Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 23.05.2022
+ O.M.P. (COMM) 227/2019
UNION OF INDIA, MINISTRY OF RAILWAYS,
RAILWAY BOARD & ANR. ..... Petitioner
versus
M/S JINDAL RAIL INFRASTRUCTURE
LIMITED ..... Respondent
Advocates who appeared in this case:
For the Petitioners : Mr Deepak Jain, Senior Panel Counsel for
Ministry of Railways with Mr K.B.
Pradeep, Ms Jaspreet Aulakh and Mr
Tanpreet Gulati, Advocates.
For the Respondent : Mr Ranjit Kumar, Senior Advocate with
Mr Manoj Singh, Mr Nilava
Bandyopadhyay, Mr Prateek Dhir and Mr
Nimish Chandra, Advocates.
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioners have filed the present petition under Section 34
of the Arbitration and Conciliation Act, 1996 (hereafter the ‘ A&C
Act ’) impugning the arbitral award dated 01.03.2019 (hereafter the
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 1 of 30
‘impugned award’ ) rendered by the Arbitral Tribunal comprising of a
Sole Arbitrator (hereafter the ‘Arbitral Tribunal’ ).
2. The impugned award was rendered in the context of disputes
that had arisen between the parties in connection with an agreement
dated 12.06.2015 entered into between petitioner no.1 (hereafter ‘ the
Railways’ ) and the respondent (hereafter ‘ JRIL ’).
Factual Background
3. JRIL is, inter alia , engaged in the manufacture of Railway
Rolling Stock for the Indian Railways.
4. On 13.01.2015, the Railways issued a ‘Bid Invitation and
Schedule of Requirement’ [E-Tender bearing no 2014/RS(I)/954/36
(TC)] followed by the Corrigendum dated 25.03.2015, inviting
electronic bids, for the manufacture and supply of the following
wagons: -
S.no Description Quantity
specified in
Tender dated
13.01.2015
Quantity
specified in
Corrigendum
dated
25.03.2015
1 BG Bogie Open Wagon
Type ‘BOXNHL’
4392 7492
2 BG Bogie Covered
Wagon Type
3706 606
‘BCNHL’
3 BG Bogie Open Wagon
Type
211 211
‘BOSTHSM2’
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 2 of 30
4 BG Bogie Hopper
Wagon Type ‘BOBYN
22.9’
200 200
Total 8509 8509
5. Clause 2 of the Bid Invitation and Schedule of Requirement
stipulated that the aforementioned quantity was tentative, and the
Railways reserved its right, without assigning any reason, to either
decrease the tender quantity or discharge the tender entirely or not
order some of the wagon types indicated in the tender quantity.
6. Pursuant to the said invitation for tenders, JRIL submitted its
bid and the same was opened on 20.04.2015. JRIL was accepted as the
lowest bidder (L-1 bidder). On 02.06.2015, the Railways issued the
Letter of Acceptance (hereafter ‘the LoA ’) communicating its decision
to place an order on JRIL for supply of the following wagons at the
price as quoted by JRIL:-
Wagon Type Quantity Basic Rate per wagon
BOXNHL 1654 ₹10,80,000/-
BCNHL 106 ₹10,71,000/-
BOSTHSM2 111 ₹8,91,000/-
TOTAL 1871
In terms of the LoA, the orders for supply of wagons would be
released in two tranches.
7. Thereafter, on 12.06.2015, the parties entered into the Contract
bearing no. 2015/RS(I)/954/44/1777 (hereinafter the ‘ Agreement ’). In
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 3 of 30
terms of the Agreement, the Railways issued an order for manufacture
and supply of 1403 numbers of wagons for a total contract price of
₹151,52,40,000/- without excise duty and VAT, as the first tranche.
The order for the balance 468 numbers of wagons was withheld and
required to be released in the second tranche.
8. In terms of the Optional Clause under the Agreement (Clause
2.4 renumbered as Clause 2.8 of the Agreement), the Railways
reserved the right to increase/decrease the ordered quantity up to 30%
of the ordered quantity during the currency of the Agreement, on the
same price and terms and conditions, with a suitable extension in the
delivery period for the optional quantity. Further, in terms of Clause 6
of the Agreement (the Delivery Schedule), the supplies had to be
completed within a period of twelve months from the date of
placement of the Agreement. The said Agreement was accepted by
JRIL on 18.06.2015.
9. The Agreement was amended several times. On 31.07.2015,
Amendment no. I to the Agreement was issued by the Railways. In
terms of Amendment no. I, certain clauses were incorporated in the
Agreement. Clause 2.4 of the Agreement, which provided that the
Railways could increase/decrease the quantity upto 30%, was
renumbered as Clause 2.8 of the Agreement. Clause 2.4 of the
Agreement, as introduced, stipulated that the “ withheld quantity of 468
wagons shall be released in proportion to your supply performance
during the period of six months from the date of issue of this contract,
i.e., June- November, 2015 by multiplying percentage compliance with
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 4 of 30
the withheld quantity. The remaining quantity shall be taken away for
re-distribution amongst performing units, having more than 100%
compliance .”
10. On 28.08.2015, the Railways awarded a contract (bearing no.
2015/RS(I)/954/46/1779) for the supply of 1075 numbers of wagons
(975 numbers of ‘BOXHNL’ wagons and 100 numbers of
‘BOSTHSM2’ wagons) to the L-2 tenderer (M/s Jupiter Wagons
Limited) at the rates quoted by the said tenderer, that is, L-2 rates for
BOXHNL wagons, and at L-1 rates for BOSTHSM2 wagons. This
was because the said bidder as well as other bidders had declined the
counter-offer made by the Railways to supply BOXHNL wagons at
the L-1 rate (₹10,80,000/- as quoted by JRIL).
11. JRIL, being aggrieved by dual pricing of the BOXHNL wagons,
made a representation dated 28.11.2015 voicing its grievance that the
Notice Inviting Tender did not indicate that there would be two rates
applicable for supply of wagons by different bidders. JRIL sought
“ parity of treatment with the other contractor so that for and the same
work, a uniform fixation may prevail and the contract amount does not
differ for the same work between one contractor and another
contractor ”.
12. Thereafter, on 14.03.2016, Amendment no. II to the Agreement
was issued by the Railways. In terms of Amendment no. II, the order
for 329 numbers of wagons (251 numbers of BOXNHL and 78
numbers of BOSTHSM2), out of the withheld quantity of 468
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 5 of 30
numbers of wagons, was released. Further, it was decided that the
balance number of wagons, that are, 139 in number, would not be
released, in favour of JRIL. The delivery period for the second tranche
was stipulated to be the same as the contractual delivery period, that
is, 11.06.2016. The total value of the Agreement was thus, amended to
₹185,58,18,000/-. JRIL conveyed its unconditional acceptance to the
said amendment on 16.03.2016.
13. On 08.04.2016, Amendment no. III to the Agreement was
issued by the Railways. In terms of Amendment no. III, the Railways
exercised its right reserved under the Option Clause (initial Clause 2.4
renumbered as Clause 2.8 of the Agreement) and increased the
ordered quantity of BOXNHL wagons by 496 numbers. The delivery
period for the aforesaid quantity was increased by five months from
the existing delivery period, that is, 11.06.2016. The total value of the
Agreement was thus, amended to ₹239,14,98,000/-. JRIL conveyed its
unconditional acceptance to the said amendment on 18.04.2016.
14. In the meantime, on 12.01.2016, another tender was floated by
the Railways [E:Tender No. 2015RS(I)17TC], which was opened and
the lowest price for the BOXNHL wagon bid by the tenderers was
₹14,50,000/- per wagon. JRIL was awarded the contract for supply
and manufacture of 292 numbers of BOXNHL wagons at the rate of
₹14,50,000/- per wagon. The total contract price was ₹42,34,00,000/-.
15. JRIL preferred another representation dated 30.05.2016 and
requested the Railways to revise the payment due to it at the L-2 rates.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 6 of 30
16. On the same day, that is, on 30.05.2016, JRIL sent a letter
stating that it would not be able to complete the manufacture and
supply of the required 1654 numbers of BOXNHL wagons within the
scheduled delivery period of 11.06.2016, on account of unavailability
of free supply of steel in matching sets. JRIL requested that the
delivery period be extended without levy of liquidated damages and
denial clause.
17. On 09.06.2016, Amendment no. IV to the Agreement was
issued by the Railways extending the delivery period by a period of
four months beyond 11.06.2016, for the manufacture and supply of the
balance 588 numbers of BOXNHL wagons out of the original contract
quantity of 1654 numbers of BOXNHL wagons. However, the same
was extended with liquidated damages and denial clauses.
18. By its letter dated 11.06.2016, JRIL once again requested the
Railways for extension of delivery period without imposition of
liquidated damages and denial clauses as the delay in manufacture and
supply of BOXHNL wagons was caused due to non-availability of
free supply of steel in matching sets. JRIL requested the Railways to
(i) issue an amendment to Amendment no. IV to extend the delivery
period for 290 numbers of BOXHNL wagons under the first tranche
order of 1403 numbers of wagons without liquidated damages and
denial clause and; (ii) issue an amendment to Amendment no. II and
Amendment no. IV to refix the delivery date for 251 numbers of
BOXHNL wagons.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 7 of 30
19. The Railways accepted the said request and issued Amendment
no. V to the Agreement. In terms of Amendment no. V, the Railways
extended the delivery period of the balance first tranche quantity of
290 numbers of BOXNHL wagons out of 1403 numbers of wagons
without liquidated damages and denial clauses upto 11.10.2016; and
refixed the delivery period of 251 numbers of BOXNHL wagons
released under the second tranche upto 11.10.2016. Amendment no. V
superseded Amendment no. IV.
20. JRIL invoked the Arbitration Agreement by its letter dated
23.08.2016 to adjudicate its claims including in regard to dual pricing
of wagons. The Railways responded to the aforesaid communication
on 20.09.2016 and nominated an Executive Director, Railway Stores
(C) of the Railway Board as the sole arbitrator. However, JRIL did not
concur with the said appointment.
21. Thereafter, JRIL filed a petition under Section 11 of the A&C
Act (being ARB. P. 613/2016) for the appointment of an arbitrator.
The said petition was allowed and by an order dated 04.11.2016, this
Court appointed Justice (Retd.) A.K. Patnaik, former Judge of the
Supreme Court as the Sole Arbitrator to adjudicate the disputes
between the parties.
22. On 25.11.2016, Amendment no. VI to the Agreement was
issued by the Railways. The delivery period for the manufacture and
supply of balance 396 numbers of BOXNHL wagons against the
Option Clause under the Agreement was extended for a period of three
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 8 of 30
months, that is, till 09.02.2017 without liquidated damages but with
denial clauses.
23. On 03.12.2016, JRIL conveyed its unconditional acceptance to
Amendment no. VI.
24. On 18.01.2017, JRIL filed its Statement of Claims before the
Arbitral Tribunal raising six claims. The summary of the claims as
noted by the Arbitral Tribunal in the impugned award, is set out
below:
“3.1.17. On the aforesaid facts as pleaded in the
Statement of Claim, the Claimant has prayed for the
following reliefs:
(i) An Award declaring that the total quantity of the
wagons has been short closed by the Respondents and the
Claimant's obligation under the Contract pursuant to the
Tender relating to BOXNHL Wagons discharges on
execution of 796 (612 wagons and 30% Option Clause)
BOXNHL Wagons;
(ii) An Award declaring that due to the breaches
committed by the Respondents by adopting dual pricing,
the Claimant is entitled to the L2 rate for the entire
quantity awarded to the Claimant;
(iii) An Award directing the Respondents to pay a sum of
INR. 52,47,21,679 (Rupees Fifty-Two Crores Forty-
Seven Lakhs Twenty-One Thousand Six Hundred and
Seventy-Nine Only) [Alternatively 32,12,37,351/-
(Rupees Thirty-Two Crores Twelve Lakhs Thirty-Seven
Thousand Three Hundred and Fifty-One Only)] [Further
Alternatively INR 51,82,91,768/- (Rupees Fifty-One
Crores Eighty-Two Lakhs Ninety-One Thousand Seven
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 9 of 30
Hundred and Sixty-Eight Only)] as tabled in the
Summary of Claims;
(iv) Pass an Award that the Claimant is entitled to the
Litigation Cost as claimed in the present Arbitration
proceedings and also as per the Arbitration and
Conciliation Act, 1996 (as amended up-to-date);
(v) Pass an Award that the Claimant is entitled to interest
@ 18% quarterly rest for the pendente-lite period and
future interest@ 2% higher than that the current rate of
interest prevalent on the date of award, as per the
Arbitration and Conciliation Act, 1996 (as amended up-
to-date); and
(vi) Pass any other or further award as this Hon'ble
Tribunal deems fit, just and proper in the facts and
circumstances of the case”
25. The Railways contested the aforesaid claims and filed its
Statement of Defence. On 22.03.2017, the Railways filed an
application under Section 16 of the A&C Act before the Arbitral
Tribunal contending that the disputes and claims raised by JRIL were
not arbitrable and therefore, they were liable to be dismissed in limine .
26. In view of the rival contentions, the Arbitral Tribunal framed
the following points of adjudication on 22.03.2017:
“4. POINTS OF DISPUTE
In the proceedings of the arbitral meeting dated
22.03.2017, the arbitral Tribunal after perusing the
pleadings and after hearing the advocates for the parties,
formulated the following points of dispute for
adjudication in this arbitration matter:
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 10 of 30
(i) Whether all or any of the Claims raised by
the Claimant in the Statement of Claim are
outside the scope of the contract between the
parties and hence not arbitrable?
(ii) Whether all or any of the reliefs no. (i), (ii),
(iii) claimed by the Claimant in the
Statement of the Claim can be granted?
(iii) Whether the Claimant is entitled to interest
on the amount awarded and if so, at what rate
and for which period.?
(iv) Which party is entitled to the costs of the
arbitration and what would be the reasonable
costs which should be awarded?”
The Impugned Award
Points of Dispute nos. (i) and (ii)
27. The Arbitral Tribunal held that Claim no. (i) was beyond the
jurisdiction of the Arbitral Tribunal as it could not declare that JRIL’s
obligation under the Agreement, pursuant to the tender relating to the
BOXNHL wagons, was discharged on execution of 796 numbers of
BOXHNL wagons.
28. In respect to Claim nos. (ii) and (iii), the Arbitral Tribunal held
that even if the ‘Bid Invitation and the Instructions to Tenderers’ was
treated as a part of the Agreement between the parties, there was no
stipulation that in the event the purchase orders are placed at L-2 rates
with any party, the L-1 bidder (that is, JRIL) would be entitled to L-2
rates. The Arbitral Tribunal also referred to Section 73 of the Indian
Contracts Act, 1872 and held that in the absence of any breach of any
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 11 of 30
provision of the Agreement providing that the Railways shall pay L-2
rates for the wagons to JRIL, the Arbitral Tribunal could not award
compensation computed as the difference between the L-1 and L-2
rates to JRIL for the wagons to be supplied to the Railways at L-1
rates. The Arbitral Tribunal had no jurisdiction to entertain the
aforesaid claims of JRIL for being paid L-2 rates for 1654 numbers of
BOXHNL wagons supplied by JRIL to the Railways.
29. The Arbitral Tribunal rejected Claim no. (iii) and the two claims
amounting to ₹30,39,69,420/- (being the differential amount between
L-1 and L-2 rate) and ₹1,02,23,273/- (being the interest accrued on the
differential amount) preferred by JRIL, as JRIL was not entitled to the
L-2 rate for the entire quantity of BOXNHL wagons. The Arbitral
Tribunal held that the same was outside the scope of the Agreement.
The claims for an amount of ₹50,07,93,557/- and ₹1,68,83,464/- was
also rejected by the Arbitral Tribunal on the ground of jurisdiction.
30. However, the Arbitral Tribunal held that the Railways had no
right to issue Amendment no. III – even though the same was accepted
by JRIL – and was in breach of the provisions of the Agreement. The
Arbitral Tribunal held that the costs of manufacture of wagons and
market price for supply of wagons had gone up substantially and, the
Railways could not have ordered additional quantity of 496 numbers
of wagons at the contract price of ₹10,80,000/-, either under Clause
2.4 or Clause 12 of the Agreement.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 12 of 30
31. The Arbitral Tribunal also held that the Railways could not
have exercised its right reserved under Clause 2.4 or Clause 12 of the
Agreement in the facts of the present case, when the price of the
BOXNHL wagons was lower than the costs for manufacture of the
wagons and the revised rate of BOXHNL wagons was found to be
₹14,50,000/- in the bids opened on 12.01.2016. The Arbitral Tribunal
further accepted JRIL’s contention that it had given unconditional
acceptance to Amendment no. III to ensure that the Railways did not
encash the Bank Guarantees furnished by it and it does not get
blacklisted.
32. Further, the Arbitral Tribunal referred to Sections 70 and 73 of
the Indian Contracts Act, 1872 and held that the Railways was liable
to compensate JRIL for the loss and damage caused to it on account of
496 numbers of wagons supplied at the rate of ₹10,80,000/-.
Accordingly, the Arbitral Tribunal awarded a sum of ₹18,35,20,000/-,
being the difference in the value of 496 numbers of wagons at the
contract price and market price.
Point of dispute no. (iii)
33. The Arbitral Tribunal directed the Railways to pay the awarded
amount of ₹18,35,20,000/- within a period of three months from the
date of the award, failing which, the Railways was liable to pay post
award simple interest at the rate of 12 % per annum from the date of
the award till the date of payment.
Point of Dispute no. (v)
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 13 of 30
34. The Arbitral Tribunal did not award costs in favour of JRIL and
directed that the parties would bear their own costs.
35. The operative part of the impugned award reads as under:-
“(a) The Respondents will pay to the Claimant a sum of
INR 18,35,20,000 (Rupees Eighteen Crores Thirty-Five
Lakhs Twenty Thousand only) as damages or
compensation under Sections 70 and 73 of the Indian
Contract Act, 1872.
(b) The Claimant is not entitled to any pre-award interest
under Section 31(7)(a) of the Arbitration and Conciliation
Act, 1996.
(c) The Respondents will pay the awarded sum of INR
18,35,20,000 within 3 (Three) months from the date of
the award, failing which, the awarded amount of INR
18,35,20,000 will carry post award simple interest at the
rate of 12% per annum from the date of the award the
date of payment under Section 31 (7) (b) of the
Arbitration and Conciliation Act, 1996.
(d) The parties shall bear their own costs.
(e) All other Claims of the Claimant are rejected.”
36. Aggrieved by the impugned award, the petitioners have filed the
present petition.
Submissions
37. Mr Jain, learned counsel appearing for the Railways, has
assailed the impugned award on the ground that it amounts to re-
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 14 of 30
writing the contract between the parties. He submitted that the
Arbitral Tribunal rejected the other claims of JRIL but awarded a sum
of ₹18,35,20,000/- in favour of JRIL, being the price of 496 numbers
of wagons calculated at the price quoted by the tenderers pursuant to
the issuance of the invitation to tender. He contends that the same is
manifestly erroneous as JRIL had supplied 496 numbers of wagons in
terms of the contract between the parties and therefore, was not
entitled to any amount in excess of the price, as agreed between the
parties. The Arbitral Tribunal had proceeded on the basis that it was
not permissible for the Railways to place an order for wagons at the
agreed price, which was below the market price. According to the
Arbitral Tribunal, the Agreement between the parties was required to
be construed in a workable manner and it was not open for the
Railways to place an order after it had discovered a higher market
price. According to the Railways, this amounts to re-writing the
Agreement and the same is impermissible.
38. Further, Mr Jain contended that there was no dispute that the
Railways was entitled to increase the agreed quantity of wagons up to
30%. JRIL had not raised any dispute in this regard. JRIL had
disputed the allocation of the quantities. According to JRIL, the
quantity of wagons allocated was in excess of the quantities as
stipulated under the tender conditions. The Arbitral Tribunal had
rejected the said contention. Thus, the impugned award is beyond the
claims made by JRIL.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 15 of 30
39. Mr Ranjit Kumar, learned senior counsel appearing for JRIL,
countered the aforesaid submissions. He submitted that exercise of
the Option Clause by the Railways was in dispute before the Arbitral
Tribunal. The Arbitral Tribunal found that the same was in breach of
the terms of the Agreement between the parties. He submitted that the
Railways had exercised its option to place an order for additional
quantities of wagons on JRIL as the prices tendered by various
tenderers were substantially high. He contended that the additional
quantity of wagons ordered was relating to the subsequent year’s
requirement and therefore, the Railways was not entitled to insist on
supply of any additional quantity. He submitted that the Arbitral
Tribunal had interpreted the contract between the parties in a
reasonable manner. The Arbitral Tribunal is the final adjudicator
regarding interpretation of the contract and therefore, no interference
was warranted with the impugned award. He submitted that the
impugned award was neither in contravention of the fundamental
policy of Indian Law nor could be held to be vitiated by patent
illegality.
40. He also referred to the decisions of the Supreme Court in
Ssangyong Engineering & Construction Company Limited v. NHAI:
(2019) 15 SCC 131 ; Delhi Airport Metro Express Private Limited v.
Delhi Metro Rail Corporation Limited: (2022) 1 SCC 131 ; PSA Sical
Terminals Private Limited v. Board of Trustees of VO
Chidambranar Port Trust Tuticorin and Ors.: (2021) SCC OnLine
SC 508 ; Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.:
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 16 of 30
(2019) 20 SCC 1 ; and, MSK Projects India (JV) Ltd. v. State of
Rajasthan & Anr.: (2011) 10 SCC 573 , in support of his contentions.
Reasons and Conclusion
41. As is apparent from the above, the limited controversy that falls
for consideration before this Court is whether the Railways was
entitled to exercise the Option Clause (Clause 2.8 of the Agreement)
to increase the ordered quantity up to 30% to be supplied at the agreed
price. The Arbitral Tribunal faulted the Railways for placing orders of
additional quantities of 496 numbers of BOXHNL wagons at the
agreed contract price of ₹10,80,000/-. The Arbitral Tribunal reasoned
that the terms of the Agreement were determined by the Railways and
JRIL had no option but to accept the same. In such circumstances, the
terms of the contract could not be literally interpreted, if it “ flouts
business common sense ”. The Arbitral Tribunal held that the parties
could not have intended for the Railways to exercise an option of
increasing the quantity if the price in the market or the cost of
production had increased substantially, rendering it commercially
unviable to manufacture and supply the said wagons.
42. Although, JRIL had unconditionally accepted Amendment no.
III dated 08.04.2016 and agreed to supply additional quantity of
wagons, the Arbitral Tribunal held that it was impermissible for the
Railways to have issued Amendment no. III, as it was in breach of the
provisions of the Agreement.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 17 of 30
43. The question whether the said findings of the Arbitral Tribunal
are manifestly erroneous and vitiates the impugned award on the
ground of patent illegality must be considered in the context of the
Agreement as well as the claims raised by JRIL.
44. The Railways had invited tenders for supply of 8509 numbers
of wagons, which included 7492 numbers of BOXNHL type wise
wagons. The controversy in the present case relates to the BOXNHL
wagons.
45. Clause 2.1 of the Instructions to Tenderers for E-Tender
(Tender No.2014/RS(I)/954/369TC), provided that “ 55% of the total
quantity shall be distributed amongst eligible regular wagon
manufacturers on the basis of respective average annual production of
previous five completed years as 2010-11, 2011-12, 2012-13, 2013-14
& 2014-15 ” (Performance Index). In terms of Clause 2.4 of the
Instructions to Tenderers for E-Tender, the remaining 45% quantity
would be distributed wagon type-wise amongst L-1, L-2 and L-3
tenderers in the ratio of 50:30:20 .
46. JRIL was a new entrant into the business of wagon
manufacturing and it was not entitled to any significant quantity under
the Performance Index quota. According to the Railways, JRIL was
entitled to an order of approximately 96 numbers of wagons. JRIL
participated in the tender and quoted a price substantially lower than
other bidders. It was, accordingly, declared as the L-1 tenderer. JRIL
was thus, entitled to 50% of the 45% of the total quantities for which
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 18 of 30
the tenders were invited. Accordingly, 1871 numbers of wagons were
allocated to JRIL. According to the Railways, JRIL was entitled to 96
numbers of wagons on the basis of its Performance Index quota under
Clause 2.1 of the Instructions to Tenderers for E-Tender (out of the
55% reserved for regular wagon manufacturers). However, JRIL’s
annual capacity of manufacturing wagons was assessed as 1400 units
and therefore, it was allocated only 1871 numbers of wagons, which
included 1654 numbers of wagons of BOXNHL type.
47. The LoA issued by the Railways communicated its decision to
place the orders for the following wagons at the quoted price, on JRIL:
Wagon type Quantity Basic Rate per wagon (₹)
BOXNHL 1,654 10,80,000.00 (₹ ten lakh
eighty thousand only)
BCNHL 106 10,71,000.00 (₹ ten lakh
seventy one thousand only)
BOSTHSM2 111 8,91,000.00 (₹ eight lakh
ninety one thousand only)
TOTAL 1,871
48. The LoA also expressly provided that the order for 1,403
numbers of BOXNHL wagons would be released shortly. The
remaining quantities would be withheld and released at the end of six
months from the date of the Agreement provided that JRIL had
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 19 of 30
supplied 50% of the quantity consisting of the outstanding order as on
01.06.2015, that is, 936 numbers of wagons.
49. It is important to note that in terms of paragraph 9 of the LOA,
the Railways retained the right to increase or decrease the ordered
quantity up to 30% during the currency of the Agreement. Paragraph
9 of the LoA is relevant and set out below:
“9. Option Clause: The purchaser reserves the right to
increase/decrease the ordered quantity up to 30% of the
ordered quantity during the currency of the contract on
the same price and terms and conditions with suitable
extension in delivery period for the optional quantity.”
50. As stated above, the order for 468 numbers of wagons was
withheld. It was agreed that the said quantity would be released in
proportion to JRIL’s performance during the period of six months, that
is, June – November, 2015. The Agreement between the parties was
amended to provide the same (Amendment no. I dated 31.07.2015).
51. However, out of the said quantities, order for only 329 numbers
of wagons was released. Thus, in all, orders for 1732 numbers of
wagons were placed on JRIL. On 08.04.2016, the Railways placed an
order for additional 496 numbers of BOXNHL wagons by exercising
its option to place orders for additional quantities up to 30%. Thus,
orders for 2228 numbers of wagons were placed on JRIL, which
includes 2150 numbers of BOXNHL wagons (1654 numbers of
wagons as initially contracted and 496 numbers of additional wagons).
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 20 of 30
52. Indisputably, the Railways was entitled to increase the ordered
quantity of wagons up to 30%. This was expressly stipulated in
paragraph 9 of the LoA and Clause 2.4 of the Agreement
(subsequently renumbered as Clause 2.8 of the Agreement by
Amendment no. I). The said Clause 2.4 of the Agreement is
reproduced below:
“2.4. Option Clause: The purchaser reserves the right to
increase/decrease the ordered quantity up to 30% of the
ordered quantity during the currency of the contract on
the same price and terms and conditions with suitable
extension in delivery period for the optional quantity.”
53. As noted above, the Agreement was amended on several
occasions. The first amendment (Amendment no. I dated 31.07.2015)
renumbered the said Clause 2.4 as Clause 2.8 of the Agreement as four
other clauses were inserted after Clause 2.2 of the Agreement.
54. A plain reading of the Statement of Claims indicates that JRIL
had not challenged the validity of Clause 2.4 of the Agreement
(renumbered as Clause 2.8 of the Agreement). JRIL’s principal claims
related to (i) the number of wagons allocated to it considering that the
Railways did not place orders for the entire tendered quantity on
various manufacturers; and, (ii) the action of the Railways in adopting
dual pricing.
55. JRIL had claimed that in terms of the Instructions to Tenderers
for E-Tender, its rightful allocation was only 612 numbers of
BOXNHL wagons. According to JRIL, since an order for only 3040
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 21 of 30
numbers of wagons was placed by the Railways, only 45% of that
quantity was required to be allocated on the basis of competitive
bidding (1368 numbers of wagons being 45% of 3040). JRIL, being
the L-1 tenderer, was entitled to 50% of the said quantity of 1368
numbers of wagons. According to JRIL, 1368 numbers of wagons
would include 1223 numbers of wagons of BOXNHL type and
therefore, its share of the said allocation was 612 numbers of
BOXNHL wagons.
56. It is important to note that JRIL accepted that the Railways was
entitled to increase the said quantity by 30% in terms of Clause 2.8 of
the Agreement (initially numbered as Clause 2.4 of the Agreement)
and accordingly, claimed that its obligation to supply wagons was
discharged with the supply of 796 numbers of wagons (612 plus 30%
additional, in terms of the Optional Clause). This is clear from
Paragraphs I and J of the Statement of Claims, which are set out
below: -
“I. Therefore, as the total quantity of BOXNHL wagons
has been decreased to 2718 BOXNHL wagons, as
per the formula provided in the Instructions to
Tenderers for e-Tender (which formed integral part
of the Contract Agreement), the Claimant is bound to
manufacture and supply only 612 BOXNHL wagons.
Furthermore, even if the Respondents exercise the
30% Option Clause of the Contract Agreement, then
also the same increase the quantity by 184 BOXNHL
wagons only, accordingly, as per the terms of the
th
Contract Agreement dated 12 June 2015, the
Claimant is bound to execute only 796 BOXNHL
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 22 of 30
Wagons. Chart pertaining to the quantities has been
annexed hereto and marked as Annexure-CD-15 .
J. In view of the above, it is humbly submitted that the
Hon’ble Arbitral Tribunal may graciously be pleased
to pass an Award inter alia declaring that the
Respondents have short closed the total quantity of
the BOXNHL wagons and accordingly, the
Claimant’s obligation under the Contract Agreement
relating to BOXNHL wagons fulfils or discharges on
manufacture and supply of 796 (612+184) BOXNHL
wagons.”
57. It is relevant to note that JRIL’s calculation of the quantity of
wagons that it was obliged to supply rested on its assertion that the
Railways had short closed the tender by reducing the total quantity of
wagons to be procured under the said tender (Tender no.
2014/RS(I)/954/369TC). On the aforesaid assertion, JRIL had
claimed an additional amount as damages for the excess quantity
supplied by it. It claimed that it was entitled to the market value of the
said quantity or at least, the difference between the rates quoted by it
(L-1 rates) and the rates quoted by second lowest tenderer (L-2).
58. JRIL also claimed that it was impermissible for the Railways to
procure wagons under the same Notice Inviting Tenders, at dual
pricing. Since the other bidders had declined to accept the counter
offer of the Railways to supply at L-1 rates (prices quoted by JRIL), it
had placed orders on other bidders at the rates quoted by the second
lowest tenderer (L-2).
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 23 of 30
59. It is, thus, clear that JRIL had not contested the right of the
Railways to increase the quantity up to 30%. On the contrary, JRIL
had accepted the same and framed its claim on the said basis.
60. As noted above, JRIL had also premised it claim on dual
pricing. JRIL claimed that since the Railways had breached the terms
of the Agreement by adopting dual pricing, therefore, JRIL was
entitled to the market value of the wagons supplied and/or price at
which the orders were placed on the other bidders (L-2 rate of
₹13,05,000/-). Paragraphs U, V, W, X, Y and Z of the Statement of
Claims, which clearly indicates the basis of JRIL’s claim in this
regard, are relevant and set out below:
“U. In the present case, at the time of committing
breach of the terms of the Contract Agreement
th
dated 12 June 2015 by adopting dual pricing, the
Respondents were aware that the same will cause
loss and damages to the Claimant.
V. As stated above, the Claimant’s contractual
obligation to supply BOXNHL wagons discharges
when the Claimant supplied 796 BOXNHL
wagons. It is humbly submitted that the Claimant
th
has supplied 796 BOXNHL wagons on 26 March
st
2016. Thereafter, till 31 December 2016 the
Claimant has supplied 1898 BOXNHL wagons.
During January 2017, 45 wagons have been
th
supplied till 16 January 2017 and furthermore, as
per the orders placed by the Respondents, the
Claimant need to supply another 207 BOXNHL
wagons. The chart pertaining to the quantities has
been annexed hereto and marked as Annexure-CD-
18 .
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 24 of 30
W. It is humbly submitted that in the next e-Tender,
th
which was opened on 12 January 2016, the
Respondent discovered the price for BOXNHL
wagons as Rs.14,50,000/-(Rupees Fourteen Lakhs
Fifty Thousand Only). It is humbly submitted that
as the price was discovered during January 2016
April 2016, the market price of BOXNHL wagons
in the month of March 2016 (the month on which
the Claimant supplied its 796 BOXNHL wagons)
ought to be treated as Rs.14,50,000/- (Rupees
Fourteen Lakhs Fifty Thousand only). On the basis
of the same, the Claimant for manufacturing and
supply of the remaining 1354 BOXNHL wagons is
entitled for compensation at the market rate, which
is Rs.14,50,000/- and at the same time the rate has
to be adjusted as per the Price Variation Clause
mentioned in the Contract Agreement.
X. It is humbly submitted that as the Respondents have
breached the terms and conditions of the Contract
th
Agreement dated 12 June 2015, the Claimant is
entitled to get compensation to the tune of
Rs.50,07,93,557/- (Rupees Fifty Crore Seven
Lakhs Ninety Three Thousand Five Hundred
Fifty Seven only) based on the calculation annexed
hereto as Annexure-CD-19.
Y. At the same time, alternatively, if the Hon’ble
Tribunal comes to a finding that for the remaining
portion of supply of BOXNHL wagons, i.e., 1354
BOXNHL wagons, the Claimant is entitled to the
L2 rate (i.e., the rate awarded to M/s Jupiter), as the
Respondents have breached the Contract
Agreement by adopting dual pricing in the present
Tender, then the Claimant is entitled to the L2 rate,
which is Rs. 13,05,000/- (Rupees Thirteen Lakhs
Five Thousand only) and at the same time the rate
has to be adjusted as per the Price Variation Clause
mentioned in the Contract Agreement.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 25 of 30
Z. It is humbly submitted that, alternatively, as the
Respondents have breached the terms and
th
conditions of the Contract Agreement dated 12
June 2015, the Claimant is entitled to get
compensation to the tune of Rs.30,39,69,420/-
(Rupees Thirty Crore Thirty Nine Lakhs Sixty
Nine Thousand Four Hundred Twenty only)
based on the calculation annexed hereto as
Annexure-CD-20 .”
61. JRIL had not made any claim challenging the contractual
provision, which entitled the Railways to increase the order of
quantity by 30%.
62. The Arbitral Tribunal rejected JRIL’s contention that the
tenders invited were foreclosed by reduction of quantity. The Arbitral
Tribunal also rejected JRIL’s claim that the Railways had breached the
terms of the Agreement or the tender conditions by adopting dual
pricing. JRIL had supplied wagons at the price quoted by it and was
not entitled to claim a higher price on the basis of the bids submitted
by other tenderers. The said findings ought to have been dispositive
of the claims raised by JRIL.
63. Notwithstanding that, the Arbitral Tribunal rejected the basis
on which JRIL had raised its claim, and it entered an award of
₹18,35,20,000/-, in favour of JRIL.
64. JRIL had sought to escape the rigors of Clause 2.4 of the
Agreement (renumbered as Clause 2.8 of the Agreement) by claiming
that the said clause was only operative during the initial term of the
Agreement. According to JRIL, the recourse to the Option Clause was
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 26 of 30
available only during the “ currency of the contract ”. It is material to
note that the Arbitral Tribunal did not accept this contention that the
exercise of the Option Clause was beyond the currency of the
Agreement.
65. As stated above, the said award is based on interpretation of
Clause 2.4 of the Agreement (renumbered as Clause 2.8 of the
Agreement), as according to the Arbitral Tribunal, the said clause did
not entitle the Railways to place an order for additional quantities at
the price quoted by tenderer, if there was a substantial increase in the
market value or the cost of manufacturing of wagons. This was not a
case set up by JRIL in its Statement of Claims.
66. This Court is of the view that the decision of the Arbitral
Tribunal to seek to interpret Clause 2.4 of the Agreement (renumbered
as Clause 2.8 of the Agreement), in a manner so as to curtail the right
of the Railways to increase the quantity procured under the Agreement
is, ex facie , erroneous. A plain reading of the said clause clearly
indicates that the Railways was entitled to increase the quantity of the
wagons during the currency of the Agreement by up to 30%. JRIL had
voluntarily submitted its bid to supply BOXNHL wagons at a price of
₹10,80,000/-. The allocation of the quantities was made in conformity
with the tender conditions. The Railways also had the right to alter the
quantities by increasing or decreasing the same up to 30% during the
currency of the Agreement. JRIL had agreed to provide additional
quantities or to accept reduction in quantities without any change in
the price quoted. Merely because the market value of the price of
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 27 of 30
wagons or its cost of production increased, the same cannot be a
ground for reading the Agreement contrary to its plain terms.
67. JRIL had quoted a price that was substantially lower than the
other bidders. The other bidders were not willing to supply the wagons
at the price quoted by JRIL (L-1 price) and had declined the counter-
offer made by the Railways. Thus, even at the tendering stage, JRIL
had quoted a price, which was perhaps lower than the market value.
According to the Railways, JRIL had bid aggressively and adopted
predatory pricing.
68. A commercial contract between the parties cannot be avoided
on the ground that one of the parties subsequently finds it
commercially unviable to perform the same. The Arbitral Tribunal
has, essentially, re-worked the bargain between the parties and re-
written the contract. This is, clearly, impermissible.
69. In PSA SICAL Terminals Pvt. Ltd v. Board of Trustees of V.O.
Chidambranar Port Trust Tuticorin and Others ( supra ), the Supreme
Court observed as under: -
“87….In our view, re-writing a contract for the parties
would be breach of fundamental principles of justice
entitling a Court to interfere since such case would be
one which shocks the conscience of the Court and as
such, would fall in the exceptional category.”
70. There is no dispute that the interpretation of a contract falls
within the jurisdiction of an arbitral tribunal and an arbitral award
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 28 of 30
based on a plausible interpretation of a contract cannot be interfered
with under the provisions of Section 34 of the A&C Act.
71. However, in this case, this Court is unable to accept that the
Arbitral Tribunal’s interpretation of Clause 2.4 of the Agreement
(renumbered as Clause 2.8 of the Agreement), is a plausible one.
72. According to the Arbitral Tribunal, the said clause is required to
be re-interpreted contrary to its plain language as it “ flouts business
common sense ”. JRIL, in its commercial wisdom, had quoted a price
of ₹10,80,000/- for supplying the BOXNHL wagons. It is not open
for the Arbitral Tribunal to examine this commercial wisdom and re-
write the Agreement on the basis of the commercial difficulties faced
by JRIL in performing its obligations.
73. JRIL had bid a lower amount to garner a higher share of
tendered quantity, which would entitle it to higher allocation of orders
based on its Performance Index, in the next year. According to the
Railways, JRIL had adopted predatory pricing to eliminate the other
manufacturers from suppling the orders by making it commercially
unviable to do so. The Arbitral Tribunal has not examined this
contention while considering whether Clause 2.4 of the Agreement
(renumbered as Clause 2.8 of the Agreement) “ flouts business
common sense ”.
74. It is not necessary that all contracts yield a profit; some result in
a loss as well. This is not a factor to permit a party to avoid its
contractual obligations.
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 29 of 30
75. In cases where it is found that the terms of the contract do not
clearly express the intentions of the parties, it is open to seek recourse
to various tools of interpretation. This would include interpreting a
contract in a manner that would make commercial sense as it is
assumed that men of commerce would have intended it so. However,
it is not open to re-work a bargain that was struck between the parties
on the ground that it is commercially difficult for one party to perform
the same.
76. The decision of the Arbitral Tribunal to award the difference
between the price quoted by the tenderers and the price quoted by
JRIL, is unsustainable. It amounts to re-writing the contract between
the parties. The impugned award is in conflict with the fundamental
policy of Indian law and is vitiated by patent illegality.
77. In view of the above, the petition is allowed. The impugned
award is set aside.
VIBHU BAKHRU, J
MAY 23, 2022
RK
Signature Not Verified
Digitally Signed
By:Dushyant Rawal
Signing Date:23.05.2022
O.M.P. (COMM) 227/2019 Page 30 of 30