No Basis To Withhold Payment When Work Was Done Under Railway Supervision | Bombay High Court Upholds Arbitral Award | Dismisses Railways Section 34 Petition
Sanchayita Lahkar
The High Court of Judicature at Bombay Single Bench of Justice Somasekhar Sundaresan has dismissed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated May 31, 2023. The Court refused to interfere with the findings of the arbitral tribunal, which had upheld claims of a contractor regarding unpaid dues for work completed under a railway infrastructure contract.
In its judgment delivered on June 24, 2025, the Court held that the arbitral tribunal had returned "a reasonable, defensible and plausible view" and that no ground under Section 34 was made out to warrant interference. The petition was dismissed with costs, and the Court directed that the amounts deposited by the Railways be released to the contractor within four weeks.
Justice Sundaresan further declined the Railways' request for a stay of the judgment, noting that the release deadline had already been fixed. The Court found no merit in the challenge and concluded that the Railways had failed to demonstrate any patent illegality or violation of the fundamental policy of Indian law.
The dispute arose from a contract between the Railways and a joint venture contractor for works on the Wardha-Nanded railway line, including embankments, side drains, trolley refuges, and bridges. The agreement, dated September 24, 2018, stemmed from a tender floated in October 2017, with a letter of acceptance issued in May 2018 for an approximate contract value of Rs. 124.96 crores.
The contract required the contractor to submit a performance bank guarantee and a security deposit, each valued at Rs. 6.24 crores. Running Account (RA) Bills were to be raised periodically. The contractor completed works totalling approximately Rs. 108.73 crores, as reflected in the sixth RA Bill, all of which were paid by the Railways.
On April 29, 2020, and May 8, 2020, the contractor sought extensions citing delay in land acquisition and COVID-19 restrictions, invoking Clauses 17-A(ii) and 17-A(iii) of the General Conditions of Contract (GCC). The Railways granted an extension until December 31, 2020, without penalty and with allowance for price variation.
Subsequently, a seventh RA Bill dated July 13, 2020, reflected further work valued at Rs. 138.78 crores. The Railways, however, refused payment, citing that the additional work fell within restricted quantities. A joint measurement on March 16, 2021, formed the basis for the eighth RA Bill, valued at Rs. 8.22 crores, but this bill was never approved.
By this stage, work completed amounted to Rs. 147 crores, while only Rs. 124.95 crores had been paid. The contractor alleged that a change in Railway personnel in January 2021 disrupted previously accepted positions, with past approvals questioned by new officials.
On May 31, 2021, another extension was sought, citing the same reasons. While an extension was granted on July 22, 2021, it came with a token penalty of Rs. 1,000 and denial of price variation. The Railways invoked Clause 17-B of the GCC, treating the delay as attributable to the contractor.
This change in stance led to a breakdown in relations. The contractor refused further work under altered conditions and initiated arbitration, claiming dues for the seventh and eighth RA Bills, price variation, refund of the security deposit, issuance of a completion certificate, and costs.
The Railways contended that the contractor abandoned work in November 2020, failed to address deficiencies, and had to be replaced via fresh tenders. The Railways also contended it had overpaid Rs. 20.52 crores and sought to recover this amount.
The arbitral tribunal upheld several contractor claims, awarding Rs. 13.82 crores for restricted quantities, Rs. 8.22 crores for the eighth RA Bill, Rs. 2.87 crores in price variation, refund of the Rs. 6.24 crore security deposit, and a completion certificate for the work measured on March 16, 2021. Pre-award and post-award interest were also granted.
The Court recorded: "One must not forget the scope of review in the jurisdiction under Section 34 of the Act. The findings are based on specific documentary evidence, which in turn is a cogent and clear record of empirical evidence."
On the issue of additional work and modification, it stated: "Permitting the Railways to repudiate the obligation to pay in the teeth of the demonstrated direction to carry out the work and confirmation of the work actually done, would lead to unjust enrichment of the Railways."
The Court held that the tribunal had rightly found that excess work had been measured, approved, and not protested contemporaneously: "The conduct indicates consensual and well-documented expansion of scale of work and that the Railways would be unjustly enriched having confirmed that it has indeed gotten the work done."
Regarding the Railways' reliance on Article 299 of the Constitution and Clause 41 of the GCC, the Court recorded: "This is a very high-pitched argument that does not turn the needle in the Railways’ favour."
On the denial of price variation and imposition of penalty, the Court stated: "There is not even a whisper about how the Railways’ deviation from the track record of two extensions without penalty and with price variation is justifiable."
Addressing the alleged Rs. 20.52 crore overpayment, it recorded: "The Railways claimed to have overpaid the Contractor in the past and that it was entitled to a refund, but strangely filed no counter-claim."
On the eighth RA Bill, the Court observed: "Despite the Railways’ claim that the Contractor did not show up for a second measurement, no fresh measurement was carried out by the Railways on its own in reliance upon Clause 45 of the GCC."
Rejecting the procedural objections raised by the Railways regarding documentary evidence, the Court noted: "This appears to be an improvisation across the bar."
It further stated: "The Impugned Award indeed makes specific reference to specific exhibits by number and to arguments based on them... Such an opening paragraph would not even be necessary on every occasion."
In conclusion, the Court affirmed: "I agree with the entire outcome in the Impugned Award and find no infirmity warranting interference under Section 34 of the Act."
The Court concluded by stating: "For all the aforesaid reasons, the Petition is dismissed as being devoid of merit."
It directed: "Any amounts deposited in this Court along with accruals shall be released to Contractor forthwith, and in any event within a period of four weeks from today."
Regarding the interim application for release of funds, it held: "The captioned Interim Application stands disposed of."
Rejecting the Railways' plea for a stay, the Court observed: "Since the deadline for release of the amounts deposited in this Court is already fixed at four weeks, there would be no reason to grant such request."
On costs, it stated: "Costs in this round are restricted to a token sum of Rs. 2.5 lakhs, which would be a reasonable and discounted estimate of costs that would be incurred in a matter of this nature."
Advocates Representing the Parties:
For the Petitioners: Mr. R.V. Govilkar, Senior Advocate
For the Respondents: Mr. Vishwajit P. Sawant, Senior Advocate a/w Mr. Vasudeva Naidu i/b Prabhakar M. Jadhav
Case Title: Union of India Through The General Manager Central Railway vs PLR HC RBR JV
Neutral Citation: 2025: BHC-OS:9305
Case Number: Commercial Arbitration Petition No. 51 of 2024
Bench: Justice Somasekhar Sundaresan
