# Somdatt Builders-NCC-NEC(JV) v. National Highways Authority of India & Ors

- **Citation:** 2025 INSC 113
- **Court:** Supreme Court of India
- **Decided:** 2025-01-27
- **Case number:** Civil Appeal No. 2058 of 2012
- **Bench:** Abhay S. Oka, Ujjal Bhuyan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/somdatt-builders-ncc-nec-jv-v-national-highways-authority-of-india-ors-38903
- **Pages:** 28

## Headnote

Issue arose as regards correctness of the judgment of the Division
Bench setting aside the arbitral award u/s.37 of the Arbitration and
Conciliation Act.
Headnotes†
Arbitration and Conciliation Act, 1996 - s.34 and 37 -
Jurisdiction under - Exercise of - Interference with the
decision of the arbitrator - Execution of contract awarded by
National Highways Authority of India-NHAI to the appellant
regarding construction of lanes on National Highway - Dispute
as regards geogrid/geotextile material exceeded the Bill of
Quantities-BOQ quantities in the contract, and the power
of the Engineer to revise the rates given in the BOQ in the
event of increase in actual quantities - Appellant's case that
the Engineer/Employer intending wrongful application of the
Conditions of Particular Application for downward revision of
rates for BOQ item of geogrid for quantity in excess of BOQ
quantity - Recommendation by Dispute Review Board-DRB that
quantities of geogrid required limited to facia area provided
in the BOQ to be paid as per the BOQ rates - Invocation of
arbitration clause by NHAI - Arbitral tribunal holding that the
quantity of geogrid given at the tender stage by NHAI was
wrong, there was no change in the design but mere increase
in the quantity beyond the BOQ quantity, directed NHAI to pay
the appellant for the actual quantity of geogrid required to be
executed to complete the work as per the approved design
at the BOQ rate - Application by NHAI u/s.34 - Single Judge
of the High Court upheld the arbitral award - However, the
Division Bench set aside the same - Sustainability:
* Author
204
[2025] 2 S.C.R.
Digital Supreme Court Reports
Held: Not sustainable - Great deal of restraint is required to
be shown by the Courts while examining the validity of an
arbitral award when such an award has been upheld, wholly or
substantially, u/s.34 - Court cannot undertake an independent
assessment of the merits of the award and must only ascertain that
the exercise of power by the court u/s. 34 has not exceeded the
scope of the provision - View taken by DRB and arbitral tribunal,
both comprising of technical experts, that there is no variation
either in the form or quality or quantity of the works is the correct
one which was acknowledged by the Single Judge - At the time
of execution of the contract, the geogrid required turned out to
be much more than the estimated figure given in the contract -
As such both the fact finding authorities held that there was no
variation in terms of Clause 51.1 and the Engineer did not have
the competence to renegotiate the price or rate of the geogrid
for the excess quantity of geogrid required - This is clearly a
plausible view - It is the correct interpretation of Clause 51 made
by the DRB and the arbitral tribunal, in a reasonable manner
based on the evidence on record - As such, the Single Judge
rightly declined to interfere with the award of the arbitral tribunal
u/s.34, affirming the decision of the DRB - Division Bench of the
High Court not at all justified in setting aside the arbitral award
exercising extremely limited jurisdiction u/s.37 by merely using
expressions like 'opposed to the public policy of India', 'patent
illegality' and 'shocking the conscience of the court' - Thus, the
judgment and order passed by the Division Bench of the High
Court is set aside and the arbitral award is restored. [Paras 27.3,
28, 33, 34, 36, 42, 43]
Arbitration and Conciliation Act, 1996 - Arbitral award - Public
policy in India - Explanation:
Held: Public policy in India means the fundamental policy of Indian
law - Violation of Indian statutes linked to public policy or public
interest and disregarding orders of superior courts in India would
be regarded as being contrary to the fundamental policy of Indian
law - It would also mean that the arbitral award is against basic
notions of justice or morality - Arbitral award can be set aside on
the ground of patent illegality, where the illegality goes to the root
of the m

## Text

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[2025] 2 S.C.R. 203 : 2025 INSC 113
Somdatt Builders-NCC-NEC(JV)
v.
National Highways Authority of India & Ors.
(Civil Appeal No. 2058 of 2012)
27 January 2025
[Abhay S. Oka and Ujjal Bhuyan,* JJ.]
Issue for Consideration
Issue arose as regards correctness of the judgment of the Division
Bench setting aside the arbitral award u/s.37 of the Arbitration and
Conciliation Act.
Headnotes†
Arbitration and Conciliation Act, 1996 - s.34 and 37 -
Jurisdiction under - Exercise of - Interference with the
decision of the arbitrator - Execution of contract awarded by
National Highways Authority of India-NHAI to the appellant
regarding construction of lanes on National Highway - Dispute
as regards geogrid/geotextile material exceeded the Bill of
Quantities-BOQ quantities in the contract, and the power
of the Engineer to revise the rates given in the BOQ in the
event of increase in actual quantities - Appellant's case that
the Engineer/Employer intending wrongful application of the
Conditions of Particular Application for downward revision of
rates for BOQ item of geogrid for quantity in excess of BOQ
quantity - Recommendation by Dispute Review Board-DRB that
quantities of geogrid required limited to facia area provided
in the BOQ to be paid as per the BOQ rates - Invocation of
arbitration clause by NHAI - Arbitral tribunal holding that the
quantity of geogrid given at the tender stage by NHAI was
wrong, there was no change in the design but mere increase
in the quantity beyond the BOQ quantity, directed NHAI to pay
the appellant for the actual quantity of geogrid required to be
executed to complete the work as per the approved design
at the BOQ rate - Application by NHAI u/s.34 - Single Judge
of the High Court upheld the arbitral award - However, the
Division Bench set aside the same - Sustainability:
* Author
204
[2025] 2 S.C.R.
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Held: Not sustainable - Great deal of restraint is required to
be shown by the Courts while examining the validity of an
arbitral award when such an award has been upheld, wholly or
substantially, u/s.34 - Court cannot undertake an independent
assessment of the merits of the award and must only ascertain that
the exercise of power by the court u/s. 34 has not exceeded the
scope of the provision - View taken by DRB and arbitral tribunal,
both comprising of technical experts, that there is no variation
either in the form or quality or quantity of the works is the correct
one which was acknowledged by the Single Judge - At the time
of execution of the contract, the geogrid required turned out to
be much more than the estimated figure given in the contract -
As such both the fact finding authorities held that there was no
variation in terms of Clause 51.1 and the Engineer did not have
the competence to renegotiate the price or rate of the geogrid
for the excess quantity of geogrid required - This is clearly a
plausible view - It is the correct interpretation of Clause 51 made
by the DRB and the arbitral tribunal, in a reasonable manner
based on the evidence on record - As such, the Single Judge
rightly declined to interfere with the award of the arbitral tribunal
u/s.34, affirming the decision of the DRB - Division Bench of the
High Court not at all justified in setting aside the arbitral award
exercising extremely limited jurisdiction u/s.37 by merely using
expressions like 'opposed to the public policy of India', 'patent
illegality' and 'shocking the conscience of the court' - Thus, the
judgment and order passed by the Division Bench of the High
Court is set aside and the arbitral award is restored. [Paras 27.3,
28, 33, 34, 36, 42, 43]
Arbitration and Conciliation Act, 1996 - Arbitral award - Public
policy in India - Explanation:
Held: Public policy in India means the fundamental policy of Indian
law - Violation of Indian statutes linked to public policy or public
interest and disregarding orders of superior courts in India would
be regarded as being contrary to the fundamental policy of Indian
law - It would also mean that the arbitral award is against basic
notions of justice or morality - Arbitral award can be set aside on
the ground of patent illegality, where the illegality goes to the root
of the matter but reappreciation of evidence cannot be permitted
under the ground of patent illegality. [Para 37]
[2025] 2 S.C.R.
205
Somdatt Builders-NCC-NEC(JV) v.
National Highways Authority of India & Ors.
Case Law Cited
Ssangyong Engineer and Construction Company Ltd. v. NHAI
[2019] 7 SCR 522 : (2019) 15 SCC 131; Reliance Infrastructure
Ltd. v. State of Goa [2023] 8 SCR 379 : (2024) 1 SCC 479 -
relied on.
S.V. Samudram v. State of Karnataka [2024] 1 SCR 281 :
(2024) 3 SCC 623; M/s. Hindustan Construction Company Ltd. v.
M/s NHAI [2023] 11 SCR 623 : (2024) 2 SCC 613; Konkan Railway
Corporation Limited v. Chenab Bridge Project Undertaking [2023]
11 SCR 215 : (2023) 9 SCC 85; M/s. Larsen Air Conditioning
and Refrigeration Company v. Union of India 2023 INSC 708 :
[2023] 11 SCR 86; MMTC Ltd. v. Vedanta Limited [2019] 3 SCR
1023 : (2019) 4 SCC 163; MP Power Generation Company Ltd. v.
Ansaldo Energia SPA (2018) 16 SCC 661; Associate Builders v.
DDA [2014] 13 SCR 895 : (2015) 3 SCC 49; PSA Sical Terminals
Private Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust
Tuticorin [2021] 5 SCR 408 : (2023) 15 SCC 781- referred to.
Grinaker Construction (TVL) Ltd Vs. Transvaal Provincial
Administration, 1982 (1) AD 78 - referred to.
List of Acts
Arbitration and Conciliation Act, 1996.
List of Keywords
Dispute Review Board; Arbitral award; Interference with arbitral
award; Public policy; Public policy in India; Patent illegality; Bill of
quantities; Geogrid; Geotextile; General Conditions of Contract;
National Highway; Variation in quantity; Variation in design;
Technical experts; Interference with the decision of arbitrator;
Execution of contract awarded by National Highways Authority of
India; Construction of lanes on National Highway; Arbitration clause;
Court of appeal; Interpretation of contractual terms; Opposed to
the public policy of India; Patent illegality; Shocking the conscience
of the court; Basic notions of justice or morality.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2058 of 2012
From the Judgment and Order dated 17.11.2009 of the High Court
of Delhi at New Delhi in FAO No. 427 of 2007
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Appearances for Parties
Arvind Minocha, Sr. Adv., Rakesh Kharab, Mayank Kshirsagar,
Ms. Dhanlaxmi Iyer, Advs. for the Appellant.
Krishnan Venungopal, Sr. Adv., Vikas Goel, Abhishek Kumar,
Avinash Mathews, Ms. Garima Kaul, Santosh Kumar - I,
Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Ujjal Bhuyan, J.
Heard learned counsel for the parties.
2.
This civil appeal by special leave is directed against the judgment
and order dated 17.11.2009 passed by the High Court of Delhi at
New Delhi ('High Court') in FAO(OS) No. 427 of 2007 [National
Highways Authority of India Vs. Som Datt Builders-NCC-NEC(JV)].
2.1. By the aforesaid judgment, the High Court allowed the
appeal of the respondent-National Highways Authority of
India ('respondent' or 'NHAI' hereinafter) under Section 37 of
the Arbitration and Conciliation Act, 1996 (briefly 'the 1996
Act' hereinafter). It may be mentioned that respondent had
challenged, by way of the aforesaid appeal, the judgment and
order of the learned Single Judge in OMP No. 316/2005 dated
29.08.2007 whereby the learned Single Judge dismissed the
application filed by NHAI under Section 34 of the 1996 Act
for setting aside the award dated 03.06.2005 passed by the
Arbitral Tribunal.
3.
The matter relates to execution of a contract awarded by NHAI to the
appellant regarding the work of four laning and strengthening of the
existing two lane section between Km. 470.000 and Km. 38.000 on
NH-2 (construction package II-B) near Kanpur in the State of Uttar
Pradesh under World Bank Loan Assistance.
4.
At the outset, it would be apposite to advert to the relevant facts.
5.
Following a process of open bid tender, the related contract was
allotted by NHAI to the appellant vide the contract agreement dated
[2025] 2 S.C.R.
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National Highways Authority of India & Ors.
27.03.2002 who undertook to execute the work at the contract price
of Rs. 4,961,183,599.00. Appellant is a joint venture of Somdatt
Builders Pvt. Ltd., Nagarjuna Construction Company and Navayug
Engineering Company Limited having its principal place of business
at East of Kailash, New Delhi.
6.
A joint venture between Consulting Engineering Services (I) Ltd.
and BECA International Consultants Ltd. was appointed by NHAI
as the Engineer of the project in terms of the contract agreement
to supervise the construction work.
7.
It was a unit rate contract comprising of a detailed Bill of Quantities
(BOQ). The BOQ contained description of the items of the work to be
executed by the appellant as contractor and the estimated quantity
of each item. The rates of each BOQ item were to be filled in by
the contractor (appellant).
8.
The contract agreement provided for a mechanism of dispute
resolution at the first instance through a Dispute Review Board ('DRB')
prior to the parties availing of their remedy by way of arbitration.
A three-member panel of DRB was constituted comprising of one
member appointed by each of the two parties and the third member
appointed by the aforesaid two members.
9.
While executing the contract, a dispute arose between the parties in
respect of item No. 7.07 of the BOQ which provided for reinforced
earth structure including soil reinforcing geogrid with all fixtures
and accessories complete as per approved design and drawing of
specialised firm and matters connected therewith. The dispute was
not really in respect of the nature of the work to be performed but
was the consequence of the geogrid/geotextile material exceeding
the BOQ quantities in the contract. In essence, the dispute relates
to power of the Engineer to revise the rates given in the BOQ in
the event of increase in actual quantities. This was contested by
the appellant.
10. Appellant raised the aforesaid dispute before the DRB contending
that the Engineer/Employer was intending wrongful application of
Clause 52.2 of the Conditions of Particular Application (COPA) for
downward revision of rates for BOQ item No. 7.07 (ii) of geogrid for
quantity in excess of BOQ quantity. DRB heard both the sides and
deliberated upon the issue in detail. DRB vide its decision dated
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15.03.2004 recommended that quantities of geogrid required limited
to the facia area provided in the BOQ have to be paid as per the
BOQ rates.
11. Respondent NHAI was not satisfied with the aforesaid decision of
DRB and invoked the arbitration clause in the contract agreement
whereafter the dispute was referred to arbitration before an Arbitral
Tribunal comprising of three arbitrators: one arbitrator appointed by
each of the two parties and the third arbitrator appointed by the two
arbitrators so appointed. It is on record that each of the arbitrators
were technical experts conversant with the nature of the contract.
Arbitral Tribunal, by a majority of 2:1, passed the award dated
03.06.2005. Arbitral Tribunal held that the quantity of geogrid given
at the tender stage by NHAI was wrong. Therefore, the increase in
quantity was a mere increase to meet the requirement for completion
of the RE wall work which was indicated by the RCC facia quantity
at the tender stage. There was no change in the design but mere
increase in the quantity beyond the BOQ quantity which did not attract
Clause 52.2. In this context, Arbitral Tribunal held that the Engineer
does not possess the power to revise the rates for additional quantity
of geogrid required for actual execution of work as per the approved
design. Upholding the recommendations of DRB, Arbitral Tribunal
held that variation in terms of Clause 51.1 was not established and
directed NHAI to pay the appellant for the actual quantity of geogrid
required to be executed to complete the work of RE wall as per the
approved design at the BOQ rate.
12. The aforesaid award dated 03.06.2005 was challenged by the
respondent-NHAI under Section 34 of the 1996 Act which was heard
and decided by a learned Single Judge of the High Court. Learned
Single Judge examined the contours of Clauses 51.1, 51.2, 52.1,
52.2, 52.3 and 55.1 and came to the definite conclusion that there
was no change in the design. The BOQ rate would apply since the
matter was one of mere change in quantity. By the judgment and
order dated 29.08.2007, learned Single Judge of the High Court
found no merit in the application filed by NHAI under Section 34 of
the 1996 Act and dismissed the same.
13. It was thereafter that NHAI as the appellant preferred the appeal
before a Division Bench of the High Court under Section 37 of the
1996 Act. The Division Bench examined the primary contention
[2025] 2 S.C.R.
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of NHAI that under the contractual terms, all variations in quantity
beyond the tolerance limits set out in the contract, whether arising as
a result of issuance of instructions by the Engineer or arising even
without the issuance of instructions, were open to renegotiation of the
rates by the Engineer. By the judgment and order dated 17.11.2009
('impugned judgment'), Division Bench agreed with the contention
of NHAI and set aside the award of the Arbitral Tribunal as well as
the order of the learned Single Judge.
14. Being aggrieved, the contractor (appellant) preferred the related
special leave petition. On 14.12.2009, this Court had issued notice
and passed an interim order staying encashment of the bank
guarantee subject to the appellant renewing it for a period of one
year. Vide order dated 10.02.2012, this Court granted leave and
directed continuance of the interim order. Hence the civil appeal.
15. Contention of the appellant is that it is NHAI who had provided the
wrong quantity in respect of item No. 7.07 of the BOQ on the basis
of which appellant had tendered. Upon approval of the design by
the Engineer when the increased quantity became known in April,
2003, the Engineer held that BOQ rate would be payable for the
entire quantity which was not acceptable to NHAI. The increase in
quantity was not as a result of any change in the design or as a
result of any instructions given by the Engineer. The enhancement
in the quantity was necessitated because wrong information was
furnished by the respondent at the stage of tender itself. On dispute
being raised, this position was accepted by the DRB and thereafter
by the Arbitral Tribunal. Application filed by the respondent under
Section 34 of the 1996 Act for setting aside of the arbitral award
was rightly rejected by the learned Single Judge of the High Court.
Division Bench of the High Court fell in error and committed a
manifest mistake in overturning the technical findings of the three
authorities below while exercising limited jurisdiction under Section 37
of the 1996 Act.
16. Counter affidavit has been filed by respondent NHAI. Reliance has
been placed on Clauses 51 and 52 of COPA. Clause 51 of COPA
has two parts: 51.1 and 51.2. Clause 51.1 covers instructed variations
which includes any increase or decrease in the quantity of work. As
per Clause 51.2, for increase or decrease in quantity of any material,
instructions of the Engineer are not required. A combined reading
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of Clauses 51.1 and 51.2 would indicate that though increase or
decrease in the quantity of any work may be without instructions but
it nonetheless remains a variation. Once it is a variation, Engineer
has got the power to fix a new rate. This power is traceable to
Clause 52.1, which does not make any distinction between instructed
variation or uninstructed variation; on the other hand, it provides
that all variations referred to in Clause 51 are to be valued by the
Engineer. In case of instructed variation only, notice is required to
be given in terms of the second proviso to Clause 52.2. If this be
the position, view taken by the Division Bench of the High Court is
the correct one and calls for no interference.
17. Mr. Arvind Minocha, learned senior counsel for the appellant, at
the outset submits that the core issue involved in this appeal is
the justification or otherwise of the decision of the Division Bench
of the High Court upsetting concurrent findings of three authorities
while exercising jurisdiction under Section 37 of the 1996 Act. He
submits that the dispute raised by the appellant was decided in its
favour by the DRB comprising wholly of technical experts. Arbitral
Tribunal again comprising of technical persons passed the award
in favour of the appellant by confirming the decision of the DRB.
When the respondent filed application under Section 34 of the 1996
Act for setting aside of the award, learned Single Judge of the High
Court dismissed the same and affirmed the award passed by the
Arbitral Tribunal.
17.1. Learned senior counsel submits that scope of interference
by the appellate court under Section 37 of the 1996 Act
is extremely limited. None of the grounds for invocation of
jurisdiction under Section 37 of the 1996 Act were satisfied.
Learned Single Judge while exercising jurisdiction under
Section 34 of the 1996 Act had repelled the challenge of the
respondent to the arbitral award. View taken by the learned
Single Judge is a plausible view, if not the only possible view.
Therefore, Division Bench committed a manifest error in setting
aside the arbitral award as well as the order passed by the
learned Single Judge affirming the same.
17.2. Adverting to the facts of the case, learned senior counsel
submits that the scope of the contract involved construction
of 50 Kms. of road, service roads on both sides, drains,
[2025] 2 S.C.R.
211
Somdatt Builders-NCC-NEC(JV) v.
National Highways Authority of India & Ors.
17 main bridges, 65 culverts and 20 under-passes. The 51
Kms. stretch of road included raised carriageway of about 22
Kms. having Reinforced Concrete wall (RCC wall) on both
sides for 9.5 Kms. and Reinforced Earth wall (RE wall) for
about 12 Kms. with concrete facia panels. After the award of
work, the design of the wall was to be done by the appellant
based on the design criteria given in the contract with the
approval of the Engineer appointed by the respondent. The
item RE wall is mentioned at item No. 7.07 in the BOQ having
three sub-items:
(i)
RCC facia wall on both sides,
(ii)
filter media,
(iii) geogrid.
17.3. He submits that dispute in the present matter relates to the subitem geogrid as the respondent had given a wrong estimate of
the quantity in respect of geogrid while correct quantities were
given for the other two sub-items. This mistake was detected
when the design was prepared by the appellant and approved
by the Engineer. When the quantity of material in respect of
geogrid increased, the Engineer decided that the BOQ rate
would be applicable for the increased quantity of geogrid.
17.4. After the appellant commenced the work, the respondent was
making the monthly payment for the said item as per the BOQ
rate. After a new Engineer was appointed by the respondent, it
was decided that the rate for the increased quantity of geogrid
should be renegotiated.
17.5. Thereafter, the matter was referred by the appellant to the
DRB which decided in favour of the appellant. DRB held that
variation in terms of Clause 51.1 was not established and
recommended payment of geogrid at the BOQ rate for the
entire quantity.
17.6. Respondent did not accept the above recommendations of
the DRB and invoked the arbitration clause in the contract.
Arbitral Tribunal, comprised wholly of technical persons, by
a majority of 2:1 held that increase in the quantity of geogrid
for erection of the RE wall as per the approved design could
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not be termed as a variation in terms of Clause 51.1. Further
holding that the Engineer did not have the power to revise the
rate qua the BOQ rate for the additional quantity of geogrid
required for execution of the work as per the approved design,
Arbitral Tribunal directed payment as per the BOQ rate for
the additional quantity.
17.7. In the application filed by the respondent under section 34
of the 1996 Act for setting aside of the arbitral award, the
challenge centred around Clauses 51 and 52 only. Learned
Single Judge rejected the challenge of the respondent and
upheld the arbitral award. After the award was confirmed
by the learned Single Judge under Section 34 of the 1996
Act, the Division Bench acting as the appellate court was
not at all justified to overturn the concurrent findings of three
adjudicating fora while exercising extremely limited jurisdiction
under Section 37 of the 1996 Act.
17.8. He further submits that the interpretation given by the Division
Bench is not only contrary to Clause 51.1 and the proviso to
Clause 52.2 but renders those provisions completely otiose.
Division Bench misdirected itself by stretching the meaning of
the word variation by referring to dictionary meanings whereas
the said expression has to be understood in the context of
the relevant clauses of the contract. Division Bench failed to
appreciate that in so far automatic increase in the quantity is
concerned, the rate which is payable is the one as agreed
in the BOQ. If any other rate is to be fixed, the same can be
considered only in case of instructed variation provided 14
days prior notice before commencement of the work is given
which was admittedly not done in the present case. In this
connection he places reliance on a Delhi High Court judgment
in the case of NHAI vs. M/s ITD Cementation India Limited.1
17.9. On the limited scope of interference under Section 37 of the
1996 Act, learned senior counsel for the appellant has placed
reliance on the following decisions:
1
(2009) 113 DRJ 176
[2025] 2 S.C.R.
213
Somdatt Builders-NCC-NEC(JV) v.
National Highways Authority of India & Ors.
(i)
S.V. Samudram Vs. State of Karnataka,2
(ii)
M/s. Hindustan Construction Company Ltd. Vs. M/s NHAI3
(iii) Reliance Infrastructure Ltd. Vs. State of Goa4
(iv) Konkan Railway Corporation Limited Vs. Chenab Bridge
Project Undertaking5
(v)
M/s Larsen Air Conditioning and Refrigeration Company
Vs Union of India 6
(vi) MMTC Ltd. Vs. Vedanta Limited7
(vii) MP Power Generation Company Ltd. Vs. Ansaldo Energia
SPA8
18. Per contra, Mr. Krishnan Venugopal, learned senior counsel appearing
for NHAI submits that Division Bench of the High Court has rightly
set aside the arbitral award finding the same to be perverse.
18.1. He submits that the core issue involved in the present appeal
is whether the arbitral award dated 03.06.2005 goes contrary
to the only interpretation of Clauses 51 and 52 of the General
Conditions of Contract (GCC) read with COPA as contained in
the contract dated 27.03.2002 executed between the parties.
18.2. Learned senior counsel submits that subject matter of the
dispute relates to BOQ item No. 7.07 (II) i.e. geogrid. Due
to change in design of the RE wall, quantity of geogrid
increased almost by 300 percent during execution. Since the
twin conditions contemplated under Clause 52.2 were being
fulfilled i.e. overall quantity of geogrid executed by more
than 25 percent from the estimated quantity and the cost of
geogrid being more than 2 percent of the contract value, the
rate for the additional quantity of geogrid was required to be
reworked. Therefore, the present case is that of instructed
2
[2024] 1 SCR 281 : (2024) 3 SCC 623
3
[2023] 11 SCR 623 : (2024) 2 SCC 613
4
[2023] 8 SCR 379 : (2024) 1 SCC 479
5
[2023] 11 SCR 215 : (2023) 9 SCC 85
6
[2023] 11 SCR 86 : 2023 INSC 708
7
[2019] 3 SCR 1023 : (2019) 4 SCC 163
8
(2018) 16 SCC 661
214
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variation under Clause 51.1(a) for which the appellant was also
notified on 28.10.2003 fulfilling the requirement of 14 days'
notice contained in Clause 52.2.
18.3. Referring to the arbitral award, Mr. Venugopal submits that
contrary to the evidence on record and contrary to the relevant
clauses of the contract, Arbitral Tribunal held that it was not
a case of instructions issued by the Engineer but a case of
automatic increase of quantity. Referring to Clause 51.1(a),
he submits that increase or decrease in quantity is also a
variation and as per Clause 51.2, no instructions are required
for such increase or decrease of quantity though the same
continues to be a variation.
18.4. Even assuming but not admitting that the Engineer did not
issue any notice to the appellant then also, according to Mr.
Venugopal, a bare reading of Clause 52.2 would make it
apparent that for a non-instructed variation, the condition of
giving 14 days' notice would not apply.
18.5. Learned senior counsel also submits that the contention
of the appellant that the quantity of geogrid had increased
due to negligence and wrong mentioning of figures by the
respondent is totally fallacious in as much as Clause 55.1 of
the contract clarifies that the quantity set out in the contract
are the estimated quantities only.
18.6. He would therefore contend that this is not a case of plausible
interpretation but a case of adopting an interpretation which is
contrary to the only possible interpretation of the contractual
clauses. Arbitral Tribunal has rewritten the contract by
ignoring the plain and simple language of the relevant
clauses and the parties' intentions besides overlooking the
evidence on record which is legally impermissible. All these
aspects were raised by the respondent in its application
under Section 34 of the 1996 Act but the learned Single
Judge failed to consider the same by placing reliance on a
South African judgment which is clearly distinguishable in
the facts of the present case. Therefore, Division Bench of
the High Court acting as the appellate court under Section
37 of the 1996 Act rightly interfered in the matter by setting
aside the arbitral award.
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18.7. Learned senior counsel has placed reliance on the following
decisions to buttress his submissions:
(i)
Associate Builders Vs. DDA9
(ii)
Ssangyong Engineer and Construction Company Ltd.
Vs. NHAI10
(iii) PSA Sical Terminals Private Ltd. Vs. Board of Trustees
of V.O. Chidambranar Port Trust Tuticorin11
18.8. Learned senior counsel further submits that the judgment in
the case of NHAI Vs. M/s ITD Cementation India Limited, cited
and relied upon by the appellant, is not applicable to the facts
of the present case. Firstly, the judgment is by a Single Bench
whereas the impugned order has been passed by a Division
Bench which is also later in point of time. Secondly, the said
judgment does not deal with the power of the Engineer to fix
a new rate in terms of Clause 52.
18.9. He finally submits that the present appeal is devoid of any merit
and the same is therefore liable to be dismissed by this Court.
19. Submissions made by learned counsel for the parties have received
the due consideration of the court.
20. At the outset, it would be relevant to advert to Clauses 51 and 52 of
the GCC read with COPA. Clauses 51 and 52 are as under:
Alteration, Additions and Omissions
51.1 Variations (GCC)
The Engineer shall make any variation of the form, quality
or quantity of works or any part thereof that may, in his
opinion, be necessary and for the purpose, or if for any
other reason it shall, in his opinion, be appropriate, he
shall have the authority to instruct the Contractor to do
and the Contractor shall do any of the following:-
(a) increase or decrease the quantity of any work included
in the Contract.
9
[2014] 13 SCR 895 : (2015) 3 SCC 49
10
[2019] 7 SCR 522 : (2019) 15 SCC 131
11
[2021] 5 SCR 408 : (2023) 15 SCC 781
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(b) omit any such work (but not if the omitted work is to be
carried out by the Employer or by another contractor),
(c)
change the character or quality or kind of any such
work,
(d) change the levels, lines, position and dimensions of
any part of the works,
(e) execute additional work of any kind necessary for
the completion of the works, or
(f)
change any specified sequence or timing of
construction of any part of the works.
No such variation shall in any way vitiate or invalidate the
Contract, but the effect, if any, of all such variations shall
be valued in accordance with Clause 52.
Provided that where the issue of an instruction to vary
the works is necessitated by some default of or breach of
contract by the Contractor or for which he is responsible,
any additional cost attributable to such default shall be
borne by the Contractor.
51.2 Instructions for Variations (GCC)
The Contractor shall not make any such variation without
an instruction of the Engineer.
Provided that no instruction shall be required for increase or
decrease in the quantity of any work where such increase
or decrease is not the result of an instruction given under
this Clause, but is the result of the quantities exceeding
or being less than those stated in the Bill of Quantities.
52.1 Valuation of Variations (GCC)
All variations referred to in Clause 51 and any additions to
be Contract Price which are required to be determined in
accordance with Clause 52 (for the purposes of this Clause
referred to as "varied work"), shall be valued at the rates
and prices set out in the Contract if, in the opinion of the
Engineer, the same shall be applicable. If the contract does
not contain any rates or prices applicable to the varied
work, the rates and prices in the Contract shall be used
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as the basis for valuation so far as may be reasonable,
failing which, after due consultation by the Engineer with the
Employer and the Contractor, suitable rates or prices shall
be agreed upon between the Engineer and the Contractor.
In the event of disagreement, the Engineer shall fix such
rates or prices as are, in his opinion, appropriate and
shall notify the Contractor accordingly, with a copy to the
Employer. Until such time as rates or prices are agreed
or fixed, the Engineer shall determine provisional rates or
prices to enable on-account payments to be included in
certificates issued in accordance with Clause 60.
(COPA)
Where the Contract provides for the payment of the Contract
Price in more than one currency, and varied work is valued
at, or on the basis of, the rates and prices set out in the
Contract, payment for such varied work shall be made
in the proportions of various currencies specified in the
Appendix to Bid for payment of the Contract Price. Where
the Contract provides for payment of the Contract Price
in more than one currency, and new rates or prices are
agreed, fixed, or determined as stated above, the amount
or proportion payable in each of the applicable currencies
shall be specified when the rates or prices are agreed, fixed,
or determined, it being understood that in specifying these
amounts or proportions the Contractor and the Engineer (or,
failing agreement, the Engineer) shall take into account the
actual or expected currencies of cost (and the proportions
thereof) of the inputs of the varied work without regard to the
proportions of various currencies specified in the Appendix
to Bid for payment of the Contract Price.
52.2 Power of Engineer to fix Rates (GCC)
Provided that if the nature or amount of any varied work
relative to the nature or amount of the whole of the works
or to any part thereof, is such that, in the opinion of the
Engineer, the rate or price contained in the Contract for
any item of the works is, by reason of such varied work,
rendered inappropriate or inapplicable, then, after due
consultation by the Engineer with the Employer and the
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Contractor, a suitable rate or price shall be agreed upon
between the Engineer and the Contractor. In the event
of disagreement the Engineer shall fix such other rate
or price as is, in his opinion, appropriate and shall notify
the Contractor accordingly, with a copy to the Employer.
Until such time as rates or prices are agreed or fixed, the
Engineer shall determine provisional rates or prices to
enable on-account payments to be included in certificates
issued in accordance with Clause 60.
(COPA)
Where the Contract provides for the payment of the
Contract Price in more than one currency, the amount or
proportion payable in each of the applicable currencies
shall be specified when the rates or prices are agreed, fixed
or determined as stated above, it being understood that
in specifying these amounts or proportions the Contractor
and the Engineer (or, failing agreement, the Engineer)
shall take into account the actual or expected currencies
of cost (and the proportions thereof) of the inputs of the
varied work without regard to the proportions of various
currencies specified in the Appendix to Bid for payment
of the Contract Price.
(GCC)
Provided also that no varied work instructed to be done by
the Engineer pursuant to Clause 51 shall be valued under
Sub-Clause 52.1 or under this Sub-Clause unless, within
14 days of the date of such instruction and, other than
in the case of omitted work, before the commencement
of the varied work, notice shall have been given either:
(a) by the Contractor to the Engineer of his intention
to claim extra payment or a varied rate or price, or
(b) by the Engineer to the Contractor of his intention to
vary a rate or price. (GCC)
(COPA)
Provided further that no change in the rate or price for
any item contained in the Contract shall be considered
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Somdatt Builders-NCC-NEC(JV) v.
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unless such item accounts for an amount more than 2
percent of the Contract Price, and the actual quantity of
work executed under the item exceeds or falls short of
the quantity set out in the Bill of Quantities by more than
25 percent.
52.3 Variations Exceeding 15 per cent (GCC)
If, on the issue of the Taking-Over Certificate for the whole
of the works, it is found that as result of :
(a) all varied work valued under Sub-Clauses 52.1 and
52.2 and
(b) all adjustments upon measurement of the estimated
quantities set out in Bill of Quantities, excluding
provisional sums, dayworks and adjustments of price
made under Clause 70.
But not from any other cause, there have been additions to
or deductions from Contract Price which taken together are
in excess of 15 per cent of the "Effective Contract Price"
(which for the purposes of this Sub-Clause shall mean
Contract Price, excluding provisional sums and allowance
for dayworks, if any) then and in such event (subject to
any action already taken under any of Sub-Clauses of this
Clause), after due consultation by the Engineer with the
Employer and the Contractor, there shall be added to or
deducted from Contract Price, such further sum as may
be agreed between the Contractor and Engineer or, failing
agreement, determined by the Engineer having regard to
the Contractor's site and general overhead costs of the
Contract. The Engineer shall notify the Contractor of any
determination made under this Sub-Clause, with copy
to the Employer. Such sum shall be based only on the
amount by which such additions or deductions shall be
in excess of 15 per cent of the Effective Contract Price.
(COPA)
Where the Contract provides for the payment of the
Contract Price in more than one currency, the amount or
proportion payable in each of the applicable currencies
shall be specified when such further sum is agreed or
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determined, it being understood that in specifying these
amounts or proportions the Contractor and the Engineer
(or, failing agreement, the Engineer) shall take into account
the currencies (and the proportions thereof) in which the
Contractor's site and general overhead cost of the Contract
were incurred without being bound by the proportions of
various currencies specified in the Appendix to Bid payment
of the Contract Price.
21. DRB while rejecting the contention of NHAI was of the view that the
design of geogrid is contingent to the height and area of facia panel
within the prescribed length mentioned in the BOQ and based on the
parameters/specifications as prescribed in the agreement, there was
no change in the concept or design. Basically, the design submitted
by the appellant was approved and accepted by the Engineer. Since
the work was done as per the valid approved design, plea taken by
NHAI that there was a change of form in terms of the wall heights and
length of RE wall could not be evidenced by NHAI. After an in-depth
analysis, DRB concluded that there was no change of form but only
a working arrangement. The design having been approved after the
full knowledge of the Engineer that enhancement in quantity to a large
extent was involved and accordingly, the matter was referred by the
Engineer for allocation of funds. Therefore, there was no variation
as per Clause 51.1 or Clause 51.2 and hence payment as per the
BOQ rate should be made for the entire quantity. Though NHAI
had contended that appellant had changed the form and varied the
design, this could not be proved in any way. Therefore, DRB held
that variation in terms of Clause 51.1 could not be established. As
such, DRB recommended that quantities of geogrid required, limited
to the facia area, should be paid as per the BOQ rates.
22. As already noticed, the DRB recommendations were not acceptable
to NHAI which thereafter invoked the arbitration clause. Arbitral
Tribunal comprised of three arbitrators; one each appointed by the
two parties who thereafter appointed the third arbitrator. All the
three arbitrators were technical experts. Arbitral Tribunal referred
to Clause 67.1 of the GCC which says that recommendations of
the DRB shall be binding on both parties giving prompt effect to it
until and unless the same is revised by the Arbitral Tribunal. Arbitral
Tribunal, therefore, was of the view that NHAI should have complied
with the DRB recommendations which was subject to outcome of the
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National Highways Authority of India & Ors.
arbitral award. However, NHAI failed to do so. Thereafter, Arbitral
Tribunal framed the core issue to be considered viz. whether as per
the contract, Engineer has the right to revise the rate for additional
quantities of geogrid in excess of the BOQ quantities which are
required for actual execution of the RE wall as per approved design.
After thorough examination of the rival claims, Arbitral Tribunal
recorded the finding that the quantity of geogrid given at the tender
stage which was part of the responsibility of NHAI was found to be
erroneous. Therefore, the increase in quantity was merely to meet
the requirement for completion of the RE wall which was indicated
by the RCC facia quantity at the tender stage. NHAI had admitted
the fact that the design evolved by the appellant's consultant met
the specified criteria. In other words, there was no change in the
design and NHAI could not establish the same before the Arbitral
Tribunal which held as follows:
8.3 In a contract of the type in question which is an item
rate contract based on the price schedule of provisional
quantities the ultimate contract amount can be ascertained
when all the work done in terms of the contract is finally
measured and the contract amount computation done
on the. basis of the prices and rates set out in the Bill of
Quantities.