Section 9 Not Res Judicata For Section 17 Application When Withdrawal Is Conditional: Delhi High Court Dismisses Section 37(2)(B) Application

Section 17 provides the arbitral tribunal power to give interim measures to the parties.

Brief Facts:

The Delhi Transport Corporation (DTC) entered into a contract with Tata Motors Limited (TML), wherein TML supplied 650 AC and 975 non-AC low-floor CNG-fueled buses to be incorporated into DTC's fleet in Delhi. The agreement also included TML's responsibility for maintaining the buses against Annual Maintenance Charges (AMC) payable by DTC.

Disputes arose between the parties regarding the interpretation of Clause 24.4 and 46.16 of the General Conditions of Contract (GCC). DTC claimed that TML was liable to pay penalties under Clause 24 for not meeting guaranteed fuel efficiency targets, which DTC sought to recover from the AMC dues under Clause 46 of GCC. TML contested this, arguing that the basis for penalty calculation should be "kilometers operated" and not the meterage recorded in drivers' memos used for AMC calculations.

DTC raised a demand for KMPKG penalties for 2011-12 and 2012-13, leading TML to invoke arbitration. The First Arbitral Award declared DTC's actions illegal, and DTC filed objections against it. While the objections were pending, DTC raised a new demand of Rs.127 crores, prompting TML to file a Section 9 petition under Arbitration and Conciliation Act, 1996. A subsequent settlement saw both parties withdrawing their respective claims.

During this, DTC initiated a parallel track of recoveries, raising a demand for Rs.17,86,43,616 as KMPKG penalty for 2021-2022. DTC unilaterally invoked arbitration and claimed Rs.127 crores. TML, in response, filed Section 17 applications challenging the demands, and the Arbitral Tribunal (AT) issued orders staying the recoveries and directing TML to furnish bank guarantees.

TML filed a fresh Section 17 application challenging the demand for Rs.127 crores and seeking recovery of Rs.49,81,87,525 already deducted by DTC. The AT, consistent with previous orders, restrained DTC from recovering Rs.78,04,39,450 and directed TML to provide a bank guarantee. Feeling aggrieved, DTC approached the Delhi High Court (“High Court”) and filed Section 37(2)(B) application challenging this order, asserting that TML's withdrawal of the Section 9 petition estops them from seeking similar relief under Section 17.

TML, on the other hand, contended that DTC's actions violated the First Arbitral Award, and under Section 17, the AT has the power to grant interim mandatory injunction orders. TML challenged the AT's refusal to direct a refund of Rs.49,81,87,525/-, arguing that it had already been decided in the previous arbitral award.

Observations by the High Court:

The High Court expressed concern over DTC's failure to provide reasons for refraining from challenging the previous orders and questioned the rationale behind making an exception for challenging the present order.

DTC's main challenge rested on the grounds of constructive res judicata, contending that TML's unconditional withdrawal of its Section 9 petition amounted to conceding DTC's right to recover KMPKG penalty. The High Court, however, disagreed with DTC's position, pointing out that the order dated 03.02.2023 was because of a mutual arrangement between the parties, allowing DTC to recover a specific sum. It clarified that this arrangement did not imply a permanent understanding, and TML's concession was limited.

The High Court noted that DTC faced contempt proceedings for violating its own undertaking, wherein it had promised not to make any deductions. In response to a contempt petition by TML, DTC was directed to deposit the withheld sum of Rs.19,11,60,900/-. However, before the main proceedings and contempt application could be concluded, the parties reached an arrangement. The High Court underscored that DTC, having benefited from avoiding potential contemptuous action through a mutual agreement, could not argue that the withdrawal of Section 9 petition was unconditional and hence amounted to res judicata.

The High Court upheld the AT's decision not to reverse the recoveries made by DTC since TML failed to secure an order from the High Court in earlier proceedings. The petition was dismissed.

Case Title: Tata Motor Limited vs Delhi Transport Corporation

Citation: 2024 LiveLaw (Del) 273

Case Number: ARB. A. (COMM.) 9/2023.

Advocate for the Petitioner: Mr. Rajiv Nayar, Sr. Advocate, Mr. Gopal Jain, Sr. Advocate with Ms. Meera Mathur, Ms. Nandini Gore, Ms. Aditi Bhatt, Mr.Rajat Dasgupta, Mr.Sarthak Gaur and Ms.Manvi Rastogi.

Advocate for the Respondent: Through: Mr. Manish Vashisht, Sr. Advocate with Mr. Rikky Gupta, Standing Counsel with Ms.Ananya Singh, Ms. Harshita N., Mr. Vedansh, Mr. Vanshay Kaul and Mr. Aman Singh.

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