F.A.O No.3585 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. F.A.O No.3585 of 2007 Date of Decision: 27.11.2009 Railway Board through its Chairman, Rail Bhavan, Raisina Road, Rail Bhavan, New Delhi. ....Appellants Versus Punjab State Electricity Board through its Chairman, The Mall, Patiala ...Respondent CORAM : Hon'ble Ms. Justice Nirmaljit Kaur Present:- Mr. Puneet Jindal, Advocate for the appellants. Mr. R.P. Bhatt, Sr. Advocate with Mr. Gagandeep Singh, Advocate for the respondent. ***** 1. Whether Reporters of Local Newspapers may be allowed to see the judgment ? 2. To be referred to the Reporters or not ? 3. Whether the judgment should be reported in the Digest ? ** NIRMALJIT KAUR, J. This is an appeal against the order dated 21.05.2007 passed by the Additional District Judge, Patiala, whereby, the objection petition filed by the objectors under Section 34 of the Arbitration and Conciliation Act, 1996 against the award dated 21.11.2003 passed by the sole Arbitrator, was dismissed. The facts, in short, are that there is a dispute between the Punjab State Electricity Board (for short `the PSEB’), an undertaking of the Punjab Government, and the Railways, a Central Government undertaking. The PSEB is engaged in generation and supply of electricity. It has thermal F.A.O No.3585 of 2007 2 plants and power houses at various places which require coal. The Railways carry coal from the mine-heads to the power houses/thermal plants for which the PSEB is liable to pay the freight. As per the rules of the Railways, freight can be paid either on `to-pay’ basis or `pre-paid’ basis. In the former, freight is paid on receipt of goods at the destination while under the later, it is paid in advance at the time of booking of goods. Under the `to-pay’ basis, a surcharge is also levied by the Railways. The rate of surcharge was originally 5% but was increased from time to time. After 1995, the rate of surcharge is 15%. A scheme was framed by the Northern Railways which came to be known as “PROCEDURE AND MODALITIES ON THE SCHEME OF ADVANCE PAYMENT ON FREIGHT CHARGES OF COAL TRAFFIC BOOKED TO THE POWER HOUSES OF PUNJAB STATE ELECTRICITY BOARD WITH THE BENEFIT ON NON-NEVY OF SURCHARGE OF 5% OTHERWISE LEVIABLE ON “TO PAY TRAFFIC.” This scheme was extended from time to time. The parties were being governed/regulated by the said Scheme and this aspect has also been conceded before the Arbitrator. In the case of PSEB, Railway Board authorized the General Manager, Northern Railway in January, 2001 to change the Scheme of 1992. The PSEB was consistently representing that there was no justification for levying 15 % surcharge on such transactions as long as sufficient deposit was available to cover the pre-paid freight. Therefore, the respondent requested the Railway Board to interpret the scheme correctly. Accordingly, a proposal was sent to the Board for taking its decision for the withdrawal of 15% surcharge since the cascading effect had led to the accumulation of outstanding against the power houses. The Railway Board called a meeting of MT and FC to discuss the issue on 19.01.2001. The MT and FC directed CCM and FA & CAO that correct interpretation of the scheme be got approved from the General Manager, Northern Railway. F.A.O No.3585 of 2007 3 The General Manager, Northern Railway was duly authorised to take the decision for withdrawal of 15% surcharge and outstanding against the Thermal Power Houses. Thus, the Railway Board authorized General Manager, Northern Railway to take the decision for the interpretation of scheme for the advance payment of scheme and withdrawal of outstanding dues against the Thermal Power houses. The FA, CAO and Chief Commercial Manager, in a joint meeting dated 19.01.2001, recorded as follows :- “ The Members directed that the CCM and FA & CAO should jointly take all steps essential to streamline the current as well as old outstanding, keeping in view the basic need to ensure that the essential requirements of the railway is that the actual freight accrued is realized fully. They said the General Manager is fully competent to take a final decision in case of any dispute arising with the powerhouses in the interpretation and application of the provisions of the scheme with the concurrence of FA & CAO. The Railway may formulate its own “JPO” for the applicability of the scheme.” The General Manager, Northern Railway, in pursuance of the authority conferred upon him by the Railway Board, approved the scheme for the advance deposit of freight. The members of Railway Board were also of the view that as long as the freight of last rake is available as advance deposit with the Railway, the levy of surcharge of 15% is not logical. On 02.03.2001, the General Manager, Northern Railway sent the proposal to the Railway Board for the confirmation of the meeting dated 19.01.2001, whereby, the Railway Board delegated the powers to the General Manager, Northern Railway to take the decision on the interpretation of the scheme. On 15.05.2001, the Railway Board sent the confirmation for the meeting held on 19.01.2001 and confirmed the decision of the General Manager, Northern Railway for the interpretation of F.A.O No.3585 of 2007 4 the advance payment of the scheme for its implementation. Though, vide letter dated 16.08.2001, a letter (annexure P-12 in CWP No.2518 of 2002) was received from Divl. Railway Manager (Comm.), Railways that they cannot make the adjustment of surplus amount of 15% rebate without approval of Railway Board. Accordingly, C.W.P. No.2518 of 2002 was filed in February 2002 in this Court with one of the prayers as follows : “ Issue an appropriate writ order or direction to the Railways Authorities to implement its decision of withdraw of 15%.” Suddenly, the Board took the decision vide letter dated 15.05.2002 that the decision of the implementation of the revised interpretation of the advance payment of scheme was rejected by the Railway Board. It was the case of P.S.E.B that till such time any amount of freight is available, the surcharge could not be levied. However, it was the case of the railways that non payment of freight periodically in terms of the arrangement entitles to claim surcharge from the Board. On 17.12.2002, the learned Single Judge of this Court in above Civil Writ Petition recorded that the only dispute which remains to be settled in the writ petition is as to whether prior to 27.7.2002, any surcharge was leviable and, if so, what amount was to be levied. On 28.03.2003, both the parties agreed that the matter be referred to the sole arbitrator Mr. P.K. Bahri, retired Judge of the Delhi High Court to decide the dispute “whether the PSEB is liable to pay any surcharge or freight for the period prior to 27.07.2002 and, if so, what was the amount so payable.” The writ petition was disposed of in the abovesaid agreed terms. The Arbitrator upheld the interpretation of the scheme as given by the General Manager as delegation of the Board and concluded as F.A.O No.3585 of 2007 5 follows :- “34. Thus, I conclude that the revised interpretation of the scheme as given by the General Manager as delegation of the Board is final and binding on the parties. 35. I thus make the award as follows :- 1. That the parties are bound to act in terms of the order of the General Manager, Northern Railways. 2. That the parties shall work out the accounts in terms of the revised interpretation of the scheme given by the General Manager. 3. That the parties shall bear their own costs of these proceedings.” Aggrieved with the above, the objection petition was filed under Section 34 of the Arbitration and Conciliation Act, 1996, which was dismissed vide order dated 21.05.2007 passed by the Additional District Judge, Patiala. The appellant-Railway Board has, therefore, impugned the award dated 21.11.2003, as well as, the order dated 21.05.2007 passed by the Additional District Judge, Patiala, through the present appeal. While challenging the same, Mr. Puneet Jindal, learned counsel for the appellant, raised the following arguments :- (a) The dispute in hand is not referable to Arbitration, therefore, the award is liable to be set aside under Section 34(2)(a)(v) read with Section 34(2)(b)(i) of the Arbitration Act, as the dispute is between two Government Organisations. The Objector is a Department of Central Government and all earnings are deposited in the Consolidated Fund of India. On the other hand, the Writ Petitioner/respondent is a statutory Board created under the Indian Electricity Act, 1948. The State Government holds the entire capital of the petitioner Board, thus the present dispute is between two Government entities. The present dispute, therefore, could not have been heard F.A.O No.3585 of 2007 6 either by the Court of Law or Arbitrator appointed by a Count unless the same is referred before the High Powered Committee constituted under the Chairmanship of the Cabinet Secretary as per order/directions passed by Hon’ble the Apex Court in the case of Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. 2003(5) Supreme Court Cases 705. The Court and the Arbitrator were, therefore, not competent to hear and decide the present dispute. (b) The Arbitrator in the impugned award Annexure P-2 has failed to decide the specific dispute referred to him by this Court in its order dated 28.03.2003 (Annexure P-1), the award, therefore, is liable to be set aside in view of Section 34(2)(iv) of the 1996 Act. It was submitted that the Arbitrator has not determined the amount payable by the petitioner to the Objector/respondent. On the other hand, the effect of the Award is to be set aside/quash the Scheme of 1992, which was never the subject matter of the dispute referred. In fact, it is the express case of the Objector/applicant that the State Electricity Board is always at liberty to opt out of the 1992 Scheme and that option has never been exercised by the PSEB till date. The Scheme was introduced and extended from time to time on the request by PSEB in writing to the applicant/objector. During the currency of Scheme, the conduct of the parties has to be strictly governed by the express terms and conditions of the Scheme and by no other mode. It was further stated that admittedly, this agreement continued to operate on the request of the claimant was recorded by the Arbitrator but inspite of the same, went on to given an award contrary to the finding. (c) Learned counsel for the appellants also submitted that the General Manager had no authority to interpret the scheme. It was required to be approved by the Board which was never done. Hence, the Arbitrator could not have relied upon the same and has in fact wrongly F.A.O No.3585 of 2007 7 concluded that the said scheme was duly approved by the Board. The Railway Board had never approved the revised interpretation of the Advance Payment Scheme. It is patent that no proposal involving expenditure effecting Railway revenue can be sanctioned without the prior concurrence of Financial Commissioner, Railway Board. Accordingly, the proposal of the Northern Railway was considered and not acceded to. This letter bears the reference of G.M., Northern Railway letter dated 19.04.2001, as well as, letter of even number dated 15.05.2001. The Railway Board very categorically stated that neither the provisions of modified Advance Payment Scheme were considered nor any revised interpretation was accepted. In this view of the matter, the competent Authority i.e. the Railway Board, under whose administrative control the Northern Railway functions regretted the changed Scheme envisaged by the Northern Railway vide letter dated 15.05.2002. The Railway Board categorically held that the Board has neither modified the provisions of the Scheme nor considered any revised interpretation. (d) The impugned award is liable to be set aside being against public policy of India under Section 34(2)(b)(ii) as below :- i) The award is in violation of contract between the parties, the Arbitrator is bound by the Express terms and conditions of the contract as per Section 28(3) of the Act. ii) In case, award is accepted, it will amount to discrimination qua other Rail users especially State Electricity Board and Power Houses situated in the various parts of the country. Appellant sought to draw attention towards Section 70 of the Railway Act, 1989. Learned counsel for the parties have been heard. Taking up the first argument of learned counsel for the F.A.O No.3585 of 2007 8 appellants that the Arbitrator was not competent to hear and decide the present dispute since the dispute was between two Government Organisations and the same should be decided by the High Powered Committee in terms of the decision of Hon'ble the Apex Court, in the case of Oil & Natural Gas Corporation Ltd. (supra). Learned counsel for the respondent submitted that it was not open to the appellants to raise the question at this stage. It is not denied that the appointment of the Arbitrator was made by the mutual consent of both the parties vide Order dated 28.03.2003 passed in C.W.P. No.2518 of 2002 by the learned Single Judge of this Court. As per Section 4 of the Arbitration and Conciliation Act, 1996, the appellants were required to take the objection before the Arbitrator at the first instance. The same was not done. Thus, they are deemed to have waived of their right to challenge the jurisdiction of the Arbitrator at this stage. The matter was referred to the Arbitrator by this Court in the presence of both the parties. The parties did not object to the same. No appeal against the said order was filed. Subsequently, they submitted themselves to the jurisdiction of the Arbitrator. No objection was raised even at that stage. Thus, the Arbitrator was competent to hear the dispute and it was well within his jurisdiction to decide the same. The judgment rendered by the Hon'ble Apex Court in the case of Oil & Natural Gas Corporation Ltd. (supra), will not apply to the facts of the present case as the dispute herein was referred to the Arbitrator with the consent of the appellants. Now, after the award is against the appellants-Railway and the objections are rejected, the appellants cannot seek to reopen the entire issue over again. In the judgment of Hon’ble the Apex Court, rendered in the case, titled as Hindustan Construction Co. Ltd. vs. Governor of Orissa and others 1995 (3) Supreme Court Cases 8, it is held as under :- “ In the facts and circumstances of the case, F.A.O No.3585 of 2007 9 the State Government could not be permitted to challenge the jurisdiction of the Special Arbitration Tribunal after it had submitted to its jurisdiction merely because the award went against it. It hardly behoves the State Government to question the jurisdiction of the Special tribunal at such a belated stage merely because the award was not to its liking. The State Government cannot be permitted to behave like an ordinary dishonest litigant who takes an off chance hoping to succeed and if the outcome is not to his liking to turn back and question the Special Tribunal’s jurisdiction. The High Court should not have permitted such a somersault.” While taking up the second point raised by learned counsel for the appellants that the Arbitrator has failed to decide the specific dispute, referred to him, by this Court and the same tantamount to quashing of the Scheme 1992 which was never the subject matter of the dispute, learned counsel for the respondent submitted that the award deals with the precise question formulated by the learned Single Judge and the Sole Arbitrator duly dealt with the issues formulated and after considering the entire submissions made by both the parties, rendered the decision on merits and within the frame work of the law and facts. The concept of dispute has been defined as one to cover all disputes arising out of an agreement. The dispute, herein, referred to before the Arbitrator as also reproduced by the Arbitrator is as under :- “ Thus, as observed by me in my order dated 17.12.2002, the only dispute which remains to be settled in this petition is as to whether the PSEB is liable to pay any surcharge on freight for the period prior to 27.07.2002 and if so, what was the amount so payable.” In order to arrive at a conclusion as to whether the PSEB is liable to pay any surcharge on freight for the period prior to 27.07.2002 and if so, what was the amount so payable will include the matters incidental, F.A.O No.3585 of 2007 10 connected, interlict, interdependent with the dispute between the parties. The Arbitrator, in fact, resolved the disputes in a most judicious manner. The dispute as referred to by this Court as apparent from the order reproduced above, was directed to look at the dispute from all angles and decide the same after hearing the parties and therefore, it cannot be said that the Arbitrator acted beyond the scope of arbitration as referred to him. The Arbitrator cannot be restrained from looking into the scheme which was relied upon by the respondents for withdrawing of the 15% surcharge and as interpreted by the General Manager. It was necessary for proper adjudication of the dispute referred to him especially when the interpretation of the scheme by the General Manager was directly related to the question as to whether the PSEB is liable to pay all surcharge on freight from the period prior to 27.07.2002 or not. As already stated in the facts above, the precise prayer before this Court in C.W.P. No.2518 of 2002, in pursuance to which the arbitrator was appointed was, to issue an appropriate writ or direction to the Railway Authorities to implement its decision of withdraw of 15%. Thus, it cannot be said under any circumstances that the arbitrator went beyond the dispute referred to it. Even in the case of M.P. Housing Board v. Progressive Writers & Publishers AIR (2009) Supreme Court 1585, Hon’ble the Supreme Court in paras 26 and 27, held as under :- “26. We cannot accept the contention of the Board that no additional issue could have been framed by the arbitrator on his own for its decision. In a reference made under Section 23, arbitrator’s power to determine the lis between the parties is much wider. The arbitrator has all the powers which the court itself would have in deciding the issues in the suit. The court’s power to frame an additional issue if it is just and necessary for deciding the matter in dispute cannot be denied and so also of F.A.O No.3585 of 2007 11 the arbitrator where disputes between the parties pending adjudication on suits have been referred to arbitrator for determination. 27.In the light of the settled legal principle, we are of the opinion that the arbitrator was not bound to adopt only the issues submitted by the parties but was well within his jurisdiction to frame such other issue or issues as may be just and necessary for the purpose of disposal of the reference made under Section 23 of the Act. We accordingly find no merit in the submissions made by the learned senior counsel that the arbitrator exceeded his jurisdiction and committed grave legal misconduct in framing said issue and determining the same.” Learned counsel for the appellants went on to finally argue that the award did not decide the dispute as the dispute relates to the period 01.07.1998 to 27.07.2002 being the total period. The first period is from 01.07.1998 to 31.03.2001 for which the original scheme would be binding and the second part of the period is from 01.04.2001 to 27.07.2002 for which the scheme as per the revised interpretation is applicable. Thus, the question of quantification of the accounts, as per the appellants, still remains. The same is not correct in view of the following directions made in the award : 1. That the parties are bound to act in terms of the order of the General Manager, Northern Railways. 2. That the parties shall work out the accounts in terms of the revised interpretation of the scheme given by the General Manager. 3. That the parties shall bear their own costs of these proceedings. It is, therefore, evident from direction No.2 that the accounts were to be now worked out in terms of revised interpretation of the scheme. Both the parties had already filed their statements before this F.A.O No.3585 of 2007 12 Court. Both on account of freight becoming due after charging 15% charge and also the account position when the freight is not charged. The calculation, in itself, is a mere formality. Both the parties have already submitted the account before this Court and the amount which is due in case 15% freight is charged and in case, the same is not charged, is already indicated in the pleadings. The third argument of the learned counsel for the appellants that the award has the effect of setting aside the scheme is ill-founded as the same was in fact only an interpretation of the General Manager of the Railways himself. A perusal of the same, which has been reproduced in the Grounds of Appeal, itself, makes it clear. The relevant part of the note dated 19.01.2001 reads thus :- “ They said the General Manager is fully competent to take a final decision in case of any dispute arising with the powerhouses in the interpretation and application of the provisions of the scheme with the concurrence of FA & CAO.” Learned counsel for the appellant while raising his third argument at this stage, however, submitted that under no circumstances, it can be said that the General Manager had a right to take decision. A meeting dated 19.01.2001, in fact, had taken place between the Member Traffic and Financial Commissioner of the Railway Board and they never empowered the General Manager, Northern Railway to withdraw 15% surcharge as has been wrongly assumed and referred to the operative part of the record note dated 19.01.2001. The argument of the learned counsel for the appellants was that the said interpretation of the General Manager was not approved by the Board. The Arbitrator, having taken entire communication and record as well as the evidence, came to the conclusion as follows : “ 32. This assertion of the Board is hardly F.A.O No.3585 of 2007 13 understandable. The Board has not cared to examine the facts in correct perspective. The proposal of PSEB for not giving any rigid interpretation to the scheme which resulted in imposition of 15% surcharge even though amount as advance deposit would be available covering the freight of coal rakes at a particular time, was examined by the Board in the meeting dated 19.01.2001. The directions given by MT & FC in that meeting were quite clear that the General Manager can take the final decision in regard to interpretation of the scheme in consultation with FA & CAO. Thus there was no occasion for the Board to examine the revised interpretation of the Scheme thereafter when the General Manager who was given the power to take a final decision, had taken the final decision. That decision was not taken subject to any confirmation by the Board in respect of revised interpretation of the scheme. The Board was only required to confirm the minutes of the meeting dated 19.01.2000 which it did confirm.” The letter dated 15.05.2001 annexed with the present appeal, filed by the appellants, shows that the approval was duly granted by the Board. The said letter is a communication by the Director Traffic Commercial to the General Manager (Commercial), Northern Railways, New Delhi, in response to a D.O. letter dated 03.04.2001, which reads as under : “ It is confirmed that a meeting was held on 19.01.2001 under the chairmanship of the then Member Traffic and Financial Commissioner for Railways when