Full Judgment Text
2024 INSC 388
Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4702 OF 2023
National Highways Authority of India … Appellant
Versus
M/s Hindustan Construction Company Ltd. … Respondent
with
CIVIL APPEAL NO. 4703 OF 2023
CIVIL APPEAL NO. 4704 OF 2023
CIVIL APPEAL NO. 4705 OF 2023
CIVIL APPEAL NO. 4706 OF 2023
CIVIL APPEAL NO. 4707 OF 2023
CIVIL APPEAL NO. 4708 OF 2023
and
CIVIL APPEAL NO. 4709 OF 2023
J U D G M E N T
ABHAY S. OKA, J.
FACTUAL ASPECTS IN CIVIL APPEAL NO. 4702 OF 2023
1. The appellant- National Highways Authority of India Ltd.
has been constituted under Section 3 of the National Highways
nd
Authority of India Act, 1988. On 2 June 2004, the appellant
awarded a contract to the respondent for the work of the
Allahabad Bypass Project, which involved the construction of a
Signature Not Verified
road from km 158 to km 198 (except a bridge on the river). The
Digitally signed by
ASHISH KONDLE
Date: 2024.05.07
16:41:03 IST
Reason:
total cost of the project was Rs.4,46,99,12,839/-. A dispute
Civil Appeal no.4702 of 2023 etc. Page 1 of 15
between the parties was referred to the Dispute Resolution
Board. The Board gave its recommendations. Ultimately, the
dispute was referred to an Arbitral Tribunal of three
arbitrators. There were three claims referred to arbitration,
which are as follows:
• Claim no.1 - Reimbursement of additional
expenditure incurred due to an increase in the rates
of royalty and associated sales tax on soil, sand and
crushed stone aggregates;
• Claim no.2 - Non-payment for executed work of
embankment with soil/pond ash for the initial 150
mm depth stripped in accordance with the
requirements of the contract and
• Claim no.3 - Reimbursement of additional costs
incurred due to an increase in the forest transit fee
rates.
th
2. The Arbitral Tribunal made an award on 30 March
2010. The summary of the award is as follows:
• Claim no.1 – The Arbitral Tribunal granted an
amount of Rs.2,69,91,248/- as an additional cost
to the respondent till 31st December 2008, along
with interest and future interest of 12% per annum.
A direction was also issued to the appellant to pay
an additional cost to the respondent post-31st
December 2008 on account of an increase in royalty
charges and associated sales tax;
Civil Appeal no.4702 of 2023 etc. Page 2 of 15
• Claim no. 2 - Two members of the Arbitral Tribunal
consisting of three members held that the
respondent was entitled to Rs.3,47,35,522/-
towards the formation of the embankment for an
initial 150 mm, along with a price adjustment on
the said amount in accordance with clause 70.3 of
the contract, with interest and future interest at
12% per annum. The third member of the Arbitral
Tribunal dissented and held that the respondent
was not entitled to any amount under the said
claim.
• Claim no.3 - The respondent was granted
Rs.3,77,74,427.39/- along with interest and future
interest at 12% per annum.
3. Being aggrieved by the award, the appellant filed a
petition under section 34 of the Arbitration and Conciliation
Act, 1996 (for short ‘the Arbitration Act’). By the impugned
th
judgment and order dated 30 November 2011, the learned
Single Judge confirmed the award in respect of Claim no.1 and
Claim no.3, relying upon the decision of the High Court in the
case of National Highways Authority of India v. M/s. ITD
1
Cementation India Limited . Regarding Claim no.2, the
learned Single Judge held that the award was a majority
decision of the Arbitral Tribunal based on an analysis of the
material placed before the Arbitral Tribunal. Therefore, the
1
2008 (100) DRJ 431
Civil Appeal no.4702 of 2023 etc. Page 3 of 15
award for Claim no.2 was upheld. Being aggrieved by the said
judgment and order, the appellant preferred an appeal under
Section 37 of the Arbitration Act before a Division Bench of the
Delhi High Court. By the impugned judgment, the said appeal
has been dismissed. From the impugned judgment, it appears
that the submissions made before the Division Bench of Delhi
High Court were confined to Claim nos. 1 and 2. By the
impugned judgment, the appeal preferred by the appellant was
dismissed. Being aggrieved by the Arbitral Tribunal’s award
and the judgments of the High Court, the appellant has
preferred the present appeal. At the outset, we may note here
that one of the grounds of challenge in the present appeal was
that the decision of the High Court in the case of National
Highways Authority of India v. M/s. ITD Cementation India
1
Limited was the subject matter of challenge before this Court.
th
We may state that by judgment and order dated 24 April
2
2015 , the said appeal has been partly allowed by setting aside
the award made on claim no.8.
SUBMISSIONS
4. The learned senior counsel appearing for the appellant
pointed out that an increase in the rates of royalty on soil, sand
and crushed stones which aggregates through a notification,
would be adjusted as per sub-clause 70.3 (vii) of the contract,
which provides for a price adjustment for all local material
based on Wholesale Price Index (WPI). The learned counsel
submitted that while submitting the bid, the appellant
2
(2015) 14 SCC 21
Civil Appeal no.4702 of 2023 etc. Page 4 of 15
accepted that WPI would be the only yardstick to be used in
the matter of price adjustment. The learned counsel submitted
that the Division Bench erroneously interpreted clause 70.8 of
the agreement.
5. The learned senior counsel submitted that though the
contract provided for partly fixed and partly adjustable prices,
the adjustment in costs for inputs would be covered only to the
extent to which they are covered by a formula in clause no.
70.3 of the agreement. She submits that the learned Single
Judge and Division Bench of the High Court have failed to
notice that clause 70.8 starts with a non-obstante clause. It
provides that such additional or reduced costs shall not be
separately paid or credited if the same has already been taken
into consideration in the indexing of any inputs to the price
adjustment formulae in accordance with clauses 70.1 to 70.7.
She submits that in the present case, such additional costs
have been dealt with in Clause 70.3 (vii). She submitted that
the sales tax was not increased based on legislation. The
learned senior counsel submitted that the work of
embankment construction is a part of the work of clearing and
grubbing, which includes backfilling up to 150 mm. She
submitted that when topsoil is removed as it is unfit for
construction, this activity has to be a part of clearing and
grubbing. On facts, she submitted that no evidence had been
placed on record to show that the Engineer had required the
respondent to remove the top 150 mm of soil in all places. She
submitted that the Arbitral Tribunal and the Courts must
strictly interpret the contract. Just because the respondent has
Civil Appeal no.4702 of 2023 etc. Page 5 of 15
incurred some expenditure, it would not amount to a liability
on the appellant which is covered by clause 70.8 of the
agreement. She has pointed out the factual aspects of the
connecting cases.
6. The learned counsel representing the respondents in the
appeals pointed out that the scope of interference in a petition
under Section 34 of the Arbitration Act is narrow, and the
jurisdiction of the Appellate Court under Section 37 is still
narrower. The learned counsel pointed out that the impugned
judgments relied upon a decision of the Delhi High Court in the
case of the National Highways Authority of India v. M/s.
1
ITD Cementation India Limited . He submitted that the said
decision had been upheld by this Court by judgment and order
th 2
dated 24 April 2015 in Civil Appeal no. 9799 of 2010 and
other connected cases. The submission is that the decision of
this Court completely covers the respondent's claims nos. 1
and 3. The learned counsel invited our attention to the
majority view of the Arbitral Tribunal on the claim regarding
expenses incurred for making an embankment. It was
submitted that the view taken by the majority is the view of the
experts, which does not call for any interference.
CONSIDERATION OF SUBMISSIONS
7. We may note here that the impugned judgments in all
connected appeals are based on the impugned judgment in
Civil Appeal no. 4702 of 2023. In this case, we are dealing with
concurrent findings arrived at by the Arbitral Tribunal, the
learned Single Judge in a petition under Section 34 of the
Civil Appeal no.4702 of 2023 etc. Page 6 of 15
Arbitration Act, and the Division Bench in appeal under
Section 37 of the Arbitration Act. In this case, we are concerned
with the construction of the terms of a contract between the
parties. In the case of Parsa Kente Collieries Ltd. v.
3
Rajasthan Rajya Vidyut Utpadan Nigam Ltd. , in
paragraphs 9.1 and 9.2, this Court held thus:
“9.1. In Associate Builders [ Associate
Builders v. DDA , (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204], this Court had an
occasion to consider in detail the
jurisdiction of the Court to interfere with
the award passed by the Arbitrator in
exercise of powers under Section 34 of the
Arbitration Act. In the aforesaid decision,
this Court has considered the limits of
power of the Court to interfere with the
arbitral award. It is observed and held
that only when the award is in conflict
with the public policy in India, the Court
would be justified in interfering with the
arbitral award. In the aforesaid decision,
this Court considered different heads of
“public policy in India” which, inter alia,
includes patent illegality. After referring
Section 28(3) of the Arbitration Act and
after considering the decisions of this
Court in McDermott International
Inc. v. Burn Standard Co. Ltd. [ McDermott
International Inc. v. Burn Standard Co. Ltd. ,
(2006) 11 SCC 181] , SCC paras 112-113
and Rashtriya Ispat Nigam Ltd. v. Dewan
Chand Ram Saran [ Rashtriya Ispat Nigam
3
( 2019) 7 SCC 236
Civil Appeal no.4702 of 2023 etc. Page 7 of 15
Ltd. v. Dewan Chand Ram Saran , (2012) 5
SCC 306] , SCC paras 43-45, it is observed
and held that an Arbitral Tribunal must
decide in accordance with the terms of the
contract, but if an Arbitrator construes a
term of the contract in a reasonable
manner, it will not mean that the award
can be set aside on this ground. It is
further observed and held that
construction of the terms of a contract
is primarily for an Arbitrator to decide
unless the Arbitrator construes the
contract in such a way that it could be
said to be something that no fair-
minded or reasonable person could do.
It is further observed by this Court in
the aforesaid decision in para 33 that
when a court is applying the “public
policy” test to an arbitration award, it
does not act as a court of appeal and
consequently errors of fact cannot be
corrected. A possible view by the
Arbitrator on facts has necessarily to
pass muster as the Arbitrator is the
ultimate master of the quantity and
quality of evidence to be relied upon
when he delivers his arbitral award. It is
further observed that thus an award
based on little evidence or on evidence
which does not measure up in quality to
a trained legal mind would not be held
to be invalid on this score.
9.2. Similar is the view taken by this
Court in NHAI v. ITD Cementation (India)
Civil Appeal no.4702 of 2023 etc. Page 8 of 15
Ltd. [ NHAI v. ITD Cementation (India) Ltd. ,
(2015) 14 SCC 21 : (2016) 2 SCC (Civ) 716]
, SCC para 25 and SAIL v. Gupta Brother
Steel Tubes Ltd. [ SAIL v. Gupta Brother
Steel Tubes Ltd. , (2009) 10 SCC 63 : (2009)
4 SCC (Civ) 16] , SCC para 29.
(underline supplied)
8. This Court laid down the law regarding the scope of
interference in a petition under Section 34 of the Arbitration
4
Act in the case of MMTC Ltd. v. Vedanta Ltd. . Paragraph 11
reads thus:
“11. As far as Section 34 is concerned,
the position is well-settled by now that
the Court does not sit in appeal over
the arbitral award and may interfere on
merits on the limited ground provided
under Section 34(2)( b )( ii ) i.e. if the award
is against the public policy of India. As per
the legal position clarified through
decisions of this Court prior to the
amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn,
includes a violation of the fundamental
policy of Indian law, a violation of the
interest of India, conflict with justice or
morality, and the existence of patent
illegality in the arbitral award.
Additionally, the concept of the
“fundamental policy of Indian law” would
cover compliance with statutes and
judicial precedents, adopting a judicial
approach, compliance with the principles
of natural justice,
and Wednesbury [ Associated Provincial
Picture Houses v. Wednesbury Corpn. ,
(1948) 1 KB 223 (CA)] reasonableness.
4
(2019) 4 SCC 163
Civil Appeal no.4702 of 2023 etc. Page 9 of 15
Furthermore, “patent illegality” itself
has been held to mean contravention of
the substantive law of India,
contravention of the 1996 Act, and
contravention of the terms of the
contract.”
(emphasis added)
9. This Court, in the case of UHL Power Company Ltd. v.
5
State of Himachal Pradesh held that the jurisdiction of the
Court under Section 34 is relatively narrow and the jurisdiction
of the Appellate Court under Section 37 of the Arbitration Act
is all the more circumscribed. In the light of the limited scope
for interference under Section 37 appeal, we will have to deal
with the submissions.
10. We have carefully perused the material part of the award
of the Arbitral Tribunal and the impugned judgments. For
convenience, we refer to the impugned judgment in Civil Appeal
no. 4702 of 2023. As can be seen from the impugned
judgment, the present appellant confined the challenge only to
two issues, which are set out in paragraph 2 of the impugned
judgment.
“ 2 . Learned senior counsel for the
appellant submits that there are two
aspects, which are required to be
examined in the present appeal:
i) The allowing of the claims of the
respondent on account of increase in
royalty, sales tax and in the forest
transit fee, stated to have been
imposed by subsequent legislations;
5
(2022) 4 SCC 116
Civil Appeal no.4702 of 2023 etc. Page 10 of 15
ii) The allowing of the claim for
balance amount for construction of
embankment which according to the
appellant, formed a part of the activity
of clearing and grubbing and was not
payable as embankment work.”
11. The Division Bench held that the imposition of a tax or
upward revision of an already existing tax or levy through
subsequent legislation is admittedly akin to the levy of
additional royalty. The Division Bench relied upon a decision
of the same Court in the case of the National Highways
1
Authority of India v. M/s. ITD Cementation India Limited .
The Division Bench in the impugned judgment held that the
claim made on account of the increase in royalty, sales tax,
forest transit fee, etc., was covered in favour of the respondent
by the said decision. As stated earlier, the decision in the case
of the National Highways Authority of India v. M/s. ITD
1
Cementation India Limited was confirmed by this Court by
th 2
judgment dated 24 April 2015 with a partial modification. A
perusal of the said judgment shows that the issue therein was
also regarding a claim based on an upward revision of royalty.
Clauses 70 to 70.8 of the agreement quoted in the judgment
are identical to those in the agreement subject matter of these
appeals. The argument before this Court was also the same
that the WPI assessment would include a claim for enhanced
royalty. In paragraph 21 of the decision, this Court dealt with
the impact of clauses 70.1 to 70.7 and 70.8. In paragraph 21
of the said decision, this Court held thus :
Civil Appeal no.4702 of 2023 etc. Page 11 of 15
“26 . We now turn to the reasoning given
by the Arbitral Tribunal in paras 21 to 23
of the award, as quoted above. The award
considers the impact of sub-clauses 70.1
to 70.7 and agrees with the contention
that the provision for cost escalation
based on the agreed price adjustment
formulae falls in one compartment while
the compensation for additional cost
resulting from a subsequent legislation
falls in a separate category. In other
words, the contention that stands
accepted was, that the escalation in
price premised on fluctuation in
market value of the inputs stands on
one footing, while the additional cost
resulting from the impact of any
statute, decree, ordinance, law etc as
referred to in sub-clause 70.8 stands
on the other. Resultantly the
governing clauses in the instant case
were held not to be sub-clauses 70.1
to 70.7 but the substantive part of
sub-clause 70.8. The award also
considered whether minor minerals in
question were or were not included in the
basket of materials whose cost variation
was taken into account as an input while
arriving at WPI. It also considered that
the WPI is an index applicable uniformly
in all states while the increase 2 Page 30
in Seigniorage Fee would vary from state
to state. It further dealt with the aspect
that NHAI itself was of the opinion that
the additional impact as a result of
subsequent legislation was admissible
separately, as signified by the letter
dated 03.09.2003 to the Economic
Advisor. In the backdrop of the law laid
down by this court, the construction
of the terms of the contract by the
Arbitral Tribunal is completely
Civil Appeal no.4702 of 2023 etc. Page 12 of 15
consistent with the principles laid
down by this court. Upon construing
the terms and the material on record
it concluded that the instant matter
would be covered by substantive part
of Sub-Clause 70.8 of COPA. It also
noted that NHAI itself was of such
opinion. The view so taken by the
Arbitral Tribunal after considering the
material on record and the terms of the
contract is certainly a possible view, to
say the least. We do not see any reason
to interfere. The Division Bench in our
considered view, was completely right
and justified in dismissing the
challenge.”
(emphasis added)
12. There was some controversy before the Division Bench on
the issue whether there was an actual increase in the sales tax.
st
However, after perusing the circular dated 1 December 2004,
the Division Bench concluded that there was an addition of 3%
in the amount of sales tax, as a result of which applicable sales
tax increased from 22% to 25%. In the light of the law laid
down by this Court in the case of National Highways
2
Authority of India , the contention based on the first claim
made by the respondent has no merit.
13. Now, we turn to the issue of whether the claim for the
construction of embankment forms part of the activity of
clearing and grubbing and was not payable as embankment
work. We may note here that two expert members of the
Arbitral Tribunal held in favour of the respondent on this point,
whereas the third member dissented. There cannot be any
Civil Appeal no.4702 of 2023 etc. Page 13 of 15
dispute that as far as the construction of the terms of a
contract is concerned, it is for the Arbitral Tribunal to
adjudicate upon. If, after considering the material on record,
the Arbitral Tribunal takes a particular view on the
interpretation of the contract, the Court under Section 34 does
not sit in appeal over the findings of the arbitrator. The
Division Bench has adverted to the findings recorded by the
two members of the Arbitral Tribunal. After considering the
view taken by the Arbitral Tribunal, the High Court observed
that the real controversy was whether the work of backfilling
had been done and whether the said work was liable to be
excluded from the work of the embankment construction by
the respondent. The Division Bench held that nothing is shown
that indicates that the construction of the embankment can be
said to have been done in a manner where the lower part of the
embankment is made only by carrying out the activity of
backfilling. The High Court also noted that the appellant
sought to make deductions after initially paying the amounts
for the embankment. The Division Bench was right in holding
that the majority opinion of technical persons need not be
subjected to a relook, especially when the learned Single Judge
had also agreed with the view taken by the Arbitral Tribunal.
We have also perused the findings of the majority in the Award.
We find nothing perverse or illegal about it.
14. In our view, the learned Single Judge and the Division
Bench of the High Court have examined the challenge to the
award within four corners of limitation imposed by Sections 34
Civil Appeal no.4702 of 2023 etc. Page 14 of 15
and 37 of the Arbitration Act. The view taken by the Arbitral
Tribunal, the learned Single Judge and the Division Bench
cannot be found fault with.
15. Therefore, we find no merit in the appeals, and they are
dismissed with no order as to costs.
….…………………….J.
(Abhay S. Oka)
…..…………………...J.
(Pankaj Mithal)
New Delhi;
May 7, 2024.
Civil Appeal no.4702 of 2023 etc. Page 15 of 15