HC stays operation of arbitration award of Rs 1,301 cr against SER

The Calcutta High Court on Tuesday granted an unconditional stay on the operation of an arbitration award from South Eastern Railway to Rashmi Metaliks Limited, a private company, to the tune of Rs 1,301 crore.

The court also directed the Ministry of Finance to immediately constitute a multi-member high-level enquiry committee headed by a secretary to the Government of India level rank officer to inquire into the conduct of the Railways and its officials (both serving and retired) and the other stakeholders in the matter.

“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,” Justice Shekhar B Saraf directed.

Ordering the inquiry, the court directed that the committee will be at liberty to take assistance from central investigation agencies as it may deem fit.

Justice Saraf requested the committee to complete the enquiry and submit a report before the court within three months from the date of this order.

The arbitration proceedings arose out of an agreement dated June 15, 2009, between the claimant company and SER, wherein the arbitral tribunal passed an award on May 10, 2021, awarding the claimant a sum in excess of Rs 325 crore, costs and interests therein.

Further, on August 18, 2021, the said award was then corrected and “the claimant was awarded a sum of approximately Rs 1,301 crore, costs and interests therein,” the court noted.

The South Eastern Railway filed the application before the high court seeking an order for setting aside the arbitral award of May 10, 2021, and the corrections dated August 18, 2021, to the said arbitral award.

The petitioner had also prayed for a stay on the entire award.

As per the Wagon Investment Scheme (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, the court noted.

The company, which is the respondent in the matter, is stated to have entered into an agreement initially with East Coast Railway for the supply of five rakes to it.

As per subsequent agreements, out of a total of five rakes, the jurisdiction of three rakes continued with the ECoR, while the SER acquired jurisdiction over two rakes.

The private company 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 4, 2016, it invoked arbitration in terms of the said agreement with the SER.

A tripartite agreement dated January 25, 2018, was also executed by and between the claimant, the ECoR and the SER, whereby the balance of three rakes retained by the ECoR was transferred to the SER.

While two rakes were transferred to the SER on June 15, 2009, on January 25, 2018, the SER received the remaining three rakes.

In the present matter, the arbitration proceedings arose out of the agreement dated June 15, 2009, between the claimant and SER.

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The court noted that the counsel for SER orally pleaded for an unconditional stay on the enforcement of the arbitral award on the 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 SER neglected to effectively place its case, the court noted in its order.

The counsel for the company submitted that the railways, in their applications, have not pleaded fraud as a ground for an order of unconditional stay on the arbitral award or for an order to set aside the arbitral award.

He submitted that fraud must necessarily be distinctly pleaded and proved with precise and specific details of such charges, and merely using the word fraud’ or fraudulent’ is not sufficient to satisfy the test of fraud.

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