Som Datt Builders-Ncc-Nec(Jv) vs National Highways Auth.Of India

2025 INSC 113 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2058 OF 2012

SOMDATT BUILDERS –NCC – NEC(JV) APPELLANT(S)

VERSUS

NATIONAL HIGHWAYS AUTHORITY OF INDIA & ORS. RESPONDENT(S)

JUDGMENT

UJJAL BHUYAN, J.

Heard learned counsel for the parties.

2. This civil appeal by special leave is directed against the

judgment and order dated 17.11.2009 passed by the High Court

of Delhi at New Delhi (‘High Court’) in FAO(OS) No. 427 of 2007

[National Highways Authority of India Vs. Som Datt Builders-NCC-

NEC(JV)].

2.1. By the aforesaid judgment, the High Court allowed the

appeal of the respondent-National Highways Authority of India Signature Not Verified Digitally signed by KAVITA PAHUJA Date: 2025.01.27 18:23:51 IST Reason:

(‘respondent’ or ‘NHAI’ hereinafter) under Section 37 of the 2 Arbitration and Conciliation Act, 1996 (briefly ‘the 1996 Act’

hereinafter). It may be mentioned that respondent had

challenged, by way of the aforesaid appeal, the judgment and

order of the learned Single Judge in OMP No. 316/2005 dated

29.08.2007 whereby the learned Single Judge dismissed the

application filed by NHAI under Section 34 of the 1996 Act for

setting aside the award dated 03.06.2005 passed by the Arbitral

Tribunal.

3. The matter relates to execution of a contract awarded

by NHAI to the appellant regarding the work of four laning and

strengthening of the existing two lane section between Km.

470.000 and Km. 38.000 on NH-2 (construction package II-B) near

Kanpur in the State of Uttar Pradesh under World Bank Loan

Assistance.

4. At the outset, it would be apposite to advert to the

relevant facts.

5. Following a process of open bid tender, the related

contract was allotted by NHAI to the appellant vide the contract

agreement dated 27.03.2002 who undertook to execute the work

at the contract price of Rs. 4,961,183,599.00. Appellant is a joint

venture of Somdatt Builders Pvt. Ltd., Nagarjuna Construction 3

Company and Navayug Engineering Company Limited having its

principal place of business at East of Kailash, New Delhi.

6. A joint venture between Consulting Engineering

Services (I) Ltd. and BECA International Consultants Ltd. was

appointed by NHAI as the Engineer of the project in terms of the

contract agreement to supervise the construction work.

7. It was a unit rate contract comprising of a detailed Bill

of Quantities (BOQ). The BOQ contained description of the items

of the work to be executed by the appellant as contractor and the

estimated quantity of each item. The rates of each BOQ item were

to be filled in by the contractor (appellant).

8. The contract agreement provided for a mechanism of

dispute resolution at the first instance through a Dispute Review

Board (‘DRB’) prior to the parties availing of their remedy by way

of arbitration. A three-member panel of DRB was constituted

comprising of one member appointed by each of the two parties

and the third member appointed by the aforesaid two members.

9. While executing the contract, a dispute arose between

the parties in respect of item No. 7.07 of the BOQ which provided

for reinforced earth structure including soil reinforcing geogrid 4

with all fixtures and accessories complete as per approved design

and drawing of specialised firm and matters connected therewith.

The dispute was not really in respect of the nature of the work to

be performed but was the consequence of the geogrid/geotextile

material exceeding the BOQ quantities in the contract. In

essence, the dispute relates to power of the Engineer to revise the

rates given in the BOQ in the event of increase in actual

quantities. This was contested by the appellant.

10. Appellant raised the aforesaid dispute before the DRB

contending that the Engineer/Employer was intending wrongful

application of Clause 52.2 of the Conditions of Particular

Application (COPA) for downward revision of rates for BOQ item

No. 7.07 (ii) of geogrid for quantity in excess of BOQ quantity.

DRB heard both the sides and deliberated upon the issue in

detail. DRB vide its decision dated 15.03.2004 recommended that

quantities of geogrid required limited to the facia area provided in

the BOQ have to be paid as per the BOQ rates.

11. Respondent NHAI was not satisfied with the aforesaid

decision of DRB and invoked the arbitration clause in the contract

agreement whereafter the dispute was referred to arbitration

before an Arbitral Tribunal comprising of three arbitrators: one 5

arbitrator appointed by each of the two parties and the third

arbitrator appointed by the two arbitrators so appointed. It is on

record that each of the arbitrators were technical experts

conversant with the nature of the contract. Arbitral Tribunal, by

a majority of 2:1, passed the award dated 03.06.2005. Arbitral

Tribunal held that the quantity of geogrid given at the tender

stage by NHAI was wrong. Therefore, the increase in quantity was

a mere increase to meet the requirement for completion of the RE

wall work which was indicated by the RCC facia quantity at the

tender stage. There was no change in the design but mere

increase in the quantity beyond the BOQ quantity which did not

attract Clause 52.2. In this context, Arbitral Tribunal held that

the Engineer does not possess the power to revise the rates for

additional quantity of geogrid required for actual execution of

work as per the approved design. Upholding the

recommendations of DRB, Arbitral Tribunal held that variation in

terms of Clause 51.1 was not established and directed NHAI to

pay the appellant for the actual quantity of geogrid required to be

executed to complete the work of RE wall as per the approved

design at the BOQ rate.

6

12. The aforesaid award dated 03.06.2005 was challenged

by the respondent-NHAI under Section 34 of the 1996 Act which

was heard and decided by a learned Single Judge of the High

Court. Learned Single Judge examined the contours of Clauses

51.1, 51.2, 52.1, 52.2, 52.3 and 55.1 and came to the definite

conclusion that there was no change in the design. The BOQ rate

would apply since the matter was one of mere change in quantity.

By the judgment and order dated 29.08.2007, learned Single

Judge of the High Court found no merit in the application filed by

NHAI under Section 34 of the 1996 Act and dismissed the same.

13. It was thereafter that NHAI as the appellant preferred

the appeal before a Division Bench of the High Court under

Section 37 of the 1996 Act. The Division Bench examined the

primary contention of NHAI that under the contractual terms, all

variations in quantity beyond the tolerance limits set out in the

contract, whether arising as a result of issuance of instructions

by the Engineer or arising even without the issuance of

instructions, were open to renegotiation of the rates by the

Engineer. By the judgment and order dated 17.11.2009

(‘impugned judgment’), Division Bench agreed with the contention 7

of NHAI and set aside the award of the Arbitral Tribunal as well

as the order of the learned Single Judge.

14. Being aggrieved, the contractor (appellant) preferred

the related special leave petition. On 14.12.2009, this Court had

issued notice and passed an interim order staying encashment of

the bank guarantee subject to the appellant renewing it for a

period of one year. Vide order dated 10.02.2012, this Court

granted leave and directed continuance of the interim order.

Hence the civil appeal.

15. Contention of the appellant is that it is NHAI who had

provided the wrong quantity in respect of item No. 7.07 of the

BOQ on the basis of which appellant had tendered. Upon approval

of the design by the Engineer when the increased quantity

became known in April, 2003, the Engineer held that BOQ rate

would be payable for the entire quantity which was not acceptable

to NHAI. The increase in quantity was not as a result of any

change in the design or as a result of any instructions given by

the Engineer. The enhancement in the quantity was necessitated

because wrong information was furnished by the respondent at

the stage of tender itself. On dispute being raised, this position

was accepted by the DRB and thereafter by the Arbitral Tribunal. 8

Application filed by the respondent under Section 34 of the 1996

Act for setting aside of the arbitral award was rightly rejected by

the learned Single Judge of the High Court. Division Bench of the

High Court fell in error and committed a manifest mistake in

overturning the technical findings of the three authorities below

while exercising limited jurisdiction under Section 37 of the 1996

Act.

16. Counter affidavit has been filed by respondent NHAI.

Reliance has been placed on Clauses 51 and 52 of COPA. Clause

51 of COPA has two parts: 51.1 and 51.2. Clause 51.1 covers

instructed variations which includes any increase or decrease in

the quantity of work. As per Clause 51.2, for increase or decrease

in quantity of any material, instructions of the Engineer are not

required. A combined reading of Clauses 51.1 and 51.2 would

indicate that though increase or decrease in the quantity of any

work may be without instructions but it nonetheless remains a

variation. Once it is a variation, Engineer has got the power to fix

a new rate. This power is traceable to Clause 52.1, which does

not make any distinction between instructed variation or

uninstructed variation; on the other hand, it provides that all

variations referred to in Clause 51 are to be valued by the 9

Engineer. In case of instructed variation only, notice is required

to be given in terms of the second proviso to Clause 52.2. If this

be the position, view taken by the Division Bench of the High

Court is the correct one and calls for no interference.

17. Mr. Arvind Minocha, learned senior counsel for the

appellant, at the outset submits that the core issue involved in

this appeal is the justification or otherwise of the decision of the

Division Bench of the High Court upsetting concurrent findings

of three authorities while exercising jurisdiction under Section 37

of the 1996 Act. He submits that the dispute raised by the

appellant was decided in its favour by the DRB comprising wholly

of technical experts. Arbitral Tribunal again comprising of

technical persons passed the award in favour of the appellant by

confirming the decision of the DRB. When the respondent filed

application under Section 34 of the 1996 Act for setting aside of

the award, learned Single Judge of the High Court dismissed the

same and affirmed the award passed by the Arbitral Tribunal.

17.1. Learned senior counsel submits that scope of

interference by the appellate court under Section 37 of the 1996

Act is extremely limited. None of the grounds for invocation of

jurisdiction under Section 37 of the 1996 Act were satisfied. 10

Learned Single Judge while exercising jurisdiction under Section

34 of the 1996 Act had repelled the challenge of the respondent

to the arbitral award. View taken by the learned Single Judge is

a plausible view, if not the only possible view. Therefore, Division

Bench committed a manifest error in setting aside the arbitral

award as well as the order passed by the learned Single Judge

affirming the same.

17.2. Adverting to the facts of the case, learned senior

counsel submits that the scope of the contract involved

construction of 50 Kms. of road, service roads on both sides,

drains, 17 main bridges, 65 culverts and 20 under-passes. The

51 Kms. stretch of road included raised carriageway of about 22

Kms. having Reinforced Concrete wall (RCC wall) on both sides

for 9.5 Kms. and Reinforced Earth wall (RE wall) for about 12

Kms. with concrete facia panels. After the award of work, the

design of the wall was to be done by the appellant based on the

design criteria given in the contract with the approval of the

Engineer appointed by the respondent. The item RE wall is

mentioned at item No. 7.07 in the BOQ having three sub-items:

(i) RCC facia wall on both sides, (ii) filter media, (iii) geogrid. 11

17.3. He submits that dispute in the present matter relates

to the sub-item geogrid as the respondent had given a wrong

estimate of the quantity in respect of geogrid while correct

quantities were given for the other two sub-items. This mistake

was detected when the design was prepared by the appellant and

approved by the Engineer. When the quantity of material in

respect of geogrid increased, the Engineer decided that the BOQ

rate would be applicable for the increased quantity of geogrid.

17.4. After the appellant commenced the work, the

respondent was making the monthly payment for the said item as

per the BOQ rate. After a new Engineer was appointed by the

respondent, it was decided that the rate for the increased quantity

of geogrid should be renegotiated.

17.5. Thereafter, the matter was referred by the appellant to

the DRB which decided in favour of the appellant. DRB held that

variation in terms of Clause 51.1 was not established and

recommended payment of geogrid at the BOQ rate for the entire

quantity.

17.6. Respondent did not accept the above

recommendations of the DRB and invoked the arbitration clause 12

in the contract. Arbitral Tribunal, comprised wholly of technical

persons, by a majority of 2:1 held that increase in the quantity of

geogrid for erection of the RE wall as per the approved design

could not be termed as a variation in terms of Clause 51.1.

Further holding that the Engineer did not have the power to revise

the rate qua the BOQ rate for the additional quantity of geogrid

required for execution of the work as per the approved design,

Arbitral Tribunal directed payment as per the BOQ rate for the

additional quantity.

17.7. In the application filed by the respondent under section

34 of the 1996 Act for setting aside of the arbitral award, the

challenge centred around Clauses 51 and 52 only. Learned Single

Judge rejected the challenge of the respondent and upheld the

arbitral award. After the award was confirmed by the learned

Single Judge under Section 34 of the 1996 Act, the Division

Bench acting as the appellate court was not at all justified to

overturn the concurrent findings of three adjudicating fora while

exercising extremely limited jurisdiction under Section 37 of the

1996 Act.

17.8. He further submits that the interpretation given by the

Division Bench is not only contrary to Clause 51.1 and the proviso 13

to Clause 52.2 but renders those provisions completely otiose.

Division Bench misdirected itself by stretching the meaning of the

word variation by referring to dictionary meanings whereas the

said expression has to be understood in the context of the

relevant clauses of the contract. Division Bench failed to

appreciate that in so far automatic increase in the quantity is

concerned, the rate which is payable is the one as agreed in the

BOQ. If any other rate is to be fixed, the same can be considered

only in case of instructed variation provided 14 days prior notice

before commencement of the work is given which was admittedly

not done in the present case. In this connection he places reliance

on a Delhi High Court judgment in the case of NHAI vs. M/s ITD

Cementation India Limited1.

17.9. On the limited scope of interference under Section 37

of the 1996 Act, learned senior counsel for the appellant has

placed reliance on the following decisions:

(i) S.V. Samudram Vs. State of Karnataka2, (ii) M/s. Hindustan Construction Company Ltd. Vs. M/s NHAI3

1 (2009) 113 DRJ 176 2 (2024) 3 SCC 623 3 (2024) 2 SCC 613 14

(iii) Reliance Infrastructure Ltd. Vs. State of Goa4

(iv) Konkan Railway Corporation Limited Vs. Chenab Bridge Project Undertaking5

(v) M/s Larsen Air Conditioning and Refrigeration Company Vs Union of India6

(vi) MMTC Ltd. Vs. Vedanta Limited7

(vii) MP Power Generation Company Ltd. Vs. Ansaldo Energia SPA8

18. Per contra, Mr. Krishnan Venugopal, learned senior

counsel appearing for NHAI submits that Division Bench of the

High Court has rightly set aside the arbitral award finding the

same to be perverse.

18.1. He submits that the core issue involved in the present

appeal is whether the arbitral award dated 03.06.2005 goes

contrary to the only interpretation of Clauses 51 and 52 of the

General Conditions of Contract (GCC) read with COPA as

contained in the contract dated 27.03.2002 executed between the

parties.

4 (2024) 1 SCC 479 5 (2023) 9 SCC 85 6 2023 INSC 708 7 (2019) 4 SCC 163 8 (2018) 16 SCC 661 15

18.2. Learned senior counsel submits that subject matter of

the dispute relates to BOQ item No. 7.07 (II) i.e. geogrid. Due to

change in design of the RE wall, quantity of geogrid increased

almost by 300 percent during execution. Since the twin

conditions contemplated under Clause 52.2 were being fulfilled

i.e. overall quantity of geogrid executed by more than 25 percent

from the estimated quantity and the cost of geogrid being more

than 2 percent of the contract value, the rate for the additional

quantity of geogrid was required to be reworked. Therefore, the

present case is that of instructed variation under Clause 51.1(a)

for which the appellant was also notified on 28.10.2003 fulfilling

the requirement of 14 days’ notice contained in Clause 52.2.

18.3. Referring to the arbitral award, Mr. Venugopal submits

that contrary to the evidence on record and contrary to the

relevant clauses of the contract, Arbitral Tribunal held that it was

not a case of instructions issued by the Engineer but a case of

automatic increase of quantity. Referring to Clause 51.1(a), he

submits that increase or decrease in quantity is also a variation

and as per Clause 51.2, no instructions are required for such

increase or decrease of quantity though the same continues to be

a variation.

16

18.4. Even assuming but not admitting that the Engineer did

not issue any notice to the appellant then also, according to Mr.

Venugopal, a bare reading of Clause 52.2 would make it apparent

that for a non-instructed variation, the condition of giving 14

days’ notice would not apply.

18.5. Learned senior counsel also submits that the

contention of the appellant that the quantity of geogrid had

increased due to negligence and wrong mentioning of figures by

the respondent is totally fallacious in as much as Clause 55.1 of

the contract clarifies that the quantity set out in the contract are

the estimated quantities only.

18.6. He would therefore contend that this is not a case of

plausible interpretation but a case of adopting an interpretation

which is contrary to the only possible interpretation of the

contractual clauses. Arbitral Tribunal has rewritten the contract

by ignoring the plain and simple language of the relevant clauses

and the parties’ intentions besides overlooking the evidence on

record which is legally impermissible. All these aspects were

raised by the respondent in its application under Section 34 of

the 1996 Act but the learned Single Judge failed to consider the

same by placing reliance on a South African judgment which is 17

clearly distinguishable in the facts of the present case. Therefore,

Division Bench of the High Court acting as the appellate court

under Section 37 of the 1996 Act rightly interfered in the matter

by setting aside the arbitral award.

18.7. Learned senior counsel has placed reliance on the

following decisions to buttress his submissions:

(i) Associate Builders Vs. DDA9 (ii) Ssangyong Engineer and Construction Company Ltd. Vs. NHAI10

(iii) PSA Sical Terminals Private Ltd. Vs. Board of Trustees

of V.O. Chidambranar Port Trust Tuticorin11

18.8. Learned senior counsel further submits that the

judgment in the case of NHAI Vs. M/s ITD Cementation India

Limited, cited and relied upon by the appellant, is not applicable

to the facts of the present case. Firstly, the judgment is by a Single

Bench whereas the impugned order has been passed by a Division

Bench which is also later in point of time. Secondly, the said

judgment does not deal with the power of the Engineer to fix a

new rate in terms of Clause 52.

9 (2015) 3 SCC 49 10 (2019) 15 SCC 131 11 (2023) 15 SCC 781 18

18.9. He finally submits that the present appeal is devoid of

any merit and the same is therefore liable to be dismissed by this

Court.

19. Submissions made by learned counsel for the parties

have received the due consideration of the court.

20. At the outset, it would be relevant to advert to Clauses

51 and 52 of the GCC read with COPA. Clauses 51 and 52 are as

under:

Alteration, Additions and Omissions 51.1 Variations (GCC) The Engineer shall make any variation of the form, quality or quantity of works or any part thereof that may, in his opinion, be necessary and for the purpose, or if for any other reason it shall, in his opinion, be appropriate, he shall have the authority to instruct the Contractor to do and the Contractor shall do any of the following:-

(a) increase or decrease the quantity of any work included in the Contract.

(b) omit any such work (but not if the omitted work is to be carried out by the Employer or by another contractor),

(c) change the character or quality or kind of any such work,

(d) change the levels, lines, position and dimensions of any part of the works,

(e) execute additional work of any kind necessary for the completion of the works, or

(f) change any specified sequence or timing of construction of any part of the works.

19 No such variation shall in any way vitiate or invalidate the Contract, but the effect, if any, of all such variations shall be valued in accordance with Clause 52.

Provided that where the issue of an instruction to vary the works is necessitated by some default of or breach of contract by the Contractor or for which he is responsible, any additional cost attributable to such default shall be borne by the Contractor.

51.2 Instructions for Variations (GCC) The Contractor shall not make any such variation without an instruction of the Engineer.

Provided that no instruction shall be required for increase or decrease in the quantity of any work where such increase or decrease is not the result of an instruction given under this Clause, but is the result of the quantities exceeding or being less than those stated in the Bill of Quantities.

52.1 Valuation of Variations (GCC) All variations referred to in Clause 51 and any additions to be Contract Price which are required to be determined in accordance with Clause 52 (for the purposes of this Clause referred to as “varied work”), shall be valued at the rates and prices set out in the Contract if, in the opinion of the Engineer, the same shall be applicable. If the contract does not contain any rates or prices applicable to the varied work, the rates and prices in the Contract shall be used as the basis for valuation so far as may be reasonable, failing which, after due consultation by the Engineer with the Employer and the Contractor, suitable rates or prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement, the Engineer shall fix such rates or prices as are, in his opinion, appropriate and shall notify the Contractor accordingly, with a copy to the Employer. Until such time as rates or prices are agreed or fixed, the Engineer shall determine provisional rates or prices to enable on- 20

account payments to be included in certificates issued in accordance with Clause 60.

(COPA) Where the Contract provides for the payment of the Contract Price in more than one currency, and varied work is valued at, or on the basis of, the rates and prices set out in the Contract, payment for such varied work shall be made in the proportions of various currencies specified in the Appendix to Bid for payment of the Contract Price. Where the Contract provides for payment of the Contract Price in more than one currency, and new rates or prices are agreed, fixed, or determined as stated above, the amount or proportion payable in each of the applicable currencies shall be specified when the rates or prices are agreed, fixed, or determined, it being understood that in specifying these amounts or proportions the Contractor and the Engineer (or, failing agreement, the Engineer) shall take into account the actual or expected currencies of cost (and the proportions thereof) of the inputs of the varied work without regard to the proportions of various currencies specified in the Appendix to Bid for payment of the Contract Price. 52.2 Power of Engineer to fix Rates (GCC) Provided that if the nature or amount of any varied work relative to the nature or amount of the whole of the works or to any part thereof, is such that, in the opinion of the Engineer, the rate or price contained in the Contract for any item of the works is, by reason of such varied work, rendered inappropriate or inapplicable, then, after due consultation by the Engineer with the Employer and the Contractor, a suitable rate or price shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such other rate or price as is, in his opinion, appropriate and shall notify the Contractor accordingly, with a copy to the Employer. Until such time as rates or prices are agreed or fixed, the Engineer shall determine provisional rates or prices to 21

enable on-account payments to be included in certificates issued in accordance with Clause 60.

(COPA) Where the Contract provides for the payment of the Contract Price in more than one currency, the amount or proportion payable in each of the applicable currencies shall be specified when the rates or prices are agreed, fixed or determined as stated above, it being understood that in specifying these amounts or proportions the Contractor and the Engineer (or, failing agreement, the Engineer) shall take into account the actual or expected currencies of cost (and the proportions thereof) of the inputs of the varied work without regard to the proportions of various currencies specified in the Appendix to Bid for payment of the Contract Price. (GCC) Provided also that no varied work instructed to be done by the Engineer pursuant to Clause 51 shall be valued under Sub-Clause 52.1 or under this Sub-Clause unless, within 14 days of the date of such instruction and, other than in the case of omitted work, before the commencement of the varied work, notice shall have been given either:

(a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate or price, or

(b) by the Engineer to the Contractor of his intention to vary a rate or price. (GCC) (COPA) Provided further that no change in the rate or price for any item contained in the Contract shall be considered unless such item accounts for an amount more than 2 percent of the Contract Price, and the actual quantity of work executed under the item exceeds or falls short of the quantity set out in the Bill of Quantities by more than 25 percent.

52.3 Variations Exceeding 15 per cent (GCC) 22

If, on the issue of the Taking-Over Certificate for the whole of the works, it is found that as result of :

(a) all varied work valued under Sub-Clauses 52.1 and 52.2 and

(b) all adjustments upon measurement of the estimated quantities set out in Bill of Quantities, excluding provisional sums, dayworks and adjustments of price made under Clause 70.

But not from any other cause, there have been additions to or deductions from Contract Price which taken together are in excess of 15 per cent of the “Effective Contract Price” (which for the purposes of this Sub- Clause shall mean Contract Price, excluding provisional sums and allowance for dayworks, if any) then and in such event (subject to any action already taken under any of Sub-Clauses of this Clause), after due consultation by the Engineer with the Employer and the Contractor, there shall be added to or deducted from Contract Price, such further sum as may be agreed between the Contractor and Engineer or, failing agreement, determined by the Engineer having regard to the Contractor’s site and general overhead costs of the Contract. The Engineer shall notify the Contractor of any determination made under this Sub-Clause, with copy to the Employer. Such sum shall be based only on the amount by which such additions or deductions shall be in excess of 15 per cent of the Effective Contract Price.

(COPA) Where the Contract provides for the payment of the Contract Price in more than one currency, the amount or proportion payable in each of the applicable currencies shall be specified when such further sum is agreed or determined, it being understood that in specifying these amounts or proportions the Contractor and the Engineer (or, failing agreement, the Engineer) shall take into account the currencies (and the proportions thereof) in which the Contractor’s site and general overhead cost of 23

the Contract were incurred without being bound by the proportions of various currencies specified in the Appendix to Bid payment of the Contract Price.

21. DRB while rejecting the contention of NHAI was of the

view that the design of geogrid is contingent to the height and

area of facia panel within the prescribed length mentioned in the

BOQ and based on the parameters/specifications as prescribed

in the agreement, there was no change in the concept or design.

Basically, the design submitted by the appellant was approved

and accepted by the Engineer. Since the work was done as per

the valid approved design, plea taken by NHAI that there was a

change of form in terms of the wall heights and length of RE wall

could not be evidenced by NHAI. After an in-depth analysis, DRB

concluded that there was no change of form but only a working

arrangement. The design having been approved after the full

knowledge of the Engineer that enhancement in quantity to a

large extent was involved and accordingly, the matter was referred

by the Engineer for allocation of funds. Therefore, there was no

variation as per Clause 51.1 or Clause 51.2 and hence payment

as per the BOQ rate should be made for the entire quantity.

Though NHAI had contended that appellant had changed the form

and varied the design, this could not be proved in any way. 24

Therefore, DRB held that variation in terms of Clause 51.1 could

not be established. As such, DRB recommended that quantities

of geogrid required, limited to the facia area, should be paid as

per the BOQ rates.

22. As already noticed, the DRB recommendations were

not acceptable to NHAI which thereafter invoked the arbitration

clause. Arbitral Tribunal comprised of three arbitrators; one each

appointed by the two parties who thereafter appointed the third

arbitrator. All the three arbitrators were technical experts.

Arbitral Tribunal referred to Clause 67.1 of the GCC which says

that recommendations of the DRB shall be binding on both

parties giving prompt effect to it until and unless the same is

revised by the Arbitral Tribunal. Arbitral Tribunal, therefore, was

of the view that NHAI should have complied with the DRB

recommendations which was subject to outcome of the arbitral

award. However, NHAI failed to do so. Thereafter, Arbitral

Tribunal framed the core issue to be considered viz. whether as

per the contract, Engineer has the right to revise the rate for

additional quantities of geogrid in excess of the BOQ quantities

which are required for actual execution of the RE wall as per

approved design. After thorough examination of the rival claims, 25

Arbitral Tribunal recorded the finding that the quantity of geogrid

given at the tender stage which was part of the responsibility of

NHAI was found to be erroneous. Therefore, the increase in

quantity was merely to meet the requirement for completion of

the RE wall which was indicated by the RCC facia quantity at the

tender stage. NHAI had admitted the fact that the design evolved

by the appellant’s consultant met the specified criteria. In other

words, there was no change in the design and NHAI could not

establish the same before the Arbitral Tribunal which held as

follows:

8.3 In a contract of the type in question which is an item rate contract based on the price schedule of provisional quantities the ultimate contract amount can be ascertained when all the work done in terms of the contract is finally measured and the contract amount computation done on the. basis of the prices and rates set out in the Bill of Quantities. The contract between the parties, therefore, is a frame work which determines the parties rights and obligations. The scope of work in this case was indicated by RCC facia quantity as mentioned hereinbefore which determines the length of the RE Wall to be constructed for raised carriage way and the quantity of other sub-item i.e. the geogrid quantity to be used is contingent to the facia quantity. Both the parties knew about the scope of work of RE Wall in this manner and both knew that it 26

was impossible to determine the ultimate contract amount before the completion of RE Wall work and if ultimate quantity exceeds the BOQ quantity, it will be an automatic change and shall be paid at BOQ rate in such type of measurement contracts where the quantities are provisional and ultimate quantities required for completion of the work are to be executed and paid as per the quoted rate.

8.4 The fact that ultimate measured amount of work performed is different from estimated quantity is irrelevant because both the parties contracted on the basis that the ultimate quantity may increase or decrease.

22.1. On the above basis, Arbitral Tribunal concluded that

the change in quantity did not constitute a variation so as to

attract the provisions of Clause 52.2, further noting that this

clause clearly provides that it would be applicable only in respect

of varied work instructed to be done by the Engineer as per Clause

51 and that the present was not a case where such instructions

were required. While upholding the interpretation of the appellant

of Clauses 51 and 52, Arbitral Tribunal held that the Engineer

does not possess the power to revise the rates for additional

quantity of geogrid required for actual execution of the work as

per the approved design. Arbitral Tribunal upheld the

recommendations of DRB and passed the following award:

27 (i) The variation in terms of Clause 51.1 is not established.

(ii) Claimant (NHAI) was directed to pay the Respondent (Som Datt Builders - NCC-NEC- JV) the actual quantity of geogrid required to be executed to complete the work of RE wall as per the approved design at the BOQ rate.

23. DRB had recorded a finding of fact that there was no

change in the concept or design. As a matter of fact, the design

prepared and submitted by the appellant was approved by the

Engineer whereafter the related work was executed as per the

approved design. On the basis of such finding of fact, DRB

interpreted Clauses 51 and 52 to hold that there was no

instructed variation and, therefore, the excess quantity of geogrid

required while executing the work, limited to the facia area,

should be paid as per the BOQ rates. Arbitral Tribunal reiterated

the aforesaid finding of fact and affirmed the interpretation given

by the DRB. On that basis, Arbitral Tribunal concluded that the

change in quantity did not constitute a variation so as to attract

the provisions of Clause 52.2. Arbitral Tribunal concurred with

the DRB that the Engineer did not have the competence to revise

the rates for the additional quantity of geogrid required for

execution of the work as per the approved design. 28

24. In the proceedings under Section 34 of the 1996 Act,

learned Single Judge examined Clauses 51 and 52 in detail and

thereafter opined that the decision of the Arbitral Tribunal could

not be faulted. Analysis of Clause 51.1 read with the other clauses

would indicate that the variations referred therein are instructed

variations. In the present case, Clause 52 would not come into

play since the same arises only in the case of instructed

variations. Learned Single Judge noted with approval the finding

of the Arbitral Tribunal that the ultimate measured work

performed was different from the estimated quantity but the

parties had contracted on the basis that such quantity may

increase or decrease. There was no change in the design in view

of the clear admission of NHAI before the DRB that the design was

reviewed and found according to the specified criteria and that

NHAI was unable to establish any change in the design. Learned

Single Judge while exercising jurisdiction under Section 34 of the

1996 Act after analysing Clauses 51 and 52 held that the Arbitral

Tribunal had reached the conclusion that the second para of

Clause 52.2, which mandates that the said provision would be

applicable only for varied work instructed to be done by the

Engineer as per Clause 51, was not attracted to the facts of the 29

present case, and therefore, the Engineer did not give any notice

of 14 days of his intention to vary the rate. Since the matter fell

within the domain of uninstructed variations, there was no need

to give 14 days’ notice which is the requirement in the case of

instructed variation.

24.1. Learned Single Judge also referred to a decision of the

Appellate Division of the South African Court in Grinaker

Construction (TVL) Ltd Vs. Transvaal Provincial Administration12,

where similar contractual clauses came up for interpretation.

Learned Single Judge agreed with the interpretation given by the

South African Court that automatic increase or decrease in the

quantity did not form part of the variation.

24.2. Learned Single Judge highlighted the aspect that the

interpretation given to the aforesaid clauses was also the

interpretation arrived at by the DRB as also by the Arbitral

Tribunal. The contractual clauses have been interpreted by

technical people who were well conversant with the nature of the

dispute and for this reason also greater weight has to be given to

such a view. Learned Single Judge held that once a contracted

price is provided and the quantities are held to be tentative, any

12 1982 (1) AD 78 30

increase or decrease in quantity must be governed by the same

price. It is only in respect of any instructed variation arising from

the instruction of the Engineer on account of any additional work

or less work that there can be some element of renegotiation and

determination in terms of Clauses 51 and 52 of the GCC.

Therefore, learned Single Judge concurred with the view taken by

the Arbitral Tribunal which had affirmed the view of the DRB.

25. Learned Single Judge also reiterated the well-

recognised principle in arbitration that the court exercising

jurisdiction under Section 34 of the 1996 Act does not sit as a

court of appeal over the decision of an arbitral tribunal, further

reiterating the proposition that a contract has to be interpreted

by the arbitrator who is the chosen judge of the parties. So long

as the view of the arbitrator is a plausible one though it may not

be the only possible view, there should be no interference by the

court under Section 34 of the 1996 Act.

26. According to us, learned Single Judge had adopted the

correct approach and had rightly declined to interfere with the

award of the Arbitral Tribunal affirming the decision of the DRB.

27. Let us now deal with the impugned order. Division

Bench of the High Court exercising jurisdiction under Section 37 31

of the 1996 Act acknowledged that primarily it was for the Arbitral

Tribunal to interpret the contractual terms and if the

interpretation given by the Arbitral Tribunal is a plausible one,

then the court would not interfere with the award merely because

according to the court, another interpretation is preferable.

Having said that, Division Bench examined Clauses 51 and 52 of

the contract. Instead of interpreting the aforesaid clauses in the

contractual context, Division Bench went into the dictionary

meaning of the expression ‘variation’ and opined that variation

would mean the difference between what is provided for or

contemplated in relation to the work under the contract and what

is the final effect or outcome. Such variation or outcome may be

or may not be the result of an instruction given by the Engineer.

It has further been observed that the instruction issued by the

Engineer to the contractor does not necessarily mean that the

contractor should carry out a ‘variation’. It may relate to

performance of one or more of the specific acts enumerated in

Clause 51.1. According to the Division Bench, variation in

quantity, even when it is not a result of an instruction given under

Clause 51.1 by the Engineer to the contractor does not cease to

be a variation within the meaning of that expression used in 32

Clause 51.1. Division Bench, therefore, opined that there is no

basis or underlying principle stated either by the Arbitral Tribunal

or by the learned Single Judge that only if the variation is the

result of instruction given by the Engineer under Clause 51.1,

rates and prices of the BOQ items in question would be open to

renegotiation and not otherwise; variation in quantity, even when

it is not a result of an instruction given by the Engineer to the

contractor under Clause 51.1, does not cease to be a ‘variation’

within the meaning of the expression used in Clause 51.1.

27.1. Division Bench disagreed with the observations of the

Arbitral Tribunal as upheld by the learned Single Judge that even

if there was error in estimating the quantity of geogrid while

preparing the BOQ, that by itself would not lead to the conclusion

that NHAI cannot seek renegotiation of the rates even if the actual

quantity exceeds by over 300 percent. The contract does not

provide that NHAI should suffer on account of the estimated

quantities mentioned in the BOQ turning out to be way off the

mark when the contract is executed.

27.2. It was on the above basis, Division Bench held that

there is no reason as to why variation in quantity beyond the

limits set out in the contract, whether instructed or not 33

instructed, should not lead to renegotiation of the rates at the

instance of either party. That would be the only fair, reasonable

and equitable way to work the contract.

27.3. Division Bench, therefore, held that interpretation of

the contractual terms given by the Arbitral Tribunal and accepted

by the learned Single Judge cannot be accepted as a plausible

interpretation. Division Bench observed that such interpretation

is unreasonable and wholly implausible and that the arbitral

award is opposed to the public policy of India, shocking the

conscience of the court. Therefore, the order of the learned Single

Judge as well as the arbitral award were set aside.

28. We are afraid we cannot accept such sweeping

conclusions reached by the Division Bench. Interpretation given

by the Division Bench to the plain language of Clauses 51 and 52

is not at all a plausible one, not to speak of being the only possible

interpretation and, therefore, committed a manifest error in

interfering with an arbitral award in a proceeding under

Section 37 of the 1996 Act when the learned Single Judge did not

find any justification at all to interfere with the arbitral award

within the limited scope under Section 34 of the 1996 Act. A

closer look at Clauses 51 and 52 would clearly show that the view 34

taken by DRB and Arbitral Tribunal, both comprised of technical

experts, is the correct one which was acknowledged by the

learned Single Judge.

29. As per Clause 51.1, Engineer has the competence to

make any variation of the form, quality or quantity of works,

either wholly or any part thereof, if in his opinion, it is necessary

to do so. In that event, Engineer has the authority to instruct the

contractor to carry out the same and the contractor shall in such

event would be under an obligation to do what is contemplated in

sub-clauses (a) to (f) thereunder, such as, increase or decrease in

the quantity of any work included in the contract, etc.. Clause

51.1 clarifies that such instructed variation shall not vitiate or

invalidate the contract, but such variation shall be valued in

accordance with Clause 52. What Clause 51.2 indicates is that it

is not open to the contractor to make such variation without any

instruction from the Engineer. Proviso to Clause 51.2 is relevant.

It says that no instruction from the Engineer would be required

for the increase or decrease in the quantity of any work where

such increase or decrease is not the result of any instruction

given under Clause 51.1 but is the result of the quantities

exceeding or being less than those stated in the BOQ. 35

30. Clause 52.2, on the other hand, mentions that all

variations referred to in Clause 51 (which means instructed

variations) shall be valued at the rates and prices in the contract,

if in the opinion of the Engineer, the same is applicable. If the

contract does not contain any rates or prices applicable to the

varied works, the rates and prices in the contract shall be used

as the basis for valuation so far it may be reasonable. If this is

not possible, then the Engineer shall carry out the valuation after

due consultation with the Employer and the contractor. The GCC

proviso to Clause 52.2 says that no varied work instructed to be

done by the Engineer shall be valued under Clause 52.1 or under

Clause 52.2 unless 14 days’ notice is given by either of the parties.

31. The further proviso under COPA to Clause 52.2 says

that no change in the rate or price for any item contained in the

contract shall be considered unless such item accounts for more

than 2 percent of the contract price and the actual quantity of the

work executed under the item exceeds or falls short of the

quantity set out in the BOQ by more than 25 percent.

32. The aforesaid provision is not a mandate for change in

the rate or price for any item contained in the contract, if such

item accounts for an amount which is more than 2 percent of the 36

contract price and the actual quantity of work executed under the

item exceeds or falls short of the quantity set out in the BOQ by

more than 25 percent. Rather, it is an enabling provision which

enables either of the parties to consider change in the rate or price

of any item mentioned in the contract, in the event, the above two

conditions are fulfilled.

33. In so far Clause 51.1 is concerned, the variation

contemplated thereunder relates to the form, quality or quantity

of the works which in the opinion of the Engineer is necessary. In

the present case, there is a clear finding of fact by two authorities

i.e. DRB and the Arbitral Tribunal, both comprised of technical

experts, that there is no variation either in the form or quality or

quantity of the works. What actually happened is that at the time

of execution of the contract pertaining to the RE wall, the geogrid

required turned out to be much more than the estimated figure

given in item No. 7.7 of the contract. It is in this backdrop that

both the fact finding authorities held that there was no variation

in terms of Clause 51.1 and that the Engineer did not have the

competence to renegotiate the price or rate of the geogrid for the

excess quantity of geogrid required.

37

34. As already discussed above, this is clearly a plausible

view. In fact, according to us, it is the correct interpretation of

Clause 51 made by the DRB and the Arbitral Tribunal. As such,

learned Single Judge rightly declined to interfere with the award

under Section 34 of the 1996 Act. If that be the position, there

was no justification at all for the Division Bench of the High Court

to set aside the award under Section 37 of the 1996 Act.

35. Though learned counsel for the parties had cited a

number of decisions at the time of hearing, it is not necessary to

refer to and discuss each one of them. However, reference to a few

of the judgments would suffice.

36. In MMTC Ltd. Vs. Vedanta Ltd.13, this Court held that

as far as Section 34 is concerned, the position is well settled that

the court does not sit in appeal over an arbitral award and may

interfere on merits only on the limited ground provided under

Section 34(2)(b)(ii) i.e. if the award is against the public policy of

India. Even then, the interference would not entail a review on the

merits of the dispute but would be limited to situations where the

findings of the arbitrator are arbitrary, capricious or perverse or

when the conscience of the court is shocked or when the illegality

13 (2019) 4 SCC 163 38

is not trivial but goes to the root of the matter. An arbitral award

may not be interfered with if the view taken by the arbitrator is a

possible view based on facts. As far as interference with an order

made under Section 34 by the court under Section 37 is

concerned, it has been held that such interference under Section

37 cannot travel beyond the restrictions laid down under Section

34. In other words, the court cannot undertake an independent

assessment of the merits of the award and must only ascertain

that the exercise of power by the court under Section 34 has not

exceeded the scope of the provision.

37. What is public policy of India has been explained in

Ssangyong Engineer and Construction Company Ltd. (supra). It

means the fundamental policy of Indian law. Violation of Indian

statutes linked to public policy or public interest and disregarding

orders of superior courts in India would be regarded as being

contrary to the fundamental policy of Indian law. It would also

mean that the arbitral award is against basic notions of justice or

morality. An arbitral award can be set aside on the ground of

patent illegality i.e. where the illegality goes to the root of the

matter but re-appreciation of evidence cannot be permitted under

the ground of patent illegality.

39

38. In PSA Sical Terminals Private Ltd. (supra), this Court

reiterating the well settled principles held as under:

40. It will thus appear to be a more than settled legal position, that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of “public policy of India”, which has been held to mean “the fundamental policy of Indian law”. A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Sections 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award.

The ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground. An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a ground for interference. Equally, reappreciation of evidence would not be permissible on the ground of patent illegality appearing on the face of the award.

40

41. A decision which is perverse, though would not be a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. However, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.

39. In Reliance Infrastructure Ltd. (supra), this Court

referring to one of its earlier decisions in UHL Power Company Ltd.

Vs. State of Himachal Pradesh14, held that scope of interference

under Section 37 is all the more circumscribed keeping in view

the limited scope of interference with an arbitral award under

Section 34 of the 1996 Act. As it is, the jurisdiction conferred on

courts under Section 34 of the 1996 Act is fairly narrow.

Therefore, when it comes to scope of an appeal under Section 37

of the 1996 Act, jurisdiction of the appellate court in examining

an order passed under Section 34, either setting aside or refusing

to set aside an arbitral award, is all the more circumscribed.

40. Again in M/s Larsen Air Conditioning and Refrigeration

Company (supra), this Court reiterated the position that Section

37 of the 1996 Act grants narrower scope to the appellate court

14 (2022) 4 SCC 116 41

to review the findings in an arbitral award if it has been upheld

or substantially upheld under Section 34.

41. This Court in M/s. Hindustan Construction Company

Ltd. (supra) declared that it is the settled jurisprudence of the

courts in the country that arbitral awards which contain reasons

especially when they interpret contractual terms ought not to be

interfered with lightly. An error in the interpretation of

contractual terms by an arbitrator is an error within his

jurisdiction and would, therefore, not be a ground to interfere

with an arbitral award.

42. As already discussed above, the Arbitral Tribunal had

interpreted Clause 51 in a reasonable manner based on the

evidence on record. This interpretation was affirmed by the

learned Single Judge exercising jurisdiction under Section 34 of

the 1996 Act. Therefore, Division Bench of the High Court was

not at all justified in setting aside the arbitral award exercising

extremely limited jurisdiction under Section 37 of the 1996 Act

by merely using expressions like ‘opposed to the public policy of

India’, ‘patent illegality’ and ‘shocking the conscience of the court’.

As reiterated by this Court in Reliance Infrastructure Ltd. (supra),

it is necessary to remind the courts that a great deal of restraint 42

is required to be shown while examining the validity of an arbitral

award when such an award has been upheld, wholly or

substantially, under Section 34 of the 1996 Act. Frequent

interference with arbitral awards would defeat the very purpose

of the 1996 Act.

43. For all the aforesaid reasons, we are of the unhesitant

view that the impugned order cannot be sustained. Accordingly,

judgment and order dated 17.11.2009 passed by the Division

Bench of the High Court is hereby set aside and the arbitral award

dated 03.06.2005 is restored. Consequently the appeal is allowed.

However, there shall be no order as to cost.

………………………………J. [ABHAY S. OKA]

...……………………………J. [UJJAL BHUYAN] NEW DELHI;

JANUARY 27, 2025.