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M/s. Bharat Mines & Minerals, Bellary, Rep. by Authorised Representative, Silas Nerella v/s The Chief Commercial Manager (FM), South Western Railways, Hubballi

    CMP Nos. 100019 of 2021 C/w. CMP No. 100018 of 2021

    Decided On, 10 December 2021

    At, High Court of Karnataka Circuit Bench At Dharwad

    By, THE HONOURABLE MR. JUSTICE N.S. SANJAY GOWDA

    For the Petitioner: R.M. Kulkarni, Lokesh Hege, Chetan Munnoli, K. Manu, Surabhi KUlkarni, Advocates. For the Respondent: M.B. Kanavi, Advocate.



Judgment Text

(Prayer: This Civil Miscellaneous Petition is filed under Section 11(6) of the Arbitration and Conciliation (Amendment) Act, 2015, praying to pass orders:

(a) Appointing Arbitrators to constitute the Arbitral Tribunal and refer the disputes to the Arbitral Tribunal to clause No.16 of the Agreement dated 20.07.2007, produced as per Annexure-A;

(b) Awarding costs incurred in filing the present petition to the petitioner; and

(c) Pass any such other and further order(s) as this Hon’ble Court may deem fit and proper in the facts and circumstances of the case.)

This Civil Miscellaneous Petition is filed under Section 11(6) of the Arbitration and Conciliation (Amendment) Act, 2015, praying to pass orders:

(a) Appointing Arbitrators to constitute the Arbitral Tribunal and refer the disputes to the Arbitral Tribunal to clause No.16 of the Agreement dated 08.06.2007, produced as per Annexure-A;

(b) Awarding costs incurred in filing the present petition to the petitioner; and

(c) Pass any such other and further order(s) as this Hon’ble Court may deem fit and proper in the facts and circumstances of the case.)

1. These petitions are filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short “the Act, 1996”) with a request to appoint and constitute an Arbitral Tribunal and refer the disputes to the Tribunal as provided under Clause 16 of the agreements dated 20.07.2007 and 08.06.2007 entered into between the petitioner and the respondent-Railways to the said Tribunal.

2. The following facts are not in dispute:

3. The Petitioner-Company, which is stated to be dealing with the iron ore, entered into an agreement with the Railways under a scheme called Wagon Investment Scheme. The said scheme envisaged that the petitioner purchase wagons by investing its own capital and those wagons could be utilised by the Railways anywhere and in consideration of the same, the Railways would not only give a freight rebate of 10% but also provide the petitioner with a guaranteed number of rakes for the transportation of the petitioner’s iron ore.

4. In the year 2010, the Government of Karnataka imposed a ban on the export of iron ore and consequently the movement of iron ore came to a stand still. The resultant consequence of this was that the petitioner was unable to utilize the Railway wagons for movement of Iron Ore, while Railways continued to utilise the wagons that had been purchased utilizing the petitioner’s funds and continued to earn freight.

5. The petitioner had sought for permission to utilize the wagons allocated to it for transport of coal but the same was rejected by the Railways. The petitioner therefore invoked its right to terminate the contract and called upon the Railways to purchase the wagons as it was contractually bound to do so by paying the mutually agreed price. However, the Railways did not accede to the said demand and the petitioner was therefore constrained to invoke the Arbitration clause and sought for reference of the said dispute.

6. As the Railways did not appoint the Arbitrator, an application under Section 11(6) was filed before this Court in CMP No.100023/2015. In these proceedings, the petitioner and the Railways filed a joint memo agreeing to abide by the rules of the Arbitration Centre, Karnataka (Domestic & International), Bengaluru and an arbitration Tribunal comprising of three arbitrators, namely, Shri Justice V Jagannathan, Shri I S Antinand Shri Anil Pavithran was constituted.

7. In these arbitral proceedings, the statement of the claimant and the defendant were filed and the Tribunal framed the following issues:

“ISSUES

1. Whether it is proved by the claimant that entirely based on the promise made by the Respondent in the Wagon Investment Scheme (WIS) Agreement dated 08.06.2007 and 20.07.2007 was entered into by the claimant with the Respondent and the two rakes (122 box in Wagons) purchased by the claimant were inducted by the Respondent into their stream of movements?

2. Whether it is proved by the claimant that due to the ban transportation of Iron ores vide order dated 25.11.2009 passed by the Government of Karnataka and the Order of the Supreme Court, the very purpose of purchasing two rakes is frustrated and hence the claimant is justified in seeking termination of the Agreement dated 08.06.2007 and 20.07.2007?

3. Whether it is proved by the claimant that it has also commissioned one Railway Siding by name BMM Siding to make optimum utilisation of WIS Rakes?

4. Whether it is proved by the claimant that the Respondent neither purchased the Wagons as per the Agreement nor allowed the claimant to make use of the Wagons in any other way beneficial to the claimant?

5. Whether it is proved by the claimant that the Respondent are making use of the Wagons and is earning freight charges free of cost?

6. Whether the claimant is entitled to the reliefs claimed at (a) to (h) and if not, to what relief?

7. Whether it is proved by the Respondent that clause 12 of the Agreement dated 08.06.2007 and 20.07.2007 does not entitle the claimant to offer the Wagons to sell at mutually agreed rate and consequently the respondent is not bound to purchase the Wagons?

8. Whether it is proved by the Respondent that the claimant failed to avail the benefit of transport of any other legally permissible goods and materials from the loading point to unloading point and further made illegal demand for transport of coal from unloading point to loading point contrary to the terms and conditions of Agreement dated 08.06.2007 and 20.07.2007 and the WIS Rules?

9. Whether it is proved by the Respondent that the Siding Agreement does not fall within the purview of WIS Agreements dated 08.05.2007 and 20.07.2007?”

8. The Arbitral Tribunal, on consideration of the material placed before it, came to the conclusion that the petitioner had purchased the wagons which were inducted into the Railways and when the petitioner had exercised the option of terminating the Contract and had called upon the Railways to purchase the wagons, the Railways had neither purchased the wagons nor allowed the petitioner to make use of them in a way which was beneficial to it. The Tribunal also recorded a finding that the Railways were making use of the wagons that had been purchased at the cost of the petitioner and were earning freight. The Tribunal, ultimately, came to the conclusion that the petitioner was entitled to a sum of Rs.15,73,89,678/- along with interest at 6% p.a. from 16.04.2010 till the date of commencement of the arbitral proceedings and there afterwards at the rate of 12% p.a. till the date of realization. The petitioner was also held entitled to the costs of the arbitral proceedings.

9. It may be pertinent to state here that the sum claimed by the petitioner was the cost of two rakes minus the amount that the petitioner had received as freight concession from the Railways. In other words, the cost at which the petitioner had purchased the wagons was ordered to be refunded after deducting the concession that they had availed, which was itself nearly to the tune of about 15 crores.

10. This award passed by the Arbitral Tribunal has been accepted by both the Railways and the petitioner.

11. However, the learned counsel for the petitioner submitted that the entire award amount has not been paid and there is still some outstanding amount left to be paid.

12. Learned counsel for the petitioner submitted that the petitioner was entitled to seek for reference for the second time, since the petitioner was entitled to continue to use the wagons and avail the benefits under the Scheme for the entire tenure of ten years and since this has been deprived, there was a further dispute, which had arisen, which required resolution as per the Arbitration clause.

13. He submitted that a notice invoking the arbitration agreement was made on 13.07.2020 and this was rejected by the Railways on 10.09.2020 by stating that all the claims raised by the petitioner had been dealt with by the Arbitral Tribunal and an award also been made and therefore there was no question of seeking for reference for the second time, which was completely untenable.

14. It, thus, emerges from the above set of facts that in respect of the disputes stated to have arisen out of the agreement, an Arbitral Tribunal had been constituted at the instance of the petitioner and that the said Tribunal had conducted an enquiry and had passed an award, which has been accepted by both the parties.

15. However, the question that is now sought to be raised is that there was a fresh set of disputes that had arisen after the passing of the award and the petitioner was entitled to seek for appointment of a fresh Arbitral Tribunal and for a fresh reference to this Arbitral Tribunal to resolve these new disputes.

16. In order to be entitled to this relief, it is incumbent upon the petitioner to establish that fresh disputes have in fact arisen subsequent to the passing of the award.

17. Learned counsel for the petitioner places reliance on the judgment of the Hon’ble Supreme Court in the case of Indian Oil Corporation Limited Vs. SPS Engineering Limited, reported in (2011) 3 SCC 507 to contend that the bar for res judicata cannot be entertained in a proceeding under Section 11 of the Act.

18. In the instant case, it is not the plea of the respondent that a claim had been raised and had been decided by the Tribunal and the present claim does not require to be referred on that score. The decision, therefore can have no application. The specific case of the petitioner is that fresh disputes were required to be referred and these disputes had arisen subsequent to passing of the award and could not therefore be a part of the earlier reference.

19. Learned counsel for the petitioner also placed reliance on the decision of the Hon’ble Supreme Court in the case of Dolphin Drilling Limited Vs. Oil and Natural Gas Corporation Limited, reported in (2010)3 SCC 267 to contend that merely because the arbitration clause had been invoked once, there was no bar for the invocation of the Arbitration clause subsequently.

20. There can be no quarrel with this proposition that there cannot be an invocation of Arbitration clause on more than one occasion, if different disputes have arisen between the parties at different times. However, if the Arbitration clause is sought to be invoked for the second time in respect of a claim which has already been raised and decided or is an offshoot of the award that is already passed or if a claim which was available to be raised but was not raised in the earlier reference, the question would be as to whether the Arbitration clause can be invoked despite an award already having been made.

21. It is also to be stated here that in some cases, parties may raise only certain claims which had arisen during the execution of the contract at a given point in time and the arbitral tribunal constituted may decide only those claims. This would obviously not debar the raising of a subsequent claim, if subsequently, a dispute arose at a different point in time during a further phase of the execution of the contract. It is also definitely permissible for a party to invoke the arbitration clause for a second time and seek for reference to arbitration, notwithstanding the earlier reference, if the disputes have arisen after the passing of the award by the Arbitral tribunal.

22. In the instant case, when the arbitration clause was invoked and the matter was referred to the Arbitral tribunal, the following issues were framed:

2. Whether it is proved by the claimant that due to the ban transportation of Iron ores vide order dated 25.11.2009 passed by the Government of Karnataka and the Order of the Supreme Court, the very purpose of purchasing two rakes is frustrated and hence the claimant is justified in seeking termination of the Agreement dated 08.06.2007 and 20.07.2007?

xxxxx

4. Whether it is proved by the claimant that the Respondent neither purchased the Wagons as per the Agreement nor allowed the claimant to make use of the Wagons in any other way beneficial to

23. the claimant?

These two issues were not only enquired into by the Tribunal but were also decided in favour of the petitioner. The Tribunal, in its award, has held that the petitioner was entitled to not only exercise its option to terminate the agreement but the Railways were also obliged to purchase the wagons by paying the purchase price of the wagons (which the petitioner had restricted it to be the difference of the actual wagon price minus the freight concession availed by it).

24. Thus, by virtue of the award, the agreement had stood terminated and Railways were obliged to purchase the wagons and pay the purchase price of the wagons to the petitioner.

25. Further, it was held by the Tribunal that the Railways were obligated to purchase the wagons in 2010 when the petitioner had exercised its option to sell the wagons, they were made liable to pay not only the purchase price but also interest on the said purchase price with effect from 16.4.2010.

26. Since, it has been held by the award that the Railways were contractually bound to buy the wagons in 2010 itself, they are deemed to have purchased the wagons in 2010, when the agreement was terminated at the option of the petitioner. The fact that the Tribunal compensated the delay in paying the purchase price by saddling the Railways with the liability of imposing interest from 2010 itself, fundamentally, reinforces the fact that the Railways had become the owners of the wagons in 2010 and the agreement also had stood terminated in 2010.

27. If, as per the award, the agreement itself stood terminated and monies became payable to the petitioner as a consequence of its termination and the petitioner accepted this award without demur, the question of fresh disputes having arisen after the passing of the award would not arise at all.

28. To say it differently, once the contract itself stood terminated in 2010 by the passing of the award, the question of any future dispute or further dispute having arisen under the terms of the agreement would never be possible.

29. As could be seen from the notice dated 13.07.2020, the Arbitration Clause was invoked, basically, raising two claims. The relevant portion of notice relating to the two claims read as follows:

“1. Our client purchased 1 Rake consisting of 61 Box NHS Railway Wagons for a total cost of Rs.14,86,80,912- and has entered into an agreement dated 08/06/2007 to avail the benefits under the Wagon Investment Scheme of the Indian Railways ("WIS"). Pursuant to the signing of the said agreement dated 08/06/2007, the Rake was deployed into the general pool of Railways At the relevant point in time, our client was loading 55 to 65 Rakes per month. As you are aware, the investment was made by our client in the WIS with an objective of transporting iron ore. As per the WIS and the agreement, for the entire 10 years tenure of the agreement, our client was entitled to get 10% freight rebate in addition to guaranteed supply of 6 Rakes per month and guaranteed clearance of traffic for 10 years.

2. By virtue of the order dated 28/07/2010 the Government of Karnataka stopped issuing permits to transport iron ore Under such circumstances, our client's request for changing the loading station and for using the rakes for transportation of "Coal was consistently not considered even though the aforesaid agreement did not restrict the nature of goods to be transported. We are instructed to state that your kindselves have arbitrarily rejected our client's request to consider termination of the aforesaid agreement or to purchase the wagons at a mutually agreed price as per Clause 12 of the WIS. Consequently, neither were the agreement terminated nor was our client permitted to use the wagons. In fact, till date, you have been making use of the wagons without investing a single penny and have earned huge amounts of profits out of the same.

3. Since, it is a matter of record that the agreement had not been terminated, the ownership of the wagons remained vested with my client since the same were not purchased by you. Therefore, our client was contractually entitled to continue using the said wagons and avail the benefits under the WIS for the entire tenure of 10 years. By depriving my client from using the wagons owned by my client, you have failed to fulfill your contractual obligations due to which my client has suffered heavy losses to its business. It is pertinent to note that till date you have not paid the entire sale consideration for the purchase of the Rake The total quantum of losses interalia on account of loss of 10% freight rebate under the WIS for the entire 10 year tenure of the Agreement which expired on 07/06/2017 and the profit made by you by making unauthorized use of my client's wagon till date is over Rupees Twenty One crores under different heads of damages in addition to the interest to be levied at 18% per annum.”

30. As could be seen from the underlined portions above, the petitioner is essentially stating that had the Railways not terminated the agreement, the petitioner would have continued to be the owner of the wagons and would have been entitled to the use of wagons for ten years and the consequential profits.

31. As stated above since the prayer of the petitioner regarding termination of the contract in 2010 was accepted by the Tribunal in its award and the Railways were made liable for the consequences of the termination with effect from 2010 itself, the petitioner cannot seek for reference of claims which are clearly and unquestionably based entirely on the premise that agreement being in subsistence for its entire term of ten years.

32. It may be pertinent to state here that an issue was also framed before the Tribunals to whether the Railways were making use of the wagons which had been purchased from the funds of the petitioner and were earning freight on them. The Tribunal has held this issue against the Railways and has therefore imposed the liability of interest on the purchase price to compensate the petitioner. This, is obviously, because the Railways by not purchasing the wagons in 2010 deprived the petitioner of the value of the wagons and was thus liable to pay interest on the purchase price of the wagons.

33. As noticed above, the subsequent claim, which has been raised and is alleged to be a dispute which has arisen after the passing of the award, is, in fact, a claim based entirely on the cause of action pleaded in the earlier arbitral proceedings.

34. Further, the claim now being made by the petitioner is in respect to the contractual right of the petitioner to the usage of the wagon by the Railways for the entire contractual period of ten years. In other words, notwithstanding the fact that the petitioner had exercised the contractual right to terminate the agreement in 2010 itself, and the Arbitral Tribunal accepting the said plea, the petitioner is now seeking for presumptive losses for not being allowed to take the benefit of the entire tenure of ten years under the agreement.

35. In my view, this claim of presumptive losses for the remainder term of the agreement cannot be raised as a fresh dispute after the Tribunal had accepted the legal right of the petitioner to terminate the proceeding and had awarded him the financial benefits permitted in the agreement, as a result of the termination.

36. In National Insurance Co Ltd. Vs BogharaPolyfab (P) Ltd. reported in (2009) 1 SCC 267, a two judge bench of the Supreme Court had held as follows:

“22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (longbarred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.”

37. This classification of three categories has been adopted and approved by a three judge of the Supreme Court in the case reported in (2021) 2 SCC 1 in the case of Vidya Drolia and Others V. Durga Trading Corporation while approving an earlier decision of a two judge bench rendered in the case of:

“138 In the Indian context, we would respectfully adopt the three categories in Boghara Polyfab Private Limited. The first category of issues, namely, whether the party has approached the appropriate High Court, whether there is an arbitration agreement and whether the party who has applied for reference is party to such agreement would be subject to more thorough examination in comparison to the second and third categories/issues which are presumptively, save in exceptional cases, for the a

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rbitrator to decide.” In its conclusions recorded by the majority and also the concurring view, it has been stated as follows: “154.4. Rarely as a demurrer the court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non- existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably ‘non-arbitrable’ and to cut off the deadwood. The court by default would refer the matter when contentions relating to non- arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.” 244.2. Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it is a clear case of deadwood.” 38. It is therefore clear that in a proceeding under S.11, the question of arbitrability vis--vis the conclusion of the contract/transaction and the subsequent satisfaction already recorded can be examined. 39. The present petition seeking for constitution of another Arbitral Tribunal to decide certain disputes which are based on the terminated agreement on the premise that is should be construed as subsisting for the entire term of 10 years, notwithstanding the arbitral proceedings already conducted culminating in a award, which has also been accepted by the petitioner, is nothing but a clear case of a contract/transaction already having been concluded and satisfaction recorded of mutual rights/obligations by receiving the final payment without objection. 40. I am therefore of the view that there is no arbitrable dispute justifying a reference to arbitration for the second time and the claim now being made is a clear case of deadwood and is a case forcing a party to arbitrate. The petitions are therefore dismissed.
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