produce its best evidence in the arbitral proceedings. In this context, the counsel relied upon Elektrim v. Vivendi Universal reported in (2007) 1 Lloyd's Report 693 to contend that an award is said to be obtained by 'fraud' if the party which has delibe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of claims are for those arising out of the supplementary agreement dated January 25, 2018 for the third, fourth and fifth rakes. Therefore, these claims are concerned only for those time periods when the rakes were under the zonal jurisdiction of the SER, i.e., for the period between June 15, 2009 to June 14, 2019 for the first two rakes, between January 25, 2018 to May 24, 2019 for the third rake, and between January 25, 2018 to June 15, 2020 for the fourth and fifth rakes. 11. The counter claims of the Railways were rejected by the arbitral tribunal, and out of the seven heads of claims of the respondent/claimant, the arbitral tribunal rejected four of them. The arbitral award is, therefore, based on three heads in favor of the claimant which are as follows: a. Claim A: Loss on contractual freight rebate owing to the non-receipt of rakes under the WIS scheme for which Rs. 21,65,75,000/-was awarded; b. Claim B: Interest amount on loss due to non-receipt of contractual freight rebate for which Rs. 15,54,21,846/-was awarded; c. Claim E: Profit which the claimant could have earned if it had received all the WIS rakes for which it was contractually eligible wherein Rs. 1264 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g rationale put together by the arbitral tribunal in the corrections has left me baffled, and I began to question myself as to whether the unfathomable reasoning provided therein could be justified by any acceptable standard of interpretation and analysis. I have elaborated upon my observations, on both the arbitral award as well as the corrections to the arbitral award, below: A. In the Arbitral Award dated May 10, 2021 14. The claimant had presented three witnesses in order to prove its case : 1. Mr. Biswanath Sharma, Dy. General Manager (Technical and Operation) of the claimant ('CW1'), 2. Mr. Basudev Banerjee, General Manager (Raw Materials) of the Claimant ('CW2'), and 3. Mr. Vivek Gupta, Chartered Accountant, Associate Director of Transaction Square LLP ('CW3'). The respondent, on the other side, did not produce any witness during the arbitral proceedings. 15. The CW2, who deposed that the railway operations of the claimant were handled by him and his team under his direct supervision, presented a tabulation made by him accounting the instances wherein Railways had issued rakes and utilized that data to tally for the potential losses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by CW2 for preparation of the tabulation in Exhibits H, I and J. Despite such glaring abnormality, the Railways, on the other hand, inspite of possessing the original railway receipts, failed to make use of them to confront CW2 and highlight either an inflated number of ODR rakes used or reduced number of WIS rakes utilized by the claimant. Due to this failure on part of the Railways, the arbitral tribunal accepted the exhibits as evidence adduced by CW 2. d. At paragraphs 72, 73 and 74 of the arbitral award, the tribunal observed that the Railways failed to discharge its onus of suggesting whether the procedure, which was described in detail by CW2 regarding the placement/registration of indents as well as that regarding issuance of money receipts and the railway receipts were incorrect or untrue or fallacious. Essentially, the conduct of SER shows that it did nothing to contradict the deposition of CW2. Moreover, no specific questions was directed during the cross examination in respect of the veracity of the data and figures mentioned in the tabulations prepared by CW 2. e. The arbitral tribunal noted that the Railways did not suggest, either during the cross-examination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenable or that it did not depict a reasonable mode of computation of the loss incurred towards freight rebate. Not only the data and figures presented by the claimant were not challenged but the Railways took no initiative to indicate any alternative mechanism of calculation or to denote fallacy in the claimant's methodology. i. Under the heading 'Claim B-Interest amount lost due to non-receipt of the contractual freight rebate', on page 73 of the arbitral award, the tribunal noted that there was little or no cross-examination by the Railways to the methodology employed by the claimant in quantifying its Claim B. By virtue of this, the Railways also ceded to 14 percent rate of interest, which the arbitral tribunal then on its own accord decreased to a more reasonable 12 percent. j. Likewise, on Page 79 of the arbitral award, the arbitral tribunal stated that the copies of the relevant figures with regard to the Claim B were provided at the hearing to the Railways and an opportunity was given to file their response to these documents. The Railways chose not to file its response and thus, the arbitral tribunal accepted the figures provided therein. k. Under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corrections order, the said figure should read as Rs. 1264,07,18,792/-. but was mentioned as Rs. 48,72,93,750 in sub paragraph (e) under Claim E. The following was recorded by the arbitral tribunal in the arbitral award: "(e) We accordingly award a sum of Rs. 48,72,93,750/-in favour of the Claimant under head (E) of the claims." b. However, it must be noted that in paragraph 92 of the arbitral award where the actual calculation for the entire award in tabular format is provided, the correct amount of Rs. 1264,07,18,792/-(instead of Rs. 1264,11,62,040/-as per paragraph 28 of the corrections order) has been used for loss on account of potential future profits. Thus, there is absolutely no adverse consequence of the figure Rs. 48,72,93,750/-appearing on page 101 on the calculation made by the arbitral tribunal for Claim E. c. On paragraph 32 of the corrections order, it has been indicated by the arbitral tribunal that the concluding part of paragraph 92 of the arbitral award, which awards the claimant a 'reasonable estimate' of Rs. 325,32,89,721/-from the total calculated sum for all the awarded claims amounting to Rs. 1301,27,15,638/- This figure was arithmetically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his indicates that the arbitral tribunal assessed the claim before even the requirement to refer to its own tabulation for calculation of total estimated profit. Then as per the tribunal, immediately after the aforesaid tabulation in Table 3 under Claim 'E' of the claimant, sub-paragraph (e) on Page 101 of the arbitral award would again read as follows-"(e) We accordingly award a sum of Rs. 1264,07,18,792/-in favour of the Claimant under head (E) of the claim". g. In my view, the purported 'corrections' appears to be an afterthought and not a genuine 'typographical error' as it is seemingly difficult or rather impossible for this Court to accept that both the placement of the paragraph as well as the amount mentioned, which upon calculation is approximately 25% of the total computed claims awarded to the claimant, were changed in the essential parts of the award owing to a 'technical glitch' or 'typographical error'. h. Further, paragraph 92 as part of the arbitral award reads with logical consistency and analytical coherence wherein a sum of Rs. 1301,27,15,638/-was computed to be the total computed losses of the claimant on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, her, or it." 22. From a legal standpoint, Black's Law Dictionary (9th Edn.) defines fraud as- "fraud, n. 1. A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. Fraud is usually a tort, but in some cases (es.p when the conduct is willful) it may be a crime.-Also termed intentional fraud." 23. The Hon'ble Supreme Court in S.P. Chengalvaraya Naidu (Dead) By LRs.-v-Jagannath (Dead) by LRs. and other reported in (1994) 1 SCC 1 gave the definition of fraud as "an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage." 24. Referring to Kerr on Fraud, the Hon'ble Supreme Court while dealing with the challenge to an arbitral award on the grounds of fraud in Venture Global Engg. LLC-v-Tech Mahindra Ltd. reported in (2018) 1 SCC 656 further deliberated on the meaning of fraud as follows- "78. While dealing with the question as to what constitutes fraud, the learned author said, "What amounts to fraud has been settled by the decision of House of Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not say the thing which he was bound to say, if that be done with the intention of inducing the other party to act upon the belief that the reason why he did not speak was because he had nothing to say, there is a fraud. (See Kerr on Fraud and Mistake, 7th Edn., p. 110)." Corruption 25. While corruption can be difficult to define, I turn to Oxford and Merriam-Webster dictionaries which put corruption as "dishonest or fraudulent conduct by those in power" and "dishonest or illegal behavior especially by powerful people" respectively. 26. Furthermore, Rollin M. Perkins and Ronald N. Boyce in "Criminal Law 855 (3rd Ed.)" defines corruption as-"The word "corruption" indicates impurity or debasement and when found in the criminal law it means depravity or gross impropriety." 27. Now, the observations which have been elaborated above indicate towards two separate situations of collusion and foul play and to the mind of this Court, prima facie, seems to be a direct consequence of fraud and/or corruption in making of the arbitral award. Firstly, in the arbitral proceedings, the absolutely appalling conduct of SER in defending claims upwards of Rs. 4000 crores. Here, not only did the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward has been induced or effected by fraud or corruption can grant an unconditional stay on the arbitral award. The relevant part of the amended section has been once again reproduced below - 36. Enforcement. - * (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 writing: * Provided further that where the Court is satisfied that a prima facie case is made out that, - (a) the arbitration agreement or contract which is the basis of the award; or (b) the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award. * 31. It must be noted that the Parliament in its wisdom has deemed it appropriate for this Court to exercise discretion to grant stay on an arbitral award when such an award is either induced or effected by fraud or corruption. The only prerequisite in exercise of such discretion is the Court must be satisfied that a prima facie case is being made out. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in A.V. Papayya Sastry & Ors-v-Government of A.P. & Ors reported in (2007) 4 SCC 221, fraud may be defined as an act of deliberate deception with the design of securing some unfair or undeserved benefit by taking undue advantage of another. 37. In the proceedings before the tribunal, for both the arbitral award as well as the corrections order, the willing silence of the petitioner is too loud to go neglected and prima facie leads to the conclusion that there is unseen foul play wherein collusion between the parties to the proceedings has led the arbitral tribunal into passing an award which is deeply induced and effected either by fraud or corruption, or both. 38. In the leading case of Lazarus Estates Ltd.-v-Beasley, reported in (1956) 1 All ER 341, Lord Denning observed - "No judgment of a court, no order of a Minister, can be allowed to stand, if it has been obtained by fraud." 39. Further, in A.V. Papayya Sastry (supra), the Hon'ble Supreme Court noted, "Now, it is a well settled principle of law that if any judgment or order is obtained by fraud, it cannot be said to be a judgment or order in law. Before three centuries, Chief Justice Edward Cok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h great humility to the eloquence of the Learned Advocate General, I am of the contrary view that given that fraud has a very wide connotation in legal parlance, it is egregiously absurd to suggest that any award which may be fraudulently obtained is limited and restricted to the above instances cited by him in the preceding paragraph. The Court cannot overlook fraud being perpetuated in the making of the award by way of collusion between the parties. In any event, as at this juncture this Court is not coming into any conclusion on setting aside of the arbitral award, the case laws cited by the learned Advocate General can be comprehensively considered by the Court at the stage of adjudicating the section 34 application. 43. Before I proceed towards the concluding part of this judgment, I would like to briefly trace the purpose of arbitration law. 44. Arbitration was initially envisaged as a means to reduce litigation and promote faster resolution of disputes and over time, due to active involvement of the courts and cooperation of the parties alike, arbitration culture has been thriving in India. Now as judges, we are expected to deal with each matter on its own merits, and judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct itself according to the highest standards and not resort to dubious ways in any way or form that does not suit its character. When it comes to the facts of the present case, the manner in which Railways has conducted itself in the arbitral proceedings is truly unjustifiable, and this Court strongly condemns it. 47. For the reasons discussed above, using the power conferred under section 36 (3) of the Arbitration and Conciliation Act, 1996, as amended by Act 3 of 2021, this Court grants an unconditional stay on the operation of the Arbitral Award dated May 10, 2021 read with the corrections order dated August 18, 2021, pending disposal of the challenge under Section 34 of the Arbitration and Conciliation Act, 1996. 48. Furthermore, I hereby also direct the Ministry of Finance, Union of India to immediately constitute a multi-member high-level enquiry committee headed by a Secretary to the Government of India level rank officer to holistically inquire into the shocking conduct of the Railways and its officials (both serving and retired) and the other stakeholders in the aforementioned matter. The Committee shall be at liberty to take assistance of central investigation agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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