When An Application Filed Under Section 9 Is Conditionally Withdrawn, It Cannot Be Considered As Res Judicata For A Subsequent Application Filed Under Section 17 Of The Arbitration And Conciliation Act: Delhi Hc

Case title:

Tata Motor Ltd v. Delhi Transport Corporation

Date of Order:

4th March 2024

Bench:

Hon’ble Mr. Justice Manoj Kumar Ohri

SUBJECT:

The Hon’ble High Court of Delhi (hereinafter referred to as ‘the High Court’ or ‘the Court’) adjudicated a matter arising out of a dispute between the Delhi Transport Corporation and Tata Motors Ltd regarding payment of dues, particularly the Kilometer per Kilogram (KMPKG) penalty from the Annual Maintenance Charges payable to DTC from TML. The court held that when a withdrawal of a petition is conditional, it cannot be treated as res judicata. Appeals filed by both parties were dismissed. 

IMPORTANT PROVISIONS:

The Arbitration and Conciliation Act,19 (Arbitration Act):

• Section 37(2)(B)
• Section 17
• Section 34
• Section 9
• Section 41(b)

OVERVIEW:

• On 18.10.2018, Delhi Transport Corporation (DTC) purchased 650 AC and 975 non-AC low floor CNG fueled buses from Tata Motors Ltd (TML). TML was also responsible for maintenance services of the buses, against the Annual Maintenance Charge (AMC). 
• Disputes arose between the parties, specifically in regard to clauses 24.4 and 46.16 of the General Conditions of Contract (GCC).
• DTC alleged that TML had failed to meet the guaranteed minimum average fuel efficiency targets, and was liable to pay penalties under clause 24.4 of GCC.
• After calculating the penalties, DTC adjusted it from TML’s Annual Maintenance charges. 
• TML contested the calculation method adopted by DTC, and invoked arbitration and challenged the demand.
• The Arbitral Tribunal issued interim orders on 05.04.2013 and 15.06.2013 which, at the time, stayed the demand and restrained DTC from recovering the penalty.
• The first arbitral award was passed on 16.08.2017, declaring the actions of DTC illegal.
• DTC challenged the award under section 34 of the Arbitration Act, meanwhile TML filed an enforcement petition to enforce the award, wherein vide orders dated 26.09.2018, 29.03.2019, 13.03.2020, and 20.07.2020, DTC was instructed by the Court to deposit Rs. 100 crores, Rs. 140 crores, and Rs. 100 crores respective in the Registry and permitted TML to withdraw said amounts upon furnishing an affidavit of undertaking and bank guarantees.
• While the objections were pending, on 05.02.2022, DTC issued an Office Memorandum demanding approximately Rs. 127 crores from TML, for time periods spanning from 2009 to 2020, excluding the time from 2011-2012, already covered by the first arbitral award deemed illegal.
• This prompted TML to file a petition restraining DTC from recovering the amount under section 9 of the Act.
• However, DTC proceeded to deduct a total sum of Rs. 19,11,60,900 on 15.02.2021 and 18.02.2021 from TML’s AMC dues. However, vide order dated 18.02.2021 passed under section 9, DTC gave an undertaking to not deduct any more amount from TML’s AMC dues until the next hearing. 
• DTC was directed by the Court to deposit the amount of Rs. 19,11,60,900 in court which was deducted by it on 15.11.2021
• DTC appealed against this order. It was revealed through records that the appellate court had not suspended the impugned order dated 15.11.2021. 
• DTC subsequently filed a Special Leave Petition (SLP) against the appellate court’s refusal to stay the direction for deposit.   
• While the SLP was still pending, the petition filed by TML under section 9 to restrain DTC from recovering the amount from its AMC dues was disposed of vide order dated 27.01.2022, wherein DTC was prohibited from recovering the penalty amount from TML’s AMC dues. 
• The SLP was eventually disposed of in light of the final order dated 27.01.2022, leaving all questions open for adjudication. 
• DTC appealed against this order on 09.01.2023, stating that it would withdraw the appeal if TML withdrew its petition filed under section 9 itself. 
• TML withdrew said petition vide order dated 03.02.2023, following which DTC withdrew its appeal. 
• Furthermore, DTC was authorized to withdraw the sum of Rs. 19,11,60,900, deposited pursuant to the order dated 15.11.2021 at TML’s consent.
• While the above events were ongoing, DTC issued a demand for Rs. 17,86,43,616 as a penalty for KMPKG for the period of 2021-2022 on 02.07.2022 across 20 depots approximately, in accordance with its Office Memorandum dated 05.02.2021 which had already requested demanded a sum of Rs. 127 crores. 
•  The Arbitral Tribunal (AT) was constituted on 7th August 2022. 
• TML filed multiple applications under section 17 of the Arbitration Act, seeking a stay on the demands made by DTC and making recoveries before the AT. 
• In the first section 17 application filed by TML, DTC was restrained from recovering penalties vide order dated 09.11.2022, and in the same order, TML was instructed to provide a bank guarantee ensuring the said amount. This order was not contested by DTC.
• In the other application filed by TML under section 17 contested the demand made on 29.12.2022 of Rs. 5,51,53,753 made by DTC for the period 2020-2021. The AT passed an order akin to the order dated 09.11.2022, putting a stay on the demand. TML was instructed to furnish a bank guarantee once again. Even this order was not challenged by DTC.
• TML went on to file another application under section 17. This time seeking a stay on DTC’s demand of Rs. 127 crores, claimed as claim no. 1 by DTC’s Statement of Claim (SOC), although for a different period.
•  Additionally, TML sought a stay order on the internal communication dated 4.01.2023 wherein it was decided that the sum was to be recovered despite the pendency of the AT’s adjudication. TML requested the recovery of Rs. 49,81,87,525 deducted by DTC in January and February of 2023.
• Following its 2 previous orders under section 17, AT issued the impugned order dated 17.03.2023, aligned with its previous rulings. DTC was barred from recovering the remaining amount once again after having already deducted Rs. 49,81,87,525 from the total claim of Rs. 127 crores. TML was instructed to furnish a bank guarantee to secure the disputed amount. 
• TML’s prayer for releasing the already deducted sum by DTC was rejected. 
• Both parties aggrieved by the impugned order have appealed against it in the instant case. 

ISSUES RAISED.

ARGUMENTS ADVANCED BY THE APPELLANT:

• AT’s refusal to not direct DTC to refund the deducted amount of Rs. 49,81,87,525 which was being withheld by DTC.
• DTC had not contested 2 orders previously passed by the AT.
• The arbitral award order dated 16.08.2017 had already settled the issue wherein the KMPKG demand by DTC was deemed illegal.
• Consistent with the said order, DTC still withholding the amount is a violation of the arbitral award. 
• The authority to grant interim mandatory injunction orders under section 17 of the Arbitration Act rests with the AT. Therefore, AT’s observation suggesting otherwise was erroneous.  
• Relying on the rulings in NTPC Ltd. v. Jindal IRF Ltd. & Ors and SPA Agencies (India) Pvt Ltd v. Harish Rawtani, it was argued that AT holding that the power to grant interim mandatory injunction does not exist contradicts the established legal principles laid down in the judgments. 

ARGUMENTS ADVANCED BY THE RESPONDENT:

• TML’s unconditional withdrawal of the petition filed under section 9 of the Arbitration Act vide order dated 03.02.2023 establishes an estoppel barring TML from seeking similar relief under section 17.
• The relief sought from AT by TML is precluded by constructive res judicata.
• TML has no fresh cause of action to file the present application under section 17. Since TML’s challenge to the internal communication date 04.01.2023 was previously raised in the application dated 15.11.2021 was in accordance with the Office Memorandum dated 05.02.2021, and subsequently withdrawn on 03.02.2023. 
• Relying on the case of Kanchan Kapoor v. Swaran Kumar, it was asserted that TML was in no position to challenge the same demand again. 
• By way of the order passed on 03.02.2023, TML has already displayed its acknowledgment of DTC’s right to recover the penalty amount. Hence, it cannot oppose the recovery at present.
• Once the relief sought under section 9 of the Arbitration Act is refused, the same relief cannot be sought under section 17 from the AT, as was held in Arcelor Mittal Nippon Steel India Ltd v. Essar Bulk Terminal and Kirtikumar Futarmal Jain v. Valencia Corporation. 
• The directives given to DTC to refund TML the recovered sum and TML seeking a stay on the recoveries is violative of Section 41(b) of the Arbitration Act. 

JUDGEMENT ANALYSIS:

• DTC did not contest the two orders previously passed by the AT dated 09.11.2022 and 06.02.2023, which was consistent with the order dated 17.03.2023.
• Every time, DTC was directed to not deduct the penalty amount from TML’s AMC, and TML was instructed to furnish a bank guarantee each time to secure the amounts. 
• DTC has provided no explanation as to why the previous orders were not contested but the instant impugned order is an exception. 
• DTC’s arguments are based primarily on the concept of res judicata, stemming from TML’s unconditional withdrawal of the application filed under section 9. 
• The order dated 03.02.2023 highlights TML’s conceding to DTC’s right to recover the penalty amount from AMC.  Having agreed then, TML cannot change its stance and contest the recovery now.
• However, DTC’s arguments seem inconclusive as the above-mentioned order implies that the parties reached a mutual understanding following which DTC deducted an amount to recover a portion of the penalty amount. But the understanding does not seem to have a permanent resolution as TML had no reason to concede, given that the deductions were held illegal.
• Moreover, 2 orders had already been passed which prohibited DTC from deducting penalties from the AMC dues of TML for the period of 2021-2022 and 2020-2021, which went uncontested by DTC. 
• The Court noted that DTC had to face contempt for breaching its own undertaking in application dated 15.11.2021, where it had pledged not to make any deductions.
• It was observed that before the Original Miscellaneous Petition (OMP) and the contempt proceedings were concluded, the parties had negotiated an agreement whereby DTC had avoided potential consequences for contempt of a mutual understanding.
• Therefore, DTC cannot claim that TML withdrawal of the application filed under section 0 was unconditional and operates as res judicata.
• Reliance cannot be placed on the case of Kachan Kapoor (supra) by DTC as the circumstances of the instant case are different from the instant case.
• TML withdrawing the application filed under section 9 does not inherently amount to an admission of guilt on their part. In fact, it appears to be a part of a strategic negotiation leverage.    
• There has been no final judgment until now that rules against TML as far as the KMPKG penalty is concerned. Although there is an order in favour of TML and 2 uncontested orders under section 17 forbidding them from recovering penalties.
• The Court held that the ruling in the case of Futarmal (supra) is not in favour of DTC either since the ruling suggests that when a court dismisses a plea sought under section 9, another application cannot be filed under section 17 for the same issue, which is not the case in the instant proceeding.
• The Court upheld AT’s observation that DTC could not recover the amount through unilateral deductions before the dispute has been resolved. 
• However, the High Court observed that AT did indeed lack the power to grant interim mandatory injunctions under section 17. Additionally, the Court also refused to grant the injunction based on the merits of the case.
• The cases cited by TML to substantiate its arguments are irrelevant as AT did not refuse TML’s request for refund due to lack of authority.
• It was observed that TML did not file a counterclaim to reclaim the amounts deducted by DTC on various dates, but went on to seek a refund under section 17.
• AT’s refusal to entertain the refund prayer by TML was upheld by the Court.
•  Consequently, both the appeals were dismissed by the High Court.

CONCLUSION

The High Court of Delhi highlighting the conditional nature of the withdrawal of application filed under section 9, rejected DTC’s res judicata argument. It upheld the rulings of the AT noting that the mutual understanding between the parties did not amount to a permanent resolution. The Court also criticized DTC’s failure to provide adequate reasons to not challenge the previous order. Resultantly, both appeals stood dismissed and pending application deemed infructuous.