9911796707
TMI Blog2025 (1) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... variation would mean the difference between what is provided for or contemplated in relation to the work under the contract and what is the final effect or outcome. Such variation or outcome may be or may not be the result of an instruction given by the Engineer. Division Bench disagreed with the observations of the Arbitral Tribunal as upheld by the learned Single Judge that even if there was error in estimating the quantity of geogrid while preparing the BOQ, that by itself would not lead to the conclusion that NHAI cannot seek renegotiation of the rates even if the actual quantity exceeds by over 300 percent. The contract does not provide that NHAI should suffer on account of the estimated quantities mentioned in the BOQ turning out to be way off the mark when the contract is executed - Division Bench held that there is no reason as to why variation in quantity beyond the limits set out in the contract, whether instructed or not instructed, should not lead to renegotiation of the rates at the instance of either party. That would be the only fair, reasonable and equitable way to work the contract. In so far Clause 51.1 is concerned, the variation contemplated thereunder relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Single Judge exercising jurisdiction under Section 34 of the 1996 Act. Therefore, Division Bench of the High Court was not at all justified in setting aside the arbitral award exercising extremely limited jurisdiction under Section 37 of the 1996 Act by merely using expressions like 'opposed to the public policy of India', 'patent illegality' and 'shocking the conscience of the court'. As reiterated by this Court in Reliance Infrastructure Ltd, it is necessary to remind the courts that a great deal of restraint is required to be shown while examining the validity of an arbitral award when such an award has been upheld, wholly or substantially, under Section 34 of the 1996 Act. Frequent interference with arbitral awards would defeat the very purpose of the 1996 Act.
The impugned order cannot be sustained. Accordingly, judgment and order dated 17.11.2009 passed by the Division Bench of the High Court is hereby set aside and the arbitral award dated 03.06.2005 is restored - Appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... rising 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the primary contention 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 k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary 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 onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Contract. (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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 propor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The contract between the parties, therefore, is a frame work which determines the parties rights and obligations. The scope of work in this case was indicated by RCC facia quantity as mentioned hereinbefore which determines the length of the RE Wall to be constructed for raised carriage way and the quantity of other sub-item i.e. the geogrid quantity to be used is contingent to the facia quantity. Both the parties knew about the scope of work of RE Wall in this man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a variation so as to attract the provisions of Clause 52.2. Arbitral Tribunal concurred with the DRB that the Engineer did not have the competence to revise the rates for the additional quantity of geogrid required for execution of the work as per the approved design. 24. In the proceedings under Section 34 of the 1996 Act, learned Single Judge examined Clauses 51 and 52 in detail and thereafter opined that the decision of the Arbitral Tribunal could not be faulted. Analysis of Clause 51.1 read with the other clauses would indicate that the variations referred therein are instructed variations. In the present case, Clause 52 would not come into play since the same arises only in the case of instructed variations. Learned Single Judge noted with approval the finding of the Arbitral Tribunal that the ultimate measured work performed was different from the estimated quantity but the parties had contracted on the basis that such quantity may increase or decrease. There was no change in the design in view of the clear admission of NHAI before the DRB that the design was reviewed and found according to the specified criteria and that NHAI was unable to establish any change in the desig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judge of the parties. So long as the view of the arbitrator is a plausible one though it may not be the only possible view, there should be no interference by the court under Section 34 of the 1996 Act. 26. According to us, learned Single Judge had adopted the correct approach and had rightly declined to interfere with the award of the Arbitral Tribunal affirming the decision of the DRB. 27. Let us now deal with the impugned order. Division Bench of the High Court exercising jurisdiction under Section 37 of the 1996 Act acknowledged that primarily it was for the Arbitral Tribunal to interpret the contractual terms and if the interpretation given by the Arbitral Tribunal is a plausible one, then the court would not interfere with the award merely because according to the court, another interpretation is preferable. Having said that, Division Bench examined Clauses 51 and 52 of the contract. Instead of interpreting the aforesaid clauses in the contractual context, Division Bench went into the dictionary meaning of the expression 'variation' and opined that variation would mean the difference between what is provided for or contemplated in relation to the work under the contract an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible and that the arbitral award is opposed to the public policy of India, shocking the conscience of the court. Therefore, the order of the learned Single Judge as well as the arbitral award were set aside. 28. We are afraid we cannot accept such sweeping conclusions reached by the Division Bench. Interpretation given by the Division Bench to the plain language of Clauses 51 and 52 is not at all a plausible one, not to speak of being the only possible interpretation and, therefore, committed a manifest error in interfering with an arbitral award in a proceeding under Section 37 of the 1996 Act when the learned Single Judge did not find any justification at all to interfere with the arbitral award within the limited scope under Section 34 of the 1996 Act. A closer look at Clauses 51 and 52 would clearly show that the view taken by DRB and Arbitral Tribunal, both comprised of technical experts, is the correct one which was acknowledged by the learned Single Judge. 29. As per Clause 51.1, Engineer has the competence to make any variation of the form, quality or quantity of works, either wholly or any part thereof, if in his opinion, it is necessary to do so. In that event, Engineer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 25 percent. Rather, it is an enabling provision which enables either of the parties to consider change in the rate or price of any item mentioned in the contract, in the event, the above two conditions are fulfilled. 33. In so far Clause 51.1 is concerned, the variation contemplated thereunder relates to the form, quality or quantity of the works which in the opinion of the Engineer is necessary. In the present case, there is a clear finding of fact by two authorities i.e. DRB and the Arbitral Tribunal, both comprised of technical experts, that there is no variation either in the form or quality or quantity of the works. What actually happened is that at the time of execution of the contract pertaining to the RE wall, the geogrid required turned out to be much more than the estimated figure given in item No. 7.7 of the contract. It is in this backdrop that both the fact finding authorities held that there was no variation in terms of Clause 51.1 and that the Engineer did not have the competence to renegotiate the price or rate of the geogrid for the excess quantity of geogrid required. 34. As already discussed above, this is clearly a plausible view. In fact, according to us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of evidence cannot be permitted under the ground of patent illegality. 38. In PSA Sical Terminals Private Ltd. (supra), this Court reiterating the well settled principles held as under: 40. It will thus appear to be a more than settled legal position, that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of "public policy of India", which has been held to mean "the fundamental policy of Indian law". A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Sections 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. 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". It is only such arbitral awards that shock the conscience of the court, that can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the evidence on record. This interpretation was affirmed by the learned Single Judge exercising jurisdiction under Section 34 of the 1996 Act. Therefore, Division Bench of the High Court was not at all justified in setting aside the arbitral award exercising extremely limited jurisdiction under Section 37 of the 1996 Act by merely using expressions like 'opposed to the public policy of India', 'patent illegality' and 'shocking the conscience of the court'. As reiterated by this Court in Reliance Infrastructure Ltd. (supra), it is necessary to remind the courts that a great deal of restraint is required to be shown while examining the validity of an arbitral award when such an award has been upheld, wholly or substantially, under Section 34 of the 1996 Act. Frequent interference with arbitral awards would defeat the very purpose of the 1996 Act. 43. For all the aforesaid reasons, we are of the unhesitant view that the impugned order cannot be sustained. Accordingly, judgment and order dated 17.11.2009 passed by the Division Bench of the High Court is hereby set aside and the arbitral award dated 03.06.2005 is restored. Consequently the appeal is allowed. However, there shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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