An Arbitral Tribunal is not a court of law. Its orders are not judicial orders. Its functions are not judicial functions. It cannot exercise its power ex debito justitiae. The jurisdiction of the arbitrator being confined to the four corners of the agreement, he can only pass such an order which may be the subject­matter of reference.”

An Arbitral Tribunal is not a court of law. Its orders are not judicial orders. Its functions   are   not   judicial   functions.   It cannot   exercise   its   power   ex   debito justitiae. The jurisdiction of the arbitrator being confined to the four corners of the agreement, he can only pass such an order which   may   be   the   subject­matter   of reference.We therefore, confine ourselves with the issue as regards the validity of the Award.   We also clarify that any observations made by the High Court with regard to other aspects of the matter except the validity of the Award, would not come in the way of either of the parties raising their grievances in either the  proceedings which are pending before the Division Bench of the High Court or any other proceedings to which either of it would be entitled to take recourse in law.   In the   result,   with   these   observations,   we   dismiss   the appeals. 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION 

CIVIL APPEAL NOS. 3699­3700 OF 2018

PSA SICAL TERMINALS PVT. LTD.     ...APPELLANT(S)

VERSUS

THE BOARD OF TRUSTEES OF V.O.

CHIDAMBRANAR PORT TRUST

TUTICORIN AND OTHERS ...RESPONDENT(S)

J U D G M E N T

B.R. GAVAI, J.

1. The appellant has approached this Court being aggrieved

by the judgment and order dated 1st November 2017, passed by

the Division Bench of the Madras High Court in C.M.A. (MD)

No. 345 of 2016 and C.M.P. (MD) No. 4867 of 2016, thereby

allowing   the   appeal   of   the   respondent   No.1   herein   under

Section 37(1)(c) of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as ‘the Arbitration Act’) vide which the

1

High   Court   set   aside   the   award   dated   14th  February   2014,

passed by the Arbitral Tribunal and the order passed by the

District   Judge   dated   25th  February   2016,   rejecting   the

application filed by the respondent No.1 herein under Section

34 of the Arbitration Act. 

2. The facts necessary for adjudication of the present appeals

are as under:­

The   respondent   No.1­The   Board   of   Trustees   of   V.O.

Chidambranar Port Trust, Tuticorin (hereinafter referred to as

‘TPT’) issued a global tender on 9th April 1997, inviting bids for

development of the Seventh Berth at V.O. Chidambranar Port,

Tuticorin   as   a   Container   Terminal   and   for   operating   and

maintaining the same for 30 years on a Build, Operate and

Transfer (hereinafter referred to as ‘BOT’) basis.  In response to

the   tender,   the   appellant­PSA   Sical   Terminals   Pvt.   Ltd.

(hereinafter referred to as ‘SICAL’) submitted its bid on 24th

October 1997.  The financial offer was submitted by SICAL on

19th December 1997.  Since SICAL’s offer was the highest, the

same was accepted and a Letter of Intent (hereinafter referred

2

to as ‘LoI’) was issued to it on 29th January 1998 and the same

was followed by a License Agreement dated 15th July 1998.

3. In   the   meantime,   the   Tariff   Authority   for   Major   Ports

(hereinafter   referred   to   as   ‘TAMP’)   which   is   an   authority

constituted  under  the  Major  Port  Trusts  Act,  1963  adopted

guidelines on 26th/27th  February 1998.   SICAL submitted its

tariff proposal with regard to the Container Terminal on 28th

September 1999.  A revised proposal came to be submitted by

SICAL on 8th  October 1999, thereby including royalty as an

element of cost.   The said proposal was approved by TAMP’s

order dated 8th December 1999.  TAMP notified its order of 8th

December 1999 vide gazette notification dated 28th  December

1999, thereby approving the tariff as proposed by SICAL vide

proposal dated 8th  October 1999. SICAL submitted a further

proposal   on   8th  February   2002   for   review   in   tariff,   again

including   therein   an   increase   in   royalty   to   be   paid   as   an

element of cost and proposed for an increase in the tariff.  TPT

vide   communication   dated   10th  April   2002,   objected   to   the

proposal of SICAL for increase in tariff.   TAMP vide its order

3

dated 20th September 2002, rejected the proposal of SICAL for

increase in tariff.

4. SICAL filed Writ Petition Nos. 40637­40639 of 2002 before

the Madras High Court for quashing of the TAMP order dated

20th September 2002.  In the said proceedings, the Madras High

Court   passed   an   order   dated   8th  November   2002   granting

interim relief in favour of SICAL, thereby staying the TAMP

order dated 20th September 2002.  Vide the said order, SICAL

was permitted to charge tariff at the rate prevailing prior to the

TAMP order impugned in those petitions.

5. Ministry   of   Shipping,   Government   of   India   (hereinafter

referred   to   as   ‘GoI’)   vide   notification   dated   29th  July   2003,

clarified   that   revenue   sharing/royalty   payment   shall   not   be

factored into as cost for fixation/revision of tariff by TAMP and

further directed that the  same shall be clearly indicated in

subsequent bid documents. On 31st March 2005, TAMP notified

the revised guidelines thereby disallowing royalty as an element

of cost.   However, it also provided that in BOT cases where

bidding processes were finalized before 29th July 2003, the tariff

4

computation will take into account royalty/revenue share as

cost for tariff fixation in such a manner as to avoid likely loss to

the operator on account of the royalty/revenue share not being

taken into account.   This was subject to a maximum of the

amount quoted by the next lowest bidder.  This was also to be

allowed only for the period up to which such likely loss would

arise.  It further provided that this would not be applicable if

there is a provision in the concession agreement on treatment

of royalty/revenue share.

6. On   17th  August   2005,   a   Memorandum   of   Compromise

(hereinafter referred to as the ‘MoC’) came to be filed before the

Madras High Court between SICAL, GoI and TAMP who were

parties to the Writ Petition Nos. 40637­40639 of 2002.  As per

the said MoC, SICAL was to submit a proposal to the Ministry

of  Shipping and Transport, GoI in  the matter of permitting

royalty to be allowed to be factored into cost while fixation of

tariff for the period prior to 31st  March 2005.   It was also

clarified that for the period thereafter, new guidelines provide

the manner and mode in which this has to be done.  The MoC

5

provided   that   on   receipt   of   the   proposal,   the   Central

Government would consider the same and pass appropriate

orders consistent with the policy decision of the Government of

India   (hereinafter   referred   to   as   the   ‘GoI’)   in   the   matter   of

Chennai Container Terminal Limited (hereinafter referred to

as the ‘CCTL’) dated 5th August 2003 and accordingly issue a

directive under Section 111 of the Major Port Trusts Act, 1963.

Vide the said MoC, it was further provided that SICAL would

continue to charge the 1999 Tariff which was permitted as per

the interim orders passed by the High Court till new tariff was

gazetted.   It further provided that advantages/ gains, if any,

that SICAL has enjoyed by virtue of not implementing the 2002

Tariff, will be quantified by TAMP and such advantages/gains

will be adjusted/set­off in the proposed new tariff and such setoff will be spread over a period of three years. 

7. In   pursuance   of   the   aforesaid   MoC,   GoI   issued   a

directive/order to TAMP in case of SICAL on 17th  April 2006.

Vide the said directive/order, the request of SICAL for claiming

a part of royalty as pass through came to be rejected.  SICAL

6

thereafter submitted its proposal for fixation of tariff on 18th

April 2006.  TAMP passed a tariff order on 23rd August 2006,

which came to be notified on 15th September 2006, vide which

SICAL’s proposal for increase in tariff was rejected.  

8. SICAL made a written representation to TPT on 6th October

2006, thereby seeking relief under the terms of Article 14.3 of

the   License  Agreement.  Vide  the   said  representation,  SICAL

requested   for   amending   the   License   Agreement   so   as   to

incorporate   the   revenue   sharing   method   and   incidental

changes.

9. SICAL also filed Writ Petition Nos. 38845 and 38846 of

2006   before   the   Madras   High   Court   on   9th  October   2006,

thereby challenging the GoI directive dated 17th April 2006 and

the TAMP order dated 23rd August 2006. On 27th October 2006,

TPT refused to consider SICAL’s application for amendment of

the License Agreement on the ground that the issues raised

were pending consideration before the Madras High Court.  The

said   communication   dated   27th  October   2006   came   to   be

challenged by SICAL before the Madras High Court vide Writ

7

Petition No.43461 of 2006.  The Madras High Court passed an

order dated 21st  August 2007, in Writ Petition No. 43461 of

2006 filed by SICAL, observing therein that the representation

dated 6th October 2006, had nothing to do with the pendency of

said writ petition and quashed the communication dated 27th

October   2006.   It   directed   TPT   to   consider   and   decide   the

representation of SICAL on its own merits.

10. Vide   subsequent   order   dated   22nd  August   2007,   Writ

Petition Nos. 38845 and 38846 of 2006 were allowed by setting

aside the TAMP order dated 23rd  August 2006 and the GoI

directive dated 17th April 2006.  The said order was passed on

the ground that SICAL was not given sufficient opportunity of

being heard by TAMP and GoI and therefore, directed TAMP

and GoI to pass fresh order after giving opportunity of hearing

to the SICAL.

11. In pursuance of the order passed by the High Court, the

GoI   issued   a   directive   on   20th  February   2008,   therein

considering the contentions raised on behalf of SICAL.  The said

directive provided that TAMP, while fixing the tariff in case of

8

SICAL, should take into consideration the benefit given in the

case of CCTL.

12. TAMP vide notification dated 26th February 2008, notified

the   guidelines   for   upfront   tariff   fixation   for   Public   Private

Partnership projects at Major Ports. 

13. In pursuance of the order passed by the High Court dated

21st August 2007, the Chairman, TPT passed an order on 25th

April 2008, observing therein that any change in the bidding

parameter is a matter of policy regarding which a decision can

be taken only by the GoI and in effect, rejected the proposal of

SICAL   for   amending   the   License   Agreement,   so   as   to

incorporate the revenue sharing method.

14. SICAL   thereafter   submitted   its   proposal   for   fixation   of

tariff thereby proposing an increase in tariff on 3rd  October

2008.   TAMP passed tariff order dated 17th  December 2008,

which came to be notified on 30th  December 2008, rejecting

SICAL’s proposal for increase in tariff.  SICAL thereafter again

on   6th  January   2009,   made   a   representation   to   TPT   for

amendment of the License Agreement in view of Article 14.3.

9

SICAL also filed Writ Petition Nos. 1350 and 1351 of 2009,

challenging the tariff order dated 17th December 2008 and the

policy direction issued by GoI dated 20th February 2008.  The

Madras High Court vide order dated 15th October 2009 allowed

those petitions by setting aside the tariff order of 2008 and the

GoI directive of 20th  February 2008.   Vide the said order, the

Madras High Court directed TAMP to issue fresh tariff order

after   obtaining   necessary   proposal   from   SICAL   and   after

according sufficient opportunity including personal hearing to

SICAL.  The GoI directive of 2008 also came to be set aside with

a direction to the GoI to consider the matter afresh after giving

an opportunity of hearing to SICAL.  The said orders have been

challenged by TAMP by filing Writ Appeal No. 1845 of 2009

which is pending.  It also appears that an appeal has also been

filed by SICAL which is also pending before the Division Bench

of the Madras High Court.

15. SICAL   thereafter   addressed   a   letter   to   TPT   dated   1st

December 2009, raising therein the ground of change in law

and   therefore   again   praying   for   shifting   to   revenue   sharing

10

model.     A   meeting   was   held   by   the   Secretary,   Ministry   of

Shipping,   GoI   on   28th  February   2011,   wherein   the

representatives of TPT and SICAL were present.  It was decided

in   the   said   meeting   that   two   proposals   each   should   be

submitted by SICAL as well as TPT.  These proposals were to be

considered by the Expert Committee.

16. SICAL   thereafter   on   28th  June   2011,   moved   a   petition

under Section 9 of the Arbitration Act before the District Judge,

Tuticorin with a grievance that the royalty payable for each

Twenty­foot Equivalent Unit (hereinafter referred to as “TEU”)

was scheduled to exceed the tariff.  On 30th June 2011, District

Judge, Tuticorin passed an order granting ad­interim stay in

the Section 9 petition, thereby restraining TPT from demanding

or recovering any royalty at an escalated rate.   In July 2011,

SICAL addressed a letter to the Chairman, TPT requesting for

referring the dispute for arbitration under Article 15.3 of the

License Agreement.  The said request came to be rejected by the

Chairman,   TPT   vide   communication   dated   28th  September

2011.  

11

17. In the meanwhile, the proposals submitted by SICAL as

well as TPT were being considered by the Expert Committee.

On 30th  April 2012, District Judge, Tuticorin passed an order

thereby allowing the Section 9 petition filed by SICAL and made

absolute   the   ad­interim   injunction   granted   in   its   favour.

Thereafter,   there   was   exchange   of   certain   communications

between   SICAL   and   TPT   with   regard   to   the   submission   of

performance   bank   guarantee   at   an   escalated   rate.     In   the

meantime, TPT challenged the order of injunction granted by

the District Judge by filing an appeal being C.M.A.(MD) No.

1131 of 2012 and the same is pending consideration before the

Madurai Bench of the Madras High Court.  SICAL addressed a

letter dated 19th  November 2012, invoking arbitration clause

under Article 15.3 of the License Agreement.  In the meantime,

on   8th  August   2013,   TAMP   issued   2013   Guidelines   for

determination of tariff for projects at Major Ports.

18. On 5th  April 2013, SICAL filed its Statement of Claim in

the arbitration proceedings.  TAMP filed its counter statement

in June 2013 to which a statement in rejoinder came to be filed

12

by SICAL on 28th June 2013. TPT filed its reply to the rejoinder

in August 2013.   Vide award dated 14th  February 2014, the

Arbitral Tribunal passed the award in favour of SICAL holding

that there was a change in law and thereby granting reliefs as

prayed   for   by   SICAL.     It   directed   conversion   of   Container

Terminal of TPT from royalty model to revenue share model. 

19. The award of Arbitral Tribunal dated 14th February, 2014

came to be challenged by TPT by filing a petition under Section

34 of the Arbitration Act being OP No. 389 of 2014 before the

Madras High Court.   SICAL challenged the jurisdiction of the

Madras   High   Court   to   adjudicate   the   petition   filed   under

Section   34   of   the   Arbitration   Act.     There   were   certain

interlocutory   proceedings   to   which   reference   would   not   be

necessary.   By order dated 9th  June 2015, the Madras High

Court held that the petition filed by TPT under Section 34 of the

Arbitration Act was not tenable on the ground of jurisdiction.

As such TPT re­presented its Section 34 petition on 30th June

2015, before the District Judge, Tuticorin being Ar.O.P. No. 260

of 2015.   The District Judge, Tuticorin vide order dated 25th

13

February 2016, dismissed the Section 34 petition filed by TPT.

Being aggrieved thereby, TPT filed an appeal before the Madras

High Court which came to be allowed by the order dated 1st

November 2017, vide which the award of the Arbitral Tribunal

dated 14th February 2014 and the order passed by the District

Court dated 25th February 2016, came to be set aside.  Being

aggrieved thereby, SICAL has approached this Court by way of

the present appeals.

20. We have heard Dr. A.M. Singhvi and Shri Gopal Jain,

learned Senior Counsel on behalf of the appellant­SICAL, Smt.

Madhavi Divan, learned Additional Solicitor General of India

and Shri Keshav Thakur, learned counsel on behalf of TPT.

21. Dr.   Singhvi   submitted   that   Article   14   of   the   License

Agreement  specifically  provides that if  after  the date  of the

agreement, there is a change in law which substantially and

adversely   affects   the   rights   of   the   Licensee   under   the   said

agreement, so as to alter the commercial viability of the project,

the Licensee may, by written notice, request amendments to the

terms of the agreement.  He submitted that the definition of law

14

in   Article   14   is   wide   enough   and   includes   any   valid   act,

ordinance,   rule,   regulation,   notification,   directive,   orders,

policy, bye­laws, administrative guidelines, ruling or instruction

having   the   force   of   law,   enacted   or   issued   by   Government

Authority.  The learned Senior Counsel submitted that Article

14.3 also provides that subject to the provisions of Article 15.3,

the   Licensee   shall   not   be   entitled   to   any   compensation

whatsoever from the Licensor as a result of change in law.  He

submitted that if Article 14.3 is read in the correct perspective,

it   will   be   clear   that   compensation   is   not   provided   to   the

Licensee on account of any change in law inasmuch as a relief

could be provided to the Licensee by suitably amending the

terms of the agreement when such a change substantially and

adversely affects the rights of the Licensee.  He submitted that

the said Article is a unique one.  

22. Dr. Singhvi submitted that the Nhava Sheva Container

Terminal Limited (hereinafter referred to as the ‘NSCT’) was the

first project which was built on BOT basis.   The second one

being the Seventh Berth of TPT.  He submitted that these are

15

the only projects wherein royalty method has been adopted. He

submitted   that   all   subsequent   projects   provide   for   revenue

sharing model.   He submitted that it will be clear from the

stand   of   TPT,   when   the   proposal   was   moved   by   SICAL   for

increase   in   tariff   in   1999,   that   it   also   understood   that   the

royalty was also to be factored in while finalizing the tariff.  He

submitted that perusal of the tariff order dated 8th  December

1999, would reveal that even TAMP has allowed royalty as a

pass through.  He submitted that the guidelines of 1998 would

also clarify that it was a policy of TAMP that the port pricing

was to continue to be cost based with an assured rate of return.

He submitted that the said guidelines provide for an assured

rate of return. He submitted that TPT, as a matter of fact, vide

communication dated 3rd  November 1999 addressed to TAMP,

had opposed any reduction of tariff as proposed by SICAL. 

23. Dr. Singhvi submitted that the first change in law was

effected vide order of the GoI dated 29th July 2003, by which no

percentage of royalty was permitted as a pass through.   The

second change in law was effected on 31st  March 2005, by

16

which the royalty was permitted as a pass through, however,

restricting the same to the maximum of the amount quoted by

the next lowest bidder.  He therefore submitted that on account

of these changes in law, SICAL was entitled to get a relief of

amendment of the License Agreement and on failure of TPT to

provide the relief, SICAL was entitled to invoke arbitration.  He

submitted that though several representations were made to

TPT, the same had not been responded to and as such, SICAL

was   left   with   no   alternative   than   to   invoke   the   arbitration

clause. He submitted that this has been rightly construed by

the Arbitral Tribunal.  However, the Division Bench of the High

Court   has   erroneously   interfered   with   the   finding   of   fact

recorded by the Arbitral Tribunal which was upheld by the

District Judge.

24. Dr. Singhvi further submitted that SICAL has been put in

a very precarious situation.  He submitted that on one hand it

is   required   to   pay   royalty   to   TPT   on   the   basis   of   annual

increment, however the tariff which it can charge, has been so

fixed   so   as   not   to   allow   royalty   as   a   pass   through.     He

17

submitted that at one point of time in 2011, the tariff has been

so fixed that it surpasses the amount of royalty per TEU, SICAL

would be required to pay to TPT.  He submitted that if the same

is permitted, SICAL would not be in a position to continue its

operations. He submitted that SICAL has provided a minimum

guarantee to lift a minimum of 4.5 lakh tons of cargo.   He

submitted that this has been rightly appreciated by the Arbitral

Tribunal wherein it has observed that if such a position is

permitted to continue, it will substantially and adversely affect

SICAL.  He submitted that a chart at Page No. 1132 shows that

SICAL would incur a gross loss of Rs. 2250 crores. He further

submitted   that   TAMP   and   the   GoI   have   acted   in   a

discriminatory manner.   He submitted that when in case of

NSCT, a complete pass through so far as royalty is concerned,

is permitted, the same is denied in case of SICAL.

25. Dr. Singhvi further submitted that the High Court has

grossly erred in referring to the writ petitions and the MoC filed

in one of the writ petitions, while setting aside the award.  He

submitted that the writ petitions filed by SICAL were basically

18

against TAMP and with regard to the fixation of tariff.  However,

the arbitration proceedings were about the change in law which

changed the policy of permitting pass through of royalty to

denial   of   pass   through   of   royalty.   Whereas   the   proceedings

before TAMP are pertaining to fixation of tariff.   He further

submits that the proceedings before the High Court pertain to

the   period   prior   to   2013,   whereas   the   present   proceedings

pertain to the relief to which SICAL is entitled under Article 14

of the agreement on account of change in law.  He submitted

that SICAL was compelled to approach the arbitrator since in

2011­12, the royalty payable to TPT crossed the tariff.   He

submitted that the contention considered by the High Court

with regard to the MoC was only an oral argument made by TPT

and not part of the pleadings.

26. Dr. Singhvi submitted that the scope of interference in an

application   under   Section   34   and   in   an   appeal   filed   under

Section 37 is very limited.  He submitted that unless a finding

recorded   by   the   arbitrator   amounts   to   perversity,   an

interference would not be warranted either under Section 34 or

19

Section 37.  He submitted that the District Judge had rightly

rejected the Section 34 Application.  He further submitted that

it was erroneous on part of the High Court in exercise of its

jurisdiction under Section 37 to interfere with a well­reasoned

award   of   the   Arbitral   Tribunal.     He   relies   on   the   following

judgments in support of his submissions:­

MMTC  Limited  v.  Vedanta  Limited1

,  Associate  Builders  v.

Delhi   Development   Authority2

,   State   of   Jharkhand   and

Others   v.   HSS   Integrated   SDN   and   Another3

,   Sumitomo

Heavy   Industries   Limited   v.   Oil   and   Natural   Gas

Corporation Limited4

, Kwality Manufacturing Corporation

v. Central Warehouse Corporation5

, Rashtriya Ispat Nigam

Limited  v.  Dewan  Chand  Ram  Saran6

,  Steel  Authority  of

India Limited v. Gupta Brother Steel Tubes Limited7

, Pure

Helium   India   (P)   Limited   v.   Oil   and   Natural   Gas

1 (2019) 4 SCC 163

2 (2015) 3 SCC 49

3 (2019) 9 SCC 798

4 (2010) 11 SCC 296

5 (2009) 5 SCC 142

6 (2012) 5 SCC 306

7 (2009) 10 SCC 63

20

Corporation   Limited8

,   P.V.   Subba   Naidu   and   Others   v.

Government   of   A.P.   and   Others9

,   Dhannalal   v.   Kalawati

Bai and Others10,  Swamy  Atmananda  and Others  v.  Shri

Ramakrishna  Tapovanam  and  Others11  and  Transcore  v.

Union of India and Another12

.

27. Dr. Singhvi submitted that the UNIDROIT Principles of

International   Commercial   Contracts   provide   the   rules   of

interpretation   of   contracts.     He   submitted   that   the   said

principles provide that a contract shall be interpreted according

to the common intention of the parties.   It is only when the

intention   cannot   be   established   that   the   contract   shall   be

interpreted according to the meaning that a reasonable person

of   the   same   kind   as   a   party,   would   give   it   in   the   same

circumstances.  He submitted that from the perusal of Article

14 as well as the conduct of the parties, it is clear that the

parties intended that if there was any change in law to the

detriment of the Licensee, the Licensee was entitled to relief

8 (2003) 8 SCC 593

9 (1998) 9 SCC 407

10 (2002) 6 SCC 16

11 (2005) 10 SCC 51

12 (2008) 1 SCC 125

21

from the Licensor by amendment of the contract.  He submitted

that such intention is clarified from the fact that in such an

event, the Licensee was not entitled to claim any compensation.

The   learned   Senior   Counsel   in   this   respect   relies   on   the

judgments of the Delhi High Court in  Sandvik  Asia  Private

Limited   v.   Vardhman   Promoters13 and  Hansalaya

Properties v. Dalmia Cement (Bharat) Limited14

.

28. Dr. Singhvi further submitted that the agreement has to

be read as a whole.  In his submission, whereas Articles 10.8,

13.4.7 and 13.4.8 make the Licensor’s decision binding, Article

14 does not provide it.  He submitted that Article 14 is unique

in the sense that it provides for restoration of equilibrium.  He

submitted that the Tribunal had two choices either to grant a

pass through or revenue sharing.  If it has chosen one of them,

then   even   if   it   is   considered   to   be   a   possible   view,   an

interference therein was not warranted.

29. Shri Gopal Jain, learned Senior Counsel submitted that

economic viability for long term contracts has to be provided.

13 2007 (94) DRJ 762

14 2008 (106) DRJ 820

22

He   submitted   that   Article   14   was   provided   as   an   in­built

safeguard for the said purpose.  Relying on the judgment of this

Court   in  Adani   Power   (Mundra)   Limited   v.   Gujarat

Electricity   Regulatory   Commission   and   Others15,   he

submitted that while construing business contracts, business

efficacy is a relevant consideration which has been considered

by the Arbitral Tribunal and as such, an interference would not

be warranted.

30. Smt. Divan, the learned ASG submitted that the financial

offer made by SICAL was made on 19th  December 1997 i.e.

much before the 1998 Guidelines came to be published.  She

submitted that it is unthinkable that the rates quoted by SICAL

in 1997 were on the basis of the guidelines which were for the

first time published in the year 1998.  She submitted that even

the said guidelines do not provide for permitting royalty as a

pass through.  It is further submitted that while submitting the

bid,   SICAL   has   submitted   the   bid   on   the   basis   of   royalty

payable to TPT during the concession period.

15 (2019) 19 SCC 9

23

31. Smt. Divan further submitted that SICAL has indulged

into the conduct of approbate and reprobate. She submitted

that whereas in the writ petitions filed by it, SICAL has taken a

specific stand that the guidelines do not have the force of law, it

has now turned around and taken a stand in the arbitration

proceedings that it amounts to change of law.   She further

submitted   that   on   the   date   on   which   the   arbitration

proceedings were commenced, the tariff orders were already

quashed in the writ proceedings in favour of SICAL and only

with   a   view   to   take   double   advantage,   SICAL   has   initiated

arbitration proceedings.  She further submitted that because of

the interim order passed by the High Court, the 1999 tariff

order is still holding the field, thereby giving a huge undue

benefit to  SICAL.   She submitted that even the conduct  of

SICAL needs to be taken into consideration. Though as per MoC

which   was   filed   way   back   in   2005,   SICAL   was   required   to

compensate TPT, it has not done so.  She therefore submitted

that on one hand, SICAL is taking advantage of orders of the

Court and on the other hand not complying with the obligations

24

set out in the MoC, on the basis of which the High Court has

disposed of writ petition.

32. Smt.   Divan   submitted   that   even   the   third   tariff   order

passed in case of SICAL had been quashed by the Madras High

Court, challenge to which is pending before the Division Bench.

She further submitted that on account of an order passed in

Section 9 proceedings, TPT is getting a very meagre amount

from SICAL.

33. Smt.   Divan   further   submitted   that   by   the   award,   the

Tribunal has provided for entire substitution of the terms of the

contract between the parties.   She submitted that when the

agreement between the parties was based on royalty method,

the   Tribunal,   by   a   substitution,   has   provided   for   revenue

sharing method.  She submitted that this is not permissible at

all in law.   A party cannot be thrusted with a new contract

against its wishes.   Smt. Divan further submitted that SICAL

having elected/availed the remedies of filing of the writ petition,

cannot for the same relief under the bogey of so­called change

in law, invoke arbitration proceedings.  She therefore submitted

25

that the High Court has rightly considered the same and set

aside the award.  Smt. Divan relied on the following judgments

of this Court in support of her submissions.

Raghunathrao   Ganpatrao   v.   Union   of   India16,   Nagubai

Ammal   and   Others   v.   B.   Shama   and   Others17,   Suresh

Kumar Wadhwa v. State of Madhya Pradesh and Others18

,

All India Power Engineer Federation and Others v. Sasan

Power   Limited   and   Others19,   Rashtriya   Chemicals   and

Fertilizers   Limited   v.   Chowgule   Brothers   and   Others20

,

South   East   Asia   Marine   Engineering   and   Constructions

Limited   v.   Oil   India   Limited21,   J.G.   Engineers   Private

Limited  v.  Union  of   India  and  Another22,  Satyanarayana

Construction   Company   v.   Union   of   India   and   Others23

,

Ssangyong   Engineering   and   Construction   Company

Limited v. National Highway Authority of India (NHAI)24

16 (1994) 1 SCC Supp 191

17 [1956] SCR 451

18 (2017) 16 SCC 757

19 (2017) 1 SCC 487

20 (2010) 8 SCC 563

21 (2020) 5 SCC 164

22 (2011) 5 SCC 758

23 (2011) 15 SCC 101

24 (2019) 15 SCC 131

26

34. Dr. Singhvi, in rejoinder, submitted that a stray statement

made by SICAL that the guidelines do not have the force of law,

would not be relevant. Inasmuch as in the counter filed by TPT

as well as TAMP, they have themselves stated before the High

Court that the said guidelines will have the force of law.   He

therefore submitted that SICAL was entitled in law to invoke

Article 14 since there was a change in law which adversely

affects the Licensee.

35. Dr. Singhvi further submitted that the contention of Smt.

Divan that reliance has been placed by SICAL on change of law

for the first time in 2013, is factually incorrect inasmuch as

right from 2006, SICAL has been making representations to

TPT   for   giving   relief   under   Article   14.   To   counter   the

submission of Smt. Divan that the bid of SICAL was tendered in

December   1997,   he   submitted   that   though   the   bid   was

tendered in December 1997, the agreement was entered into in

July 1998, when the guidelines had already come into effect

from February 1998.   He submitted that the perusal of the

proposals submitted by TPT in pursuance of the meeting held

27

by Secretary, Ministry of Shipping and Transport, GoI, would

show that TPT as well as its consultant had agreed for revenue

share model. He reiterated that the proceedings before the High

Court were restricted only to TAMP orders and had nothing to

do with change of law.  He submitted that none of the case laws

cited by Smt. Divan considers a clause analogous to Article 14

and therefore, the said cases would not be applicable to the

facts   of   the   present   case.     He   further   submitted   that   the

argument with regard to doctrine of election is also without

substance.

36. With the assistance of the learned counsel for the parties,

we   have   gone   through   the   documents   placed   on   record.

Though various judgments of this Court as well as some of the

High Courts have been cited by counsel of both the parties, we

do not find it necessary to refer to all of them.  In our view, a

reference   to   few   recent   judgments   of   this   Court   will   be

sufficient.  

28

37. A bench of this Court, of which one of us (R.F. Nariman,

J.) was a party, has considered various judgments of this Court

in the case of Associate Builders (supra).

38. Another bench of this Court, again to which one of us

(R.F.   Nariman,   J.)   was   a   party,   has   considered   various

judgments of this Court including the judgment in Associate

Builders  (supra) and   the   effect   of   the   Arbitration   and

Conciliation (Amendment) Act, 2015 in the case of Ssangyong

Engineering   and   Construction   Company   Limited   v.

National Highways Authority of India (NHAI)25

, to which we

will refer shortly.

39. Before that, it will be apposite to refer to judgment of this

Court in the case of MMTC Limited (supra), wherein this Court

has   revisited   the   position   of   law   with   regard   to   scope   of

interference with an arbitral award in India.  

40. It will be relevant to refer to the following observations of

this Court in the case of MMTC Limited (supra):

25 (2019) 15 SCC 131

29

“11. As far as Section 34 is concerned, the

position   is   well­settled   by   now   that   the

Court   does   not   sit   in   appeal   over   the

arbitral award and may interfere on merits

on   the   limited   ground   provided   under

Section   34(2)(b)(ii)   i.e.,   if   the   award   is

against the public policy of India. As per

the   legal   position   clarified   through

decisions   of   this   Court   prior   to   the

amendments to the 1996 Act in 2015, a

violation of Indian public policy, in turn,

includes   a   violation   of   the   fundamental

policy   of   Indian   law,   a   violation   of   the

interest  of  India,  conflict  with   justice  or

morality,   and   the   existence   of   patent

illegality   in   the   arbitral   award.

Additionally,   the   concept   of   the

“fundamental policy of Indian law” would

cover   compliance   with   statutes   and

judicial   precedents,   adopting   a   judicial

approach, compliance with the principles

of   natural   justice,

and Wednesbury [Associated   Provincial

Picture   Houses v. Wednesbury   Corpn.,

(1948)   1   KB   223   (CA)]   reasonableness.

Furthermore, “patent illegality” itself has

been   held   to   mean   contravention   of   the

substantive law of India, contravention of

the   1996   Act,   and   contravention   of   the

terms of the contract.

12. It is only if one of these conditions is

met that the Court may interfere with an

arbitral award in terms of Section 34(2)(b)

(ii), but such interference does not entail a

review of the merits of the dispute, and is

30

limited to situations where the findings of

the arbitrator are arbitrary, capricious or

perverse,  or when  the  conscience of  the

Court is shocked, or when the illegality is

not   trivial   but   goes   to   the   root   of   the

matter.   An   arbitral   award   may   not   be

interfered   with   if   the   view   taken  by   the

arbitrator is a possible view based on facts.

(See Associate   Builders v. DDA [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015)

2   SCC   (Civ)   204]   .   Also   see ONGC

Ltd. v. Saw   Pipes   Ltd. [ONGC   Ltd. v. Saw

Pipes Ltd., (2003) 5 SCC 705] ; Hindustan

Zinc   Ltd. v. Friends   Coal

Carbonisation [Hindustan   Zinc

Ltd. v. Friends Coal Carbonisation, (2006) 4

SCC   445]   ;   and McDermott   International

Inc. v. Burn   Standard   Co.  Ltd. [McDermott

International Inc. v. Burn Standard Co. Ltd.,

(2006) 11 SCC 181] )

13. It   is   relevant   to   note   that   after   the

2015 Amendment to Section 34, the above

position   stands   somewhat   modified.

Pursuant to the insertion of Explanation 1

to Section 34(2), the scope of contravention

of Indian public policy has been modified

to the extent that it now means fraud or

corruption   in   the   making   of   the   award,

violation of Section 75 or Section 81 of the

Act,   contravention   of   the   fundamental

policy of Indian law, and conflict with the

most basic notions of justice or morality.

Additionally,   sub­section   (2­A)   has   been

inserted in Section 34, which provides that

in case of domestic arbitrations, violation

31

of Indian public policy also includes patent

illegality   appearing   on   the   face   of   the

award. The proviso to the same states that

an award shall not be set aside merely on

the ground of an erroneous application of

the law or by reappreciation of evidence.

14. As far as interference with  an order

made under Section 34, as per Section 37,

is concerned, it cannot be disputed 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.

Thus, it is evident that in case an arbitral

award   has   been   confirmed   by   the   court

under Section 34 and by the court in an

appeal under Section 37, this Court must

be extremely cautious and slow to disturb

such concurrent findings.”

41. In Ssangyong Engineering and Construction Company

Limited (supra), this Court after considering various judgments

including the judgment in Associate Builders (supra) observed

thus: 

32

“34. What is clear, therefore, is that the

expression “public policy of India”, whether

contained in Section 34 or in Section 48,

would now mean the “fundamental policy

of Indian law” as explained in paras 18

and   27   of Associate   Builders [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015)

2   SCC   (Civ)   204]   i.e.   the   fundamental

policy of Indian law would be relegated to

“Renusagar”   understanding   of   this

expression. This would necessarily mean

that Western Geco [ONGC v. Western Geco

International   Ltd.,   (2014)   9   SCC   263   :

(2014) 5 SCC (Civ) 12] expansion has been

done   away   with.   In   short, Western

Geco [ONGC v. Western   Geco   International

Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ)

12]   ,   as   explained   in   paras   28   and   29

of Associate   Builders [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015)

2 SCC (Civ) 204] , would no longer obtain,

as under the guise of interfering with an

award on the ground that the arbitrator

has not adopted a judicial approach, the

Court's   intervention   would   be   on   the

merits   of   the   award,   which   cannot   be

permitted   post   amendment.   However,

insofar as principles of natural justice are

concerned,   as   contained   in   Sections   18

and   34(2)(a)(iii)   of   the   1996   Act,   these

continue to be grounds of challenge of an

award,   as   is   contained   in   para   30

of Associate   Builders [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015)

2 SCC (Civ) 204] .

33

35. It   is   important   to   notice   that   the

ground   for   interference   insofar   as   it

concerns “interest of India” has since been

deleted, and therefore, no longer obtains.

Equally, 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”. This again would be

in line with paras 36 to 39 of Associate

Builders [Associate Builders v. DDA, (2015)

3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it

is only such arbitral awards that shock the

conscience  of  the   court   that  can   be   set

aside on this ground.

36. Thus, it is clear that public policy of

India is now constricted to mean firstly,

that a domestic award is contrary to the

fundamental   policy   of   Indian   law,   as

understood   in   paras   18   and   27

of Associate   Builders [Associate

Builders v. DDA, (2015) 3 SCC 49: (2015) 2

SCC   (Civ)   204],   or   secondly,   that   such

award is against basic notions of justice or

morality as understood in paras 36 to 39

of Associate   Builders [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015)

2 SCC (Civ) 204] . Explanation 2 to Section

34(2)(b)(ii)   and   Explanation   2   to   Section

48(2)(b)(ii) was added by the Amendment

Act   only   so   that Western

Geco [ONGC v. Western   Geco   International

Ltd., (2014) 9 SCC 263: (2014) 5 SCC (Civ)

12],   as   understood   in Associate

Builders [Associate Builders v. DDA, (2015)

34

3 SCC 49: (2015) 2 SCC (Civ) 204], and

paras 28 and 29 in particular, is now done

away with.

37. Insofar as domestic awards made in

India are concerned, an additional ground

is now available under sub­section (2­A),

added   by   the   Amendment   Act,   2015,   to

Section   34.   Here,   there   must   be   patent

illegality   appearing   on   the   face   of   the

award, which refers to such illegality as

goes to the root of the matter but which

does   not   amount   to   mere   erroneous

application of the law. In short, what is not

subsumed within “the fundamental policy

of Indian law”, namely, the contravention

of a statute not linked to public policy or

public interest, cannot be brought in by

the   backdoor   when   it   comes   to   setting

aside an award on the ground of patent

illegality.

40. The change made in Section 28(3) by

the Amendment Act really follows what is

stated   in   paras   42.3   to   45   in Associate

Builders [Associate Builders v. DDA, (2015)

3   SCC   49:   (2015)   2   SCC   (Civ)   204],

namely, that the construction of the terms

of a contract is primarily for an arbitrator

to decide, unless the arbitrator construes

the   contract   in   a   manner   that   no   fairminded   or   reasonable   person   would;   in

short, that the arbitrator's view is not even

a   possible   view   to   take.   Also,   if   the

arbitrator   wanders   outside   the   contract

and deals with matters not allotted to him,

35

he commits an error of jurisdiction. This

ground of challenge will now fall within the

new ground added under Section 34(2­A).

38. Secondly,   it   is   also   made   clear   that

reappreciation of evidence, which is what

an   appellate   court   is   permitted   to   do,

cannot be permitted under the ground of

patent illegality appearing on the face of

the award.

39. To   elucidate,   para   42.1   of Associate

Builders [Associate Builders v. DDA, (2015)

3   SCC   49:   (2015)   2   SCC   (Civ)   204],

namely,   a   mere   contravention   of   the

substantive law of India, by itself, is no

longer a ground available to set aside an

arbitral   award.   Para   42.2   of Associate

Builders [Associate Builders v. DDA, (2015)

3   SCC   49:   (2015)   2   SCC   (Civ)   204],

however, would remain, for if an arbitrator

gives   no   reasons   for   an   award   and

contravenes Section 31(3) of the 1996 Act,

that would certainly amount to a patent

illegality on the face of the award.

41. What  is important  to  note is that  a

decision which is perverse, as understood

in   paras   31   and   32   of Associate

Builders [Associate Builders v. DDA, (2015)

3 SCC 49: (2015) 2 SCC (Civ) 204], while

no   longer   being   a   ground   for   challenge

under   “public   policy   of   India”,   would

certainly   amount   to   a   patent   illegality

appearing on the face of the award. Thus,

36

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.   Additionally,   a   finding

based   on   documents   taken   behind   the

back of the parties by the arbitrator would

also   qualify   as   a   decision   based   on   no

evidence inasmuch as such decision is not

based on evidence led by the parties, and

therefore,   would   also   have   to   be

characterised as perverse.

42. Given the fact that the amended Act

will   now   apply,   and   that   the   “patent

illegality” ground for setting aside arbitral

awards   in   international   commercial

arbitrations will not apply, it is necessary

to   advert   to   the   grounds   contained   in

Sections 34(2)(a)(iii) and (iv) as applicable

to the facts of the present case.”

42. 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

37

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 Section 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.   

43. A   decision   which   is   perverse,   though   would   not   be   a

ground   for   challenge   under   “public   policy   of   India”,   would

38

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.      

44. To   understand   the   test   of   perversity,   it   will   also   be

appropriate to refer to paragraph 31 and 32 from the judgment

of this Court in Associate Builders (supra), which read thus:

“31. The third juristic principle is that a

decision which is perverse or so irrational

that   no   reasonable   person   would   have

arrived   at   the   same   is   important   and

requires some degree of explanation. It is

settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account

something irrelevant to the decision which

it arrives at; or

(iii) ignores vital evidence in arriving at its

decision,

such   decision   would   necessarily   be

perverse.

32. A   good   working   test   of   perversity   is

contained in two judgments. In Excise and

Taxation   Officer­cum­Assessing

Authority v. Gopi Nath & Sons [1992 Supp

39

(2) SCC 312], it was held: (SCC p. 317,

para 7)

“7. … It is, no doubt, true that if a finding

of   fact   is   arrived   at   by   ignoring   or

excluding   relevant   material   or   by   taking

into consideration irrelevant material or if

the finding so outrageously defies logic as

to   suffer   from   the   vice   of   irrationality

incurring   the   blame   of   being   perverse,

then,   the   finding   is   rendered   infirm   in

law.”

In Kuldeep   Singh v. Commr.   of

Police [(1999) 2 SCC 10: 1999 SCC (L&S)

429], it was held: (SCC p. 14, para 10)

“10. A broad distinction has, therefore, to

be   maintained   between   the   decisions

which are perverse and those which are

not.   If   a   decision   is   arrived   at   on   no

evidence or evidence which is thoroughly

unreliable and no reasonable person would

act upon it, the order would be perverse.

But if there is some evidence on record

which is acceptable and which could be

relied   upon,   howsoever   compendious   it

may   be,   the   conclusions   would   not   be

treated as perverse and the findings would

not be interfered with.”

45. Keeping these principles in mind, we will have to examine

the present case. 

46. The facts in the present case are not in much dispute.  It

will be relevant to refer to clause 5.6 of the bid document,

40

which was published by TPT on 9th  April, 1997, which reads

thus:   

“5.6 TERMS OF THE FINANCIAL OFFER

The license to develop the seventh berth as

a full­fledged container terminal with ship

to   shore   and   shore   to   ship   handling

facility, manage, operate and maintain the

terminal shall be given for a period of 30

years inclusive of construction period. 

The bidder shall state his financial offer to

the   TPT   as   the   sum   of   the   following

components: 

a) Quantum   of   initial   payment   at   the

time of executing the contract in order to

secure the agreement;

b) Royalty fee payable (before the day of

each   calendar   month)   after   the

commissioning   of   the   terminal   for   each

TEU   handled   at   the   terminal   in   the

preceding calendar month. In case actual

throughput   falls   below   the   minimum

throughput guaranteed by the Licensee in

his bid, then the Licensee shall pay royalty

as   per   his   minimum   guaranteed

throughput. 

(The operator shall pay to the port royalty

fee in the same currency in which charges

are realised from users. The exchange rate

41

to be used would be notified rate on the

date of realisation).

c) Guaranteed   minimum   TEU

throughput that will be handled in each

year of the contract.

The offer shall be in the format shown in

Attachment 4.1.”

47. Perusal of the bid document would reveal, that the bid

was for a license to develop the seventh berth as a full­fledged

container   terminal   with   ship­to­shore   and   shore­to­ship

handling facility and also to manage, operate and maintain the

same for a period of 30 years inclusive of construction period.

The bidder was to state his financial offer to TPT comprising of

three aspects:

(a) quantum of initial payment at the time of executing the

contract in order to secure the agreement;

(b) royalty   fee   payable   (before   the   day   of   each   calendar

month) after the commissioning of the terminal for each

TEU handled at the terminal in the preceding calendar

month.   It is also clear, that in case actual throughput

falls below the minimum throughput guaranteed by the

42

Licensee in his bid, then the Licensee shall pay royalty as

per his minimum guaranteed throughput.  It also clarifies,

that royalty was to be paid in the same currency in which

the Licensee realizes the charges from users; and 

(c) guaranteed   minimum   TEU   throughput   that   will   be

handled in each year of the contract.

48. It will also be necessary to refer to clause 4.7.1 and 4.7.2

of the bid document, which reads thus: 

“4.7.1 SETTING OF PRICES

The   prescribed   rates   and   charges   to   be

collected   by   the   LICENSEE   from   users

shall   not  exceed   the   maximum  rates   as

approved   by   the   Government/Tariff

Regulatory Authority. The proposed rates

for handling are given in Annexure II.

The LICENSEE shall bill the users of the

container   terminal   for   services   including

terminal   charges,   wharfage   on   cargo

containerised,   container   box   and   cargo

related   charges   to   be   collected   by   the

LICENSEE.   These   revenues   shall   be

collected   from   cargo   interests   and   the

owners or agents of the vessels and shall

accrue   to   and   be   payable   to   the

43

LICENSEE. Charges on account of Berth

Hire,   Port   Dues,   Pilotage   etc   shall   be

raised and recovered directly by TPT from

the users.

4.7.2 REGULATION & REVIEW

Normally the tariff will be revised by the

Government/Tariff   Regulatory   Authority

once in 3 years. 

For   any   increase   from   prevailing   scales,

the LICENSEE may apply for revision of

tariff   to   the  Licensor.   The   Licensor   may

recommend   it   for   approval   of   the

Committee   constituted   by   the

Government/Tariff Regulatory Authority.”

It   would   thus   be   clear,   that   the   bid   document   itself

provides, that the prescribed rates and charges to be collected

by the Licensee from users shall not exceed the maximum rates

as approved by the Government/Tariff Regulatory Authority.

The proposed rates for handling were prescribed in Annexure­II

of the bid document.  It is also provided, that the tariff will be

revised by the Government/Tariff Regulatory Authority once in

three years.  It is further provided, that for any increase from

prevailing scales, the Licensee may apply for revision of tariff to

the   Licensor   and   that   the   Licensor   may   recommend   it   for

44

approval   of   the   Committee   constituted   by   the

Government/Tariff Regulatory Authority. 

49. It will be relevant to note that the offer was required to be

in   the   format   shown   in   Attachment   4.1   (Bidders   Financial

Offer), which requires to give details in three columns. The first

one   being   ‘Traffic   guaranteed   from   the   Seventh   Berth   (in

TEUS)’.  The second being ‘Rate of royalty/TEU’; and the third

being ‘Amount (Rupees)’.  These details were to be provided for

all 30 years.   It will also be relevant to refer to Attachment 4.4,

which reads thus: 

“All   Responsive   Bids   which   meet   the

Qualification   criteria   laid   down   for   the

technical evaluation will be ranked based

on   the   present   value   of   the   expected

payments   to   the   TPT   by   the   Bidder

(discounted @ 16% per annum) according

to the payment schedule presented in the

financial proposal in Attachment 4.1. The

calculation of the royalty fees will be based

on   the   Licensee’s   minimum   guaranteed

volume of traffic.

If, in the opinion of TPT, the prices quoted

in a bid including royalties and schedule of

royalties are found to be unrealistic, then

45

such   bid   will   be   rejected   and   not

considered for ranking.” 

50. Attachment 4.4 makes it amply clear, that all responsive

bids   which   meet   the   qualification   criteria   for   technical

evaluation will be ranked on the basis of the royalty fees quoted

by the bidder.

51. It will also be relevant to refer to Article 7.3.1 and 7.3.5.1

of the Agreement, which read thus:

“7.3.1 Setting Prices 

The Licensee shall be entitled to recover

from   the   owners/consignees   or   vessel

owners/agents rates and/or charges due

and   payable   by   them   for   use   of   the

Container   Terminal   services   including

terminal   charges,   wharfage   on   cargo

containerised,   container   box   and   cargo

related   charges   in   respect   of   cargo   and

other   services   provided   by   the   Licensee

provided   however   that   the   rates   and/or

charges   to   be   collected   by   the   Licensee

shall not exceed the rates fixed by Licensor

in   respect   of   similar   services   and   duly

notified by the GoI in official gazette or to

be fixed by the Tariff Authority for Major

Ports constituted under Article 47A of the

Major Port Trusts Act, 1963, as applicable,

from time to time. For the purpose of fixing

46

or revising existing Tariff, the GoI has set

up   an   independent   Tariff   Authority   for

Major Ports constituted under Article 47A

of the Major Port Trusts Act, 1963. The

Tariff to be fixed by such authority would

be   the   maximum   rate   of   tariff   and   the

Licensee would be free to fix the tariff at a

rate   lower   than   that   fixed   by   such

authority. Regarding fixation of tariff and

setting prices, the Licensee shall follow the

rules and regulations stipulated by TAMP

for fixing/review of tariff. 

These   charges   shall   be   collected   from

cargo interests and the owners or agents of

the   vessels   and   shall   accrue   to   and   be

payable   to   the   Licensee.   The   rates

prevailing   at   the   time   of   signing   this

Agreement are contained in Appendix 15

to this Agreement. 

Charges   on   account   of   Berth   Hire,   Port

Dues   and   Pilotage   shall   be   raised   and

recovered directly by the Licensor from the

users. 

The Licensee shall be free to give discounts

in tariff. However, such discounts shall be

given by the Licensee only in respect to the

charges   due   and   payable   by   the

consignees/owners   or   vessel

owners/agents to the Licensee and not in

respect   of   the   charges   payable   by   such

persons directly to the Licensor.

xxx xxx xxx

47

7.3.5 Payment and Payment Terms 

7.3.5.1 Initial Payment 

In   consideration   of   the   grant   of   this

License,   the   Licensee   shall   pay   to   the

Licensor an initial amount of Rs.45 million

(Rupees   Forty   Five   Millions   only)

simultaneously on the Date of Award of

License.

The   Licensee   shall   pay   to   the   Licensor,

royalty   calculated   on   the   basis   of

Minimum guaranteed traffic royalty rates,

as set out in Appendix 12 irrespective of

discounts in tariffs, if any, that may be

granted by the Licensee. Royalty shall be

paid every Month on the basis of annual

minimum guaranteed traffic as set out in

Appendix   12.   Monthly   royalty   shall   be

initially calculated  proportionately  to  the

yearly   royalty   based   on   the   annual

minimum   guaranteed   traffic   as   per   the

Appendix 12 and shall be paid latest by

the 7th Day of the subsequent Month. At

the end of each 3 Month period the total

royalty payable shall be computed and the

difference, if any, between the amount of

royalty actually payable, calculated on the

basis   of   actual   TEUs   handled   and   the

corresponding amount as set out in the

Appendix 12, and the amount of royalty

already   remitted,   shall   be   paid   by   the

Licensee   to   the   Licensor   within   fifteen

48

Days of expiry of the relevant 3 Months

period. 

In case the actual traffic falls below the

annual   minimum   guaranteed   traffic   as

guaranteed by the Licensee and as set out

in the Appendix l2, then the Licensee shall

pay   the   amount   of   royalty   as   per   its

annual minimum guaranteed traffic. 

It   is   to   be   noted   that   the   minimum

guaranteed traffic royalty rate as set out in

Appendix 12 will be adjusted upwards or

downwards   as   a   one   time   measure   on

fixation of tariff for containers by the TAMP

for the first time. This adjustment will be

carried out by the Port based on a single

percentage (plus or minus) to be applied to

all   the   figures   quoted   as   royalty   vide

Appendix 12.  This single percentage shall

be decided on the basis of sum of weighted

average of variations to the rates in respect

of   tariff   or   containers   in   the   following

manner...”

52. Perusal of Article 7.3.1 would reveal, that the Licensee

was   entitled   to   recover   from   owners/consignees   or   vessel

owners/agents, rates and/or charges due and payable by them

for   use   of   Container   Terminal   services   including   terminal

charges, wharfage on cargo containerized, container box and

49

cargo related charges in respect of cargo and other services

provided by the Licensee.   However, it was provided, that the

rates and/or charges to be collected by the Licensee shall not

exceed the rates fixed by Licensor in respect of similar services

and duly notified by the GoI in official gazette or to be fixed by

TAMP constituted under Section 47A of the Major Port Trusts

Act, 1963.  The Agreement itself clarifies, that the tariff to be

fixed by TAMP should be the maximum rate of tariff and the

Licensee would be free to fix the tariff at a rate lower than that

fixed by such authority.  It is also clear, that the Licensee was

to   follow   the   rules   and   regulations   stipulated   by   TAMP

regarding fixation of tariff.  Appendix­15 to the Agreement also

details out the rates prevailing at the time of signing of the

Agreement. The Article specifies that the Licensee was free to

give discounts on tariffs.   However, such discount would be

given only in respect of the charges payable to the Licensee and

not payable to the Licensor.  

53. Article 7.3.5.1 provides for initial payment of Rs.45 million

simultaneously on the date of award of license.  The Agreement

50

further clarifies, that the Licensee shall pay to the Licensor

royalty calculated on the basis of minimum guaranteed traffic

royalty as set out in Appendix­12.   It is also provided, that

minimum guaranteed traffic royalty rate as set out in Appendix12   will   be   adjusted   upwards   or   downwards   as   a   one­time

measure on fixation of tariff for containers by TAMP for the first

time.  

54. It will be relevant to refer to Article 14, which is the bone

of contention between the parties, which reads thus:

“ARTICLE 14

CHANGE IN LAW

14.  Change in Law

14.1 Definition of Law

For the purposes of this Agreement, “Law"

means   any   valid   act,   ordinance,   rule,

regulation,   notification,   directive,   order

policy,   bylaw,   administrative   guideline,

ruling or instruction having the force of

law enacted or issued by a Government

authority.

14.2 Definition of Change in Law

For   the   purposes   of   this   Agreement

"Change in Law" means any amendment,

51

alteration,   modification   or   repeal   of   any

existing law by Government Authority or

through any interpretation thereof by the

court of law or enactment or any new law

coming  into   effect  after the   date of   this

Agreement,   provision   for   which   has   not

been made elsewhere in this Agreement.

14.3 Relief under Change in Law

If, after the date of this Agreement, there is

a 'Change in the Law which substantially

and   adversely   affects   the   rights   of   the

Licensee   under  this   Agreement  so   as  to

alter   the   commercial   viability   of   the

project,   the   Licensee   may,   by   written

notice request amendments to the terms of

this Agreement.

Subject to provisions of Article 14.3, the

Licensee   shall   not   be   entitled   to   any

compensation   whatsoever   from   the

Licensor as a result of Change in Law. 

14.4  Changes   in   Tax   Laws   and

Regulations

The   Licensee   is   not   entitled   to   any

compensation   for   any   increase   in   direct

and/or indirect tax which the Licensee is

liable to pay in respect of the Project.”

55. Article 14 deals with ‘change in law’.  Article 14.1, which

defines ‘law’, states, that law means any valid act, ordinance,

rule,   regulation,   notification,   directive,   order   policy,   bylaw,

52

administrative guideline, ruling or instruction having the force

of law enacted or issued by a Government Authority.  

Article 14.2, which deals with ‘change in law’, states, that

‘change   in   law’   would   mean   any   amendment,   alteration,

modification   or   repeal   of   any   existing   law   by   Government

Authority or through any interpretation thereof by a court of

law or enactment of any new law coming into effect after the

date of this Agreement, provision for which has not been made

elsewhere in the said Agreement.  

Article 14.3 provides for relief under change in law.   If,

after the date of Agreement, there is a change in the law which

substantially and adversely affects the rights of the Licensee

under the Agreement so as to alter the commercial viability of

the   project,   the   Licensee   may,   by   written   notice,   request

amendments   to   the   terms   of   the   Agreement.     It   further

provided, that subject to provisions of Article 14.3, the Licensee

shall not be entitled to any compensation whatsoever from the

Licensor as a result of change in law. 

56. The questions therefore that we will have to answer are: 

53

(i) As to whether the Arbitral Tribunal was justified in finding

a change in law, which entitled the Licensee to invoke Article

14.3 of the Agreement; and 

(ii) As   to   whether   the   Arbitral   Tribunal   was   justified   in

converting   the   contract   from   royalty   payment   module   to

revenue­sharing module of Berth No. VII with the claimant’s

liability to the revenue share being fixed at 55.19%.

57.   For answering the aforesaid questions, we will have to

consider the documents placed on record.  Apart from that, we

will also have to take into consideration the conduct of the

parties and their intention as could be gathered from the said

material.    

58. In this respect, it will be relevant to refer to paragraph 16

in the case of MMTC Limited (supra), which reads thus: 

“16. It is equally important to observe at

this   juncture   that   while   interpreting   the

terms of a contract, the conduct of parties

and   correspondences   exchanged   would

also be relevant factors and it is within the

arbitrator's   jurisdiction   to   consider   the

same.   [See McDermott   International

Inc. v. Burn   Standard   Co.  Ltd. [McDermott

54

International Inc. v. Burn Standard Co. Ltd.,

(2006) 11 SCC 181]; Pure Helium India (P)

Ltd. v. ONGC [Pure   Helium   India   (P)

Ltd. v. ONGC, (2003) 8 SCC 593] and D.D.

Sharma v. Union   of   India [D.D.

Sharma v. Union   of   India,   (2004)   5   SCC

325].]”

59. The entire finding of the Arbitral Tribunal is based on a

premise that  when TPT entered into  a contract with  SICAL

there   was   an   existing   policy,   which   provided   royalty   to   be

factored   into   the   cost   while   fixation   of   tariff   and   that

subsequently, the GoI changed its policy on 29th  July, 2003

thereby providing that royalty payment/revenue sharing will

not   be   factored   into/taken   into   account   as   cost   for

fixation/revision   of   tariff   by   TAMP;   and   that   there   was

subsequent change in policy on 31st  March, 2005 vide which

part   of   royalty   was   permitted   to   be   factored   into   the   cost.

However, it being subjected to a maximum amount of the bid of

the second lowest bidder.  According to the Arbitral Tribunal,

there was a change in policy, which amounted to change in law,

which, in turn, adversely affected SICAL.  

55

60. Let us examine the correctness of this finding.   We are

fully aware, that neither under Section 34 nor under Section 37

of the Arbitration Act, the Court is entitled to reappreciate the

evidence.   The said limitation would be equally applicable to

this Court also.    Admittedly, the bid document was published

on 9th April, 1997.  The technical bid of SICAL was submitted

on   24th  October,   1997.   The   financial   offer   of   SICAL   was

submitted on 19th  December, 1997.   LoI was issued on 29th

January, 1998.  All this has happened prior to the guidelines

issued by TAMP in February 1998.  As such, it is beyond any

doubt, that when the bid document was notified and when

SICAL submitted its bid and LoI was issued to it, there were no

guidelines in vogue.     For the first time, the guidelines were

adopted by TAMP in the workshop held in Chennai on 26th/27th

February, 1998.  

61. Let us examine what do these guidelines provide.  

“The   TAMP   must   adhere   to   established

costing systems and pricing principals, its

overall objective shall be to move towards

competitive pricing. 

56

  There   are   various   approaches   to   tariff

fixation.   Until   more

information/knowledge becomes available.

Attempts may be made to smoothen the

system within the existing framework. 

During the Interregnum, port pricing may

continue to be cost­based with an assured

rate of return.  Although  the  concept  of

an   assured   rate   of   return   is   not

consonant with a completive system. It

will  be  advisable to  maintain it  for  the

time being so  as  not  to  destabilize the

system   with   abrupt   changes.   At   the

same time, to militate the full impact of

its   continuance,   the   reasonableness   of

the existing base and the absolute total

costs   may   have   to   be   examined   to

ensure   that   costs   of   inefficiencies,

uneconomic   user   /practices   or   excess

are  not  passed  on  to  users.  Even if the

TAMP is not equipped at present to cope

with   the   load   of   work   relating   to   such

scrutiny, it must at least start pressuring

against such costs being built into tariffs. 

An assured rate of return can be achieved

either by increasing the surplus through a

rationalized   tariff   structure   and/or

reducing   the   cost   of   services;   or   by

reducing the  capital  base by eliminating

unproductive and obsolete assets.”

[emphasis supplied]

57

62. It could thus be clearly seen that what is provided is that

TAMP must adhere to established costing systems and pricing

principals and its overall objective should be to move towards

competitive   pricing.     It   further   provides   that   until   more

information/knowledge becomes available, attempts should be

made to smoothen the system within the existing framework.  It

further provides that during the interregnum, port pricing is to

be continued to be cost­based with an assured rate of return.

It however specifically observes that the concept of an assured

rate of return is not consonant with a competitive system.  It

provides that however, it will be advisable to maintain it for the

time being so as not to destabilize the system with abrupt

changes.  It further provides that to militate the full impact of

its continuance, the reasonableness of the existing base and

the absolute total costs may have to be examined to ensure that

costs of inefficiencies, uneconomic user/practices or excess are

not passed on to users.   It further observed, that an assured

rate of return can be achieved either by increasing the surplus

58

through   a   rationalized   tariff   structure   and/or   reducing   the

capital base by eliminating unproductive and obsolete assets.  

63. It could thus clearly be seen, that even 1998 guidelines do

not mention, that the royalty could be factored in the cost while

determining the tariff.   Though the said guidelines observed,

that the port pricing may continue to be cost­based with an

assured rate of return, it further observed, that such a concept

of   an   assured   rate   of   return   is   not   in   consonance   with   a

competitive system. Thus, it is amply clear, that when the bids

were invited, and SICAL submitted its bid and LoI was issued to

it, there was no policy at all.  Even the 1998 guidelines do not

provide for factoring the royalty in cost while determining the

tariff.   

64. No doubt that when the first proposal for revision of tariff

was submitted by SICAL, in its comments submitted to TAMP,

TPT has supported the proposal submitted by SICAL.  It is also

undisputed, that TAMP vide order dated 08th December, 1999

(notified on 28th  December, 1999) has approved the proposal

with regard to fixation of tariff insofar as SICAL is concerned.  It

59

will be relevant to refer to sub­para (iv) of paragraph 7 of the

TAMP order, which reads thus: 

“(iv)  It will be necessary at this point to

refer   to   the   royalty   issue.  Even   though

some considerations relating to royalty

have tariff­ implications, we have not so

far   chosen   to   interfere   in   this   regard;

the   royalty   issue   has   been   left   to   be

settled   by   the   Port   Trust   and   the

Government. That being so, in the light

of the TPT's conditional support to the

request   for  dollar­denomination,   it  will

be  necessary   for  us  to   clarify  that  our

approval   of   the   tariffs   cannot   be

interpreted   to   amount   to   any   implicit

approval   of   royalty­related   issues.

Specifically,   in   the   context   of   the   TPT's

condition   about   dollar­denomination   of

royalty, the method of conversion adopted

by   the   Applicant   for   the   purpose   of

financial   statements   based   on   tariffs

denominated   in   dollar   terms   cannot   be

deemed to have been approved by us.”

[emphasis supplied]

65. It   could   thus   be   clear,   that   TAMP   has   observed,   that

though   some   considerations   relating   to   royalty   have   tariffimplications, it had not so far chosen to interfere in that regard.

60

The royalty issue has been left to be settled by TPT and the GoI.

It has been clarified that its approval to the tariff cannot be

interpreted to be amounting to any implicit approval of royaltyrelated issues.  It is thus clear, that even the 1999 TAMP order

made it clear, that the said order should not be interpreted to

amount to any implicit approval of royalty related issues.  It is

thus clear, that royalty was permitted to be factored in cost

only on account of TPT’s conditional support to the proposal

submitted by SICAL.  It will also be relevant to note that TAMP

order of 1999 is much after the TAMP guidelines, which were

issued in February 1998.   Undisputedly, the said order has

been accepted by SICAL including the aforesaid observations in

sub­para (iv) of paragraph 7.  

66. The second tariff order in case of SICAL came to be passed

on 20th September, 2002 (notified on 4th October, 2002).  It will

be relevant to refer to sub­para (xi) of paragraph 15.

“(xi) One of the main items of expenditure

considered by the PSA SICAL is the royalty

payment it has to make to the TPT as per

the   Concession   Agreement.   This   liability

accounts   for   about   11.4%,   15.4%   and

61

19.2% of the operating income estimated

on the basis of the existing tariffs for the

years 2002, 2003 and 2004 respectively.

As has been mentioned earlier, the existing

tariffs were allowed to the PSA SICAL by

accepting its proposal to adopt the (then)

existing CHPT rates. That being so, there

was no detailed cost analysis carried out

then.

It   is   admitted   that   the   issue   of

admissibility of ‘royalty’ as a cost item

has come under a focused scrutiny only

in the case relating to the CCTL which

was disposed of in March, 2002. In that

case,   this   Authority   decided   not   to

allow ‘revenue share’ as a cost element

for computation of tariffs at the CCTL.

This   Authority   held   that   allowing

royalty   in   tariff   would  mean   that   the

CCTL   (Private   Terminal   Operator)   and

the  CHPT   (the  Licensor)  both  of  whom

enjoyed   a   dominant   position,   could

enter into any commercial arrangement

between   themselves   and   pass   on   the

consequential   cost   to   customers.   This

Authority   also   observed   that   there   had

been no commitment from anywhere about

consequential  tariff adjustments  and the

CA also did not give any assurance to the

Licensee   about   tariff   adjustments

corresponding to the royalty quoted.

62

In  view  of  the  principle  set  out   in  the

CCTL  case,   it   is  necessary  to  accord  a

similar treatment in the case of the PSA

SICAL   also.   It   is   noteworthy   that   no

extraordinary   circumstances   appear   to

emerge   in   this   case   warranting   any

exceptional   consideration.   That   being

so,  royalty  has  not  been  considered  as

an admissible item of cost for this tariff

exercise.”

[emphasis supplied]

67. Perusal of the aforesaid sub­para would clearly reveal that

one of the main items of expenditure considered by SICAL was

the   royalty   payment   it   has   to   make   to   TPT   as   per   the

Concession Agreement.  It states that the existing tariffs were

allowed to SICAL by accepting its proposal to adopt the then

existing Chennai Port Trust (hereinafter referred to as “CHPT”)

rates.     It   clarifies   that   there   was   no   detailed   cost   analysis

carried out then.  It further states that the issue of admissibility

of royalty as a cost item came under a focused scrutiny only in

the case relating to CCTL, which was disposed of in March

2002.  It states, that in that case, the Authority decided not to

allow   ‘revenue   share’   as   a   cost   element   for   computation   of

tariffs for CCTL.   It observes, that allowing royalty in tariff

63

would mean that CCTL (Private Terminal Operator) and CHPT

(the   Licensor),   both   of   whom   enjoyed   a   dominant   position,

could   enter   into   any   commercial   arrangement   between

themselves and pass on the consequential cost to customers.  It

further specifies, that the Authority had observed, that there

had been no commitment from anywhere about consequential

tariff adjustments  corresponding to the  royalty quoted.     It

further observed that no extraordinary circumstances appear to

emerge   in   the   case   of   SICAL   warranting   any   exceptional

consideration.  As such, royalty had not been considered as an

admissible item of cost in the tariff. 

68. The said order is passed when the 1998 guidelines were

still holding the field.  In this factual background, it is difficult

to   appreciate   as   to   how   it   could   be   said   that   the   1998

guidelines issued by TAMP permitted royalty to be factored in

cost while fixation of tariff.  

69. The 2002 tariff order has been challenged by SICAL by

filing Writ Petitions being Writ Petition Nos 40637­40639 of

2002 before the Madras High Court.  The Madras High Court

64

has also passed interim order on 8th  November, 2002 thereby

staying the 2002 notification and permitting SICAL to charge

tariff on the basis of the 1999 tariff order. 

70. Then comes the notification dated 29th July, 2003 issued

by the GoI, which is in the following terms: 

“In a few cases recently a question arose

as   to   what   treatment   to   be   given   to

revenue sharing/royalty payment made by

private   terminal   operators   to   the

concerned major ports for the purpose of

fixation/revision of tariff. TAMP has also

requested for guidelines from Ministry in

the matter. The matter has been discussed

with Chairman, TAMP and considered in

this Ministry and it has been decided to

clarify   as   a  matter   of   policy   that   the

revenue   sharing/royalty   payment   shall

not be factored into/taken into account

as cost for fixation/revision of tariff by

TAMP for the following reasons:­ 

(i) The   benefit   of   higher   efficiency   on

account   of   private   participation   in   ports

should also be passed on to shippers or

the users which will not be so if royalty is

allowed to be factored in the cost of private

operators.

(ii) If   royalty   is   allowed   as   cost,   the

private   bidder   can   offer   any   high

65

percentage which he will recover from the

shippers/users in the shape or royalty cost

lectured in fixing of higher rates. 

It has also been decoded that the position

in this regard may be clearly indicated in

the bid documents itself while inviting bids

for   private   sector   participation   at   major

ports.”

[emphasis supplied]

71. Perusal of the said notification would clearly show that the

GoI  has   decided   to   clarify,   as   a   matter   of   policy,   that   the

revenue­sharing/royalty   payment   shall   not   be   factored

into/taken into account as cost for fixation/revision of tariff by

TAMP.      The   said   notification   specifically   provides   that   the

benefit of higher efficiency on account of private participation in

ports should also be passed on to shippers or the users which

will not be so if royalty is allowed to be factored in the cost of

private operators.  It further provides that if royalty is allowed

as cost, the private bidder can offer any high percentage which

he will recover from the shippers/users in the shape of royalty

cost factored in fixing of higher rates. 

66

72. Then comes a notification dated 31st March, 2005 issued

by TAMP.  It will be relevant to note that these guidelines have

been issued subsequent to the consultation meetings held with

the stake­holders at Kolkata, Chennai and Mumbai.  It will be

relevant to refer to clause 1.4.2, which reads thus:

“1.4.2. The earlier guidelines adopted in

Feb.   1998   stand   superseded.   The

principles   evolved   through   various   tariff

orders will, however, continue to apply to

the extent they are consistent with and not

specifically   superseded   by   these

guidelines.   A   compendium   or   digest   of

principles   evolved   will   be   published

periodically.”

73. It is thus clear, that the 31st  March, 2005 notification

specifically states that the guidelines adopted in February 1998

stand superseded.   However, it provides, that the principles

evolved through various tariff orders would continue to apply to

the   extent   they   are   consistent   with   and   not   specifically

superseded by the 2005 guidelines.  

74. It will also be relevant to refer to paragraph 2.8.1 of the

2005 guidelines.  

67

“2.8.1. ‘Royalty/Revenue   share’

payable   to   the   landlord   port   by   the

private  operator  will  not  be  allowed  as

an   admissible   cost   for   tariff

computation as decided by the Govt. in

the Ministry of Shipping vide its Order

No.  PR­14019/6/2002­PG  dt.  29th  July,

2003. In those BOT cases where bidding

process   was   finalized   before   29   July,

2003,   the   tariff   computation   will   take

into  account  royalty  /  revenue  sharing

as   cost   for   tariff   fixation   in   such   a

manner   as   to   avoid   likely   loss   to   the

operator   on   account   of   royalty   /

revenue   share   not   being   taken   into

account,   subject   to   maximum   of   the

amount   quoted   by   the   next   lowest

bidder. This would, however, be allowed

for   the   period   upto   which   such   likely

loss   will   arise.  This   would   not   be

applicable   if   there   is   provision   in   the

concession   agreement   on   treatment   of

‘Royalty/Revenue Share’.”

[emphasis supplied]

75. The   said   guidelines   specifically   provide   that

‘royalty/revenue   share’   payable   to   the   landlord   port   by   the

private operator will not be allowed as an admissible cost for

tariff   computation   as   decided   by   the   Government   in   the

Ministry of Shipping vide its Order No.PR­14019/6/2002­PG

dated 29th July, 2003.  It further provided, that in those BOT

68

cases   where   bidding   process   was   finalized   before   29th  July,

2003, tariff computation will take into account royalty/revenue

sharing as cost for tariff fixation in such a manner as to avoid

likely loss to the operator on account of the royalty/revenue

share   not   being   taken   into   account.     However,   this   was

subjected only to a maximum of the amount quoted by the next

lowest bidder.   This was further subjected to be allowed for the

period   upto   which   such   likely   loss   would   arise.     It   further

provided that this would not be applicable if there is provision

in the concession agreement on treatment of royalty/revenue

share. 

76. A conjoint reading of all these documents would reveal

that   when   the   bid   document   was   published   in   April   1997;

SICAL tendered its bid in  October, 1997 and  submitted its

financial offer in December,1997; and the LoI was issued to

SICAL on 29th January, 1998, there were no guidelines at all.

Even the guidelines of February 1998 do not provide for royalty

being factored as cost while fixation of tariff.   On the contrary,

the tariff order of 1999 specifically clarifies that it has left the

69

royalty   issue   to   be   decided   by   TPT   and   the   GoI.     It   has

specifically clarified that the approval by TAMP should not be

interpreted to be amounting to any implicit approval of royaltyrelated   issue.   Further,   the   tariff   order   issued   on   20th

September,   2002 specifically   rejects   the   claim   of   SICAL   for

factoring  any  royalty as  cost  while   tariff/price  fixation.    As

already stated herein above, SICAL has challenged the said

order before the Madras High Court by way of writ petition,

which petition has been allowed.  It is also not in dispute, that

on account of interim order passed by the Madras High Court

dated 8th November, 2002, SICAL is still continuing to charge at

rates notified in the 1999 tariff order.   

77. In this scenario, the finding of the Arbitral Tribunal, that

there was a law when the Agreement was entered into between

the parties, which provided royalty as a pass­through and that

the said law has been changed for the first time in 2003 and

subsequently again changed in 2005, in our view, is a finding

based on ‘no evidence’.  Had the Arbitral Tribunal perused the

tariff orders of 1999 and 2002, it would have found that in the

70

1999   tariff   order   TAMP   has   specifically   observed   that   its

approval of the tariff should not be construed as its implicit

approval   of   royalty­related   issue   and   the   2002   tariff   order

specifically states that royalty was not permitted to be factored

in the cost while determining tariff.  The Arbitral Tribunal has

totally   failed   to   take   into   consideration   this   aspect   of   the

matter.  

78. As such, we are of the view, that since the finding of the

Arbitral Tribunal, that there was an existing law to the effect

that the royalty payable shall be permitted as a pass­through in

cost while fixation of tariff, is based on ‘no evidence’ and the

finding, that there was a change in law in 2003 and 2005 is

based   on   without   taking   into   consideration   the   relevant

evidence, would come in the realm of perversity as explained by

this Court in paragraph 31 of the Associate Builders  (supra).

The findings are based on ‘no evidence’ and ‘ignorance of vital

evidence’ in arriving at its decision.  

79. This brings us to the next issue viz., as to whether the

Arbitral Tribunal was justified in passing an award thereby

71

substituting ‘royalty payment module’ to the ‘revenue­sharing

module’.     A contract duly entered into between the parties

cannot be substituted unilaterally without the consent of the

parties.  The intention of the parties could be gathered from the

documents   on   record.     SICAL,   for   the   first   time,   made

representation to TPT on 6th  October, 2006 thereby seeking a

relief under the terms of Article 14.3 of the Agreement.  On 14th

October, 2006, TPT informed SICAL that the issues raised by it

were   under   examination.     However,   vide   order   dated   27th

October, 2006, TPT refused to consider SICAL’s application for

relief since, according to it, the issue raised by SICAL was

pending before the Madras High Court.   SICAL therefore filed

writ petition being Writ Petition No. 4361 of 2006 before the

Madras High Court.   The Madras High Court allowed the said

writ petition vide order dated 21st August, 2007 clarifying that

the petition pending before the High Court had nothing to do

with   the   representation   under   Article   14   of   the   License

Agreement and remanded the matter to TPT for consideration

afresh.   Vide  a  reasoned  letter  dated  25th  April,  2008,  TPT

rejected the claim of SICAL.  TPT has specifically observed that

72

any change in the Agreement cannot be done without prior

approval of the GoI.  SICAL on 19th November, 2012 addressed

a letter to TPT invoking arbitration under Article 15.3 of the

License Agreement.   TPT strenuously contested the claim of

SICAL with regard to prayer for change from ‘royalty payment

mode’ to ‘revenue sharing mode’.  The stand of TPT has been

crystalized   by   the   Arbitral   Tribunal   in   paragraph   5   of   the

Award, which reads thus:

“5.  Sum and substance of the defence is 

as follows: 

"There is no dispute at all. The

grievance   of   the   SICAL   is   that

there   is   an   error   committed   by

TAMP   in   fixing   the   tariff.   That

grievance   had   been   repeatedly

taken   before   the   High   Court   of

Madras   by   SICAL   and   at   all

stages orders have been passed

by   setting   aside   the   orders

challenged.   Therefore,   the   real

grievance of SICAL is only against

TAMP   and   not   against   PORT.

Since the issue regarding fixing of

tariff   is   pending   finality,   SICAL

cannot maintain any claim legally

or factually against PORT. PORT

is bound by the order of TAMP.

Whatever order TAMP passes, the

PORT   is   bound   to   obey.   The

PORT   has   no   right   to   interfere

73

with   the   tariff   fixing   power   of

TAMP   which   is   their   exclusive

domain   and   jurisdiction.   The

Contract is not entered into on

the basis of any guidelines. There

was  no  guideline,  as  contended

by   SICAL,   on   the   date   of   the

contract. By the present dispute,

SICAL   is   trying   to   change   the

entire   nature   of   the   contract,

namely, from the royalty module

to the revenue sharing module. It

is   impermissible   for   a   court   or

this Tribunal to compel any party

to   enter   into   a   new   contract.

Contract is always by consent of

parties.   All   the   grievance   put

forward   before   the   Tribunal   by

SICAL is their grievance in sum

and substances before TAMP and

High   Court   of   Madras   in   all

challenges   made   against   the

order of TAMP. Neither a Court

nor the Tribunal can rewrite the

Contract.   The   contract   is   an

enforceable   one   and   simply

because   SICAL   is   stated   to   be

losing   monetarily,   the   relief

sought for in this dispute cannot

be granted. If the case of SICAL is

true, it is open to them to put an

end   to   the   contract   and   seek

appropriate   relief.   If   such   a

termination of the contract takes

place at the instance of SICAL,

then the PORT will take steps to

get appropriate relief. Section 56

of the Contract Act is applicable

to this case" 

74

A number of case laws have been cited by

the learned Senior Counsel for the PORT

and   we   will   refer   to   them   at   the

appropriate stage.”

80. It could thus be seen, that SICAL wanted the Agreement to

be amended so as to change the ‘royalty payment method’ to

‘revenue­sharing method’.  TPT was always opposed to it.  The

intention of TPT is apparent from its various communications

and   its   stand   before   the   Arbitral   Tribunal,   that   it   was   not

agreeable   for   amendment   of   the   Agreement   from   ‘royalty

payment method’ to ‘revenue­sharing method’. 

81. However,   ignoring   the   stand   of   TPT,   by   the   impugned

Award, the Arbitral Tribunal has thrust upon a new term in the

Agreement between the parties against the wishes of TPT.  The

‘royalty payment method’ has been totally substituted by the

Arbitral Tribunal, with the ‘revenue­sharing method’. It is thus

clear, that the Award has created a new contract for the parties

by unilateral intention of SICAL as against the intention of TPT.

82. After   referring   to   various   international   treaties   on

arbitration and judgments of other jurisdictions, this Court in

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Ssangyong   Engineering   and   Construction   Company

Limited (supra), observed thus: 

“76. However, when it comes to the public

policy   of   India,   argument   based   upon

“most basic notions of justice”, it is clear

that this ground can be attracted only in

very exceptional circumstances when the

conscience   of   the   Court   is   shocked   by

infraction   of   fundamental   notions   or

principles of justice. It can be seen that

the   formula   that   was   applied   by   the

agreement   continued   to   be   applied   till

February 2013 — in short, it is not correct

to   say   that   the   formula   under   the

agreement could not be applied in view of

the Ministry's change in the base indices

from 1993­1994 to 2004­2005. Further, in

order to apply a linking factor, a Circular,

unilaterally   issued   by   one   party,   cannot

possibly   bind   the   other   party   to   the

agreement   without   that   other   party's

consent.   Indeed,   the   Circular   itself

expressly stipulates that it cannot apply

unless   the   contractors   furnish   an

undertaking/affidavit   that   the   price

adjustment   under   the   Circular   is

acceptable to them. We have seen how the

appellant   gave   such   undertaking   only

conditionally and without prejudice to its

argument that the Circular does not and

cannot apply.  This  being  the  case,   it   is

clear   that   the   majority   award   has

created   a  new   contract   for   the  parties

by applying the said unilateral Circular

and by substituting a workable formula

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under   the   agreement   by   another

formula   dehors   the   agreement.   This

being the case, a fundamental principle

of   justice   has   been   breached,   namely,

that   a  unilateral   addition  or   alteration

of a contract can never be foisted upon

an  unwilling  party,  nor   can   a  party   to

the   agreement   be   liable   to   perform   a

bargain not entered into with the other

party. Clearly, such a course of conduct

would   be   contrary   to   fundamental

principles of  justice as followed in this

country,  and   shocks  the  conscience  of

this Court. However, we repeat that this

ground   is   available   only   in   very

exceptional circumstances, such as the

fact situation in the present case. Under

no circumstance can any court interfere

with an arbitral award on the ground that

justice has not been done in the opinion of

the Court. That would be an entry into the

merits of the dispute which, as we have

seen, is contrary to the ethos of Section 34

of the 1996 Act, as has been noted earlier

in this judgment.”

[emphasis supplied]

83. As   such,   as   held   by   this   Court   in  Ssangyong

Engineering   and   Construction   Company   Limited  (supra),

the   fundamental   principle   of   justice   has   been   breached,

namely, that a unilateral addition or alteration of a contract has

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been foisted upon an unwilling party.   This Court has further

held that a party to the Agreement cannot be made liable to

perform something for which it has not entered into a contract.

In   our   view,   re­writing   a   contract   for   the   parties   would   be

breach of fundamental principles of justice entitling a Court to

interfere   since   such   case   would   be   one   which   shocks   the

conscience   of   the   Court   and   as   such,   would   fall   in   the

exceptional category.  

84. We may gainfully refer to the following observations of this

Court   in  Bharat   Coking   Coal   Ltd.   v. Annapurna

Construction26

.

“22. There lies a clear distinction between

an error within the jurisdiction and error

in excess of jurisdiction. Thus, the role of

the   arbitrator   is   to   arbitrate   within   the

terms of the contract. He has no power

apart from what the parties have given him

under   the   contract.   If   he   has   travelled

beyond the contract, he would be acting

without   jurisdiction,   whereas   if   he   has

remained   inside   the   parameters   of   the

contract, his award cannot be questioned

26 (2003) 8 SCC 154

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on the ground that it contains an error

apparent on the face of the record.”

85. It   has   been   held   that   the   role   of   the   Arbitrator   is   to

arbitrate within the terms of the contract.   He has no power

apart from what the parties have given him under the contract.

If he has travelled beyond the contract, he would be acting

without jurisdiction.  

86. It   will   also   be   apposite   to   refer   to   the   following

observations of this Court in the case of  Md.  Army  Welfare

Housing Organization v. Sumangal Services (P) Ltd.27

“43. An Arbitral Tribunal is not a court of

law. Its orders are not judicial orders. Its

functions   are   not   judicial   functions.   It

cannot   exercise   its   power   ex   debito

justitiae. The jurisdiction of the arbitrator

being confined to the four corners of the

agreement, he can only pass such an order

which   may   be   the   subject­matter   of

reference.”

87. It has been held that an Arbitral Tribunal is not a Court of

law.   Its orders are not judicial orders.   Its functions are not

judicial   functions.     It   cannot   exercise   its   powers  ex   debito

27 (2004) 9 SCC 619

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justitiae. It has been held that the jurisdiction of the arbitrator

being confined to the four corners of the agreement, he can only

pass   such   an   order   which   may   be   the   subject­matter   of

reference. 

88. In that view of the matter, we are of the considered view,

that   the   impugned   Award   would   come   under   the   realm   of

‘patent illegality’ and therefore, has been rightly set aside by the

High Court.  

89. The High Court has gone into various other aspects of the

matter.   Arguments have also been advanced before us with

regard   to   NSCT   being   given   a   discriminatory   treatment   as

against SICAL.  The arguments have also been advanced on the

ground of approbate and reprobate and doctrine of election.  It

has also been argued on behalf of SICAL that it is incurring

huge losses. Per contra, it is submitted on behalf of TPT, that it

is incurring huge losses on account of various interim orders

passed by the High Court and the District Judge in Section 9

applications.  

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90. We do not propose to go into those aspects of the matter.

TAMP has issued various notifications with regard to fixation of

tariff so also various orders have been passed by the GoI with

regard to the aspect of grant or refusal of pass through of

royalty payable.   Various petitions have been filed by SICAL

challenging the said orders and notifications.  All the petitions

were allowed thereby remanding the matters to TAMP and GoI.

However,  it   is   not   in   dispute,   that   SICAL,  by   virtue   of  the

interim   order   passed   dated   8th  November,   2002   in

Miscellaneous   Petition   No.   60240   of   2002   in   Writ   Petition

No.40638 of 2002 is continuing to levy charges on the basis of

1999 tariff order (dated 8th December, 1999) passed by TAMP.  

91. The   last   notification   issued   by   TAMP   with   regard   to

price/tariff fixation dated 17th  December, 2008, gazetted vide

notification   dated   30th  December,   2008   was   challenged   by

SICAL   by   way   of   Writ   Petition   No.1350   of   2009.     The   last

direction issued by the GoI dated 20th February, 2008 was also

challenged by SICAL by way of Writ Petition No.1351 of 2009.

By an order dated 15th  October, 2009, the High Court has

81

allowed these writ petitions by setting aside the order of the GoI

dated   20th  February,   2008   and   the   notification   dated   17th

December, 2008 issued by TAMP and has directed the GoI as

well as TAMP to consider the issue afresh.  

92. It is informed at the Bar, that the said order has been

carried in appeal before the Division Bench of the High Court

both by SICAL as well as TAMP, which are still pending before

the High Court.   

93. We   are   of   the   considered   view,   that   if   we   make   any

observation  on  merits  of the  issue with  regard to  aforesaid

submissions made before  us, it may prejudicially affect the

rights of either of the parties.  We therefore refrain from making

any observation with regard to the aforesaid arguments, though

heavily contested before us.  

94. We therefore, confine ourselves with the issue as regards

the validity of the Award.   We also clarify that any observations

made by the High Court with regard to other aspects of the

matter except the validity of the Award, would not come in the

way of either of the parties raising their grievances in either the

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proceedings which are pending before the Division Bench of the

High Court or any other proceedings to which either of it would

be entitled to take recourse in law.  

95. In   the   result,   with   these   observations,   we   dismiss   the

appeals. However, in the facts and circumstances of the case,

there shall be no order as to costs.   Pending applications, if

any, shall stand disposed of accordingly. 

…..….......................J.

[R.F. NARIMAN]

…….........................J.       

[B.R. GAVAI]

NEW DELHI;

JULY 28, 2021

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