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Jindal Rail Infrastructure Limited wins INR 18.35 Crores plus Interest in Arbitration against Union

March 2019

Jindal Rail Infrastructure Limited wins INR 18.35 Crores plus Interest in Arbitration against Union of India, Ministry of Railways

The Final Award dated 01.03.2019 has now been pronounced by the Sole Arbitrator, Hon’ble Mr. Justice A.K. Patnaik, Former Judge of Supreme Court of India. The Hon’ble Tribunal decided the dispute which arose between M/s Jindal Rail Infrastructure Limited (“Jindal Rail”) and the Union of India, Ministry of Railways (“Indian Railways”).

The S&A Team led by Mr. Manoj K Singh, Founding Partner, and Mr. Nilava Bandyopadhyay, Sr. Partner advised and represented Jindal Rail in the arbitration.

The arbitration was related to the dispute for supply of wagons to the Railways. The Indian Railways is the only entity which purchases wagons in bulk quantities and a prospective wagon manufacturer has to be certified by the Research Design and Standards Organizations (RDSO). The Jindal Rail is certified by the RDSO and it became a regular supplier manufacturing and supplying various types of wagons to Indian Railways. As a regular supplier, Jindal Rail participated in the tender process floated by the Indian Railways and became L1 and accordingly, as per the formula of the bidding document was awarded the Contract. As per the bidding document, the entire tender quantity of wagons was to be distributed to the eligible tenderer based on their past performances and also as per L1, L2 and L3. However, as per the law, rules and prevalent practices of the Indian Railways, all the other eligible tenders were to match the L1 price while getting their respective quantities. The Contract also provides for the exercise of 30% Option clause in favour of Indian Railways, by which it can increase or decrease the awarded quantity of wagons. Jindal Rail raised a dispute with Indian Railways, being aggrieved by mainly two acts of Indian Railways, i.e., awarding a tender to L2 bidders at L2 rate, which was much higher than the L1 rate and wrong and illegal exercise of 30% Option clause by the Indian Railways.

The Hon’ble Tribunal after perusal of the pleadings, and evidence led by the parties arrived at the conclusion that the Indian Railways have committed a breach of the contract by purchasing 496 wagons BOXNHL wagons from Jindal Rail at a lower price than the market price. Thus, the Indian Railways are liable to compensate Jindal Rail for the loss or damage caused to Jindal Rail for such breach under Section 73 of the Indian Contract Act 1872. The Hon’ble Tribunal has duly held that in either case of a breach of contract or for enjoying the benefit of a non-gratuitous act, the quantum of compensation has to be paid by the party who has enjoyed the luxury of the act i.e. Indian Railways.

This award is a first-of-its-kind and has duly dealt with the regular scenario within the railway industry, wherein the contractor does not have any option other than to abide by the in terrorem clauses as the railway enjoys the sole monopoly amongst the wagon manufacturers. The award will boost the morale of the contractors working in the railway industry as the same is tantamount to a victory over the arbitrariness of the Railway Industry.

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