Calcutta High Court orders Finance Ministry to probe "shocking" collusion by Railways in ₹4,000 crore arbitration case

The Calcutta High Court on Tuesday ordered the Union Finance Ministry to set up a committee to inquire into the apparently shocking, fraudulent, and collusive conduct of the Indian Railways and its officials in an arbitration proceeding [Union of India v. Rashmi Metaliks Ltd.]..Justice Shekhar B Saraf also ordered an unconditional stay on the arbitral award passed in a dispute between the South Eastern Railways (SER) and a public limited company, Rashmi Metaliks Limited.The judge passed the order after noting that, prima facie, there were glaring irregularities and palpable impropriety in the conduct of the Railways before the tribunal.“It shocks the conscience of this Court to observe that the Railways, in defending a claim valued above ₹4000 crores, declined to present any witness and refrained from leading any evidence," the Court remarked.The Court added that the lackadaisical and indifferent attitude of the Railways during the arbitral proceedings leaves much to be said about the "sordid state of affairs" and the "absolute apathetic approach of the Railways", even though it was a Government of India public sector undertaking that deals with funds from the public exchequer.There appeared to be a disconcerting trend where the hallowed principles of honesty, integrity, and probity seem to have gone up in smoke, Justice Saraf further noted. The judge, therefore, ordered a probe into this case by a special committee, which is to submit its report to the Court within three months.“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,” the order stated..The case further prompted Justice Saraf to express that he was deeply worried by the attitude of the Railways. Public sector companies are usually expected to act with more diligence since they are the embodiment of taxpayers’ trust, the Court noted.However, the way the Railways has belittled its responsibility made the Court doubt the utility of arbitration proceedings when it comes to public sector companies.“Not to mince my words, the attitude of some of the parties, especially public sector companies towards the arbitration process and utter disregard for it has made me doubt the future of arbitration in India if it keeps going the present way,” the Court said..The Court added that it would not have spoken out if it were not an absolute necessity.“Such actions disturb the very fabric of citizen’s trust in public entities, and it is a duty that this Court owes to the citizens to act where needed,” the Court said.The Court further observed that the Railways is not just an entity that carries citizens across destinations, but that it is an embodiment of the “hopes and dreams of a billion people.”“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,” the Court opined..Background.The Court was dealing with a batch of pleas connected to a May 2021 arbitral award and corrections made to this award in August 2021, whereby the tribunal ultimately ordered the South Eastern Raliways to pay Rashmi Metaliks a sum of approximately ₹1,301 crores.Notably, the Indian Railways challenged the award by way of an application under Section 34 of the Arbitration and Conciliation Act, apart from seeking a stay of the award under Section 36 of the Act. On the other hand, Rashmi Metaliks sought execution of the award. The Court, however, found that there were indications that the Railways itself had acted collusively in the matter. The arbitral tribunal’s corrected order also left the Court baffled.The judge proceeded to note that there were two aspects indicating collusion, foul play, fraud, and corruption in the passing of the arbitral award.The first was the manner in which the Railways conducted itself, which the Court opined “screams of surreptitious connivance between the parties” as if it was already decided that the Railways should abandon its case and “superficially continue to fight an already lost battle.”The second aspect pinpointed was the “atrocious explanation given by the arbitral tribunal in justifying its order of corrections”, which the judge said had left him at a loss for words.The Court found that the corrected order had enhanced the arbitral award by about four times “under the garb of a typographical error.” Unconvinced by this explanation, the Court reasoned that the actual truth behind the corrections must be unearthed.“The aforesaid order made me wonder if the tribunal thinks so lowly of the executing courts where it may have hoped that such corrections would be permitted a safe passage without any scrutiny whatsoever,” he further remarked.The “willing silence” of the Indian Railways over such an arbitral order was also “too loud to go neglected and prima facie leads to the conclusion that there is unseen foul play”, the Court added..The Court, therefore, stayed the arbitral order after noting that the Arbitration and Conciliation Act, 1996 allows for such intervention if the award appears to be induced or effected by fraud or corruption. The Court ordered that the unconditional stay would remain until the Section 34 petition is decided.Advocates Siddhartha Lahiri, Deepak K Singh, and Souvik Nandy appeared for the Union of India (Indian Railways).Advocate General SN Mookherjee, and advocates Samrat Sen, Suman Dutt, Paritosh Sinha, Amitava Mitra, Manali Bose, Antara Choudhury, Subhrojyoti Mookherjee, and Naman Chowdhury appeared for Rashmi Metaliks Limited..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.