NATIONAL HIGHWAY AUTHORITY OF INDIA versus M/S. PROGRESSIVEMVR (JV)

[2018] 2 S.C.R. 1015

NATIONAL HIGHWAY AUTHORITY OF INDIA

M/S. PROGRESSIVEMVR (JV)

(Civil Appeal No. 458 of 2018)

FEBRUARY 23, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Contract – NHAI Contracts – Price adjustment formula, ‘note’appended thereto – Interpretation of – Respondents-contractorsawarded contracts by appellant-NHAI for construction of roadsetc. – Tender document envisaged ‘Price Adjustment formulae –Sub-clause 70.3 of the Contract provided for the ‘adjustmentformulae’ for calculating the price adjustment amount wherein thework is divided into seven components for which specificpercentages were given to govern the price adjustment– However,such specific percentages were given only for 4 components, andfor rest three components i.e. bitumen, cement and steel, variablepercentages were given as x%, y%, z% which were to be workedout – ‘Note’ after sub-para (xi) of sub-clause 70.3 mentioned thatx, y, z were the actual percentage of the cost of material of bitumen,cement and steel respectively which were used for execution of thework – Dispute between parties as to basis for calculation of actualpercentage of cost of material of bitumen – Plea of NHAI that baserate (i.e. the rate prevailing 28 days prior to the submission of thebid) of these materials should be considered while applying theformula – Respondents contended that it is the prevailing rate inthat particular month which would be the determining factor –Dispute Review Board (DRB) held in favour of NHAI – Respondentsinvoked arbitration – Arbitration Tribunal allowed the claim – NHAIfiled objections u/s.34, 1996 Act before High Court – Objectionsdismissed by High Court – On appeal, held: Clause relating to priceadjustment indicates that certain components which go into theexecution of the projects like labour component, cement component,steel component, plant and machinery and spares component,bitumen component etc. may not remain static insofar as their priceis concerned – There is possibility that from the date when theprice 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

Aduring the execution of the contract – Towards this, adjustmentformula for working out the cost, at the time of execution of thecontract, is provided – This adjustment has to be arrived at, incomparison with the base price/rates referred by the contractor/bidder – Thus, while applying price adjustment formula forcalculating the price adjustment of bitumen, it is the base rate whichBis to be applied and not the current rate – Arbitration andConciliation Act, 1996 – s.34.

Allowing the appeals, the Court

HELD: 1.1 Clause 70 of Conditions of Particular ApplicationC(COPA) of the contract pertains to price adjustment. Clause70.3(v) deals with ‘Adjustment for Bitumen Component’. As perthis clause, the price adjustment for increase or decrease in thecost of bitumen is to be paid in accordance with the following

formula:

D“ Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo”

Vb is increase or decrease in the cost of work during the monthunder consideration due to changes in the rate of bitumen. Pbdenotes percentage of bitumen component of the work and R1 isthe total value of the work. Bi denotes current rate/cost as it isEthe average official retail price of bitumen at IOC Depot atBarauni/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 tothe base rate. [Paras 14-16] [1029-E-F, G-H; 1030-F-G, G]

1.2 Pb = X% is calculated by NHAI by followingFmathematical formula:

“Pb = Quantity of Bitumen consumed during the month x baserate of bitumen x 100

Total Work done during the month of x BOQ rates.”

G[Para 18] [1031-B-C]

1.3 The issue relates to price adjustment and such anadjustment can be made in respect of various components whichare used in the contract. The contractual provisions specificallydeal with adjustment for labour component, cement, steel etc.HThese components are seven in numbers which may undergo

price adjustment during the period when the contract is inprogress, depending upon the market conditions, namely,increase or decrease in market prices of these components fromtime to time. The very nature of this price adjustment suggeststhat such variation would have relevance with the price whichwas indicated in respect of these components at the time ofsubmitting the tender by the successful contractor and, in thatsense, it can have reference only to the base price. The clauserelating to price adjustment indicates that certain componentswhich go into the execution of the projects like labour component,cement component, steel component, plant and machinery andspares component, bitumen component etc. may not remain staticinsofar as their price is concerned. There is possibility thatfrom the date when the price of these components was quoted bythe contractor in his bid, there may be increase or decrease inthe said price from time to time during the execution of thecontract. It is for this reason, clause relating to price adjustmentis provided so as to give effect to the rise or fall in the costs tothe contractor. To this adjustment formula for working out thecost, at the time of execution of the contract, is provided. Thisadjustment which has to be arrived at, naturally, has to be incomparison with the base price that was stated by the contractor.[Paras 25, 26] [1037-C-E, F-H; 1038-A-B]

1.4 In the present case, the intention in the formula as wellis to keep in mind the base cost while arriving at the priceadjustment. Clause 70.3 (xi) deals with percentages on variouscomponents that will govern the price adjustment. Insofar aslabour, plant and machinery and spares, and POL (Petrol, Oil andLubricants) are concerned, there is fixed percentage prescribed,i.e., 20%, 20% and 10% respectively. However, with regard tothe other three components, namely, bitumen, cement and steelvariable percentage is mentioned which has to be calculated.Seventh component is ‘Other Material’. Insofar as thiscomponent is concerned, it is the balance percentage, afterpercentage of bitumen, cement and steel is arrived at, as itmentions “50 – (x+y+z)” percentage. From this, one can inferthat normally the combined percentages of x, y and z has to beless than 50%. However, when the current cost is taken intoconsideration while working the formula, the percentages of x, y

Aand z far exceed 50% which would make the percentage of othermaterials in the negative. Such negative aspect has to beavoided. [Paras 27, 28] [1038-C-F]

1.5 The word “actual” in the note under sub-clause 70.3(xi)of Conditions of Particular Application (COPA) relates to theBpercentage and not to the cost. The percentage x, y, z arementioned to ensure that the contractor is compensatedrealistically on the actual material used each Interim PaymentCertificate (IPC). Therefore, it seems more logical and properto adopt the base cost of material while working out the priceadjustment. When the dispute was raised, as per the provisionsCcontained in the contract, in the first instance, it was referred tothe Dispute Review Board (DRB) which went into the issue indetail. [Paras 29, 30] [1039-B-C]1.6 The DRB thereafter worked out formula. It alsopointed out that if the current cost of material is adopted, insteadDof base cost as claimed by the contractor, price adjustment willbe paid twice. One due to increase in percentage factor (x, y andz) due to use of current rate instead of base rates and second dueto application of price adjustment factor b1-bo/bo. It alsodemonstrated, by giving examples, that when the base rate isEadopted, the price adjustment was quote proximate with theprevailing price which compensated the contractor realistically.On the other hand, on adoption of current rate, the calculation ofprice adjustment was almost three times the amount of increasein cost of bitumen incurred by the contractor. The aforesaidanalysis carried out by the DRB is quite acceptable. [Paras 31 -F33] [1040-G; 1041-D-F]

1.7 As result, it is held that while applying price adjustmentformula for calculating the price adjustment of bitumen, it is thebase rate which is to be applied and not the current rate. [Para35] [1043-F-G]G

1.8 The NHAI has entered into multiple contracts withdifferent parties containing the same clauses of price variation.Arbitral Tribunals have been taking different views, and the viewtaken in favour of the NHAI is also one of the possibleinterpretations, the effect thereof would be to uphold both kindsHof awards even when they are conflicting in nature in respect of

the same contractual provision. It may not be appropriate tocountenance such situation which needs to be remedied. Oncethe formula is interpreted in the manner indicated above, thenecessary consequences would be to hold that the ArbitralTribunal(s) did not decide the cases with the correct applicationof the formula and further that the claim for price adjustment inrespect of bitumen laid by the contractors was not correct.Therefore, it can be held that the Award(s) are contrary to thecontractual terms. At the same time, this outcome poses adilemma inasmuch as in these cases, the Arbitral Tribunal hastaken particular view and when this was plausible view, keepingin mind the parameters of judicial review of the Court in exerciseof powers under Section 34 of the Arbitration and ConciliationAct, 1996 normally the Court would not interfere with such Awards.However, as already indicated above, such situation has arisenbecause of conflicting Awards given by the Arbitral Tribunalsthemselves, which has provoked this Court to take final viewin the matter, necessitated by the aforesaid reason. If one takesinto consideration the theory that one applies the principlemechanically i.e. that plausible view is not to be interfered with,then it may lead to very anomalous situation. In such aneventuality, view taken by particular Arbitral Tribunal in favourof the Contractor would be upheld as plausible view. Likewise,the Court will have to uphold the view taken by particular ArbitralTribunal in favour of NHAI as well, as plausible view. Therefore,the purpose is to avoid such situation which cannot be permittedas it would result in upholding both kinds of arbitral awardsinterpreting the same clause, whether they go in favour of theemployer or they go in favour of the contractor. When the exerciseis done keeping in view these considerations and outcome thereofis not determined, interest of justice would also demand that thisresult has to be applied to the pending cases, which have notattained finality. Therefore, in these peculiar circumstances, it isheld that the principle of issue estoppel will apply only in thosecases where matters have attained finality and no judicialproceedings are pending. In all those cases, including the presentone, where awards are challenged on this particular aspect, thisjudgment will govern the outcome. [Paras 13, 36 and 37] [1026-C-D; 1043-H; 1044-A-F]

[2018] 2 S.C.R.

AHindustan Zinc Ltd v.Friends CoalCarbonisation (2006) 4 SCC 445; Associate Buildersv. Delhi Development Authority (2015) 3 SCC 49;Bhakra Beas Management Board v. Krishan Kumar Vij& Anr. (2010) 8 SCC 701 : [2010] 10 SCR 462; BhanuKumar Jain v. Archana Kumar & Anr. (2005) (1)B SCC 787 : [2004] 6 Suppl. SCR 1104; GodhraElectricity Co. Ltd. & Anr. v. State of Gujarat & Anr.(1975) 1 SCC 199; Bank of India v. K.Mohandas & Ors.(2009) 5 SCC 313 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 458 of2018

From the Judgment and Order dated 16.09.2016 of the High CourtEof Delhi at New Delhi in FAO (OS) (COMM) No. 81 of 2016 arisingfrom OMP (COMM) No. 1211 of 2013.

WITH

C. A. NOS. 459 and 460 of 2018

N. K. Kaul, P. S. Patwalia, Sr. Advs., S. Nandakumar, NareshKumar, Ms. Tanupriya Gupta, S. Sarankumar, Ram Dhan Singh Narwal,Ms. Deepikananda Kumar, Sugam Kumar Jha, Manish K. Bishnoi,Devansh Srivastava, Ms. Ila Haldia, Ms. Harshika Verma, ArchitUpadhayay, S. Gurukrishna Kumar, K. Parameshwar, Amit George, UditGGupta, Ajay Kumar Jha, Abhishek Chaudhary, Advs. for the appearingparties.

The Judgment of the Court was delivered by

A. K. SIKRI, J. All these appeals involve the lis of an identicalnature. National Highway Authority of India (NHAI) is the appellant in

these appeals. Respondents in different appeals are the contractors whowere awarded the contracts by the appellant/NHAI for construction ofroads etc. The terms and conditions on which the contracts were to beexecuted are identical in all these cases, as the standard form contractwas signed by the parties. Dispute had arisen about the interpretationthat is to be given to sub-clause 70.3 of Conditions of Particular Application(COPA) of the contract which contains ‘Price Adjustment Formula’.The tender document of the NHAI, modeled upon generic FIDICconstruction contracts, envisage that since the estimation of workincluding the rates, prices and costs of various items of work is done onthe basis of prices/costs of materials, labour and other inputs prevailingon and around the date of the submission of bid, ‘Price Adjustment’(also generally known as Price Escalation/Variation) is needed so as toprotect both the parties in cases of rise or fall of prices/costs of variouscomponents of work during the period when the work is being executed.In the NHAI contracts, as opposed to one lump financial quote, theentire work to be executed under the Contract is divided into variousestimated quantities of work unit wise in the BOQ (Bills of Quantities)document which is part of tender document. Each bidder is required toquote rates/prices for each estimated quantities or items of work. Theserates are also referred to as ‘Base Unit Rates and Prices’ or ‘BOQRates/Prices’.

Sub clause 70.3 provides for the ‘adjustment formulae’ forcalculating the price adjustment amount. In this sub clause, the work isdivided into seven components of work and price adjustment, in eachinterim payment made month-wise, is given for these components only,which is made clear in sub-clause 70.2 which provides that priceadjustment on any account other than the seven components enumeratedin 70.3, is deemed to have been included in the price bid amount. Theseseven components of works are Labour, Plant & Machinery and Spares,Petrol, Oil and Lubricants (POL), Bitumen, Cement, Steel and OtherComponents/materials. Since the BOQ rate or base unit rate/prices arethe composite rate for particular item of work in the Bills of Quantity(BOQ) submitted by the claimants and does not specifically give thebase rates/prices of the seven components of works given in sub-clause70.3 (xi).

2. The dispute concerns interpretation of sub-clause 70.3 (xi) whichis quoted hereinbelow:

(Note: x, y, z are the actual percentage of cost of material ofCbitumen, cement and steel respectively used for execution ofwork as per the Interim Payment Certificate for the month)”

3. The entire controversy is with regard to the ‘Note’ after sub-para (xi) of sub-clause 70.3 of the conditions, which has been extractedabove. This note mentions that x, y, z are the actual percentage of theDcost of material of bitumen, cement and steel respectively which areused for execution of the work as per the Interim Payment Certificate(IPC). The issue is, while calculating the actual percentage of cost ofmaterial 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) ofthese materials which is to be taken into consideration while working outEthe price adjustment as per the formula provided or it is the current costof 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 wouldbe the determining factor, whereas the NHAI insists on taking base rateFwhile applying the formula.

5. Before proceeding further, at this juncture, we would like tostate the historical background giving rise to the dispute in question. Forthe sake of convenience, the facts are taken note of from Civil AppealNo. 458 of 2018 in which M/s. ProgressiveMVR (JV) is the contractor.G

The NHAI is statutory body constituted under Section 3 of theNHAI Act, 1988. The functions assigned to NHAI under Section 16 ofthe NHAI Act, 1988 are to develop, maintain and manage the NationalHighways 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

Km 440.00 of Gopalganj – Muzaffarpur section of NH-28 in Bihar incontract package No. LMNHP-EW-II- (WB-10). The contractor wasfound successful bidder and accordingly the letter of acceptance wasissued to it where it is clearly stated that your bid is accepted by NHAIfor the contract price of Rs.263,97,29,718/- (Two Hundred Sixty ThreeCrore Ninety Seven Lac Twenty Nine Thousand Seven HundredEighteen Rupees Only). According to the NHAI, the Engineer waspaying the price adjustment as per the base rate and the contractor hadnot raised any dispute in this regard. The contractor first time raised adispute about price adjustment by applying current cost while arrivingXYZ percentage as per sub-clause 70.3 (viii) of COPA. The contractorvide letter dated April 13, 2008 raised objection with the Engineer at thetime of submission of IPA 9. The team leader rejected the dispute raisedby the contractor by stating that the essence of price adjustment cannotbe maintained by considering the current rates of the materials and theclaim cannot be accepted. This resulted in dispute between the partiesand on September 2, 2008, the contractor invoked the provision of sub-clause 67.1 of COPA and referred the matter for recommendation fromthe DRB (Dispute Resolution Board).

6.The DRB vide its majority gave its recommendation datedJanuary 4, 2009 to the effect that ‘the contractor’s interpretation is notin accordance with contract and should be rejected.’ Being aggrievedby the order passed by the DRB, the contractor issued notice to invokearbitration in terms of provisions of clause 67 of COPA against the orderpassed by the DRB. Arbitral Tribunal was constituted. The respondentfiled the statement of claim before the Arbitral Tribunal for the followingclaim:

Claim No. 1 – Reimbursement of escalation amount paid lessRs.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 intheir 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 theword ‘cost’ as appearing in sub-clause 70.3 (xi). Contractor saysthat cost should be read as actual expenditure incurred by him in

Aprocurement of these materials as per current invoices while therespondent says that this word “cost” should be read as the costof these materials to be worked out on base rates. In this wayan element of ambiguity has crept in the contract. So in spite ofanalyzing the dispute from different angles as discussed in theforegoing para, even if we apply the thumb rule i.e. Rule ofBContra Proferentem, the word cost will have to be construedagainst 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

Cthat:

“In my opinion Pb or Pc or Ps in the price variation formula donot take into account the actual expenditure at the time of IPCand the definition of cost as given in para 1.1 (g)(1) of the GCCis not pertinent to the case.”

He further held that the contractor is very much aware about theinterpretation on the NHAI more than five months before the contractorsubmitted their bid and even after knowing the method of applicabilitythey had not raised any doubt or clarification with regard to the methodof calculation of XYZ nor seek any clarification to the note appendedEbelow 70.3 (viii) which shows that they are fully aware about the methodof calculation of XYZ and afterwards signing of contract construed theacceptance of the contractor to the NHAI’s method and interpretationrelated to “Notes”.

9. Against the said majority award allowing the claim of thecontractor, the NHAI filed objections in the form of Section 34 of theFArbitration and Conciliation Act, 1996 (hereinafter referred to 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 betweenthe NHAI and M/s. NCC-VEE (JV), where also the award had gone inGfavour of the said contractor, similar objections filed by the NHAI hadbeen dismissed by the learned Single Judge on December 17, 2014 andappeal thereagainst was also dismissed by the Division Bench of theHigh 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,H2015. When the things rested at that, another significant and interesting

development took place. In another identical dispute raised by one M/s.Ssangyong Engineering and Construction Co. Ltd., the Arbitral Tribunalconstituted in that case gave its award dated December 14, 2015 wherebyit accepted the interpretation being urged by the NHAI and dismissedthe claim of the said contractor.

11. Be that as it may, insofar as petition of the NHAI under Section34 filed in the High Court against the award given in M/s.ProgressiveMVR (JV) is concerned, the learned Single Judge dismissedthe same vide its order dated August 23, 2016 holding that the matterwas covered by the decision of the Division Bench in M/s. NCC-VEE(JV) matter. Against that order of the learned Single Judge, NHAI filedintra-court appeal which has also been dismissed by the High Court videimpugned judgment dated September 16, 2016, following its earlierjudgment dated March 10, 2015. This is how the appeal of the NHAIagainst M/s. ProgressiveMVR(JV) had come up for consideration.Likewise, in other cases also, the judgments of the High Court havegone in favour of the contractors in somewhat similar circumstances.12. Another pertinent observation needs mention at this juncture.In para 11 above, we have noted that in the case of M/s. NCC-VEE(JV) identical award interpreting the same clause which was in favourof the contractor and against the NHAI was upheld and the objectionpetition filed by the NHAI was dismissed. That order was upheld by theDivision Bench of the High Court on March 10, 2015 and SLPthereagainst was also dismissed. Pertinently, while dismissing the appeal,Division Bench of the High Court in its order dated March 10, 2015noted as under:

“10. We have also examined the judgment of the learned SingleJudge. We find that the interpretation given by the Arbitral Tribunalis not an impossible view. Although, there may be some substance,in what the learned counsel for the appellant submits by way ofinterpretation of the said note, but that would only be one of thepossible interpretations. Another possible interpretation is the one,adopted by the Arbitral Tribunal.

11. It is well settled that the interpretation of term of contractis within the domain of the Arbitral Tribunal and if the ArbitralTribunal interprets particular clause in particular manner, whichis possible interpretation, then the court ought not to interferein its jurisdiction under Section 34 of the said Act. The only

Aexception being where the interpretation results in perversityand shocks the conscious of the Court, the latter eventuality hasnot happened in the present case.”

13. Thus, the main reason because of which the NHAI lost inthose proceedings was that two possible interpretations could be givenBto the clause in question and, therefore, the recourse taken by the ArbitralTribunal by adopting one particular interpretation was not required to beinterfered with. SLP against that was dismissed. In situation like this,this Court would not have undertaken further exercise in the matter.However, another Arbitral Tribunal in the case of M/s. SsangyongEngineering and Construction Co. Ltd. has accepted the other view,Cwhich goes in favour of the NHAI. It leads to an anomalous situation.The NHAI has entered into multiple contracts with different partiescontaining the same clauses of price variation. Once we find that ArbitralTribunals are taking different views, and the view taken in favour of theNHAI is also one of the possible interpretations, the effect thereof would

Dbe to uphold both kinds of awards even when they are conflicting innature in respect of the same contractual provision. It may not beappropriate to countenance such situation which needs to be remedied.Therefore, under this peculiar situation, we deem it proper to go into theexercise of interpreting the said clause so that there is uniformity in theapproach of the Arbitral Tribunals dealing with this particular disputeEand sense of certainty is attached in the outcomes.

14. As mentioned above, clause 70 is the relevant clause whichpertains to price adjustment, with which we are concerned. Accordingly,we reproduce hereunder the relevant portions:

F“Clause 70: Changes in Cost and LegislationDelete clause 70 in its entirety, and substitute:

Sub-Clause 70.1: Price Adjustment

The amount payable to the Contractor in various currenciespursuant to Sub-Clause 60.1 shall be adjusted in respect of theGrise or fall in the cost of labour, Contractor’s equipment, Plantmaterials and other inputs to the Work, by applying to suchamounts the formulae prescribed in this Clause.

Sub-Clause 70.2: Other Changes in Cost

HTo the extent that full compensation for any rise or fall in the

costs to the Contractor is not covered by the provisions of this orother Clauses in the Contract, the unit rates and, prices includedin the Contract shall be deemed to include amounts to cover thecontingency of such other rise or fall in cost.

Sub-Clause 70.3 :Adjustment Formulae

Contact price shall be adjusted for increase or decrease in ratesand price of labour, materials, Plant, machinery, equipment, spares,fuels and lubricants in accordance with the following principlesand procedures as per formulae given below. The amount certifiedin each payment certificate shall be adjusted by applying, therespective price adjustment factor to the payment amounts duein each currency.

a) Price adjustment shall apply for work carried out within thestipulated time or extensions granted by the Employer and shallnot apply for work carried out beyond the stipulated time. Priceadjustment for reasons attributable to the Contractor, shall bepaid in accordance with Sub-Clause 70.6;

b) Price adjustment shall be calculated for the local and foreigncomponents of the payment for work done as per formulae givenbelow; and

c) Following expressions and meanings are assigned to the valueof the work done during the period under consideration:

R= Total value of work done during the period under considerationand payable in Indian Rupee currency, it would include the valueof materials on which secured advance has been granted, if any,during the period, less the value of materials in respect of whichthe secured advance has been recovered , if any, during theperiod. This will exclude cost of work an items for which rateswere fixed under variation Clauses (51 and 52) for which theescalation will be regulated as mutually agreed at the time offixation of rate.

Ri = Portion of ‘R’ as payable in Indian Rupees

Rf = Portion of ‘R’ as payable in foreign currency (at firstexchange rates)

R = Ri + Rf

To the extent that full compensation for any rise or fall in indexedcosts to the Contractor is not covered by the provisions of this orother Clauses in the Contract, the unit rates and prices includedin the Contract shall be deemed to be include amount to coverthe contingency of such other rise or fall in costs.

i) Adjustment for Labour Component

v) Adjustment for Bitumen Component

Price adjustment for increase or decrease in the cost ofbitumen shall be paid in accordance with the following formula:

Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo

Vb = Increase or decrease in the cost of work during the monthunder consideration due to changes in the rate of bitumen.

Bo = The average official retain price of bitumen at IOC depotat Barauni/Haldia on the day 28 days prior to the date ofsubmission of bids.

Bi = The average official retail price of bitumen at IOC depot atBarauni/Haldia on the day 28 days prior to the last day of theperiod to which particular interim payment certificate is related.

Pb = Percentage of bitumen component of the work.

vi) Adjustment for fuel and lubricants

viii) Adjustment for Foreign Currency Component

xxxxxxxxx

xi) The following percentages will govern the price adjustmentfor the local currency portion (RI) of the contract:

(Note: X, Y, Z are the actual percentage of cost of bitumen,cement and steel respectively used for execution of work as perthe Interim Payment Certificate for the month)

Sub-Clause 70.4 : Sources of Indices

xxxxxxxxx

Sub-Clause 70.5: Base, Current and Provisional Indices

The base cost indices or prices shall be those prevailing on theday 28 days prior to the closing date for submission of bids.Current indices or prices shall be those prevailing on the day 28days prior to the last day of the period to which particularInterim Payment Certificate is related. If at any time the currentindices are not available, provision indices as determined by theEngineer will be used, subject to subsequent correction of theamounts paid to the Contractor when the current indices becomeavailable.”

15. Clause 70.3(v) deals with ‘Adjustment for BitumenComponent’. As per this clause, the price adjustment for increase ordecrease in the cost of bitumen is to be paid in accordance with thefollowing formula:

“Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo”

1030SUPREME COURT REPORTS

A16. Pb denotes percentage of bitumen component of the workand R is the total value of the work. Bi denotes current rate/cost as it1is 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 makesit clear that it is equivalent to the base rate. Thus, when this formula isconsidered of its own, Bo clearly refers to the base rate. However, littleBconfusion is generated because of the note which is appended to Clause70.3(xi). perusal of sub-clause (xi) shows that insofar as labour, plantand machinery and spares and POL (Petrol, Labour and Lubricant) areconcerned, specific percentages are given that were to govern the priceadjustment and these are 20%, 20% and 10% respectively. However,Cinsofar bitumen, cement and steel components are concerned,percentages are to be worked out which are denoted as X%, Y% andZ% respectively. X, Y, Z are the actual percentage of cost of bitumen,cement and steel respectively, used for execution of work as per theIPC for the month.

D17. According to the Contractors, the word ‘cost’ mentioned thereinis to be assigned as per the definition thereof contained in the contractwhich is as under:

“Cost means all expenditure properly incurred or to be incurred,whether on or off the site, including overhead and other chargesEproperly allocated thereto but does not include any allowancefor profit”.

However, according to the NHAI, ‘actual percentage of cost’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. NoFdoubt, there is no mention of ‘base rate’ in this note. However, submissionof the NHAI is that since it is the cost which is used for execution ofwork as per the Interim Payment Certificate. Insofar as IPC is concerned,the same is worked out on base rate and, therefore, it refers to baserate. In order to support its contention, the NHAI has given the followingillustration for calculating the bitumen (X%) as follows:G

“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 beany adjustment)

Vb = Increase or decrease in the cost of work during the monthHunder consideration due to changes in the rate of bitumen.

Bo = The average official retain price of bitumen at IOC depotat Barauni/Haldia on the day 28 days prior to the date ofsubmission of bids.

Bi = The average official retail price of bitumen at IOC depot atBarauni/Haldia on the day 28 days prior to the last day of theperiod to which particular interim payment certificate is related.

Pb = X% = Percentage of bitumen component of the work.

18. Pb = X% is calculated by NHAI by following mathematicalformula:

“Pb = Quantity of Bitumen consumed during the month x baserate of bitumen x 100

Total Work done during the month of x BOQ rates.”

19. R1 in the aforesaid formula denotes the value of work as perIPC which according to the NHAI is calculated at the base rate. It isfurther stated that in the aforesaid mathematical formula, base rate ofbitumen is taken having regard to the effect that the denominator clearlymentions the base rate and, therefore, it cannot be actual rate in theenumerator. Further, as noted above, according to the NHAI, it is notprice adjustment formula but only to arrive at percentage of X. It isargued that in order to arrive at the correct percentage of X (bitumen)component, it is mathematically required that rates in numerator anddenominator has to be same otherwise correct percentage cannot beachieved.

20. Commenting upon the definition of ‘cost’ which is relied uponby the Contractors, it is the submission of the NHAI that it is totallymisconceived because the definition of cost does not provide thatwherever the word ‘cost’ is used in the contract, it is to be alwaysconstrued as current or actual cost. Further, the definition of ‘cost’ perse is not an issue but ‘cost occurring on what date and on what rate’ isthe real question. It was argued that the word ‘cost’ is in fact used invarious sub-clauses of Clause 70 which clearly demonstrate that it wouldmean ‘the base cost’. Sub-clauses 70.1, 70.2 and 70.7 are relied upon insupport of this contention.

21. Mr. Patwalia, learned senior counsel appearing for the NHAI,after highlighting the aforesaid aspects, made passionate plea to theeffect that the interpretation given to the ‘Note’ in sub-clause 70.3(xi)

Aby the Arbitral Tribunal would lead to disastrous and unrealistic priceadjustment amounts in favour of the contractors. To demonstrate thesame, it is pointed out that in the case of M/s. ProgressiveMVR (JV),the total amount paid to the contractor upto 41 IPC is about Rs.210crores. The price adjustment amount upto 41 IPC calculated and paidby taking into account the base rates, is Rs.77.70 crores. The contractorBon the other hand is claiming an amount of Rs.127 crore as the priceadjustment amount which is around more than 60% of the entire contractamount and, therefore, clearly exaggerated and unjustified. It was, thus,argued that Court could interfere with the award when it was clearlycontrary to the terms of the contract. Mr. Patwalia went to the extentCof arguing that no reasonable person would come to such conclusionas arrived at by the Arbitral Tribunal and, therefore, this Court couldinterdict such an award. Reliance was placed on the following judgments:(i) Hindustan Zinc Ltd v. Friends Coal Carbonisation[1], (ii) AssociateBuilders v. Delhi Development Authority[2] and (iii) Bhakra BeasManagement Board v. Krishan Kumar Vij & Anr.[3]D22. Senior Advocates Mr. Neeraj Kishan Kaul, Mr. S. GurukrishnaKumar and Mr. Dhruv Mehta argued the case on behalf of differentrespondents. It was submitted that when two views are possible, aparticular view taken by the Arbitral Tribunal which was also reasonableshould not be interfered with, as rightly done by the High Court. It wasEstressed that the contract in question was item rate contract and theonly way Pb (i.e. percentage of bitumen component of the work) in theformula provided for adjustment for bitumen component was to calculatesaid Pb at current rate. Otherwise, there would not be realistic figureof work done. Reading from the majority opinion of the Arbitral Tribunal,Fit was submitted that the view taken was correct view wherein theTribunal has observed as under:

“A plain reading of the words ‘actual percentage of cost ofbitumen’ conveys these to the mind that actual percentage basedon cost of bitumen, cement or steel used for carrying out workGin particular month shall be accounted for. These words, evenfrom remote consideration, do not carry the mind of the readerto the cost of bitumen as prevailing at the time of submission of

1 (2006) 4 SCC 445

2 (2015) 3 SCC 49

H3 (2010) 8 SCC 701

Bid. If the intention of the contract would have been to accountfor the base rates of cement, steel and bitumen or the rates asprevailing at the time of submission of bid, this would have beenspecifically mentioned so. Not only it would have been somentioned, also these rates would have been clearly laid downin the tender, as these could not be left to be determined by theparties after finalization of the contract.”

It was also submitted that the Tribunal, while giving the aforesaidinterpretation to this clause in the contract, had not only gone by thewords used but also by the intention of the parties behind such clause,as discussed in detail in the Award.

23. Mr. Gurukrishna extensively read out from the order of thelearned Single Judge in the case in which he is representing (Civil AppealNo. 459 of 2018) and is reported as (2015) 1 Arbitral Law Reporter 129,which was upheld by the Division Bench in the impugned judgment. Healso relied upon para 27 of the judgment in the case of Associate Builderswhich 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 dealwith the head “fundamental policy of Indian law”. It has alreadybeen seen from Renusagar [Renusagar Power Co.Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] judgmentthat violation of the Foreign Exchange Act and disregarding ordersof superior courts in India would be regarded as being contraryto the fundamental policy of Indian law. To this it could be addedthat the binding effect of the judgment of superior court beingdisregarded would be equally violative of the fundamental policyof Indian law.”

24. Mr. Dhruv Mehta who appeared in Civil Appeal No. 460 of2018 submitted that as far as case of his client is concerned viz. M/s.NCC-VEE (JV), in the earlier round, SLP has been specifically dismissedand as per the award, payment was made to the contractors. Therefore,there was no reason to deny the payment for subsequent period whereagain, the Award had gone in its favour and the principle of issue estoppelclearly applies in his case. He also submitted that there was only onepossible interpretation and the interpretation given by the NHAI wasclearly unacceptable. In any case, submitted the learned senior counsel,

Aeven in case of doubt, benefit should go to the contractors. It wasfurther submitted that in case of his client, 21 interim payments weremade as per the current costs. He also referred to few judgments insupport of his contentions which are as under:

(i)Bhanu Kumar Jain v. Archana Kumar & Anr.[4]

“29. There is distinction between “issue estoppel” and “resjudicata”. (See Thoday v. Thoday[(1964) 1 All ER 341 : (1964)2 WLR 371 : 1964 P 181 (CA)] .)

30. Res judicata debars court from exercising its jurisdictionto determine the lis if it has attained finality between the partieswhereas the doctrine issue estoppel is invoked against the party.If such an issue is decided against him, he would be estoppedfrom raising the same in the latter proceeding. The doctrine ofres judicata creates different kind of estoppel viz. estoppelby accord.

31. In case of this nature, however, the doctrine of “issueestoppel” as also “cause of action estoppel” may arise.In Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371 : 1964 P181 (CA)] Lord Diplock held: (All ER p. 352 B-D)

“cause of action estoppel’, is that which prevents party toan action from asserting or denying, as against the otherparty, the existence of particular cause of action, the non-existence or existence of which has been determined by acourt of competent jurisdiction in previous litigation betweenthe same parties. If the cause of action was determined toexist i.e. judgment was given on it, it is said to be merged inthe judgment.… If it was determined not to exist, theunsuccessful plaintiff can no longer assert that it does; heis estopped per rem judicatam.” [Ed.: The rest of the extractfrom 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 generic termwhich in modern law includes two species. The first species,‘cause of action estoppel’, is that which prevents party toan action from asserting or denying, as against the otherparty, the existence of particular cause of action, the non-

H4 (2005) 1 SCC 787

existence or existence of which has been determined by acourt of competent jurisdiction in previous litigation betweenthe same parties. If the cause of action was determined toexist, i.e., judgment was given on it, it is said to be mergedin the judgment, or for those who prefer Latin, transit inrem judicatam. If it was determined not to exist, theunsuccessful plaintiff can no longer assert that it does; heis estopped per rem judicatam. This is simply an applicationof the rule of public policy expressed in the Latin maxim,‘nemo debet bis vexari pro una at eadem causa’. In thisapplication of the maxim, causa bears its literal Latinmeaning. The second species, ‘issue estoppel’, is anextension of the same rule of public policy. There are manycauses of action which can only be established by provingthat two or more different conditions are fulfilled. Suchcauses of action involve as many separate issues betweenthe parties as there are conditions to be fulfilled by the plaintiffin order to establish his cause of action; and there may becases where the fulfilment of an identical condition is arequirement common to two or more different causes ofaction. If in litigation on one such cause of action any ofsuch separate issues whether particular condition has beenfulfilled is determined by court of competent jurisdiction,either on evidence or on admission by party to the litigation,neither party can, in subsequent litigation between them onany cause of action which depends on the fulfilment of theidentical condition, assert that the condition was fulfilled ifthe court has in the first litigation determined that it wasnot, or deny that it was fulfilled if the court in the firstlitigation determined that it was.”]32. The said dicta was followed in Barber v. StaffordshireCounty Council [(1996) 2 All ER 748 (CA)] . cause ofaction estoppel arises where in two different proceedingsidentical issues are raised, in which event, the latter proceedingsbetween the same parties shall be dealt with similarly as wasdone in the previous proceedings. In such an event the bar isabsolute in relation to all points decided save and exceptallegation of fraud and collusion. [See C.(A Minor) v. Hackney

ABCDEF

[2018] 2 S.C.R.

London Borough Council [(1996) 1 All ER 973 : (1996) 1WLR 789 (CA)] .]”

(ii) Godhra Electricity Co. Ltd. & Anr. v. State of Gujarat & Anr.[5]

“11. In the process of interpretation of the terms of contract,the court can frequently get great assistance from theinterpreting statements made by the parties themselves or fromtheir conduct in rendering or in receiving performances underit. Parties can, by mutual agreement, make their own contracts;they can also by mutual agreement remake them. The processof practical interpretation and application, however, is notregarded by the parties as remaking of the contract; nor dothe courts so regard it. Instead, it is merely further expressionby the parties of the meaning that they give and have given tothe terms of their contract previously made. There is no goodreason why the courts should not give great weight to thesefurther expressions by the parties, in view of the fact that theystill have the same freedom of contract that they had originally.The American Courts receive subsequent actings as admissibleguides in interpretation. It is true that one party cannot build uphis case by making an interpretation in his own favour. It is theconcurrence therein that such party can use against the otherparty. This concurrence may be evidence by the other party’sexpress assent thereto, by his acting in accordance with it, byhis receipt without objection of performances that indicate it,or by saying nothing when he knows that the first party isacting on reliance upon the interpretation (see Corbin onContracts, Vol. 3, pp.249 & 254-56).

xxxxxx

xxx

18. In these circumstances, we do not think we will be justifiedin not following the decision of this Court in AbdullaAhmed v. Animendra Kissen Mitter [AIR 1950 SC 15 : 1950SCR 30, 46] where this Court said that extrinsic evidence todetermine the effect of an instrument is permissible wherethere remains doubt as to its true meaning and that evidenceof the acts done under it is guide to the intention of the parties,particularly, when acts are done shortly after the date of theinstrument.”

5 (1975) 1 SCC 199H

(iii) Bank of India & Anr. v. K. Mohandas & Ors.[6]

“32. The fundamental position is that it is the banks who wereresponsible for formulation of the terms in the contractualScheme that the optees of voluntary retirement under thatScheme will be eligible to pension under the PensionRegulations, 1995, and, therefore, they bear the risk of lack ofclarity, if any. It is well-known principle of construction of acontract that if the terms applied by one party are unclear, aninterpretation against that party is preferred (verba chartarumfortius accipiuntur contra proferentem).”25. We have given our serious consideration to the respectivesubmissions of the counsel for the parties. First and foremost aspectwhich is to be kept in mind is that the issue relates to price adjustmentand such an adjustment can be made in respect of various componentswhich are used in the contract. The contractual provisions specificallydeal with adjustment for labour component, cement, steel etc. Thesecomponents are seven in numbers which may undergo price adjustmentduring the period when the contract is in progress, depending upon themarket conditions, namely, increase or decrease in market prices of thesecomponents from time to time. The very nature of this price adjustmentsuggests that such variation would have relevance with the price whichwas indicated in respect of these components at the time of submittingthe tender by the successful contractor and, in that sense, it can havereference only to the base price. The formula which is provided forworking out the price adjustment has to be examined in this hue.

26. In the aforesaid circumstances, there appears to be some forcein the submission of NHAI that formula indicates the base price whichhas to be taken for the purposes of working out the price adjustment.After all, what is the purpose of giving price adjustment? The clauserelating to price adjustment indicates that certain components which gointo the execution of the projects like labour component, cementcomponent, steel component, plant and machinery and spares component,bitumen component etc. may not remain static insofar as their price isconcerned. There is possibility that from the date when the price ofthese components was quoted by the contractor in his bid, there may beincrease or decrease in the said price from time to time during theexecution of the contract. It is for this reason, clause relating to price6 (2009) 5 SCC 313

Aadjustment is provided so as to give effect to the rise or fall in the coststo the contractor. To this adjustment formula for working out the cost, atthe time of execution of the contract, is provided. This adjustment whichhas to be arrived at, naturally, has to be in comparison with the baseprice that was stated by the contractor. Thus, even from the commonsensepoint of view, it is the base price which has to be kept in mind whileBworking the price adjustment. However, we are not resting our decisionon this common sense approach as the final outcome has to depend onthe formula provided in the contract; being contractual term.

27. In the present case, we find that the intention in the formulaas well is to keep in mind the base cost while arriving at the priceCadjustment. There are few reasons which drive us to take this opinion.

28. Clause 70.3 (xi) deals with percentages on various componentsthat will govern the price adjustment. Insofar as labour, plant andmachinery and spares, and POL (Petrol, Oil and Lubricants) areconcerned, there is fixed percentage prescribed, i.e., 20%, 20% andD10% respectively. However, with regard to the other three components,namely, bitumen, cement and steel variable percentage is mentioned whichhas to be calculated. Seventh component is ‘Other Material’. Insofaras this component is concerned, it is the balance percentage, afterpercentage of bitumen, cement and steel is arrived at, as it mentions “50E– (x+y+z)” percentage. From this, one can infer that normally thecombined percentages of x, y and z has to be less than 50%. However,when the current cost is taken into consideration while working theformula, the percentages of x, y and z far exceed 50% which wouldmake the percentage of other materials in the negative. Such negativeaspect has to be avoided. Mr. Patwalia, learned senior counsel for theFNHAI was able to successfully demonstrate it by giving various liveexamples.29. We may point out that submission of the learned counsel forrespondents was that when such an eventuality happens, the adjustmentof “other materials” can be in the negative, i.e., by reducing the price ofGthe other material in giving the adjustment so that total remains 100%. Itis difficult to accept this suggested mode. What is important is that insofaras other materials are concerned, the inputs thereof would be negligibleas compared to bitumen, cement and steel and, therefore, even if theirprice is reduced to offset the negative elements, that would be substantiallyHless than the gain which would accrue to the contractors by giving higher

cost adjustment for the aforesaid three components. Moreover, such aresult cannot be countenanced by giving negative adjustment in the priceof “other material” even when, as matter of fact, prices of other materialhad also gone up. That could not have been the intention while layingdown the formulae. As mentioned above, the word “actual” in the noteunder sub-clause 703(xi) of COPA relates to the percentage and not tothe cost. The percentage x, y, z are mentioned to ensure that the contractoris compensated realistically on the actual material used each IPC.Therefore, it seems more logical and proper to adopt the base cost ofmaterial while working out the price adjustment.

30. We may mention here that when the dispute was raised, asper the provisions contained in the contract, in the first instance, it wasreferred to the Dispute Review Board (DRB) which went into the issuein 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 theactual percentage of cost of the respective material used in thework in the IPC of that month. The Contractor’s plea is that itshould be current material cost of the material consumed in thatmonth while the Employer’s view is that it should be the baseprice.

e) In support of his arguments, the Contractor says that baseprice is not specified in the Contract. The Contractor plea thatthe base rates are not specified in the tender is not correct assub-clause 70.5 of COPA clearly states that ‘the base cost indicesor prices shall be those prevailing in the previous month prior tothe closing date for submission of Bids.’

Further, sub-clause 70.3(v) for price adjustment of bitumencomponent of the work reads as under:

Vb = 0.85 x Pb x RI x (B1– Bg)

In this formula to work out V i.e. increase or decrease in thebcost of work during the month under consideration, due to changein the rates for bitumen, Bo has been defined as ‘the averageofficial retail price of bitumen at the IOC refinery Mathura onthe 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

IPCs value of Bo has been taken by the contractor as the retailprice of bitumen on the day 28 days prior to the date of submissionof bid which is base price only.

f) The Contract specified for calculation x, y and z factors everymonth. The intention is to permit price adjustment based onBactual consumption of respective materials issued in executionof work in the particular month if they are fixed at tender stageonly just like labour and POL etc., the price adjustment is to beallowed irrespective of whether the item is executed or not whichis not realistic. Hence in this Contract, the price adjustment islinked to the actual usage of material viz. cement, steel andCbitumen.

g) BOQ rates have been quoted based on the cost of materialsat the time of bidding. Therefore, in working out the actualpercentage of cost of any specific material in the BOQ cost,rates of material applicable to the same datum period for BOQDcosts i.e. base period is only logical and justified.

h) The weightage factor x, y and z for these materials have twobasic parameters namely their cost and cost of work done. Inorder to ascertain the actual percentage of cost of these materialsin an IPC, cost of material has to be on the same basis as adoptedin cost of work done. As the cost of work done is based on baseEcost of materials, it is therefore natural that the cost of thesematerials incorporated in the work should be calculated on thebase cost only. Calculating the cost of these materials on actualprocurement price is not justified and would go against the termsand conditions of the Contract word ‘actual’ in the note underFsub-clause 70.3(xi) 8 COPA relates to percentage and not to thecost.”

31. The DAB thereafter worked out the formula in the followingmanner:

“x, y, z percentages are to be worked out as per provisions noteGbelow 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

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 baserates of material and IPC is based on BOQ rates quoted by thecontractor on base rates of material. Therefore for working outactual percentage of cost of material of bitumen, cement andsteel used in execution of work as per the IPC for the month,base rate of material can only be used as per the provisions ofcontract in order to arrive at actual percentage, numerator anddenominator is based on BOQ rates determined on base rates.The numerator should also be based on base rates. This is whyrate of material in numerator should be rate of material at thetime of bid. This is fixed rate and not variable as claimed bythe contractor. The contract provision is quite clear in this regardand 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 willbe paid twice. One due to increase in percentage factor (x, y and z) dueto use of current rate instead of base rates and second due to applicationof price adjustment factor b1-bo/ bo. It also demonstrated, by givingexamples, that when the base rate is adopted, the price adjustment wasquote proximate with the prevailing price which compensated thecontractor realistically. On the other hand, on adoption of current rate,the calculation of price adjustment was almost three times the amountof increase in cost of bitumen incurred by the contractor.

33. We are quite in agreement with the aforesaid analysis carriedout by the DRB.

34. As mentioned above, the majority Award has held that eventhe intention of the parties was to take into consideration the currentcost. For this purpose it had taken into consideration the manner inwhich IPC payments were made. However, we find here, thoughunfortunately, that there was no consistent practice. Sometimes thepayments were made on the basis of current cost and sometimes on thebasis of base cost. May be different officers understood the formula ina different manner which resulted in the aforesaid varied approach.However, when it came to the knowledge of the Authorities at appropriate

Alevel, directions were given to pass the IPC keeping in view only thebase rate. Therefore, no such intention of the parties can be discerned,which became the basis of the majority award. On the other hand, asfar as dissenting award is concerned it has pointed out the lacunae whichwould arise if the contention of the contractors is accepted, in the followingmanner:

“13. We now proceed to scrutinise IPC-12 for the months ofNovember and December, 2008 to highlight lacunae in theargument/rational, as given by the claimant. The table belowgiven original details of percentage of cement, steel, bitumenand other material which have been accepted by with partiesand certified by the Engineer percentages are based on baseprices 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 theirclaim, the above details get changed as under.

IPC-12

Month Cement Steel Bitumen Other Material Total(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 weresubmitted by the claimant when the proceeding were in progress.FThese were accepted by the AT as per section 23(3) of theArbitration and Conciliation Act, 1996. In their original claimsubmitted by the claimant, the percentage of bitumen wasadjusted to ensure that total of Pb, Pc, Ps do not exceed 50%and other material was made zero. This made the percentage ofbitumen hypothetical and factually incorrect. In their revisedGsubmissions, the percentage of bitumen is as per their calculationsand consequently the percentage of “other material” has beenmade negative.

Now, if we consider the aim of price escalation formula ascompensation to either party for rise/fall in prices of variouscomponents, all material used in particular IPC must be

subjected to the formula, Negative figure implies that this materialhas been extracted from works completed earlier. This is physicallynot possible unless works are ordered to be demolished at thecost of the contractor and payments made earlier are to berecovered. This is certainly not the present case. That apart, ifflexible pavement work (which is the case of IPC-12 as bitumenpercentage is high) bitumen consumption varies from 4 to 5% byweight and the balance is other material like aggregate etc. howcan we consider the material as negative and what would happenof price if this material goes down. Would we give additionalbenefit to the contractor as the percentage has become negativeand the contractor would get increase in price variation as thequantity is negative and price has gone down. This makes theprice variation formulate unrealistic as the contractor would getcredit instead of debit when the price goes down. This would bean absurd situation.

Yet another way to look at the formula is that componentlike Labour, POL, plant/machinery, cement, steel, bitumen andother material are each percentage or part of R which is basedon BOQ rates which in turn are based on base costs 28 daysprior to the last date of submission of bid. Obviously, thepercentage of various component must also be based on valuespertinent to BOQ rates.

It must also be noted that the claimant is getting priceadjustment for current rates in the third portion of the formula(B1–B0) where B1 is the price 28 days before the IPC and B0 isthe price 28 days before submission of bid. Therefore, the claimantis getting compensated for procuring items at higher rates whenthe price is rising.”

35. We find due rationale in the aforesaid approach. As result,we hold that while applying price adjustment formula for calculating theprice adjustment of bitumen, it is the base rate which is to be applied andnot the current rate.

36. Having arrived at the aforesaid finding, now we need todetermine 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

Afurther that the claim for price adjustment in respect of bitumen laid bythe contractors was not correct. Therefore, it can be held that the Award(s)are contrary to the contractual terms. At the same time, this outcomeposes dilemma inasmuch as in these cases, the Arbitral Tribunal hastaken particular view and when this was plausible view, keeping inmind the parameters of judicial review of the Court in exercise of powersBunder Section 34 of the Act, normally the Court would not interfere withsuch Awards. However, as already indicated above, such situationhas arisen because of conflicting Awards given by the Arbitral Tribunalsthemselves, which has provoked this Court to take final view in thematter, necessitated by the aforesaid reason. If one takes intoCconsideration the theory that one applies the principle mechanically i.e.that plausible view is not to be interfered with, then it may lead to veryanomalous situation. In such an eventuality, view taken by particularArbitral Tribunal in favour of the Contractor would be upheld as plausibleview. Likewise, the Court will have to uphold the view taken by particularArbitral Tribunal in favour of NHAI as well, as plausible view.DTherefore, the purpose is to avoid such situation which cannot bepermitted as it would result in upholding both kinds of arbitral awardsinterpreting the same clause, whether they go in favour of the employeror they go in favour of the contractor. When the exercise is done keepingin view these considerations and outcome thereof is not determined,Einterest of justice would also demand that this result has to be applied tothe pending cases, which have not attained finality. Therefore, in thesepeculiar circumstances, we hold that the principle of issue estoppel willapply only in those cases where matters have attained finality and nojudicial proceedings are pending. In all those cases, including the presentone, where awards are challenged on this particular aspect, this judgmentFwill govern the outcome.

As consequence, all these appeals are allowed thereby settingaside the impugned judgment and also the award given by the ArbitralTribunal on the claim pertaining to price adjustment of bitumen. Thereshall, however, be no order as to cost.G

Divya Pandey Appeals allowed.