‘Fraudulent’ Conduct Of Railways Has Shocked Our Conscience: Calcutta HC Unconditionally Stays Arbitral Award, Directs Probe By Union Govt

The Calcutta High Court today unconditionally stayed an award granted in favour of the South Eastern Railways (“SER”) under the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) on grounds of fraud and corruption perpetrated by collusion between the parties in obtaining the impugned award.In expressing his dismay and directing an investigation into the matter by a high-level committee of the Ministry of Finance, Government of India, a single-bench of Justice Shekhar B Saraf held: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.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 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.Brief Facts of the CaseIt was submitted that the Indian Railways had been running a “Wagon Investment Scheme” (“WIS”), which allowed investors to buy rakes and transfer them to the railways, in return for which they would be given benefits such as rebates, concession, etc. It was submitted that the initial agreement entered into in 2007 related to the supply of five rakes along with as many brake vans, to the East Coast Railways (“ECoR”) by the claimant along with certain assurances that the claimant would receive certain benefits for such an investment.It was argued that the claimant provided three of the five rakes to ECoR in 2008, and that the balance two could not be provided at the time, due to certain factors that fell within the category of force majeure events, and were beyond the parties’ control.It was submitted that upon further deliberations, a fresh WIS was drafted between the claimant and the Railways, pursuant to which the rights and obligations in relation to the remaining two rakes came within the jurisdiction to the South Eastern Railways (“SER”). As such, three rakes remained with the ECoR, whereas two rakes were under the SER.By 2018, all five rakes supplied by the claimants had been transferred to the SER, with mutually agreed changes in the loading and unloading stations, in pursuance of a tripartite agreement between all parties concerned. In the interregnum, the claimant alleged breach of agreement due to differences with the SER on denial of contractually agreed terms, such as denial of benefits, consequent loss of profits etc. This challenge was referred to arbitration in 2018.The aforesaid arbitral proceedings had arisen out of the 2009 agreement between the claimant and the Railways. Accordingly, the tribunal passed an order in 2021, awarding the claimant a sum of more than Rs 325 crores. Subsequently it was shown that the impugned award had been amended to fix a “typographical error”, awarding the claimant a revised sum in excess of Rs 1301 crores.The present dispute arose over the arbitral tribunal’s order, as well as the subsequent correction which increased the award to the claimants from Rs 325 crores to Rs 1,301 crores. It was submitted by the petitioners that the award, as well as the subsequent corrections were illegal and arbitrary. It was argued that the respondent/claimant had misled the arbitral tribunal on the question of placing ‘indents’ under the agreement.The petitioners argued that while it was the claimant’s case that that they had placed ‘indents’ for obtaining rakes under the WIS agreement and the Railways had illegally failed to provide corresponding benefits, the claimants themselves had not furnished any evidence regarding the aforesaid indents in the form of money receipts for Wagon Registration Fee, etc.There not being any correspondence, indents or money receipts, the petitioners argued the existence of a fraudulent exercise by the respondents to establish their case before the tribunal, since without the placement of prior indents, there would be no allocation of rakes under the WIS, and the respondent could not claim any loss on contractual freight or future profits. It was argued that the tribunal had failed to consider that the cause of action had arisen within the jurisdiction of the ECoR, whereas the statement of claim was filed against the SER which had no territorial jurisdiction over the issue, and that the respondent had filed another similar claim against...

‘Fraudulent’ Conduct Of Railways Has Shocked Our Conscience: Calcutta HC Unconditionally Stays Arbitral Award, Directs Probe By Union Govt

Srinjoy Das

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