Annotating the Res Judicata Principle on the Basis of Section 9 & 17 of The Arbitration & Conciliation Act 1996

Written by Advocate Anand Kumar Maurya, Legal Consultant at Eresolution Consultancy Services Pvt. Ltd.,

Introduction

A contract dispute between the Delhi Transport Corporation (DTC) and Tata Motors Limited (TML) steered to an indelible ruling by the Delhi High Court that addressed a conflict between Sections 9 and 17 of the Arbitration and Conciliation Act, 1996. The facts of the case revolve around a contractual provision for the supply and maintenance of buses that prompted the contentious application of contractual provisions on penalties and performance standards. Herein, the critical question considered is whether the dismissal of a Section 9 application for an interim order from the court is conclusive for subsequent applications under Section 17 before the arbitral tribunal. This question arose when TML, after conditionally withdrawing the Section 9 petition, filed an application under Section 17 of the Act against several unilateral actions by DTC during the pendency of the arbitration proceedings.

Subsequently, this annotation intends to delineate the Delhi High Court’s findings that dismissed the application of res judicata concerning the fact that TML’s withdrawal was conditional while the arbitration process is still perpetual and consequently addresses this shortcoming by exploring the particulars of this case and its implications for the development of the law of judicial relativity, jurisdiction, procedural justice, and the enforcement of arbitral awards and thereby contributes to the ongoing debate on the nature of commercial dispute resolution in India.

Factual Matrix

The dispute between DTC and TML originated from a contract dated October 18, 2018, under which DTC purchased 650 AC and 975 non-AC, low-floor CNG buses from TML. As part of the agreement, TML was responsible for maintaining the buses in exchange for Annual Maintenance Charges (AMC) paid by DTC. However, disagreements arose over the interpretation and implementation of Clauses 24.4 and 46.16 of the General Conditions of Contract (GCC).

Clause 24.4 of the GCC stipulated that TML would be liable to pay penalties if it failed to meet the guaranteed minimum average fuel efficiency target, measured in terms of Kilometres operated per Kilogram of CNG fuel consumed (KMPKG). DTC alleged that TML had failed to meet the KMPKG target and imposed penalties under Clause 24.4, which it sought to recover by adjusting the amounts from TML’s AMC dues under Clause 46.16.

TML contested DTC’s calculations, arguing that the ‘kilometers operated’ specified in Clause 24.4 should be the sole basis for calculating KMPKG, not the meterage recorded in drivers’ memos, which was used for AMC calculations under Clause 46.16. TML invoked arbitration, challenging DTC’s penalty demands and seeking a stay on the recoveries. The Arbitral Tribunal granted an interim stay, restraining DTC from recovering the penalties from TML’s AMC dues.

On August 16, 2017, the Arbitral Tribunal issued its first award, ruling that DTC could not use the meterage recorded in drivers’ memos to calculate penalties under Clause 46.16. The tribunal ordered DTC to return the money withheld from TML’s AMC obligations after ruling that its recoveries were unlawful. However, the dispute grew more heated as DTC contested the award under Section 34 of the Arbitration and Conciliation Act.

In 2021–2022, DTC initiated arbitration proceedings to recover Rs. 127 crores as KMPKG penalties. TML filed a Section 9 petition before the Delhi High Court, seeking interim relief to restrain DTC’s recoveries. However, TML later conditionally withdrew the Section 9 petition, and the parties entered into a settlement. Nevertheless, the parties reached a settlement after TML subsequently conditionally retracted the Section 9 petition. TML then submitted numerous applications under Section 17 to the Arbitral Tribunal, contesting DTC’s unilateral actions during the arbitration proceedings and attempting to stop DTC from collecting penalties.

Tribunal Award & subsequent challenges 

The first arbitration award was on 16.08.2017, which holds that the meterage recorded in memos of drivers cannot be used by DTC to charge penalties in the contractual agreement with TML. DTC filed for remission of the award under Section 34 of the Arbitration and Conciliation Act. TML applied for enforcement of the award on ARB. A. (COMM.) 9/2023 and ARB. A. (COMM.) 27/2023. The court required DTC to pay amounts in the Registry for enforcement, which TML allowed to withdraw upon producing the undertakings and bank guarantees. 

Later, TML filed a Section 9 petition to stop DTC from making a recovery demand of Rs. 127 crores, which TML unconditionally withdrew on 03.02.2023. DTC decided to withdraw the appeal filed against the order of staying the recoveries in FAO(OS)(COMM. )72/2022, an issue that raises the question of constructive res judicata. DTC served the notice to initiate arbitration on 07. 08. 2022 and TML have made several Section 17 applications to prohibit DTC from recovering several amounts in penalties. Appeals were filed against Section 17 orders.

These proceedings depict a sequence of legal processes and cases derived mainly from contractual issues that exist between TML and DTC concerning penalties and merits for recovery under the provisions of their agreement. Subsequently, in stating that there is no analogy of circumstances and no decree or determination against the Appellant concerning the KMPKG penalty in OMP(I)(COMM.)62/2021, the high court distinguished the current case from Kanchan Kapoor v. Swaran Kumar, which the Respondent had cited. The fact that the High Court has declined reliance on this precedent shows its awareness of the differences in the facts and the law of the cases. This approach makes sure that precedents are used appropriately in light of the details of the particular controversy.

Annotating the case:

The core question was whether TML’s termination of the Section 9 application (in which TML sought the court’s interim measures) would prevent DTC from obtaining similar measures under Section 17 (where DTC would seek the tribunal’s interim measures).

The High Court explained that, in arbitration proceedings, the withdrawal of the Section 9 application does not bar the party from applying for interim relief under Section 17. This is especially the case where withdrawal is conditional or where it is made pursuant to an agreement between the parties rather than a clear unilateral withdrawal of the party from the dispute.

The court observed that the withdrawal of the Section 9 petition by TML was in consultation with DTC, and this provided for certain recoveries by DTC. However, this agreement did not mean that the conflict had been solved or that TML had surrendered on all the issues that were discussed during the arbitration.

For this reason, the High Court has held that the conditional withdrawals do not engage the res judicata principles since they do not conclusively determine rights between the parties but are temporary arrangements.

DTC had contempt proceedings brought against it because of its conduct, which was in breach of the mutual agreement. This is evidenced by the fact that while contempt proceedings involved the court’s intervention, the subsequent mutual arrangement showed that DTC benefited from not engaging in the contemptuous action in the first place, although it did not change the balance of power in the overall arbitration process.

It is important to note that the High Court has clarified that procedural tactics (like withdrawing a Section 9 petition under the conditions) do not affect the party’s ability to seek proper relief under Section 17 or appeal against subsequent orders of the arbitral tribunal. The High Court further stated that the Respondent had relied on the judgments of Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd. and Kirtikumar Futarmal Jain v. Valencia Corporation, which do not fit into the facts of the present case, where the Appellant had not been restrained from seeking relief under Section 17 after the withdrawal of the Section 9 petition.

The judgment also demonstrates how the courts exercise prudence when dealing with res judicata issues in arbitration cases. This establishes that each request for interim relief under different sections (section 9 and section 17) must be made in reference to the circumstances of the parties’ ongoing cases. The High Court also cited the case of HM Kamaluddin Ansari & Co. v. Union of India; however, the Respondent's reliance on this case is misguided because the Arbitral Tribunal rejected the Appellant's request for a refund of the amount withheld based on merit rather than the Arbitral Tribunal's lack of authority under Section 17.

By dismissing the res judicata claim in this context, the High Court has allowed flexibility to parties in arbitration to seek interim measures depending on the changing circumstances and disputes without being restricted by previous procedural decisions.

Therefore, this case of the Delhi High Court brings out the fact that the doctrine of res judicata needs a balanced approach while dealing with arbitration proceedings. It reiterates that conditional withdrawal and mutual dealings do not impede the parties from applying for interim measures or appealing against other arbitral proceedings under other provisions of the Arbitration Act. This approach is effective in maintaining arbitration as an effective means of dispute settlement by not allowing procedural fairness to override the substantive legal positions of the parties, and it helps to maintain arbitration as a viable means of settling disputes while considering both procedural justice and the changing legal status of the parties involved.

Conclusion:

The courts have been quite sensitive towards the procedural aspects of arbitration in dismissing the idea of res judicata on the withdrawal of the Section 9 petition by TML and allowing subsequent applications under Section 17.

Firstly, it clarifies that the conditional withholding of Section 9 applications does not bar the parties from seeking interim measures under Section 17 to the arbitral tribunal. The court upheld the procedural nature of many of the actions taken in arbitration to prevent parties from being stripped of their ability to adjust to the changing dynamics of legal disputes.

Secondly, the judgment also underlines the role of the judiciary in moderating the twin cardinal principles of finality and fairness in arbitration. In upholding the power of the arbitral tribunal to rule on interim measures, the court underlines the self-sufficiency and efficiency of arbitration as the method of choice for settling trade disputes.

Therefore, the Delhi High Court's ruling upholds the fundamental values of adaptability, equity, and efficiency in the context of commercial dispute resolutions and can be viewed as a pragmatic solution to procedural disputes in arbitration. This article aims to establish jurisprudential advancements that would foster the development of legal frameworks that support arbitration practices, given the growing global use of arbitration as one of the preferred dispute resolution methods.