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2015 (4) TMI 1096

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..... . We have gone through the record and considered rival submissions. The view that as a result of upward variation in the rates of royalty pursuant to subsequent legislation, the matter would be covered by clause 32.1 is certainly a plausible view. While quoting the initial rates and prices, it would not have been in contemplation of a party as to the framework of any revision in rates of royalty at a future date. Clause 32.1 can be said to have covered such eventualities. We, therefore, see no any error in the assessment and approach of the Arbitral Tribunal. The High Court, in our view, was right in dismissing the challenge. Consequently, this appeal fails and is dismissed. The decretal amount deposited and invested in a fixed deposit, pursuant to orders of this Court, was ordered to be released on furnishing of a bank guarantee by the respondent. The bank guarantee shall stand discharged Cost escalation based on the agreed Price Adjustment Formulae - Compensation for additional cost resulting from a subsequent legislation - Held that:- We are inclined to agree with the contention of the claimant that the provision for cost escalation based on the agreed Price Adjustment For .....

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..... completely right and justified in dismissing the challenge. Whether Claim No.8 is covered by Clause No.70.8 of COPA - Held that:- The State Government, as a matter of fact, was levying royalty on ordinary earth and this situation was obtaining on such date. If the State Government lacked power to levy and collect such royalty prior to the notification dated 03.02.2000 whereby ordinary earth was brought under the definition of minor mineral, such ground may certainly entitle a party to lay requisite challenge before an appropriate forum. However, for the purposes of the contract such levy being an existing levy must be deemed to have been part of the rates or prices quoted. By notification dated 20.03.2001, the same rate was maintained and as such there was no change arising due to any subsequent legislation. In our view the matter was therefore completely outside the scope of Sub Clause 70.8 of COPA. The Arbitral Tribunal ought to have confined itself to the terms of the Contract and see if there was any variation for the purposes of Sub-Clause 70.8 of COPA. It went beyond its powers in holding that the existing levy as on the date the contract was entered into was without an .....

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..... A contact was awarded to the respondent by the appellant on 17.10.2001 for execution of work of widening of lanes and rehabilitation of the existing two lane carriageway of Vaniyambadi-Pallikonda section of NH-6 (from Km.49.00 to Km.100.00). The total value of the contract was appropriately ₹ 183.71 crores. The parties adopted FIDIC form of Conditions of Contract with some changes made which are called Conditions of Particular Application (COPA, for short). In the invitation to tender forming part of the contact under Clause 13.4 it was agreed between the parties as under: 13.4. All duties, taxes and other levies payable by the Contractor under the Contract, or for any other cause, as of the date 28 days prior to the deadline for submission of bids, shall be included in the rates and prices and the total bid price submitted by the bidder, and the evaluation and comparison of bids by the Employer shall be made accordingly. 6. The aforesaid stipulation dealt with the impact and inclusion of duties, taxes and other levies, as of the date 28 days prior to the deadline for submission of bids and clarified that the same shall stand included in the rates and prices and the .....

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..... s were fixed under variation Clauses (51 and 52) for which the escalation will be regulated as mutually agreed at the time of fixation of rate. To the extent that full compensation for any rise or fall in indexed costs to the Contractor is not covered by the provisions of this or other Clauses in the Contract, the unit rates and prices included in the Contract shall be deemed to be include amount to cover the contingency of such other rise or fall in costs. (c) Price adjustment for various inputs into the works done shall be calculated as per formulae given below: A) Variation of Price-Local Labour B) Variation of Price-General Materials The Contract Price will be subjected to adjustment on account of general variation of all materials other than specifically provided in Sub-Clause 70.5 hereinafter. The adjustment will be made according to the formula given below: V2=R1x (I-Io) x G Io Where, V2= Variation in price on account of general variation of prices of all materials other than specifically provided in Sub-Clause 70.5 hereinafter. Io = Base Cost Index corresponding to the Whole .....

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..... nt Legislation If, after the date 28 days prior to the closing date for submission of bids for the Contract there are changes to any National or State Statute, Ordinance, Decree or other Law or any regulation or by-law of any local or other duly constituted authority or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or by-law in India or States of India which causes additional or reduced cost to the Contractor, other than under the preceding Sub-Clauses of this clauses in the execution of the contract, such additional or reduced cost shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the Contractor accordingly with a copy to the Employer. Notwithstanding the foregoing, such additional or reduced cost shall not be separately paid or credited if the same shall already have been taken into account in the indexing of any inputs to the Price Adjustment Formulae in accordance with the provisions of Sub-Clauses 70.1 to 70.7 of this Clause. 7. The Government of Tamilnadu by issuing a notification under Section 15 of the .....

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..... ppoints highway construction contractors, selected by a process of competitive bidding. The bidding process involves the bidder quoting his delivery cost for predefined quantities of various inputs required for the highway construction. Since the period of execution is fairly long, to provide protection/neutralize price related impacts to the contractor/NHAI, certain mechanism has been incorporated in the contract. For example, to cover price impact arising out of or in consequence to any Legislation is provided as under: (a) Sub-Clause 70.8 Subsequent Legislation. . 3. We are enclosing herewith a copy of the extracts of the Contract document detailing the above provisos vide para 70.1 to 70.8. 4. The issue for which clarification is required is the difference in opinion in the interpretation of the clause 70.8 on Subsequent Legislation. The CAG Auditors while auditing NHAI have commented that since WPI is derived from the whole sale price data across the country and price is the derived composite reflection of all factors, whenever provision has been made for WPI based compensation for price escalation to the contractors, the .....

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..... sh Nautiyal had spoken to you about this matter. Kind Regards, Yours sincerely, Sd/- (ANAND BORDIA) Shri Shrawan Nigam, Economic Advisor, Ministry of Commerce and Industry, (Dept of IP P), 126-E, Udyog Bhawan, NEW DELHI -110001. 9. The response from the Economic Advisor to the Government of India was as under: Shrawan Nigam GOVERNMENT OF INDIA Economic Advisor MINISTRY OF COMMERCE Tel:23012721 INDUSTRY Fax:23793502 UDYOG BHAWAN, Economic Advisor to NEW DELHI-110001 the Government of India 27th November, 2003 D.O. No. Ec.Ad 11(1)/2003/WPD Dear Shri Bordia, Kindly refer to your D.O. Letter No.NHAI/11033/GM/2003-04 dated the September 3, 2004, seeking clarifications on constituents of prices utilized for compilation of Wholesale Price Index. I may mention in this respect that in case of Minerals, ex-mine prices are used for compilation of WPI. Ex-mine prices correspond to Pit Mouth Value (PMV) of a mineral i.e. sale value of mineral at pithead. In case sales are effected on FOR or FOB or any other basis, pithead value is arrived at .....

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..... ral materials and therefore the respondent would be entitled to be paid the additional cost incurred by. It was held as under: 21. We have thoroughly gone through the entire evidence adduced by the parties and gone through the relevant Contract provisions. We have also judiciously considered the rival contentions and arguments. We are inclined to agree with the contention of the claimant that the provision for cost escalation based on the agreed Price Adjustment Formulae and the Compensation for additional cost resulting from a subsequent legislation are two separate specific stipulations, and the claimant is entitled to be compensated for any additional cost caused to it provided the same shall not have already been taken into account in the indexing of any inputs to the Price Adjustment Formulae in accordance with the provisions of Sub-Clauses 70.1 to 70.7. 22. The other question now required to be answered by us is whether the additional cost because of change in the rates of Seigniorage fee has been taken into account in the indexing of any inputs to the Price Adjustment Formulae supra. We have examined the basket of materials whose cost variation is input in the es .....

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..... published on 12.05.2006 filed OMP No.432 of 2006 in the High Court of Delhi which was dismissed by a Single Judge of the High Court vide judgment and order dated 14.05.2007. It was observed that the Arbitral Tribunal had found that the minerals in question did not find place in the basket of materials for working out the wholesale price index i.e. WPI, that the WPI would be applicable uniformly in all the States while the increase in Seigniorage Fee varied from State to State. It was concluded that the view taken by the Tribunal did not call for any interference. In the appeal, namely, FAO(OS) No.216 of 2007 preferred by the appellant, it was submitted that the interpretation placed by the Arbitral Tribunal upon the provisions of the agreement was erroneous and secondly that the award was imperfect inasmuch as it left the question of quantification of the amount undecided. While dealing with the first submission, the Division Bench of the High Court observed: On the question of interpretation, the arbitrators noticed the relevant provisions and came to the conclusion that since the basket of materials whose cost variation is an input for filing the WPI did not include min .....

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..... Advocate assisted by Ms. Monisha Handa, learned Advocate appeared for the appellant in the lead case. Ms. Indu Malhotra, learned Senior Advocate and Ms. Gunjan S. Jain, learned Advocate appeared for the appellants in the companion matters. It was submitted by them that WPI is a general or representative index of prices of all commodities and as such it would not and need not take all commodities into account. The parties having agreed to go by WPI Index, that Index alone must be considered irrespective of the fact whether prices of minor minerals in question were taken into account specifically while arriving at such Index. It was submitted that the award correctly observed in para 22 that WPI is to an extent likely to indicate the rise or fall in the prices of these other minerals also though minor minerals in question did not specifically find place in the commodity basket taken into account while determining WPI. The reason why Arbitral Tribunal was not inclined to accept that the full impact of the additional cost of these materials because of subsequent change in legislation can be said to be taken care of by he inputs to the WPI in the submission of the learned counsel, .....

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..... r the impact of sub clauses 70.1 to 70.3 (B) and exclusion in sub clause 70.8, the law on the point needs to be briefly adverted to. In Mc Dermott International Vs. Burn Standard Co. Ltd. (Supra) this Court held as under:- 112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]). 113. Once, thus, it is held that the arbitrator had the jurisdiction .....

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..... quote paras 42 to 42.3:- 42. In the 1996 Act, this principle is substituted by the patent illegality principle which, in turn, contains three sub heads: 42.1 (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature.This again is a really a contravention of Section 28(1)(a) of the Act, which reads as under: 28. Rules applicable to substance of dispute.- (1) Where the place of arbitration is situated in India,- (a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India; 42.2 (b) a contravention of the Arbitration Act itself would be regarded as a patent illegality- for example if an arbitrator gives no reasons for an award in contravention of section 31(3) of the Act, such award will be liable to be set aside. 42.3(c) Equally, the third sub-head of patent illegality is really a contravention of Section 28 .....

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..... while arriving at WPI. It also considered that the WPI is an index applicable uniformly in all states while the increase in Seigniorage Fee would vary from state to state. It further dealt with the aspect that NHAI itself was of the opinion that the additional impact as a result of subsequent legislation was admissible separately, as signified by the letter dated 03.09.2003 to the Economic Advisor. In the backdrop of the law laid down by this court, the construction of the terms of the contract by the Arbitral Tribunal is completely consistent with the principles laid down by this court. Upon construing the terms and the material on record it concluded that the instant matter would be covered by substantive part of Sub-Clause 70.8 of COPA. It also noted that NHAI itself was of such opinion. The view so taken by the Arbitral Tribunal after considering the material on record and the terms of the contract is certainly a possible view, to say the least. We do not see any reason to interfere. The Division Bench in our considered view, was completely right and justified in dismissing the challenge. 22. We, therefore, dismiss Civil Appeal No. 9799 of 2010. The decretal amount wh .....

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..... Clause 47 of the Conditions of Contract. Clause 32.1 of the contract pertaining to Early Warning was as under: 32.1 The contractor is to warn the Engineer at the earliest opportunity of specific likely events or circumstances that may adversely affect the quality of work, increase the Contract Price or delay the execution of works. The Engineer may require the Contractor to provide an estimate of the expected effect of the future even or circumstance on the Contract Price and Completion Date. The estimate is to be provided by the Contractor as soon as reasonable possible. 32.2 The Contractor shall cooperate with the Engineer in making and considering proposals for how the effect of such an event or circumstance can be avoided or reduced by anyone involved in the work and in carrying out any resulting instructions of the Engineer. Clause 45 of the Contract pertaining to Tax was as follows: 45.1 The rates quoted by the Contractor shall be deemed to be inclusive of the sales and the other taxes the Contractor will have to pay for the performance of this Contract. The Employer will perform such duties in regard to the deduction of such taxes at sources as per .....

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..... .06.2003 pursuant to amendment in the Karnataka Mine and Minerals Concession Rules, 1994. It was contended by the respondent that the increase in royalty charges by the legislation during the pendency of the contract could not have been anticipated or foreseen and therefore the same falls within the ambit of Clause 32.1 of the contract. The appellant submitted that in terms of express provision in sub-clause 45.1, it was incumbent upon the contractor to cover any such eventuality in respect of increase in taxes in the contract price itself at the time of bidding. Further, there being no subsequent legislation clause in the contract, the parties were clear that no additional cost would be awarded in case of rise of royalty due to change in legislation. The Arbitral Tribunal by award dated 18.06.2006, accepting the claim, awarded a sum of ₹ 40,95,881/- towards royalty upto 27.02.2006 with interest @ 12%. This award was challenged by the Appellant by filing OMP No. 497 of 2006, which was dismissed by a Single Judge of the High Court on 27.04.2012 and that judgment is presently under challenge. 28. The award accepted that revision in royalty rates in respect of minor m .....

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..... r other materials required for Works. Clauses 70.1, 70.2 and 70.8 of Conditions of Particular Application (COPA) were identical as found in Civil Appeal 979 of 2010, dealt with earlier and as such they are not repeated here. 32. According to the respondent after the commencement of work, it was called upon vide letter dated 15.12.1999 by the District Authorities asking for payment of royalty on ordinary earth at the rate of ₹ 4/- per cubic meter. Though it tried to convince them that ordinary earth was not a minor mineral and not liable to attract royalty, the Authorities insisted on such payment therefore the respondent deposited the requisite sum and wrote to the appellant to give appropriate benefit. The Government of India declared ordinary earth as minor mineral by issuing Notification dated 03.02.2000 as per Section 3 of 1957 Act. 33. The disputes between the parties were referred to the Arbitral Tribunal. We are concerned in the present appeal with Claim No.8 which was for refund of Royalty on ordinary earth amounting to ₹ 70,65,039/- which was claimed on the ground that it was covered by Sub Clause 70.8 COPA. It was observed by the Arbitral .....

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..... contract that all duties, taxes and other levies payable by the contractor under the contract as of the date 28th days prior to the deadline for submission of bid shall be included in the rates and prices and the total bid price submitted by the bidder. The State Government, as a matter of fact, was levying royalty on ordinary earth and this situation was obtaining on such date. If the State Government lacked power to levy and collect such royalty prior to the notification dated 03.02.2000 whereby ordinary earth was brought under the definition of minor mineral, such ground may certainly entitle a party to lay requisite challenge before an appropriate forum. However, for the purposes of the contract such levy being an existing levy must be deemed to have been part of the rates or prices quoted. By notification dated 20.03.2001, the same rate was maintained and as such there was no change arising due to any subsequent legislation. In our view the matter was therefore completely outside the scope of Sub Clause 70.8 of COPA. The Arbitral Tribunal ought to have confined itself to the terms of the Contract and see if there was any variation for the purposes of Sub-Clause 70. .....

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