Calcutta High Court orders Ministry of Finance to probe ‘shocking’ collusion of Railways in Rs. 4,000 crores settlement case

Calcutta High Court orders Ministry of Finance to probe ‘shocking’ collusion of Railways in Rs. 4,000 crores settlement case

Stays the arbitral award on observing that it was tainted by fraud and corruption

The Calcutta High Court has ordered the Ministry of Finance 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.

In the Union of India vs Rashmi Metaliks Limited case, Justice Shekhar B Saraf also directed an unconditional stay on the arbitral award passed in a dispute between the South-Eastern Railways (SER) and Rashmi Metaliks Limited, a public limited company.

The order was passed by the Judge after noting that prima facie there were glaring irregularities and palpable impropriety in the conduct of the railways before the tribunal.

The Bench thundered, “It shocks the conscience of this Court to observe that the railways, in defending a claim valued above Rs. 4000 crores, declined to present any witness and refrained from leading any evidence.”

The Court added that the lackadaisical and indifferent attitude of the Railways during the arbitral proceedings left much to be said about the "sordid state of affairs" and the "absolute apathetic approach of the railways." This, it said, was even though it was a Government of India public sector undertaking, which dealt with public exchequers’ funds.

The Judge further noted that it appeared to be a disconcerting trend where the hallowed principles of honesty, integrity, and probity seemed to have gone up in smoke. He, therefore, ordered a probe into the case by a special committee. The committee is expected to submit its report to the Court within three months.

The Bench’s order read, “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.”

It also stated, “The Committee shall be at liberty to take assistance of the central investigating 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.”

Deeply concerned with the attitude of the railways, Justice Saraf expressed that he was extremely worried by the brash approach of the railways department.

He pointed out that the public sector companies were usually expected to act with more diligence since they were the embodiment of taxpayers’ trust. But the way the railways belittled its responsibility made the Court doubt the utility of arbitration proceedings related to the 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 Bench added.

The Court stated that it would not have spoken in that manner if it were not an absolute necessity. “Such actions disturb the very fabric of citizens’ trust in public entities, and it is the duty that this Court owes to the citizens to act where needed,” the Judge stressed.

The Court observed that the railways is not just an entity that carried citizens across destinations; 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 High Court was dealing with a batch of pleas related to a May 2021 arbitral award. Later, in August 2021, corrections were made to the award. Consequently, the tribunal had ordered the South-Eastern Railways to pay a sum of approximately Rs.1,301 crores to Rashmi Metaliks.

Importantly, the Indian Railways challenged the award by way of an application under Section 34 of the Arbitration and Conciliation Act, 1996. It sought a stay on the arbitral award under Section 36 of the Act. On the other hand, Rashmi Metaliks sought execution of the tribunal’s directions.

The Court observed that there were indications that the railways had acted collusively in the matter. The Judge also stated that he was baffled by the tribunal’s corrected order. He noted that there were two aspects indicating the collusion, foul play, fraud, and corruption in the passing of the arbitral award.

Justice Saraf stated that the first was the manner in which the railways conducted itself. This, the Court maintained, “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 to the “atrocious explanation given by the arbitral tribunal in justifying its order of corrections.” The Judge said he was at a loss for words on figuring out the complications.

The Bench noted 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 in public interest.

He further remarked, “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.”

The Court added that 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 an unseen foul play.”

Thus, the Bench stayed the arbitral order after noting that the A&C Act allowed for such intervention if the award appeared to be induced or effected by fraud or corruption.

It ordered that the unconditional stay would remain until the Section 34 petition was established.

Advocates Siddhartha Lahiri, Deepak K Singh, and Souvik Nandy appeared for the 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 represented Rashmi Metaliks Limited.