Bombay HC: Arbitrator's 'Plausible View' on Contract Modification & Unjust Enrichment Warrants No Sec. 34 Interference; Railways' Challenge Dismissed - 2025-06-26

Bombay High Court Upholds Arbitral Award Against Railways, Emphasizes Limited Scope of Judicial Review

Mumbai, India – The High Court of Bombay, in a significant ruling on June 24, 2025, dismissed a petition filed by the Union of India (Central Railway) challenging an arbitral award favouring PLR HC RBR JV, a joint venture contractor. Hon'ble Shri Justice SomasekharSundaresan , presiding over the case, reaffirmed the limited scope of judicial interference under Section 34 of the Arbitration and Conciliation Act, 1996, stating that an arbitrator's "eminently logical and plausible view" based on evidence should not be disturbed.

The court also rejected the Railways' argument that the award was contrary to Article 299 of the Constitution of India, which pertains to the formalities of government contracts.

Background of the Dispute: A Railway Project Derailed by Disagreements

The dispute originated from an agreement dated September 24, 2018, for railway line work between Wardha and Nanded, valued at approximately Rs. 124.96 crores, with a 24-month completion deadline. The contractor, PLR HC RBR JV, faced delays attributed to land acquisition issues by the Railways and the COVID-19 pandemic.

Initially, the Railways granted extensions of time (EOT) without penalty and with price variation, acknowledging reasons not attributable to the contractor (under Clause 17-A of the General Conditions of Contract - GCC). However, issues arose with the non-payment of the seventh Running Account (RA) Bill for work valued at Rs. ~138.78 crores (with Rs. ~108.73 crores previously paid) and the non-preparation of the eighth RA Bill, despite joint measurements.

The Railways' stance changed following a personnel shift in January 2021. A subsequent EOT was granted with a token penalty and denial of price variation, invoking Clause 17-B of the GCC (delay attributable to contractor). This led to a breakdown in relations and the initiation of arbitration proceedings.

The Arbitral Tribunal's Award

The Arbitral Tribunal, after considering evidence, had ruled substantially in favour of the contractor, awarding: * Payment for restricted quantities (Rs. 13.82 crores). * Value of the eighth RA Bill (Rs. 8.22 crores). * Price variation (Rs. 2.87 crores). * Issuance of a work completion certificate for work done up to March 16, 2021. * Refund of the security deposit (Rs. 6.24 crores). * Arbitration costs (Rs. 30 lakhs) and interest.

Railways' Challenge and the High Court's Rebuttal

The Railways challenged the award primarily on grounds that: 1. Additional work constituted a modification not formally documented as per Clause 41 of the GCC. 2. The award violated Article 299 of the Constitution. 3. The contractor had abandoned work and was responsible for delays. 4. Price variation and other claims were wrongly allowed.

Justice Sundaresansystematically addressed and dismissed each contention:

1. On Contract Modification (Clause 41) and Unjust Enrichment: The Court found the Tribunal's decision that the extra work was payable to be "eminently logical and plausible." It noted:

"The view of the Learned Arbitral Tribunal that the conduct indicates consensual and well-documented expansion of scale of work and that the Railways would be unjustly enriched having confirmed that it has indeed gotten the work done, cannot be faulted with." (Para 20) The Court highlighted that the work was recorded in measurement books, the seventh RA Bill including excess work was prepared by the Railways, and payments for components of extra work had been made previously. The absence of contemporaneous protest by the Railways against the extra work was also crucial.

2. On Article 299 of the Constitution: The Court deemed the argument based on Article 299 (requiring government contracts to be in a specific form) as a "very high-pitched argument that does not turn the needle in the Railways’ favour." (Para 21) It distinguished the cited precedents (like Bhikraj Jaipuria ), noting that a valid agreement existed, and the dispute concerned modifications during its implementation, which the Tribunal found were supported by a "clear functioning framework" and written confirmations.

"In the case at hand, the parties indeed executed the Agreement and have been implementing it. In the course of implementation, they have arrived at a clear functioning framework and the work was done in that framework." (Para 22)

3. On Delays, Price Variation, and Completion Certificate: The Court upheld the Tribunal's findings that the Railways' sudden shift to attributing delay to the contractor (invoking Clause 17-B) was unjustified, especially after previously accepting delays under Clause 17-A.

"Who was responsible for the delay is a question of fact. That cannot change lightly without reason." (Para 39) The Tribunal's view that the contractor couldn't be expected to work under the new adverse conditions (denial of price variation, non-payment of dues) was considered reasonable. Consequently, directions for price variation payment and issuance of a partial completion certificate were upheld.

4. On Non-Payment of Bills and Alleged Overpayment: The Court concurred with the Tribunal's assessment regarding the unpaid seventh and unissued eighth RA Bills, relying on joint measurement records. The Railways' failure to conduct its own unilateral re-measurement (permissible under Clause 45 GCC if the contractor failed to attend) weakened its position. Furthermore, the Railways' assertion of a Rs. ~20.52 crore overpayment was undermined by its failure to file any counter-claim in the arbitration.

"The Learned Arbitral Tribunal’s assessment that this is an afterthought, which too has not been backed up with a counter-claim cannot be faulted." (Para 31)

5. On Release of Security Deposit: The release of the security deposit was deemed a logical consequence of the other findings. The Court noted the Railways had earlier released the performance bank guarantee, which "also underlines its satisfaction with the work done and measured as of March 2021." (Para 41)

6. Scope of Review under Section 34: Throughout the judgment, Justice Sundaresan emphasized the narrow scope of judicial review:

"The standard for testing an arbitral award under Section 34 of the Act is not to create doubt about it but to demonstrate that the award has patently ignored vital evidence to come within the ambit of patent illegality." (Para 32) And, "The Learned Arbitral Tribunal is the best judge and master of the evidence before it... Taking a holistic view of the evidence, the Learned Arbitral Tribunal has returned a reasonable, defensible and plausible view, which cannot be faulted." (Para 20)

Final Decision and Implications

The High Court dismissed the Railways' petition, finding it "devoid of merit." Costs of Rs. 2.5 lakhs were imposed on the Railways for this round of litigation. The Court also directed the release of amounts deposited by the Railways to the contractor within four weeks. A request by the Railways for an eight-week stay on the judgment was denied.

This judgment reinforces the judiciary's pro-arbitration stance, limiting interference with arbitral awards unless they meet the high threshold of "patent illegality" or other grounds strictly defined under Section 34. It also underscores that contractual obligations, even with government bodies, can be interpreted and enforced based on consistent conduct and documented acknowledgments, even if formal amendments are pending.