Case Note & Summary
The appellant, National Highways Authority of India (NHAI), awarded a contract to the respondent for construction of the Allahabad Bypass Project. Disputes arose regarding three claims: (1) reimbursement of additional expenditure due to increase in royalty and sales tax on soil, sand, and crushed stone aggregates; (2) non-payment for executed work of embankment with soil/pond ash for the initial 150 mm depth; and (3) reimbursement of additional costs due to increase in forest transit fee rates. The Arbitral Tribunal awarded amounts for all three claims, with a majority decision on Claim 2. NHAI challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court, which upheld the award. An appeal under Section 37 was dismissed by the Division Bench. NHAI appealed to the Supreme Court, primarily challenging Claims 1 and 2. The Supreme Court considered the narrow scope of interference under Section 34, as laid down in Associate Builders v. DDA and Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd. The Court noted that the arbitrator's interpretation of contract clauses, including Clause 70.8 (non-obstante clause) and Clause 70.3(vii) (price adjustment formula), was reasonable and not patently illegal. Regarding Claim 2, the majority view of the Arbitral Tribunal was based on evidence and was not perverse. The Supreme Court also noted that the decision in National Highways Authority of India v. M/s. ITD Cementation India Limited, relied upon by the High Court, had been partly upheld by the Supreme Court. Consequently, the Supreme Court dismissed the appeal, affirming the concurrent findings of the Arbitral Tribunal and the High Court.
Headnote
A) Arbitration - Section 34 of Arbitration and Conciliation Act, 1996 - Scope of Interference - Court's power to set aside award is limited to grounds of public policy including patent illegality; construction of contract terms by arbitrator is final unless it is something no fair-minded person could do (Paras 7-9). B) Contract Law - Price Adjustment Clause - Interpretation of Clause 70.8 - Non-obstante clause - Additional costs due to increase in royalty and sales tax are covered by price adjustment formula under Clause 70.3(vii) and not separately payable; however, the arbitrator's interpretation that such costs are payable under Clause 70.8 was reasonable and not patently illegal (Paras 4-5, 7-9). C) Contract Law - Embankment Work - Claim for payment for removal of top 150 mm soil - Majority view of Arbitral Tribunal that such work is not part of clearing and grubbing but a separate item payable under contract was based on evidence and not perverse; no interference warranted (Paras 2, 5, 7-9).
Issue of Consideration
Whether the High Court erred in upholding the arbitral award granting additional costs for increase in royalty and sales tax (Claim 1) and for embankment work (Claim 2) under the contract, and whether the award suffers from patent illegality.
Final Decision
The Supreme Court dismissed the appeal, upholding the arbitral award and the judgments of the Delhi High Court. The Court found no patent illegality in the arbitrator's interpretation of the contract clauses and held that the concurrent findings did not warrant interference.
Law Points
- Scope of interference under Section 34 of Arbitration and Conciliation Act
- 1996 is narrow
- construction of contract terms by arbitrator is final unless no reasonable person could so construe
- price adjustment clauses in construction contracts
- majority arbitral award binding
- non-obstante clause in contract interpretation.
