Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION   

CIVIL APPEAL NO. 9799 OF 2010

National Highways Authority of India     …. Appellant  

Vs.

M/s ITD Cementation India Limited         …. Respondents

WITH

Civil Appeal No.9908/2011,  Civil Appeal No. 9909/2011 Civil Appeal No.2488/2012,  Civil Appeal No. 7066/2011 Civil Appeal No.3150/2012,  Civil Appeal No. 686/2013 Civil Appeal No.4069/2013,  Civil Appeal No. 5162/2012 Civil Appeal No.5661/2014,  Civil Appeal No. 10586/2014 Civil Appeal No. 3913/15(@S.L.P. (C) No. 10014/2013)  Civil Appeal No.3914/15(@S.L.P. (C) No. 10701/2013)

Civil Appeal No.7373/2012  AND Civil Appeal No.6158/2013

JUDGMENT

Uday Umesh Lalit, J.

1.  Leave granted in S.L.P (C) Nos.  10014 of 2013 and 10701 of

2013.

Page 2

A.  Civil  Appeal  Nos.  9799  of  2010,  9908/2011,  9909/2011, 2488/2012, 7066/2011, 3150/2012, 686/2013, 4069/2013, 5162/2012 and 5661/2014,  10586/14, Civil Appeal @ from SLP © 10014/2013 and Civil Appeal @ from SLP © 10701 of 2013:

2. All these appeals by special leave raise identical questions and

as  such  are  being  dealt  with  and  considered  by  this  common

judgment.  The  learned  counsel  for  the  parties  agreed  that  Civil

Appeal No.9799 of 2010 be taken and was accordingly dealt with as

the lead case.

CIVIL APPEAL NO. 9799 OF 2010

3. Civil  Appeal  No.  9799  of  2010,  by  Special  Leave  seeks  to

challenge  the  judgment  and  order  dated  30.11.2007  passed  by  the

Division Bench of the High Court of Delhi at New Delhi in FAO (OS)

No.216 of 2007.

4.  The  dispute  in  question  relates  to  the  consequences  of  an

additional amount of 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. 01.11.2002.  It is the plea

of the appellant that the additional amount of fee was not liable to be

2

Page 3

paid to the respondent 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.

5. A contact was awarded to the respondent by the appellant on

17.10.2001  for  execution  of  work  of  widening  of  lanes  and

rehabilitation  of  the  existing  two  lane  carriageway  of

Vaniyambadi-Pallikonda  section  of  NH-6  (from  Km.49.00  to

Km.100.00).   The  total  value  of  the  contract  was  appropriately

Rs.183.71 crores.  The parties adopted FIDIC form of Conditions of

Contract  with  some changes  made  which are  called  Conditions  of

Particular Application (COPA, for short).  In the invitation to tender

forming part of the contact under Clause 13.4 it was agreed between

the parties as under:

13.4. All duties, taxes and other levies payable by the Contractor under the Contract, or for any other cause, as of the date 28 days prior to the deadline for  submission  of  bids,  shall  be  included  in  the rates and prices and the total bid price submitted by the bidder, and the evaluation and comparison of bids by the Employer shall be made accordingly.

 6.  The aforesaid stipulation dealt with the impact and inclusion of

duties,  taxes  and other  levies,  as  of  the  date  28  days  prior  to  the

3

Page 4

deadline for submission of bids and clarified that the same shall stand

included in the rates and prices and the total bid price submitted by

the  Contractor.  Any  subsequent  variation  in  Prices  on  account  of

variety of reasons or factors after such date was dealt with in Clauses

70 to  70.8  of  the  COPA and the  relevant  parts  thereof  are  quoted

hereunder:-

Clause 70: Changes in Cost and Legislation Delete  the  text  of  Clause  70  in  its  entirety  and substitute, therefore the following clauses 70.1 to 70.8.

Sub-Clause 70.1 : Price Adjustment The amount payable to the Contractor and valued at  base  rates  and  prices  pursuant  to  Sub-Clause 60.1 hereof shall be adjusted in respect of the rise or fall in the indexed cost of labour, Contractor’s equipment, Plant materials and other inputs to the Work,  by  the  addition  or  subtraction  of  the amounts determined by the formulae prescribed in this Clause.

Sub-Clause 70.2: Other Changes in Cost

To the extent that full compensation for any rise or fall in the costs to the Contractor is not covered by the  provisions  of  this  or  other  Clauses  in  the Contract, the unit rates and, prices included in the Contract  shall  be  deemed to  include  amounts  to cover the contingency of such other rise or fall in cost.

Sub-Clause 70.3 :Adjustment Formulae

4

Page 5

Contact  price  shall  be  adjusted  for  increase  or decrease  in  rates  and  price  of  labour,  materials, Plant,  machinery,  equipment,  spares,  fuels  and lubricants  in  accordance  with  the  following principles  and  procedures  as  per  formulae  given below.  The  amount  certified  in  each  payment certificate  shall  be  adjusted  by  applying,  the respective price increase or decrease.

a) Price  adjustment  shall  apply  for  work carried out within the stipulated time or extensions granted by the Employer and shall  not apply for work carried out beyond the stipulated time. Price adjustment  for  reasons  attributable  to  the Contractor,  shall  be  paid  in  accordance  with Sub-Clause 70.6;

b) Following  expressions  and  meanings  are assigned to the value of the work done during the period under consideration: RI= Total  value  of  work done during the  period under consideration and payable in Indian Rupee currency, it would include the value of materials on which secured advance has been granted,  if  any, during the  period,  less  the  value  of  materials  in respect  of  which the  secured advance   has  been recovered  ,  if  any,  during  the  period.  This  will exclude cost of work an items for which rates were fixed  under  variation  Clauses  (51  and  52)  for which the escalation will be regulated as mutually agreed at the time of fixation of rate.

To the extent that full compensation for any rise or fall in indexed costs to the Contractor is not covered by the provisions of this or other Clauses in the Contract, the unit rates and prices included in  the  Contract  shall  be  deemed  to  be  include amount to cover the contingency of such other rise or fall in costs.

5

Page 6

(c)   Price adjustment for various inputs into the works  done  shall  be  calculated  as  per  formulae given below:

A) Variation of Price-Local Labour ……………… …………………

B)     Variation of Price-General Materials

The  Contract  Price  will  be  subjected  to adjustment on account of general variation of all materials  other  than  specifically  provided  in Sub-Clause 70.5 hereinafter. The adjustment  will be made according to the formula given below: V2=R1x (I-Io) x G

Io Where,

V2= Variation in price on account of general variation of prices  of  all  materials  other  than  specifically provided in Sub-Clause 70.5 hereinafter.

Io  =  Base  Cost  Index  corresponding  to  the  Wholesale Price in India (for all commodities) for the price under consideration (Base 1993-94=100) released by  the  economic  advisor,  Ministry  of  Industry, Government of India, at the time specified in para (E) hereinafter.

I=    Current Cost Index corresponding to the Wholesale Price in India (for all commodities ) for the price under  consideration  (Base  1993-1994  =100) released by the same agency at the time specified in para (E) hereinafter.

G=  Factor of  0.15 (zero point one five ) representing component of  all  material  other  than specifically provided elsewhere in the Contract Price.

R1= Value  of  the work done during the period  under consideration  and  payable  in  non-convertible

6

Page 7

Indian Rupee Currency at the base rates and prices as applicable under the Contact.

C) Variation of Price –POL ……………….. ………………….

D) Price  Adjustment  for  plant  and Equipment

…………….. ……………

E)  Base, Current and Provisional Indices …………….. ………………..

F) Price Adjustment ……………. …………..

G) The Adjustable Amount ……………. ……………….

H) The Adjusted Amount ………………. ………………..

I) Adjustment after Completion ……………… ……………..

Sub-Clause 70.4: Sources of Indices  The sources of indices shall be those as mentioned in Sub-clause 70.3 of Section III Volume I of the Bid documents.

Sub-Clause 70.5: Increase or Decrease of Price of Specified Materials

7

Page 8

(i) Increase  or  decrease  of  price  of  specified materials will be adjusted by either an addition to or a deduction to or a deduction from the Contract Prices. For the purpose of this Sub-Clause:

“Specified materials” means the materials stated in Schedule  2  of  Section  VII  of  the  Bidding Documents  and  required  on  the  site  for  the execution and completion of the Permanent Works.

“Basic  Price”  means  the  price  for  “Specified materials”  indicated in Schedule 2 of Section VII of the Bidding Documents.

(ii) a) Adjustments to the Contract Price for Bitumen  …………..

……………

b) Adjustment  to  the  Contract  Price  for Cement and Steel:

………………………. ……………………..

Sub-Clause 70.6: Limit of Price Adjustment …………………….. ……………………..

Sub-Clause 70.7: Exemption  from  Price Adjustment

……………………

Sub-clause 70.8: Subsequent Legislation

If, after the date 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

8

Page 9

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 clauses  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.

7.   The Government of Tamilnadu by issuing a notification under

Section 15 of the Mines and Minerals (Regulation & Development)

Act,  1957  (hereinafter  referred  to  as  1957  Act),  increased  the

seigniorage fee (which is synonymous with Royalty charges in other

States) on stone, sand and earth to the tune of nearly 30% with effect

from  1st November,  2002,  i.e.  after  about  one  year  from

commencement  of  the  Work.   The  respondent  requested  for  Price

Adjustment  consequent  to  the  increase  in  rates  of  Royalty  under

Sub-Clause 70.8 of COPA vide letter dated 28.12.2002.  The request

was rejected on 01.01.2003 on the ground that the increase in royalty

9

Page 10

charge cannot be paid separately as the same was already considered

under the Price Adjustment formula being paid for general materials

under  Sub-Clause  70.3  of  COPA.    The  matter  was  placed  for

reconsideration  but  the  request  was  finally  rejected  on  06.09.2003

relying  on  NHAI’s policy  circular  No.11041/21/02-Admn.III  dated

01.09.2003.

8.  It  appears  that  in  similar  contracts  with  identical  conditions

requests for payment of increased royalty under Sub-Clause 70.8 were

accepted and appropriate payments were made.  However, during the

course of audit, the payment made by the NHAI towards increase in

Royalty charges was considered to be irregular by the Government

auditors on the ground that no such separate payment was required to

be  made under  Sub-clause  70.8 of  COPA as  payment  was  already

made under the Price Adjustment formula for price increase.  In the

circumstances,  the appellant  on 03.09.2003 wrote  to  the Economic

Advisor, Ministry of Commerce and Industry, Government of India

seeking clarification and advice.  Relevant portion of the letter dated

03.09.2003 is quoted hereunder:-

“Anand Bordia Member (Finance) NATIONAL HIGHWAYS  

1

Page 11

Tel: 011-25074100 AUTHORITY OF INDIA          011-25074200 Ext.1612  (MINISTRY OF ROAD          011-25093506 TRANSPORT  &

HIGHWAYS) Fax:011-25074100 G-5 & 6, Sector-10,  011-25074200 Ext.2617 DWARKA,          NEW DELHI-110045 E-mail: abordia@nhai.org

D.O. NO.NHAI/11033/GM/2003-04      September 3, 2003

Dear Shri Nigam

            Sub: Wholesale Price Index

1. NHAI was set up by the National Highways Authority of India Act, 1988 to develop, maintain and manage the national highways and any other highways  vested  in,  or  entrusted  to,  it  by  the Government.

2. Incidental  to  this  function,  for  the construction of highways, NHAI appoints highway construction contractors, selected by a process of competitive bidding.  The bidding process involves the bidder quoting his delivery cost for predefined quantities  of  various  inputs  required  for  the highway  construction.   Since  the  period  of execution  is  fairly  long,  to  provide protection/neutralize  price  related  impacts  to  the contractor/NHAI,  certain  mechanism  has  been incorporated in the contract.  For example, to cover price impact  arising out  of  or  in consequence to any Legislation is provided as under: (a) Sub-Clause 70.8 Subsequent Legislation.

………………… ………………….

11

Page 12

3. We are  enclosing  herewith  a  copy  of  the extracts  of  the  Contract  document  detailing  the above provisos vide para 70.1 to 70.8

 4. The issue for which clarification is required is the difference in opinion in the interpretation of the clause 70.8 on “Subsequent Legislation.”  The CAG  Auditors  while  auditing  NHAI  have commented  that  since  WPI  is  derived  from  the whole  sale  price  data  across  the  country  and “price” is the derived composite reflection of  all factors,  whenever  provision  has  been  made  for WPI  based  compensation  for  price  escalation  to the  contractors,  the  benefit  related  “Subsequent Legislation” will  be fully constrained by the last para  (given  in  italics).   They  have  opined  that “price”  will  be  deemed  to  have  all  factors including those with purely local impact, such as Entry tax, Octroi and Royalty.

5. It  is  felt  that  if  CAG  interpretation  is accepted  for  implementation,  the  entire  clause “Subsequent  Legislation”  will  be  hit  and  made entirely redundant as a tool to cover price risk.

6. CAG’s  office  has  raised  objection  in  a specific  case,  details  of  which  are  narrated  here below:

…………………………… ……………………………

7.  All  these  payments  were  claimed  by  the Contractor and paid by NHAI, as these arose on account of Tax obligations under enactments made or  rates  enhanced  during  the  relevant  period thereby  entitled  under  the  clause  for  subsequent legislations.  We wish to stress the fact that these were  imposed  and  enhanced  by  the  States  of Haryana and Rajasthan and relate to construction

1

Page 13

inputs which are not in the basket of items listed for the consideration of WPI.

8.   CAG  considered  these  reimbursements irregular for the reason that all such imposts would have  had  their  effect/would  have  been  already factored  into  WPI  and  WPI  based  indexation benefits were granted and given for all these very items under  clauses  70.1  to  70.7  by way  of  the formula  based  price  adjustments.   Affording  the benefit  under  “Subsequent  Legislation”  would amount  to  a  double  benefit.   Hence  they  would automatically  fail  to  come  under  the  clause “Subsequent  Legislation”  by  virtue  of  the restrictive proviso.

9. In view of the above, we will be grateful if you could clarify the following:

(a) Will the WPI assessment include or deemed to include such local factors as Octroi Entry Tax and Royalty introduced/enhanced in one state etc. on items mentioned in  paragraph 6 of  this  letter such as earth, morram, aggregate, sand, stones etc. which  it  appears  do  not  come  under  the  items considered to work out WPI.

(b) The  WPI  based  compensation  for  price changes  will  create  an  imbalanced  structure between two contractors, one operating within the locality subject to a local impost and another in an adjoining  area  outside  such  an  impost,  if  CAG auditors opinion is  accepted.   How can the WPI mechanism  be  used  by  NHAI  to  create  an equitable structure?

You  may  recall  that  the  Chairman  NHAI  Shri Santosh  Nautiyal  had  spoken  to  you  about  this matter.

1

Page 14

Kind Regards,

Yours sincerely,

Sd/-            (ANAND BORDIA)

Shri Shrawan Nigam, Economic Advisor, Ministry of Commerce and Industry, (Dept of IP & P), 126-E, Udyog Bhawan, NEW DELHI -110001.”

9. The response from the Economic Advisor to the Government of

India was as under:

“Shrawan Nigam     GOVERNMENT OF INDIA Economic Advisor MINISTRY  OF

COMMERCE  Tel:23012721      & INDUSTRY Fax:23793502     UDYOG BHAWAN, Economic Advisor to NEW DELHI-110001 the Government of India

     27th November, 2003 D.O. No. Ec.Ad 11(1)/2003/WPD   

Dear Shri Bordia,

Kindly  refer  to  your  D.O.  Letter No.NHAI/11033/GM/2003-04  dated  the September  3,  2004,  seeking  clarifications  on constituents  of  prices  utilized  for  compilation  of Wholesale  Price  Index.   I  may  mention  in  this respect that in case of Minerals, ex-mine prices are used  for  compilation  of  WPI.   Ex-mine  prices correspond to Pit Mouth Value (PMV) of a mineral i.e. sale value of mineral at pithead.  In case sales

1

Page 15

are effected on FOR or FOB or any other basis, pithead value is arrived at after deducting all the expenses incurred from mine to railway station or port  or  other  point  of  sale,  as  the  case  may  be. However taxes paid by the mine owners are not deducted to arrive at PMV.  Thus, ex-mine price includes  Royalty  but  are  not  likely  to  include octroi and entry tax.

Since none of the items mentioned in your letter, namely, Earth, Morram, Aggregate and Sand are included in the Commodity Basket of WPI, it is not possible to supply the Wholesale Price Indices of  these  items.   However,  the  WPI  for  ALL, COMMODITIES  and  MINERALS  from December  1995 to July 2001 are being enclosed for your appropriate use.

With regards, Yours sincerely,

Sd/- (Shrawan Nigam)

Shri Anand Bordia, Member (Finance) National Highway Authority of India, Ministry of Road, Transport & Highways, G-5&6, Sector-10, Dwarka, NEW DELHI-110045.”

10. In the aforesaid circumstances the dispute between the parties

stood  referred  to  Arbitral  Tribunal.   The  respondent  submitted  its

Statement  of  Claim  claiming  under  Sub  Clause  70.8  of  COPA an

amount  of  Rs.91,47,411/-  allegedly  due  upto  31st January,  2005

towards reimbursement of increase in Royalty (Seigniorage fee) on

1

Page 16

minerals i.e. aggregate, sand and earth (the items in issue) along with

interest @ 12 per cent per annum compounded monthly on the sums

found due from the date they became due till realization.

11. The  Arbitral  Tribunal  comprising  of  three  experienced

Engineers who had retired from Govt. service Departments above the

rank  of  Chief  Engineer  framed  the  following  questions  for

determination:

“1) Whether the 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.”

After  going  through  the  pleadings  and  evidence  the  Arbitral

Tribunal  unanimously  found  that  the  respondent  had  incurred

additional  cost  because  of  the  change  in  rates  of  Seigniorage  fee

pursuant to change in legislation and that the said increase in the rates

had not been taken into account in the indexing of any inputs to the

price  adjustment  formula  in  general  materials  and  therefore  the

1

Page 17

respondent would be entitled to be paid the additional cost incurred

by.   It was held as under:

21.    We have thoroughly gone through the entire evidence adduced by the parties and gone through the  relevant  Contract  provisions.  We  have  also judiciously  considered  the  rival  contentions  and arguments.  We  are  inclined  to  agree  with  the contention of  the claimant  that  the provision for cost  escalation  based  on  the  agreed  Price Adjustment  Formulae  and  the  Compensation  for additional  cost  resulting  from  a  subsequent legislation are two separate & specific stipulations, and the claimant is entitled to be compensated for any additional cost caused to it provided the same shall not have already 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.

22. The  other  question  now  required  to  be answered  by  us  is  whether  the  additional  cost because of change in the rates of Seigniorage fee has been taken into account in the indexing of any inputs  to  the  Price  Adjustment  Formulae  supra. We have examined the basket of materials whose cost variation is input in the estimation of the WPI. The minor minerals like earth, sand and aggregate used in highway construction works, do not find place in this basket.  We are prepared to concede that the WPI is to an extent likely to indicate the rise or  fall  in the prices of these minor minerals also,  but  are  not  inclined to  accept  that  the  full impact  of  the  additional  cost  of  these  specific materials  because  of  a  subsequent  change  in legislation can be said to be taken care of in the inputs to the WPI, especially when these materials do  not  find  place  in  the  basket  of  materials  for

1

Page 18

working out the WPI.  This conclusion is further reinforced  by  the  fact  that  the  WPI  is  a  single index  applicable  uniformly  in  all  the  states,  the increase in Seigniorage fee can and does vary from state to state, depending upon the policies of the respective  State  Governments.   Further,  whereas the contact provisions relating to Price Adjustment as  per  Sub-Clauses  70.2  to  70.7  supra  do  not assure full compensation for rise or fall in prices, the  additional  cost  on  account  of  a  subsequent legislation is stipulated to be paid in full.

23.   We must state that but for the adult objection, the  Respondent  NHAI  itself  was  of  the  opinion that  this  additional  payment  is  admissible separately.  The  reference  by  the  NHAI  to  Mr. Shravan  Nigam,  Economic  Advisor,  Ministry  of Commerce and Industry, GOI vide Ex. R/4 clearly signifies this fact. The reply to this letter by Mr. Shravan Nigam annexed with Ex.  R/4  also  does not help us in arriving at any contrary conclusion.

Having answered the question, the Arbitral Tribunal rejected the

contention of the respondent that it was unnecessary for it to prove

actual  incurring  of  such  additional  cost.   The  contention  that  the

respondent would be entitled to the difference in the royalty payable

on  the  material  by  a  theoretical  calculation  based  on  the  agreed

quantities,  even  without  proving  that  any  such  additional  cost  had

been  actually  incurred  was  rejected.   On  the  issue  whether  the

respondent had produced any evidence to substantiate its claim that

any  such  additional  cost  had  been  incurred,  the  Arbitral  Tribunal

1

Page 19

found that the material placed on record was lacking in particulars and

as  such  the  quantification  of  the  impact  of  change  in  the  rates  of

royalty was left to be determined by the appellant.

12. The appellant being aggrieved by the Arbitral award made and

published on 12.05.2006 filed OMP No.432 of 2006 in the High Court

of Delhi which was dismissed by a Single Judge of the High Court

vide judgment and order dated 14.05.2007.  It was observed that the

Arbitral Tribunal had found that the minerals in question did not find

place in the basket of materials for working out the wholesale price

index i.e. WPI, that the WPI would be applicable uniformly in all the

States  while  the  increase  in  Seigniorage  Fee  varied  from State  to

State.  It was concluded that the view taken by the Tribunal did not

call for any interference.  In the appeal, namely, FAO(OS) No.216 of

2007  preferred  by  the  appellant,  it  was  submitted  that  the

interpretation placed by the Arbitral Tribunal upon the provisions of

the  agreement  was  erroneous  and  secondly  that  the  award  was

imperfect  inasmuch  as  it  left  the  question  of  quantification  of  the

amount  undecided.   While  dealing  with  the  first  submission,  the

Division Bench of the High Court observed:

1

Page 20

“On the question of interpretation, the arbitrators noticed  the  relevant  provisions  and  came  to  the conclusion that since the basket of materials whose cost variation is an input for filing the WPI did not include  minor  minerals  like  earth,  sand  and aggregate  used  in  heavy  construction  works,  the additional cost of those specific materials did not include the full impact of the subsequent change in legislation.  The arbitrators noted that the WPI was a single index applicable uniformly in all the States while the increase in Seigniorage fee varied from State to State depending upon the policies of the respective State Governments.  The arbitrators also held that while the contractual provisions related to price adjustment as per  clauses 70.1 to 70.7,  the additional  cost  on  account  of  a  subsequent legislation had to be paid in full.  Suffice it to say that  the  arbitrators  not  only  looked  into  the provisions of  the contract  but  also examined the issue  like  whether  minor  minerals  used  for construction  of  highways  were  or  were  not included  in  the  basket  of  materials  whose  cost variation is taken into consideration as an input in the assumption of the wholesale price index (WPI). Such  being  the  position,  simply  because  the interpretation  placed  by  the  arbitrators  has  not favoured one or the other party can be no reason for the Court to interfere under Section 34 of the Act  with  the  award  made  on  any  such interpretation.   It  is  fairly well  settled by a long line of decisions rendered by the Supreme Court that a Court dealing with a petition under Section 34 of the Arbitration and Conciliation Act,  1996 does not sit in an appeal over the arbitral award.”

2

Page 21

The Division Bench however agreed with the appellant on the

second submission and remitted the matter to the Arbitral Tribunal on

the limited issue of quantification of the amount.

13. In this appeal  by special leave challenging the judgment and

order passed by the Division Bench of the High Court, this Court at

the interim stage had directed the arbitration proceedings to continue

in terms of the order of the High Court.  The Arbitral Tribunal by its

award dated 07.05.2010 quantified the sum that the respondent was

entitled to on account of increase in the rates at Rs.43,06,810/- and

awarded  interest  @  12%  p.a.  from  the  date  of  publication  till

realization.   By  order  dated  15.11.2010  this  Court  directed  the

appellant  to  deposit  sum  of  Rs.46  lakhs,  being  the  amount  so

quantified.   The amount  has  since  then  been deposited  and stands

invested in a fixed deposit.

14. Mr. Parag P. Tripathi learned Senior Advocate assisted by Ms.

Monisha Handa, learned Advocate appeared for the appellant in the

lead  case.   Ms.  Indu  Malhotra,  learned  Senior  Advocate  and  Ms.

Gunjan S. Jain, learned Advocate appeared for the appellants in the

companion matters.   It was submitted by them that WPI is a general

2

Page 22

or representative index of prices of all  commodities  and as such it

would  not  and  need  not  take  all  commodities  into  account.   The

parties having agreed to go by WPI Index, that Index alone must be

considered irrespective of the fact whether prices of minor minerals in

question were taken into account specifically while arriving at such

Index.    It was submitted that the award correctly observed in para 22

that “WPI is to an extent likely to indicate the rise or fall in the prices

of these other minerals also” though minor minerals in question did

not  specifically  find   place  in  the  commodity  basket  taken  into

account while determining WPI.  The reason why Arbitral Tribunal

was not inclined “to accept that the full impact of the additional cost

of these materials because of subsequent change in legislation can be

said to be taken care of by he inputs to the WPI” in the submission of

the  learned  counsel,  was  perverse.   It  was  submitted  that  the

governing clause in the matter was Sub Clause 70.3 (B) and in terms

thereof, the respondent would at best be entitled to factor of 0.15 i.e.

15% and not the amount in entirety as claimed. It was contended that

the view taken by the Arbitral Tribunal ignored the provisions of Sub

Clauses  70.1 to 70.3(B) and exclusion in Sub Clause 70.8 and the

award so given in disregard of the terms of the contract stands vitiated

2

Page 23

being against public policy.  Reference was placed on the decisions of

this Court in  McDormott International Inc.  v.  Burn Standard Co.

Ltd.1, ONGC Ltd. V. Western Geco International Ltd.2 and  ONGC

Ltd. v. Saw Pipes3.

15. Mr.  George  Thomas,  learned  Advocate  appearing  for  the

respondent in the lead case and some companion matters submitted

that Sub-Clauses 70.1 to 70.7 of COPA deal with Price Adjustment in

respect of rise or fall in the indexed cost of various inputs to the work

due to market  fluctuations while  sub clause 70.8 specifically  deals

with cases concerning change in price due to subsequent legislative

changes and that unlike the former category, in respect of cases in the

latter category the additional cost on account of changes in subsequent

legislation by virtue of sub clause 70.8 must be paid in full. Mr. P.H.

Parekh  learned  Senior  Advocate  appearing  for  respondent  in  Civil

Appeal No.4069 of 2013 and other companion matters, additionally

submitted that but for the audit objection, the appellant itself was of

the opinion that  this  additional  payment was admissible  separately.

Reliance was placed on the letter dated 03.09.2003 addressed by the

1 (2006) 11 SCC 181 2 (2014) 9 SCC 263 3 (2003) 5 SCC 705

2

Page 24

appellant to the Economic Advisor. Mr. Shyam Divan learned Senior

Advocate appearing for respondent in Civil Appeal No.9909 of 2011

submitted that both parties understood the terms of the Contract in a

particular manner, that the view taken by the Arbitral Tribunal was

affirmed by the Single Judge and the Division Bench on independent

assessment and such view being a plausible view no interference was

called  for.  Mr.  Vinay  Navare,  learned  Advocate  appearing  for

respondent  in  Civil  Appeal  No.3150  of  2012  and  other  learned

Counsel adopted the submissions.

16.  Since it was argued that the Arbitral Tribunal disregarded the

material terms of the Contract while making its assessment and failed

to consider the impact of sub clauses 70.1 to 70.3 (B) and exclusion in

sub clause 70.8, the law on the point needs to be briefly adverted to.

In  Mc Dermott  International Vs.  Burn Standard Co. Ltd.  (Supra)

this Court held as under:-

“112. It is trite that the terms of the contract can be express  or  implied.  The  conduct  of  the  parties would  also  be  a  relevant  factor  in  the  matter  of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and  ambit  of  the  arbitration  agreement  and  they cannot be said to have misdirected themselves in

2

Page 25

passing the award by taking into consideration the conduct  of  the  parties.  It  is  also  trite  that correspondences  exchanged  by  the  parties  are required  to  be  taken  into  consideration  for  the purpose  of  construction  of  a  contract. Interpretation  of  a  contract  is  a  matter  for  the arbitrator  to  determine,  even  if  it  gives  rise  to determination  of  a  question  of  law.  (See  Pure Helium India  (P)  Ltd.  v. ONGC [(2003)  8  SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]).

113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.”

17. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran4, the

Court held:

“43.  In  any  case,  assuming  that  Clause  9.3  was capable of two interpretations, the view taken by the  arbitrator  was  clearly  a  possible  if  not  a plausible  one.  It  is  not  possible  to  say  that  the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract.  That being the position, the High Court had  no  reason  to  interfere  with  the  award  and substitute  its  view  in  place  of  the  interpretation accepted by the arbitrator.”

4(2012) 5 SCC 306

2

Page 26

18. In  Sumitomo Heavy Industries Ltd.. v.  ONGC  5, it was held the

Court held:

“43.  ...  The  umpire  has  considered  the  fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would  have  preferred  another  construction  of Clause 17.3 but that cannot make the award in any way perverse.  Nor  can  one  substitute  one's  own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal.   As  held  by this  Court  in  Kwality  Mfg. Corpn.  v. Central  Warehousing Corpn.  [(2009)  5 SCC 142  :  (2009)  2  SCC (Civ)  406]  the  Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is  what the High Court  has practically  done  in  this  matter.  The  umpire  is legitimately  entitled  to  take  the  view  which  he holds to be the correct  one after  considering the material  before  him  and  after  interpreting  the provisions  of  the  agreement.  If  he  does  so,  the decision of the umpire has to be accepted as final and binding.”  

19.  In  a  recent  decision  in  Associate  Builders Vs.  DDA6 while

discussing  “the public policy of India” contained in Section 34(2) (b)

(ii) of the Arbitration Act, 1996 this Court dealt with each of the heads

contained in Saw Pipes Judgment (Supra) in the light of three distinct

5(2010) 11 SCC 296   6 (2015) 3 SCC 49   

2

Page 27

and fundamental juristic principles added in ONGC Ltd. Vs. Western

Geco. International Ltd. (Supra).  “Patent-illegality” which is one of

the  heads  contained  in  Saw  Pipes  judgment  (Supra)  was  then

elaborated and we quote paras 42 to 42.3:-

42. In the 1996 Act, this principle is substituted by the  ‘patent  illegality’  principle  which,  in  turn, contains three sub heads:

42.1 (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature.This again is a really a contravention of Section 28(1)(a) of the Act, which reads as under:

“28.  Rules  applicable  to  substance  of dispute.— (1) Where the place of arbitration is situated in India,— (a)  in  an  arbitration  other  than  an international  commercial  arbitration,  the arbitral  tribunal  shall  decide  the  dispute submitted to arbitration in accordance with the  substantive  law  for  the  time  being  in force in India;”

42.2 (b)  a  contravention  of  the  Arbitration  Act itself would be regarded as a patent illegality- for example  if  an  arbitrator  gives  no reasons  for  an award in contravention of section 31(3) of the Act, such award will be liable to be set aside.

2

Page 28

42.3(c)  Equally,  the  third  sub-head  of  patent illegality is really a contravention of Section 28 (3) of the Arbitration Act, which reads as under:

“28.  Rules  applicable  to  substance  of dispute.-

(1) -- (2)   *       *       *

(3)  In  all  case,  the  arbitral  tribunal  shall decide in accordance with the terms of the contract  and  shall  take  into  account  the usages  of  the  trade  applicable  to  the transaction.”

This last contravention must be understood with a caveat.  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. 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.

20. It is thus well settled that construction of the terms of a contract

is primarily for an arbitrator to decide. He is entitled to take the view

which he holds to be the correct one after considering the material

before him and after interpreting the provisions of the contract.  The

court while considering challenge to an arbitral award does not sit in

appeal over the findings and decisions unless the arbitrator construes

2

Page 29

the contract in such a way that no fair minded or reasonable person

could do.

21. 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 form 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

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.

22. We,  therefore,  dismiss  Civil  Appeal  No. 9799 of 2010.  The

decretal  amount  which  stands  deposited  be  made  over  to  the

respondent  along with the interest  accrued thereon. No order  as  to

costs.

3

Page 31

Civil  Appeal  Nos.  9908/2011,  9909/2011,  2488/2012,  7066/2011, 3150/2012,  4069/2013,  5162/2012  and  5661/2014,  658/2013, 10586/14,  Civil  Appeal  @  from  SLP  ©  10014/2013  and  Civil Appeal @ from SLP © 10701 of 2013:

23. In all these matters National Highway Authority of India is the

appellant  which had entered into contacts with respondents in each

appeal and the issue involved is identical that is to say the entitlement

of the concerned respondents to the additional amount payable as a

result  of  upward  revision  in  royalty  payable  in  respect  of  minor

minerals pursuant to subsequent legislation. The clauses in question

are identical and in all these matters the High Court, whose orders are

appealed against, had relied upon the judgment of the Division Bench

of the High Court of Delhi in FAO (OS) No.216 OF 2007, which was

under appeal in the lead matter i.e. Civil Appeal No. 9799 of 2010

24.   Consequently,  all  these  appeals  are  dismissed.  The  decretal

amount,  if  deposited,  be  made over  to  the  respondents  along with

interest  accrued  thereon.  In  some  cases,  money  so  deposited  was

allowed  to  be  withdrawn  on  furnishing  of  Bank  Guarantees.  The

Bank guarantees so furnished stand discharged. No order as to costs.

3

Page 32

B. CIVIL APPEAL NO. 7373 OF 2012:

25.      This  appeal  challenges  the  judgment  and  order  dated

27.04.2012 passed by the High Court of Delhi at New Delhi in OMP

497 of 2006. Unlike all the aforesaid cases, the clauses in question are

not identical and hence this matter is being dealt with separately.

26.       The appellant  awarded contract  dated 30.08.2001 to the

respondent for the work of six laning of NH-7 from KM 539 to KM

556  in  the  State  of  Karnataka,  Contract  Package  No.  NS-24/KN.

Clause 13.3 of the contract pertained to Taxes and Other Levies which

is set out hereinbelow :

13.3 All duties, taxes and other levies payable by the contractor under the contract, or for any other cause shall be included in the rates, prices and total Bid Price submitted by the bidder.

Clause 13.4 of the contract pertained to price adjustment and is

set out hereinbelow:

13.4 The rates and prices quoted by the bidder are subject  to  adjustment  during  the  performance  of the Contract in accordance with the provisions of Clause 47 of the Conditions of Contract.

3

Page 33

Clause 32.1 of the contract pertaining to Early Warning was as

under:

32.1 The contractor is to warn the Engineer at the earliest  opportunity  of  specific  likely  events  or circumstances that may adversely affect the quality of work, increase the Contract Price or delay the execution of works. The Engineer may require the Contractor to provide an estimate of the expected effect  of  the  future  even or  circumstance  on the Contract Price and Completion Date. The estimate is  to  be  provided  by  the  Contractor  as  soon  as reasonable possible.

32.2 The  Contractor  shall  cooperate  with  the Engineer in making and considering proposals for how the effect  of  such an event or  circumstance can be avoided or reduced by anyone involved in the  work  and  in  carrying  out  any  resulting instructions of the Engineer.

Clause 45 of the Contract pertaining to Tax was as follows:

45.1 The rates quoted by the Contractor shall  be deemed to be inclusive of the sales and the other taxes  the  Contractor  will  have  to  pay  for  the performance of this Contract.  The Employer will perform such duties in regard to the deduction of such taxes at sources as per applicable law.

Clause 47 of the contract pertained to Price Adjustment and is

set out hereinbelow:

47Price Adjustment

This  clause  is  applicable  only  for  those  projects with completion period of more that one year.

3

Page 34

47.1 Contract Price shall be adjusted for increase or decrease in rates and prices of labour, materials, fuels  and  lubricants  in  accordance  with  the following principles and procedures and as per the formula given in the contract data:

a) The price adjustment shall  apply for the work done from the start date given in the contract data upto the end of the initial intended completion date or extensions granted by the Engineer and shall not apply to the work carried out beyond the stipulated time for reasons attributable to the contractor.

b)….

c)  Following  expressions  and  meanings  are assigned to the work done during each month:

R= Total value of work done during the month. It would  include  the  value  of  materials  on  which secured advance has been granted, if  any, during the month less the value of materials in respect of which the secured advance has been recovered, if any  during  the  month.  It  will  exclude  value  for works  executed  under  variations  for  which price adjustment will be worked separately based on the terms mutually agreed.

47.2 To the extent that full compensation for any rise or fall in costs to the contractor is not covered by the  provisions  of  this  or  other  clauses  in  the contract, the unit rates and prices included in the contract  shall  be  deemed  to  include  amounts  to cover  the  contingency  of  such  other  rise  fall  in costs.

3

Page 35

27.      In this case the disputes which have arisen between the parties

were:

(i)  With  respect  to  a  claim for  reimbursement  as  a  result  of

imposition of fresh “Cess” with effect from 29.01.2004 i.e. after the

formal agreement was executed in 2001. The claim was subject matter

of  Arbitral  Award  dated  13.11.2006 which was affirmed by Single

Judge  and  later  by  the  Division   Bench  of  the  High  Court  vide

judgments  dated  02.07.2008  and  17.08.2009  respectively.  The

decision was accepted and the appellant paid to the respondent sum of

Rs. 28,49,503 of 28.07.2010. We are not concerned with this issue.

(ii)  We are concerned with the claim for reimbursement arising

out  of  the  enhancement  of  royalty  payable  in  respect  of  minor

minerals with effect from 02.06.2003 pursuant to amendment in the

Karnataka  Mine  and  Minerals  Concession  Rules,  1994.  It  was

contended by the respondent that the increase in royalty charges by

the  legislation  during the  pendency of  the  contract  could  not  have

been anticipated or foreseen and therefore the same falls within the

ambit of Clause 32.1 of the contract.   The appellant submitted that in

terms of express provision in sub-clause 45.1, it was incumbent upon

the contractor to cover any such eventuality in respect of increase in

3

Page 36

taxes in the contract price itself at the time of bidding.  Further, there

being no subsequent legislation clause in the contract, the parties were

clear  that  no  additional  cost  would  be  awarded  in  case  of  rise  of

royalty due to change in legislation. The Arbitral Tribunal by award

dated  18.06.2006,  accepting  the  claim,  awarded  a  sum  of

Rs.40,95,881/- towards royalty upto 27.02.2006 with interest @ 12%.

This award was challenged by the Appellant by filing OMP No. 497

of 2006, which was dismissed by a Single Judge of the High Court on

27.04.2012 and that judgment is presently under challenge.

28. The award accepted that revision in royalty rates in respect of

minor minerals by Government of Karnataka being subsequent to the

contract  would  be  covered  under  the  expression  ‘future  events’ in

clause 32.1 entitling the respondent to raise a claim.  It was observed

that  there  was no dispute  between the parties  that  royalty  was not

included  in  WPI  and  that  in  other  contracts  the  reimbursement

towards additional costs incurred as a result of subsequent legislation

was granted by relying on Sub Clause 70.8 or similar clauses.  The

High  Court  while  affirming  the  view  of  the  Arbitral  Tribunal

additionally relied upon the fact that claim as regards reimbursement

3

Page 37

on account of ‘cess’ was accepted by a separate  award relying on very

same  submission,  which  view was  affirmed  by the  High Court  as

stated hereinabove.

29. We  have  gone  through  the  record  and  considered  rival

submissions.  The view that as a result of upward variation in the rates

of  royalty  pursuant  to  subsequent  legislation,  the  matter  would  be

covered by clause 32.1 is certainly a plausible view. While quoting the

initial rates and prices, it would not have been in contemplation of a

party as to the framework of any revision in rates of royalty at a future

date. Clause 32.1 can be said to have covered such eventualities.  We,

therefore,  see  no any error  in  the  assessment  and approach of  the

Arbitral  Tribunal.   The  High  Court,  in  our  view,  was  right  in

dismissing  the  challenge.   Consequently,  this  appeal  fails  and  is

dismissed.   The decretal  amount  deposited  and invested in  a  fixed

deposit, pursuant to orders of this Court, was ordered to be released on

furnishing of a bank guarantee by the respondent.  The bank guarantee

shall stand discharged.  No order as to costs.  

3

Page 38

C. Civil Appeal No.6158 of 2013

30.This  appeal  is  directed  against  the  judgment  and  order  dated

13.02.2013 passed by the Division Bench of the High Court of Delhi

at New Delhi dismissing FAO (OS) No.302 of 2012.

31. On 22.03.1999 the appellant awarded contract to the respondent

for the work of four laning of NH24 from KM 27.643 to KM 48.638

and construction of Hapur Bypass at Ghaziabad, U.P.  Clause 28.2 of

the contract  entered into between the parties  pertained to royalties,

which was as under:-   

Royalties 28.2  Except where otherwise stated, the Contractor  shall  pay  all  tonnage  and  other royalties,  rent  and  other  payments  or compensation,  if  any,  for  getting  stone,  sand, gravel, clay or other materials required for Works.

Clauses  70.1,  70.2  and  70.8  of  Conditions  of  Particular

Application (COPA) were identical as found in Civil Appeal 979 of

2010, dealt with earlier and as such they are not repeated here.  

32. According to the respondent after the commencement of work,

it  was  called  upon  vide  letter  dated  15.12.1999  by  the  District

3

Page 39

Authorities asking for payment of royalty on ordinary earth at the rate

of  Rs.4/-  per  cubic  meter.  Though  it  tried  to  convince  them  that

ordinary  earth  was  not  a  minor  mineral  and  not  liable  to  attract

royalty,  the  Authorities  insisted  on  such  payment  therefore  the

respondent deposited the requisite sum and wrote to the appellant to

give appropriate benefit. The Government of India declared ordinary

earth as minor mineral by issuing Notification dated 03.02.2000 as per

Section 3 of 1957 Act.

33.    The disputes between the parties were referred to the Arbitral

Tribunal.  We are concerned in the present appeal with Claim No.8

which  was  for  refund  of  Royalty  on  ordinary  earth  amounting  to

Rs.70,65,039/- which was claimed on the ground that it was covered

by Sub Clause 70.8 COPA. It was observed by the Arbitral Tribunal

that after the commencement of 1957 Act it was not within the powers

of UP State Government to have framed UP State Rules of 1963 and

consequently such Rules were not binding on the Contractor. In its

view,  the  imposition  of  royalty  by  the  Government  of  UP  vide

notification dated 20.03.2001, being after the Central Government’s

notification  dated  03.02.2000,  for  the  first  time  validly  created  a

3

Page 40

liability to pay royalty. Any levy and collection prior to 03.02.2000

was without any legal sanction and therefore liable to be disregarded

and  since  the  liability  was  validly  created  after  the  contract  was

entered into, the matter was covered under Clause 70.8 of COPA.  

34. The award dated 09.01.2012 thus accepted Claim No.8 in its

entirety.  This award was challenged by the appellant by filing OMP

No.480 of 2012 in the High Court of Delhi, which was dismissed by a

Single Judge of the High Court vide his order dated 18.05.2012.    The

matter  was  carried  in  appeal  by  the appellant  by filing FAO (OS)

No.302 of 2012 before the Division Bench which  was dismissed vide

judgment and order dated 13.02.2013.   While granting special leave

to  appeal  this  Court  confined the  matter  to  Claim No.8  alone  and

directed  the  appellant  to  furnish  bank  guarantee  in  the  sum  of

Rs.70,65,039/-.  The bank guarantee was accordingly furnished and is

kept alive.

35. In support  of  the  appeal,  Ms.  Indu Malhotra,  learned Senior

Advocate  submitted that the royalty, at the time  the contract was

entered  into,  was  payable  at  the  rate  of  Rs.  4  per  cent  and  the

notification dated 20.03.2001 of the Government of  UP maintained

4

Page 41

the  same  rate.  The  reasoning  that  prior  to  03.02.2000  the  State

Government lacked competence and as such valid impact  occurred

for the first time vide notification dated 20.03.2001, in her submission

was flawed and beyond the scope of the jurisdiction of the Arbitral

Tribunal. On the other hand, it was submitted by the respondent that a

demand letter from the District Collector was without the support of

law and that the impost  pursuant to notification of 20.3.2001 alone

was valid and legal and as such it being after the contract was entered

into, must qualify to be ‘subsequent legislation’.

36. The question, therefore, is whether Claim No.8 is covered by

Clause  No.70.8  of  COPA.   In  clause  No.13.4  of  the  Invitation  to

Tender it was clearly stipulated in the contract that all duties, taxes

and other levies payable by the contractor under the contract as of the

date  28th days prior  to  the deadline for  submission of  bid shall  be

included in the rates and prices and the total bid price submitted by

the bidder.   The State Government, as a matter of fact, was levying

royalty on ordinary earth and this  situation  was obtaining on such

date.   If the State Government lacked power to levy and collect such

royalty prior to the notification dated 03.02.2000 whereby ordinary

4

Page 42

earth was brought under the definition of minor mineral, such ground

may  certainly  entitle  a  party  to  lay  requisite  challenge  before  an

appropriate forum.  However, for the purposes of the contract such

levy being an existing levy must be deemed to have been part of the

rates or prices quoted. By notification dated 20.03.2001, the same rate

was maintained and as such there was no change arising due to any

subsequent  legislation.  In  our  view  the  matter  was  therefore

completely  outside  the  scope  of  Sub  Clause  70.8  of  COPA.   The

Arbitral  Tribunal  ought  to  have confined itself  to  the terms of  the

Contract  and  see  if  there  was  any  variation  for  the  purposes  of

Sub-Clause 70.8 of COPA. It went beyond its powers in holding that

the existing  levy as  on the  date  the contract  was  entered  into was

without  any  authority  in  law  and  as  such  the  imposition  by

notification dated 20.03.2001 created liability for the first time.

37. In our view, the Arbitral Tribunal went beyond the scope of the

contract  and it  clearly exceeded its jurisdiction.   We,  therefore,  set

aside the award insofar as it allows Claim No. 8.  Consequently, the

appeal stands allowed.  At the interim stage, this Court had directed

the Appellant to deposit a sum of Rs.70,65,039/- which upon deposit

4

Page 43

was withdrawn by the Respondent  on furnishing a bank guarantee.

The appellant is entitled to encash that bank guarantee to recover the

sum that was deposited.  No order as to costs.  

.……………………….J (Dipak Misra)

………………………..J. (Uday Umesh Lalit)

New Delhi, April 24, 2015

4