Deal Street

March 06, 2019

Jindal Rail Infra Wins INR 18.35 Crores Plus Interest in Arbitration Against Ministry of Railways


Railways

Jindal Rail Infrastructure Limited has won INR 18.35 crores plus interest in an arbitration against the Ministry of Railways, Union of India.

The sole arbitrator, Hon’ble Justice A.K. Patnaik, Former Judge, Supreme Court of India, pronounced the final award dated 01.03.2019. The Hon’ble Tribunal decided the dispute which arose between Jindal Rail Infrastructure Limited (“Jindal Rail”) and the Ministry of Railways (Indian Railways), Union of India.

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

The arbitration was related to the dispute over 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). Jindal Rail is certified by the RDSO and it became a regular supplier, manufacturing and supplying various types of wagons to the 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 performance 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 the Indian Railways, being aggrieved by mainly two acts of the 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 had committed a breach of the contract by purchasing 496 BOXNHL wagons from Jindal Rail at a lower price than the market price. Thus, the Indian Railways were 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.

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 among wagon manufacturers.

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