Dues Cannot Be Withheld Till Eternity: Delhi High Court Upholds Award Against MMTC

The Delhi High Court has upheld an arbitral award directing MMTC Limited to release withheld amounts of Rs 1.64 crore towards railway surcharge and Rs 56.93 lakh towards detention charges to Knowledge Infrastructure and another party, holding that the amounts could not be retained indefinitely when the alleged liability had not crystallised and the Railways had not processed the claims for years.

The bench of Justice Subramonium Prasad, dismissing MMTC's challenge under Section 34 of the Arbitration and Conciliation Act, 1996, held that the arbitrator had taken a plausible view which did not warrant interference.

“Five years have passed since the demands were raised and yet, the Railways had not processed the claims raised by the Respondents, particularly Claim No. 3 and 4, thereby withholding the same. The view taken by the learned Arbitrator that the claims cannot be withheld till eternity, cannot come within the four corners of the expression 'in contravention with the fundamental policy of India law‟ or 'in conflict with the most basic notions of morality and justice”, the Court observed.

The dispute arose in relation to supply of imported non-cooking steam coal to Damodar Valley Corporation's thermal power stations at Koderma, Mejia and Durgapur, pursuant to a tripartite agreement dated August 1, 2012, entered into between MMTC Limited and the respondents, under which the respondents were required to undertake stevedoring, handling, transportation and related logistics.

Disputes over payments led to arbitration, culminating in an award dated November 7, 2019, by which the arbitral tribunal directed MMTC to pay Rs 1,64,38,456 towards railway surcharge and Rs 56,93,579 towards detention charges that had been withheld.

MMTC challenged the award under Section 34, contending that under the contract the liability towards railway surcharge and detention charges was on the respondents, and that demands raised by East Central Railways in January 2014 justified withholding the amounts to safeguard against possible liability.

The respondents opposed the petition, arguing that the contract did not permit indefinite withholding and that no recovery proceedings had been initiated by the Railways for several years.

At the outset, the Court reiterated that the scope of interference under Section 34 is limited and does not permit re-appreciation of evidence or substitution of the court's view for that of the arbitrator.

The Court held that the arbitrator's conclusion that the amounts could not be withheld indefinitely, particularly when the demands raised in 2014 had not been processed for years, was a reasonable and plausible view.

It also noted that the agreement contained an indemnity in favour of MMTC, which could be invoked if any liability towards the Railways crystallised.

“What is the nature of indemnity and whether that claim is enforceable or not at the relevant point of time, would be seen as and when a claim is made by the Railways. A mere apprehension that these claims can be adjusted by the Railways in other ongoing contracts with the Petitioner cannot be a valid reason to retain these amounts till eternity”, the Court said.

Holding that the award did not violate the fundamental policy of Indian law or the most basic notions of justice, the Court dismissed the petition and upheld the arbitral award.

For Petitioner (MMTC Limited): Advocates Akhil Sachar, Sunanda Tulsyan, Babita Rawat, Kashish Maheshwari.

For Respondent (M/s Knowledge Infrastructure & Anr.): Advocates Darpan Wadhwa, Manali Singhal, Santosh Sachin, Tarini Khurana.