The 'Fall Clause' in contracts requires a like-for-like price comparison, which was not met in this case due to differing freight arrangements.

JUDGEMENT :

Context and Factual Background:

1. The challenge in this Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) is to an arbitral award dated February 1, 2020 (“Impugned Award”), which allows a claim made by the Respondent, Emami Agrotech Ltd. (“Emami”) against the Petitioner, the Central Railway (“Central Railway”).

2. The Central Railway had deducted an amount of Rs. 48,75,400 from the amounts payable to Emami towards purchase of bio-diesel, primarily in reliance upon a “Fall Clause” contained in: (i) the purchase order dated January 19, 2016 issued by Central Railway to Emami (“Purchase Order”); and (ii) the Indian Railways Standard Conditions of Contract (“Standard Terms”).

3. A brief summary of the factual matrix would be necessary. Pursuant to a tender floated by the Central Railway, Emami made a bid dated October 29, 2015, for supply of 4,100 kilolitres, [1 Kilolitre is 1,000 litres.] (“KL”) of bio-diesel at an “all-inclusive rate” of Rs. 45,300 per KL. The destinations at which the bio-diesel was to be delivered were Wadi, Daund and Pune (all in Maharashtra). In this bid, the “basic rate” was meant to be Rs. 43,142.86 per KL, and Central Sales Tax was to be applied at 5%. In its bid, Emami quoted that it would not charge anything towards freight. Emami emerged as the lowest bidder when the bids were opened on October 30, 2015.

4. On November 16, 2015, the Central Railway negotiated with Emami and brought the “all-inclusive rate” down to Rs. 44,000 per KL (down by Rs. 1,300 per KL). This was broken up as a “basic rate” of Rs. 41,904.76 per KL with Central Sales Tax of 5% on such rate. That freight would be at Emami’s expense, remained unchanged. This revised offer was accepted on December 3, 2015, resulting in the formation of a contract.

5. The parties agreed that the price in the contract was on “Free on Rail / Road on Destination” basis (“FOR on Destination”). The contract between the parties explains the implications of FOR on Destination as part of the “general terms” governing “delivery and transportation of goods”. It provides that for supplies made on FOR on Destination basis, the seller (in this case, Emami) would need to deliver the goods to the transporter nominated by the seller, but the seller has to bear the cost of carriage necessary to deliver the goods to the named destination (in this case, the three locations in Maharashtra). Such cost of carriage borne by the seller would be for delivery by the transporter until the location of the godown of the transporter nearest to the buyer (in this case, Central Railway). The seller must indicate the insurance cover taken for this journey, and the buyer may acquire, at the buyer’s expense, a higher insurance cover.

6. Pursuant to such agreement, the Central Railway placed the Purchase Order for supply of 3,335 KL out of the 4,100 KL contract. On February 2, 2016 (shortly after the Purchase Order), Eastern Railway placed a purchase order for supply of 500 KL of bio-diesel deliverable to Jamalpur, Bihar (“Eastern Railway Order”), which was priced at Rs. 42,100 per KL, broken up as a base price of Rs. 39,000 per KL, freight of Rs. 1,150 per KL and Central Sales Tax of 5%.

7. The Eastern Railway Order entailing a price of Rs. 42,100 led to Central Railway claiming that the price for the supply under the Purchase Order would stand reduced from Rs. 44,000 to Rs. 42,100 per KL. Emami protested this interpretation of the Purchase Order, and submitted that the Fall Clause was not attracted at all. From the next payment due to Emami, an amount of Rs. 48,75,400 was withheld by Central Railway. Moreover, the contractual right to enhance the supplies was invoked by Central Railway to demand an additional 1,230 KL at a price of Rs. 42,100 per KL. Central Railway only paid amounts as if the price under the Purchase Order stood revised to Rs. 42,100 per KL.

8. Emami invoked arbitration, and after hearing the parties and appreciating the evi