Arbitrator cannot re-write the terms of the contract between the parties merely because they are not commercially viable: Delhi High Court

The Delhi High Court has passed a judgment on 23-05-2022 in the case of Union Of India vs M/S Rail Infrastructure Ltd. O.M.P. (COMM) 227/2019. Justice Vibhu Bakhru allowed the petition.


JRIL is, inter alia, engaged in the manufacture of Railway Rolling Stock for the Indian Railways. 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 Some wagons along with their quantity. 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.

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 some wagons at the price as quoted by JRIL. 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 ₹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.

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.

On 28.08.2015, the Railways awarded a contract (bearing no. 2015/RS(I)/954/46/1779) for the supply of 1075 numbers of wagons (975 numbers of ‘BOXHNL’ wagons and 100 numbers of ‘BOSTHSM2’ wagons) to the L-2 tenderer (M/s Jupiter Wagons Limited) at the rates quoted by the said tenderer, that is, L-2 rates for BOXHNL wagons, and at L-1 rates for BOSTHSM2 wagons. This was because the said bidder as well as other bidders had declined the counter-offer made by the Railways to supply BOXHNL wagons at the L-1 rate (₹10,80,000/- as quoted by JRIL). Later the contract was amended many times by the railway.


This Court is of the view that the decision of the Arbitral Tribunal to seek to interpret Clause 2.4 of the Agreement (renumbered as Clause 2.8 of the Agreement), in a manner so as to curtail the right of the Railways to increase the quantity procured under the Agreement is, ex facie, erroneous. A plain reading of the said clause clearly indicates that the Railways was entitled to increase the quantity of the wagons during the currency of the Agreement by up to 30%. JRIL had voluntarily submitted its bid to supply BOXNHL wagons at a price of ₹10,80,000/-. The allocation of the quantities was made in conformity with the tender conditions. The Railways also had the right to alter the quantities by increasing or decreasing the same up to 30% during the currency of the Agreement. JRIL had agreed to provide additional quantities or to accept reduction in quantities without any change in the price quoted. Merely because the market value of the price of wagons or its cost of production increased, the same cannot be a ground for reading the Agreement contrary to its plain terms.

A commercial contract between the parties cannot be avoided on the ground that one of the parties subsequently finds it commercially unviable to perform the same. The Arbitral Tribunal has, essentially, re-worked the bargain between the parties and re-written the contract. This is, clearly, impermissible.

The Delhi High Court took reference from the case of PSA SICAL Terminals Pvt. Ltd v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Others, Supreme Court observed as – “87….In our view, re-writing a contract for the parties would be breach of fundamental principles of justice entitling a Court to interfere since such case would be one which shocks the conscience of the Court and as such, would fall in the exceptional category.”

In view of the above, the petition is allowed.

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