The main legal point established in the judgment is that the failure to consider Clause 702 of the IRS conditions led to a patent illegality in the award, justifying its setting aside.

JUDGMENT : – The instant appeal has been filed under section 37(1)(B) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act of 1996) being aggrieved by the Judgment dated 9-11-2016 passed in Arbitration Case No. 76/2014 by the 10th Additional District Judge, Jabalpur (M. P.); whereby the application filed by the appellant under section 34 of the Act of 1996 has been dismissed and the Arbitration Award dated 20-1-2014 has been confirmed. The learned Arbitrator has rejected the claim of the appellant; wherein the quashment of recovery notice of Rs. 49,80,049.06/- towards risk purchase amount was sought to be recovered.

2. The appellant is a Public Limited Company incorporated under the Companies Act, 1956, engaged in the production of signalling and Telecom cables, having its registered office at 501-503, New Delhi House, 27, Barakhamba Road, New Delhi. The appellant is a small scale industry, registered with National Small Industries Corporation (N.S.I.C.) and under Micro Small and Medium Enterprises Development (MSMED) Act, 2006. Since, the Railways is the only purchaser of the material produced by the appellant, the appellant/Company is solely dependent on the payment received from the Railway for running the industry. The production is chalked out by the company keeping in view the flow of the funds from various Railway Zones and by taking the said funds, supplies were made to the various purchase orders.

3. The brief facts, which are necessary for the just and proper adjudication of the case, are that on 26-5-2010, West Central Railway, Jabalpur (for short “WCR”) floated a tender for supply of signalling cables and invited offers from the interested parties. The appellant was one of the bidders in the said tender. The tender was opened on 26-5-2010; wherein the appellant has been declared successful bidder. The terms and conditions of contract, as per the tender documents, include the IRS conditions (Indian Railway Standard Conditions of Contract). After appellant having been declared as a successful bidder, on 20-7-2010 advance acceptance letter was issued to the appellant by the respondents. A purchase order dated 7-9-2010 was also issued to the appellant for supply of 170 kms. PVC Armoured signalling cables 12 Core X 1.55 mm sq. valued at Rs. 1,87,67,451.94/-.

4. Since over Rupees Four crores were due from various Railway Zones, it had become difficult for the appellant to supply the goods, therefore, on 11-2-2011 appellant requested the respondents for extension of time or to cancel the purchase order without any financial adversities. The respondents/Railways replied to the above request almost after 4 and ½ months.

5. On 3-3-2011 the respondents cancelled the contract and invoked Clause 702 of the IRS conditions for supply of the article, as ordered by the respondents and intimated to the appellant that according to Clause 702 of the IRS condition, the Railways would purchase the material at various cost of the appellant. Even though the appellant was ready to supply the material; however, for want of funds extension of time was prayed for, but no reply was received from the Railways.

6. From the records, it is further revealed that on 24-6-2011 it was informed to the appellant that if he is interested in re-fixation of delivery period (DP) with liquidated damages, in that case the request of the appellant can be considered by the respondents. However, the appellant did not reply to the same, but sought extension of time to supply the material, as per tender conditions dated 26-5-2010 with a request to extend the time without liquidated damages.

7. On 3-8-2011 the respondents cancelled the contract of the appellant, in which it was also intimated that the fresh purchase shall be made after applying the clause of risk purchase at the risk of the appellant. On 8-8-2011, 10% amount of security was demanded by the respondents from the appellant on the count that appellant participated in the r