Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2529 of 2016
(Arising out of SLP (Civil) No.9223 of 2014)
National Highways Authority of India ….Appellant
Versus
M/S JSC Centrodorstroy …. Respondent
WITH
CIVIL APPEAL NO. 2530 of 2016
(Arising out of SLP (Civil) No.9494 of 2014)
J U D G M E N T
Uday U. Lalit, J.
1. These appeals by special leave arise out of common judgment and order
dated 20.12.2013 passed by the High Court of Delhi at New Delhi in FAO (OS)
588 of 2013 and in FAO (OS) 590 of 2013. The questions raised in these
appeals being identical, the appeals are dealt with by this common judgment
and for the sake of convenience, the facts leading to the filing of FAO
(OS) 588 of 2013 are dealt with in detail.
2. Contract No.TNHP/2, Construction Package II-C for a contract
price of Rs.295.53 crores for executing the work of 4-laning and
strengthening of the existing 2 lanes sections between km 38 to km 115 on
National Highway-2 in Uttar Pradesh was awarded to the Respondent on
12.03.2001.
3. Clause 14.3 of “Instruction to Bidder” was as under:-
“All duties, taxes and other levies payable by the Contractor under the
contract, or for any other cause, as of the date 28 days prior to the
deadline for submission of bids, shall be included in the rates and prices
and the total Bid Price submitted by the bidder.”
The parties adopted FIDIC form of conditions of contract with some
changes which are called Conditions of Particular Application (“COPA”, for
short). Clauses in COPA in the present case are identical to those dealt
with by this Court in National Highways Authority of India Versus ITD
Cementation India Ltd.[1]. Clause 70.8 dealing with effect of “Subsequent
Legislation” was as under:-
“Clause 70.8: Subsequent Legislation
If, after the date 28 days prior to the closing date for submission of bids
for the Contract there are changes to any National or State Statute,
Ordinance, Decree or other Law or any regulation or by-law of any local or
other duly constituted authority or the introduction of any such State
Statute, Ordinance, Decree, Law, regulation or by-law in India or States of
India which causes additional or reduced cost to the Contractor, other than
under the preceding Sub-Clauses of this clauses in the execution of the
contract, such additional or reduced cost shall, after due consultation
with the Employer and the Contractor, be determined by the Engineer and
shall be added to or deducted from the Contract Price and the Engineer
shall notify the Contractor accordingly with a copy to the Employer.
Notwithstanding the foregoing, such additional or reduced cost shall not be
separately paid or credited if the same shall already have been taken into
account in the indexing of any inputs to the Price Adjustment Formulae in
accordance with the provisions of Sub-Clauses 70.1 to 70.7 of this Clause.”
4. Disputes having arisen between the parties, the matter was referred
to the Arbitral Tribunal. Two claims were raised by the respondent
namely:
“(i) Dispute No. 1
Compensation for additional cost on account of increase in Service Tax on
the Insurance Premium under the Insurance Policy for the Project.
(ii) Dispute No. 2
Compensation for additional cost on account of Service Tax on the Bank
Guarantee charges.”
5. It was submitted by the respondent-claimant that in terms of Clause
21.1 of General Conditions of contract, for the works awarded under the
contract, an insurance policy was required to be taken w.e.f. 1.4.2001
initially for a period to 13.09.2006 which was later extended to
30.09.2009. It was submitted that General Insurance
Policies including insurance for works were subject to levy of service
tax which would be collected by the Insurance Company along with premium
chargeable. There being revisions in the rate of service tax from 5% to
10.30%, over a period of time, according to the claimant service tax paid
in excess of 5% was reimbursible by the appellant under Clause 70.8 of
COPA. Similarly, in terms of the Clause 10.1 of COPA, the respondent-
claimant was required to furnish Bank Guarantee for due execution of the
contract by way of performance security. Service tax in relation to the
Bank Guarantee as collected by the Bank had risen from 5% to 10.30% during
the course of the contract and as such according to the respondent-claimant
it was entitled to be reimbursed by virtue of Clause 70.8 of COPA. The
Arbitral Tribunal by its unanimous award dated 28.2.2013 accepted the
aforesaid claims and directed that the respondent-claimant shall be paid
following sums in relation to dispute No.1:-
“6.1 The Claimant shall be paid by the Respondent an amount of Rs.
11,34,877/- on account of Service Tax paid by him at rates in excess of 5%
of the premium paid.
6.2 The Claimant shall also be paid by the Respondent a sum of Rs.
11,22,811 towards interest on the above amount for period upto the date of
this award i.e. 28.02.2013.
6.3 Post award interest shall be payable in addition, on the principal sum
awarded of Rs. 11,34,877/- at the rate of 12% per annum from 01.03.2013 to
the actual date of payment of amounts under pars 6.1 & 6.2 above. No post
award interest shall however be payable in case the above sums are payable
within 90 days of the date of award.”
Similarly the Arbitral Tribunal awarded to the respondent-claimant
following sums under dispute No. 2:-
“10.1 The Claimant shall be paid by the Respondent an amount of Rs.
63,58,368/- on account of additional cost incurred on the Bank Guarantees
furnished to the Respondent in terms of the Contract.
10.2 The Claimant shall also be paid by the Respondent a sum of Rs.
43,84,987/- towards interest on the above amount for period upto the date
of this award i.e. 28.02.2013.
10.3 Post award interest shall be payable in addition on the awarded sum of
Rs. 63,58,368/- at the rate of 12% per annum (simple) from the date of
award to the actual date of payment of the said sum. No post award interest
may, however, be paid in case the sums awarded under 10.1 and 10.2 above
are paid within 90 days of the date of the award.”
6. The award passed by the Arbitral Tribunal proceeds on the ground that
the additional costs as a result of revision in service tax which the
respondent-claimant was required to bear, were covered under Clause 70.8 of
COPA. It was observed that service tax was not an input to the indices used
in Prices Adjustment Formulae in Clause 70.3. It concluded as under:-
“The claim in question is for reimbursement of additional costs resulting
from change in Central Law which came into effect after the base date as
defined in Sub-Clause 70.8. In terms of the Sub-clause, such costs are not
payable separately if the same have already been taken into account in
indexing of the inputs in Price Adjustment Formulae under Sub-clause 70.3.
The Claimant has placed on record a letter dated 24.01.2008 from the
Economic Advisor, Ministry of Commerce and Industry, confirming that
Service Tax was not an input into indexing of Whole Sale Price Indices,
used in India.”
7. The award passed by the Arbitral Tribunal was challenged by the
appellant by filing OMP No.623 of 2013 under Section 34 of the Arbitration
and Conciliation Act, 1966 before the High Court of Delhi. By order dated
21.10.2013 Single Judge of the High Court dismissed said petition. In an
appeal arising therefrom i.e. in FAO(OS)588 of 2013, the Division Bench of
the High Court by its judgment and order dated 20.12.2013, which is
presently under challenge, affirmed the view taken by Single Judge and
dismissed the appeal.
8. The facts leading to the present appeal arising out of FAO(AS)590 of
2013 are more or less identical. In that matter identical claims were
raised on two counts but arising out of a different contract by the very
same claimant. The Arbitral Tribunal granted Rs.8,84,969/- in respect of
dispute no. 1 with interest @ 12% per annum under identical two heads as
found in the earlier case. Similarly, in respect of dispute no.2, the
Arbitral Tribunal awarded Rs.42,35,385/- with interest @ 12% per annum.
9. In NHAI v. ITD Cementation India Ltd.(Supra) impact of Clauses 70.1
to 70.7 on one hand and 70.8 of COPA was considered and the view taken by
the Arbitral Tribunal as affirmed by the High Court was accepted. In that
case impact as a result of increase in the rates of royalty and issue
whether the Arbitral Tribunal was right in observing that the case was
covered under Clause 70.8 of COPA were considered by this court. The view
taken by the Arbitral Tribunal was found to be consistent with the terms of
the contract and challenge at the instance of National Highways Authorities
of India was negated.
10. The fact that there had been revision in the rates of service tax
from time to time was not disputed by the appellant. Ms. Indu Malhotra,
learned Senior Counsel appearing for the appellants in both the matters,
however, submitted that only those claims which were constructional inputs
alone would be eligible to be covered under Clause 70 of COPA. In her
submission, the service tax on bank guarantee could have been avoided by
the claimant, if the bank guarantee was replaced by tendering cash and
that the facility of bank guarantee was optional and at the discretion of
the claimant. Similarly, money advances were given for the benefit of the
claimant and any cost associated with such benefit would not come within
the scope of Clause 70.8. Mr. Biswajit Das, learned Advocate appearing
for the respondent-claimant in both the appeals however, submitted that
the bank guarantees were required to be given under the contract itself and
such requirement was stipulated by the appellant primarily to reduce its
financial risk and to bind the claimant for its performance or
protecting the money advanced to the respondents. In his submission,
furnishing a performance bank guarantee @ 10% of the contract price was a
mandatory condition of the contract under Clauses 10.1 and 10.2 of COPA.
Though at some stage the option of performance bond was mentioned in COPA,
such option was withdrawn making performance security to be compulsorily in
the form of an unconditional bank guarantee. Such requirement being
directly referable to essential conditions and arising out of the terms of
the Contract, according to him the matter was definitely within the ambit
of Clause 70.8 of COPA.
11. Having considered rival submissions, we are of the view that the
assessment made by the Arbitral Tribunal in the instant case as affirmed by
the High Court was definitely within its jurisdiction. It has
consistently been laid down by this Court that construction of the terms
of a Contract is primarily for an Arbitrator or Arbitral Tribunal to
decide and unless the Arbitrator or Arbitral Tribunal construes the
contract in such a way that no fair minded or reasonable person could do,
no interference by Court is called for. Viewed thus, we do not see any
reason or justification to interfere in the matter. The view that the
increase in rates of service tax in respect of bank guarantee and insurance
premium is directly relatable to terms of the contract and performance
under the Contract is certainly a possible view.
12. In the circumstances, we do not find any merit in the present
appeals. Both the appeals are dismissed without any order as to costs.
…………………………….J
(Dipak Misra )
…………………………….J
(Uday Umesh Lalit)
New Delhi
April 18, 2016
-----------------------
[1]
[2] 2015(6) SCR 107
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2529 of 2016
(Arising out of SLP (Civil) No.9223 of 2014)
National Highways Authority of India ….Appellant
Versus
M/S JSC Centrodorstroy …. Respondent
WITH
CIVIL APPEAL NO. 2530 of 2016
(Arising out of SLP (Civil) No.9494 of 2014)
J U D G M E N T
Uday U. Lalit, J.
1. These appeals by special leave arise out of common judgment and order
dated 20.12.2013 passed by the High Court of Delhi at New Delhi in FAO (OS)
588 of 2013 and in FAO (OS) 590 of 2013. The questions raised in these
appeals being identical, the appeals are dealt with by this common judgment
and for the sake of convenience, the facts leading to the filing of FAO
(OS) 588 of 2013 are dealt with in detail.
2. Contract No.TNHP/2, Construction Package II-C for a contract
price of Rs.295.53 crores for executing the work of 4-laning and
strengthening of the existing 2 lanes sections between km 38 to km 115 on
National Highway-2 in Uttar Pradesh was awarded to the Respondent on
12.03.2001.
3. Clause 14.3 of “Instruction to Bidder” was as under:-
“All duties, taxes and other levies payable by the Contractor under the
contract, or for any other cause, as of the date 28 days prior to the
deadline for submission of bids, shall be included in the rates and prices
and the total Bid Price submitted by the bidder.”
The parties adopted FIDIC form of conditions of contract with some
changes which are called Conditions of Particular Application (“COPA”, for
short). Clauses in COPA in the present case are identical to those dealt
with by this Court in National Highways Authority of India Versus ITD
Cementation India Ltd.[1]. Clause 70.8 dealing with effect of “Subsequent
Legislation” was as under:-
“Clause 70.8: Subsequent Legislation
If, after the date 28 days prior to the closing date for submission of bids
for the Contract there are changes to any National or State Statute,
Ordinance, Decree or other Law or any regulation or by-law of any local or
other duly constituted authority or the introduction of any such State
Statute, Ordinance, Decree, Law, regulation or by-law in India or States of
India which causes additional or reduced cost to the Contractor, other than
under the preceding Sub-Clauses of this clauses in the execution of the
contract, such additional or reduced cost shall, after due consultation
with the Employer and the Contractor, be determined by the Engineer and
shall be added to or deducted from the Contract Price and the Engineer
shall notify the Contractor accordingly with a copy to the Employer.
Notwithstanding the foregoing, such additional or reduced cost shall not be
separately paid or credited if the same shall already have been taken into
account in the indexing of any inputs to the Price Adjustment Formulae in
accordance with the provisions of Sub-Clauses 70.1 to 70.7 of this Clause.”
4. Disputes having arisen between the parties, the matter was referred
to the Arbitral Tribunal. Two claims were raised by the respondent
namely:
“(i) Dispute No. 1
Compensation for additional cost on account of increase in Service Tax on
the Insurance Premium under the Insurance Policy for the Project.
(ii) Dispute No. 2
Compensation for additional cost on account of Service Tax on the Bank
Guarantee charges.”
5. It was submitted by the respondent-claimant that in terms of Clause
21.1 of General Conditions of contract, for the works awarded under the
contract, an insurance policy was required to be taken w.e.f. 1.4.2001
initially for a period to 13.09.2006 which was later extended to
30.09.2009. It was submitted that General Insurance
Policies including insurance for works were subject to levy of service
tax which would be collected by the Insurance Company along with premium
chargeable. There being revisions in the rate of service tax from 5% to
10.30%, over a period of time, according to the claimant service tax paid
in excess of 5% was reimbursible by the appellant under Clause 70.8 of
COPA. Similarly, in terms of the Clause 10.1 of COPA, the respondent-
claimant was required to furnish Bank Guarantee for due execution of the
contract by way of performance security. Service tax in relation to the
Bank Guarantee as collected by the Bank had risen from 5% to 10.30% during
the course of the contract and as such according to the respondent-claimant
it was entitled to be reimbursed by virtue of Clause 70.8 of COPA. The
Arbitral Tribunal by its unanimous award dated 28.2.2013 accepted the
aforesaid claims and directed that the respondent-claimant shall be paid
following sums in relation to dispute No.1:-
“6.1 The Claimant shall be paid by the Respondent an amount of Rs.
11,34,877/- on account of Service Tax paid by him at rates in excess of 5%
of the premium paid.
6.2 The Claimant shall also be paid by the Respondent a sum of Rs.
11,22,811 towards interest on the above amount for period upto the date of
this award i.e. 28.02.2013.
6.3 Post award interest shall be payable in addition, on the principal sum
awarded of Rs. 11,34,877/- at the rate of 12% per annum from 01.03.2013 to
the actual date of payment of amounts under pars 6.1 & 6.2 above. No post
award interest shall however be payable in case the above sums are payable
within 90 days of the date of award.”
Similarly the Arbitral Tribunal awarded to the respondent-claimant
following sums under dispute No. 2:-
“10.1 The Claimant shall be paid by the Respondent an amount of Rs.
63,58,368/- on account of additional cost incurred on the Bank Guarantees
furnished to the Respondent in terms of the Contract.
10.2 The Claimant shall also be paid by the Respondent a sum of Rs.
43,84,987/- towards interest on the above amount for period upto the date
of this award i.e. 28.02.2013.
10.3 Post award interest shall be payable in addition on the awarded sum of
Rs. 63,58,368/- at the rate of 12% per annum (simple) from the date of
award to the actual date of payment of the said sum. No post award interest
may, however, be paid in case the sums awarded under 10.1 and 10.2 above
are paid within 90 days of the date of the award.”
6. The award passed by the Arbitral Tribunal proceeds on the ground that
the additional costs as a result of revision in service tax which the
respondent-claimant was required to bear, were covered under Clause 70.8 of
COPA. It was observed that service tax was not an input to the indices used
in Prices Adjustment Formulae in Clause 70.3. It concluded as under:-
“The claim in question is for reimbursement of additional costs resulting
from change in Central Law which came into effect after the base date as
defined in Sub-Clause 70.8. In terms of the Sub-clause, such costs are not
payable separately if the same have already been taken into account in
indexing of the inputs in Price Adjustment Formulae under Sub-clause 70.3.
The Claimant has placed on record a letter dated 24.01.2008 from the
Economic Advisor, Ministry of Commerce and Industry, confirming that
Service Tax was not an input into indexing of Whole Sale Price Indices,
used in India.”
7. The award passed by the Arbitral Tribunal was challenged by the
appellant by filing OMP No.623 of 2013 under Section 34 of the Arbitration
and Conciliation Act, 1966 before the High Court of Delhi. By order dated
21.10.2013 Single Judge of the High Court dismissed said petition. In an
appeal arising therefrom i.e. in FAO(OS)588 of 2013, the Division Bench of
the High Court by its judgment and order dated 20.12.2013, which is
presently under challenge, affirmed the view taken by Single Judge and
dismissed the appeal.
8. The facts leading to the present appeal arising out of FAO(AS)590 of
2013 are more or less identical. In that matter identical claims were
raised on two counts but arising out of a different contract by the very
same claimant. The Arbitral Tribunal granted Rs.8,84,969/- in respect of
dispute no. 1 with interest @ 12% per annum under identical two heads as
found in the earlier case. Similarly, in respect of dispute no.2, the
Arbitral Tribunal awarded Rs.42,35,385/- with interest @ 12% per annum.
9. In NHAI v. ITD Cementation India Ltd.(Supra) impact of Clauses 70.1
to 70.7 on one hand and 70.8 of COPA was considered and the view taken by
the Arbitral Tribunal as affirmed by the High Court was accepted. In that
case impact as a result of increase in the rates of royalty and issue
whether the Arbitral Tribunal was right in observing that the case was
covered under Clause 70.8 of COPA were considered by this court. The view
taken by the Arbitral Tribunal was found to be consistent with the terms of
the contract and challenge at the instance of National Highways Authorities
of India was negated.
10. The fact that there had been revision in the rates of service tax
from time to time was not disputed by the appellant. Ms. Indu Malhotra,
learned Senior Counsel appearing for the appellants in both the matters,
however, submitted that only those claims which were constructional inputs
alone would be eligible to be covered under Clause 70 of COPA. In her
submission, the service tax on bank guarantee could have been avoided by
the claimant, if the bank guarantee was replaced by tendering cash and
that the facility of bank guarantee was optional and at the discretion of
the claimant. Similarly, money advances were given for the benefit of the
claimant and any cost associated with such benefit would not come within
the scope of Clause 70.8. Mr. Biswajit Das, learned Advocate appearing
for the respondent-claimant in both the appeals however, submitted that
the bank guarantees were required to be given under the contract itself and
such requirement was stipulated by the appellant primarily to reduce its
financial risk and to bind the claimant for its performance or
protecting the money advanced to the respondents. In his submission,
furnishing a performance bank guarantee @ 10% of the contract price was a
mandatory condition of the contract under Clauses 10.1 and 10.2 of COPA.
Though at some stage the option of performance bond was mentioned in COPA,
such option was withdrawn making performance security to be compulsorily in
the form of an unconditional bank guarantee. Such requirement being
directly referable to essential conditions and arising out of the terms of
the Contract, according to him the matter was definitely within the ambit
of Clause 70.8 of COPA.
11. Having considered rival submissions, we are of the view that the
assessment made by the Arbitral Tribunal in the instant case as affirmed by
the High Court was definitely within its jurisdiction. It has
consistently been laid down by this Court that construction of the terms
of a Contract is primarily for an Arbitrator or Arbitral Tribunal to
decide and unless the Arbitrator or Arbitral Tribunal construes the
contract in such a way that no fair minded or reasonable person could do,
no interference by Court is called for. Viewed thus, we do not see any
reason or justification to interfere in the matter. The view that the
increase in rates of service tax in respect of bank guarantee and insurance
premium is directly relatable to terms of the contract and performance
under the Contract is certainly a possible view.
12. In the circumstances, we do not find any merit in the present
appeals. Both the appeals are dismissed without any order as to costs.
…………………………….J
(Dipak Misra )
…………………………….J
(Uday Umesh Lalit)
New Delhi
April 18, 2016
-----------------------
[1]
[2] 2015(6) SCR 107
