Calcutta High Court
Union Of India And Ors vs Rahul Kumar Thakur on 5 March, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
AP-COM/657/2024
UNION OF INDIA AND ORS
VS
RAHUL KUMAR THAKUR
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
For the petitioners ... Mr. Asok Kumar Chakraborty, Ld. ASG,
Mr. Souvik Nandi, Sr., Adv.
Ms. Amrita Pandey, Adv.
For the respondents ... Mr. Krishnaraj Thaker, Sr. Adv.
Mr. Debrup Bhattacharjee, Adv.
Mr. Rohan Kumar Thakur, Adv.
Hearing concluded on: 29.01.2025
Judgment on: 05.03.2025
Shampa Sarkar, J.:-
1. This is an application under section 36(2) of the Arbitration
and Conciliation Act, 1996, (hereinafter referred to as the said
Act), for unconditional stay of the award dated October 9, 2023,
passed by the learned sole Arbitrator. The learned Arbitrator was
appointed by the Hon’ble Apex Court in Civil Appeal No. 7038 of
2021. The respondent was the claimant in the arbitration
proceeding.
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2. The background of the case leading to the dispute is that,
sometime in 2016, the railways floated a tender for leasing of
parcel cargo express train (for short PCET) from Chitpur to
Kalyan on round-trip basis, for a period of six years. The
respondent participated in the tender process and was the
highest bidder. Sometime in January 2017, the Chief Commercial
Manager/FM issued a letter, inter alia, stating that the offer of
the respondent for taking lease of the PCET from Chitpur-Kalyan-
Chitpur, for two round trips (fortnightly) in a month, (containing
20 parcel vans and one break van), on round-trip basis for a
period of six years at a lump sum freight of Rs.31 lakhs + 2%
development charges, totalling to Rs.31.62 lakhs and applicable
sales and service tax etc., had been accepted. On February 17,
2017, an agreement was executed between the petitioners and
the respondent. The respondent submitted security deposit to the
extent of Rs.75,88,800/-. The allegations of the petitioners
against the respondent were that, frivolous issues were raised,
almost forcing the petitioners to come up with a timetable for
departure and arrival of the trains and to ensure stoppage at the
enroute station.
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3. The respondent started operation from February 28, 2017,
but continued to pressurize the petitioners to come up with a
revised time schedule. The respondent complained that, out of
total of 14 rakes, which were scheduled to operate from February
2017 to November 2017, only two were made to depart and reach
Kalyan, although, payment had been made by the respondent, in
its entirety. The respondent started negotiating with the
petitioners and insisted that the Kalyan bound trips should be
suspended and instead, Chitpur bound trips should be allowed.
Such request was contrary to the terms of the agreement as per
the petitioners. The respondent stopped making payments of the
lease rentals. The petitioners raised their contractual demand.
The respondent terminated the agreement and invoked the
arbitration clause.
4. The learned Additional Solicitor General submitted that this
was a fit case for unconditional stay of the award as the learned
Arbitrator had allowed the claims beyond the scope of the
agreement. The learned Arbitrator relied on a circular of the
railways, which did not form part of the contract. The said
circular was treated as the applicable policy of the railways, in
order to cause unjust enrichment to the respondent. Reliance on
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extraneous materials, which did not form part of the record,
rendered the award perverse and unreasonable. The findings of
the learned Arbitrator would shock the conscience of a
reasonable man. The learned Arbitrator failed to take into
consideration that, the respondent acted beyond the terms of the
agreement by not paying the lease rental, by asking the routes to
be changed and by insisting on a timetable. Further, the
respondent could not act in breach of the terms of the agreement
and terminate the contract unilaterally. The respondent could not
claim, as a matter of right, that the railway authorities should
prepare a specific time table for those PCETs. The timetable for
those trains were prepared by taking into consideration the entire
schedule of the trains in the said zone. The railways could not
create a special timetable for the respondent. Such obligation was
not a part of the agreement. It was urged that the learned
Arbitrator also ignored the evidence which demonstrated that the
respondent intentionally failed to load the cargo from Chitpur to
Kalyan, on six dates. The respondent failed to organize his
business, procure customers, as the result of which, the loading
of the cargo was not done. The fault was on the part of the
respondent. This could not be attributed to the petitioners, on
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the ground that the petitioners failed to provide the proper time
schedule as to when the trains would arrive and the rakes would
be available for loading. There was no evidence before the learned
Arbitrator which would show that, the respondent had adequate
orders or customers and had mobilized the cargo, but could not
load the same due to non-availability of the rakes.
5. According to the learned ASG, the learned Arbitrator got
swayed by the concocted and fabricated story of the respondent
and proceeded to pass the award without looking into cogent
evidence. Thus, the award was induced by untrue statements of
the respondent and vitiated by fraud. The marketing freight
circular No.02 of 2007, was a mere guideline and it never formed
an essential part of the agreement. The respondent persuaded
the learned Arbitrator to make and publish the award, on the
basis of the said inapplicable circular, which makes the award
vulnerable to the allegation of the same being effected or induced
by fraud. The learned Arbitrator unfairly deprecated the stance of
the witness of the petitioners when the witness was trying to
explain and justify his answer. Voluntary statements of a witness
were always permissible. By applying the provisions of the
circular, the agreement between the parties was rewritten by the
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learned Arbitrator. This was an act of fraud and corruption on
the part of the learned Arbitrator as the arbitrator was persuaded
to allow the claim without following the basic principles of law
governing interpretation of contracts. The claim for loss of profit
etc., should not have allowed, in the absence of any specific
breach by the railways. The agreement was terminated by the
respondent and not by the railways. The provisions of Sections
56 to 73 of the Indian Contract Act provided that, unless there
was a specific breach, damages could not be allowed. The
contract did not provide that any specific time schedule or
timetable would be supplied to the respondent, to enable the
respondent to load the cargo on those specific dates, as per the
fixed timetable. The approach of the learned Arbitrator in
discarding the evidence of the sole witness of the railways, were
prima facie evidence of fraud and corruption in the making of the
award.
6. The learned Additional Solicitor General relied on the
decision of S.P Chengla Varia Naidu vs. Jagannath & ors.
reported in AIR 1994 SC 853 and submitted that fraud was an
act of deliberate deception with a design to secure something by
taking unfair advantage of another. In the facts of this case, the
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respondent deliberately deceived the learned Arbitrator by placing
reliance on the circular of 2007.
7. Reliance was further placed on the decision of Venture
Global Engineering LLC vs. Tech Mahindra Ltd. & anr.
reported in 2018 1 SCC 656. It was held that, fraud was proven,
when it could be shown that a false representation was made
knowingly, without believing in it and carelessly. The learned
Arbitrator was influenced by the incorrect and false submissions
made by the respondent and passed the award. The ratio in
Venture Global (supra) was thus, applicable. Corruption,
according to the learned ASG, was a dishonest or a fraudulent
conduct by the person in power and in the instant case the
learned Arbitrator made out a third case and passed the award
for a hefty sum of money, to which the respondent was not
entitled. The learned Arbitrator took it upon himself to ensure
that the claim was allowed, in some manner or another.
8. Mr Thaker, learned Senior Advocate for the respondent
submitted that the arguments advanced by the petitioners were
on the merits of the award. Consideration of the merits of an
award or the probability of the success of the award-debtor in
getting the award set aside, could not be a ground for
8
unconditional stay of the award. The entire submissions on
behalf of the petitioners were on how the learned Arbitrator had
gone wrong in appreciating the evidence adduced by the parties,
wrongly applied the circular and misinterpreted the provisions of
law while holding the petitioners to be in breach of the contract.
9. According to Mr Thakkar, the learned Arbitrator was of the
opinion that, when the railway authorities chose to remain silent
on framing any timetable both in the offer letter as also in the
agreement, the respondent deemed that the freight marketing
circular No.02 of 2007, would be applicable. The circular
provided that the PECTs would run on a fixed path with a
scheduled timetable as far as possible. The timetable would be
prepared by the originating leasing railways, in consultation with
other zonal railways through which the trains would pass. The
transit time of the train would be monitored by the operating
department. The learned Arbitrator was of the further view that,
the provisions of the circular provided that, the PECTs would run
as far as possible on a scheduled timetable. Even if, the railway
authorities could not adhere strictly to the timetable, the
contractor could not be left to the hands of fate.
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10. According to the Learned Arbitrator, the anvil and
touchstone of Article 14 of the Constitution of India, would
govern the action of the railways. The learned Arbitrator recorded
the findings with regard to
the arrangements made by the respondent to load the rakes and
also the accumulated business from his customers at the station
of origin as also the destination station.
11. Upon accumulation of the business from the customers, the
respondent commenced operation at 00.05 hours of February 28,
2017. The first consignment was delayed unexpectedly and the
respondent faced embarrassment and became accountable to the
customers. On appreciating facts, the learned Arbitrator felt that
the petitioners were required to maintain a timetable for the
PECT, as the time required for completion of the journey by the
said PECTs were an essential part for the performance of the
contract. It was held that failure on the part of the petitioners to
maintain a timetable and the consequent delay in running of the
PECTs, caused huge loss to the respondent’s reputation and
business.
12. The learned Arbitrator considered the pleadings in
paragraph 13 of the statement of claim and came to his specific
10
findings. The learned Arbitrator held that the petitioners had
failed to fulfil their reciprocal obligations in the contract. The
time-schedule in which the PECTs were supposed to run, could
not be maintained and the respondent suffered irreparable loss
and injury. Mr. Thakkar submitted that the learned Arbitrator
also scanned the evidence adduced by the parties and arrived at
the conclusion that, the claim should be allowed and the
counter-claim of the petitioners for lease rentals, should be
dismissed.
13. The issue before this court is whether the petitioners have
been able to make out a case for unconditional stay of the award.
According to the provisions of law, if it prima facie, appears to the
court that, either the arbitration agreement or the contract which
formed the subject-matter of the arbitral proceedings or the
making of the award were effected or induced by fraud or
corruption, an unconditional stay of the award can be granted.
The case of the respondent was not that, either the arbitration
agreement or the agreement containing the arbitration clause
was effected or induced by fraud or corruption. The allegation
was that the making of the award was induced by fraud and
corruption and the learned Arbitrator acted on the
11
misrepresentation of the respondent and passed the award. While
doing so, extraneous documents were taken into consideration
with the intention to allow the claim at any cost. When the
respondent failed to establish a case of breach, loss of profit, loss
of business and loss of reputation, the 2007 circular was applied
by the learned Arbitrator, inter alia, holding the same to be a
policy or a guideline.
14. In the present case, this court does prima facie, find that
there was either any omission or any concealment by the
respondent or any act of undue influence in the making of the
award. The facts do not reveal that either the learned Arbitrator
or the respondent took the petitioners by surprise and tried to
cheat the petitioners in any way. There had to be, prima facie,
evidence of a wilful illegal act on the part of either the arbitrator
or the respondent, which amounted to depriving the petitioners
from their legitimate dues or legitimate rights.
15. Reliance placed by the learned ASG on the decision of S.P.
Chengalavariya Naidu (supra), in which fraud has been defined
as an act of deliberate deception with the design of securing
something by taking unfair advantage of another, is not
applicable to this case. There must be a deception in order to
12
gain by another’s loss. A cheating, intended to get an advantage
over another. The entire argument of the learned ASG and the
findings of the learned arbitrator do not reflect that there was a
deliberate deception with a design to secure something by taking
unfair advantage of the railway authorities. I do not find that, the
respondent had deceived the railway authorities in any manner.
16. In Venture Global Engineering LLC (Supra), the Hon’ble
Apex Court relied on the decision of the House of Lords in Derry
vs. Peek, (1889) L.R. 14 AC 337 (HL). It was held that fraud was
proved when it could be shown that a false representation had
been made, knowingly, without belief that it was the truth, or
recklessly or carelessly.
17. The fact that the respondent placed reliance on the Circular
of 2007, and the learned Arbitrator accepted the said circular as
a policy, inter alia, holding that some kind of a schedule or
timetable should have been made available to the respondent so
that the respondent would be ready with the goods, deliveries
and orders, cannot be termed as false representation. The award
cannot be termed as a deliberate and wilful endeavour to accept a
false and fabricated story of the respondent, only to put the
petitioners in a disadvantage or to empower the respondent to
13
extract any illegal benefit from the petitioners. The view of the
learned Arbitrator that the respondent could presume or expect
that some kind of a time table or a time schedule cannot be
prepared by the originating station, cannot be termed as
corruption. The correctness of the view will be decided in the
application for setting aside the award.
18. The learned Arbitrator was of the view that, when the
contracting parties had entered into a business arrangement,
both parties were required to discharge their obligations. It was
held that, unless the railway authorities had provided an
expected time schedule or had ensured that the PECTs ran on a
particular path, by maintaining a time schedule as far as
possible, it would not be possible for the contractor to run the
business successfully.
19. According to the learned Arbitrator, leaving the contractor to
the hands of fate, with sheer uncertainty as to when the rakes
would be available for loading and the unexpected delays caused
during the trips, led to loss of profit. The inability of the railways
to provide a hassle-free transit of the PECTs, was a breach of the
obligation under the agreement. These were the views of the
learned Arbitrator based on the records and the evidence.
14
Whether such views are plausible views or are unreasonable and
shocking to the conscience of the court, cannot be decided at this
stage, while dealing with the prayer for unconditional stay of the
award. Fraud and corruption should be ex facie available from
the face of the records.
20. Ventura Global Engineering (supra) also propounded
that, that concealment of material circumstances on the part of
one of the parties to an arbitration agreement, thereby, leading
the arbitrator to pass an award, was fraud. Therefore, if the party
which ought to have disclosed material, wilfully withheld the
same in order to deceive the arbitrator, such award should be set
aside on the ground of fraud. These aspects are not available
from the documents relied upon by the petitioners. The
circumstances which led to the making of the award, prima facie,
do not appear to be fraudulent. The definition of law as per the
Indian law, does not apply to this case.
21. Section 17 of the Indian Contract Act, defines fraud as
follows:-
17. ‘Fraud’ defined.–
“Fraud’ means and includes any of the following acts
committed by a party to a contract, or with his connivance,
15or by his agent’, with intent to deceive another party thereto
or his agent, or to induce him to enter into the contract:–
(1) the suggestion, as a fact, of that which is not true, by
one who does not believe it to be true;
(2)the active concealment of a fact by one having knowledge
or belief of the fact;
(3)a promise made without any intention of performing it;
(4)any other act fitted to deceive;
(5)any such act or omission as the law specially declares to
be fraudulent. Explanation.–Mere silence as to facts likely
to affect the willingness of a person to enter into a contract
is not fraud, unless the circumstances of the case are such
that, regard being had to them, it is the duty of the person
keeping silence to speaks, or unless his silence, is, in itself,
equivalent to speech. Illustrations (a) A sells, by auction, to
B, a horse which A knows to be unsound. A says nothing to
B about the horse’s unsoundness. This is not fraud in A.(b)
B is A’s daughter and has just come of age. Here the
relation between the parties would make it A’s duty to tell B
if the horse is unsound.(c) B says to A–“If you do not deny
it, I shall assume that the horse is sound”. A says nothing.
Here, A’s silence is equivalent to speech.(d) A and B, being
traders, enter upon a contract. A has private information of
a change in prices which would affect B’s willingness to
proceed with the contract. A is not bound to inform B.”
22. The expression “making of the award” would mean that, the
award must have been obtained by a party to the arbitration
upon suppressing material evidence or by making false
statements before the learned arbitrator in order to take an
unfair advantage over the other party. The petitioners have not
been able to, prima facie, establish that any of these situations
had arisen in the making of the award. There is nothing on
record to show that vital documents had been either concealed or
16
false statements had been made before the learned Arbitrator,
which had a causative link with the facts constituting and
culminating in the award.
23. In the case in hand, the arguments of the petitioners were
on the ground that both the respondent and the learned
Arbitrator wrongly relied on the policy of 2007 and the evidence
of the railways were not given due credibility by the learned
Arbitrator. The specific allegation was that, the learned Arbitrator
had failed to take into consideration cogent evidence and had
allowed the claims without the respondent having established the
basis of such claims. Corruption by an Arbitrator will mean a
moral obliquity. An honest mistake or erroneous appreciation of
law may not appear to be reasonable to the court, but such
defects in the award, cannot be an act of corruption on the part
of the arbitrator.
24. Corruption of the learned Arbitrator should be such, that it
would be, prima facie, evident from the award itself that the
learned Arbitrator had tried to curb or prevent the course of
justice. The burden of proof is rather high. The petitioners were
required to discharge the burden by at least bringing to the
notice of this court from the records and from the award that,
17
either the respondent had concealed relevant materials or had
made false statements, which led the arbitrator to pass the award
in their favour. The petitioners would have to show, prima facie,
that the learned Arbitrator deliberately passed the award in
abuse of the process of law and had illegally obstructed the
course of justice.
25. The learned Arbitrator relied on clause 1.0 and 1.1 of the
agreement, which is quoted below.
“1.0. Assured Supply of VPs in leased Parcel Express Train.
1.1 Railway administration will provide to Lease Holder, a
Parcel Cargo Express Train in conformity to Serial No. 1 of
Salient Features of the scheme at prevailing accepted rate of
the contract for the transportation of parcel traffic Ex
Chitpur-to-Kalyan on round trip basis @ Rs. 31,00,000/-
(Thirty One Lakh) only with frequency of two round trips per
month for a period of Six years w.e.f 27.02.2017 to
26.02.2023. Lump sum teased freight shall be collected on
the day of loading which will be calculated as per actual
permissible carrying capacity of the Parcel Vans
(VPH/VPs/VPU+SLR) supplied for loading. In addition to the
freight charges as mentioned herein above Lease Holder
shall have to pay 2% Development Charges and Service tax
as applicable.” (QUOTED)
26. The learned Arbitrator relied on the freight marketing
circular No. 02 of 2007, to hold that an expected timetable
should have been provided and the respondent was entitled to
know roughly the time when the trains would arrive for loading at
the originating destination. The relevant portion is quoted below:-
18
“9.3. :Punctuality of Train: The Parcel Express train will run
on fixed path with scheduled time table as far as possible.
The time-table will be prepared by the originating leasing
railway in consultation with other zonal railways through
the train passes. Transit time of train should be monitored
by the Operating department.” (QUOTED but highlighting in
bold is mine).”
27. Paragraph 13 of the statement of claim, which was relied
upon in the awrad is quoted below:-
“a. Due to the late arrival of the said train in the
intermediate stations and/or final destination, the claimant
could not deliver the consignment to its customers within
the time frame as promised by him and due to delay in
delivery of the said consignment, the customer of the
claimant had lost trust in the claimant and accordingly,
they became reluctant to transport their consignment
through the claimant which ultimately culminated into loss
of business to the claimant and the same would also appear
from the various manifests submitted by the claimant at the
time of commencement of the respective journey which
would show that despite paying the advance freight, the
claimant could not load any goods or had loaded lesser
quantity than the scheduled capacity in the said parcen van
as the customers of the claimant because of the time
constraint was availing other modes to transport their goods
despite having assured the claimant to transport through
them, due to unexpected delay in running of the said train.
Copies of the manifest evidencing that payment was made
but no goods loaded or loaded lesser quantity of goods than
scheduled capacity due to delay in transit are annexed
herewith and is marked with letter “F”.
b. It is pertinent to mention herein that the agreement for
leasing of parcel cargo express train define the frequency of
service in clause 7.0(i) of the agreement in the following
terms :-
“7.0 Frequency of Service
(i) The Service will start with frequency of two trips per
month. Later on, the frequency can be increased in
19view of demand subject of availability of stock and
operational feasibility with mutual consent at the rates
on PRORATA BASIS as per policy guidelines of Board”
This itself goes to show that the claimant could have earned
profit in the event the service of the rakes was as per the
schedule time frame.
c. The claimant had arranged customers in the intermediate
station for loading further goods in the said parcel cargo
express train subject to the carrying capacity of each parcel
van. However, due to unexpected delay in reaching the
intermediary station, the customer had refused to give the
consignment to the claimant after waiting for sufficient time,
however, the claimant had to pay cost of the labours, who
were engaged by the claimant for loading and unloading
though entire arrangement became absolutely ineffective
due to inordinate delay n arriving at the station.
Furthermore, the claimant had to borne the waiting charge
of the vehicle hired by the claimant for further
transportation of the said goods from the stations. ”
(QUOTED)”
28. Reliance was further placed on the definition of “frequency
in service” from the agreement itself. The definition provided that,
the respondent was entitled to two trips per month, but due to
unexpected delays and unavailability of a schedule, those trips
could not be availed of. Out of the 14 rakes which were
scheduled to operate between February, 2017 to November 2017,
only two were, in effect, made to depart, although, the payment
was made to the claim by the respondent to the railways in its
entirety.
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29. The learned Arbitrator relied on the evidence of Ananta
Mukherjee, the railway’s witness and arrived at the finding that
the allegation of the petitioners that, the respondent intentionally
did not load the cargoes was not correct. The learned Arbitrator
was of the opinion that the evidence of Ananta Mukherjee clearly
indicated that there was no fixed timetable for the PECTs,
although, clause 9.3 of the Circular provided that some kind of
time schedule was required to be maintained. Without the
contractor knowing the time and the date as to when the trains
would be available for loading, the respondent could not be
expected to wait till eternity for the trains to arrive.
30. The learned Arbitrator also arrived at a specific finding that
the agreement was terminated by the respondent in abidance to
the provisions of the contract, upon giving two months’ notice.
31. The decision in Union of India & Anr. Vs. Rashmi
Metaliks Limited, reported in 2023 SCC OnLine Cal 2272 will
not be applicable in the facts of this case, inasmuch as, the
making of the award in the said case, was a result of deliberate
suppression of material facts by the officers of the railways.
32. The decision of OPG Power Generation Private Limited vs
Enexio Power Cooling Solutions India decided in Civil Appeal
21
No. 3981 of 2024 was in support of the principles laid down
with regard to breach of a contract. The decision is not relevant
for the purpose of disposal of this application.
33. Under such circumstances, this court does not find any
reason to grant unconditional stay of the award.
34. The award shall remain stayed unconditionally for a period
of six weeks. The petitioners shall secure the entire amount of
Rs.49,16,42,425/-, by cash deposit before the learned Registrar,
Original Side, High Court, Calcutta, within the period of six
weeks. The learned Registrar shall invest the same in an auto-
renewable interest bearing fixed deposit in any nationalized bank.
Upon such deposit, the award will remain stayed until disposal of
the application under Section 34 of the Arbitration and
Conciliation Act, 1996. In case of default, the stay shall
automatically stand vacated.
35. There will be no order as to cost.
36. Parties are directed to act on the server copy of this
judgment.
(Shampa Sarkar, J.)
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