Arbitrator Cannot Rewrite the Contract Between the Parties

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ARBITRATOR CANNOT REWRITE THE CONTRACT BETWEEN THE PARTIES: (UNION OF INDIA, MINISTRY OF RAILWAYS, RAILWAYS BOARD & ANR v JINDAL RAIL INFRASTRUCTURE LTD) [1]

6 June 2022

The Delhi High Court has held that an arbitrator cannot re-write the terms of the agreement between the parties merely because one of the parties subsequently finds it commercially unviable.

Facts

Disputes arose between the Indian Railways and Jindal Rail Infrastructure Ltd (JRIL) in connection with a contract for the manufacture and supply of 1,871 wagons on 18 June 2015. The agreement contained a clause that allowed the Railways to increase the ordered quantity of wagons by 30% at the contract price of ₹10,80,000 per wagon. The Railways exercised this option and placed an order for 496 additional wagons without changing the original rates. Meanwhile, the Railways floated other tenders for the supply and manufacture of more wagons at higher rates of ₹14,50,000 per wagon. Aggrieved by the differential pricing of wagons and delivery timelines, JRIL invoked arbitration.

Award

The arbitrator held that the Railways could not have placed an additional order on JRIL for 496 wagons without revising the contract rates to match market standards, and therefore the Railways was liable to compensate JRIL for the difference in the contract price and the market price of the additional 496 wagons.

§34 Petition

The Railways challenged the Award before the Delhi High Court.
The Court noted that JRIL had agreed to the stipulation that the Railways was entitled to increase the ordered quantity at a particular price and JRIL had constructed its pleadings and claim on that basis. JRIL had not challenged this contractual provision and therefore could not escape the rigors of this clause.
1Decision dated 23 May 2022 passed by the Delhi High Court in O.M.P. (COMM) 227/2019.
On this basis, the Court found that an arbitral tribunal cannot re-write the terms of a commercial contract simply because its performance was not viable for one of the parties. The Court relied on PSA SICAL Terminals Pvt Ltd v. Board of Trustees of VO Chidambranar Port Trust Tuticorin & Ors[2].

Conclusion

Whilst an arbitral tribunal can interpret the terms of a contract, it cannot re-work the contractual bargain struck between parties.

For further information on this topic please contact Tuli & Co

Tel T +91 11 4593 4000, fax F +91 11 4593 4001
or email lawyers@tuli.co.in

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