Supreme Court of India
NATIONAL HIGHWAYS AUTHORITY OF INDIAversusM/S ITD CEMENTATION INDIALIMITED
- Citation
- 2015 INSC 353
- Decided
- 24 April 2015
- Disposal
- Disposed off
- Bench
- DIPAK MISRA
Holding
The Supreme Court upheld the arbitral tribunal’s construction that the royalty increase is a separate cost not covered by the WPI and is payable under Sub‑Clause 70.8, and therefore dismissed the appeals (except the isolated appeal where the claim was held outside Sub‑Clause 70.8).
Summary
The National Highways Authority of India (NHAI) entered into a FIDIC‑based contract with M/s ITD Cementation for highway widening, which contained price‑adjustment clauses (70.1‑70.8) and a provision that all duties, taxes and levies existing 28 days before bid submission were to be included in the bid price. After the contract was awarded, the Tamil Nadu government raised the seigniorage (royalty) on minor minerals by about 30%, and the contractor claimed additional payment under Sub‑Clause 70.8 (subsequent legislation). The arbitral tribunal held that the royalty increase was not reflected in the Wholesale Price Index (WPI) used for price adjustment and therefore payable in full under Sub‑Clause 70.8. NHAI challenged the award, arguing that the tribunal’s construction was erroneous and that the award violated public policy. The Supreme Court reiterated that the construction of contract terms is primarily for the arbitrator and that a court may interfere only if the interpretation is perverse or contrary to law. Finding the tribunal’s view a permissible construction and noting that the increase was not captured by the WPI, the Court upheld the award and dismissed the appeals, except for one appeal (Civil Appeal No. 6158) where the claim was held outside Sub‑Clause 70.8 and the award was set aside.
Issues considered
- The increase in royalty (seigniorage fee) on minor minerals is payable under Sub‑Clause 70.8 of the Conditions of Particular Application (COPA) as a separate cost.
- Whether the Wholesale Price Index (WPI) already incorporates the additional royalty cost, thereby negating a claim under Sub‑Clause 70.8.
- Whether the arbitral tribunal’s interpretation of the contract is reviewable under Section 34 of the Arbitration and Conciliation Act, 1996.
- Whether the award is perverse, violates public policy or constitutes patent illegality.
- Whether the contractor must bear the royalty cost within the original bid price under Clause 13.4/13.3 of the contract.
Legislation cited
- Arbitration and Conciliation Acts. 28(1)(a), s. 28(3), s. 31(3), s. 34(2)(b)(ii)
- Mines and Minerals (Regulation and Development) Acts. 15
Subjects
ArbitrationPrice adjustmentSeigniorage feeRoyaltySubsequent legislationContract interpretationWholesale Price IndexPublic policyMines and Minerals Act
Judgment
[2015) 6 S.C.R. 107
NATIONAL HIGHWAYS AUTHORITY OF INDIA A
v.
M/s ITD CEMENTATION INDIALIMITED
(Civil Appeal No.9799 of 201 Oetc.)
c B
APRIL 24, 2015
[DIPAK MISRA AND UDAY UMESH LALIT, JJ.]
Mines and Minerals (Regulation and Development)
Act, 1957: Seigniorage Fee - Entitlement of contractor to c
the additional amount payable as a result of upward revision
in royalty in respect of minor minerals pursuant to subsequent
legislation - Held: Since increase in the rates due to
additional cost incurred is not taken into account in the
indexing of any inputs to the price adjustment formula in D
general materials, the contractor is entitled to be paid the
additional cost incurred by it - Royalty.
Arbitration: Award- Judicial review of- Scope - Held:
Court while considering challenge to an arbitral award does E
not sit in appeal over the findings and decisions unless the
arbitrator construes the contract in such a way that no fair
minded or reasonable person could do - Min<Js and M. '"Jrals
(Regulation and Development) Act, 1957.
F
Disposing of the appeals, the Court
HELD: 1. It is we11 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 G
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 the contract in such a H
107
108 SUPREME COURT REPORTS [2015) 6 S.C.R.
A way that no fair minded or reasonable person could do.
[Para 20] [133-F-G]
2. The award by Arbitral Tribunal considers the
impact of sub-clauses 70.1 to 70. 7 and agrees with the
B 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 escalation in price premised
C on fluctuation in market value of the inputs stands on
one footing, while the additional cost resulting from 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
D 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
E arriving at WPI. It also considered that the WPI is an
index applicable uniformly in all States while the increase
in Seigniorage Fee would vary from State to State. It
further dealt with the aspect that NHAI itself was of the
F 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. Upon construing the terms and the material on
record it concluded that the instant matter would be
G covered by substantive part of Sub-Clause 70.8 of COPA.
The view so taken by the Arbitral Tribunal is certainly a
possible view. There is no reason to interfere. [Para 21]
[133-H; 134-A-G]]
McDormott International Inc. v. Burn Standard Co. Ltd.
H
2006 (2) Suppl. SCR 409:2006 (11) sec 181, ONGC
NATIONALHIGHWAYSAUTHORITYOF INDIAv. M/s ITD 109
CEMENTATION INDIA LIMITED
Ltd. v. Western Geco International Ltd. 2014 (9) SCC A
263; ONGC Ltd. v. Saw Pipes 2003 (3) SCR 691: 2003
(5) SCC 705; Rashtriya /spat Nigam Ltd. v. Dewan
Chand Ram Saran 2012 (4) SCR 1 : 2012 (5) SCC
306; Sumitomo Heavy Industries Ltd. v. ONGC 2010
(9) SCR 176: 2010 (11).SCC 296; Associate Builders B
v. DOA 2015 (3) SCC 49 - referred to.
Case Law Reference
2006 (2) Suppl. SCR 409 referred to. Para 14
2014 (9) sec 263 referred to. Para 14
c
2003 (3) SCR 691 referred to. Para 14
2012 (4) SCR 1 referred to. Para 17
2010 (9) SCR 176 referred to. Para 18
2015 (3) sec 49 referred to. Para 19 D
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
9799 of 2010
From the Judgment and Order dated 30.11.2007 of the
High Court of Delhi at New Delhi in FAQ (OS) No. 216 of2007 E
WITH
C.A Nos. 7066, 9909 & 9908 of 2011, 3150, 2488,
5162 & 7373 of 2012, 686, 4069 & 6158 of 2013, 5661 & F
10586 of 2014 and 3913 & 3914 of 2015
Parag Tripathi, Parag P. Tripathi, lndu Malhotra, Madhu
Sweta, Paula Ghose, Monisha Handa, Mahima Gupta,
Sawabh Bindal, K. C. Dua, Momota Devi Oinam, Tavinder G
Pal Sidhu, Gunjan S. Jain, Ganesh Karnath, Nistha (For M. V.
Kini &Associates}, Shally Bhasin Mehshwari, R. Sathish for
the Appellant.
Pravin H. Parekh, Shyam Divan, Sameer Parekh, D.
P. Mohanty, Sumi! Goel, Shashank Kumar, Vishal Prasad, H
110 SUPREME COURT REPORTS (2015] 6 S.C.R.
A Ritika Sethi, Pallavi Sharma, Nandita Bajpai, Anurag Tripathi
(For Parekh & Co.), George Thomas, Amit George, Mohan
Das K.K., R. Sathish, Manu Seshaderi, Satya Mitra, D. Bairam,
Avishkar Sinhvi, Devendra Singh, Anil Airi, Ravi Krishan
Chandana, Shashank Khurana, Priya Puri, Chirag M. Shroff,
B Priyanka Rai, Chandan Kumar, Shankar Kr. Jha, Aniruddha P.
Mayee, Vinay Navare, Satyajeet Kumar, Keshav Ranjan, Liwen
K.B.,Abha R. Sharma forthe Respondent.
The Judgment of the Court was delivered by
c
UDAY UMESH LALIT, J. -1. Leave granted in S.L.P
(C) Nos. 10014 of2013 and 10701 of2013.
A. Civil Appeal Nos. 9799 of 2010, 9908/2011, 9909/
D 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
E 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.
F 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
G 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
H (Seignorage Fee as named in Tamil Nadu) on minor minerals.
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. Mis ITD 111
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
This additional royalty was imposed by the State of Tamil Nadu A
w.e.f. 01.11.2002. It is the plea of the appellant that the
additional amount of fee was not liable to be 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. B
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 C
(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 D
contact under Clause 13.4 it was agreed between the parties
asunder:
13.4. All duties, taxes and other levies payable by the
Contractor under the Contract, or for any other cause, E
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. F
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 deadline for submission of bids and clarified
that the same shall stand included in the rates and prices G
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:- H
112 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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
B
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
c 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
D
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
E 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
F
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 amolltlt certified in each
payment certificate shall be adjusted by applying, the
G
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
H
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. Mis ITD 113
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
beyond the stipulated time. Price adjustment for reasons A
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 B
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 c
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 D
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 E
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.
F
(c) Price adjustment for various inputs into the works
done shall be calculated as per formulae given below:
A) Variation of Price-Local Labour
G
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 H
114 SUPREME COURT REPORTS [2015] 6 S.C.R.
A adjustment will be made according to the formula given
below:
V2=R1x 0-lo) x G
lo
B
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.
c
lo= 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,
D 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
E 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
F 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
G Indian Rupee Currency at the base rates and prices
as applicable under the Contact.
C) Variation of Price -POL
H ..................... .
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. Mis ITD 115
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
D) Price Adjustment for plant and Equipment A
E) Base, Current and Provisional Indices B
F) PriceAdjustment c
D
G) The Adjustable Amount
E
H) The Adjusted Amount
F
I) Adjustment after Completion
G
Sub-Clause 70.4: Sources of Indices
The sources of indices shall be those as mentioned in
Sub-clause 70.3 of Section Ill Volume I of the Bid
documents. H
116 SUPREME COURT REPORTS [2015] 6 S.C.R.
A Sub-Clause 70.5: Increase or Decrease of Price of
Specified Materials
(i) Increase or decrease of price of specified materials
will be adjusted by either an addition to or a deduction to
B ora 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
c 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.
D
(ii) a) Adjustments to the Contract Price for
Bitumen
E
b) Adjustment to the Contract Price for Cement
and Steel:
F
Sub-Clause 70.6: Limit of Price Adjustment
G
Sub-Clause 70.7: Exemption from Price Adjustment
H
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 117
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
Sub-clause 70.8: Subsequent Legislation A
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 B
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 c
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 D
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 E
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 F
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 1''
November, 2002, i.e. after about one year from
commencement of the Work. The respondent requested G
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 charge cannot be paid H
118 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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 NHAl's policy circular No.11041/21/02-
B Admn.111dated01.09.2003.
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
C 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
D 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
E dated 03.09.2003 is quoted hereunder:-
"Anand Bordia
Member (Finance) NATIONAL HIGHWAYS
Tel: 011-25074100 AUTHORITY OF INDIA
F 011-25074200 Ext.1612 (MINISTRY OF ROAD
011-25093506 TRANSPORT &
HIGHWAYS)
Fax:011-25074100 G-5 & 6, Sector-10,
011-25074200 Ext.2617 DWARKA,
G NEW DELHl-110045
E-mail: abordia@nhai.org
D.0. NO.NHAl/11033/GM/2003-04 September 3, 2003
Dear Shri Nigam
H
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 119
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
Sub: Wholesale Price Index A
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. B
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 C
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 o
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. E
3. We are enclosing herewith a copy of the extracts of F
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 G
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 H
120 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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
B local impact, such as Entry tax, Octroi and Royalty.
5. It is felt that if GAG interpretation is accepted for
implementation, the entire clause "Subsequent
Legislation" will be hit and made entirely redundant as
c a tool to cover price risk.
6. CAG's office has raised objection in a specific case,
details of which are narrated here below:
D
7. All these payments were claimed by the Contractor
and paid by NHAI, as these arose on account of Tax
E 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
F construction inputs which are not in the basket of items
listed for the consideration of WPI.
8. GAG considered these reimbursements irregular for
the reason that all such imposts would have had their
G 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
H amount to a double benefit. Hence they would
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 121.
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
automatically fail to come under the clause A
"Subsequent Legislation" by virtue of the restrictive
proviso.
9. In view of the above, we will be grateful if you could
clarify the following: B
(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, c
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
D
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 E
create an equitable structure?
You may recall that the Chairman NHAI Shri Santosh
Nautiyal had spoken to you about this matter.
Kind Regards, F
Yours sincerely,
Sd/-
(ANAND SORDIA)
' G
Shri Shrawan Nigam,
Economic Advisor,
Ministry of Commerce and Industry,
(Dept of IP & P), 126-E, Udyog Bhawan,
NEW DELHI -110001." H
122 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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
B Tel:23012721 &INDUSTRY
Fax:23793502 UDYOG BHAWAN,
EconomicAdvisorto NEW DELHl-110001
the Government of India
c 271" November, 2003
D.O. No. Ee.Ad 11 (1 )/2003/WPD
Dear Shri Sordia,
D Kindly refer to your D.O. Letter No.NHAl/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
E 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 are
effected on FOR or FOB or any other basis, pithead
value is arrived at after deducting all the expenses
F 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.
G
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
H items. However, the WPI for ALL, COMMODITIES and
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 123
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
MINERALS from December 1995 to July 2001 are being A
enclosed for your appropriate use.
With regards,
Yours sincerely,
Sd/- B
(Shrawan Nigam)
ShriAnand Sordia,
Member (Finance)
National Highway Authority of India,
Ministry of Road, Transport & Highways,
c
G-5&6, Sector-10, Dwarka,
NEW DELHl-110045."
10. In the aforesaid circumstances the dispute
between the parties stood referred to Arbitral Tribunal. The D
respondent submitted its Statement of Claim claiming under
Sub Clause 70.8 of COPA an amount of Rs.91,47,411/-
allegedly due upto 31 •1 January, 2005 towards reimbursement
of increase in Royalty (Seigniorage fee) on minerals i.e.
aggregate, sand and earth (the items in issue) along with E
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 F
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 G
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
H
124 SUPREME COURT REPORTS [2015) 6 S.C.R.
A indexing of any inputs to the Price Adjustment Formula
in Sub-Clause 70.3(8) relating to the General Materials."
After going through the pleadings and evidence the
Arbitral Tribunal unanimously found that the respondent had
B 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 respondent would be
C 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
o 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
E 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
F 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
G 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,
H sand and aggregate used in highway construction works,
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 125
CEMENTATION INDJA LIMITED (UDAY UMESH LAUT, J.]
do not find place in this basket. We are prepared to A
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 B
care of in the inputs to the WPI, especially when these
materials do not find place in the basket of materials for
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 c
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
D
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 E
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
F
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 G
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
H
126 SUPREME COURT REPORTS (2015] 6 S.C.R.
A additional cost had been actually incurred was rejected.
On the issue Whtlther the respondent had produced any
evidence to substantiate its claim that any such additional
cost had been incurred, theArbitral Tribunal found that
the material placed on record was lacking in particulars
B 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
C made and published on 12.05.2006filed 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 theArbitral Tribunal had found
that the minerals in question did not find place in the basket of
D 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)
E 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
F quantification of the amount undecided. While dealing with
the first submission, the Division Bench of the High Court
observed:
"On the question of interpretation, the arbitrators noticed
the relevant provisions and came to the conclusion that
G 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
H
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 127
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
legislation. The arbitrators noted that the WPI was a 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 B
clauses 70.1to70.7, 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 c
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 (WP!). Such
being the position, simply because the interpretation
D
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 E
dealing with a petition under Section 34 of the
Arbitration and Conciliation Act, 1996 does not sit in
an appeal over the arbitral award."
The Division Bench however agreed with the appellant on the F
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 G
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 H
128 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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.
B
14. Mr. Parag P. Tripathi learned Senior Advocate
assisted by Ms. Monisha Handa, learned Advocate appeared
for the appellant in the lead case. Ms. lndu Malhotra, learned
Senior Advocate and Ms. Gunjan S. Jain, learned Advocate
C appeared for the appellants in the companion matters. It was
submitted by them that WPI is a general 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
D 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
E 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
F 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 (8) and in terms thereof, the respondent would at
G 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
theArbitral Tribunal ignored the provisions of Sub Clauses 70.1
to 70.3(8) and exclusion in Sub Clause 70.8 and the award so
given in disregard of the terms of the contract stands vitiated
H being against public policy. Reference was placed on the
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 129
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
decisions of this Court in McDormott International Inc. v. A
Burn Standard Co. Ltd.1, ONGC Ltd. v. Western Geco
International Ltd. 2 and ONGC Ltd. v. Saw Pipes 3 •
15. Mr. George Thomas, learned Advocate appearing
for the respondent in the lead case and some companion B
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 C
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 D
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 appellant to the E
EconomicAdvisor. 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 F
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 G
adopted the submissions.
16. Since it was argued that the Arbitral Tribunal
----
1 (2006) 11 sec 1s1
2 (2014) 9 sec 253
H
' (2003) s sec ?Os
130 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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
B 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
c 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 passing the award by taking into
D 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
E 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
F 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 /spatNigam Ltd. v. Dewan Chand
G Ram Saran•, 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
H • (2012) s sec 306
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 131
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
possible to say that the arbitrator had travelled outside A
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." B
18. In Sumitomo Heavy Industries Ltd.. v. ONGC 5 ,
it was held the Court held:
"43 .... The umpire has considered the fact situation c
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 D
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 sec 142 : (2009) 2 sec (Civ) 406] the Court E
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 ta!<e the view which he holds to be the correct one F
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."
G
19. In a recent decision in Associate Builders Vs.
DDA 6 while discussing "the public policy of India" contained
in Section 34(2) (b) (ii) of the Arbitration Act, 1996 this Court
'<2010) 11sec296 H
6 (2015) 3 sec 49
132 SUPREME COURT REPORTS [2015] 6 S.C.R.
A dealt with each of the heads contained in Saw Pipes
Judgment (Supra) in the light of three distinct 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
B 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:
c
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 :;ense that such illegality
must go to the root of the matter and cannot be of a
o 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.-
E (1) Where the place of arbitration is situated in
lndia,-
(a) in an arbitration other than an international
commercial arbitration, the arbitral tribunal shall
F 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
G b& 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.
H 42.3(c) Equally, the third sub-head of patent illegality is
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 133
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
really a contravention of Section 28 (3) of the Arbitration A
Act, which reads as under:
"28. Rules applicable to substance of dispute. -
(1)-(2) • • •
B
(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."
c
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. D
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. E
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 F
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 the
contract in such a way that no fair minded or reasonable person
could do. G
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 70.1to70.7 and
agrees with the contention that the provision for cost escalation H
134 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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 escaiation in price premised on fluctuation in
B 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
C 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
0
the increase in Seigniorage Fee would vary from state to state.
ltfurther 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
E 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
F 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
G 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
H 2010. The decretal amount which stands deposited be made
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 135
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
over to the respondent along with the interest accrued thereon. A
No order as to costs.
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/ B
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 c
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 D
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
E
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 F
furnished stand discharged. No order as to costs.
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 G
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 contrar:t dated 30.08.2001 H
I,,
136 SUPREME COURT REPORTS (2015] 6 S.C.R.
A 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:
B 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.
c 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
D
4 7 of the Conditions of Contract.
Clause 32.1 of the contract pertaining to Early Warning
was as under:
E 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
F 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.
G 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 :n the work and in carrying
out any resulting instructions of the Engineer.
H
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 137
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
Clause 45 of the Contract pertaining to Tax was as A
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 B
this Contract. The Employer will perform such duties
in regard to the deduction of such taxes at sources as
per applicable law.
Clause 4 7 of the contract pertained to Price c
Adjustment and is set out hereinbelow:
47 Price Adjustment
This clause is applicable only for those projects with
completion period ofmore that one year. D
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 E
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 F
granted by the Engineer and shall not apply to the work
carried out beyond the stipulated time for reasons
attributable to the contractor.
b).... G
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
H
138 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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
B 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
c 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.
D 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 offresh "Cess" with effect from 29.01.2004 i.e.
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
F 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
G 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
H foreseen and therefore the same falls within the ambit of
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. Mis ITD 139
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
Clause 32.1 of the contract. The appellant submitted that in A
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 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 B
would be awarded in case of rise of royalty due to change in
legislation. TheArbitral 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, C
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 D
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 E
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 theArbitral Tribunal
additionally relied upon the fact that claim as regards F
reimbursement 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 G
variation in the rates of royalty pursuant to su~sequent
legislation, the matter would be covered by clausiii 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 H
140 SUPREME COURT REPORTS [2015) 6 S.C.R.
A 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 oftheArbitral Tribunal. The High
Court, in our view, was right in dismissing the challenge.
B 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.
c
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
D the High Court of Delhi at New Delhi dismissing FAQ (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
E 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
F
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.
G 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.
H
NATIONAL HIGHWAYS AUTHORITY OF INDIA v. M/s ITD 141
CEMENTATION INDIA LIMITED [UDAY UMESH LAUT, J.]
32. According to the respondent after the A
commencement of work, it was called upon vide letter dated
15.12.1999 by the District 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 B
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. C
33. The disputes between the parties were referred to
theArbitral 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 D
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 bindiQg on the Contractor. E
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 liability to pay royalty. Any levy and collection F
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 G
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 H
142 SUPREME COURT REPORTS [2015] 6 S.C.R.
A 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
B 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. lndu Malhotra, learned
Senior Advocate submitted that the royalty, at the time the
C 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 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
D 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
E 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
F 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 281h 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
G 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
H ordinary earth was brought under the definition of minor mineral,
NATIONAL HIGHWAYS AUTHORITY OF INDIA.v. M/s ITD 143
CEMENTATION INDIA LIMITED [UDAY UMESH LALIT, J.]
'
such ground may certainly entitle a party to lay requisite A
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 B
any subsequent legislation. In our view the matter was therefore
completely outside the scope of Sub Clause 70.8 of COPA.
TheArbitral 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 C
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.
D
37. In our view, theArbitral 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 E
a sum of Rs.70,65,039/-which upon deposit 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.
F
Devika Gujral Appeals disposed of.
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