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IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, J.
Union of India, Ministry of Railways, Railway board & Anr. – Petitioners
Versus
Jindal Rail Infrastructure Limited – Respondent
O.M.P. (Comm) 227 of 2019
Decided On : 23-05-2022
Arbitration and Conciliation Act, 1996 - Section 34, 11, 16 - Indian Contracts Act, 1872 - Section 70, 73 - Arbitration - Sole Arbitrator - Award - Whether all or any of Claims raised by Claimant in Statement of Claim are outside scope of contract between parties and hence not arbitrable - Whether all or any of reliefs no. (i), (ii), (iii) claimed by Claimant in Statement of Claim can be granted - Whether Claimant is entitled to interest on amount awarded and if so, at what rate and for which period - JRIL had not contested right of Railways to increase quantity up to 30% - On contrary, JRIL had accepted same and framed its claim on said basis (Para 59).
Findings of Court :
Court is of view that decision of Arbitral Tribunal to seek to interpret Clause 2.4 of Agreement, in a manner so as to curtail right of Railways to increase quantity procured under Agreement is, ex facie, erroneous - A plain reading of said clause clearly indicates that Railways was entitled to increase quantity of wagons during currency of Agreement by up to 30% - JRIL had voluntarily submitted its bid to supply BOXNHL wagons at a price - Allocation of quantities was made in conformity with tender conditions - Railways also had right to alter quantities by increasing or decreasing same up to 30% during currency of Agreement - JRIL had agreed to provide additional quantities or to accept reduction in quantities without any change in price quoted - Merely because market value of price of wagons or its cost of production increased, same cannot be a ground for reading Agreement contrary to its plain terms.
Result : Petition allowed.
Based on the provided legal document, the key legal points are as follows:
The arbitral tribunal's interpretation of Clause 2.4 (renumbered as 2.8) of the Agreement was found to be erroneous because it sought to restrict the Railway's right to increase the quantity of wagons by up to 30%, which was expressly permitted under the contract (!) (!) .
The Tribunal's attempt to re-interpret the contractual clause contrary to its plain language was deemed to amount to re-writing the contract, which is impermissible and conflicts with fundamental principles of contractual enforceability (!) (!) .
The Tribunal's decision to award damages based on the difference between the market price and the contract price was considered to be an impermissible re-interpretation of the contractual terms, effectively re-writing the bargain struck between the parties (!) (!) .
The Tribunal's conclusion that the Railways' issuance of amendments (notably Amendment No. III) was in breach of the contractual provisions was upheld, but its subsequent award based on the market value and the differential pricing was found to be beyond the scope of the original claims and the contractual rights (!) (!) .
The claims related to dual pricing and the alleged breach of the contractual obligation to supply wagons at the agreed price were rejected by the Tribunal, which held that JRIL had not challenged the validity of the contractual provisions permitting the increase in quantity and had accepted the terms (!) (!) .
The Court emphasized that interpretation of contractual provisions falls within the jurisdiction of the arbitral tribunal, but an award that seeks to alter or re-interpret clear contractual language to achieve a different outcome is beyond its permissible scope and constitutes patent illegality (!) (!) .
The award was ultimately set aside because it was based on re-interpretation of the contract and was inconsistent with the fundamental principles of contractual certainty and legality, amounting to an illegitimate rewriting of the parties' bargain (!) (!) .
The Court reaffirmed that commercial contracts are to be interpreted based on their plain language and the intentions of the parties, without judicial or arbitral re-writing of terms to suit perceived commercial difficulties or hardships faced during performance (!) (!) .
In summary, the core legal principles derived from this case highlight that arbitral tribunals must adhere strictly to the clear language of contractual provisions and should avoid re-writing or re-interpreting terms in a manner that alters the fundamental bargain between the parties. Awards based on such re-interpretations are liable to be set aside for patent illegality and conflict with the principles of contractual enforceability.
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 ‘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 ‘BCNHL’ | 3706 | 606 |
| 3 | BG Bogie Open Wagon Type ‘BOSTHSM2’ | 211 | 211 |
| 4 | BG Bogie Hopper Wagon Type ‘BOBYN 22.9’ | 200 | 200 |
| Total | 8509 | 8509 | Total |
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 | Rs. 10,80,000/- |
| BCNHL | 106 | Rs. 10,71,000/- |
| BOSTHSM2 | 111 | Rs. 8,91,000/- |
| TOTAL | 1871 |
|
7. Thereafter, on 12.06.2015, the parties entered into the Contract bearing No. 2015/RS(I)/954/44/1777 (hereinafter the ‘Agreement’). In terms of the Agreement, the Railways issued an order for manufacture and supply of 1403 numbers of wagons for a total contract price of Rs. 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
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