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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 ..... tral award is pending, to grant unconditional stay on an application under Section 36 (2) of the Act if the court is prima facie satisfied that the making of the arbitral award has been induced or effected by fraud or corruption. In the present case, with respect to the conduct of the parties, this Court observes a disconcerting trend where the hallowed principles of honesty, integrity and probity seem to have gone up in smoke. It shocks the conscience of this Court to observe that the Railways, in defending a claim valued above Rs. 4000 crores, declined to present any witness and refrained from leading any evidence. Subsequently in the arbitral proceedings, the lackadaisical and indifferent attitude of the Railways during the cross examination of the claimant witnesses, as also noted in the arbitral award, leaves much to be said about the sordid state of affairs and absolute apathetic approach of the Railways which happens to be a Government of India public sector undertaking dealing with funds of the public exchequer. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 merged by them in the common pool of wagons. In return, specified benefits such as freight concessions and rebates, guaranteed supply of a certain number of wagons per month, bonus rakes per month, etc., were to be extended by the Railways to those investors. b. The initial WIS agreement dated May 30, 2007 was executed between the East Coast Railways (hereinafter referred to as 'ECoR') and the respondent Rashmi Metaliks Limited, wherein the respondent/claimant agreed to procure and handover five numbers of rakes as owners thereof to ECoR. The said five numbers of rakes [305 BOXN-HS wagons] along with five b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oading 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 invoked arbitration in terms of the said agreement with the SER. The invocation of arbitration was litigated before this Court and the present arbitral tribunal was appointed and entered upon reference on November 20, 2018. h. Be that as it may, a tripartite agreement dated January 25, 2018 was also executed by and between the claimant, the ECoR and the SER, whereby the balance three rakes retained by the ECoR were transferred to the SER with mutually agreed changes in the loading station and unloading stations to Barajamnda-Barbil, and Nimpura, Jhargram and Gokulpur respectively. The said agreement was executed as per the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.e.f. May 20, 2014., the Wagon Registration Fee was hiked to Rupees 50,000 for each rake and that this payment could not have been made by cash and hence, the respondent/claimant must have proof of payment of such Wagon Registration Fee. c. Continuing his arguments, the counsel submitted that if the indents were actually placed by the claimant, there would have been correspondences between the parties regarding the same. He reiterated that every indent must include payment of Wagon Registration Fee and if such a fee was actually paid by the claimant, there would have been copies of money receipts or even proof of payment retained by the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peculative, 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 suspect possible collusion between the parties at the time of arbitral proceedings due to which the petitioner neglected to effectively place its case. A letter dated July 24, 2023, having reference no. C375/Misc/Court Case/Mktg/Pt, addressed to the Executive Director (FM), Railway Board was submitted to the Court wherein the Principal Chief Commercial Manager, SER has recommended disciplinary action against certain serving and retired Railway officers for their lapses and negligence in the instant matter. 8. Mr. S.N. Mookherjee, learned Advocate General appearing on behalf of the respondent advanced the following arguments: a. The counsel submitted that the Rail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deliberately concealed the document has, as a consequence of that concealment, obtained an award in its favour. The counsel added that the Railways failed to prove a causative link between the deliberate concealment alleged by it (since the concealment was on their own part) of the documents and the decision in the award in favour of the respondent, i.e., the successful party. e. The counsel placed reliance upon several foreign court judgments such as IDDT Trucks of North America Limited v. DDT Holdings Limited reported in (2007) 2 Llyod's Report 213, Chantiers De L'atlantique S.A. v. Gaztransport Technigaz S.A.S. reported in (2011) EWHC 3383 (Comm.), and Westacre In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 1264,07,18,792/-was awarded. 12. At the very outset it is to be noted that post the 2015 amendment to the Act, the Court can look into the fact whether making of the award was induced or effected by fraud or corruption, and if the Court is prima facie satisfied of the same, the Court shall stay the award unconditionally pending disposal of the challenge under Section 34 of the Act. I have extracted below the relevant portion of Section 36 of the Act :- 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incurred by the claimant due to less allotment of rakes to them under the WIS policy. At the same time, the CW3 prepared an independent analysis based on averages for highlighting the potential losses incurred by the claimant due to less allotment and interest cost on those losses. 16. The SER throughout the arbitral proceedings failed to present any evidence or witness contradicting the claims and the formulas and methodology presented by the claimant for assessment of losses, leading to an adverse inference in every instance by the arbitral tribunal. The Railways have also not presented any evidence in support of its counterclaims. 17. The following are the specific instances of irregularities by the Railways in the arbitral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 CW2 or howsoever otherwise, an alternative or different mechanism set in place at the relevant time for placement of indents for WIS rakes in terms whereof a record of indents placed by the claimant would necessarily also be kept with the claimant. The tribunal remarked that if the Railways really wanted to disprove or negate the evidence adduced by CW2, then it would have been a simple matter for them to have confronted CW2 with documentation evidencing the fact that the claimant should be possessed with copies of the WIS indents and if not the indents, then at least with money receipts issued by the Railways in respect of the WIS indents placed by the claimant. f. At paragraph 78 of the arbitral award, the arbitral tribunal stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 heading 'Claim E-Profit which the Claimant could have earned if the Claimant had received all WIS Rakes for which it was eligible', on Page 97 of the arbitral award, the tribunal noted that certain figures which were assessed and presented by CW3 to show the average capacity of a rake, its usual profit margin and estimated amount of profit. The Railways not only did not cross examine him with respect to the veracity of those figures but also failed to call into question and contradict his assessment and assumption in this regard or to suggest that the figures are not reasonable. l. At paragraph 94 of the arbitral award, the arbitral tribunal recorded that the Railways could have led evidence through officers who were involved in the matter or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 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 computed as Rs. 1301,31,58,866/-in the arbitral award, and as per paragraph 29 of the corrections order, the said figure should read as Rs. 1301,27,15,638/-. as per the tabulation in paragraph 92 of the arbitral award, has been inserted incorrectly due to a 'technical glitch' or 'typographical error' or 'slip-up' and was instead supposed to be a part of 'Claim E' as a concluding sentence to sub paragraph (d) on page 97 of the arbitral award with the figure Rs. 1264,07,18,792/-instead of Rs. 325,32,89,721/-. d. Therefore, the arbitral tribunal claimed that the figure of Rs. 325,32,89,721/-is a result of a typographical error and bears no correlation or nexus to the figure of Rs. 1301,27,15,638/-. e. It must however be noted here th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proximately 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 of potential future profits and of that a reasonable amount of approximate 25%, i.e., Rs. 325,32,89,721/-was awarded to the claimant. i. The assertion of the arbitral tribunal that the figure of Rs. 325,32,89,721/-came into existence out of a random typographical error bearing no correlation to the figure of Rs. 1301,27,15,638/-yet coming up to be exactly 25% of the latter is a difficult pill to swallow and indicates foul play and collusion under the garb of a quasi-judicial proceedings. Analysis 19. At the very outset, I attach a caveat herein. Throughout the course of the hearings, by way of oral and written pleadings, both sides have relied on multiple judicial precedents of the Supreme Court and High Courts in India as well as of foreign courts to buttress their respective s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 Lords in Derry v. Peek [Derry v. Peek, (1889) LR 14 AC 337 (HL)] where Lord Herschell said : (AC p. 374) '... fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.' (See Kerr on Fraud and Mistake, 7th Edn., pp. 10-11.) 79. The author has said that, Courts of Equity have from a very early period had jurisdiction to set aside awards on the ground of fraud, except where it is excluded by the statute. So also, if the award was obtained by fraud or concealment of material circumstances on the part of one of the parties so as to mislead the arbitrator or if either party be guilty of fraudulent concealment of matters which he ought to have declared, or if he wilfully mislead or dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate 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 Railways not produce any witness of its own but also failed to present any documentary evidence to contradict the arguments put forth by the claimant. The ludicrous cross-examination of claimant's witnesses screams of surreptitious connivance between the parties wherein it had been already decided that the Railways must abandon all its leverage in favour of the other side and superficially continue to fight an already lost battle under the aegis of incapable generals coupled with unguarded defenses. Secondly, the atrocious explanation given by the arbitral tribunal in justifying its order of corrections has left me at a loss of words. The aforesaid order made me wonder if the tribunal thinks so lowly of the executing courts where it may have hoped that such corrections would be permitted a safe passage without any scrutiny whatsoever. 28. Moving forward, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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. 32. On bare reading of the aforementioned provision, this Court is of the view that, the conduct of the parties during the arbitral proceedings qualifies as a consideration under the proviso to section 36(3) of the Act as the same is not only indispensable in the making of the award but also materially induces the making of the award. Therefore, to arrive at a finding that the making of the award is induced or effected by fraud or corruption, this Court can look at the conduct of the parties during the arbitral proceedings. 33. In the present case, with respect to the conduct of the parties, this Court observes a disconcerting trend where the hallowed principles of honesty, integrity and probity seem to have gone up in smoke. It shocks the conscience of this Court to observe that the Railways, in defending a claim valued above Rs. 4000 crores, declined to present any witness and refrained from l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 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 Coke proclaimed; Fraud avoids all judicial acts, ecclesiastical or temporal . It is thus settled proposition of law that a judgment, decree or order obtained by playing fraud on the Court, Tribunal or Authority is a nullity and non est in the eye of law. Such a judgment, decree or order by the first Court or by the final Court has to be treated as nullity by every Court, superior or inferior. It can be challenged in any Court, at any time, in appeal, revision, writ or even in collateral proceedings. 40. In the case of Sepco Electric Power Construction Corporation v. Power Mech Projects Ltd. reported in 2022 SCC OnLine SC 1243, the Hon'ble Supreme Court affirmed that this Court is well within its right to grant an unconditional stay while exercising its powers under Section 36(3) of the Act provided that the Court is satisfied that a prima facie case is made out wherein the arbitration agreement or contract which is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mote 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 judgments are pronouncements on the merits of the case at hand rather than an occasion to make general comments or observations. However, in dealing with the present case, I have been plagued by a deep worry resulting from the Railways' conduct in the present matter, which I would like to put forward. Not to mince my words, the attitude of some of the parties, especially public sector companies towards the arbitration process and utter disregard for it has made me doubt the future of arbitration in India if it keeps going the present way. Usually, much more due diligence is expected from the public sector companies given that they are the embodiment of taxpayers' trust but the way Railways has belittled its responsibility in the present case makes this Court seriously doubt the utility of arbitration with respect to public sector companies. 45. Arbitration as an alternative dispute resolution mechanism holds great significa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer 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 agencies as it may deem fit. The Committee is further requested to complete the enquiry and submit a report before this Court within three months from the date of this order. 49. The Registry, Original Side is directed to inform the learned Additional Solicitor General, High Court at Calcutta of this order for immediate communication to the Ministry of Finance, Government of India. Epilogue 50. As the custodian of the Constitution, it is the duty of this Court to speak when necessary, as it is on this very occasion. Corruption and double-dealing in the case of public officials is not just a legal offence, it is a moral offence, and it betrays the very spirit and soul of the Indian Constitution. The officials in public service are expected to serve others rather than self-serve, a principle which, in the present case, was seen to have been thrown out of the window. Every person in public service carries the responsibility of bearing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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