Case: NATIONAL HIGHWAY AUTHORITY OF INDIA Vs. M/S. PROGRESSIVEMVR(JV)

5) Before proceeding further, at this juncture, we would like to state the historical background giving rise to the dispute in question. For the sake of convenience, the facts are taken note of from Civil Civil Appeal No. 458 of 2018 & Ors. Page 4 of 37Appeal No. 458 of 2018 in which M/s. ProgressiveMVR (JV) is the contractor. The NHAI is a statutory body constituted under Section 3 of the NHAI Act, 1988. The functions assigned to NHAI under Section 16 of the NHAI Act, 1988 are to develop, maintain and manage the National Highways entrusted to it by the Central Government. In the year 2005, the NHAI issued an invitation for bid for four laning from Km. 402.00 to Km 440.00 of Gopalganj – Muzaffarpur section of NH-28 in Bihar in contract package No. LMNHP-EW-II- (WB-10). The contractor was found successful bidder and accordingly the letter of acceptance was issued to it where it is clearly stated that your bid is accepted by NHAI for the contract price of Rs.263,97,29,718/- (Two Hundred Sixty Three Crore Ninety Seven Lac Twenty Nine Thousand Seven Hundred Eighteen Rupees Only). According to the NHAI, the Engineer was paying the price adjustment as per the base rate and the contractor had not raised any dispute in this regard. The contractor first time raised a dispute about price adjustment by applying current cost while arriving XYZ percentage as per70.3 (viii) of COPA. The contractor vide letter dated April 13, 2008 raised objection with the Engineer at the time of submission of IPA 9. The team leader rejected the dispute raisedby the contractor by stating that the essence of price adjustment cannot be maintained by considering the current rates of the materials and the claim cannot be accepted. This resulted in a dispute between the parties and on September 2, 2008, the contractor invoked the provision of sub-clause 67.1 of COPA and referred the matter for recommendation from the DRB (Dispute Resolution Board).6) The DRB vide its majority gave its recommendation dated January 4, 2009 to the effect that ‘the contractor?s interpretation is not in accordance with contract and should be rejected.? Being aggrieved by the order passed by the DRB, the contractor issued a notice to invoke arbitration in terms of provisions of clause 67 of COPA against the order passed by the DRB. Arbitral Tribunal was constituted. The respondent filed the statement of claim before the Arbitral Tribunal for the following claim: Claim No. 1 – Reimbursement of escalation amount paid less Rs.24,93,52,493/- Claim No. 2 – Interest- past interest, pendentilite and future. Claim No. 3 – Cost of Arbitration.7) After conclusion of the proceedings, the Arbitral Tribunal in their majority award dated August 7, 2013 (with one memberdissenting) decided the issue in favour of the contractor, inter alia holding that:?Arbitral Tribunal finds that the whole dispute is hinging on the word ‘cost? as appearing in sub-clause 70.3 (xi). Contractor says that cost should be read as actual expenditure incurred by him in procurement of these materials as per current invoices while the respondent says that this wordshould be read as the cost of these materials to be worked out on base rates. In this way an element of ambiguity has crept in the contract. So in spite of analyzing the dispute from different angles as discussed in the foregoing para, even if we apply the thumb rule i.e. Rule of Contra Proferentem, the word cost will have to be construed against the employer who has prepared thethus, allowed the claim raised by theAgainst the said majority award allowing the claim of the contractor, the NHAI filed objections in the form of Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act?) before the High Court of Delhi. It was numbered as OMP (Comm.) No. 1211 of 2013.11) Be that as it may, insofar as petition of the NHAI under Section 34 filed in the High Court against the award given in M/s. ProgressiveMVR (JV) is concerned, the learned Single Judge dismissed the same vide its order dated August 23, 2016 holding that the matter was covered by the decision of the Division Bench in M/s. NCC-VEE (JV) matter. Against that order of the learned Single Judge, NHAI filed intra-court appeal which has also been dismissed by the High Court vide impugned judgment dated September 16, 2016, following its earlier judgment dated March 10, 2015. This is how the appeal of the NHAI against M/s. ProgressiveMVR(JV) had come up for consideration. Likewise, in other cases also, the judgments of the High Court have gone in favour of the contractors in somewhat similar circumstances.

Court's reasoning:
26) In the aforesaid circumstances, there appears to be some force in the submission of NHAI that formula indicates the base price which has to be taken for the purposes of working out the price adjustment. After all, what is the purpose of giving price adjustment? The clause relating to price adjustment indicates that certain components which go into the execution of the projects like labour component, cement component, steel component, plant and machinery and spares component, bitumen component etc. may not remain static insofar as their price is concerned. There is a possibility that from the date when the price of these components was quoted by the contractor in his bid, there may be increase or decrease in the said price from time to time during the execution of the contract. It is for this reason, clause relating to price adjustment is provided so as to give effect to the rise or fall in the costs to the contractor. To this adjustment formula for working out the cost, at the time of execution of the contract, is provided. This adjustment which has to be arrived at, naturally, has to be in comparison with the base price that wasstated by the contractor. Thus, even from the commonsense point of view, it is the base price which has to be kept in mind while working the price adjustment. However, we are not resting our decision on this common sense approach as the final outcome has to depend on the formula provided in the contract; being a contractual term.27) In the present case, we find that the intention in the formula as well is to keep in mind the base cost while arriving at the price adjustment. There are few reasons which drive us to take this opinion.28) Clause 70.3 (xi) deals with percentages on various components that will govern the price adjustment. Insofar as labour, plant and machinery and spares, and POL (Petrol, Oil and Lubricants) are concerned, there is a fixed percentage prescribed, i.e., 20%, 20% and 10% respectively. However, with regard to the other three components, namely, bitumen, cement and steel variable percentage is mentioned which has to be calculated. Seventh component is ‘Other Material?. Insofar as this component is concerned, it is the balance percentage, after percentage of bitumen, cement and steel is arrived at, as it mentions?50 – (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 the formula, the percentages of x, y and z far exceed 50% which would make the percentage of other materials in the negative. Such a negative aspect has to be avoided. Mr. Patwalia, learned senior counsel for the NHAI was able to successfully demonstrate it by giving various live examples.29) We may point out that submission of the learned counsel for respondents was that when such an eventuality happens, the adjustment ofan be in the negative, i.e., by reducing the price of the other material in giving the adjustment so that total remains 100%. It is difficult to accept this suggested mode. What is important is that insofar as other materials are concerned, the inputs thereof would be negligible as compared to bitumen, cement and steel and, therefore, even if their price is reduced to offset the negative elements, that would be substantially less than the gain which would accrue to the contractors by giving higher cost adjustment for the aforesaid three components. Moreover, such a result cannot be countenanced by giving negative adjustment in the price ofen when, as a matter of fact, prices of other materialhad also gone up. That could not have been the intention while laying down the formulae. As mentioned above, the wordin the note under sub-clause 703(xi) of COPA relates to the percentage and not to the cost. The percentage x, y, z are mentioned to ensure that the contractor is compensated realistically on the actual material used each IPC. Therefore, it seems more logical and proper to adopt the base cost of material while working out the priceWe are quite in agreement with the aforesaid analysis carried out by the DRB.34) As mentioned above, the majority Award has held that even the intention of the parties was to take into consideration the current cost. For this purpose it had taken into consideration the manner in which IPC payments were made. However, we find here, though unfortunately, that there was no consistent practice. Sometimes the payments were made on the basis of current cost and sometimes on the basis of base cost. May be different officers understood the formula in a different manner which resulted in the aforesaid varied approach. However, when it came to the knowledge of the Authorities at appropriate level, directions were given to pass the IPC keeping in view only the base rate. Therefore, no such intention of the parties can be discerned, which became the basis of the majority award. On theother hand, as far as dissenting award is concerned it has pointed out the lacunae which would arise if the contention of the contractors isWe find due rationale in the aforesaid approach. As a result, we hold that while applying price adjustment formula for calculating the price adjustment of bitumen, it is the base rate which is to beapplied and not the currentOnce 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 further that the claim for price adjustment in respect of bitumen laid by the contractors was not correct. Therefore, it can be held that the Award(s) are contrary to the contractual terms. At the same time, this outcome poses a dilemma inasmuch as in these cases, the Arbitral Tribunal has taken a particular view and when this was a plausible view, keeping in mind the parameters of judicial review of the Court in exercise of powers under Section 34 of the Act, normally the Court would not interfere with such Awards. However, as already indicated above, such a situation has arisen because of conflicting Awards given by the Arbitral Tribunals themselves, which has provoked this Court to take a final view in the matter, necessitated by the aforesaid reason. If one takes into consideration the theory that one applies the principle mechanically i.e. that a plausible view is not to be interfered with,then it may lead to very anomalous situation. In such an eventuality, view taken by a particular Arbitral Tribunal in favour of the Contractor would be upheld as plausible view. Likewise, the Court will have to uphold the view taken by a particular Arbitral Tribunal in favour of NHAI as well, as a plausible view. Therefore, the purpose is to avoid such a situation which cannot be permitted as it would result in upholding both kinds of arbitral awards interpreting the same clause, whether they go in favour of the employer or they go in favour of the contractor. When the exercise is done keeping in view these considerations and outcome thereof is not determined, interest of justice would also demand that this result has to be applied to the pending cases, which have not attained finality. Therefore, in these peculiar circumstances, we hold that the principle of issue estoppel will apply only in those cases where matters have attained finality and no judicial proceedings are pending. In all those cases, including the present one, where awards are challenged on this particular aspect, this judgment will govern the outcome.