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Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2529 of 2016 (Arising out of SLP (Civil) No.9223 of 2014)

National Highways Authority of India          ….Appellant

Versus

M/S JSC Centrodorstroy     …. Respondent

WITH

CIVIL APPEAL NO. 2530 of 2016 (Arising out of SLP (Civil) No.9494 of 2014)

J U D G M E N T  

Uday U. Lalit, J.

1. These appeals by special  leave arise out  of common judgment and  

order dated 20.12.2013 passed by the High Court of Delhi at New Delhi in  

FAO (OS) 588 of 2013 and in FAO (OS) 590 of 2013. The questions raised in  

these  appeals  being  identical,  the  appeals  are  dealt  with  by this  common  

judgment and for the sake of convenience, the facts leading to the filing of  

FAO (OS) 588 of 2013 are dealt with in detail.

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2. Contract No.TNHP/2, Construction Package II-C for a contract price  

of Rs.295.53 crores for executing the work of 4-laning and strengthening of  

the existing 2 lanes sections between km 38 to km 115 on National Highway-

2 in Uttar Pradesh was awarded to the Respondent on 12.03.2001.

3. Clause 14.3 of  “Instruction to Bidder”  was as under:-

“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.”

The parties adopted FIDIC form of conditions of contract with some  

changes which are called Conditions of Particular Application (“COPA”, for  

short). Clauses in COPA in the present case are identical to those dealt with  

by  this  Court  in  National  Highways  Authority  of  India Versus  ITD  

Cementation India Ltd.1.  Clause 70.8 dealing with effect of “Subsequent  

Legislation” was as under:-

“Clause 70.8: Subsequent Legislation

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2015(6) SCR 107

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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 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.”

4. Disputes having arisen between the parties, the matter was referred to  

the Arbitral Tribunal.  Two claims were  raised  by the respondent namely:

“(i) Dispute No. 1 Compensation  for  additional  cost  on  account  of  increase  in  Service  Tax  on  the  Insurance  Premium  under  the  Insurance  Policy for the Project.

(ii)  Dispute No. 2 Compensation for additional cost on account of Service Tax on  the Bank Guarantee charges.”

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5. It was submitted by the respondent-claimant that in terms of  Clause  

21.1  of  General  Conditions  of  contract,  for  the  works  awarded under  the  

contract,  an insurance policy was required to be taken w.e.f. 1.4.2001 initially  

for  a  period  to  13.09.2006  which  was  later  extended  to  30.09.2009.  

It  was  submitted  that  General  Insurance  Policies  including  insurance  for  

works were subject to levy of service tax which would be collected by the  

Insurance Company along with premium chargeable. There being revisions in  

the rate of service tax from 5% to 10.30%, over a period of time, according to  

the  claimant  service  tax  paid  in  excess  of  5%  was  reimbursible  by  the  

appellant under Clause 70.8 of COPA.  Similarly, in terms of the Clause 10.1  

of COPA, the respondent-claimant was required to furnish Bank Guarantee  

for due execution of the contract by way of performance security. Service tax  

in relation to the Bank Guarantee as collected by the Bank had risen from 5%  

to 10.30% during the course of  the contract  and as such according to the  

respondent-claimant it was entitled to be reimbursed by virtue of Clause 70.8  

of  COPA.  The  Arbitral  Tribunal  by  its  unanimous award dated  28.2.2013  

accepted the aforesaid claims and directed that the respondent-claimant  shall  

be paid following sums in relation to dispute No.1:-

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“6.1  The Claimant shall be paid by the Respondent an amount  of Rs. 11,34,877/- on account of Service Tax paid by him at  rates in excess of 5% of the premium paid.

6.2  The Claimant shall also be paid by the Respondent a sum  of  Rs.  11,22,811  towards  interest  on  the  above  amount  for  period upto the date of this award i.e. 28.02.2013.

6.3  Post  award interest  shall  be payable in addition,  on the  principal sum awarded of Rs. 11,34,877/- at the rate of 12% per  annum  from  01.03.2013  to  the  actual  date  of  payment  of  amounts under pars 6.1 & 6.2 above. No post award interest  shall however be payable in case the above sums are payable  within 90 days of the date of award.”

Similarly  the  Arbitral  Tribunal  awarded to  the  respondent-claimant  

following sums under dispute No. 2:-

“10.1  The Claimant shall be paid by the Respondent an amount  of Rs. 63,58,368/- on account of additional cost incurred on the  Bank Guarantees furnished to the Respondent in terms of the  Contract.

10.2  The Claimant shall also be paid by the Respondent a sum  of  Rs.  43,84,987/-  towards interest  on the above amount  for  period upto the date of this award i.e. 28.02.2013.

10.3 Post  award interest  shall  be payable  in  addition on the  awarded sum of Rs. 63,58,368/- at the rate of 12% per annum  (simple) from the date of award to the actual date of payment of  the said sum. No post award interest may, however, be paid in  case  the  sums awarded under  10.1  and  10.2  above  are  paid  within 90 days of the date of the award.”

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6. The award passed by the Arbitral Tribunal proceeds on the ground that  

the additional costs as a result of revision in service tax which the respondent-

claimant was required to bear, were covered under Clause 70.8 of COPA. It  

was observed that service tax was not an input to the indices used in Prices  

Adjustment Formulae in Clause 70.3.  It concluded as under:-

“The claim in question is for reimbursement of additional costs  resulting from change in Central Law which came into effect  after the base date as defined in Sub-Clause 70.8. In terms of  the  Sub-clause,  such  costs  are  not  payable  separately  if  the  same have already been taken into account in indexing of the  inputs  in  Price  Adjustment  Formulae  under  Sub-clause  70.3.  The Claimant has placed on record a letter dated 24.01.2008  from  the  Economic  Advisor,  Ministry  of  Commerce  and  Industry,  confirming  that  Service  Tax  was  not  an  input  into  indexing of Whole Sale Price Indices, used in India.”

7. The  award  passed  by  the  Arbitral  Tribunal  was  challenged  by  the  

appellant by filing OMP No.623 of 2013 under Section 34 of the Arbitration  

and Conciliation Act, 1966 before the High Court of Delhi. By order dated  

21.10.2013 Single  Judge of  the High Court  dismissed said petition.  In an  

appeal arising therefrom i.e. in FAO(OS)588 of 2013, the Division Bench of  

the  High  Court  by  its  judgment  and  order  dated  20.12.2013,  which  is  

presently under challenge,    affirmed the view taken by Single Judge and  

dismissed the appeal.

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8. The facts leading to the present appeal arising out of FAO(AS)590 of  

2013 are more or less identical.  In that matter identical claims were raised on  

two counts but arising out of a different contract by the very same claimant.  

The Arbitral Tribunal granted Rs.8,84,969/- in respect of dispute no. 1 with  

interest @ 12% per annum under identical two heads as found in the earlier  

case.  Similarly,  in respect of dispute no.2,  the Arbitral Tribunal awarded  

Rs.42,35,385/- with interest @ 12% per annum.

9. In  NHAI  v. ITD Cementation India Ltd.(Supra) impact of Clauses  

70.1 to 70.7 on one hand and 70.8 of COPA was considered  and the view  

taken by the Arbitral Tribunal as affirmed by the High Court was accepted.  In  

that  case  impact  as  a  result  of  increase  in  the  rates  of  royalty  and  issue  

whether the Arbitral Tribunal was right in observing that the case was covered  

under Clause 70.8 of COPA were considered by this court.  The view taken by  

the Arbitral Tribunal was found to be consistent with the terms of the contract  

and challenge at the instance of National Highways Authorities of India was  

negated.

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10. The fact that there had been revision in the rates of service tax from  

time to time was not disputed by the appellant.  Ms. Indu Malhotra, learned  

Senior Counsel appearing for the appellants in both the matters,  however,  

submitted  that  only  those  claims  which  were  constructional  inputs  alone  

would  be  eligible  to  be  covered  under  Clause  70   of   COPA.   In  her  

submission, the service  tax on bank guarantee could have been avoided by  

the claimant,  if the bank guarantee was  replaced by  tendering cash and that  

the  facility   of  bank guarantee  was optional  and at  the discretion of  the  

claimant.   Similarly,  money  advances  were  given  for  the  benefit  of  the  

claimant and any cost associated with such benefit would not come within the  

scope of Clause 70.8.  Mr. Biswajit Das,  learned Advocate appearing  for the  

respondent-claimant in both the appeals  however, submitted that the bank  

guarantees  were  required  to  be  given  under  the  contract  itself  and  such  

requirement was stipulated by the appellant primarily to reduce its financial  

risk and to  bind the claimant for  its performance or  protecting the  money  

advanced to the respondents.  In  his submission,  furnishing a performance  

bank guarantee @ 10% of the contract price was a mandatory condition of the  

contract under Clauses 10.1 and 10.2 of COPA.  Though at some stage the  

option  of  performance  bond  was  mentioned  in  COPA,  such  option  was  

withdrawn making performance security to be compulsorily in the form of an

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unconditional bank guarantee.  Such requirement being directly referable to  

essential conditions and arising out of the terms of the Contract, according to  

him the matter was definitely within the ambit of Clause 70.8 of COPA.

11. Having  considered  rival  submissions,  we  are  of  the  view that  the  

assessment made by the Arbitral Tribunal in the instant case as affirmed by  

the High Court was definitely within its jurisdiction.   It has consistently been  

laid down by this  Court  that  construction of   the terms of  a   Contract  is  

primarily  for  an  Arbitrator  or  Arbitral  Tribunal  to  decide  and  unless  the  

Arbitrator or Arbitral Tribunal  construes the contract in such a way that no  

fair minded  or reasonable  person could do, no interference by Court is called  

for.  Viewed thus, we do not see any reason or justification to interfere in the  

matter.  The view that the increase in rates of service tax in respect of bank  

guarantee and insurance premium is directly relatable to terms of the contract  

and performance under the Contract is certainly a possible view.

12. In the circumstances, we do not find any merit in the present appeals.  

Both the appeals are dismissed without any order as to costs.

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…………………………….J                                          (Dipak Misra )  

…………………………….J                                                        (Uday Umesh Lalit)  

New Delhi April 18, 2016