Tata Motor Limited v. Delhi Transport Corporation

Delhi High Court | Arb. A. (Comm.) 9/2023

Background facts

  • Delhi Transport Corporation (DTC) entered into a contract with Tata Motors Limited (TML) on October 18, 2018 for the purchase of 650 AC and 975 non-AC low-floor CNG-fueled buses to be operated in Delhi. The contract included maintenance obligations on TML's part against Annual Maintenance Charges (AMC) payable by DTC.
  • Disputes arose between DTC and TML concerning Clauses 24.4 and 46.16 of the General Conditions of Contract (GCC). DTC alleged that TML failed to meet the guaranteed minimum average fuel efficiency target measured as Kilometers operated per Kilogram of CNG fuel consumed (KMPKG) under Clause 24.4, making TML liable to pay penalties recoverable from AMC dues under Clause 46 of the GCC.
  • DTC calculated the KMPKG penalty amount based on meterage recorded in drivers' memos used for AMC calculations. TML disputed this calculation method, asserting that KMPKG penalties should be based solely on 'kilometers operated' as per Clause 24.4 and not on the drivers' memo meterage used for AMC. DTC raised demands for KMPKG penalties for the periods 2011-12 and 2012-13, intending to deduct these amounts from TML's AMC dues. TML responded by invoking arbitration and obtaining interim orders (April 5, 2013 and June 15, 2013) from the Arbitral Tribunal, staying DTC's recovery efforts.
  • The Arbitration Tribunal eventually issued the First Arbitral Award on August 16, 2017. The majority of the tribunal ruled against DTC, declaring their method of calculating KMPKG penalties and recovering them from AMC dues illegal. Following the First Arbitral Award, DTC filed objections under Section 34 of the Arbitration and Conciliation Act, 1996 (Act) while TML pursued enforcement through OMP (ENF.)(COMM.) 137/2018. Court orders directed DTC to deposit specific amounts in the registry, permitting TML to withdraw these amounts upon furnishing affidavits of undertaking and bank guarantees.
  • During these proceedings, DTC issued an Office Memorandum on February 5, 2021, demanding INR127 crores from TML for the period 2009-2020, excluding the periods covered by the First Arbitral Award. TML filed a post-award Section 9 petition (OMP(I)(COMM.) 62/2021) to prevent DTC from recovering this amount from AMC dues, citing violations of the First Arbitral Award and contractual provisions. DTC deducted significant sums (totaling INR 19,11,60,900) from TML's AMC dues in February 2021, but later agreed not to make further deductions pending a hearing on February 18, 2021.
  • DTC was directed to deposit the deducted amount and subsequently withdrew appeals in exchange for TML's withdrawal of the Section 9 petition. Meanwhile, DTC initiated fresh recovery actions, demanding INR 17,86,43,616 as KMPKG penalty for 2021-2022, pursuant to the Office Memorandum of February 5, 2021. DTC invoked arbitration for INR127 crores claimed in the Office Memorandum. TML filed Section 17 applications to stay demands, which were granted by the Arbitration Tribunal without challenge from DTC.
  • The Arbitration Tribunal issued orders (November 9, 2022 and February 6, 2023) to stay DTC's penalty demands and directed TML to provide bank guarantees to secure disputed amounts. TML filed another Section 17 application to stay DTC's INR 127 crores claim, seeking a similar stay on recovery efforts. The Arbitration Tribunal, in its order dated March 17, 2023, restrained DTC from recovering INR78,04,39,450 (net of amounts already deducted) and directed TML to furnish a bank guarantee.
  • Aggrieved by the order, the parties have now challenged the order dated March 17, 2023 in these appeals.

Issues at hand?

  • Whether Appellant's withdrawal of its Section 9 petition operates as res judicata, barring it from seeking relief under Section 17 of the Act?
  • Whether Respondent is correct in its contention that Appellant conceded to Respondent's right to recover the KMPKG penalty from the AMC dues by allowing Respondent to withhold a certain sum?
  • Whether the mutual arrangement between Appellant and Respondent regarding the withholding of a specific sum by Respondent implies a permanent understanding on the issue of KMPKG penalty recoveries?

Decision of the Court

  • At the outset, the Delhi High Court (HC) held that the withdrawal of the OMP(I)(COMM.) 62/2021 by Appellant was not unconditional and does not operate as res judicata. The mutual arrangement between the parties did not imply a permanent understanding on the issue of KMPKG penalty recoveries.
  • Thereafter, the HC distinguished the present case from the Kanchan Kapoor v. Swaran Kumar1 cited by the Respondent, noting that there was no similarity of facts and that there was no decree or adjudication against Appellant regarding the KMPKG penalty in OMP(I)(COMM.)62/2021.
  • Further, the HC observed that the Appellant had no reason to concede to the deductions permanently, as it already had an Arbitral Award in its favor, and there were two unchallenged orders under Section 17 restraining the Respondent from making recoveries.
  • The HC concluded that the Respondent's reliance on the judgments of Arcelor Mittal Nippon Steel India Ltd v. Essar Bulk Terminal Ltd2 and Kirtikumar Futarmal Jain v. Valencia Corporation3 was misplaced, as those cases did not apply to the current situation where Appellant had not been barred from seeking relief under Section 17 after withdrawing its Section 9 petition.
  • The HC also referenced the case of HM Kamaluddin Ansari & Co. v. Union of India4 in its analysis but found Respondent's reliance on it to be out of context, as the Arbitral Tribunal did not reject Appellant's prayer for a refund of the withheld amount due to lack of powers under Section 17, but rather on the merits of the case.
  • The Court held that TML's claim for an interim mandatory injunction under Section 17 was rightly rejected by the Arbitration Tribunal which concluded that it did not possess the powers to grant such injunctions under Section 17, and despite this conclusion, it refused to grant the injunction based on the merits of TML's case.
  • Additionally, the Arbitration Tribunal declined to reverse the recoveries made by DTC (presumably the opposite party) from TML, citing that it did not wish to disrupt the ongoing process. The recoveries made by DTC on various dates were not contested by TML effectively, as TML did not file a counterclaim in response to these deductions within the stipulated timeframes. TML's failure to pursue arbitration proceedings promptly after the deductions in February 2021 weakened its position to seek recovery through an interim mandatory injunction under Section 17. The Arbitration Tribunal correctly reasoned that such relief would exceed the scope of Section 17 and would not be appropriate given TML's actions and inactions in the arbitration process.
  • Therefore, the HC upheld the Arbitration Tribunal's decision to deny TML's request for an interim mandatory injunction and to not reverse the recoveries made by DTC, considering TML's failure to assert its claims effectively during the arbitration proceedings.

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Footnotes

1. 2014 SCC OnLine Del 6552

2. (2022) 1 SCC 712

3. 2019 SCC OnLine Guj 3972

4. (1983) 4 SCC 417

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