# NATIONAL HIGHWAY AUTHORITY OF INDIA v. M/S. PROGRESSIVEMVR (JV)

- **Citation:** [2018] 2 S.C.R. 1015
- **Court:** Supreme Court of India
- **Decided:** 2018-02-23
- **Case number:** Civil Appeal No. 458 of 2018
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/national-highway-authority-of-india-v-m-s-progressivemvr-jv-32861
- **Pages:** 30

## Headnote

Contract - NHAI Contracts - Price adjustment formula, 'note'
appended thereto - Interpretation of - Respondents-contractors
awarded contracts by appellant-NHAI for construction of roads
etc. - Tender document envisaged a 'Price Adjustment formulae -
Sub-clause 70.3 of the Contract provided for the 'adjustment
formulae' for calculating the price adjustment amount wherein the
work is divided into seven components for which specific
percentages were given to govern the price adjustment- However,
such specific percentages were given only for 4 components, and
for rest three components i.e. bitumen, cement and steel, variable
percentages were given as x%, y%, z% which were to be worked
out - 'Note' after sub-para (xi) of sub-clause 70.3 mentioned that
x, y, z were the actual percentage of the cost of material of bitumen,
cement and steel respectively which were used for execution of the
work - Dispute between parties as to basis for calculation of actual
percentage of cost of material of bitumen - Plea of NHAI that base
rate (i.e. the rate prevailing 28 days prior to the submission of the
bid) of these materials should be considered while applying the
formula - Respondents contended that it is the prevailing rate in
that particular month which would be the determining factor -
Dispute Review Board (DRB) held in favour of NHAI - Respondents
invoked arbitration - Arbitration Tribunal allowed the claim - NHAI
filed objections u/s.34, 1996 Act before High Court - Objections
dismissed by High Court - On appeal, held: 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
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during the execution of the contract - Towards this, adjustment
formula for working out the cost, at the time of execution of the
contract, is provided - This adjustment has to be arrived at, in
comparison with the base price/rates referred by the contractor/
bidder - Thus, while applying price adjustment formula for
calculating the price adjustment of bitumen, it is the base rate which
is to be applied and not the current rate - Arbitration and
Conciliation Act, 1996 - s.34.
Allowing the appeals, the Court
HELD: 1.1 Clause 70 of Conditions of Particular Application
(COPA) of the contract pertains to price adjustment. Clause
70.3(v) deals with 'Adjustment for Bitumen Component'. 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"
Vb is increase or decrease in the cost of work during the month
under consideration due to changes in the rate of bitumen. 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. [Paras 14-16] [1029-E-F, G-H; 1030-F-G, G]
1.2 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."
[Para 18] [1031-B-C]
1.3 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 compone

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NATIONAL HIGHWAY AUTHORITY OF INDIA
v.
M/S. PROGRESSIVEMVR (JV)
(Civil Appeal No. 458 of 2018)
FEBRUARY 23, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Contract - NHAI Contracts - Price adjustment formula, 'note'
appended thereto - Interpretation of - Respondents-contractors
awarded contracts by appellant-NHAI for construction of roads
etc. - Tender document envisaged a 'Price Adjustment formulae -
Sub-clause 70.3 of the Contract provided for the 'adjustment
formulae' for calculating the price adjustment amount wherein the
work is divided into seven components for which specific
percentages were given to govern the price adjustment- However,
such specific percentages were given only for 4 components, and
for rest three components i.e. bitumen, cement and steel, variable
percentages were given as x%, y%, z% which were to be worked
out - 'Note' after sub-para (xi) of sub-clause 70.3 mentioned that
x, y, z were the actual percentage of the cost of material of bitumen,
cement and steel respectively which were used for execution of the
work - Dispute between parties as to basis for calculation of actual
percentage of cost of material of bitumen - Plea of NHAI that base
rate (i.e. the rate prevailing 28 days prior to the submission of the
bid) of these materials should be considered while applying the
formula - Respondents contended that it is the prevailing rate in
that particular month which would be the determining factor -
Dispute Review Board (DRB) held in favour of NHAI - Respondents
invoked arbitration - Arbitration Tribunal allowed the claim - NHAI
filed objections u/s.34, 1996 Act before High Court - Objections
dismissed by High Court - On appeal, held: 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
[2018] 2 S.C.R. 1015
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during the execution of the contract - Towards this, adjustment
formula for working out the cost, at the time of execution of the
contract, is provided - This adjustment has to be arrived at, in
comparison with the base price/rates referred by the contractor/
bidder - Thus, while applying price adjustment formula for
calculating the price adjustment of bitumen, it is the base rate which
is to be applied and not the current rate - Arbitration and
Conciliation Act, 1996 - s.34.
Allowing the appeals, the Court
HELD: 1.1 Clause 70 of Conditions of Particular Application
(COPA) of the contract pertains to price adjustment. Clause
70.3(v) deals with 'Adjustment for Bitumen Component'. 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"
Vb is increase or decrease in the cost of work during the month
under consideration due to changes in the rate of bitumen. 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. [Paras 14-16] [1029-E-F, G-H; 1030-F-G, G]
1.2 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."
[Para 18] [1031-B-C]
1.3 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
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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 contractor and, in that
sense, it can have reference only to the base price. 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 stated by the contractor.
[Paras 25, 26] [1037-C-E, F-H; 1038-A-B]
1.4 In the present case, the intention in the formula as well
is to keep in mind the base cost while arriving at the price
adjustment. 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 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
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV)
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and z far exceed 50% which would make the percentage of other
materials in the negative. Such a negative aspect has to be
avoided. [Paras 27, 28] [1038-C-F]
1.5 The word "actual" in the note under sub-clause 70.3(xi)
of Conditions of Particular Application (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 Interim Payment
Certificate (IPC). Therefore, it seems more logical and proper
to adopt the base cost of material while working out the price
adjustment. 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. [Paras 29, 30] [1039-B-C]
1.6 The DRB thereafter worked out a formula. 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/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. The aforesaid
analysis carried out by the DRB is quite acceptable. [Paras 31 -
33] [1040-G; 1041-D-F]
1.7 As a result, it is held that while applying price adjustment
formula for calculating the price adjustment of bitumen, it is the
base rate which is to be applied and not the current rate. [Para
35] [1043-F-G]
1.8 The NHAI has entered into multiple contracts with
different parties containing the same clauses of price variation.
Arbitral Tribunals have been 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
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the same contractual provision. It may not be appropriate to
countenance such a situation which needs to be remedied. Once
the formula is interpreted 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 Arbitration and Conciliation
Act, 1996 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,
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, it is
held 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. [Paras 13, 36 and 37] [1026C-D; 1043-H; 1044-A-F]
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
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Hindustan
Zinc
Ltd
v.
Friends
Coal
Carbonisation (2006) 4 SCC 445; Associate Builders
v. Delhi Development Authority (2015) 3 SCC 49;
Bhakra Beas Management Board v. Krishan Kumar Vij
& Anr. (2010) 8 SCC 701 : [2010] 10 SCR 462; Bhanu
Kumar Jain v. Archana Kumar & Anr. (2005) (1)
 SCC 787 : [2004] 6 Suppl. SCR 1104; Godhra
Electricity Co. Ltd. & Anr. v. State of Gujarat & Anr.
(1975) 1 SCC 199; Bank of India v. K.Mohandas & Ors.
(2009) 5 SCC 313 - referred to.
Case Law Reference
(2006) 4 SCC 445
referred to
Para 21
(2015) 3 SCC 49
relied on
Para 21
[2010] 10 SCR 462
referred to
Para 21
[2004] 6 Suppl. SCR 1104
relied on
Para 24
(1975) 1 SCC 199
referred to
Para 24
(2009) 5 SCC 313
relied on
Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 458 of
2018
From the Judgment and Order dated 16.09.2016 of the High Court
of Delhi at New Delhi in FAO (OS) (COMM) No. 81 of 2016 arising
from OMP (COMM) No. 1211 of 2013.
WITH
C. A. NOS. 459 and 460 of 2018
N. K. Kaul, P. S. Patwalia, Sr. Advs., S. Nandakumar, Naresh
Kumar, Ms. Tanupriya Gupta, S. Sarankumar, Ram Dhan Singh Narwal,
Ms. Deepikananda Kumar, Sugam Kumar Jha, Manish K. Bishnoi,
Devansh Srivastava, Ms. Ila Haldia, Ms. Harshika Verma, Archit
Upadhayay, S. Gurukrishna Kumar, K. Parameshwar, Amit George, Udit
Gupta, Ajay Kumar Jha, Abhishek Chaudhary, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
A. K. SIKRI, J. All these appeals involve the lis of an identical
nature. National Highway Authority of India (NHAI) is the appellant in
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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 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
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:
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
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"
(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 subpara (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 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
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%
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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
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 subclause 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 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
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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 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
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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.
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 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
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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 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
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costs to the Contractor is not covered by the provisions of this or
other Clauses in the Contract, the unit rates and, prices included
in the Contract shall be deemed to include amounts to cover the
contingency of such other rise or fall in cost.
Sub-Clause 70.3 :Adjustment Formulae
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
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To the extent that full compensation for any rise or fall in indexed
costs to the Contractor is not covered by the provisions of this or
other Clauses in the Contract, the unit rates and prices included
in the Contract shall be deemed to be include amount to cover
the contingency of such other rise or fall in costs.
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
xxx
xxx
xxx
vii) Adjustment for other Local Materials
xxx
xxx
xxx
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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'. 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"
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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.
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.
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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 = 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
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)
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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 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 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
1 (2006) 4 SCC 445
2 (2015) 3 SCC 49
3 (2010) 8 SCC 701
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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.