# SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD v. NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)

- **Citation:** [2019] 7 S.C.R. 522
- **Court:** Supreme Court of India
- **Decided:** 2019-05-08
- **Case number:** Civil Appeal No. 4779 of 2019
- **Bench:** R. F. Nariman, Vineet Saran
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ssangyong-engineering-construction-co-ltd-v-national-highways-authority-of-34019
- **Pages:** 85

## Headnote

Arbitration and Conciliation Act, 1996 - ss.34(2)(b)(ii),
34(2)(a)(iii) - Respondent invited bids for construction of a fourlane bypass on National Highway 26 in the State of Madhya Pradesh
- Appellant's bid was accepted - Price adjustment for four of the
components used in execution of the contract i.e. cement, steel, plant
and machinery, and other local materials was to be calculated as
per formula given in sub-clause 70.3 of the contract - Price
adjustment was being paid to the appellant by using the Wholesale
Price Index (WPI) published by the Ministry of Industrial
Development, which followed the years 1993-94= 100 (Old Series)
- However, w.e.f 14.09.10, the Ministry stopped publishing the WPI
for the Old Series and started publishing indices under the WPI
series 2004-05= 100 (New Series) - As both the indices C1 and Co
were available to the appellant under the New Series for calculating
price adjustment, the appellant raised bills accordingly - On
15.02.13, the respondent issued a Policy Circular in which a new
formula for determining indices was used stating that the Circular
would be applied to the contract in question, as a result of which, a
linking factor would have to be provided by which the Old Series
was connected to the New Series - Appellant challenged the Circular
- Eventually, the arbitral tribunal consisting of three members by
majority award held that the Circular could be applied as it was
within contractual stipulations - Petition u/s.34 filed by the appellant
- Rejected by the High Court - Appellant inter alia pleaded that
s.34(2)(b)(ii) was attracted as the award was in conflict with the
public policy of India and that s.34(2)(a)(iii) would also be attracted
as principles of natural justice were violated - Held: Government
guidelines that were referred to and relied upon by the majority
award to arrive at the linking factor were never in evidence before
the Tribunal - Tribunal relied upon the said guidelines by itself
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522
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stating that they are to be found on a certain website - This being
the case, the appellant would be directly affected, not being allowed
to comment on the applicability or interpretation of those guidelines
- Thus, majority award set aside u/s.34(2)(a)(iii) - Further, in order
to apply a linking factor, a Circular, unilaterally issued by one party,
cannot possibly bind the other party to the agreement without that
other party's consent - Indeed, the Circular expressly stipulated
that it cannot apply unless the contractors furnish an undertaking/
affidavit that the price adjustment under the Circular is acceptable
to them - Appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not and
cannot apply - Majority award created a new contract for the parties
by applying the said unilateral Circular and by substituting a
workable formula under the agreement by another formula de hors
the agreement - Thus, a fundamental principle of justice was
breached - Such a course of conduct would be contrary to
fundamental principles of justice as followed in this country and
shocks the conscience of the Court - However, this ground is
available only in very exceptional circumstances, as in the present
case - Judgments of the Single Judge and the Division Bench of
the High Court, set aside - Consequently, the majority award is
also set aside - In order to do complete justice between the parties,
invoking power u/Art.142 of the Constitution of India, the minority
award is upheld - This award, together with interest now be executed
between the parties - Foreign Awards (Recognition and
Enforcement) Act, 1961 - s.7 - Constitution of India - Art.142 -
UNCITRAL Model Law on International Commercial Arbitration -
Art.26.
Arbitration and Conciliation Act, 1996 - s.34 - Setting aside
an arbitral award, in conflict with "public policy of India"- Law
post Amendment Act, 2015 - Held: "Public policy of India", wheth

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SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD.
v.
NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)
(Civil Appeal No. 4779 of 2019)
MAY 08, 2019
[R. F. NARIMAN AND VINEET SARAN, JJ.]
Arbitration and Conciliation Act, 1996 - ss.34(2)(b)(ii),
34(2)(a)(iii) - Respondent invited bids for construction of a fourlane bypass on National Highway 26 in the State of Madhya Pradesh
- Appellant's bid was accepted - Price adjustment for four of the
components used in execution of the contract i.e. cement, steel, plant
and machinery, and other local materials was to be calculated as
per formula given in sub-clause 70.3 of the contract - Price
adjustment was being paid to the appellant by using the Wholesale
Price Index (WPI) published by the Ministry of Industrial
Development, which followed the years 1993-94= 100 (Old Series)
- However, w.e.f 14.09.10, the Ministry stopped publishing the WPI
for the Old Series and started publishing indices under the WPI
series 2004-05= 100 (New Series) - As both the indices C1 and Co
were available to the appellant under the New Series for calculating
price adjustment, the appellant raised bills accordingly - On
15.02.13, the respondent issued a Policy Circular in which a new
formula for determining indices was used stating that the Circular
would be applied to the contract in question, as a result of which, a
linking factor would have to be provided by which the Old Series
was connected to the New Series - Appellant challenged the Circular
- Eventually, the arbitral tribunal consisting of three members by
majority award held that the Circular could be applied as it was
within contractual stipulations - Petition u/s.34 filed by the appellant
- Rejected by the High Court - Appellant inter alia pleaded that
s.34(2)(b)(ii) was attracted as the award was in conflict with the
public policy of India and that s.34(2)(a)(iii) would also be attracted
as principles of natural justice were violated - Held: Government
guidelines that were referred to and relied upon by the majority
award to arrive at the linking factor were never in evidence before
the Tribunal - Tribunal relied upon the said guidelines by itself
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522
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stating that they are to be found on a certain website - This being
the case, the appellant would be directly affected, not being allowed
to comment on the applicability or interpretation of those guidelines
- Thus, majority award set aside u/s.34(2)(a)(iii) - Further, in order
to apply a linking factor, a Circular, unilaterally issued by one party,
cannot possibly bind the other party to the agreement without that
other party's consent - Indeed, the Circular expressly stipulated
that it cannot apply unless the contractors furnish an undertaking/
affidavit that the price adjustment under the Circular is acceptable
to them - Appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not and
cannot apply - Majority award created a new contract for the parties
by applying the said unilateral Circular and by substituting a
workable formula under the agreement by another formula de hors
the agreement - Thus, a fundamental principle of justice was
breached - Such a course of conduct would be contrary to
fundamental principles of justice as followed in this country and
shocks the conscience of the Court - However, this ground is
available only in very exceptional circumstances, as in the present
case - Judgments of the Single Judge and the Division Bench of
the High Court, set aside - Consequently, the majority award is
also set aside - In order to do complete justice between the parties,
invoking power u/Art.142 of the Constitution of India, the minority
award is upheld - This award, together with interest now be executed
between the parties - Foreign Awards (Recognition and
Enforcement) Act, 1961 - s.7 - Constitution of India - Art.142 -
UNCITRAL Model Law on International Commercial Arbitration -
Art.26.
Arbitration and Conciliation Act, 1996 - s.34 - Setting aside
an arbitral award, in conflict with "public policy of India"- Law
post Amendment Act, 2015 - Held: "Public policy of India", whether
contained in s.34 or s.48 of the 1996 Act would now mean the
"fundamental policy of Indian law" as explained in paragraphs 18
and 27 of Associate Builders case i.e. the fundamental policy of
Indian law would be relegated to the "Renusagar" understanding
of this expression - Expansion of the phrase "public policy of
India", made in Western Geco case has been done away with -
Western Geco as explained in paragraphs 28 and 29 of Associate
Builders, would no longer obtain, as under the guise of interfering
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with an award on the ground that the arbitrator has not adopted a
judicial approach, the Court's intervention would be on the merits
of the award, which cannot be permitted post amendment - However,
principles of natural justice, as contained in ss.18 and 34(2)(a)(iii)
of the 1996 Act continue to be grounds of challenge of an award,
as is contained in paragraph 30 of Associate Builders - Arbitration
and Conciliation (Amendment) Act, 2015.
Arbitration and Conciliation (Amendment) Act, 2015 -
Applicability of - Held: Section 34, as amended, will apply only to
s.34 applications that have been made to the Court on or after
23.10.2015, irrespective of the fact that the arbitration proceedings
may have commenced prior to that date - Arbitration and
Conciliation Act, 1996 - s.34.
Interpretation of Statutes - Amendment by way of clarification
- Retrospective or prospective - Held: Amendment made in
Explanations 1 and 2 to s.34(2)(b)(ii) have been made for the
avoidance of any doubt - Even on principle, it is the substance of
the amendment that is to be looked at rather than the form -
Therefore, even in cases where, for avoidance of doubt, something
is clarified by way of an amendment, such clarification cannot be
retrospective if the earlier law has been changed substantively -
Arbitration and Conciliation Act, 1996 - Explanations 1 and 2 to
s.34(2)(b)(ii).
Words & expressions - "Public policy of India" - Meaning
of - Held: Public policy of India is now constricted to mean firstly,
that a domestic award is contrary to the fundamental policy of Indian
law, as understood in paragraphs 18 and 27 of Associate Builders
case, or secondly, that such award is against basic notions of justice
or morality as understood in paragraphs 36 to 39 of Associate
Builders - Explanation 2 to s.34(2)(b)(ii) and Explanation 2 to
s.48(2)(b)(ii) was added by the Amendment Act only so that Western
Geco case, as understood in Associate Builders, and paragraphs
28 and 29 in particular, is now done away with - Arbitration and
Conciliation Act, 1996 - Explanation 2 to s.34(2)(b)(ii) &
Explanation 2 to s.48(2)(b)(ii) - Arbitration and Conciliation
(Amendment) Act, 2015.
Arbitration and Conciliation Act, 1996 - s.34(2A) -"Patent
illegality" - Held: Insofar as domestic awards made in India are
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concerned, an additional ground is now available u/sub-s.(2A),
added to s.34 by the Amendment Act, 2015- There must be patent
illegality appearing on the face of the award, which refers to such
illegality as goes to the root of the matter but which does not amount
to mere erroneous application of the law - If an arbitrator is alleged
to have wandered outside the contract and dealt with matters not
allotted to him, this would be a jurisdictional error which could be
corrected on the ground of "patent illegality", which would not
apply to international commercial arbitrations that are decided under
Part II of the 1996 Act - A decision which is perverse, as understood
in paragraphs 31 and 32 of Associate Builders, while no longer
being a ground for challenge under "public policy of India", would
certainly amount to a patent illegality appearing on the face of the
award - Arbitration and Conciliation (Amendment) Act, 2015.
Arbitration and Conciliation Act, 1996 - ss.28(3), 34(2A) -
Held: Change made in s.28(3) by the Amendment Act really follows
what is stated in paragraphs 42.3 to 45 in Associate Builders case,
namely, that the construction of the terms of a contract is primarily
for an arbitrator to decide, unless the arbitrator construes the
contract in a manner that no fair-minded or reasonable person
would; that the arbitrator's view is not even a possible view to take
- Also, if the arbitrator wanders outside the contract and deals
with matters not allotted to him, he commits an error of jurisdiction
- This ground of challenge will now fall within the new ground
added u/s.34(2A) - Arbitration and Conciliation (Amendment) Act,
2015.
Arbitration and Conciliation Act, 1996 - s.34(2)(a)(iii) and
ss.18, 24(3), 26 - Held: ss.18, 24(3) and 26 are important pointers
to what is contained in the ground of challenge mentioned in
s.34(2)(a)(iii) - Under s.34(2)(a)(iii), one of the grounds of
challenge of an arbitral award is that a party is unable to present
its case - Where materials are taken behind the back of the parties
by the Tribunal, on which the parties have had no opportunity to
comment, the ground u/s.34(2)(a)(iii) would be made out.
Arbitration and Conciliation Act, 1996 - s.34(2)(a)(iv) -
"submission to arbitration"- Challenge to an arbitral award - Held:
Where an arbitral tribunal has rendered an award which decides
matters either beyond the scope of the arbitration agreement or
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beyond the disputes referred to the arbitral tribunal, the arbitral
award could be said to have dealt with decisions on matters beyond
the scope of submission to arbitration - To bring in by the backdoor
grounds relatable to s.28(3) of the 1996 Act to be matters beyond
the scope of submission to arbitration u/s.34(2)(a)(iv) would not be
permissible as this ground must be construed narrowly and so
construed, must refer only to matters which are beyond the
arbitration agreement or beyond the reference to the arbitral
tribunal.
Words & expressions -"most basic notions of ... justice"-
Meaning of - Held: Expression"most basic notions of ... justice"
finds mention in Explanation 1 to sub-clause (iii) to s.34(2)(b) -
Here, what is referred to is, substantively or procedurally, some
fundamental principle of justice which has been breached, and
which shocks the conscience of the Court - Arbitration and
Conciliation Act, 1996 - Explanation 1 to sub-clause (iii) to
s.34(2)(b).
Allowing the appeal, the Court
HELD: Applicability of the Arbitration and Conciliation
(Amendment) Act, 2015
1.1 Since the Section 34, Arbitration and Conciliation Act,
1996 petition in the present case is dated 30.07.2016, an
important question as to the applicability of the parameters of
review of arbitral awards would arise in this case. More
particularly, radical changes have been made by the Arbitration
and Conciliation (Amendment) Act, 2015 with effect from
23.10.2015- in particular, in the "public policy of India" ground
for challenge of arbitral awards. The question which arises is
whether the amendments made in Section 34 are applicable to
applications filed under Section 34 to set aside arbitral awards
made after 23.10.2015. The amendments made in Explanations
1 and 2 to Section 34(2)(b)(ii) have been made for the avoidance
of any doubt, which language, however, is not found in Section
34(2A). Apart from the anomalous position which would arise if
the Section were to be applied piecemeal, namely, that
Explanations 1 and 2 were to have retrospective effect, being
only to remove doubts, whereas sub-section (2A) would have to
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apply prospectively as a new ground, with inbuilt exceptions,
having been introduced for the first time, it is clear that even on
principle, it is the substance of the amendment that is to be looked
at rather than the form. Therefore, even in cases where, for
avoidance of doubt, something is clarified by way of an
amendment, such clarification cannot be retrospective if the
earlier law has been changed substantively. In the present case,
fundamental changes have been made in the law. The expansion
of "public policy of India" in ONGC Ltd. v. Saw Pipes Ltd., (2003)
5 SCC 705 ["Saw Pipes"] and ONGC Ltd. v. Western Geco
International Ltd., (2014) 9 SCC 263 ["Western Geco"] has been
done away with, and a new ground of "patent illegality", with inbuilt
exceptions, has been introduced. Given this, it is declared that
Section 34, as amended, will apply only to Section 34 applications
that have been made to the Court on or after 23.10.2015,
irrespective of the fact that the arbitration proceedings may have
commenced prior to that date. [Paras 10-12] [542-A-C;
544-G-H; 545-A-B; F-H]
Changes made by the Amendment Act, 2015
1.2 Whether the ground of "public policy of India" is used
to set aside an award under Section 34, or to refuse recognition
and enforcement of a foreign award under Section 48, Section
34(2)(b) ought to have been construed in the same manner as
Section 48(2)(b). This Court, in Saw Pipes, added yet another
ground, namely, that of "patent illegality" to the three grounds
mentioned in Renusagar in order to set aside an award under
Section 34 of the 1996 Act. Yet another expansion of the phrase
"public policy of India" contained in Section 34 of the 1996 Act
was by another judgment of this Court in Western Geco, which
was explained in Associate Builders. [Paras 13, 15 and 17]
[548-C-D; 549-D]
1.3 The expression "public policy of India", whether
contained in Section 34 or in Section 48, would now mean the
"fundamental policy of Indian law" as explained in paragraphs 18
and 27 of Associate Builders, i.e., the fundamental policy of Indian
law would be relegated to the "Renusagar" understanding of this
expression. This would necessarily mean that the Western Geco
expansion has been done away with. In short, Western Geco, as
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explained in paragraphs 28 and 29 of Associate Builders, would
no longer obtain, as under the guise of interfering with an award
on the ground that the arbitrator has not adopted a judicial
approach, the Court's intervention would be on the merits of the
award, which cannot be permitted post amendment. However,
insofar as principles of natural justice are concerned, as contained
in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to
be grounds of challenge of an award, as is contained in paragraph
30 of Associate Builders. The ground for interference insofar as
it concerns "interest of India" has since been deleted, and
therefore, no longer obtains. Equally, the ground for interference
on the basis that the award is in conflict with justice or morality is
now to be understood as a conflict with the "most basic notions
of morality or justice". This again would be in line with paragraphs
36 to 39 of Associate Builders, as it is only such arbitral awards
that shock the conscience of the court that can be set aside on
this ground. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is contrary to
the fundamental policy of Indian law, as understood in paragraphs
18 and 27 of Associate Builders, or secondly, that such award is
against basic notions of justice or morality as understood in
paragraphs 36 to 39 of Associate Builders. Explanation 2 to
Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was
added by the Amendment Act only so that Western Geco, as
understood in Associate Builders, and paragraphs 28 and 29 in
particular, is now done away with. [Paras 23-25] [567-B-H]
1.3 Insofar as domestic awards made in India are concerned,
an additional ground is now available under sub-section (2A),
added by the Amendment Act, 2015, to Section 34. Here, there
must be patent illegality appearing on the face of the award, which
refers to such illegality as goes to the root of the matter but which
does not amount to mere erroneous application of the law. In
short, what is not subsumed within "the fundamental policy of
Indian law", namely, the contravention of a statute not linked to
public policy or public interest, cannot be brought in by the
backdoor when it comes to setting aside an award on the ground
of patent illegality. Secondly, it is also made clear that re-
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appreciation of evidence, which is what an appellate court is
permitted to do, cannot be permitted under the ground of patent
illegality appearing on the face of the award. Paragraph 42.1 of
Associate Builders, namely, a mere contravention of the
substantive law of India, by itself, is no longer a ground available
to set aside an arbitral award. Paragraph 42.2 of Associate
Builders, however, would remain, for if an arbitrator gives no
reasons for an award and contravenes Section 31(3) of the 1996
Act, that would certainly amount to a patent illegality on the face
of the award. The change made in Section 28(3) by the Amendment
Act really follows what is stated in paragraphs 42.3 to 45 in
Associate Builders, namely, that the construction of the terms of
a contract is primarily for an arbitrator to decide, unless the
arbitrator construes the contract in a manner that no fair-minded
or reasonable person would; in short, that the arbitrator's view
is not even a possible view to take. Also, if the arbitrator wanders
outside the contract and deals with matters not allotted to him,
he commits an error of jurisdiction. This ground of challenge will
now fall within the new ground added under Section 34(2A).
[Paras 26-29] [568-A-F]
1.4 A decision which is perverse, as understood in
paragraphs 31 and 32 of Associate Builders, while no longer being
a ground for challenge under "public policy of India", would
certainly amount to a patent illegality appearing on the face of
the award. Thus, a finding based on no evidence at all or an award
which ignores vital evidence in arriving at its decision would be
perverse and liable to be set aside on the ground of patent
illegality. Additionally, a finding based on documents taken behind
the back of the parties by the arbitrator would also qualify as a
decision based on no evidence inasmuch as such decision is not
based on evidence led by the parties, and therefore, would also
have to be characterised as perverse. [Para 30] [568-G-H;
569-A]
The Ground of Challenge under Section 34(2)(a)(iii)
1.5 Under Section 34(2)(a)(iii), one of the grounds of
challenge of an arbitral award is that a party is unable to present
its case. In order to understand the import of Section 34(2)(a)(iii),
Section 18 of the 1996 Act should also be seen. Section 24(3) is a
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verbatim reproduction of Article 24(3) of the UNCITRAL Model
Law on International Commercial Arbitration. Similarly, Section
26(1) and (2) is a verbatim reproduction of Article 26 of the
UNCITRAL Model Law. Sub-section (3) of Section 26 has been
added by the Indian Parliament in enacting the 1996 Act. Sections
18, 24(3), and 26 are important pointers to what is contained in
the ground of challenge mentioned in Section 34(2)(a)(iii). Under
Section 18, each party is to be given a full opportunity to present
its case. Under Section 24(3), all statements, documents, or other
information supplied by one party to the arbitral tribunal shall be
communicated to the other party, and any expert report or
document on which the arbitral tribunal relies in making its
decision shall be communicated to the parties. Section 26 is an
important pointer to the fact that when an expert's report is relied
upon by an arbitral tribunal, the said report, and all documents,
goods, or other property in the possession of the expert, with
which he was provided in order to prepare his report, must first
be made available to any party who requests for these things.
Secondly, once the report is arrived at, if requested, parties have
to be given an opportunity to put questions to him and to present
their own expert witnesses in order to testify on the points at
issue. [Paras 34-36] [575-D-E; 576-E-H; 577-A]
1.6 Under the rubric of a party being otherwise unable to
present its case, the standard textbooks on the subject have
stated that where materials are taken behind the back of the
parties by the Tribunal, on which the parties have had no
opportunity to comment, the ground under Section 34(2)(a)(iii)
would be made out. [Para 37] [577-B]
The Ground of Challenge under Section 34(2)(a)(iv)
1.7 So far as this defence is concerned, standard textbooks
on the subject have held that the expression "submission to
arbitration" either refers to the arbitration agreement itself, or
to disputes submitted to arbitration, and that so long as disputes
raised are within the ken of the arbitration agreement or the
disputes submitted to arbitration, they cannot be said to be
disputes which are either not contemplated by or which fall outside
the arbitration agreement. The expression "submission to
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arbitration" occurs in various provisions of the 1996 Act. Thus,
under Section 28(1)(a), an arbitral tribunal "... shall decide the
dispute submitted to arbitration ...". Section 43(3) of the 1996
Act refers to "... an arbitration agreement to submit future
disputes to arbitration ....". Also, it has been stated that where
matters, though not strictly in issue, are connected with matters
in issue, they would not readily be held to be matters that could
be considered to be outside or beyond the scope of submission
to arbitration. [Para 39] [581-E-H]
1.8 Where an arbitral tribunal has rendered an award which
decides matters either beyond the scope of the arbitration
agreement or beyond the disputes referred to the arbitral tribunal,
as understood in Praveen Enterprises, the arbitral award could
be said to have dealt with decisions on matters beyond the scope
of submission to arbitration. In the guise of misinterpretation of
the contract, and consequent "errors of jurisdiction", it is not
possible to state that the arbitral award would be beyond the
scope of submission to arbitration if otherwise the aforesaid
misinterpretation (which would include going beyond the terms
of the contract), could be said to have been fairly comprehended
as "disputes" within the arbitration agreement, or which were
referred to the decision of the arbitrators as understood by the
authorities above. If an arbitrator is alleged to have wandered
outside the contract and dealt with matters not allotted to him,
this would be a jurisdictional error which could be corrected on
the ground of "patent illegality", which would not apply to
international commercial arbitrations that are decided under Part
II of the 1996 Act. To bring in by the backdoor grounds relatable
to Section 28(3) of the 1996 Act to be matters beyond the scope
of submission to arbitration under Section 34(2)(a)(iv) would not
be permissible as this ground must be construed narrowly and
so construed, must refer only to matters which are beyond the
arbitration agreement or beyond the reference to the arbitral
tribunal. [Paras 42, 43] [598-H; 599-A-E]
Most Basic Notions of Justice
1.9 The expression "most basic notions of ... justice" finds
mention in Explanation 1 to sub-clause (iii) to Section 34(2)(b).
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Here again, what is referred to is, substantively or procedurally,
some fundamental principle of justice which has been breached,
and which shocks the conscience of the Court. The government
guidelines that were referred to and strongly relied upon by the
majority award to arrive at the linking factor were never in
evidence before the Tribunal. In fact, the Tribunal relied upon
the said guidelines by itself and states that they are to be found
on a certain website. These guidelines were never, in fact,
disclosed in the arbitration proceedings. The appellant would be
directly affected as it would otherwise be unable to present its
case, not being allowed to comment on the applicability or
interpretation of those guidelines. For example, the appellant
could have argued, without prejudice to the argument that linking
is de hors the contract, that of the three methods for linking the
New Series with the Old Series, either the second or the third
method would be preferable to the first method, which the majority
award has applied on its own. For this reason, the majority award
needs to be set aside under Section 34(2)(a)(iii). [Paras 44-46]
[599-E-F; 604-B-F]
1.10 Insofar as the argument that a new contract had been
made by the majority award for the parties, without the consent
of the appellant, by applying a formula outside the agreement, as
per the Circular dated 15.02.2013, which itself could not be
applied without the appellant's consent, this ground under Section
34(2)(a)(iv) would not be available. The appellant argued before
the arbitral tribunal that a new contract was being made by applying
the formula outside what was prescribed, which was answered by
the respondent, stating that it would not be possible to apply the
old formula without a linking factor which would have to be
introduced. Considering that the parties were at issue on this,
the dispute as to whether the linking factor applied, thanks to
the Circular dated 15.02.2013, is clearly something raised and
argued by the parties, and is certainly something which would fall
within the arbitration clause or the reference to arbitration that
governs the parties. This being the case, this argument would
not obtain and Section 34(2)(a)(iv), as a result, would not be
attracted. However, when it comes to the public policy of India
argument based upon "most basic notions of justice", it is clear
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that this ground can be attracted only in very exceptional
circumstances when the conscience of the Court is shocked by
infraction of fundamental notions or principles of justice. The
formula that was applied by the agreement continued to be applied
till February, 2013 - in short, it is not correct to say that the
formula under the agreement could not be applied in view of the
Ministry's change in the base indices from 1993-94 to 2004-05.
Further, in order to apply a linking factor, a Circular, unilaterally
issued by one party, cannot possibly bind the other party to the
agreement without that other party's consent. Indeed, the
Circular itself expressly stipulates that it cannot apply unless the
contractors furnish an undertaking/affidavit that the price
adjustment under the Circular is acceptable to them. The
appellant gave such undertaking only conditionally and without
prejudice to its argument that the Circular does not and cannot
apply. This being the case, it is clear that the majority award
created a new contract for the parties by applying the said
unilateral Circular and by substituting a workable formula under
the agreement by another formula de hors the agreement. This
being the case, a fundamental principle of justice has been
breached, namely, that a unilateral addition or alteration of a
contract can never be foisted upon an unwilling party, nor can a
party to the agreement be liable to perform a bargain not entered
into with the other party. Clearly, such a course of conduct would
be contrary to fundamental principles of justice as followed in
this country, and shocks the conscience of this Court. However,
this ground is available only in very exceptional circumstances,
such as the fact situation in the present case. Under no
circumstance can any Court interfere with an arbitral award on
the ground that justice has not been done in the opinion of the
Court. That would be an entry into the merits of the dispute which
is contrary to the ethos of Section 34 of the 1996 Act. The
judgments of the Single Judge and of the Division Bench of the
Delhi High Court are set aside. Consequently, the majority award
is also set aside. Under the Scheme of Section 34 of the 1996
Act, the disputes that were decided by the majority award would
have to be referred afresh to another arbitration. This would cause
considerable delay and be contrary to one of the important
objectives of the 1996 Act, namely, speedy resolution of disputes
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by the arbitral process under the Act. Therefore, in order to do
complete justice between the parties, invoking power under
Article 142 of the Constitution of India, and given the fact that
there is a minority award which awards the appellant its claim
based upon the formula mentioned in the agreement between
the parties, the minority award, is upheld and it is this award,
together with interest, that will now be executed between the
parties. Given the reliefs claimed by the appellant in their
statement of claim before the learned arbitrators, what is awarded
to the appellant is the principal sum of INR 2,01,42,827/- towards
price adjustment payable under sub-clause 70.3 of the contract,
for the work done under the contract from September 2010 to
May 2014, as well as interest at the rate of 10%, compounded
monthly from the due date of payment to the date of the award,
i.e., 02.05.2016, plus future interest at the rate of 12% per annum
(simple) till the date of payment. [Paras 47-49] [604-G-H;
605-A-H; 606-A-F]
Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 ; ONGC Ltd. v. Western Geco
International Ltd. (2014) 9 SCC 263 : [2014] 12 SCR 1
- explained.
Board of Control for Cricket in India v. Kochi Cricket
(P.) Ltd. and Ors., (2018) 6 SCC 287 : [2018] 2
SCR 829 ; Sedco Forex International Drill, Inc. and
Ors. v. Commissioner of Income Tax, Dehradun and Anr.,
(2005) 12 SCC 717 : [2005] 5 Suppl. SCR 302 ; State
of Goa v. Praveen Enterprises, (2012) 12 SCC 581 :
[2011] 10 SCR 1026 - relied on.
ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : [2003]
3 SCR 691 ; Renusagar Power Co. Ltd. v. General
Electric Co. 1994 Supp (1) SCC 644 : [1993] 3 Suppl.
SCR 22 ; DDA v. R.S. Sharma and Co. (2008) 13 SCC
80 : [2008] 12 SCR 785 ; Minmetals Germany GmbH
v. Ferco Steel Ltd., [1999] CLC 647 ; CRW Joint
Operation v. PT Perusahaan Gas Negara (Persero)
TBK, [2011] SGCA 33 ;
Parsons & Whittemore
Overseas Co., Inc., v. Societe Generale De L'industrie
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Du Papier (RAKTA) 508 F.2d 969 ; Lesotho Highlands
Development Authority v. Impregilo SpA and Ors. [2005]
3 All ER 789 [HL] ; Patrick Ryan & Ann Ryan and
Kevin O'Leary (Clonmel) Ltd. & General Motors, [2018]
IEHC 660 ; Dongwoo Mann+hummel Co. Ltd. v.
Mann+hummel Gmbh, [2008] SGHC 67 ; BAZ v. BBA
and Ors., [2018] SGHC 275 - referred to.
Redfern and Hunter on International Arbitration by
Nigel Blackaby, Constantine Partasides, Alan
Redfern, and Martin Hunter (Oxford University
Press, Fifth Ed., 2009) ; International Commercial
Arbitration by Gary B. Born (Wolters Kluwer, Second
Ed., 2014) ; UNCITRAL Secretariat Guide on
the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (New York, 1958) (2016
Ed.) ; UNCITRAL Model Law on International
Commercial Arbitration ; New York Convention on the
Recognition and Enforcement of Foreign Arbitral
Awards - Commentary, edited by Dr. Reinmar Wolff
(C.H. Beck, Hart, Nomos Publishing, 2012) ;
Fouchard, Gaillard, Goldman on International
Commercial Arbitration (Kluwer Law International,
1999) - referred to.
Case Law Reference
[2018] 2 SCR 829
relied on
Para 10
[2005] 5 Suppl. SCR 302
relied on
Para 11
[2003] 3 SCR 691
referred to
Para 12
[2014] 12 SCR 1
explained
Para 12
(2015) 3 SCC 49
explained
Para 13
[1993] 3 Suppl. SCR 22
referred to
Para 13
[2008] 12 SCR 785
referred to
Para 16
[2011] 10 SCR 1026
relied on
Para 41
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4779
of 2019.
From the Judgment and Order dated 03.04.2017 of the High
Court of Delhi at New Delhi in FAO (OS) COMM. No. 82 of 2016.
Mukul Rohatgi, Sr. Adv., Navin Kumar, Ms. Rashmeet Kaur,
Ms. Arpana Majumdar, Ashwani Kumar, Advs. for the Appellant.
S. Nandakumar, Ms. Deepika Nandakumar, P. Palanivelu, M. S.
Saran Kumar, Naresh Kumar, Advs. for the Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. Leave granted.
2. The respondent, National Highways Authority of India
["NHAI"], invited bids for construction of a four-lane bypass on National
Highway 26 in the State of Madhya Pradesh. The appellant's bid was
accepted vide its letter of acceptance dated 30.12.2005, for a total
contract value of INR 219,01,16,805/-. The appellant before us is a
company registered under the laws of the Republic of Korea, whereas
the respondent is a Government of India undertaking, responsible for
construction of National Highways throughout the territory of India. The
components used in execution of work for which price adjustment was
payable to the appellant are labour, plant and machinery, petroleum, oil
and lubricant (POL), cement, steel, bitumen, and other local materials.
Price adjustment for four of these components, i.e., cement, steel, plant
and machinery, and other local materials was agreed to be calculated as
per a formula given in sub-clause 70.3 of the contract. The relevant
portion of sub-clause 70.3 states as under:
"ii. Adjustment for Cement Component
Price adjustment for increase or decrease in the cost of cement
procured by the contractor shall be paid in accordance with the
following formula:
Vc = 0.85 x Pc x Ri x (C1 - C0)
 100
 C0
Where,
Vc = increase or decrease in the cost of work during the
month under consideration due to change in rates of component.
C0 =
the all India average wholesale price index for cement
on the day 28 days prior to the closing date of submission of bids,
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as published by Ministry of Industrial Development, Government
of India, New Delhi.
C1 =
the all India average wholesale price index for cement
on the day 28 days prior to the last day of the period to which a
particular interim payment certificate is related, as published by
Ministry of Industrial Development, Government of India, New
Delhi.
Pc
 =
percentage of Cement component."
Insofar as the component C0 is concerned, the date which is 28
days prior to the last submission of bids is 29.09.2005, which is the base
date for calculation of price adjustment, since it is common ground that
the date of submission of the bid is 27.10.2005.
3. The price adjustment was being paid to the appellant every
month in terms of the agreed formula under sub-clause 70.3 by using the
Wholesale Price Index ["WPI"] published by the Ministry of Industrial
Development, which followed the years 1993-94 = 100 ["Old Series"].
However, with effect from 14.09.2010, the Ministry of Industrial
Development stopped publishing the WPI for the Old Series and started
publishing indices under the WPI series 2004-05 = 100 ["New Series"].
It is important to note that even under this New Series, the WPIs for the
previous years beginning from April, 2005 were also being published by
the Ministry. This being so, as both the indices C1 and Co were available
to the appellant under the New Series for calculating price adjustment,
the appellant raised its bills accordingly. It is undisputed that payments
of 90% of the monthly bills on this basis were made for the period
September, 2010 to February, 2013. On 15.02.2013, the respondent issued
a Policy Circular ["Circular"], in which a new formula for determining
indices was used by applying a "linking factor" based on the year 200910. However, this Circular expressly stated:
"Thus, payment on account of price adjustment may be made by
adopting the above process subject to the condition that the
contractors furnish undertaking / affidavit that this price adjustment
is acceptable to them and they will not make any claim, whatsoever,
on this account in future after this payment."
4. After this Circular, the respondent stated that the Circular would
have to be applied to the contract in question, as a result of which, a
linking factor would have to be provided by which the Old Series was
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connected to the New Series. The appellant never accepted this and
knocked at the doors of the High Court of Madhya Pradesh through a
writ petition in which it challenged the validity of the Circular. However,
the High Court vide its order dated 03.04.2013 disposed of the writ
petition with the observation that there exists a dispute resolution
mechanism through the Dispute Adjudication Board, after which
arbitration is also provided, and as the appellant had an efficacious
alternative remedy, it was relegated to the same. The respondent then
asked the appellant to give its consent to receive monthly payment under
the Circular. The appellant submitted a conditional undertaking dated
17.05.2013, in which it was clearly stated:
"The above undertaking is without prejudice to the Contractor's
right to challenge the said Circular dated 15.02.2013 as per
provisions of contract and other legal remedies available to the
Contractor before the appropriate forum."
5. The appellant then approached the Delhi High Court vide an
application under Section 9 of the Arbitration and Conciliation Act, 1996
["1996 Act"], for interim protection against deduction and recoveries
sought to be made by the respondent by applying the said Circular. The
Delhi High Court, by its order dated 31.05.2013, restrained the respondent
from implementing the said Circular retrospectively.
6. Meanwhile, the aforesaid dispute was referred to the Dispute
Adjudicating Board as envisaged under sub-clause 67 of the contract.
The Dispute Adjudicating Board, by its majority recommendation dated
31.10.2013, recommended a certain linking factor and then arrived at
the figures of price adjustment in the aforesaid four materials by applying
such linking factor. However, one of the members of the Dispute
Adjudicating Board gave a dissenting note in favour of the appellant,
recommending that in view of the express terms of the contract, the
provisions contained in the impugned Circular cannot be applied for
calculation of price adjustment. Aggrieved by the recommendations of
the Dispute Adjudicating Board, the appellant issued a notice of
dissatisfaction dated 19.11.2013, and referred the dispute to an arbitral
tribunal consisting of three members. The appellant raised a claim of
INR 2,01,42,827/- towards unpaid price adjustment for the period
September 2010 up to May 2014, plus INR 1,00,86,417/- for interest on
the aforesaid unpaid amount. The dispute that was thus referred to
arbitration was a narrow one, namely, as to whether price adjustment
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would continue under the terms of the contract, or whether the Circular
dated 15.02.2013, applying the linking factor, would have to be applied.
Two out of three members of the arbitral tribunal, by their award dated
02.05.2016 made at New Delhi, after noting the arguments of both sides,
held that the Circular could be applied as it was within contractual
stipulations, as has been held by the Dispute Adjudicating Board, and
hence, rejected the appellant's claim.