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2026 Supreme(Bom) 514
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
GAURI GODSE, J.
Union of India, through Principal Chief Engineer/Deputy Chief Engineer – Appellant
Versus
M/s. Bridge Track and Tower Pvt. Ltd. – Respondent
Arbitration Petition No. 221 of 2023
Decided On : 04-02-2026
For the Appellants : Chetan C. Agrawal, Saurabh Gori
For the Respondents: Aseem Naphade, Deepanjali Mishra, A.P. Singh
Contractual lien under Clause 2401 to withhold payments requires formal recovery claim invoking arbitration and notice to contractor; pending criminal probe into fraud under related transaction insufficient without such claim.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 34 - Indian Railways Standard Conditions of Contract - Clauses 2401 and 2403 - Withholding payment due under purchase order for supplied goods - Alleged fraud and non-supply under second purchase order - Criminal investigation and charge sheet filed - No recovery claim filed by purchaser invoking arbitration - No evidence of notice to contractor as required under Clause 2401 - Arbitrator rightly held withholding invalid; awarded payment with liberty to notify lien pending claim adjudication - Petition to set aside award dismissed. (Paras 2, 3, 13-28)
(B) Lien under contract - Requires claim for sum arising under contract against contractor, notification thereof, and pendency of adjudication by arbitrator or court - Pending criminal proceedings insufficient as findings not binding in civil recovery; must file claim for recovery of alleged fraudulent payment to justify withholding from undisputed dues. (Paras 14-25)
(C) Criminal proceedings - Results relevant only to show particulars of dispute, not binding on arbitral or civil adjudication of contractual claims. (Paras 17-18)
Facts of the case:
Two purchase orders issued under same contract for fabrication and supply of overriding fan-shaped switches and elastic rail clips. Invoices raised for supplied goods under first purchase order remained unpaid. Allegations of fraudulent receipt of payment under second without supply led to criminal investigation; payments withheld relying on contract clauses without recovery claim or notice.
Findings of Court:
Arbitral award directing release of Rs.24,93,462/- for goods supplied and Rs.6,38,932/- price variation upheld; no grounds under Section 34 to interfere.
Issues: Whether purchaser entitled to withhold payments under first purchase order by lien pending criminal investigation into alleged fraud under second without filing recovery claim and serving notice under Clause 2401.
Ratio Decidendi: Contractual right to lien under Clause 2401 mandates arising claim under contract, notification to contractor, and adjudication thereof; criminal pendency does not equate to contractual claim adjudication, nor bind civil proceedings.
Result: Arbitration petition dismissed.
| Table of Content |
|---|
| 1. contract for switches supply; fraud alleged; payment withheld. (Para 1 , 2 , 3 , 4) |
| 2. lien justified pending cbi fraud inquiry. (Para 5 , 6 , 7) |
| 3. lien requires formal claim; cbi irrelevant. (Para 8 , 9 , 10 , 11 , 12) |
| 4. undisputed supply; lien needs claim and notice. (Para 13 , 14 , 15 , 16 , 17) |
| 5. criminal findings unbound civil; lien as security. (Para 18 , 19 , 20 , 21) |
| 6. clause 2401 demands claim adjudication for lien. (Para 22 , 23 , 24 , 25) |
| 7. no notice evidence; cbi no claim substitute. (Para 26 , 27) |
| 8. award upheld; petition dismissed. (Para 28 , 29) |
JUDGMENT :
GAURI GODSE, J.
1. This arbitration petition is filed under Section 34 of the ARBITRATION AND CONCILIATION ACT , 1996 (“Arbitration Act”) to set aside the arbitral award passed by the sole arbitrator. The claim in the arbitration is based on a purchase order placed by the petitioner with the respondent (claimant) for the fabrication and supply of 344 fans weighing 60 kg, shaped switches, as per the contract between the parties. By the arbitral award, the respondent’s claim is granted for non-payment of Rs. 24,93,462/- towards the cost of supply of 45 sets of contract goods, and the PVC amount of Rs. 6,38,932/- which was withheld by the respondent.
Basic Facts:
2. The petitioner had placed a purchase order with the respondent for the fabrication and supply of 344 sets of 60 kg, overriding fan-shaped switches. The petitioner placed another purchase order for the supply of 1014117 ERC. The petitioner alleged that, without supplying the goods, the respondent, in collusion with some railway staff, fabricated the record showing delivery of the goods and fraudulently received the payment. Hence, criminal proceedings were initiated, and the CBI in Pune commenced an investigation. A charge sheet was filed for the offence of forgery and cheating. By relying on Clause No. 2401 of the Indian Railways Standard Conditions of Contract (“IRS terms and conditions”), the petitioner withheld the amount payable to the respondent towards the first purchase order.
3. The arbitral tribunal opined that, under Clause No. 2401 of the IRS terms and conditions, before withholding or retaining any payable amount, the petitioner was required to notify the contractor of such withholding or retention. Since the petitioner failed to submit any evidence to prove that a show cause notice or an intimation was served upon the respondent, the onus of proving the same was not discharged, and thus the petitioner was not entitled to withhold the amount on the ground of pending adjudication of the criminal proceedings. Being aggrieved by the award directing the release of the payment, the original respondent has filed this petition to set aside the award.
4. The following are the admitted dates and events regarding the contract between the parties:
a) On 22nd July 2011, the petitioner floated a tender for the fabrication and supply of 60 kg (UIC) overriding fan- shaped switches. The respondent submitted a quotation in response to the tender. The petitioner issued a letter of acceptance to the respondent on 17th November 2011. Accordingly, the petitioner issued a purchase order on 9th February 2012 for the fabrication and supply of 60 kg (UIC) fan-shaped overriding switches. The contract value of the purchase order was Rs. 1,98,21,758/-. The second purchase order dated 17th July 2012 was issued by the petitioner for the supply of 10,14,117 Elastic Rail Clips (“ERC”).
b) Thus, based on the letter of acceptance dated 17th November 2011, two purchase orders were placed. The first purchase order was on 9th February 2012, and the second was on 17th July 2012.
c) The respondent accordingly raised three invoices totalling Rs. 6,38,932/-. Three separate invoices dated 21st December 2013 were raised. Two invoices for an amount of Rs. 9,41,976/- each, for the supply of 17 sets of the said goods and 11 sets of the said goods, respectively.
The third invoice was for Rs. 6,09,514/- for the supply of 11 sets
