NATIONAL HIGHWAY AUTHORITY OF INDIA v. ITD CEMENTATION INDIA LIMITED
2007-05-14
SANJAY KISHAN KAUL
body2007
DigiLaw.ai
SANJAY KISHAN KAUL, J. ( 1 ) A contract was awarded to the respondent by the petitioner on 17. 10. 2001 for execution of the work of widening of lanes and rehabilitation of the existing 2 lane carriageway of Vaniyambadi-Pallikonda section of NH-46 (from Km. 49. 00 to Km 100. 00 ). The total value of the contract was appropriately Rs. 183. 71 crores. Some disputes arose between the parties and in view of the existence of an arbitration clause in the agreement, the same were referred to arbitration. The arbitration Tribunal made and published the award dated 12. 5. 2006. The present petition has been filed as the petitioner is aggrieved by a portion of the award and that is the only limited question to be examined. ( 2 ) THE particular dispute in question relates to the consequences of an additional royalty payable by the respondent as a result of the notification for upward revision of royalty (Seignorage Fee as named in Tamil Nadu) on minor minerals. This additional royalty was imposed by the State of Tamil Nadu w. e. f. 1. 11. 2002. It is the plea of the petitioner that the additional amount of fee was not liable to be paid in view of certain clauses in the contract which provided for a formula of escalation, while according to the respondent the full amount had to be compensated. ( 3 ) IN order to appreciate the controversy, a reference has been made to the general Conditions of Contract containing clause 70 which deals with the changes in cost and legislation. However, as per Conditions of Particular Application, this clause has been deleted and substituted by different clauses providing for a price adjustment formula in case of variation of the price of materials. Apart from this clause, another clause incorporated was sub-clause 70. 8 dealing with subsequent legislation, which reads as under: "sub-Clause 70.
However, as per Conditions of Particular Application, this clause has been deleted and substituted by different clauses providing for a price adjustment formula in case of variation of the price of materials. Apart from this clause, another clause incorporated was sub-clause 70. 8 dealing with subsequent legislation, which reads as under: "sub-Clause 70. 8 Subsequent Legislation if, after the date of 28 days prior to the closing date for submission of bids for the Contract there are changes to any National or State Statute, Ordinance, decree or other Law or any regulation or by-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, decree, Law, regulation or by law in India or States of India which causes additional or reduced cost to the Contractor, other than under the preceding sub-Clauses of this Clause. In the execution of the Contract, such additional or reduced cost shall, after due consultation with the Employer and the contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the contractor accordingly, with a copy to the Employer. Notwithstanding the foregoing, such additional or reduced cost shall not be separately paid or credited if the same shall already have been taken into account in the indexing of any inputs to the Price adjustment Formulae in accordance with the provisions of Sub-Clauses 70. 1 to 70. 7 of this Clause. " ( 4 ) IT is the submission of learned counsel for the petitioner that in view of the last sentence of the aforesaid clause 70. 8, the additional or reduced cost is not to be separately paid if the same has already been taken into account in the indexing of the inputs to the price adjustment formula. ( 5 ) THE aforesaid aspect forms the subject matter of discussion in the award under challenge and the relevant issue was framed in para-15 of the award, which reads as under:- "15.
( 5 ) THE aforesaid aspect forms the subject matter of discussion in the award under challenge and the relevant issue was framed in para-15 of the award, which reads as under:- "15. To come to a just decision therefore, we are required to ascertain: (1) Whether this increase in the rates of Royalty has caused additional cost to the Claimant and (2) Whether the increase in cost because of increase in the rates of Seigniorage fee on materials like aggregate, sand and earth has been taken into account in the indexing of any inputs to the Price Adjustment Formula in Sub-Clause 70. 3 (B) relating to the General Materials. If the Claimant had to incur additional cost because of this change in the rates of Seigniorage Fee and the effect of increase in the rates of this fee has not been taken into account in the indexing of any inputs to the Price Adjustment formula for General materials, then the claimant is entitled to be paid this additional cost to it. On the contrary, if this increase in the rates of seigniorage Fee has not, for any reason, caused any additional cost to the claimant, or the effect of increase in the rates of Seigniorage Fee is found to have been taken into account in the indexing of any inputs to the Price adjustment Formula for General materials, then the claimant is not entitled to any additional amount. " ( 6 ) THE findings of the Arbitral Tribunal in respect of the aforesaid are recorded in paras 21 to 24 of the award. The Tribunal has found that the respondent was entitled to be compensated for additional cost caused to it provided the same had not already been taken into account in the indexing of any inputs in the price adjustment formula in accordance with the provisions of sub-clauses 70. 1 to 70. 7. On the question whether the same was taken into account, it was found that on examination of the basket of materials whose cost variation is input to estimate WPI (wholesale price index), minor minerals do not find a place in the basket.
1 to 70. 7. On the question whether the same was taken into account, it was found that on examination of the basket of materials whose cost variation is input to estimate WPI (wholesale price index), minor minerals do not find a place in the basket. The Tribunal, thus, found that though the WPI to an extent is likely to indicate the rise or fall in the prices of these minor minerals also, but the full impact of the additional cost of these specific materials because of subsequent change in legislation could not be taken into account as an input to the WPI. This finding was reached specifically on account of the fact that these minerals do not find a place in the basket of materials for working out the WPI. This interpretation of the clauses is supported by the reasoning of the Arbitral Tribunal that the WPI is the single index applicable uniformly in all the States while the increase in Seigniorage Fee varies from State to State depending upon the polices of the respective State Government. ( 7 ) LEARNED counsel for the petitioner contends that the Arbitral Tribunal failed to appreciate that whether full compensation has been granted to the respondent or not is not the issue which could be examined in view of clause 70 giving the formula for such increase. It is, thus, submitted that the award is contrary to the contract and also results in undue enrichment of the respondent. ( 8 ) I am unable to accept the aforesaid plea of the learned counsel for the petitioner. In order for the petitioner to succeed, the case must be brought within the four corners of Section 34 (2) of the Arbitration and Conciliation act, 1996 (hereinafter referred to as the said Act ). In view of the pronouncement in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. , AIR 2003 SC 262, the scope and ambit of scrutiny by the Court has been expanded but when the concept introduced was that something not provided in the contract ought not to be given, it does not imply that the arbitrators' interpretation of clauses of the contract is to be substituted by the Court by its own interpretation.
( 9 ) THERE are two sets of clauses in the contract and both have been construed harmoniously by the Arbitral Tribunal in terms of the unanimous award on this aspect. The formula is the pre-determined methodology for determining the increase in cost. It simultaneously cannot be lost sight of that there is specifically sub-clause 70. 8 which considers the ramification of subsequent legislation. No doubt the reading of the said clause shows that if something is provided for in terms of the price adjustment clause, then there should not be a double benefit to a party arising from this sub-clause. The Arbitral Tribunal, however, found that the price adjustment clause did not take into account the full impact of the levy. This was found more so in view of the fact that the increase in cost of such minor minerals did not form a basket for determination of WPI. All that the Arbitral Tribunal has done is to ensure that the full impact of such levy is compensated. ( 10 ) THERE can be no question of undue enrichment in the present case specially in view of what has been observed in para-24 of the award to the effect that the respondent herein must prove that the subsequent legislation had caused it additional cost and the extent thereof. Thus, the Tribunal has come to the conclusion that the full impact of the levy must be compensated to the respondent but there is no double counting in that behalf. ( 11 ) IT is trite to say that this Court does not sit as a Court of appeal over an award. Clauses of contract have to be interpreted by the arbitrators. The arbitrators in the present case have not awarded something which is not provided for in the contract. An arbitrator is a Judge chosen by the parties and if the view taken by the arbitrators is a plausible view, though may not be the only view, the Court is not required to interfere with the same. ( 12 ) THE plea of patent illegality cannot be cited as the mantra to challenge an award. The illegality must go to the root of the matter and should not be of a trivial nature.
( 12 ) THE plea of patent illegality cannot be cited as the mantra to challenge an award. The illegality must go to the root of the matter and should not be of a trivial nature. The public policy violation should be so unfair and unreasonable as to shock the conscious of the Court as observed by the Supreme court in Mcdermott International Inc. Vs. Burn Standard Co. Ltd. and Ors. , 2006 (2) Arb. L. R. 498. ( 13 ) IT would be useful to refer to the judgment of the Apex Court in State of UP v. Allied Constructions, (2003) 7 SCC 396 where while interpreting the scope of scrutiny of the challenge to an award even under the Arbitration Act, 1940, it was found that it is not the jurisdiction of the Courts to have closer scrutiny of the merits of documents and materials on record once it is found that the view taken by the arbitrator is a plausible one. In fact, the interpretation of a contract is a matter for the arbitrator to determine and that is what the arbitrators have done in the present case. There is neither any patent illegality nor absurdity in the same. There is no need to repeat judgments on this issue and it would suffice to say that this view has held good since long including in the case of Food Corporation of India Vs. Joginder Pal, JT 1989 (2) SC 89. ( 14 ) THE aforesaid being the only challenge in question, the petition is without any merit and is dismissed with costs of Rs. 5,000/-