HC junks Iran plea against order on USD 35 lakh payout to Indian firm; slaps Rs 10 lakh cost

The Bombay High Court has dismissed an appeal filed by the government of Iran challenging an ex-parte order directing the West Asian nation to pay more than USD 35 lakh to an Indian company in a dispute over sale of railway wagons, an episode that dates back to 1970.

A division bench of Justices K R Shriram and Rajesh Patil, in a ruling earlier this week, also imposed a cost of Rs 10 lakh after dismissing the Iran government’s plea and the fine amount would be payable to the Indian company, KT Steels, within four weeks.

The Islamic Republic of Iran (IRI), through the Iranian Islamic Republic Railways (RAI), had floated a global tender for purchase of railway wagons. The Indian government at that point was exporting wagons through the State Trading Corporation (STC).

KT Steels submitted its bid through STC and the Indian public sector company entered into a purchase contract with the Iranian government on March 16, 1970. The STC assigned the benefit of the contract to KT Steels through a separate contract in November 1970.

In 1972, due to a spike in international oil prices, there was an increase in freight charges for shipment of wagons and in August 1976, the contract was amended. With this modification, the export continued until 1977.

However, KT Steels claimed that the Islamic Republic of Iran failed to pay the freight charges as agreed for 306 wagons in 1973 and 94 wagons shipped in 1977. The Indian firm filed a suit the HC in September 1996, but the government of Iran never appeared before the court.

In an ex-parte judgment passed in 2008 by the then-Bombay High Court judge Justice DY Chandrachud, the HC directed IRI to pay an amount of USD 1,387,727 for 304 wagons, USD 1,696,722 for 94 wagons and USD 484,840 towards damages – all totalling USD 35,69,289.

The court also ordered an interest payment at the rate of 9 per cent per annum on the freight charges from date of instituting suit to realisation.

After 12 years, RAI filed an appeal against the order in the High Court claiming the suit had been wrongfully filed against the Islamic Republic of Iran, and in fact it should have been filed against RAI.

RAI claimed to have discovered about the proceedings only in July 2019 after it received papers from the Ministry of Foreign Affairs of Iran. It thus filed an appeal on February 25, 2020.

The foreign rail firm apprised the court that KT Steels had served the proceedings on the Iranian Consulate who had even replied, stating it was not a commercial entity and enjoyed sovereign immunity.

The HC accepted KT Steels’ arguments that the Islamic Republic of Iran did not pay heed to the court’s orders till a disclosure order was passed.

The court noted that the appeal and condonation of delay application had been filed by Iran through RAI and the position that both parties were separate entities seemed to be an afterthought.

“We observe that the Iranian Government has chosen not to appear before this Court and still refuses to comply with Court’s orders. Applicant (IRI) has not made any submissions before this Court, but only RAI which is not even a party to the Appeal, has engaged a Counsel to appear” the division bench noted.

It found no satisfactory explanation for this delay as well as the delay of 12 years and 10 days to file the appeal.

In view of these observations, the HC dismissed the plea filed by the Islamic Republic of Iran and imposed a cost of Rs 10 lakh to be paid in four weeks to KT Steels.