901-ARBP-221-2023.doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

ARBITRATION PETITION NO. 221 OF 2023

Union of India, through Principal Chief

Engineer / Deputy Chief Engineer,

having office At Central Railway,

represented by Dy. CE/TP, Central

Railway, CSMT, Mumbai. … Petitioner

Vs.

M/s. Bridge Track And Tower Pvt. Ltd.

(earlier known as M/s. Manish Forgings

Pvt. Ltd.), a private ltd. company

having its office at 6

th

floor 18 R. N.

Mukherjee Road, Kolkata- 700 001.

And also having address at:-

Shed No. 2, Plot No. 10, Sector-A, Urla

Industrial Estate, Raipur- 492 221. … Respondent

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.

CORAM : GAURI GODSE, J

RESERVED ON : 17

th

OCTOBER 2025

PRONOUNCED ON : 4

th

FEBRUARY 2026

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rrpillai

RAJESHWARI

RAMESH

PILLAI

Digitally

signed by

RAJESHWARI

RAMESH

PILLAI

Date:

2026.02.04

15:09:37

+0530

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JUDGMENT:

1. This arbitration petition is filed under Section 34 of the

Arbitration and Conciliation Act, 1996 (“Arbitration Act”), to set

aside the arbitral award passed by the sole arbitrator. The

claim in the arbitration is based on a purchase order placed by

the petitioner with the respondent (claimant) for the fabrication

and supply of 344 fans weighing 60 kg, shaped switches, as

per the contract between the parties. By the arbitral award, the

respondent’s claim is granted for non-payment of Rs.

24,93,462/- towards the cost of supply of 45 sets of contract

goods, and the PVC amount of Rs. 6,38,932/-, which was

withheld by the respondent.

Basic Facts:

2. The petitioner had placed a purchase order with the

respondent for the fabrication and supply of 344 sets of 60 kg,

overriding fan-shaped switches. The petitioner placed another

purchase order for the supply of 1014117 ERC. The petitioner

alleged that, without supplying the goods, the respondent, in

collusion with some railway staff, fabricated the record showing

delivery of the goods and fraudulently received the payment.

Hence, criminal proceedings were initiated, and the CBI in

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Pune commenced an investigation. A charge sheet was filed

for the offence of forgery and cheating. By relying on Clause

No. 2401 of the Indian Railways Standard Conditions of

Contract (“IRS terms and conditions”), the petitioner withheld

the amount payable to the respondent towards the first

purchase order.

3. 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 on the ground of

pending adjudication of the criminal proceedings. Being

aggrieved by the award directing the release of the payment,

the original respondent has filed this petition to set aside the

award.

4. The following are the admitted dates and events

regarding the contract between the parties:

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a)On 22

nd

July 2011, the petitioner floated a tender for the

fabrication and supply of 60 kg (UIC) overriding fan-

shaped switches. The respondent submitted a quotation

in response to the tender. The petitioner issued a letter of

acceptance to the respondent on 17

th

November 2011.

Accordingly, the petitioner issued a purchase order on 9

th

February 2012 for the fabrication and supply of 60 kg

(UIC) fan-shaped overriding switches. The contract value

of the purchase order was Rs. 1,98,21,758/-. The second

purchase order dated 17

th

July 2012 was issued by the

petitioner for the supply of 10,14,117 Elastic Rail Clips

(“ERC”).

b)Thus, based on the letter of acceptance dated 17

th

November 2011, two purchase orders were placed. The

first purchase order was on 9

th

February 2012, and the

second was on 17

th

July 2012.

c)The respondent accordingly raised three invoices totalling

Rs. 6,38,932/-. Three separate invoices dated 21

st

December 2013 were raised. Two invoices for an amount

of Rs. 9,41,976/- each, for the supply of 17 sets of the

said goods and 11 sets of the said goods, respectively.

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The third invoice was for Rs. 6,09,514/- for the supply of

11 sets of the said goods.

d)Out of the total invoices raised by the respondent, the

above-referred invoices for a total sum of Rs. 31,32,396/-

were unpaid by the petitioner. Hence, the respondent

initiated arbitration proceedings.

Submissions On Behalf Of The Petitioner:

5. Learned counsel for the petitioner submitted that the

adjudication on the second purchase order should have been

done by the learned arbitrator, as the papers and proceedings

of the CBI enquiry were brought on record before the learned

arbitrator. The award grants the petitioner permission to notify

the lien and also awards interest, which is contrary to clauses

2401 and 2403 of the IRS terms and conditions. The petitioner

has already notified the lien on 6

th

August 2019, and a copy of

the same is filed on the record of this arbitration petition in the

application for stay. Thus, the lien notified by the petitioner

must continue till the final decision of the CBI enquiry.

6. Learned counsel for the petitioner, therefore, submits that

when the CBI enquiry is initiated and is pending in respect of

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the illegal release of the amount towards the invoice of the

second purchase order, the petitioner would be entitled to have

a lien on the amount payable towards the first purchase order.

The learned arbitrator has also permitted the petitioner to notify

the lien. Thus, under the award, once the petitioner is permitted

to notify a lien on the amount due and payable under the first

purchase order, the award directing the petitioner to release

the payment would be illegal and unsustainable in law.

7. Learned counsel for the petitioner submits that the

petitioner had a right to withhold the amount from any other

contract in view of the pending CBI enquiry. To support his

submissions, learned counsel for the petitioner relied upon the

decision of the Hon’ble Apex Court in the case of M/s. H.M.

Kamaluddin Ansari & Co. Vs. Union of India & Others

1

.

Learned counsel for the petitioner submitted that after the

amounts were illegally released by the officers of the petitioner

in connivance with the respondent, a CBI enquiry was initiated

and is pending adjudication. A charge sheet has already been

filed, and copies of the papers and proceedings of the CBI

enquiry were placed on record before the learned arbitrator.

Hence, in view of the pending CBI enquiry into the illegal

1 (1983) 4 SCC 417

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release of the amount under the second purchase order, the

petitioner is entitled to continue with the lien already notified, in

view of the liberty granted by the learned arbitrator. Hence,

until the CBI enquiry is concluded, the lien shall continue;

therefore, the award directing payment needs to be set aside.

Submissions On Behalf Of The Respondent:

8. Learned counsel for the respondent supports the

impugned award. According to the learned counsel for the

respondent, the defence raised by the petitioner is based on a

lien until the CBI enquiry is concluded. Thus, the petitioner

contends that withholding the amount is subject to the outcome

of the CBI enquiry. Learned counsel for the respondent

submitted that the findings in the criminal Court would not be

binding in the civil proceedings. Therefore, in the present case,

the result of the CBI enquiry would not have any bearing on the

release of the amount withheld by the petitioner as per the

invoices in lieu of the first purchase order.

9. So far as the petitioner’s contention on the right to keep a

lien on the amount payable for the material supplied as per the

first purchase order on the ground of pending CBI enquiry is

concerned, learned counsel for the respondent submits that in

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the CBI enquiry the issue as to whether the goods were

actually supplied and whether the amount is payable for the

first purchase order would not be adjudicated. Hence, the

allegation that the amount released under the second purchase

order was illegal, without the actual supply of the material,

cannot be a ground for withholding payments for the goods

admittedly supplied under the first purchase order.

10. According to the learned counsel for the respondent,

withholding an amount during the pendency of the CBI enquiry

is contrary to the law laid down by the Hon’ble Apex Court in

the case of Vishnu Dutt Sharma Vs. Daya Sapra(Smt)

2

and

Shanti Kumar Panda Vs. Shakuntala Devi

3.

.

11.Learned counsel for the respondent thus submits that in

the event the petitioner intends to keep a lien on the amounts

payable as per the first purchase order on the ground that the

amounts were illegally released for the goods not supplied as

per the second purchase order can be validly notified only after

the petitioner invokes arbitration and raises a claim for

recovering the alleged illegal release of the amount. He

therefore submits that the petitioner would not be entitled to

2 (2009) 13 SCC 729

3 (2004) 2 SCC 438

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seek setting aside of the award on the ground that the

petitioner is entitled to keep a lien on the goods actually

supplied to the respondent without raising a claim for its

recovery. He thus submits that the learned arbitrator has rightly

reserved the right of the petitioner to notify a lien pending

adjudication. However, the petitioner, without raising a claim to

recover the alleged illegal release of the amount under the

second purchase order, has simply notified a lien on the

amounts due and payable under the first purchase order. To

support his submissions, learned counsel for the respondent

relied upon the decision of the Board of Trustees of the Port of

Bombay Vs. Sriyanesh Knitters

4

.

12. Learned counsel for the respondent relies on the

definition of ‘lien’ given in Black’s Law Dictionary. He submits

that a lien is not a property in or right to the thing itself but

constitutes a charge for security thereon. Therefore, without

raising a claim to recover the alleged illegal release of the

amount, there would not arise any question of keeping a lien on

the amount due and payable towards the goods that are

admittedly supplied. Learned counsel for the respondent,

4 (1997) 7 SCC 359

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therefore, submits that there is no ground to invoke the powers

under Section 34 of the Arbitration Act to set aside the award.

Consideration Of The Submissions And Analysis:

13. To consider the rival submissions made on behalf of the

parties, I have carefully perused the facts of the case. The facts

referred to by the learned counsel for the petitioner, as

recorded in the above paragraphs regarding the tender

process, the purchase orders, and the invoices raised, are not

in dispute. It is also undisputed that the goods were supplied

under the first purchase order for which the amounts are

withheld. As for the second purchase order, the petitioner

alleges that the respondent fraudulently received payment

without supplying any material under it. Hence, the CBI has

initiated a criminal prosecution against the respondent's

employees, its directors, and some of the petitioner's

employees. Therefore, according to the petitioner, the amount

payable under the first purchase order can be withheld by

creating a lien on that amount till final adjudication of the

criminal prosecution. However, the petitioner has not raised

any claim for the recovery of the amounts alleged to have been

illegally and fraudulently recovered by the respondent.

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14. The relevant condition of the IRS terms and conditions for

withholding and keeping a lien in respect of the sums claimed

is in clause 2401, which reads as under:

“2401. Whenever any claim or claims for payment of a

sum of money arises out of or under the contract against

the Contractor, the Purchaser shall be entitled to withhold

and also have a lien to retain such sum or sums in whole

or in part from the security if any, deposited by the

Contractor and for the purpose aforesaid, the Purchaser

shall be entitled to withhold the said cash security deposit

or the security, if any, furnished as the case may be and

also have a lien over the same pending finalisation or

adjudication of any such claim. In the event of the security

being insufficient to cover the claimed amount or amounts

or if no security has been taken from the Contractor, the

Purchaser shall be entitled to withhold and have lien to

retain to the extent of the such claimed amount or amounts

referred to supra, from any sum or sums found payable or

which at any time thereafter may become payable to the

Contractor under the same contract or any other contract

with the Purchaser or the Government pending finalisation

or adjudication of any such claim.

It is an agreed term of the contract that the sum of money

or moneys so withheld or retained under the lien referred

to above, by the Purchaser will be kept withheld or

retained as such by the Purchaser till the claim arising out

of or under the contract is determined by the Arbitrator (if

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the contract is governed by the arbitration clause) or by the

competent court as prescribed under Clause 2703

hereinafter provided, as the case may be, and that the

Contractor will have no claim for interest or damages

whatsoever on any account in respect of such withholding

or retention under the lien referred to supra and duly

notified as such to the Contractor.”

15. Clause 2403 of the IRS terms and conditions is regarding

keeping liens in respect of claims arising under other contracts.

Even under this clause, the retention of the security deposit or

any payable amount may be withheld by placing a lien during

the adjudication of the purchaser's claim. Thus, raising a claim

to recover a sum is necessary to maintain a lien. In the present

case, the two purchase orders are under the same contract;

therefore, it is not necessary to discuss Clause 2403.

16. Thus, the only controversy to be decided in this

arbitration petition is whether, on the ground of a pending CBI

enquiry and the criminal prosecution regarding the payments

made under the second purchase order, the petitioner would

be entitled to withhold the amount payable under the first

purchase order by keeping a lien on the same.

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17. Although the petitioner contends that the respondent

received the amounts under the second purchase order

through fraud and without supplying the material, the petitioner

has admittedly not invoked the arbitration clause to recover the

allegedly illegally released amount. The only ground raised by

the petitioner is that the petitioner would be entitled to withhold

the amount by placing a lien on it during the pendency of the

CBI prosecution.

18. The Hon’ble Apex Court in Vishnu Dutt Sharma held that

the judgment of a criminal court in a civil proceedings will only

have a limited application, that is,

inter alia, for the purpose of

determining who was the accused and what was the result of

the criminal proceedings. It is held that any finding in the

criminal proceeding by no stretch of imagination would be

binding in a civil proceeding. The Hon’ble Apex Court in the

case of

Shanti Kumar Panda held that a decision by a criminal

court does not bind the civil court and would be relevant only to

show in evidence the particulars of the dispute.

19. As per Black’s Law Dictionary, “A ‘lien’ is not a property

or right to the thing itself, but constitutes a charge or security

thereon”, and that “The word ‘lien’ is a generic term and,

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standing alone, includes liens acquired by contract or by

operation of law”.

20. The Hon’ble Apex Court in the case of Board of Trustees

of the Port of Bombay held that the general lien contemplated

by Section 171 of the Contract Act only enables the retention of

the bailed goods as security. It is held that if the payment is not

made by the consignee to the wharfinger, in a case where

Section 171 of the Contract Act applies, the wharfinger can

only retain the goods bailed as security and will have to take

recourse to other proceedings in accordance with law for

securing an order which would then enable the goods to be

sold for realization of the amounts due to it. Thus, as held by

the Hon’ble Apex Court as per Section 171 of the Contract Act,

the retention of goods as security can be held as a lien.

21. In M/s. H.M. Kamaluddin Ansari & Co., the Hon’ble Apex

Court was considering the scope and ambit of Section 41 of the

Arbitration Act, 1940, regarding the procedure and powers of

the court, and the interpretation of Clause 18 of the standard

contract. The Apex Court held that an injunction order

restraining the Union of India from withholding the amount due

under other pending bills to the contractor would amount to a

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direction to pay the amount to the contractor, and such an

order was clearly beyond the purview of clause (

b) of Section

41 of the Arbitration Act 1940. It was further held that Clause

18 of the standard contract conferred ample power upon the

Union of India to withhold the amount, and no injunction order

could be passed restraining the Union of India from withholding

the amount. However, it was held that Clause 18 merely

provided a mode of recovery and would have no application

where a claim, even though it be for a sum due and payable, is

disputed by the contractor and must be established in a Court

of law or by arbitration. Thus, it was held that Clause 18

applied only where a claim is either admitted or, in case of

dispute, substantiated by resort to the judicial process.

Therefore, when a purchaser had a claim for damages that the

contractor disputed, the purchaser was not entitled under

Clause 18 to recover the amount of its claim by appropriating

other sums due to the contractor until the claim for damages

was adjudicated and culminated in a decree.

22. Therefore, a lien can either be maintained under the

terms and conditions of a contract or by operation of law. In the

present case, the right to maintain a lien is invoked under the

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terms and conditions of the contract. As per Clause 2401 of the

IRS terms and conditions applicable to the present contract,

whenever any claim or claims for payment of a sum of money

arises out of or under the contract against the contractor, the

purchaser shall be entitled to withhold and also have a lien to

retain such sum pending finalisation or adjudication of any such

claim. The said clause further provides that the sum of money

withheld or retained under the lien by the purchaser will remain

withheld or retained until the claim arising out of or under the

contract is determined by the Arbitrator or by the competent

court. Thus, the terms and conditions of the contract permit the

purchaser to retain a lien on the cash security or the claimed

amount until the claim is finalised or adjudicated. Therefore,

under the terms and conditions of the contract in this case,

filing a claim for adjudication is necessary to maintain a lien on

the security deposit or the sum payable.

23. In the present case, the petitioner has admittedly not

invoked the arbitration clause to recover the amount alleged to

have been released by playing fraud. Pendency of the criminal

prosecution initiated by CBI cannot be termed as adjudication

for recovery of the amount alleged to have been recovered

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fraudulently by the respondent. In the criminal prosecution, the

petitioner’s entitlement to recover the amount from the

respondent would not be adjudicated. As per the well-settled

legal principles as discussed in the above paragraphs, the

findings recorded in criminal proceedings would not bind the

civil proceedings, if any, initiated by the petitioner to recover

the amount alleged to have been fraudulently recovered by the

respondent. Hence, the petitioner is not entitled to charge a

lien on the amounts due and payable for the goods admittedly

supplied under the first purchase order, by relying upon its right

to keep a lien on the ground that a criminal proceeding is

pending regarding the amounts recovered by the respondent

under the second purchase order.

24. The petitioner has refused to make payment on the

ground of invoking Clause 2401 of the IRS terms and

conditions applicable to the present contract, which provides

that whenever any claim or claims for payment of a sum of

money arises out of or under the contract against the

contractor, the purchaser shall be entitled to withhold and also

have a lien to retain such sum pending finalisation or

adjudication of any such claim. Therefore, for the petitioner to

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withhold the amount payable to the respondent by keeping a

lien, in view of the terms of the contract, the following

ingredients must be satisfied:

a) A claim for payment of a sum of money arises out of or

under the contract against the contractor.

b) The purchaser, i.e., the petitioner, has filed a claim

invoking the arbitration clause in the contract.

c) A cash security deposit or other security is deposited by

the contractor.

d) If the security is insufficient, or if no security has been

taken from the contractor, the purchaser shall be entitled

to withhold the claimed amount from any sum or sums

found payable, or that may become payable, to the

contractor under the same contract or any other contract

with the purchaser.

25. Thus, it is clear that, as per the agreed terms of the

contract, the petitioner would be entitled to charge a lien on any

amount payable to the respondent under the same contract,

until the adjudication of the claim, provided the petitioner has

filed any claim by invoking the arbitration clause. Therefore, the

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legal principles settled in M/s. H.M. Kamaluddin Ansari & Co.,

would not be of any assistance to the petitioner. Even in that

decision, the Apex Court, while interpreting the relevant clause

of the contract, held that the clause would apply only where a

claim is either admitted or, in the event of a dispute,

substantiated through the judicial process.

26. By the impugned Award, the arbitral tribunal allowed the

respondent’s claim towards non-payment of the cost of supply

of the material under the first purchase order. Both purchase

orders are under the same contract. Hence, the arbitral tribunal

rightly held that before withholding the payable amount, the

petitioner was required to notify the respondent as per Clause

2401, and the onus was on the petitioner to prove that any

show-cause notice or notification was served upon the

respondent. Since no such evidence was produced by the

petitioner, the arbitral tribunal held that the petitioner can

withhold the amount and have a lien on the due amount after

notifying the respondent in terms of Clause 2401, pending

finalisation or adjudication of the claim.

27. The petitioner has relied upon a copy of the intimation

letter dated 16

th

August 2019 produced in this court; however,

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the petitioner has not filed any claim by invoking the arbitration

clause to recover the amount. In view of the well-established

legal principles as set out in the preceding paragraphs, the

pendency of the criminal prosecution regarding the alleged

fraudulent recovery of the amount by the respondent under the

second purchase order cannot be construed to mean the

pendency of an adjudication of a claim as per Clause 2401 of

the IRS terms and conditions. Admittedly, the material is

supplied by the respondent under the first purchase order. The

petitioner has not filed any claim to recover the amount alleged

to have been fraudulently recovered by the respondent under

the second purchase order. Therefore, the petitioner's

withholding of the amount by raising a lien on the amount

payable under the first purchase order would neither be valid

under the contract nor valid by operation of law. Thus, such an

intimation cannot be a ground to set aside the award.

28. I therefore find substance in the arguments raised by the

learned counsel for the respondent to support the impugned

award. The arbitral tribunal has adopted a judicious approach

by correctly interpreting Clause 2401 of the IRS terms and

conditions governing the contract between the parties. None of

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the grounds contemplated under Section 34 of the Arbitration

Act to set aside an award are made out in this petition. Hence, I

see no reason to set aside the award.

29. The Arbitration Petition is therefore dismissed.

(GAURI GODSE, J.)

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