TaxTMI 
TaxTMI 
2023 (8) TMI 1487
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....ation of its Section 34 application and GA/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 i....
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....ssions between the parties, a fresh WIS agreement dated June 15, 2009 was entered into 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,....
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.... a. The counsel submitted that the said arbitral award and the 'corrections' to the arbitral award is illegal, arbitrary 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 th....
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....failed to consider that the claimant had filed similar claims against the ECoR wherein the present reference is directly and substantially involved, and that a parallel 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 unconditio....
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.... of the same, the Court may not delve into these arguments. c. Moving on, the counsel relied upon the arbitral award to show that sufficient opportunity was provided to the Railways to produce oral 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 proceeding....
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....oted that the claims in the impugned arbitral award has been bifurcated into two clearly segregated compartments, wherein the first set of claims arise out of the June 15, 2009 agreement for the first and second rakes, and the second 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....
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....adequate and cursory cross-examination of claimant's witnesses, and inexplicable failure to submit documentary evidences among others. Similarly, I have undertaken an extensive study of the arbitral tribunal's order dated August 18, 2021 wherein corrections to the arbitral award were incorporated. The puzzling 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 si....
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....placed under the ODR category and the actual number of rakes allotted by the Railways. c. At paragraph 70 of the arbitral award, the arbitral tribunal sets out the cross examination of CW2. After perusal of questions 24 to 54, it is evident that CW2 failed to produce the 'Register' maintained by the claimant which has been referred to and relied upon 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 fallaciou....
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....pt of rakes under the WIS from South Eastern Railways', on page 61 of the arbitral award, the tribunal mentioned that CW3 demonstrated a succinct and scientific basis for computation of the loss and damage suffered by the claimant. And, on the same page itself, the tribunal pointed out that the Railways, during cross examination of CW3, did not suggest that the method employed by the claimant was untenable 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 reaso....
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.... all references to arbitral award should be understood as reference to the arbitral award dated May 10, 2021. (referring to paragraph 91 where each claims were considered by the tribunal) wherein while tabulating Claim E that is the loss on account of potential future profits, it was computed to be Rs. 1264,07,18,792 This figure was arithmetically computed as Rs. 1264,11,62,040/-on Page 101 of the arbitral award, and as per paragraph 22 of 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. ....
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.... be (Rs. 1264,07,18,792/-Rupees twelve hundred sixty-four crores seven lakhs eighteen thousand seven hundred and ninety-two only) Correction due to typographic error to Rs. 1264,07,18,792 instead of Rs. 325,32,89,721. owing to non-cooperation of the South eastern railways.] The arbitral tribunal intended to add the underlined bracketed paragraph here, but due to alleged technical glitch this was instead made a part of the concluding portion of paragraph 92 of the arbitral award." This 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 placeme....
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.... of this decision. 20. Coming to the instant case at hand, this Court considers it prudent to discuss fraud and corruption first since these are the only two grounds outlined in the Act on which the Court may grant an unconditional stay on the arbitral award. Fraud 21. Oxford's English Dictionary defines fraud as- "/n. 1. Criminal deception; the use of false misrepresentations to gain an unjust advantage. 2. A dishonest article or trick. 3. A person or thing not fulfilling what is claimed or expected of him, 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. I....
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....made, but it applies equally to cases where a man by his silence causes another to believe in the existence of a certain state of things, or so conducts himself as to induce a reasonable man to take the representation to be true, and to believe that it was meant that he should act upon it, and the other accordingly acts upon it and so alters his previous position. (See Kerr on Fraud and Mistake, 7th Edn., p. 110.) 83. The author said that where there is a duty or obligation to speak, and a man in breach of that duty or obligation holds his tongue and does not speak and does 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 i....
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....ent is further made perspicuous by point 4 of the Statement of Objects and Reasons to the Act 3 of 2021 (Bill No. 16 of 2021) which is to 'address the issue of corrupt practices in securing contracts or arbitral awards, a need was felt to ensure that all the stakeholder parties get an opportunity to seek unconditional stay of enforcement of arbitral awards, where the underlying arbitration agreement or contract or making of the arbitral award is induced by fraud or corruption'. 30. Thus, I am of the view that if this Court, even suo moto, upon prima facie observing that the making of an arbitral award 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....
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....ctual and deliberate fraud and/or corruption which may have taken place in the present case. The magnitude of the claim and the consequent irreparable harm it shall have on the Railways and public exchequer cannot be ignored. There seems to be extraneous considerations at play which are beyond the comprehension of this Court. 35. Similarly, the ridiculous explanation provided by the arbitral tribunal in the corrections award in enhancing the award amount by 4 times under the garb of a typographical error and/or technical glitch is a bitter pill to swallow for this Court and the actual truth behind these purported corrections must be unearthed. 36. As noted by the Hon'ble 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 c....
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....t, evidence and documents now intended to be relied upon by the Railways were at all material times within their control, possession and special knowledge but the same was never presented by the Railways before the tribunal. Therefore, this is not a situation where the award debtor is being made to suffer an award which was obtained through concealment and/or suppression by the award holder. 42. While I am in complete agreement that an award debtor should not be made to suffer an award obtained by way of fraudulent concealment of material evidence by the award holder, I ask myself whether this is indicative of the only possibility of an arbitral award being obtained by deliberate concealment or suppression. With 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 t....
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.... an alternative dispute resolution mechanism. Even if only one party acts against the spirit of arbitration, its effect is not only limited to itself but rather affects the sanctity and integrity of the entire arbitration culture. And therefore, when either of the parties disrespect the sanctities of the arbitration process, and seek, to hide under the cloak of the same to effectuate fraud and/or corruption, the process works against the foundational principles of arbitration. 46. In my view, Railways as an entity does not just carry citizens across destinations, but it is the embodiment of the hopes and dreams of a billion people, and its conduct is more than just a ripple in the ocean. It should realize the need to conduct 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 A....