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TMI Blog2025 (1) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Arbitral Tribunal. 3. The matter relates to execution of a contract awarded by NHAI to the appellant regarding the work of four laning and strengthening of the existing two lane section between Km. 470.000 and Km. 38.000 on NH-2 (construction package II-B) near Kanpur in the State of Uttar Pradesh under World Bank Loan Assistance. 4. At the outset, it would be apposite to advert to the relevant facts. 5. Following a process of open bid tender, the related contract was allotted by NHAI to the appellant vide the contract agreement dated 27.03.2002 who undertook to execute the work at the contract price of Rs. 4,961,183,599.00. Appellant is a joint venture of Somdatt Builders Pvt. Ltd., Nagarjuna Construction Company and Navayug Engineering Company Limited having its principal place of business at East of Kailash, New Delhi. 6. A joint venture between Consulting Engineering Services (I) Ltd. and BECA International Consultants Ltd. was appointed by NHAI as the Engineer of the project in terms of the contract agreement to supervise the construction work. 7. It was a unit rate contract comprising of a detailed Bill of Quantities (BOQ). The BOQ contained description of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given at the tender stage by NHAI was wrong. Therefore, the increase in quantity was a mere increase to meet the requirement for completion of the RE wall work which was indicated by the RCC facia quantity at the tender stage. There was no change in the design but mere increase in the quantity beyond the BOQ quantity which did not attract Clause 52.2. In this context, Arbitral Tribunal held that the Engineer does not possess the power to revise the rates for additional quantity of geogrid required for actual execution of work as per the approved design. Upholding the recommendations of DRB, Arbitral Tribunal held that variation in terms of Clause 51.1 was not established and directed NHAI to pay the appellant for the actual quantity of geogrid required to be executed to complete the work of RE wall as per the approved design at the BOQ rate. 12. The aforesaid award dated 03.06.2005 was challenged by the respondent-NHAI under Section 34 of the 1996 Act which was heard and decided by a learned Single Judge of the High Court. Learned Single Judge examined the contours of Clauses 51.1, 51.2, 52.1, 52.2, 52.3 and 55.1 and came to the definite conclusion that there was no change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n overturning the technical findings of the three authorities below while exercising limited jurisdiction under Section 37 of the 1996 Act. 16. Counter affidavit has been filed by respondent NHAI. Reliance has been placed on Clauses 51 and 52 of COPA. Clause 51 of COPA has two parts: 51.1 and 51.2. Clause 51.1 covers instructed variations which includes any increase or decrease in the quantity of work. As per Clause 51.2, for increase or decrease in quantity of any material, instructions of the Engineer are not required. A combined reading of Clauses 51.1 and 51.2 would indicate that though increase or decrease in the quantity of any work may be without instructions but it nonetheless remains a variation. Once it is a variation, Engineer has got the power to fix a new rate. This power is traceable to Clause 52.1, which does not make any distinction between instructed variation or uninstructed variation; on the other hand, it provides that all variations referred to in Clause 51 are to be valued by the Engineer. In case of instructed variation only, notice is required to be given in terms of the second proviso to Clause 52.2. If this be the position, view taken by the Division Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter relates to the sub-item geogrid as the respondent had given a wrong estimate of the quantity in respect of geogrid while correct quantities were given for the other two sub-items. This mistake was detected when the design was prepared by the appellant and approved by the Engineer. When the quantity of material in respect of geogrid increased, the Engineer decided that the BOQ rate would be applicable for the increased quantity of geogrid. 17.4. After the appellant commenced the work, the respondent was making the monthly payment for the said item as per the BOQ rate. After a new Engineer was appointed by the respondent, it was decided that the rate for the increased quantity of geogrid should be renegotiated. 17.5. Thereafter, the matter was referred by the appellant to the DRB which decided in favour of the appellant. DRB held that variation in terms of Clause 51.1 was not established and recommended payment of geogrid at the BOQ rate for the entire quantity. 17.6. Respondent did not accept the above recommendations of the DRB and invoked the arbitration clause in the contract. Arbitral Tribunal, comprised wholly of technical persons, by a majority of 2:1 held that increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject Undertaking (2023) 9 SCC 85 (v) M/s Larsen Air Conditioning and Refrigeration Company Vs Union of India 2023 INSC 708 (vi) MMTC Ltd. Vs. Vedanta Limited (2019) 4 SCC 163 (vii) MP Power Generation Company Ltd. Vs. Ansaldo Energia SPA (2018) 16 SCC 661 18. Per contra, Mr. Krishnan Venugopal, learned senior counsel appearing for NHAI submits that Division Bench of the High Court has rightly set aside the arbitral award finding the same to be perverse. 18.1. He submits that the core issue involved in the present appeal is whether the arbitral award dated 03.06.2005 goes contrary to the only interpretation of Clauses 51 and 52 of the General Conditions of Contract (GCC) read with COPA as contained in the contract dated 27.03.2002 executed between the parties. 18.2. Learned senior counsel submits that subject matter of the dispute relates to BOQ item No. 7.07 (II) i.e. geogrid. Due to change in design of the RE wall, quantity of geogrid increased almost by 300 percent during execution. Since the twin conditions contemplated under Clause 52.2 were being fulfilled i.e. overall quantity of geogrid executed by more than 25 percent from the estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned senior counsel has placed reliance on the following decisions to buttress his submissions: (i) Associate Builders Vs. DDA (2015) 3 SCC 49 (ii) Ssangyong Engineer and Construction Company Ltd. Vs. NHAI (2019) 15 SCC 131 (iii) PSA Sical Terminals Private Ltd. Vs. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin (2023) 15 SCC 781 18.8. Learned senior counsel further submits that the judgment in the case of NHAI Vs. M/s ITD Cementation India Limited, cited and relied upon by the appellant, is not applicable to the facts of the present case. Firstly, the judgment is by a Single Bench whereas the impugned order has been passed by a Division Bench which is also later in point of time. Secondly, the said judgment does not deal with the power of the Engineer to fix a new rate in terms of Clause 52. 18.9. He finally submits that the present appeal is devoid of any merit and the same is therefore liable to be dismissed by this Court. 19. Submissions made by learned counsel for the parties have received the due consideration of the court. 20. At the outset, it would be relevant to advert to Clauses 51 and 52 of the GCC read with COPA. Clauses 51 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r due consultation by the Engineer with the Employer and the Contractor, suitable rates or prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement, the Engineer shall fix such rates or prices as are, 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, and varied work is valued at, or on the basis of, the rates and prices set out in the Contract, payment for such varied work shall be made in the proportions of various currencies specified in the Appendix to Bid for payment of the Contract Price. Where the Contract provides for payment of the Contract Price in more than one currency, and new rates or prices are agreed, fixed, or determined as stated above, the amount or proportion payable in each of the applicable currencies shall be specified when the rates or prices are agreed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineer of his intention to claim extra payment or a varied rate or price, or (b) by the Engineer to the Contractor of his intention to vary a rate or price. (GCC) (COPA) Provided further that no change in the rate or price for any item contained in the Contract shall be considered unless such item accounts for an amount more than 2 percent of the Contract Price, and the actual quantity of work executed under the item exceeds or falls short of the quantity set out in the Bill of Quantities by more than 25 percent. 52.3 Variations Exceeding 15 per cent (GCC) If, on the issue of the Taking-Over Certificate for the whole of the works, it is found that as result of : (a) all varied work valued under Sub-Clauses 52.1 and 52.2 and (b) all adjustments upon measurement of the estimated quantities set out in Bill of Quantities, excluding provisional sums, day works and adjustments of price made under Clause 70. But not from any other cause, there have been additions to or deductions from Contract Price which taken together are in excess of 15 per cent of the "Effective Contract Price" (which for the purposes of this Sub- Clause shall mean Contract Price, excluding p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51.2 and hence payment as per the BOQ rate should be made for the entire quantity. Though NHAI had contended that appellant had changed the form and varied the design, this could not be proved in any way. Therefore, DRB held that variation in terms of Clause 51.1 could not be established. As such, DRB recommended that quantities of geogrid required, limited to the facia area, should be paid as per the BOQ rates. 22. As already noticed, the DRB recommendations were not acceptable to NHAI which thereafter invoked the arbitration clause. Arbitral Tribunal comprised of three arbitrators; one each appointed by the two parties who thereafter appointed the third arbitrator. All the three arbitrators were technical experts. Arbitral Tribunal referred to Clause 67.1 of the GCC which says that recommendations of the DRB shall be binding on both parties giving prompt effect to it until and unless the same is revised by the Arbitral Tribunal. Arbitral Tribunal, therefore, was of the view that NHAI should have complied with the DRB recommendations which was subject to outcome of the arbitral award. However, NHAI failed to do so. Thereafter, Arbitral Tribunal framed the core issue to be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantity did not constitute a variation so as to attract the provisions of Clause 52.2, further noting that this clause clearly provides that it would be applicable only in respect of varied work instructed to be done by the Engineer as per Clause 51 and that the present was not a case where such instructions were required. While upholding the interpretation of the appellant of Clauses 51 and 52, Arbitral Tribunal held that the Engineer does not possess the power to revise the rates for additional quantity of geogrid required for actual execution of the work as per the approved design. Arbitral Tribunal upheld the recommendations of DRB and passed the following award: (i) The variation in terms of Clause 51.1 is not established. (ii) Claimant (NHAI) was directed to pay the Respondent (Som Datt Builders - NCC-NEC- JV) the actual quantity of geogrid required to be executed to complete the work of RE wall as per the approved design at the BOQ rate. 23. DRB had recorded a finding of fact that there was no change in the concept or design. As a matter of fact, the design prepared and submitted by the appellant was approved by the Engineer whereafter the related work was executed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to a decision of the Appellate Division of the South African Court in Grinaker Construction (TVL) Ltd Vs. Transvaal Provincial Administration 1982 (1) AD 78, where similar contractual clauses came up for interpretation. Learned Single Judge agreed with the interpretation given by the South African Court that automatic increase or decrease in the quantity did not form part of the variation. 24.2. Learned Single Judge highlighted the aspect that the interpretation given to the aforesaid clauses was also the interpretation arrived at by the DRB as also by the Arbitral Tribunal. The contractual clauses have been interpreted by technical people who were well conversant with the nature of the dispute and for this reason also greater weight has to be given to such a view. Learned Single Judge held that once a contracted price is provided and the quantities are held to be tentative, any increase or decrease in quantity must be governed by the same price. It is only in respect of any instructed variation arising from the instruction of the Engineer on account of any additional work or less work that there can be some element of renegotiation and determination in terms of Clauses 51 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... underlying principle stated either by the Arbitral Tribunal or by the learned Single Judge that only if the variation is the result of instruction given by the Engineer under Clause 51.1, rates and prices of the BOQ items in question would be open to renegotiation and not otherwise; variation in quantity, even when it is not a result of an instruction given by the Engineer to the contractor under Clause 51.1, does not cease to be a 'variation' within the meaning of the expression used in Clause 51.1. 27.1. 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. 27.2. It was on the above basis, Division Bench held that there is no reason as to why variation in quantity beyond the limits set out in the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crease in the quantity of any work where such increase or decrease is not the result of any instruction given under Clause 51.1 but is the result of the quantities exceeding or being less than those stated in the BOQ. 30. Clause 52.2, on the other hand, mentions that all variations referred to in Clause 51 (which means instructed variations) shall be valued at the rates and prices in the contract, if in the opinion of the Engineer, the same is applicable. If the contract does not contain any rates or prices applicable to the varied works, the rates and prices in the contract shall be used as the basis for valuation so far it may be reasonable. If this is not possible, then the Engineer shall carry out the valuation after due consultation with the Employer and the contractor. The GCC proviso to Clause 52.2 says that no varied work instructed to be done by the Engineer shall be valued under Clause 52.1 or under Clause 52.2 unless 14 days' notice is given by either of the parties. 31. The further proviso under COPA to Clause 52.2 says that no change in the rate or price for any item contained in the contract shall be considered unless such item accounts for more than 2 percent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led that the court does not sit in appeal over an arbitral award and may interfere on merits only on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. Even then, the interference would not entail a review on the merits of the dispute but would be limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse or when the conscience of the court is shocked or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. As far as interference with an order made under Section 34 by the court under Section 37 is concerned, it has been held that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. 37. What is public policy of India has been explained in Ssangyong Engineer and Construction Company Ltd. (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. 39. In Reliance Infrastructure Ltd. (supra), this Court referring to one of its earlier decisions in UHL Power Company Ltd. Vs. State of Himachal Pradesh (2022) 4 SCC 116, held that scope of interference under Section 37 is all the more circumscribed keeping in view the limited scope of interference with an arbitral award under Section 34 of the 1996 Act. As it is, the jurisdiction conferred on courts under Section 34 of the 1996 Act is fairly narrow. Therefore, when it comes to scope of an appeal under Section 37 of the 1996 Act, jurisdiction of the appellate court in examining an order passed under Section 34, either setting aside or refusing to set aside an arbitral award, is all the more circumscribed. 40. Again in M/s Larsen Air Conditioning and Refrigeration Company (supra), this Court reiterated the position that Section 37 of the 1996 Act grants narrower scope to the appellate court to review the findings in an arbitral award if it has been upheld or substantially upheld under Section 34. 41. This Court in M/s. Hindustan Construction Company Ltd. (supra) declare ..... X X X X Extracts X X X X X X X X Extracts X X X X
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