National Highway Authority of India v. M/S. Progressivemvr (jv)
A. K. SIKRI, J. All these appeals involve the lis of an identical
nature. National Highway Authority of India (NHAI) is the appellant in
1021
these appeals. Respondents in different appeals are the contractors who
were awarded the contracts by the appellant/NHAI for construction of
roads etc. The terms and conditions on which the contracts were to be
executed are identical in all these cases, as the standard f orm contract
was signed by the parties. Dispute had arisen about the int erpretation
that is to be given to sub-clause 70.3 of Conditions of Particular Application
(COPA) of the contract which contains ‘Price Adjustment Form ula’.
The tender document of the NHAI, modeled upon generic FIDIC
construction contracts, envisage that since the estim ation of work
including the rates, prices and costs of various items of work is done on
the basis of prices/costs of materials, labour and other inputs prevailing
on and around the date of the submission of bid, ‘Price Adjus tment’
(also generally known as Price Escalation/Variation) is needed so as to
protect both the parties in cases of rise or fall of prices/costs of various
components of work during the period when the work is being executed.
In the NHAI contracts, as opposed to one lump financial quote, the
entire work to be executed under the Contract is divided int o various
estimated quantities of work unit wise in the BOQ (Bills of Quantities)
document which is part of tender document. Each bidder is required to
quote rates/prices for each estimated quantities or items of work. These
rates are also referred to as ‘Base Unit Rates and Pri ces’ or ‘BOQ
Rates/Prices’.
Sub clause 70.3 provides for the ‘adjustment formul ae’ for
calculating the price adjustment amount. In this sub clause, the work is
divided into seven components of work and price adjustment, in each
interim payment made month-wise, is given for these components only,
which is made clear in sub-clause 70.2 which provid es that price
adjustment on any account other than the seven components enumerated
in 70.3, is deemed to have been included in the price bid amount. These
seven components of works are Labour, Plant & Machinery and Spares,
Petrol, Oil and Lubricants (POL), Bitumen, Cement, Steel a nd Other
Components/materials. Since the BOQ rate or base unit rate/prices are
the composite rate for a particular item of work in the Bills of Quantity
(BOQ) submitted by the claimants and does not specifical ly give the
base rates/prices of the seven components of works given in sub-clause
70.3 (xi).
2. The dispute concerns interpretation of sub-clause 70.3 (xi) which
is quoted hereinbelow:
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
“
(Note: x, y, z are the actual percentage of cost of mater ial of
bitumen, cement and steel respectively used for execution of
work as per the Interim Payment Certificate for the month) ”
3. The entire controversy is with regard to the ‘Note’ aft er sub-
para (xi) of sub-clause 70.3 of the conditions, which has been extracted
above. This note mentions that x, y, z are the actual percentage of the
cost of material of bitumen, cement and steel respectivel y which are
used for execution of the work as per the Interim Payment Certificate
(IPC). The issue is, while calculating the actual percent age of cost of
material of bitumen, cement and steel respectively, it is the base rate
(i.e. the rate prevailing 28 days prior to the submission of the bid) of
these materials which is to be taken into consideration while working out
the price adjustment as per the formula provided or it is the current cost
of the material in that particular month.
4. The respondents (hereinafter referred to as the ‘contractors ’)
contend that it is the prevailing rate in that particular month which would
be the determining factor, whereas the NHAI insists on taking base rate
while applying the formula.
5. Before proceeding further, at this juncture, we would like to
state the historical background giving rise to the dispute in question. For
the sake of convenience, the facts are taken note of from Civil Appeal
No. 458 of 2018 in which M/s. ProgressiveMVR (JV) is the contractor.
The NHAI is a statutory body constituted under Section 3 of the
NHAI Act, 1988. The functions assigned to NHAI under Section 16 of
the NHAI Act, 1988 are to develop, maintain and manage the National
Highways entrusted to it by the Central Government. In the year 2005,
the NHAI issued an invitation for bid for four laning from Km. 402.00 to
a) Labour -PI 20%
b) Plant and Machinery and
Spares - Pp
20%
c) POL -Pf 10%
d) Bitumen -Pb x%
e) Cement -Pc y%
f) Steel -Ps z%
g) Other materials -Pm 50 –(x+y+z)%
Total : 100%
1023
Km 440.00 of Gopalganj – Muzaffarpur section of NH-28 in Biha r in
contract package No. LMNHP-EW-II- (WB-10). The contractor was
found successful bidder and accordingly the letter of accept ance was
issued to it where it is clearly stated that your bid is accepted by NHAI
for the contract price of Rs.263,97,29,718/- (Two Hundred Sixty Three
Crore Ninety Seven Lac Twenty Nine Thousand Seven Hu ndred
Eighteen Rupees Only). According to the NHAI, the Enginee r was
paying the price adjustment as per the base rate and the contractor had
not raised any dispute in this regard. The contractor first tim e raised a
dispute about price adjustment by applying current cost while arriving
XYZ percentage as per sub-clause 70.3 (viii) of COPA. The contractor
vide letter dated April 13, 2008 raised objection with the Engineer at the
time of submission of IPA 9. The team leader rejected the dispute raised
by the contractor by stating that the essence of price adjustment cannot
be maintained by considering the current rates of the materials and the
claim cannot be accepted. This resulted in a dispute between the parties
and on September 2, 2008, the contractor invoked the provision of sub-
clause 67.1 of COPA and referred the matter for recommendation from
the DRB (Dispute Resolution Board).
6. The DRB vide its majority gave its recommendation dated
January 4, 2009 to the effect that ‘the contractor’s interpretation is not
in accordance with contract and should be rejected.’ Being aggrieve d
by the order passed by the DRB, the contractor issued a notice to invoke
arbitration in terms of provisions of clause 67 of COPA against the order
passed by the DRB. Arbitral Tribunal was constituted. The respondent
filed the statement of claim before the Arbitral Tribunal for the following
claim:
Claim No. 1 – Reimbursement of escalation amount paid less
Rs.24,93,52,493/-
Claim No. 2 – Interest- past interest, pendentilite and future.
Claim No. 3 – Cost of Arbitration.
7. After conclusion of the proceedings, the Arbitral Tribunal in
their majority award dated August 7, 2013 (with one member dissenting)
decided the issue in favour of the contractor, inter alia holding that:
“Arbitral Tribunal finds that the whole dispute is hinging on the
word ‘cost’ as appearing in sub-clause 70.3 (xi). Contractor says
that cost should be read as actual expenditure incurred by him in
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
procurement of these materials as per current invoices while the
respondent says that this word “cost” should be read as the cost
of these materials to be worked out on base rates. In t his way
an element of ambiguity has crept in the contract. So in spite of
analyzing the dispute from different angles as discussed in t he
foregoing para, even if we apply the thumb rule i.e. Rule of
Contra Proferentem, the word cost will have to be constru ed
against the employer who has prepared the draft.”
It, thus, allowed the claim raised by the respondent.
8. In dissenting note, the dissenting arbitrator held in para 11
that:
“In my opinion Pb or Pc or Ps in the price variation formula do
not take into account the actual expenditure at the time of IPC
and the definition of cost as given in para 1.1 (g)(1) of the GCC
is not pertinent to the case.”
He further held that the contractor is very much aware about the
interpretation on the NHAI more than five months before the contractor
submitted their bid and even after knowing the method of applicability
they had not raised any doubt or clarification with regard to the method
of calculation of XYZ nor seek any clarification to the note a ppended
below 70.3 (viii) which shows that they are fully aware about the method
of calculation of XYZ and afterwards signing of contract construed the
acceptance of the contractor to the NHAI’s method and interpret ation
related to “Notes”.
9. Against the said majority award allowing the claim of the
contractor, the NHAI filed objections in the form of Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred t o as the
‘Act’) before the High Court of Delhi. It was numbered as OMP (Comm.)
No. 1211 of 2013.
10. We may also mention at this stage that in other dispute between
the NHAI and M/s. NCC-VEE (JV), where also the award had gone in
favour of the said contractor, similar objections filed by the NHAI had
been dismissed by the learned Single Judge on December 17, 2014 and
appeal thereagainst was also dismissed by the Divisio n Bench of the
High Court on March 10, 2015. So much so, the Special Leave Petition
(SLP) filed by the NHAI was also dismissed by this Court on March 10,
2015. When the things rested at that, another significant and interesting
1025
development took place. In another identical dispute raised by one M/s.
Ssangyong Engineering and Construction Co. Ltd., the Arbitral Tribunal
constituted in that case gave its award dated December 14, 2015 whereby
it accepted the interpretation being urged by the NHAI and dismissed
the claim of the said contractor.
11. Be that as it may, insofar as petition of the NHAI under Section
34 filed in the High Court against the award given in M/s.
ProgressiveMVR (JV) is concerned, the learned Single Judge dismissed
the same vide its order dated August 23, 2016 holding that the matter
was covered by the decision of the Division Bench in M/s. NCC-VEE
(JV) matter. Against that order of the learned Single Judge, NHAI filed
intra-court appeal which has also been dismissed by the High Court vide
impugned judgment dated September 16, 2016, following its earlier
judgment dated March 10, 2015. This is how the appeal of the NHAI
against M/s. ProgressiveMVR(JV) had come up for consid eration.
Likewise, in other cases also, the judgments of the High Court ha ve
gone in favour of the contractors in somewhat similar circumstances.
12. Another pertinent observation needs a mention at this juncture.
In para 11 above, we have noted that in the case of M/s. NC C-VEE
(JV) identical award interpreting the same clause which was in favour
of the contractor and against the NHAI was upheld and the o bjection
petition filed by the NHAI was dismissed. That order was upheld by the
Division Bench of the High Court on March 10, 2015 and SLP
thereagainst was also dismissed. Pertinently, while dismissing the appeal,
Division Bench of the High Court in its order dated March 10, 2015
noted as under:
“10. We have also examined the judgment of the learned Single
Judge. We find that the interpretation given by the Arbitral Tribunal
is not an impossible view. Although, there may be some substance,
in what the learned counsel for the appellant submits by way of
interpretation of the said note, but that would only be one of the
possible interpretations. Another possible interpretation is the one,
adopted by the Arbitral Tribunal.
11. It is well settled that the interpretation of a term of contract
is within the domain of the Arbitral Tribunal and if the Arbitral
Tribunal interprets a particular clause in a particular manner, which
is a possible interpretation, then the court ought not to interfere
in its jurisdiction under Section 34 of the said Act. The on ly
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
exception being where the interpretation results in a perversity
and shocks the conscious of the Court, the latter eventuality has
not happened in the present case.”
13. Thus, the main reason because of which the NHAI lost in
those proceedings was that two possible interpretations could be given
to the clause in question and, therefore, the recourse taken by the Arbitral
Tribunal by adopting one particular interpretation was not required to be
interfered with. SLP against that was dismissed. In a situation like this,
this Court would not have undertaken further exercise in t he matter.
However, another Arbitral Tribunal in the case of M/s . Ssangyong
Engineering and Construction Co. Ltd. has accepted the other v iew,
which goes in favour of the NHAI. It leads to an anomalous si tuation.
The NHAI has entered into multiple contracts with different parties
containing the same clauses of price variation. Once we find that Arbitral
Tribunals are taking different views, and the view taken in favour of the
NHAI is also one of the possible interpretations, the effect thereof would
be to uphold both kinds of awards even when they are confli cting in
nature in respect of the same contractual provision. It may not be
appropriate to countenance such a situation which needs to be remedied.
Therefore, under this peculiar situation, we deem it proper to go into the
exercise of interpreting the said clause so that there is a uniformity in the
approach of the Arbitral Tribunals dealing with this part icular dispute
and a sense of certainty is attached in the outcomes.
14. As mentioned above, clause 70 is the relevant clause which
pertains to price adjustment, with which we are concerned. Accordingly,
we reproduce hereunder the relevant portions:
“Clause 70: Changes in Cost and Legislation
Delete clause 70 in its entirety, and substitute:
Sub-Clause 70.1: Price Adjustment
The amount payable to the Contractor in various currencies
pursuant to Sub-Clause 60.1 shall be adjusted in respect of the
rise or fall in the cost of labour, Contractor’s equipment, Plant
materials and other inputs to the Work, by applying to suc h
amounts the formulae prescribed in this Clause.
Sub-Clause 70.2: Other Changes in Cost
To the extent that full compensation for any rise or fall i n the
1027
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 include amounts to cover the
contingency of such other rise or fall in cost.
Sub-Clause 70.3 :Adjustment Formulae
Contact price shall be adjusted for increase or decrease in rates
and price of labour, materials, Plant, machinery, equipment, spares,
fuels and lubricants in accordance with the following principles
and procedures as per formulae given below. The amount certified
in each payment certificate shall be adjusted by applying , the
respective price adjustment factor to the payment amounts due
in each currency.
a) Price adjustment shall apply for work carried out within the
stipulated time or extensions granted by the Employer and shall
not apply for work carried out beyond the stipulated time. Price
adjustment for reasons attributable to the Contractor, shal l be
paid in accordance with Sub-Clause 70.6;
b) Price adjustment shall be calculated for the local and foreign
components of the payment for work done as per formulae given
below; and
c) Following expressions and meanings are assigned to the value
of the work done during the period under consideration:
R= Total value of work done during the period under consideration
and payable in Indian Rupee currency, it would include the value
of materials on which secured advance has been granted, if any,
during the period, less the value of materials in respect of which
the secured advance has been recovered , if any, during the
period. This will exclude cost of work an items for which rates
were fixed under variation Clauses (51 and 52) for which the
escalation will be regulated as mutually agreed at the ti me of
fixation of rate.
Ri = Portion of ‘R’ as payable in Indian Rupees
Rf = Portion of ‘R’ as payable in foreign currency (at fi rst
exchange rates)
R = Ri + Rf
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
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.
i) Adjustment for Labour Component
xxx xxx xxx
ii) Adjustment for Cement Component
xxx xxx xxx
iii) Adjustment for steel component
xxx xxx xxx
iv) Adjustment for plant and machinery and spares component
xxx xxx xxx
v) Adjustment for Bitumen Component
Price adjustment for increase or decrease in the co st of
bitumen shall be paid in accordance with the following formula:
Vb=0.85 x Pb/100 x R 1 x (Bi – Bo)/Bo
Vb = Increase or decrease in the cost of work during the month
under consideration due to changes in the rate of bitumen.
Bo = The average official retain price of bitumen at IOC depot
at Barauni/Haldia on the day 28 days prior to the da te of
submission of bids.
Bi = The average official retail price of bitumen at IOC depot at
Barauni/Haldia on the day 28 days prior to the last day of the
period to which a particular interim payment certificate is related.
Pb = Percentage of bitumen component of the work.
vi) Adjustment for fuel and lubricants
xxx xxx xxx
vii) Adjustment for other Local Materials
xxx xxx xxx
1029
viii) Adjustment for Foreign Currency Component
xxx xxx xxx
xi) The following percentages will govern the price adjustment
for the local currency portion (RI) of the contract:
1.Labour – P 1 20%
2.Plant and Machinery and Spares – Pp 20%
3.POL – Pf 10%
4.Bitumen – Pb X %
5.Cement – Pc Y %
6.Steel – Ps Z %
7.Other materials – Pm 50 (X+Y+Z)%
Total 100%
(Note: X, Y, Z are the actual percentage of cost of bitume n,
cement and steel respectively used for execution of work as per
the Interim Payment Certificate for the month)
Sub-Clause 70.4 : Sources of Indices
xxx xxx xxx
Sub-Clause 70.5: Base, Current and Provisional Indices
The base cost indices or prices shall be those prevailing on the
day 28 days prior to the closing date for submission of b ids.
Current indices or prices shall be those prevailing on the day 28
days prior to the last day of the period to which a partic ular
Interim Payment Certificate is related. If at any time the current
indices are not available, provision indices as determined by the
Engineer will be used, subject to subsequent correction of the
amounts paid to the Contractor when the current indices become
available.”
15. Clause 70.3(v) deals with ‘Adjustment for Bitume n
Component’. As per this clause, the price adjustment for increase or
decrease in the cost of bitumen is to be paid in accordance with the
following formula:
“Vb=0.85 x Pb/100 x R 1 x (Bi – Bo)/Bo”
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
16. Pb denotes percentage of bitumen component of the work
and R 1 is the total value of the work. Bi denotes current rate/cost as it
is the average official retail price of bitumen at IOC Depot at Barauni/
Haldia on the day 28 days prior to the submission of bids, which makes
it clear that it is equivalent to the base rate. Thus, when this formula is
considered of its own, Bo clearly refers to the base rate. However, little
confusion is generated because of the note which is appended to Clause
70.3(xi). A perusal of sub-clause (xi) shows that insofar as labour, plant
and machinery and spares and POL (Petrol, Labour and Lubricant) are
concerned, specific percentages are given that were to govern the price
adjustment and these are 20%, 20% and 10% respectively. Howeve r,
insofar bitumen, cement and steel components are co ncerned,
percentages are to be worked out which are denoted as X%, Y% and
Z% respectively. X, Y, Z are the actual percentage of cost of bitumen,
cement and steel respectively, used for execution of work as per the
IPC for the month.
17. According to the Contractors, the word ‘cost’ mentioned therein
is to be assigned as per the definition thereof contained in the contract
which is as under:
“Cost means all expenditure properly incurred or to be incurred,
whether on or off the site, including overhead and other charges
properly allocated thereto but does not include any allowance
for profit”.
However, according to the NHAI, ‘actual percentage of c ost’
refers to the percentage which is to be assigned to particular component,
namely, bitumen in this case and it does not refers to the actual cost. No
doubt, there is no mention of ‘base rate’ in this note. However, submission
of the NHAI is that since it is the cost which is used for execution of
work as per the Interim Payment Certificate. Insofar as IPC is concerned,
the same is worked out on base rate and, therefore, it refer s to base
rate. In order to support its contention, the NHAI has given the following
illustration for calculating the bitumen (X%) as follows:
“Vb = 0.85 x Pb/100 x Ri x (Bi – Bo)/Bo
(0.85 which is 85% as 15% is profit on which there cannot be
any adjustment)
Vb = Increase or decrease in the cost of work during the month
under consideration due to changes in the rate of bitumen.
1031
Bo = The average official retain price of bitumen at IOC depot
at Barauni/Haldia on the day 28 days prior to the da te of
submission of bids.
Bi = The average official retail price of bitumen at IOC depot at
Barauni/Haldia on the day 28 days prior to the last day of the
period to which a particular interim payment certificate is related.
Pb = X% = Percentage of bitumen component of the work.
18. Pb = X% is calculated by NHAI by following mathematical
formula:
“Pb = Quantity of Bitumen consumed during the month x base
rate of bitumen x 100
Total Work done during the month of x BOQ rates.”
19. R 1 in the aforesaid formula denotes the value of work as per
IPC which according to the NHAI is calculated at the base ra te. It is
further stated that in the aforesaid mathematical formula, base rate of
bitumen is taken having regard to the effect that the denominator clearly
mentions the base rate and, therefore, it cannot be actual rate in the
enumerator. Further, as noted above, according to the NHAI, it is not
price adjustment formula but only to arrive at percentage of X. It is
argued that in order to arrive at the correct percentage of X (bitumen)
component, it is mathematically required that rates in numerator and
denominator has to be same otherwise correct percentage ca nnot be
achieved.
20. Commenting upon the definition of ‘cost’ which is relied upon
by the Contractors, it is the submission of the NHAI that i t is totally
misconceived because the definition of cost does not p rovide that
wherever the word ‘cost’ is used in the contract, it is t o be always
construed as current or actual cost. Further, the definition of ‘cost’ per
se is not an issue but ‘cost occurring on what date and on what rate’ is
the real question. It was argued that the word ‘cost’ is in fact used in
various sub-clauses of Clause 70 which clearly demonstrate that it would
mean ‘the base cost’. Sub-clauses 70.1, 70.2 and 70.7 are relied upon in
support of this contention.
21. Mr. Patwalia, learned senior counsel appearing for the NHAI,
after highlighting the aforesaid aspects, made a passionate plea to the
effect that the interpretation given to the ‘Note’ in sub-clause 70 .3(xi)
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
by the Arbitral Tribunal would lead to disastrous and unrealisti c price
adjustment amounts in favour of the contractors. To demonstrate the
same, it is pointed out that in the case of M/s. Progressiv eMVR (JV),
the total amount paid to the contractor upto 41 IPC is about Rs.210
crores. The price adjustment amount upto 41 IPC calculated and paid
by taking into account the base rates, is Rs.77.70 crores. The contractor
on the other hand is claiming an amount of Rs.127 crore as the price
adjustment amount which is around more than 60% of the entire contract
amount and, therefore, clearly exaggerated and unjustified. It was, thus,
argued that Court could interfere with the award when it wa s clearly
contrary to the terms of the contract. Mr. Patwalia went to the extent
of arguing that no reasonable person would come to such a conclusion
as arrived at by the Arbitral Tribunal and, therefore, this Court could
interdict such an award. Reliance was placed on the following judgments:
(i) Hindustan Zinc Ltd v. Friends Coal Carbonisation 1, (ii) Associate
Builders v. Delhi Development Authority 2 and (iii) Bhakra Beas
Management Board v. Krishan Kumar Vij & Anr. 3
22. Senior Advocates Mr. Neeraj Kishan Kaul, Mr. S. Gurukrishna
Kumar and Mr. Dhruv Mehta argued the case on behalf of differe nt
respondents. It was submitted that when two views are possible, a
particular view taken by the Arbitral Tribunal which was also reasonable
should not be interfered with, as rightly done by the High Court. It was
stressed that the contract in question was item rate contra ct and the
only way Pb (i.e. percentage of bitumen component of the work) in the
formula provided for adjustment for bitumen component was to calculate
said Pb at current rate. Otherwise, there would not be a realistic figure
of work done. Reading from the majority opinion of the Arbitral Tribunal,
it was submitted that the view taken was correct view whe rein the
Tribunal has observed as under:
“A plain reading of the words ‘actual percentage of cos t of
bitumen’ conveys these to the mind that actual percentage based
on cost of bitumen, cement or steel used for carrying out a work
in particular month shall be accounted for. These words, even
from remote consideration, do not carry the mind of the reader
to the cost of bitumen as prevailing at the time of submission of
1 (2006) 4 SCC 445
2 (2015) 3 SCC 49
3 (2010) 8 SCC 701
1033
Bid. If the intention of the contract would have been to account
for the base rates of cement, steel and bitumen or the r ates as
prevailing at the time of submission of bid, this would have been
specifically mentioned so. Not only it would have been so
mentioned, also these rates would have been clearly laid down
in the tender, as these could not be left to be determined by the
parties after finalization of the contract.”
It was also submitted that the Tribunal, while giving the aforesaid
interpretation to this clause in the contract, had not only gone by the
words used but also by the intention of the parties behind such a clause,
as discussed in detail in the Award.
23. Mr. Gurukrishna extensively read out from the order of the
learned Single Judge in the case in which he is representing (Civil Appeal
No. 459 of 2018) and is reported as (2015) 1 Arbitral Law Reporter 129,
which was upheld by the Division Bench in the impugned judgment. He
also relied upon para 27 of the judgment in the case of Associate Builders
which reads as under:
“27. Coming to each of the heads contained in Saw Pipes [(2003)
5 SCC 705 : AIR 2003 SC 2629] judgment, we will first deal
with the head “fundamental policy of Indian law”. It has already
been seen from Renusagar [ Renusagar Power Co.
Ltd. v. General Electric Co. , 1994 Supp (1) SCC 644] judgment
that violation of the Foreign Exchange Act and disregarding orders
of superior courts in India would be regarded as being contrary
to the fundamental policy of Indian law. To this it could be added
that the binding effect of the judgment of a superior court being
disregarded would be equally violative of the fundamental policy
of Indian law.”
24. Mr. Dhruv Mehta who appeared in Civil Appeal No. 460 of
2018 submitted that as far as case of his client is conce rned viz. M/s.
NCC-VEE (JV), in the earlier round, SLP has been specifically dismissed
and as per the award, payment was made to the contractors. Therefore,
there was no reason to deny the payment for subsequent period wher e
again, the Award had gone in its favour and the principle of issue estoppel
clearly applies in his case. He also submitted that t here was only one
possible interpretation and the interpretation given by the NHAI was
clearly unacceptable. In any case, submitted the learned senior counsel,
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
even in case of doubt, benefit should go to the contractors. It w as
further submitted that in case of his client, 21 interim pa yments were
made as per the current costs. He also referred to few judgments in
support of his contentions which are as under:
(i) Bhanu Kumar Jain v. Archana Kumar & Anr. 4
“29. There is a distinction between “issue estoppel” and “res
judicata”. (See Thoday v. Thoday [(1964) 1 All ER 341 : (1964)
2 WLR 371 : 1964 P 181 (CA)] .)
30. Res judicata debars a court from exercising its jurisdiction
to determine the lis if it has attained finality between the parties
whereas the doctrine issue estoppel is invoked against the party.
If such an issue is decided against him, he would be estopped
from raising the same in the latter proceeding. The doctrine of
res judicata creates a different kind of estoppel viz. estoppel
by accord.
31. In a case of this nature, however, the doctrine of “issue
estoppel” as also “cause of action estoppel” may ar ise.
In Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371 : 1964 P
181 (CA)] Lord Diplock held: (All ER p. 352 B-D)
“cause of action estoppel’, is that which prevents a party to
an action from asserting or denying, as against the other
party, the existence of a particular cause of action, the non-
existence or existence of which has been determined by a
court of competent jurisdiction in previous litigation between
the same parties. If the cause of action was determined to
exist i.e. judgment was given on it, it is said to be merged in
the judgment.… If it was determined not to exist, t he
unsuccessful plaintiff can no longer assert that it does; he
is estopped per rem judicatam.” [Ed.: The rest of the extract
from Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371 :
1964 P 181 (CA)] may usefully be referred to (All ER p.
352, B-F)”Estoppel per rem judicatam is a generic term
which in modern law includes two species. The first species,
‘cause of action estoppel’, is that which prevents a party to
an action from asserting or denying, as against the other
party, the existence of a particular cause of action, the non-
4 (2005) 1 SCC 787
1035
existence or existence of which has been determined by a
court of competent jurisdiction in previous litigation between
the same parties. If the cause of action was determined to
exist, i.e., judgment was given on it, it is said to be merged
in the judgment, or for those who prefer Latin, transit in
rem judicatam. If it was determined not to exist, t he
unsuccessful plaintiff can no longer assert that it does; he
is estopped per rem judicatam. This is simply an application
of the rule of public policy expressed in the Latin maxim,
‘nemo debet bis vexari pro una at eadem causa’. In this
application of the maxim, causa bears its literal La tin
meaning. The second species, ‘issue estoppel’, is a n
extension of the same rule of public policy. There are many
causes of action which can only be established by proving
that two or more different conditions are fulfilled. Such
causes of action involve as many separate issues between
the parties as there are conditions to be fulfilled by the plaintiff
in order to establish his cause of action; and there may be
cases where the fulfilment of an identical condition is a
requirement common to two or more different causes of
action. If in litigation on one such cause of action any of
such separate issues whether a particular condition has been
fulfilled is determined by a court of competent jurisdiction,
either on evidence or on admission by a party to the litigation,
neither party can, in subsequent litigation between them on
any cause of action which depends on the fulfilment of the
identical condition, assert that the condition was fulfilled if
the court has in the first litigation determined that it was
not, or deny that it was fulfilled if the court in the first
litigation determined that it was.”]
32. The said dicta was followed in Barber v. Staffordshire
County Council [(1996) 2 All ER 748 (CA)] . A cause of
action estoppel arises where in two different proce edings
identical issues are raised, in which event, the latter proceedings
between the same parties shall be dealt with similarly as was
done in the previous proceedings. In such an event the bar is
absolute in relation to all points decided save and exc ept
allegation of fraud and collusion. [See C.(A Minor) v. Hackney
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
London Borough Council [(1996) 1 All ER 973 : (1996) 1
WLR 789 (CA)] .]”
(ii) Godhra Electricity Co. Ltd. & Anr. v. State of Gujarat & Anr.5
“11. In the process of interpretation of the terms of a contract,
the court can frequently get great assistance from the
interpreting statements made by the parties themselves or from
their conduct in rendering or in receiving performances under
it. Parties can, by mutual agreement, make their own contracts;
they can also by mutual agreement remake them. The process
of practical interpretation and application, however, is not
regarded by the parties as a remaking of the contract; nor do
the courts so regard it. Instead, it is merely a further expression
by the parties of the meaning that they give and have given to
the terms of their contract previously made. There is no good
reason why the courts should not give great weight to these
further expressions by the parties, in view of the fact that they
still have the same freedom of contract that they had originally.
The American Courts receive subsequent actings as admissible
guides in interpretation. It is true that one party cannot build up
his case by making an interpretation in his own favour. It is the
concurrence therein that such a party can use against the other
party. This concurrence may be evidence by the other party’s
express assent thereto, by his acting in accordance with it, by
his receipt without objection of performances that indicate it,
or by saying nothing when he knows that the first party is
acting on reliance upon the interpretation (see Corbin on
Contracts , Vol. 3, pp.249 & 254-56).
xxx xxx xxx
18. In these circumstances, we do not think we will be justified
in not following the decision of this Court in Abdulla
Ahmed v. Animendra Kissen Mitter [AIR 1950 SC 15 : 1950
SCR 30, 46] where this Court said that extrinsic evidence to
determine the effect of an instrument is permissible where
there remains a doubt as to its true meaning and that evidence
of the acts done under it is a guide to the intention of the parties,
particularly, when acts are done shortly after the date o f the
instrument.”
5 (1975) 1 SCC 199
1037
(iii) Bank of India & Anr. v. K. Mohandas & Ors. 6
“32. The fundamental position is that it is the banks who were
responsible for formulation of the terms in the contractual
Scheme that the optees of voluntary retirement under that
Scheme will be eligible to pension under the Pensio n
Regulations, 1995, and, therefore, they bear the risk of lack of
clarity, if any. It is a well-known principle of construction of a
contract that if the terms applied by one party are unclear, an
interpretation against that party is preferred ( verba chartarum
fortius accipiuntur contra proferentem ).”
25. We have given our serious consideration to the respective
submissions of the counsel for the parties. First and fore most aspect
which is to be kept in mind is that the issue relates to price adjustment
and such an adjustment can be made in respect of various components
which are used in the contract. The contractual provisions specifically
deal with adjustment for labour component, cement, steel etc. These
components are seven in numbers which may undergo price adjustment
during the period when the contract is in progress, depending upon the
market conditions, namely, increase or decrease in market prices of these
components from time to time. The very nature of this price adjustment
suggests that such variation would have relevance with the price which
was indicated in respect of these components at the time of submitting
the tender by the successful contractor and, in that sense, it can have
reference only to the base price. The formula which is provi ded for
working out the price adjustment has to be examined in this hue.
26. In the aforesaid circumstances, there appears to be some force
in the submission of NHAI that formula indicates the base price which
has to be taken for the purposes of working out the price adjustment.
After all, what is the purpose of giving price adjustment ? The clause
relating to price adjustment indicates that certain components which go
into the execution of the projects like labour comp onent, cement
component, steel component, plant and machinery and spares component,
bitumen component etc. may not remain static insofar as their p rice is
concerned. There is a possibility that from the date when the price of
these components was quoted by the contractor in his bid, there may be
increase or decrease in the said price from time to time during the
execution of the contract. It is for this reason, clause relat ing to price
6 (2009) 5 SCC 313
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
adjustment is provided so as to give effect to the rise or fall in the costs
to the contractor. To this adjustment formula for working out the cost, at
the time of execution of the contract, is provided. This adjustment which
has to be arrived at, naturally, has to be in comparison wi th the base
price that was stated by the contractor. Thus, even from the commonsense
point of view, it is the base price which has to be kept in mind while
working the price adjustment. However, we are not resting our decision
on this common sense approach as the final outcome has to depend on
the formula provided in the contract; being a contractual term.
27. In the present case, we find that the intention in the formula
as well is to keep in mind the base cost while arriving at the price
adjustment. There are few reasons which drive us to take this opinion.
28. Clause 70.3 (xi) deals with percentages on various components
that will govern the price adjustment. Insofar as labou r, plant and
machinery and spares, and POL (Petrol, Oil and Lubr icants) are
concerned, there is a fixed percentage prescribed, i.e., 20% , 20% and
10% respectively. However, with regard to the other three components,
namely, bitumen, cement and steel variable percentage is mentioned which
has to be calculated. Seventh component is ‘Other Mater ial’. Insofar
as this component is concerned, it is the balance pe rcentage, after
percentage of bitumen, cement and steel is arrived at, as it mentions “50
– (x+y+z)” percentage. From this, one can infer that no rmally the
combined percentages of x, y and z has to be less than 50%. However,
when the current cost is taken into consideration while worki ng the
formula, the percentages of x, y and z far exceed 50% which w ould
make the percentage of other materials in the negative. Such a negative
aspect has to be avoided. Mr. Patwalia, learned senior counsel for the
NHAI was able to successfully demonstrate it by giving various live
examples.
29. We may point out that submission of the learned counsel for
respondents was that when such an eventuality happens, the adjustment
of “other materials” can be in the negative, i.e., by reducing the price of
the other material in giving the adjustment so that total remains 100%. It
is difficult to accept this suggested mode. What is important is that insofar
as other materials are concerned, the inputs thereof would be negligible
as compared to bitumen, cement and steel and, therefore, even if their
price is reduced to offset the negative elements, that would be substantially
less than the gain which would accrue to the contractors by giving higher
1039
cost adjustment for the aforesaid three components. Moreove r, such a
result cannot be countenanced by giving negative adjustment in the price
of “other material” even when, as a matter of fact, prices of other material
had also gone up. That could not have been the intention while l aying
down the formulae. As mentioned above, the word “actual” in the note
under sub-clause 703(xi) of COPA relates to the percentage and not to
the cost. The percentage x, y, z are mentioned to ensure that the contractor
is compensated realistically on the actual material used each IPC.
Therefore, it seems more logical and proper to adopt the base cost of
material while working out the price adjustment.
30. We may mention here that when the dispute was raised, as
per the provisions contained in the contract, in the first instance, it was
referred to the Dispute Review Board (DRB) which went into the issue
in detail and discussed the issue, inter alia, in the following manner:
“…d) The present dispute is what rate for the material i.e.
bitumen, cement and steel is to be considered in arriving at the
actual percentage of cost of the respective material used in the
work in the IPC of that month. The Contractor’s plea is that it
should be current material cost of the material consumed in that
month while the Employer’s view is that it should be the base
price.
e) In support of his arguments, the Contractor says that base
price is not specified in the Contract. The Contractor plea that
the base rates are not specified in the tender is not c orrect as
sub-clause 70.5 of COPA clearly states that ‘the base cost indices
or prices shall be those prevailing in the previous month prior to
the closing date for submission of Bids.’
Further, sub-clause 70.3(v) for price adjustment of bitumen
component of the work reads as under:
Vb = 0.85 x P b x R I x (B 1 – Bg)
100 B o
In this formula to work out V b i.e. increase or decrease in the
cost of work during the month under consideration, due to change
in the rates for bitumen, Bo has been defined as ‘the averag e
official retail price of bitumen at the IOC refinery M athura on
the day 28 days prior to the date of submission of bids. Obviously,
this is the initial price or base price of bitumen. In all the relevant
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
IPCs value of Bo has been taken by the contractor as the retail
price of bitumen on the day 28 days prior to the date of submission
of bid which is base price only.
f) The Contract specified for calculation x, y and z factors every
month. The intention is to permit price adjustment based on
actual consumption of respective materials issued in execution
of work in the particular month if they are fixed at tender stage
only just like labour and POL etc., the price adjustment is to be
allowed irrespective of whether the item is executed or not which
is not realistic. Hence in this Contract, the price adjustment i s
linked to the actual usage of material viz. cement, steel and
bitumen.
g) BOQ rates have been quoted based on the cost of materials
at the time of bidding. Therefore, in working out the actua l
percentage of cost of any specific material in the BOQ c ost,
rates of material applicable to the same datum period for BOQ
costs i.e. base period is only logical and justified.
h) The weightage factor x, y and z for these materials have two
basic parameters namely their cost and cost of work done. In
order to ascertain the actual percentage of cost of these materials
in an IPC, cost of material has to be on the same basis as adopted
in cost of work done. As the cost of work done is based on base
cost of materials, it is therefore natural that the cost of these
materials incorporated in the work should be calculated on the
base cost only. Calculating the cost of these materials on actual
procurement price is not justified and would go against the terms
and conditions of the Contract word ‘actual’ in the note under
sub-clause 70.3(xi) 8 COPA relates to percentage and not to the
cost.”
31. The DAB thereafter worked out the formula in the following
manner:
“x, y, z percentages are to be worked out as per provisions note
below sub-clause 70.3(ix).
Thus, p (x,y,z) percentages
Cost of material consumed during the month
= ————————————————— x 100
Work done in that month as per IPC
1041
Quantity of material consumed during the month x Rate of material
= ———————————————————— x 100
Work done
The Contractor has quoted rates in the tender based on base
rates of material and IPC is based on BOQ rates quoted by the
contractor on base rates of material. Therefore for working out
actual percentage of cost of material of bitumen, cement a nd
steel used in execution of work as per the IPC for the mont h,
base rate of material can only be used as per the prov isions of
contract in order to arrive at actual percentage, numerato r and
denominator is based on BOQ rates determined on base rat es.
The numerator should also be based on base rates. This is why
rate of material in numerator should be rate of materia l at the
time of bid. This is a fixed rate and not variable as claimed by
the contractor. The contract provision is quite clear in this regard
and there is no ambiguity.”
32. It also pointed out that if the current cost of material is adopted,
instead of base cost as claimed by the contractor, price adjustment will
be paid twice. One due to increase in percentage factor (x, y and z) due
to use of current rate instead of base rates and second due to application
of price adjustment factor b 1-bo/ bo. It also demonstrated, by giving
examples, that when the base rate is adopted, the price adjustment was
quote proximate with the prevailing price which compe nsated the
contractor realistically. On the other hand, on adoption of current rate,
the calculation of price adjustment was almost three times the amount
of increase in cost of bitumen incurred by the contractor.
33. We are quite in agreement with the aforesaid analysis carried
out by the DRB.
34. As mentioned above, the majority Award has held that even
the intention of the parties was to take into consideratio n the current
cost. For this purpose it had taken into consideration the ma nner in
which IPC payments were made. However, we find here , though
unfortunately, that there was no consistent practice. Some times the
payments were made on the basis of current cost and sometimes on the
basis of base cost. May be different officers understood the formula in
a different manner which resulted in the aforesaid varied appr oach.
However, when it came to the knowledge of the Authorities at appropriate
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
level, directions were given to pass the IPC keeping in vi ew only the
base rate. Therefore, no such intention of the parties can be discerned,
which became the basis of the majority award. On the other hand, as
far as dissenting award is concerned it has pointed out the lacunae which
would arise if the contention of the contractors is accepted, in the following
manner:
“13. We now proceed to scrutinise IPC-12 for the months of
November and December, 2008 to highlight lacunae in the
argument/rational, as given by the claimant. The table below
given original details of percentage of cement, steel, bi tumen
and other material which have been accepted by with parties
and certified by the Engineer percentages are based on base
prices 28 days before the last date of submission of bid.
IPC-12
Month Cement Steel Bitumen Other Material Total
(a) Nov 2008 5.14% 5.22% 15.81% 23.83% 50%
(b) Dec2008 2.06% 2.44% 14.53% 30.96% 50%
In the method now adopted by the claimant, as part of their
claim, the above details get changed as under.
IPC-12
Month Cement Steel Bitumen Other Material T otal
(c) Nov 2008 9.52% 10.21% 50.82% (-) 20.55% 50%
(d) Dec2008 3.71% 4.78% 55.35% (-) 13.84% 50%
The above details are based on modified claim which were
submitted by the claimant when the proceeding were in progress.
These were accepted by the AT as per section 23(3) o f the
Arbitration and Conciliation Act, 1996. In their original claim
submitted by the claimant, the percentage of bitumen was
adjusted to ensure that total of Pb, Pc, Ps do not exceed 50%
and other material was made zero. This made the percentage of
bitumen hypothetical and factually incorrect. In their revis ed
submissions, the percentage of bitumen is as per their calculations
and consequently the percentage of “other material” has bee n
made negative.
Now, if we consider the aim of price escalation formula as
compensation to either party for rise/fall in prices of var ious
components, all material used in a particular IPC m ust be
1043
subjected to the formula, Negative figure implies that this material
has been extracted from works completed earlier. This is physically
not possible unless works are ordered to be demolished at the
cost of the contractor and payments made earlier are to be
recovered. This is certainly not the present case. That apart, if
flexible pavement work (which is the case of IPC-12 as bitumen
percentage is high) bitumen consumption varies from 4 to 5% by
weight and the balance is other material like aggregate etc. how
can we consider the material as negative and what would happen
of price if this material goes down. Would we give additional
benefit to the contractor as the percentage has become negative
and the contractor would get increase in price variation as the
quantity is negative and price has gone down. This makes the
price variation formulate unrealistic as the contractor would get
credit instead of debit when the price goes down. This would be
an absurd situation.
Yet another way to look at the formula is that component
like Labour, POL, plant/machinery, cement, steel, bitumen and
other material are each a percentage or part of R which is based
on BOQ rates which in turn are based on base costs 28 days
prior to the last date of submission of bid. Obvious ly, the
percentage of various component must also be based on values
pertinent to BOQ rates.
It must also be noted that the claimant is getting pric e
adjustment for current rates in the third portion of the fo rmula
(B 1–B 0) where B1 is the price 28 days before the IPC and B0 is
the price 28 days before submission of bid. Therefore, the claimant
is getting compensated for procuring items at higher rates when
the price is rising.”
35. We find due rationale in the aforesaid approach. As a result,
we hold that while applying price adjustment formula for calculating the
price adjustment of bitumen, it is the base rate which is to be applied and
not the current rate.
36. Having arrived at the aforesaid finding, now we need to
determine the outcome of these cases.
37. Once we interpret the formula in the manner indicated above,
the necessary consequences would be to hold that the Arbitral Tribunal(s)
did not decide the cases with the correct application of the formula and
NATIONAL HIGHWAY AUTHORITY OF INDIA v.
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]
further that the claim for price adjustment in respect of bitumen laid by
the contractors was not correct. Therefore, it can be held that the Award(s)
are contrary to the contractual terms. At the same time, t his outcome
poses a dilemma inasmuch as in these cases, the Arbitral Tribunal has
taken a particular view and when this was a plausible view, keeping in
mind the parameters of judicial review of the Court in exercise of powers
under Section 34 of the Act, normally the Court would not interfere with
such Awards. However, as already indicated above, such a s ituation
has arisen because of conflicting Awards given by the Arbitral Tribunals
themselves, which has provoked this Court to take a final view in the
matter, necessitated by the aforesaid reason. If on e takes into
consideration the theory that one applies the principle mechanically i.e.
that a plausible view is not to be interfered with, then it may lead to very
anomalous situation. In such an eventuality, view taken by a particular
Arbitral Tribunal in favour of the Contractor would be upheld as plausible
view. Likewise, the Court will have to uphold the view taken by a particular
Arbitral Tribunal in favour of NHAI as well, as a p lausible view.
Therefore, the purpose is to avoid such a situation which c annot be
permitted as it would result in upholding both kinds of arbitral awards
interpreting the same clause, whether they go in favour of the employer
or they go in favour of the contractor. When the exercise is done keeping
in view these considerations and outcome thereof is not det ermined,
interest of justice would also demand that this result has to be applied to
the pending cases, which have not attained finality. Therefore, in these
peculiar circumstances, we hold that the principle of issue estoppel will
apply only in those cases where matters have attained fina lity and no
judicial proceedings are pending. In all those cases, including the present
one, where awards are challenged on this particular aspect, this judgment
will govern the outcome.
As a consequence, all these appeals are allowed thereby set ting
aside the impugned judgment and also the award given by the Arbitral
Tribunal on the claim pertaining to price adjustment of bitumen. There
shall, however, be no order as to cost.
Divya Pandey A ppeals allowed.