Case Note & Summary
The Maharashtra State Road Development Corporation Ltd. (MSRDC), a Government of Maharashtra undertaking, had awarded a contract for four-laning of a section of National Highway-4 (Satara-Kolhapur up to Maharashtra State Border) to a joint venture comprising Valecha Engineering Ltd. and M/s. M. Venkata Rao. The work was awarded in 2001-2002 and was to be completed by August 2004, but was actually completed on 1 June 2005. During the execution of the work, the Government of Maharashtra increased the royalty charges on minor minerals from Rs.28 to Rs.50 per brass with effect from January 2003. Initially, MSRDC reimbursed the increased royalty to the contractor for the first 49 running account bills. However, from the 50th running bill, MSRDC deducted the entire previously reimbursed amount, interpreting Clause 14 of the Special Conditions of Contract as not covering increased royalty charges. Clause 14, as amended, stated that contractor’s rates were deemed inclusive of sales tax and other taxes, including royalty charges, and also provided for reimbursement of any further increase in Central or State sales tax or other taxes on complete items of work. The contractor contended that the increase in royalty was covered by the reimbursement provision, while MSRDC argued that the second sentence did not specifically mention royalty. The dispute was referred to the Dispute Resolution Committee, which rejected the contractor’s claim, leading to arbitration. The sole arbitrator Shri Sharad P. Upasani, former Chief Secretary of Maharashtra, passed an award on 29 February 2008 in favour of the contractor, holding that the words 'any further increase' covered royalty charges, and awarded Rs.1,16,71,879 principal plus interest at 15% per annum aggregating Rs.1,49,62,774 with further interest. MSRDC challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, contending that the arbitrator’s interpretation was perverse. The Bombay High Court, after examining the clause, found the arbitrator’s interpretation reasonable and plausible, emphasising that the court’s power under Section 34 is limited and does not permit substitution of its own view merely because another interpretation is possible. The court noted that the two sentences of Clause 14 had to be read together and that the expression 'any further increase' in the second sentence, in light of the first sentence which explicitly included royalty, meant that increased royalty charges were reimbursable. The court held that the award did not suffer from patent illegality or perversity, and accordingly dismissed the arbitration petition and upheld the award, with costs to the respondents.
Headnote
A) Arbitration - Challenge to Award - Limited Judicial Review - Arbitration and Conciliation Act, 1996, Section 34 - Interpretation of Contract Clause - The High Court reiterated that an arbitral award cannot be interfered with lightly; the court does not sit in appeal over the award; if the arbitrator's view is plausible and not patently illegal, it must be upheld. Here, the arbitrator interpreted Clause 14 of the Special Conditions of Contract, which provided for reimbursement of increase in taxes and included 'any further increase' as covering royalty charges despite the absence of express mention in the second sentence; the court found this interpretation reasonable and not perverse, thus dismissing the challenge (Paras 13-16).
Issue of Consideration
Whether the arbitral award allowing reimbursement of increased royalty charges under Clause 14 of the Special Conditions of Contract was liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996
Final Decision
The arbitration petition was dismissed. The arbitral award was upheld, and the petitioner was directed to pay the awarded amount along with interest as per the award. Costs were awarded to the respondents.
Law Points
- limited judicial review under Section 34 of Arbitration and Conciliation Act 1996
- interpretation of contract clauses
- reimbursement of increased royalty charges
- construction of 'any further increase' in taxes including royalty
- plausible view of arbitrator cannot be substituted
