Case Note & Summary
The High Court of Judicature at Bombay dismissed an arbitration petition filed by Union of India to set aside an arbitral award that directed payment to Respondent for goods supplied under a purchase order. The petitioner had withheld payment citing a pending CBI enquiry into alleged fraud related to a separate purchase order. The arbitral tribunal found that the petitioner failed to comply with Clause No. 2401 of the IRS terms and conditions, which required notification before withholding amounts. The Court upheld the award, ruling that the petitioner did not prove service of a show cause notice or intimation, and thus could not withhold payment. The petition was dismissed, and the award was sustained.
Headnote
The High Court of Judicature at Bombay dismissed an arbitration petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) to set aside an arbitral award -- The petitioner, had withheld payment under a purchase order citing a pending CBI enquiry into alleged fraud in another purchase order -- The arbitral tribunal found that the petitioner failed to notify the respondent as required under Clause No. 2401 of the Indian Railways Standard Conditions of Contract (IRS terms and conditions) -- The Court held that the petitioner did not discharge the onus of proving compliance with the notice requirement -- The award directing payment was upheld, and the petitioner's claim for a lien was rejected -- The judgment emphasizes strict adherence to contractual procedures and the limited scope of judicial review in arbitration matters
Issue of Consideration
The Issue of Consideration was whether the petitioner was entitled to withhold payment under the first purchase order based on a pending CBI enquiry related to the second purchase order, without complying with the notice requirements under Clause No. 2401 of the IRS terms and conditions
Final Decision
The High Court dismissed the arbitration petition and upheld the arbitral award, directing the petitioner to release the payment to the respondent as per the award
Law Points
- Section 34 of the Arbitration and Conciliation Act
- 1996 governs setting aside arbitral awards
- Clause No. 2401 of the Indian Railways Standard Conditions of Contract requires notification before withholding amounts
- The principle of onus of proof applies to contractual compliance
- The doctrine of severability of contracts is recognized
- The scope of judicial review under Section 34 is limited to grounds specified in the Act
Case Details
2026 LawText (BOM) (02) 23
Arbitration Petition No. 221 of 2023
Mr. Chetan C. Agrawal a/w Saurabh Gori for the Petitioner/Applicant, Mr. Aseem Naphade a/w Deepanjali Mishra a/w A. P. Singh i/b A. P. Singh & Co. for the Respondent
Union of India, through Principal Chief Engineer / Deputy Chief Engineer, Central Railway
M/s. Bridge Track And Tower Pvt. Ltd. (earlier known as M/s. Manish Forgings Pvt. Ltd.)
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Arbitration petition to set aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996
Remedy Sought
The petitioner sought to set aside the arbitral award that directed payment to the respondent for goods supplied under a purchase order
Filing Reason
The petitioner was aggrieved by the award directing release of payment, claiming entitlement to withhold amounts due to a pending CBI enquiry
Previous Decisions
The arbitral tribunal awarded the respondent Rs. 24,93,462/- for non-payment and Rs. 6,38,932/- for withheld PVC amount, finding the petitioner failed to notify under Clause No. 2401
Issues
Whether the petitioner was entitled to withhold payment under the first purchase order based on a pending CBI enquiry related to the second purchase order
Whether the petitioner complied with the notice requirements under Clause No. 2401 of the IRS terms and conditions before withholding the amount
Submissions/Arguments
The petitioner argued that the lien on the amount payable under the first purchase order should continue until the CBI enquiry is concluded, citing Clause No. 2401 and the case of M/s. H. M. Kamaluddin Ansari & Co. Vs. Union of India & Others
The petitioner contended that the award permitting notification of lien was contradictory to directing payment release
Ratio Decidendi
The petitioner failed to discharge the onus of proving compliance with Clause No. 2401 of the IRS terms and conditions, which required notification before withholding amounts -- Non-compliance with contractual notice requirements invalidates the withholding of payment, regardless of pending criminal proceedings -- The arbitral tribunal's findings on factual compliance are not subject to interference under the limited scope of Section 34 of the Arbitration Act
Judgment Excerpts
The arbitral tribunal opined that, under Clause No. 2401 of the IRS terms and conditions, before withholding or retaining any payable amount, the petitioner was required to notify the contractor of such withholding or retention
Since the petitioner failed to submit any evidence to prove that a show cause notice or an intimation was served upon the respondent, the onus of proving the same was not discharged, and thus the petitioner was not entitled to withhold the amount
Procedural History
The petitioner placed purchase orders in 2012 -- The respondent raised invoices in 2013 -- The petitioner withheld payment citing a CBI enquiry initiated in Pune -- The respondent initiated arbitration proceedings -- The arbitral award was passed in favor of the respondent -- The petitioner filed this arbitration petition under Section 34 of the Arbitration Act in 2023 -- The Court reserved judgment on 17th October 2025 and pronounced it on 4th February 2026
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
- Indian Railways Standard Conditions of Contract: Clause No. 2401, Clause No. 2403
