Union Of India vs M/S Prestressed Udyog

: JASMEET SINGH, J (ORAL)

This is a petition filed under section 34 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”) seeking to set aside the impugned Award dated 30.03.2015 and further modified on 10.06.2015, passed by the Sole Arbitrator, to the extent it rejected the counterclaims No. 1 to 5 of the petitioner, in the arbitration case titled “M/s Prestressed Udyog vs. President of India, represented by Chief Track Engineer, N.F. Railway, Maligaon”.

The facts are that the Ministry of Railways, Government of India, floated an open tender No. CS-152/2002 for manufacture and supply of Pre-stressed Concrete Sleepers. The respondent participated in the said tender and emerged as the successful bidder.

Consequently, Ministry of Railways issued a detailed letter of acceptance dated 13.10.2003 for manufacture and supply of 1,64,000 Nos. Mono-block Pre-stressed Concrete Sleepers (“Sleepers”) for a total value of Rs. 11,73,25,600/-. To this effect, a contact agreement bearing No. CE/54 dated 01.03.2004 was executed between the parties. However, the respondent supplied only 14,933 Nos. Sleepers against the contracted 1,64,000 Nos., leaving 1,49,067 Nos. Sleepers unsupplied.

Ministry of Railways floated another open tender No. CS-156/2005 for manufacture and supply of Pre-stressed Concrete Sleepers, in which the respondent again emerged as the successful bidder. Consequently, Ministry of Railways issued a detailed letter of acceptance dated 30.12.2005 for supply of 10,000 Nos. Sleepers for a total value of Rs. 86,50,000/-. To this effect a contact agreement bearing No. CE/CS-02 dated 21.02.2007 was executed between the petitioner and the respondent. However, in this case too, the respondent failed to supply the entire consignment of 10,000 Nos. Sleepers.

For the sake of brevity, the petitioner before this Court was the respondent in the arbitration proceedings, and the respondent herein was the claimant therein.

The Indian Railway Standard Conditions of Contract (“IRS Conditions”) to the two contract agreements, i.e., contract agreement No. CE/54 and the contact agreement No. CE/CS-02 (“the Contract Agreements”), contained an arbitration clause, being Clause No. 2900, which reads as under:-

Due to the respondent’s failure to supply the required numbers of Sleepers as per the Contract Agreements, certain disputes arose between the parties. Accordingly, on 04.06.2008, in terms of the arbitration clause, the respondent applied for appointment of an Arbitrator. Vide Railway Board letter No. 2003/Track-II/22/11/68/70858/NBQ/NFR dated 05.09.2008 the Sole Arbitrator was appointed.

The Sole Arbitrator passed the impugned Award on 30.03.2015 and the modification order on 10.06.2015, whereby the claims of respondent as well as the counterclaims of the petitioner were rejected.

Mr. Singh, learned CGSC appearing for the petitioner, submits that for the respondent’s failure to supply all the Sleepers under the Contract Agreements, it is liable to pay liquidated damages in terms of clause No. 0702 of the IRS Conditions, read with clause 13 of the Contract Agreements, at the rate of 5% of the cost of Sleepers not supplied by it. This works out to Rs. 70,51,838.03/- under contract agreement No. CE/54 and Rs. 4,73,065/- under the contact agreement No. CE/CS-02. Clause 13 of the Contract Agreements is reproduced below:-

He further states that the Sole Arbitrator’s rejection of the counterclaims No. 1 and 3, seeking liquidated damages, is arbitrary, particularly in view of the finding recorded in paragraph 10.1.3 of the impugned Award, wherein the Sole Arbitrator held the respondent in default for not fulfilling its contractual obligations of supplying the contracted number of Sleepers. Paragraph 10.1.3 of the impugned Award is reproduced below:-

Learned CGSC appearing for the petitioner further states that in view of the above finding of the Sole Arbitrator, the rejection of the petitioner’s counterclaims for liquidated damages is contrary to the clauses of the Contract Agreements read with the IRS Conditions.

It is additionally stated that the Sole Arbitrator failed to appreciate that once the respondent failed to supply the contracted quantity of the Sleepers, the petitioner had to procure the same from NJP Sleeper Plant. Therefore, making the petitioner entitled for the amount incurred by it towards extra carriage cost involved in carrying the said Sleepers from NJP Sleeper Plant to NBQ Sleeper Plant, as claimed under counterclaim No. 2.

It is further stated that the petitioner is also entitled counterclaim No. 4 towards “Salary of one IOW and one AXEN/CS”, who were sitting idle in the plant for 2 years because of non-manufacturing of Sleepers and counterclaim No. 5 towards “Difference of cost of sleepers as the work was executed at risk and cost”, which the Sole Arbitrator erroneously rejected.

Hence, the petitioner contends that the impugned Award, to the extent it rejects counterclaims No. 1 to 5, is contrary to the agreed terms of the Contract Agreements and is without any reason or basis. Hence, it is in contravention to the public policy of India and basic notions of morality and justice and therefore it is liable to be set aside under Section 34 of the 1996 Act.

Further, in reply to the objection of the respondent against this Court’s jurisdiction to adjudicate the present petition, and to the contention that only the Hon’ble Gauhati High Court has jurisdiction, Mr. Singh, learned CGSC, submits that this Court has the sole and absolute jurisdiction to adjudicate the present petition in terms of clauses No. 25 and 26 of the contract agreement No. CE/54 and clauses No. 24 and 25 of the contact agreement No. CE/CS-02. Clauses No. 25 and 26 of the contract agreement No. CE/54, which are identical to clauses No. 24 and 25 of the contract agreement No. CE/CS-02, are extracted below:-

He submits that, in terms of the above clauses, since the Contract Agreements, the tender documents and acceptance of tenders were all issued from Railway Board, New Delhi, only the High Court of Delhi has the jurisdiction to decide the present petition and not the Hon’ble Gauhati High Court. He further states that the Sole Arbitrator was also appointed by Railway Board, New Delhi vide letter dated 05.09.2008.

Per contra, Mr. Narang, learned senior counsel for respondent, at the outset challenges the territorial jurisdiction of this Court to adjudicate the present petition. He submits that merely because the tender was floated by the Railway Ministry in New Delhi and the acceptance letters were issued by the Ministry in New Delhi does not confer jurisdiction on this Court. Instead, he contends that since the Contract Agreements were executed between the parties at Guwahati, the offices of both the petitioner and respondent are situated in Guwahati, work under the Contract Agreements was executed at Guwahati/ New Bongaigaon and even the arbitration proceedings took place in Guwahati, only the Hon’ble Gauhati High Court have jurisdiction to adjudicate the present petition. Moreover, the respondent in support of its submission has placed reliance on Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited and Ors. (2017) 7 SCC 678 and Brahmani River Pellets Limited vs. Kamachi Industries Limited, (2019) SCC OnLine SC 929. Hence, he submits, that the present petition is liable to be dismissed for want of territorial jurisdiction.

It is further stated that the clause 13 of the Contract Agreements, which provides for liquidated damages can only be applied when there is a failure on part of the Contractor i.e., respondent. However, he states that there was no failure on part of the respondent, instead it was the repeated intervention by the petitioner, which lead to the non-completion of the Contract Agreements.

He further submits that the Sole Arbitrator, after a detailed analysis of claims and counterclaims, examination of all the issues raised by both the parties, and interpretation of the Contract Agreements’ clauses and IRS Conditions, has correctly rejected the counterclaims of the petitioner. He further states that the petitioner never raised the issue of imposition of liquidated damages at any prior given point in time and is therefore barred from claiming them now. Hence, he submits that the impugned Award is a well-reasoned and well-analyzed Award, which warrants no interference.

I have heard learned counsels for the parties.

At the outset, the respondent has challenged this Court’s jurisdiction to adjudicate the present petition on the ground that, since the Contract Agreements were executed between the parties at Guwahati, the offices of both the parties are situated in Guwahati, the work under the Contract Agreements was executed at Guwahati/ New Bongaigaon, and even the arbitration proceedings took place in Guwahati, only the Hon’ble Gauhati High Court would have jurisdiction to adjudicate the present petition.

However, the respondent has overlooked the express stipulation in clauses No. 25 and 26 of the contract agreement No. CE/54 (reproduced above), which undisputedly provide exclusive jurisdiction to the courts of the place from where the tender documents and acceptance of tender were issued to decide any disputes arising out of or in respect of the Contract Agreements.

It is not in dispute that the tender documents and acceptance of tender were issued from New Delhi. Hence, the clauses, particularly the expression “shall alone have jurisdiction”, clearly confers exclusive jurisdiction on the Courts at New Delhi.

The law on this issue is no longer res integra. The Hon’ble Supreme Court, in a catena of judgments, such as Hakam Singh vs. Gammon (India) Ltd., (1971) 1 SCC 286, A.B.C. Laminart Pvt. Ltd. & Anr. vs. A.P. Agencies, (1989) 2 SCC 163, Swastik Gases (P) Ltd. vs. Indian Oil Corp. Ltd., (2013) 9 SCC 32, and most recently in Rakesh Kumar Verma vs. HDFC Bank Ltd., 2025 INSC 473, has held that where two or more courts are otherwise competent, the parties may, by agreement, confer jurisdiction on one court to the exclusion of others, and such a stipulation of exclusive jurisdiction is binding.

Even the reliance of the respondent on Indus Mobile Distribution Private Limited (supra) and Brahmani River Pellets Limited (supra) are misplaced. Instead, the Hon’ble Supreme Court in Indus Mobile Distribution Private Limited (supra) and Brahmani River Pellets Limited (supra), upheld the principle that where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter. The relevant paragraph of Indus Mobile Distribution Private Limited (supra) reads as under:-

This Court, while consistently applying this principle, has time and again enforced the very clause in question. In Cummins Diesel Sales Service (India) Ltd. vs. The Director General of Supplies and Disposals, New Delhi, AIR 1981 Delhi 61, and in Gupta Textile Mills vs. Union of India, (2001) 57 DRJ 485, while dealing with similar clause providing exclusive jurisdiction to the courts at the place of issuance of the acceptance of tender, this Court held that such clauses are binding, and that only such courts would be competent to adjudicate the dispute notwithstanding that parts of cause of action may have arisen elsewhere.

Additionally, most recently a Division Bench of the Allahabad High Court in North Eastern Railway vs. Calstar Steel Ltd., 2024:AHC :55125-DB, while considering an identical clause, held as under: -

Accordingly, in light of the settled law as discussed above, the parties are bound by clauses No. 25 and 26 of the contract agreement No. CE/54 and clauses No. 24 and 25 of contract agreement No. CE/CS-02. Consequently, the Courts at New Delhi i.e., this Court, alone have jurisdiction to adjudicate the present petition, as the tender documents and the acceptance letters were issued from Delhi. The respondent’s objection is, therefore, without merit and stands rejected.

I shall now proceed to analyze the submissions of the learned counsels of both parties, with regards to the present petition, for setting aside of the impugned Award under Section 34 of the 1996 Act.

The principles with regard to the limited scope of interference by a Court under section 34 of 1996 Act against the Arbitral Award have been reiterated time and again by the Hon’ble Supreme Court and this Court, reliance has been placed on Consolidated Construction Consortium Limited vs. Software Technology Parks of India, 2025 INSC 574 (paragraph No. 23). The court in a petition under Section 34 of the 1996 Act cannot sit in appeal and reappreciate or re-evaluate the evidence.^{11.Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd., (2024) 2 SCC 375.} In the absence of any ground under Section 34 of the 1996 Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at^{22.Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1.}.

It is well settled law that the Court cannot modify or rewrite the Award and can only set it aside. However, the Court’s power to set aside an Award under Section 34 of the 1996 Act also includes the power to partially set aside an Award and sever the portions of the Award which fall foul of Section 34, subject to the condition that that claims are not so interconnected or intertwined that one cannot be segregated from the other, without affecting the rest of the Award. Reliance is placed on National Highways Authority of India vs. Trichy Thanjavur Expressway Ltd., 2023:DHC:5834; Union of India vs. Vishva Shanti Builders (India) Pvt. Ltd. 2024:DHC:5467 and Gayatri Balasamy vs. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1 (paragraphs No. 250 & 251).

In the present case, the petitioner, in its reply to the respondent’s Statement of Claim, submitted five counterclaims. Under counterclaims No. 1 and 3, it claimed liquidated damages in terms of clause 13 of the Contract Agreements against the respondent on account of default in supplying the required numbers of Sleepers. The counterclaims filed by the petitioner are produced below: -

The findings of the Sole Arbitrator on counterclaims No. 1 and 3 are extracted below: -

A bare perusal of these above extracted paragraphs shows that the Sole Arbitrator rejected respondent’s counterclaims No. 1 and 3 seeking liquidated damages solely on the ground that imposition of liquidated damages is an administrative decision falling within the prerogative of railway officials. However, he did not refer to any clause of the Contract Agreements, IRS Conditions, or any other documents to substantiate this reasoning. Further, while giving his finding on the counterclaims No. 1 and 3, the Sole Arbitrator did not even deal with clause 13 of the Contract Agreements (reproduced above), which specifically provides for “liquidated damages for failure to complete supplies within delivery period or termination of contract”. Thus, the findings of the Sole Arbitrator rejecting counterclaims No. 1 and 3 cannot be said to be well-substantiated and well-reasoned. In fact, the rejection of the counterclaims No. 1 and 3 are without any reasons.

The learned counsel for the petitioner has also drawn this Court’s attention to paragraph 10.1.3 of the impugned Award (reproduced above), wherein the Sole Arbitrator categorically held that the respondent failed to fulfil its contractual obligations and that there were several lapses on its part, which eventually led to the discontinuation of the supply of Sleepers. In light of this categorical finding of fact by the Sole Arbitrator, the rejection of petitioner’s counterclaims for liquidated damages becomes unreasonable and contrary to the Sole Arbitrator’s own findings. The Sole Arbitrator fails to explain why, despite holding that the respondent was in default under the Contract Agreements by not supplying the required number of Sleepers, the petitioner was not entitled to liquidated damages under clause 13 of the Contract Agreements.

To my mind, once the Sole Arbitrator held that the respondent was in default for non-performance of its contractual obligation, clause 13 of the Contract Agreements becomes applicable, and the petitioner became entitled to liquidated damages @ of 5% of the cost of Sleepers not supplied by the respondent.

Moving further, the respondent has argued that the Sole Arbitrator correctly rejected counterclaims claims No. 1 and 3 since the petitioner never raised the issue of imposition of liquidated damages at any previous given point in time. However, there is no clause in the Contract Agreements or IRS Conditions requiring liquidated damages to be imposed at a particular time or mandating deductions from the bills of the respondent. Also, the respondent has not produced before this court any clause of the Contract Agreements or IRS Conditions or any other document in support of its submission. On contrary, clause 13 of the Contract Agreements specifically deals with liquidated damages and contains no such stipulation as claimed by the respondent.

Additionally, vide order dated 04.07.2012 passed in Misc. (Arb.) Case No. 617/2009 filed by the respondent under Section 9(d) of the 1996 Act, learned Additional District Judge-1, Guwahati granted a temporary injunction against the petitioner from making any deduction/recovers on account of liquidated damages or any other panel action against the respondent’s bills and deposits with regards to the Contract Agreements, till the disposal of the arbitration proceedings. The operative portion of the said order is extracted below: -

Clearly, in view of the above order of the learned District Judge, Guwahati, the only stage at which the petitioner could seek liquidated damages was by way of counterclaims during the arbitration proceedings, and not at any prior point of time. Hence, the respondent’s contention that the petitioner never raised the issue of liquidated damages earlier or failed to deduct them from its bills is contrary to the interim injunction order dated 04.07.2012, which was obtained by the respondent itself.

In view of the foregoing discussion, the impugned Award, to the extent it rejects counterclaims No. 1 and 3 of the petitioner, cannot sustain. There is no discussion, foundational reasoning, or basis given by the Sole Arbitrator as to why the counterclaims No. 1 and 3, seeking liquidated damages, were rejected. Further, in light of the finding of the Sole Arbitrator that the respondent was in default under the Contract Agreements by not supplying the required number of Sleepers, the rejection of petitioner’s counterclaims for liquidated damages is contrary to his own findings. Also, once the Sole Arbitrator held that the respondent was in default for non-performance of its contractual obligation, clause 13 of the Contract Agreements became applicable, which the Sole Arbitrator failed to discuss while dealing with counterclaims No. 1 and 3.

Additionally, the finding provided by the Sole Arbitrator for rejection of counterclaim No. 2 is also not well-reasoned or based on any provisions of the Contract Agreements or IRS Conditions. The finding of the Sole Arbitrator on counterclaims No. 2 is extracted below: -

Counterclaim No. 2 was towards cost of extra carriage for carrying the Sleepers by wagon from NJP to NBQ, which the Sole Arbitrator rejected for the reason that it cannot be linked to the Contract Agreements in question and also because the Railway transports Sleepers constantly to meet up its demand which keep varying. However, as stated by the petitioner, since the respondent failed to supply the contracted quantities of the Sleepers as per the Contract Agreements, the petitioner had to procure the same from NJP Sleeper Plant. Therefore, it cannot be said that such cost of extra carriage is not linked to the Contract Agreements, when the only reason the petitioner had to incur such cost of extra carriage was due to non-supply of Sleepers as per the Contract Agreements. Surely, the Sole Arbitrator could reject the calculation provided by the petitioner for claiming an amount of Rs. 4,38,86,517/- towards extra carriage cost, but the Sole Arbitrator must provide reasons for the same. However, the Sole Arbitrator while rejecting the amount of Rs. 4,38,86,517/-towards extra carriage cost, has not even considered the contractual terms and the calculations provided by the petitioner. Consequently, the Sole Arbitrator’s finding for rejecting counterclaim No. 2 is cryptic, unreasoned and without appreciating the contentions of the petitioner.

Counterclaim No. 4 was towards salary of one IOW and one AXEN/CS, who were sitting idle in the plant for 2 years because of non-manufacturing of Sleepers. However, for counterclaim No. 4 the petitioner has neither made any pleadings nor provided any basis for claiming such salary for an amount of Rs. 9,43,200/-. The petitioner has not made any averments or provided any foundational basis for raising such counterclaim. Hence, the same has been correctly rejected by the Sole Arbitrator.

Counterclaim No. 5 was towards the difference in cost of the Sleepers for the work executed at risk and cost, claimed by the petitioner as per new rate for non-supply of Sleepers. However, counterclaim No. 5 was neither quantified nor claimed by the petitioner. Hence, the Sole Arbitrator was well-reasoned in not awarding counterclaim No. 5 on account of petitioner’s failure to intimate or quantify such risk and cost amount.

For the said reason, the findings of the Sole Arbitrator rejecting the counterclaims No. 1 to 3 are patently illegal as they are without any reasoning. Additionally, the rejection of counterclaims No. 1 to 3 does not consider the contractual provision, as discussed above. The impugned Award, to the extent it rejects counterclaims No. 1 to 3, is in contravention to the public policy of India and basic notions of morality and justice.

Counterclaims No. 1 to 3 are independent and severable from counterclaims No. 4 and 5. While counterclaims No. 1 and 3 were towards liquidated damages claimed against the respondent and counterclaim No. 2 was towards cost of extra carriage for carrying the Sleepers by wagon from NJP to NBQ. Counterclaim No. 4 was towards salary of one IOW and one AXEN/CS and counterclaim No. 5 was towards the difference in cost of the Sleepers for the work executed at risk and cost. Clearly, counterclaims No. 1 to 3 are independent and distinct from counterclaims No. 4 and 5. Hence, partial setting aside the impugned Award, only to the extent it rejects counterclaims No. 1 to 3, would not render other component of the impugned Award i.e., rejection of counterclaims No. 4 and 5 vulnerable or unsustainable. (Ref: Paragraph 31 hereinabove)

Consequently, the impugned Award is partially set aside, only to the extent it rejects counterclaims No. 1 to 3.

Accordingly, the petition is disposed of along with pending applications, if any.