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SUPREME COURT OF INDIA
ABHAY S. OKA, UJJAL BHUYAN, JJ.
Somdatt Builders –NCC – NEC(JV) – Appellant
Versus
National Highways Authority Of India & Ors. – Respondents
Civil Appeal No. 2058 of 2012
Decided on : 27-01-2025
(A) Arbitration and Conciliation Act, 1996 – Sections 37 and 34 – Appeal against arbitral award – Arbitral award may not be interfered with if view taken by Arbitrator is a possible view based on facts – Interference under Section 37 cannot travel beyond restrictions laid down under Section 34 – Court cannot undertake independent assessment of merits of award and must only ascertain that exercise of power by court under Section 34 has not exceeded scope of provision – Violation of Indian statutes linked to public policy or public interest and disregarding orders of superior courts in India would be regarded as being contrary to fundamental policy of Indian law – It would also mean that arbitral award is against basic notions of justice or morality – Arbitral award can be set aside on the ground of patent illegality i.e. where illegality goes to root of matter but re-appreciation of evidence cannot be permitted under the ground of patent illegality – Jurisdiction conferred on courts under Section 34 of the 1996 Act is fairly narrow – When it comes to scope of appeal under Section 37 of 1996 Act, jurisdiction of appellate court in examining order passed under Section 34, either setting aside or refusing to set aside an arbitral award, is all the more circumscribed – Section 37 of 1996 Act grants narrower scope to appellate court to review findings in an arbitral award if it has been upheld or substantially upheld under Section 34. (Paras 36, 37, 39 and 40)
(B) Arbitration and Conciliation Act, 1996 – Section 34 – Setting aside arbitral award – Arbitral awards which contain reasons especially when they interpret contractual terms ought not to be interfered with lightly – An error in interpretation of contractual terms by Arbitrator is an error within his jurisdiction and would not be a ground to interfere with an arbitral award – Great deal of restraint is required to be shown while examining validity of an arbitral award when such an award has been upheld, wholly or substantially, under Section 34 of 1996 Act – Frequent interference with arbitral awards would defeat very purpose of 1996 Act. (Paras 41 and 42)
Facts of the case:
Matter relates to execution of a contract awarded by NHAI to appellant regarding work of four laning and strengthening of existing two lane section between Km. 470.000 and Km. 38.000 on NH-2 (construction package II-B) near Kanpur in State of Uttar Pradesh under World Bank Loan Assistance. By impugned Judgment, High Court allowed appeal of respondent-National Highways Authority of India under Section 37 of Arbitration and Conciliation Act, 1996.
Findings of Court:
Impugned order cannot be sustained. Accordingly, judgment and order dated 17.11.2009 passed by Division Bench of the High Court is hereby set aside and arbitral award dated 03.06.2005 is restored. Consequently the appeal is allowed. However, there shall be no order as to cost.
Result : Appeal allowed.
Key Points: - The correct interpretation and application of Clauses 51 and 52 of the GCC read with COPA, governing variations, instructions, and rate fixation, are central to the dispute and its resolution. (!) (!) (!) (!) (!) (!) - The Arbitral Tribunal and DRB held that the increased quantity of geogrid did not constitute a variation and that the Engineer had no power to renegotiate rates; this view was upheld by the Single Judge under Section 34, and reversed by the Division Bench under Section 37, leading to a final reversal by the Supreme Court restoring the arbitral award. (!) (!) (!) (!) (!) (!) (!) - The Supreme Court reaffirmed that courts exercising jurisdiction under Section 34 should not reweigh evidence and should intervene only on grounds of public policy, patent illegality, or shock to conscience, with the decision that a plausible view by the arbitrator should be preserved. (!) (!) (!) (!) (!) (!) - Variation in quantity that is not instructed by the Engineer may still be treated as a variation under Clause 51, but relief depends on whether it falls within the 2%/25% thresholds and whether the rate is to be renegotiated per Clause 52.2 and COPA provisos. (!) (!) (!) (!) (!) (!) (!) - The Division Bench’s interpretation that automatic quantity increase requires renegotiation of rates was found to be erroneous; the Court held that the DRB/Arbitral Tribunal’s view was plausible and correct. (!) (!) (!) (!) - The final decision restores the arbitral award dated 03.06.2005 and allows the appeal, with no cost awarded. (!) (!)
JUDGMENT :
UJJAL BHUYAN, J.
Heard learned counsel for the parties.
2. This civil appeal by special leave is directed against the judgment and order dated 17.11.2009 passed by the High Court of Delhi at New Delhi (‘High Court’) in FAO(OS) No. 427 of 2007 [National Highways Authority of India Vs. Som Datt Builders-NCC- NEC(JV)].
2.1. By the aforesaid judgment, the High Court allowed the appeal of the respondent-National Highways Authority of India (‘respondent’ or ‘NHAI’ hereinafter) under Section 37 of the Arbitration and Conciliation Act, 1996 (briefly ‘the 1996 Act’ hereinafter). It may be mentioned that respondent had challenged, by way of the aforesaid appeal, the judgment and order of the learned Single Judge in OMP No. 316/2005 dated 29.08.2007 whereby the learned Single Judge dismissed the application filed by NHAI under Section 34 of the 1996 Act for setting aside the award dated 03.06.2005 passed by the Arbitral Tribunal.
3. The matter relates to execution of a contract awarded by NHAI to the appellant regarding the work of four laning and strengthening of the existing two lane section between Km. 470.000 and Km. 38.000 on NH-2 (construction package II-B) near Kanpur in the State of Uttar Pradesh under World Bank Loan Assistance.
4. At the outset, it would be apposite to advert to the relevant facts.
5. Following a process of open bid tender, the related contract was allotted by NHAI to the appellant vide the contract agreement dated 27.03.2002 who undertook to execute the work at the contract price of Rs. 4,961,183,599.00. Appellant is a joint venture of Somdatt Builders Pvt. Ltd., Nagarjuna Construction Company and Navayug Engineering Company Limited having its principal place of business at East of Kailash, New Delhi.
6. A joint venture between Consulting Engineering Services (I) Ltd. and BECA International Consultants Ltd. was appointed by NHAI as the Engineer of the project in terms of the contract agreement to supervise the construction work.
7. It was a unit rate contract comprising of a detailed Bill of Quantities (BOQ). The BOQ contained description of the items of the work to be executed by the appellant as contractor and the estimated quantity of each item. The rates of each BOQ item were to be filled in by the contractor (appellant).
8. The contract agreement provided for a mechanism of dispute resolution at the first instance through a Dispute Review Board (‘DRB’) prior to the parties availing of their remedy by way of arbitration. A three-member panel of DRB was constituted comprising of one member appointed by each of the two parties and the third member appointed by the aforesaid two members.
9. While executing the contract, a dispute arose between the parties in respect of item No. 7.07 of the BOQ which provided for reinforced earth structure including soil reinforcing geogrid with all fixtures and accessories complete as per approved design and drawing of specialised firm and matters connected therewith. The dispute was not really in respect of the nature of the work to be performed but was the consequence of the geogrid/geotextile material exceeding the BOQ quantities in the contract. In essence, the dispute relates to power of the Engineer to revise the rates given in the BOQ in the event of increase in actual quantities. This was contested by the appellant.
10. Appellant raised the aforesaid dispute before the DRB contending that the Engineer/Employer was intending wrongful application of Clause 52.2 of the Conditions of Particular Application (COPA) for downward revision of rates for BOQ item No. 7.07 (ii) of geogrid for quantity in excess of BOQ quantity. DRB heard both the sides and deliberated upon the issue in detail. DRB vide its decision dated 15.03.2004 recommended that quantities of geogrid required limited to the facia area provided in the BOQ have to be paid as per the BOQ rates.
11. Respondent NHAI was not satisfied with the aforesaid decision of DRB and invoked the arbitration clause in the contrac
(1) Appeal against arbitral award – Arbitral award may not be interfered with if view taken by Arbitrator is a possible view based on facts – Court cannot undertake independent assessment of merits o....
Project – Fixation of rate - Once a rate has been found to be inappropriate or inapplicable on account of variation in the quantity beyond the stipulated limit, then the new rate would be applicable ....
An arbitrator may revise contract rates if the original rates become inappropriate due to variations in the quantity of work executed, as per applicable contractual clauses.
Appeal against arbitral award – Scope of jurisdiction under Section 34 and Section 37 of Act is not akin to normal appellate jurisdiction – Mere possibility of an alternative view on facts or interpr....
Point of law: Arbitral Tribunal is not bound by the Code of Civil Procedure or the Indian Evidence Act.
The court confirmed the validity of the Arbitrator's findings regarding excess work claims and the correct application of interest, highlighting that overlapping interest claims were erroneous.
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