High Court Dismisses Petitioner Petition to Set Aside Arbitral Award in Contract Dispute -- Lien Claim Rejected Due to Non-Compliance with Notice Requirements Under IRS Terms

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