REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 458 OF 2018

NATIONAL  HIGHWAY  AUTHORITY  OF INDIA .....APPELLANT(S)

VERSUS

M/S. PROGRESSIVEMVR (JV) .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 459 OF 2018

A N D

CIVIL APPEAL NO. 460 OF 2018

J U D G M E N T

A.K. SIKRI, J.

All  these  appeals  involve  the  lis  of  an  identical  nature.

National  Highway Authority  of  India  (NHAI)  is  the  appellant  in

these  appeals.   Respondents  in  different  appeals  are  the

contractors  who  were  awarded  the  contracts  by  the

appellant/NHAI  for  construction  of  roads  etc.   The  terms  and

conditions  on  which  the  contracts  were  to  be  executed  are

Civil Appeal No. 458 of 2018 & Ors. Page 1 of 37

identical in all  these cases, as the standard form contract was

signed by the parties.  Dispute had arisen about the interpretation

that is to be given to sub-clause 70.3 of Conditions of Particular

Application  (COPA)  of  the  contract  which  contains  ‘Price

Adjustment  Formula’.   The  tender  document  of  the  NHAI,

modeled  upon  generic  FIDIC  construction  contracts,  envisage

that since the estimation of work including the rates, prices and

costs of various items of work is done on the basis of prices/costs

of materials, labour and other inputs prevailing on and around the

date of the submission of bid, ‘Price Adjustment’ (also generally

known as Price Escalation/Variation) is needed so as to protect

both the parties in cases of rise or fall of prices/costs of various

components of work during the period when the work is being

executed.   In  the  NHAI  contracts,  as  opposed  to  one  lump

financial quote, the entire work to be executed under the Contract

is divided into various estimated quantities of work unit wise in the

BOQ  (Bills  of  Quantities)  document  which  is  part  of  tender

document.  Each bidder is required to quote rates/prices for each

estimated  quantities  or  items  of  work.   These  rates  are  also

referred  to  as  ‘Base  Unit  Rates  and  Prices’  or  ‘BOQ

Rates/Prices’.   

Sub clause 70.3 provides for the ‘adjustment formulae’ for

Civil Appeal No. 458 of 2018 & Ors. Page 2 of 37

calculating the price adjustment amount.  In this sub clause, the

work  is  divided  into  seven  components  of  work  and  price

adjustment, in each interim payment made month-wise, is given

for  these components only,  which is  made clear  in  sub-clause

70.2 which provides that price adjustment on any account other

than the seven components enumerated in 70.3, is deemed to

have  been  included  in  the  price  bid  amount.   These  seven

components of works are Labour, Plant & Machinery and Spares,

Petrol,  Oil  and  Lubricants  (POL),  Bitumen,  Cement,  Steel  and

Other Components/materials.  Since the BOQ rate or base unit

rate/prices are the composite rate for a particular item of work in

the Bills of Quantity (BOQ) submitted by the claimants and does

not  specifically  give  the  base  rates/prices  of  the  seven

components of works given in sub-clause 70.3 (xi).   

2) The dispute concerns interpretation of sub-clause 70.3 (xi) which

is quoted hereinbelow:

“ a) Labour-PI 20% b) Plant  and  Machinery

and Spares - Pp 20%

c) POL-Pf 10% d) Bitumen-Pb x% e) Cement-Pc y% f) Steel-Ps z% g) Other materials-Pm 50 – (x+y+z)%

Total : 100%

Civil Appeal No. 458 of 2018 & Ors. Page 3 of 37

(Note: x, y, z are the actual percentage of cost of material of bitumen, cement and steel respectively used for execution of work as per the Interim Payment Certificate for the month)”

 3) The entire controversy is with regard to the ‘Note’ after sub-para

(xi)  of  sub-clause  70.3  of  the  conditions,  which  has  been

extracted above.  This note mentions that x, y, z are the actual

percentage of the cost of material of bitumen, cement and steel

respectively which are used for execution of the work as per the

Interim Payment Certificate (IPC).  The issue is, while calculating

the actual percentage of cost of material of bitumen, cement and

steel respectively, it  is the base rate (i.e. the rate prevailing 28

days prior to the submission of the bid) of these materials which

is  to  be  taken  into  consideration  while  working  out  the  price

adjustment as per the formula provided or it is the current cost of

the material in that particular month.     

4) The  respondents  (hereinafter  referred  to  as  the  ‘contractors’)

contend that it is the prevailing rate in that particular month which

would  be the  determining  factor,  whereas  the NHAI  insists  on

taking base rate while applying the formula.

5) Before proceeding further, at this juncture, we would like to state

the historical background giving rise to the dispute in question.

For the sake of convenience, the facts are taken note of from Civil

Civil Appeal No. 458 of 2018 & Ors. Page 4 of 37

Appeal No. 458 of 2018 in which M/s. ProgressiveMVR (JV) is the

contractor.   

The NHAI is a statutory body constituted under Section 3 of

the  NHAI  Act,  1988.   The  functions  assigned  to  NHAI  under

Section 16 of the NHAI Act, 1988 are to develop, maintain and

manage  the  National  Highways  entrusted  to  it  by  the  Central

Government.  In the year 2005, the NHAI issued an invitation for

bid for four laning from Km. 402.00 to Km 440.00 of Gopalganj –

Muzaffarpur section of NH-28 in Bihar in contract package No.

LMNHP-EW-II-  (WB-10).   The contractor  was found successful

bidder and accordingly the letter of acceptance was issued to it

where it is clearly stated that your bid is accepted by NHAI for the

contract  price of  Rs.263,97,29,718/-  (Two Hundred Sixty Three

Crore Ninety Seven Lac Twenty Nine Thousand Seven Hundred

Eighteen Rupees Only).   According to the NHAI,  the Engineer

was paying the price adjustment as per the base rate and the

contractor  had  not  raised  any  dispute  in  this  regard.   The

contractor first time raised a dispute about price adjustment by

applying current cost while arriving XYZ percentage as per sub-

clause 70.3 (viii) of COPA.  The contractor vide letter dated April

13,  2008  raised  objection  with  the  Engineer  at  the  time  of

submission of IPA 9.  The team leader rejected the dispute raised

Civil Appeal No. 458 of 2018 & Ors. Page 5 of 37

by the contractor by stating that the essence of price adjustment

cannot  be  maintained  by  considering  the  current  rates  of  the

materials and the claim cannot be accepted.  This resulted in a

dispute  between  the  parties  and  on  September  2,  2008,  the

contractor invoked the provision of sub-clause 67.1 of COPA and

referred the matter for recommendation from the DRB (Dispute

Resolution Board).

6) The  DRB  vide  its  majority  gave  its  recommendation  dated

January 4, 2009 to the effect that ‘the contractor’s interpretation is

not in accordance with contract and should be rejected.’  Being

aggrieved by the order passed by the DRB, the contractor issued

a notice to invoke arbitration in terms of provisions of clause 67 of

COPA against the order passed by the DRB.  Arbitral  Tribunal

was  constituted.   The  respondent  filed  the  statement  of  claim

before the Arbitral Tribunal for the following claim:

Claim No.  1 – Reimbursement  of  escalation amount  paid  less

Rs.24,93,52,493/-

Claim No. 2 – Interest- past interest, pendentilite and future.

Claim No. 3 – Cost of Arbitration.

7) After conclusion of the proceedings, the Arbitral Tribunal in their

majority  award  dated  August  7,  2013  (with  one  member

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dissenting) decided the issue in favour of the contractor, inter alia

holding that:

“Arbitral Tribunal finds that the whole dispute is hinging on the word ‘cost’ as appearing in sub-clause 70.3 (xi). Contractor  says  that  cost  should  be  read  as  actual expenditure incurred by him in  procurement  of  these materials as per current invoices while the respondent says that this word “cost” should be read as the cost of these materials to be worked out on base rates.  In this way an element of ambiguity has crept in the contract. So  in  spite  of  analyzing  the  dispute  from  different angles as discussed in the foregoing para, even if we apply the thumb rule i.e. Rule of Contra Proferentem, the  word  cost  will  have  to  be  construed  against  the employer who has prepared the draft.”

It, thus, allowed the claim raised by the respondent.   

8) In dissenting note, the dissenting arbitrator held in para 11 that:

“In  my  opinion  Pb or  Pc  or  Ps  in  the  price  variation formula do not take into account the actual expenditure at the time of IPC and the definition of cost as given in para 1.1 (g)(1) of the GCC is not pertinent to the case.”

 He further held that the contractor is very much aware about

the interpretation on the NHAI more than five months before the

contractor submitted their bid and even after knowing the method

of applicability they had not raised any doubt or clarification with

regard  to  the  method  of  calculation  of  XYZ  nor  seek  any

clarification to the note appended below 70.3 (viii) which shows

that they are fully aware about the method of calculation of XYZ

and afterwards signing of contract construed the acceptance of

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the contractor to the NHAI’s method and interpretation related to

“Notes”.   

9) Against  the  said  majority  award  allowing  the  claim  of  the

contractor, the NHAI filed objections in the form of Section 34 of

the Arbitration and Conciliation Act, 1996 (hereinafter referred to

as the ‘Act’) before the High Court of Delhi.  It was numbered as

OMP (Comm.) No. 1211 of 2013.   

10) We may also mention at this stage that in other dispute between

the NHAI and M/s.  NCC-VEE (JV),  where also the award had

gone in favour of the said contractor, similar objections filed by

the NHAI had been dismissed by the learned Single Judge on

December 17, 2014 and appeal thereagainst was also dismissed

by the Division Bench of the High Court on March 10, 2015.  So

much so, the Special Leave Petition (SLP) filed by the NHAI was

also dismissed by this Court on March 10, 2015.  When the things

rested  at  that,  another  significant  and  interesting  development

took  place.   In  another  identical  dispute  raised  by  one  M/s.

Ssangyong Engineering and Construction Co.  Ltd.,  the Arbitral

Tribunal constituted in that case gave its award dated December

14, 2015 whereby it accepted the interpretation being urged by

the NHAI and dismissed the claim of the said contractor.

Civil Appeal No. 458 of 2018 & Ors. Page 8 of 37

11) Be that as it may, insofar as petition of the NHAI under Section 34

filed  in  the  High  Court  against  the  award  given  in  M/s.

ProgressiveMVR  (JV)  is  concerned,  the  learned  Single  Judge

dismissed the same vide its order dated August 23, 2016 holding

that the matter was covered by the decision of the Division Bench

in M/s. NCC-VEE (JV) matter.  Against that order of the learned

Single Judge, NHAI filed intra-court appeal which has also been

dismissed  by  the  High  Court  vide  impugned  judgment  dated

September 16, 2016, following its earlier judgment dated March

10,  2015.   This  is  how  the  appeal  of  the  NHAI  against  M/s.

ProgressiveMVR(JV) had come up for consideration.  Likewise, in

other cases also, the judgments of the High Court have gone in

favour of the contractors in somewhat similar circumstances.

12) Another pertinent observation needs a mention at this juncture.

In para 11 above, we have noted that in the case of M/s. NCC-

VEE (JV) identical award interpreting the same clause which was

in favour of the contractor and against the NHAI was upheld and

the  objection  petition  filed  by  the  NHAI  was  dismissed.   That

order was upheld by the Division Bench of  the High Court  on

March  10,  2015  and  SLP  thereagainst  was  also  dismissed.

Pertinently,  while  dismissing the appeal,  Division Bench of  the

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High Court in its order dated March 10, 2015 noted as under:

“10.  We  have  also  examined  the  judgment  of  the learned Single  Judge.  We find  that  the  interpretation given by the Arbitral Tribunal is not an impossible view. Although, there may be some substance, in what the learned counsel  for  the  appellant  submits  by  way  of interpretation of the said note, but that would only be one  of  the  possible  interpretations.  Another  possible interpretation  is  the  one,  adopted  by  the  Arbitral Tribunal.  

11. It is well settled that the interpretation of a term of contract is within the domain of the Arbitral Tribunal and if the Arbitral Tribunal interprets a particular clause in a particular  manner,  which  is  a  possible  interpretation, then the court  ought not to interfere in its jurisdiction under Section 34 of the said Act. The only exception being  where  the  interpretation  results  in  a  perversity and  shocks  the  conscious  of  the  Court,  the  latter eventuality has not happened in the present case.”

 13) Thus, the main reason because of which the NHAI lost in those

proceedings was that two possible interpretations could be given

to the clause in question and, therefore, the recourse taken by the

Arbitral Tribunal by adopting one particular interpretation was not

required to be interfered with.  SLP against that was dismissed.

In  a  situation  like  this,  this  Court  would  not  have  undertaken

further exercise in the matter.  However, another Arbitral Tribunal

in the case of M/s. Ssangyong Engineering and Construction Co.

Ltd.  has accepted the other view,  which goes in favour  of  the

NHAI.  It leads to an anomalous situation.  The NHAI has entered

into multiple contracts with different parties containing the same

Civil Appeal No. 458 of 2018 & Ors. Page 10 of 37

clauses of price variation.  Once we find that Arbitral Tribunals are

taking different views, and the view taken in favour of the NHAI is

also one of the possible interpretations, the effect thereof would

be to uphold both kinds of awards even when they are conflicting

in nature in respect of the same contractual provision.  It may not

be appropriate to countenance such a situation which needs to be

remedied.  Therefore, under this peculiar situation, we deem it

proper to go into the exercise of interpreting the said clause so

that there is a uniformity in the approach of the Arbitral Tribunals

dealing with  this  particular  dispute and a  sense of  certainty  is

attached in the outcomes.

14) As  mentioned  above,  clause  70  is  the  relevant  clause  which

pertains  to  price  adjustment,  with  which  we  are  concerned.

Accordingly, we reproduce hereunder the relevant portions:

“Clause 70: Changes in  Cost and Legislation Delete clause 70 in its entirety, and substitute:

Sub-Clause 70.1: Price Adjustment The  amount  payable  to  the  Contractor  in  various currencies  pursuant  to  Sub-Clause  60.1  shall  be adjusted  in  respect  of  the  rise  or  fall  in  the  cost  of labour,  Contractor’s  equipment,  Plant  materials  and other inputs to the Work, by applying to such amounts 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

Civil Appeal No. 458 of 2018 & Ors. Page 11 of 37

deemed to include amounts to cover the contingency of such other rise or fall in cost.  

Sub-Clause 70.3 :Adjustment Formulae  

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  adjustment  factor  to  the  payment amounts due in each currency.  

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)  Price adjustment shall be calculated for the local and foreign components of the payment for work done as per formulae given below; and

c) Following expressions and meanings are assigned to the  value  of  the  work  done  during  the  period  under consideration:  

R= 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.  

Ri = Portion of ‘R’ as payable in Indian Rupees Rf = Portion of ‘R’ as payable in foreign currency (at first exchange rates) R = Ri + Rf

To the extent that full compensation for any rise or fall in indexed costs to the Contractor is not covered by the

Civil Appeal No. 458 of 2018 & Ors. Page 12 of 37

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.

i) Adjustment for Labour Component

xxx xxx xxx

ii) Adjustment for Cement Component

xxx xxx xxx

iii) Adjustment for steel component

xxx xxx xxx

iv)  Adjustment  for  plant  and  machinery  and  spares component

xxx xxx xxx

v) Adjustment for Bitumen Component

Price adjustment for increase or decrease in the cost  of  bitumen shall  be paid in accordance with the following formula:

Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo

Vb = Increase or decrease in the cost of work during the month under consideration due to changes in the rate of bitumen.

Bo = The average official retain price of bitumen at IOC depot at Barauni/Haldia on the day 28 days prior to the date of submission of bids.

Bi = The average official retail price of bitumen at IOC depot at Barauni/Haldia on the day 28 days prior to the last  day  of  the  period  to  which  a  particular  interim payment certificate is related.

Pb = Percentage of bitumen component of the work.

vi) Adjustment for fuel and lubricants

Civil Appeal No. 458 of 2018 & Ors. Page 13 of 37

xxx xxx xxx

vii) Adjustment for other Local Materials

xxx xxx xxx

viii) Adjustment for Foreign Currency Component

xxx xxx xxx

xi)  The  following  percentages  will  govern  the  price adjustment  for  the  local  currency  portion  (RI)  of  the contract:

1. Labour – P1 20% 2. Plant and Machinery and Spares – Pp 20% 3. POL – Pf 10% 4. Bitumen – Pb X % 5. Cement – Pc Y % 6. Steel – Ps Z % 7. Other materials – Pm 50-(X+Y+Z)%

Total 100%

(Note:  X,  Y,  Z  are  the  actual  percentage  of  cost  of bitumen,  cement  and  steel  respectively  used  for execution of work as per the Interim Payment Certificate for the month)

Sub-Clause 70.4 : Sources of Indices

xxx xxx xxx

Sub-Clause 70.5: Base, Current and Provisional Indices

The base cost indices or prices shall be those prevailing on  the  day  28  days  prior  to  the  closing  date  for submission of  bids.   Current  indices or  prices shall  be those prevailing on the day 28 days prior to the last day of  the  period  to  which  a  particular  Interim  Payment Certificate is related.  If at any time the current indices are not  available,  provision  indices  as  determined  by  the Engineer will be used, subject to subsequent correction of the  amounts  paid  to  the  Contractor  when  the  current indices become available.”

 15) Clause 70.3(v) deals with ‘Adjustment for Bitumen Component’.

Civil Appeal No. 458 of 2018 & Ors. Page 14 of 37

As per this clause, the price adjustment for increase or decrease

in  the  cost  of  bitumen  is  to  be  paid  in  accordance  with  the

following formula:

“Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo”

 16) Pb denotes percentage of bitumen component of the work and R1

is the total value of the work.  Bi denotes current rate/cost as it is

the  average  official  retail  price  of  bitumen  at  IOC  Depot  at

Barauni/Haldia on the day 28 days prior to the submission of bids,

which makes it clear that it is equivalent to the base rate.  Thus,

when this formula is considered of its own, Bo clearly refers to the

base rate.  However, little confusion is generated because of the

note which is appended to Clause 70.3(xi).   A perusal  of  sub-

clause (xi) shows that insofar as labour, plant and machinery and

spares and POL (Petrol, Labour and Lubricant) are concerned,

specific  percentages  are  given  that  were  to  govern  the  price

adjustment  and  these  are  20%,  20%  and  10%  respectively.

However,  insofar  bitumen,  cement  and  steel  components  are

concerned, percentages are to be worked out which are denoted

as  X%,  Y%  and  Z%  respectively.   X,  Y,  Z  are  the  actual

percentage of  cost  of  bitumen,  cement  and  steel  respectively,

used for execution of work as per the IPC for the month.   

Civil Appeal No. 458 of 2018 & Ors. Page 15 of 37

17) According to the Contractors, the word ‘cost’ mentioned therein is

to  be  assigned  as  per  the  definition  thereof  contained  in  the

contract which is as under:

“Cost means all expenditure properly incurred or to be incurred, whether on or off the site, including overhead and other charges properly allocated thereto but does not include any allowance for profit”.

 However, according to the NHAI, ‘actual percentage of cost’

refers  to  the  percentage which  is  to  be assigned to  particular

component, namely, bitumen in this case and it does not refers to

the actual cost.  No doubt, there is no mention of ‘base rate’ in

this note.  However, submission of the NHAI is that since it is the

cost  which  is  used  for  execution  of  work  as  per  the  Interim

Payment Certificate.  Insofar as IPC is concerned, the same is

worked out on base rate and, therefore, it refers to base rate.  In

order to support its contention, the NHAI has given the following

illustration for calculating the bitumen (X%) as follows:

“Vb = 0.85 x Pb/100 x Ri x (Bi – Bo)/Bo

(0.85  which  is  85% as  15% is  profit  on  which  there cannot be any adjustment)

Vb = Increase or decrease in the cost of work during the month under consideration due to changes in the rate of bitumen.

Bo = The average official retain price of bitumen at IOC depot at Barauni/Haldia on the day 28 days prior to the date of submission of bids.

Civil Appeal No. 458 of 2018 & Ors. Page 16 of 37

Bi = The average official retail price of bitumen at IOC depot at Barauni/Haldia on the day 28 days prior to the last  day  of  the  period  to  which  a  particular  interim payment certificate is related.

Pb = X% = Percentage of  bitumen component  of  the work.

 18) Pb  =  X%  is  calculated  by  NHAI  by  following  mathematical

formula:

“Pb = Quantity of Bitumen consumed during the month x base rate of bitumen x 100  Total Work done during the month of x BOQ rates.”

 19) R1 in the aforesaid formula denotes the value of work as per IPC

which according to the NHAI is calculated at the base rate.  It is

further stated that  in the aforesaid mathematical  formula,  base

rate  of  bitumen  is  taken  having  regard  to  the  effect  that  the

denominator  clearly  mentions  the  base  rate  and,  therefore,  it

cannot be actual rate in the enumerator.  Further, as noted above,

according to the NHAI, it is not price adjustment formula but only

to arrive at percentage of X.  It is argued that in order to arrive at

the  correct  percentage  of  X  (bitumen)  component,  it  is

mathematically required that rates in numerator and denominator

has  to  be  same  otherwise  correct  percentage  cannot  be

achieved.   

20) Commenting upon the definition of ‘cost’ which is relied upon by

the Contractors, it is the submission of the NHAI that it is totally

Civil Appeal No. 458 of 2018 & Ors. Page 17 of 37

misconceived because the definition of cost does not provide that

wherever the word ‘cost’ is used in the contract, it is to be always

construed  as  current  or  actual  cost.   Further,  the  definition  of

‘cost’ per se is not an issue but ‘cost occurring on what date and

on what rate’ is the real question.  It was argued that the word

‘cost’ is in fact used in various sub-clauses of Clause 70 which

clearly  demonstrate  that  it  would  mean ‘the  base  cost’.   Sub-

clauses 70.1,  70.2 and 70.7 are relied upon in support  of  this

contention.   

21) Mr. Patwalia, learned senior counsel appearing for the NHAI, after

highlighting the aforesaid aspects, made a passionate plea to the

effect  that  the  interpretation  given  to  the  ‘Note’  in  sub-clause

70.3(xi)  by  the  Arbitral  Tribunal  would  lead  to  disastrous  and

unrealistic price adjustment amounts in favour of the contractors.

To demonstrate the same, it is pointed out that in the case of M/s.

ProgressiveMVR (JV),  the  total  amount  paid  to  the  contractor

upto  41  IPC  is  about  Rs.210  crores.   The  price  adjustment

amount upto 41 IPC calculated and paid by taking into account

the base rates, is Rs.77.70 crores.  The contractor on the other

hand  is  claiming  an  amount  of  Rs.127  crore  as  the  price

adjustment amount which is around more than 60% of the entire

Civil Appeal No. 458 of 2018 & Ors. Page 18 of 37

contract  amount  and,  therefore,  clearly  exaggerated  and

unjustified.  It was, thus, argued that Court could interfere with the

award when it was clearly contrary to the terms of the contract.

Mr.  Patwalia  went  to  the extent  of  arguing that  no reasonable

person would come to such a conclusion as arrived at  by the

Arbitral Tribunal and, therefore, this Court could interdict such an

award.   Reliance  was  placed  on  the  following  judgments:  (i)

Hindustan  Zinc  Ltd  v.  Friends  Coal  Carbonisation1,  (ii)

Associate Builders  v.  Delhi Development Authority2 and (iii)

Bhakra  Beas  Management  Board  v.  Krishan  Kumar   Vij  &

Anr.3

22) Senior  Advocates  Mr.  Neeraj  Kishan Kaul,  Mr.  S.  Gurukrishna

Kumar  and  Mr.  Dhruv  Mehta  argued  the  case  on  behalf  of

different respondents. It was submitted that when two views are

possible,  a particular  view taken by the Arbitral  Tribunal which

was also reasonable should not be interfered with, as rightly done

by the High Court.  It was stressed that the contract in question

was item rate contract and the only way Pb (i.e. percentage of

bitumen  component  of  the  work)  in  the  formula  provided  for

adjustment for bitumen component was to calculate said Pb at

1  (2006) 4 SCC 445 2  (2015) 3 SCC 49 3  (2010) 8 SCC 701

Civil Appeal No. 458 of 2018 & Ors. Page 19 of 37

current rate.  Otherwise, there would not be a realistic figure of

work  done.   Reading  from the  majority  opinion  of  the  Arbitral

Tribunal, it was submitted that the view taken was correct view

wherein the Tribunal has observed as under:

“A plain reading of the words ‘actual percentage of cost of  bitumen’  conveys  these  to  the  mind  that  actual percentage based on cost of bitumen, cement or steel used for carrying out a work in particular month shall be accounted  for.   These  words,  even  from  remote consideration, do not carry the mind of the reader to the cost of bitumen as prevailing at the time of submission of Bid.  If the intention of the contract would have been to  account  for  the  base  rates  of  cement,  steel  and bitumen  or  the  rates  as  prevailing  at  the  time  of submission  of  bid,  this  would  have  been  specifically mentioned  so.   Not  only  it  would  have  been  so mentioned,  also these rates would have been clearly laid down in the tender, as these could not be left to be determined  by  the  parties  after  finalization  of  the contract.”

 It  was  also  submitted  that  the  Tribunal,  while  giving  the

aforesaid interpretation to this clause in the contract, had not only

gone by the words used but also by the intention of the parties

behind such a clause, as discussed in detail in the Award.   

 23) Mr.  Gurukrishna  extensively  read  out  from  the  order  of  the

learned Single Judge in the case in which he is representing (Civil

Appeal No. 459 of 2018) and is reported as (2015) 1 Arbitral Law

Reporter  129,  which was upheld by the Division Bench in  the

impugned judgment.  He also relied upon para 27 of the judgment

in the case of Associate Builders which reads as under:

Civil Appeal No. 458 of 2018 & Ors. Page 20 of 37

“27. Coming  to  each  of  the  heads  contained  in Saw Pipes [(2003)  5  SCC  705  :  AIR  2003  SC  2629] judgment, we will first deal with the head “fundamental policy  of  Indian  law”.  It  has  already  been  seen from Renusagar [Renusagar Power Co. Ltd. v. General Electric  Co.,  1994 Supp (1)  SCC 644]  judgment  that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.”

24) Mr. Dhruv Mehta who appeared in Civil Appeal No. 460 of 2018

submitted that as far as case of his client is concerned viz. M/s.

NCC-VEE (JV), in the earlier round, SLP has been specifically

dismissed  and  as  per  the  award,  payment  was  made  to  the

contractors.  Therefore, there was no reason to deny the payment

for subsequent period where again, the Award had gone in its

favour and the principle of issue estoppel clearly applies in his

case.   He  also  submitted  that  there  was  only  one  possible

interpretation and the interpretation given by the NHAI was clearly

unacceptable.  In any case, submitted the learned senior counsel,

even in case of doubt, benefit should go to the contractors.  It was

further submitted that in case of his client, 21 interim payments

were made as per the current  costs.   He also referred to few

judgments in support of his contentions which are as under:  

(i) Bhanu Kumar Jain v. Archana Kumar & Anr.4

4  (2005) 1 SCC 787

Civil Appeal No. 458 of 2018 & Ors. Page 21 of 37

“29.  There is a distinction between “issue estoppel” and “res judicata”.  (See Thoday v. Thoday[(1964) 1 All  ER 341 : (1964) 2 WLR 371 : 1964 P 181 (CA)] .)

30. Res  judicata  debars  a  court  from  exercising  its jurisdiction to determine the lis if it has attained finality between  the  parties  whereas  the  doctrine  issue estoppel is invoked against the party. If such an issue is decided  against  him,  he  would  be  estopped  from raising the same in the latter proceeding. The doctrine of res judicata creates a different kind of estoppel viz. estoppel by accord.

31.  In a case of this nature, however, the doctrine of “issue estoppel” as also “cause of action estoppel” may arise. In Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371 : 1964 P 181 (CA)] Lord Diplock held: (All ER p. 352 B-D)

“cause  of  action  estoppel’,  is  that  which prevents a party to an action from asserting or  denying,  as  against  the  other  party,  the existence of a particular cause of action, the non-existence  or  existence  of  which  has been  determined  by  a  court  of  competent jurisdiction in previous litigation between the same  parties.  If  the  cause  of  action  was determined to exist i.e. judgment was given on it, it is said to be merged in the judgment. …  If  it  was  determined  not  to  exist,  the unsuccessful  plaintiff  can  no  longer  assert that  it  does;  he  is  estopped  per  rem judicatam.” [Ed.: The rest of the extract from Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371  :  1964  P  181  (CA)]  may  usefully  be referred to (All ER p. 352, B-F)“Estoppel per rem  judicatam  is  a  generic  term  which  in modern law includes two species.  The first species,  ‘cause  of  action  estoppel’,  is  that which  prevents  a  party  to  an  action  from asserting  or  denying,  as  against  the  other party, the existence of a particular cause of action,  the  non-existence  or  existence  of which  has  been  determined  by  a  court  of competent  jurisdiction  in  previous  litigation between  the  same parties.  If  the  cause  of action was determined to exist, i.e., judgment

Civil Appeal No. 458 of 2018 & Ors. Page 22 of 37

was given on it, it is said to be merged in the judgment,  or  for  those  who  prefer  Latin, transit in rem judicatam. If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam. This is simply an application of the rule of public policy expressed in the Latin maxim, ‘nemo debet bis vexari pro una at  eadem causa’.  In  this  application  of  the maxim, causa bears its literal Latin meaning. The second species,  ‘issue estoppel’,  is an extension of the same rule of  public policy. There are many causes of action which can only  be  established by  proving  that  two or more  different  conditions  are  fulfilled.  Such causes of  action involve as many separate issues  between  the  parties  as  there  are conditions  to  be  fulfilled  by  the  plaintiff  in order  to  establish  his  cause of  action;  and there may be cases where the fulfilment of an  identical  condition  is  a  requirement common to two or more different causes of action. If  in litigation on one such cause of action any of such separate issues whether a particular  condition  has  been  fulfilled  is determined  by  a  court  of  competent jurisdiction,  either  on  evidence  or  on admission by a party to the litigation, neither party  can,  in  subsequent  litigation between them on any cause of action which depends on  the  fulfilment  of  the  identical  condition, assert  that  the condition was fulfilled if  the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was.”]

32. The  said  dicta  was  followed in Barber v. Staffordshire  County  Council [(1996)  2  All ER 748 (CA)] . A cause of action estoppel arises where in two different proceedings identical issues are raised, in  which  event,  the  latter  proceedings  between  the same parties shall be dealt with similarly as was done in the previous proceedings. In such an event the bar is absolute  in  relation  to  all  points  decided  save  and except  allegation  of  fraud  and  collusion.  [See C.  (A Minor) v. Hackney  London  Borough  Council [(1996)  1

Civil Appeal No. 458 of 2018 & Ors. Page 23 of 37

All ER 973 : (1996) 1 WLR 789 (CA)] .]”

 (ii) Godhra Electricity Co. Ltd. & Anr.  v.  State of Gujarat &

Anr.5

“11. In the process of  interpretation of  the terms of  a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves  or  from  their  conduct  in  rendering  or  in receiving performances under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual  agreement  remake  them.  The  process  of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it  is merely a further expression by the parties of  the meaning that they give and have given to the terms of their contract previously  made.  There  is  no  good  reason  why  the courts  should  not  give  great  weight  to  these  further expressions by the parties, in view of the fact that they still  have the same freedom of contract that they had originally.  The  American  Courts  receive  subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour.  It  is  the concurrence therein  that  such  a  party  can  use  against  the  other party. This concurrence may be evidence by the other party's  express  assent  thereto,  by  his  acting  in accordance with it,  by his receipt without objection of performances  that  indicate  it,  or  by  saying  nothing when he knows that the first party is acting on reliance upon the interpretation (see Corbin on Contracts,  Vol. 3, pp.249 & 254-56).

xxx xxx xxx

18. In these circumstances, we do not think we will be justified  in  not  following  the  decision  of  this  Court in Abdulla Ahmed v. Animendra Kissen Mitter [AIR 1950 SC 15 : 1950 SCR 30, 46] where this Court said that extrinsic  evidence  to  determine  the  effect  of  an instrument is permissible where there remains a doubt as to its  true meaning and that  evidence of  the acts done under it is a guide to the intention of the parties,

5  (1975) 1 SCC 199

Civil Appeal No. 458 of 2018 & Ors. Page 24 of 37

particularly, when acts are done shortly after the date of the instrument.”

 (iii) Bank of India & Anr. v. K. Mohandas & Ors.6

“32. The fundamental position is that it is the banks who were  responsible  for  formulation  of  the  terms  in  the contractual  Scheme  that  the  optees  of  voluntary retirement under that Scheme will be eligible to pension under the Pension Regulations,  1995, and,  therefore, they bear the risk of lack of clarity, if any. It is a well- known principle of construction of a contract that if the terms  applied  by  one  party  are  unclear,  an interpretation  against  that  party  is  preferred  (verba chartarum fortius accipiuntur contra proferentem).”

 25) We  have  given  our  serious  consideration  to  the  respective

submissions of the counsel for the parties.  First and foremost

aspect which is to be kept in mind is that the issue relates to price

adjustment and such an adjustment can be made in respect of

various  components  which  are  used  in  the  contract.   The

contractual provisions specifically deal with adjustment for labour

component, cement, steel etc.  These components are seven in

numbers which may undergo price adjustment during the period

when the  contract  is  in  progress,  depending  upon the  market

conditions,  namely,  increase  or  decrease  in  market  prices  of

these components from time to time.  The very nature of this price

adjustment  suggests  that  such variation would  have relevance

with  the  price  which  was  indicated  in  respect  of  these

components at the time of submitting the tender by the successful 6  (2009) 5 SCC 313

Civil Appeal No. 458 of 2018 & Ors. Page 25 of 37

contractor and, in that sense, it can have reference only to the

base price.  The formula which is provided for working out the

price adjustment has to be examined in this hue.

26) In the aforesaid circumstances, there appears to be some force in

the  submission  of  NHAI  that  formula  indicates  the  base  price

which has to be taken for the purposes of working out the price

adjustment.   After  all,  what  is  the  purpose  of  giving  price

adjustment?  The clause relating to price adjustment  indicates

that  certain  components  which  go  into  the  execution  of  the

projects  like  labour  component,  cement  component,  steel

component, plant and machinery and spares component, bitumen

component  etc.  may not  remain static  insofar  as  their  price is

concerned.  There is a possibility  that  from the date when the

price of these components was quoted by the contractor in his

bid, there may be increase or decrease in the said price from time

to time during the execution of the contract. It is for this reason,

clause relating to price adjustment is provided so as to give effect

to the rise or fall in the costs to the contractor. To this adjustment

formula for working out the cost, at the time of execution of the

contract, is provided.  This adjustment which has to be arrived at,

naturally, has to be in comparison with the base price that was

Civil Appeal No. 458 of 2018 & Ors. Page 26 of 37

stated  by  the  contractor.   Thus,  even  from the  commonsense

point of view, it is the base price which has to be kept in mind

while working the price adjustment.  However, we are not resting

our  decision  on  this  common  sense  approach  as  the  final

outcome has to depend on the formula provided in the contract;

being a contractual term.   

27) In the present case, we find that the intention in the formula as

well is to keep in mind the base cost while arriving at the price

adjustment.  There are few reasons which drive us to take this

opinion.   

28) Clause 70.3 (xi) deals with percentages on various components

that will govern the price adjustment.  Insofar as labour, plant and

machinery and spares, and POL (Petrol, Oil and Lubricants) are

concerned, there is a fixed percentage prescribed, i.e., 20%, 20%

and 10% respectively.  However, with regard to the other three

components,  namely,  bitumen,  cement  and  steel  variable

percentage is  mentioned which  has  to  be  calculated.  Seventh

component  is  ‘Other  Material’.   Insofar  as  this  component  is

concerned,  it  is  the  balance  percentage,  after  percentage  of

bitumen,  cement  and  steel  is  arrived  at,  as  it  mentions  “50  –

(x+y+z)” percentage.  From this, one can infer that normally the

Civil Appeal No. 458 of 2018 & Ors. Page 27 of 37

combined percentages of x, y and z has to be less than 50%.

However, when the current cost is taken into consideration while

working the formula, the percentages of x, y and z far exceed

50% which would make the percentage of other materials in the

negative.   Such  a  negative  aspect  has  to  be  avoided.   Mr.

Patwalia,  learned  senior  counsel  for  the  NHAI  was  able  to

successfully demonstrate it by giving various live examples.   

29) We may  point  out  that  submission  of  the  learned  counsel  for

respondents  was  that  when  such  an  eventuality  happens,  the

adjustment of  “other materials”  can be in the negative,  i.e.,  by

reducing the price of the other material in giving the adjustment

so that total remains 100%.  It is difficult to accept this suggested

mode.  What is important is that insofar as other materials are

concerned, the inputs thereof would be negligible as compared to

bitumen, cement and steel and, therefore, even if  their price is

reduced  to  offset  the  negative  elements,  that  would  be

substantially  less  than  the  gain  which  would  accrue  to  the

contractors  by  giving  higher  cost  adjustment  for  the  aforesaid

three  components.   Moreover,  such  a  result  cannot  be

countenanced by giving negative adjustment in the price of “other

material” even when, as a matter of fact, prices of other material

Civil Appeal No. 458 of 2018 & Ors. Page 28 of 37

had also gone up.  That could not have been the intention while

laying down the formulae.  As mentioned above, the word “actual”

in  the  note  under  sub-clause  703(xi)  of  COPA relates  to  the

percentage  and  not  to  the  cost.   The  percentage  x,  y,  z  are

mentioned  to  ensure  that  the  contractor  is  compensated

realistically on the actual material used each IPC. Therefore, it

seems more logical and proper to adopt the base cost of material

while working out the price adjustment.

30) We may mention here that when the dispute was raised,  as per

the provisions contained in the contract,  in the first instance, it

was referred to the Dispute Review Board (DRB) which went into

the  issue  in  detail  and  discussed  the  issue,  inter  alia,  in  the

following manner:

“…d)  The present dispute is what rate for the material i.e.  bitumen, cement and steel  is to be considered in arriving  at  the  actual  percentage  of  cost  of  the respective material used in the work in the IPC of that month.   The  Contractor’s  plea  is  that  it  should  be current material cost of the material consumed in that month while the Employer’s view is that it should be the base price.

e)  In support of his arguments, the Contractor says that base  price  is  not  specified  in  the  Contract.   The Contractor plea that the base rates are not specified in the tender is not correct as sub-clause 70.5 of COPA clearly states that ‘the base cost indices or prices shall be those prevailing in the previous month prior to the closing date for submission of Bids.’

Further,  sub-clause  70.3(v)  for  price  adjustment  of

Civil Appeal No. 458 of 2018 & Ors. Page 29 of 37

bitumen component of the work reads as under:

Vb = 0.85 x Pb x RI x (B1 – Bg)         100 B0

In this formula to work out Vb i.e. increase or decrease in  the  cost  of  work  during  the  month  under consideration, due to change in the rates for bitumen, Bo has been defined as ‘the average official retail price of bitumen at the IOC refinery Mathura on the day 28 days prior to the date of submission of bids.  Obviously, this is the initial price or base price of bitumen.  In all the relevant IPCs value of Bo has been taken by the contractor as the retail price of bitumen on the day 28 days  prior  to  the  date  of  submission  of  bid  which  is base price only.

f)   The  Contract  specified  for  calculation  x,  y  and  z factors every month.  The intention is to permit  price adjustment based on actual consumption of respective materials issued in execution of work in the particular month if  they are fixed at  tender  stage only  just  like labour  and  POL etc.,  the  price  adjustment  is  to  be allowed irrespective of whether the item is executed or not which is not realistic.  Hence in this Contract, the price  adjustment  is  linked  to  the  actual  usage  of material viz. cement, steel and bitumen.

g)  BOQ rates have been quoted based on the cost of materials at the time of bidding.  Therefore, in working out  the  actual  percentage  of  cost  of  any  specific material in the BOQ cost, rates of material applicable to the same datum period for BOQ costs i.e. base period is only logical and justified.

h)  The weightage factor x, y and z for these materials have two basic parameters namely their cost and cost of  work  done.   In  order  to  ascertain  the  actual percentage of cost of these materials in an IPC, cost of material  has to be on the same basis  as adopted in cost of work done.  As the cost of work done is based on base cost of materials, it is therefore natural that the cost of these materials incorporated in the work should be calculated on the base cost only.   Calculating the cost of these materials on actual procurement price is not  justified  and  would  go  against  the  terms  and conditions  of  the  Contract  word  ‘actual’  in  the  note

Civil Appeal No. 458 of 2018 & Ors. Page 30 of 37

under  sub-clause  70.3(xi)  8  COPA  relates  to percentage and not to the cost.”

31) The  DAB  thereafter  worked  out  the  formula  in  the  following

manner:

“x,  y,  z  percentages  are  to  be  worked  out  as  per provisions note below sub-clause 70.3(ix).

Thus, p (x,y,z) percentages

Cost of material consumed during the month       = ---------------------------------------------------------   x  100

Work done in that month as per IPC

Quantity of material consumed during the month x Rate of material = -----------------------------------------------------------------------------------    x  100

Work done

The Contractor has quoted rates in the tender based on base rates of material and IPC is based on BOQ rates quoted  by  the  contractor  on  base  rates  of  material. Therefore for working out actual percentage of cost of material  of  bitumen,  cement  and  steel  used  in execution of work as per the IPC for the month, base rate of material can only be used as per the provisions of  contract  in  order  to  arrive  at  actual  percentage, numerator  and  denominator  is  based  on  BOQ  rates determined on base rates.  The numerator should also be based on base rates.  This is why rate of material in numerator should be rate of material at the time of bid. This is a fixed rate and not variable as claimed by the contractor.  The contract provision is quite clear in this regard and there is no ambiguity.”

32) It also pointed out that if the current cost of material is adopted,

instead  of  base  cost  as  claimed  by  the  contractor,  price

adjustment will be paid twice.  One due to increase in percentage

factor (x, y and z) due to use of current rate instead of base rates

and second due to application of price adjustment factor b1-bo/

Civil Appeal No. 458 of 2018 & Ors. Page 31 of 37

bo.  It also demonstrated, by giving examples, that when the base

rate is adopted, the price adjustment was quote proximate with

the  prevailing  price  which  compensated  the  contractor

realistically.  On the other hand, on adoption of current rate, the

calculation  of  price  adjustment  was  almost  three  times  the

amount of increase in cost of bitumen incurred by the contractor.   

33) We are quite in agreement with the aforesaid analysis carried out

by the DRB.

34) As mentioned above, the majority Award has held that even the

intention of the parties was to take into consideration the current

cost.  For this purpose it had taken into consideration the manner

in  which  IPC  payments  were  made.   However,  we  find  here,

though  unfortunately,  that  there  was  no  consistent  practice.

Sometimes the payments were made on the basis of current cost

and  sometimes  on  the  basis  of  base  cost.   May  be  different

officers  understood  the  formula  in  a  different  manner  which

resulted  in  the  aforesaid  varied  approach.   However,  when  it

came to  the knowledge of  the Authorities  at  appropriate  level,

directions were given to pass the IPC keeping in view only the

base rate.   Therefore,  no such intention of  the parties can be

discerned, which became the basis of the majority award.  On the

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other hand, as far as dissenting award is concerned it has pointed

out  the  lacunae  which  would  arise  if  the  contention  of  the

contractors is accepted, in the following manner:

“13.  We  now  proceed  to  scrutinise  IPC-12  for  the months of November and December, 2008 to highlight lacunae  in  the  argument/rational,  as  given  by  the claimant.   The  table  below  given  original  details  of percentage  of  cement,  steel,  bitumen  and  other material which have been accepted by with parties and certified by  the Engineer  percentages are based on base prices 28 days before the last date of submission of bid.

IPC-12

 Month     Cement  Steel  Bitumen  Other Material Total

(a) Nov 2008 5.14%  5.22% 15.81% 23.83% 50% (b) Dec2008  2.06%  2.44%  14.53% 30.96% 50%

In the method now adopted by the claimant, as part of  their claim, the above details get changed as under.

IPC-12

 Month     Cement  Steel  Bitumen  Other Material Total

(c) Nov 2008 9.52% 10.21% 50.82%   (-) 20.55% 50% (d) Dec2008  3.71%  4.78%  55.35%   (-) 13.84% 50%

The above details are based on modified claim which  were  submitted  by  the  claimant  when  the proceeding were in progress. These were accepted by the  AT  as  per  section  23(3)  of  the  Arbitration  and Conciliation Act, 1996.  In their original claim submitted by  the  claimant,  the  percentage  of  bitumen  was adjusted  to  ensure  that  total  of  Pb,  Pc,  Ps  do  not exceed 50% and other material was made zero. This made  the  percentage  of  bitumen  hypothetical  and factually  incorrect.   In  their  revised  submissions,  the percentage of bitumen is as per their calculations and consequently  the  percentage  of  “other  material”  has been made negative.

Civil Appeal No. 458 of 2018 & Ors. Page 33 of 37

Now, if  we consider the aim of price escalation formula as compensation to either party for rise/fall in prices  of  various  components,  all  material  used  in  a particular  IPC  must  be  subjected  to  the  formula, Negative  figure  implies  that  this  material  has  been extracted  from  works  completed  earlier.   This  is physically not possible unless works are ordered to be demolished at the cost of the contractor and payments made earlier are to be recovered.  This is certainly not the present case.  That apart, if flexible pavement work (which is the case of IPC-12 as bitumen percentage is high)  bitumen  consumption  varies  from  4  to  5%  by weight and the balance is other material like aggregate etc. how can we consider the material as negative and what would happen of price if this material goes down. Would we give additional  benefit  to the contractor as the  percentage  has  become  negative  and  the contractor would get increase in price variation as the quantity  is  negative and price has gone down.   This makes the price variation formulate unrealistic as the contractor would get credit  instead of  debit  when the price goes down.  This would be an absurd situation.

Yet  another  way  to  look  at  the  formula  is  that component like Labour, POL, plant/machinery, cement, steel,  bitumen  and  other  material  are  each  a percentage or part of R which is based on BOQ rates which in turn are based on base costs 28 days prior to the  last  date  of  submission  of  bid.   Obviously,  the percentage of various component must also be based on values pertinent to BOQ rates.

It  must also be noted that the claimant is getting price adjustment for current rates in the third portion of the  formula  (B1–B0)  where  B1  is  the  price  28  days before  the  IPC  and  B0  is  the  price  28  days  before submission of  bid.   Therefore,  the claimant  is getting compensated for procuring items at higher rates when the price is rising.”

35) We find due rationale in the aforesaid approach.  As a result, we

hold that while applying price adjustment formula for calculating

the price adjustment of bitumen, it is the base rate which is to be

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applied and not the current rate.

36) Having arrived at the aforesaid finding, now we need to determine

the outcome of these cases.

37) Once we interpret the formula in the manner indicated above, the

necessary  consequences  would  be  to  hold  that  the  Arbitral

Tribunal(s) did not decide the cases with the correct application of

the  formula  and  further  that  the  claim  for  price  adjustment  in

respect  of  bitumen  laid  by  the  contractors  was  not  correct.

Therefore, it  can be held that the Award(s) are contrary to the

contractual  terms.   At  the  same  time,  this  outcome  poses  a

dilemma inasmuch as in these cases,  the Arbitral  Tribunal has

taken  a  particular  view  and  when  this  was  a  plausible  view,

keeping in mind the parameters of judicial review of the Court in

exercise  of  powers  under  Section  34  of  the  Act,  normally  the

Court would not interfere with such Awards.  However, as already

indicated  above,  such  a  situation  has  arisen  because  of

conflicting  Awards  given  by  the  Arbitral  Tribunals  themselves,

which has provoked this Court to take a final view in the matter,

necessitated  by  the  aforesaid  reason.   If  one  takes  into

consideration  the  theory  that  one  applies  the  principle

mechanically i.e. that a plausible view is not to be interfered with,

Civil Appeal No. 458 of 2018 & Ors. Page 35 of 37

then  it  may  lead  to  very  anomalous  situation.   In  such  an

eventuality, view taken by a particular Arbitral Tribunal in favour of

the Contractor would be upheld as plausible view.  Likewise, the

Court will have to uphold the view taken by a particular Arbitral

Tribunal in favour of NHAI as well, as a plausible view.  Therefore,

the  purpose  is  to  avoid  such  a  situation  which  cannot  be

permitted as it  would  result  in  upholding both  kinds of  arbitral

awards interpreting the same clause, whether they go in favour of

the employer or they go in favour of the contractor.  When the

exercise  is  done  keeping  in  view  these  considerations  and

outcome thereof is not determined, interest of justice would also

demand that this result has to be applied to the pending cases,

which  have  not  attained  finality.   Therefore,  in  these  peculiar

circumstances, we hold that the principle of issue estoppel will

apply only in those cases where matters have attained finality and

no judicial proceedings are pending.  In all those cases, including

the present one, where awards are challenged on this particular

aspect, this judgment will govern the outcome.   

38) As a consequence, all these appeals are allowed thereby setting

aside the impugned judgment and also the award given by the

Arbitral  Tribunal  on the claim pertaining to price adjustment  of

Civil Appeal No. 458 of 2018 & Ors. Page 36 of 37

bitumen.  There shall, however, be no order as to cost.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; FEBRUARY 23, 2018

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