Bombay High Court
Konkan Railway Corporation Ltd. vs Src Company Infra Private Limited on 14 November, 2025
Author: R.I. Chagla
Bench: R.I. Chagla
2025:BHC-OS:20965
Jt-CARBP-641&646-2021.doc
Sharayu Khot.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO. 646 OF 2021
WITH
INTERIM APPLICATION (L) NO. 4926 OF 2020
IN
COMMERCIAL ARBITRATION PETITION NO. 646 OF 2021
ALONG WITH
COMMERCIAL ARBITRATION PETITION NO. 641 OF 2021
WITH
INTERIM APPLICATION (L) NO. 4949 OF 2020
IN
COMMERCIAL ARBITRATION PETITION NO. 641 OF 2021
Konkan Railway Corporation Ltd. ...Petitioner
Versus
M/s. SRC Company Infra Private Ltd. ...Respondent
----------
Mr. Simil Purohit, Senior Counsel a/w Mr. Subit Chakrabarti, Ms.
Srushti Thorat and Ms. Aashka Vora i/b Vidhii Partners for the
Petitioner.
Mr. Anil Anturkar, Senior Counsel a/w Mr. Kunal Kumbhat, Mr.
Karthik Pillai, Ms. Kashish N. Chelani, Mr. Atharva Date & Mr.
Harshvardhan Suravanshi i/b Ms. Sunanda R. Kumbhat for the
SHARAYU
PANDURANG
KHOT
Respondent.
----------
Digitally
signed by
SHARAYU
PANDURANG
KHOT
CORAM : R.I. CHAGLA J.
Date:
2025.11.14
15:56:14
+0530
Reserved on : 12 June 2025
Pronounced on : 14 November 2025
1
::: Uploaded on - 14/11/2025 ::: Downloaded on - 14/11/2025 22:50:47 :::
Jt-CARBP-641&646-2021.doc
JUDGMENT :
1. By the Commercial Arbitration Petition No. 646 of 2021,
the Petitioner- Respondent in the arbitral proceedings has impugned
the majority Award dated 22nd May 2020 ("the said Award") under
Section 34 of the Arbitration and Conciliation Act, 1996 ("the
Arbitration Act").
2. In the companion Commercial Arbitration Petition No.
641 of 2021, an identical Award has been challenged. In view of the
parties having referred to the pleadings and records of the
Commercial Arbitration Petition No. 646 of 2021 during the oral
arguments and the written submissions filed therein, the facts in that
Arbitration Petition is being adverted to.
3. The brief background of facts are as under:-
(i) The National Thermal Power Corporation ("NTPC")
had proposed setting up the Super Thermal Power
Plan ("STPP") in Tehsil Gadarwara, District
Narsinghpur, Madhya Pradesh. Accordingly, NTPC
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invited tenders for the work of "DPR & Detailed
Engineering, Project Management and Construction
of Coal Transportation System including Associated
Electricals Package for Gadarwara Super Thermal
Power Plant, Stage-I".
(ii) NTPC issued a Letter of Award on 25th June 2014
appointing the Petitioner- Respondent as the Project
Management Consultant / Project Executing Agency
for the work.
(iii) The Petitioner- Respondent in turn published a Notice
dated 23rd November 2016 inviting tenders for the
subject work described in the Notice at (Exh.B to the
Petition).
(iv) Technical bids of the bidders were opened on 26th
December 2016.
(v) The financial bids of the bidders were opened on 31st
March 2017.
(vi) The Respondent-Claimant was found to be the 'L1'
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bidder.
(vii) The Petitioner-Respondent issued a Letter of
Acceptance ("LoA") on 16th May 2017 in favour of
the Respondent-Claimant in respect of the subject
work for the total cost of Rs. 122,32,98,483/- with
the completion period of 15 months (which period
was subsequently duly extended from time to time),
which was countersigned and accepted
unconditionally by the Respondent-Claimant.
(viii) The Respondent-Claimant commenced the subject
work in July 2017.
(ix) The Petitioner-Respondent and the Respondent-
Claimant executed Contract Agreement on 5th
December 2017.
(x) The Collector's office (Mineral Branch), Madhya
Pradesh addressed a demand letter dated 27th
December 2018 directing the Respondent-Claimant to
make payment of Royalty charges at the rate of Rs.
100/- per cubic meter (cum) for the earth used in
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making the embankment for the subject work
(aggregating approximately Rs. 22,00,00,000/-).
(xi) The Respondent-Claimant issued a Notice invoking
Arbitration on 13th June 2019.
(xii) The Three Members Arbitral Tribunal comprising Mr.
A.K. Mittal (Presiding Arbitrator), Mr. Atul Mohan
(Co-Arbitrator) and Mr. P.S. Rao (Co-Arbitrator),
entered into reference on 20th August 2019.
(xiii) The Arbitral Tribunal passed the said Award. The
Presiding Arbitrator passed a separate Dissent Note
on 22nd May 2020.
(xiv) By the said Award, the Arbitral Tribunal held that the
liability to pay royalty on ordinary earth used in the
subject work lies with the Petitioner-Respondent and
directed the Petitioner-Respondent to make payment
of the same. Further, the Arbitral Tribunal directed
the Petitioner-Respondent to modify / amend the
Contract with the Respondent-Claimant to that extent
by invoking Section 26 of the Specific Relief Act,
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1963 and Section 20 of the Indian Contract Act, 1872
so as to purportedly correctly reflect the consensus ad
idem (between the parties). By the Dissent Note, the
Presiding Arbitrator directed the Respondent-
Claimant to make payment of the royalty as per the
extant Rules on ordinary earth used in the subject
work and submit the receipts thereof to the
Petitioner-Respondent to facilitate preparation of the
final bill.
4. Mr. Simil Purohit, the learned Senior Counsel for the
Petitioner has submitted that in determining the limited issue, which
arose before the Arbitral Tribunal as to whether the royalty levied by
the State Government of Madhya Pradesh towards earthwork in filing
in embankment used in the subject work was payable by the
Petitioner-Respondent or the Respondent-Claimant in the Arbitration,
the terms of Contract between the parties are to be construed by the
Tribunal. The Tribunal being a creature of Contract cannot traverse
beyond and is bound to act within the terms of the Contract. He has
placed reliance upon the judgment of the Supreme Court in Union of
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India Vs. Bharat Enterprise1.
5. Mr. Purohit has submitted that in the present case the
terms of the Contract between the parties unequivocally confirm on
its plain reading that the Royalty payable towards earthwork in
filling in embankment used in the subject work was to be borne by
the Respondent-Claimant.
6. Mr. Purohit has referred to the relevant clause of the
Contract between the parties. He has referred to Clause 10.1 of the
Instructions to Bidders (part of the Tender documents) under the
heading 'Contents of Bidding Documents'. He has referred to Clause
14.2 of the Instructions to Bidders under the heading 'Preparation of
Bid' and sub-heading 'Bid Prices', which includes royalty and other
levies payable by the Contractors under the Contract. He has also
referred to Clause 22.4 of the Instructions to Bidders under the
heading 'Submission of Bids', which provides that offers shall not be
qualified with any conditions and that conditional offers shall be
summarily rejected without giving any reasons. He has referred to
Clause 37 of the Konkan Railways Standard General Conditions of
1 2023 SCC OnLine SC 369
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Contract 2014 ("GCC"), which provides rates for items of works and
which includes all fees, duties, royalties, etc. for which the Contractor
may become liable or may be put to under any provision of law for
the purposes of or in connection with the execution of the Contract.
He has referred to Clause 41 of the GCC, which provides for
modification of Contract to be in writing.
7. Mr. Purohit has referred to the definition of "Approval or
Approved" in Clause 1.1 of the Special Conditions of Contract
("SCC") - Part A, which means approval in writing of the Competent
Authority. He has referred to Clause 1.11 of the SCC - Part A which
defines Contract to include the Agreement or Letter of Acceptance
("LoA"), the accepted schedule of items, rates and quantities, the
GCC, along with latest corrections slips, the SCC Part-A and Part-B,
the drawings, the specifications and special specifications if any,
tender forms, instructions to tenderers, notice inviting tender,
Addendum(s), Corrigendum(s) and other conditions / specifications
of Tender documents.
8. Mr. Purohit has also referred to Clause 5 of the SCC -
Part A, which provides for royalties and patent rights and that the
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Contractor shall defray the cost of all royalties, fees. It is further
provided that in case of any breach (whether willfully or
inadvertently) by the Contractor of this provision, the Contractor
shall indemnify the Konkan Railway Corporation Limited ("KRCL")
against all claims, proceedings, damages, costs, charges, pecuniary
loss and liabilities and which they or any of them sustain, incur or be
put by reason or in consequence directly or indirectly for any such
breach, and against payment of any royalties, damages and other
type of payment in which the KRCL may have to make / pay /
reimburse to any person for any machine, instruments, process,
articles, matters, or thing constructed, manufactured, supplied or
delivered by the Contractor to his order under this Contract. He has
also referred to Clause 55.4 of the SCC - Part A, which provides for
the Contractor to pay all storage, royalty and other incidental charges
that may be involved.
9. Mr. Purohit has then referred to Clause 57 of SCC - Part
A, which provides for payment of royalty charges and it is provided
therein that all payments of royalty charges, etc. to the State
Government in connection with extraction and supply of rubble stone
/ ballast / sand earth have to be borne and paid by the tenderer /
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Contractor. The Corporation is entitled to deduct from the
tenderers / Contractors and keep in deposit such amount equal to the
proportionate royalty charges from each on account bills and the
same will be released as and when the tenderer / Contractor submits
a receipt / documents / Clearance Certificate that royalty charges
have been paid by the tenderers / Contractors relating to the
Contract (Clause 57.2 of SCC - Part A). He has also referred to
Clause 57.3 of SCC - Part A, which provides that the tenderer /
Contractor will be required to obtain a final Royalty Charge,
Clearance Certificate from the concerned State / Revenue Authorities
/ Collector and produce the same to the Engineer-in-charge, after
completion of supply, but before the release of final bill. If in any
case, the tenderer / Contractor fails to produce the Clearance
Certificate, the Royalty amount equal to the amount of unpaid
Royalty Charges as intimated by the Revenue Authorities / Collector
or as calculated on the basis of the relevant rules, such payment of
royalty charges applicable to the area will be withheld by KRCL.
10. Mr. Purohit has referred to the scope of work under
Clause 1.2 of the SCC - Part B which includes earthwork in cutting
and embankment, construction of minor bridges / RUB and
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protective work. The earthwork in embankment is with Contractor's
own earth. This is also provided in Clause 6.1 of the SCC Part B,
under the heading "Specifications for Earthwork", and Formation
works. He has also referred to Clause 6.4 of the SCC - Part B, which
similarly provides for earthwork in embankments with Contractors
earth and supplying and spreading of blanketing material in addition
to the above, the rate will be inclusive of the cost of acquisition of the
earth or blanketing material by purchase of land or payment of
royalty charges or in any other manner, transportation and all other
incidental works, complete, for bringing the earth or blanketing
material from outside the Railway Land. He has also to refer to Item
1 of Schedule B titled 'Filling Items' of Schedule of Items, Rates and
Quantities, which include earthwork in filling in embankment. The
earth excavated from outside railway boundary entirely arranged by
the Contractor at his own cost and special conditions of Contract
including inter alias royalty. The rate also includes royalty.
11. Mr. Purohit has referred to the Certificate of
Familiarisation at Appendix 18 of the Contract that was duly signed
and submitted by the Respondent-Claimant, which reads that the
Respondent-Claimant has declared and certified that it has fully
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familiarised themselves with all aspects of construction features
including all local taxes, royalties, etc. It is further mentioned that
the Respondent-Claimant keeps it fully informed with the provisions
of the Tender documents and has quoted the percentage rate by
taking into account all the factors given above and elsewhere in the
Tender document.
12. Mr. Purohit has also referred to Clauses 2 and 3 of the
LoA, which provides for the total Contract value and the Contract to
be governed by GCC. He has also referred to the 3rd unnumbered
recital in the Contract Agreement, which provides the Contractor has
agreed and confirmed his unconditional acceptance to the
Corporation's said Letter of Acceptance. Further, it is provided in
unnumbered Clauses of the Contract Agreement that the Contract
will observe and fulfill and keep all the conditions contained (which
shall be deemed and taken as to be integral part of the agreement).
The Corporation will pay at the rates given for various items in the
schedule of items, rates and quantities and percentage rate tendered
by Contractor and as accepted by the Corporation as set forth in
Annexure - II, Schedule of Items, Rates and Quantities (bill of
Quantities). It is further agreed that all the provisions of the said
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conditions, specifications have been carefully read and understood by
the Contractor and bills of quantities shall be binding upon the
Contractor and upon the Corporation and shall be read as part of
these presence. The entire document including Annexures annexed to
the Contract Agreement shall form and be construed as part of the
Contact Agreement.
13. Mr. Purohit has submitted that upon reading of the
aforementioned Clauses, including the confirmation given by the
Respondent-Claimant of adhering to the terms of the Contract and
the tender conditions, shows that the Respondent-Claimant has
consciously and unequivocally accepted the terms of the Contract and
is bound by the same.
14. Mr. Purohit has submitted that the Arbitral Tribunal has
arrived at the findings and observations while construing the terms of
the Contract. He has submitted that the finding of the Arbitral
Tribunal is that the royalty payments are to be borne by the
Respondent-Claimant and it remains undisputed that the terms of the
Contract envisage that all royalties of materials used in the project
are to be borne by the Respondent-Claimant. It is further held by the
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Arbitral Tribunal that both the parties have admitted that the
Respondent-Claimant had not specified in its quote that it did not
include royalty in its quoted rates. Both the parties had admitted that
the Contract provided for costs of royalty to be included in the
quoted and accepted rates. There is a finding that when the
Respondent-Claimant did not include royalty payable on earth used
in filing in embankment in its rate, it should have made a mention
that its rates for earthwork are excluding the royalty costs. No such
mention has been made by the Respondent-Claimant. It was only
after starting the work that the Respondent-Claimant had considered
the NIL royalty on ordinary earth. There are further findings of the
Arbitral Tribunal that the contention of the Petitioner-Respondent
that the Contract puts burden of all royalty payments on the
Respondent-Claimant is correct. The Respondent-Claimant has not
disputed this provision per se. The Respondent-Claimant admits its
responsibility to pay royalty on the material used for the project. The
Arbitral Tribunal agreed with the Petitioner-Respondent's arguments
that there is no scope available to interpret the clauses of the
Contract.
15. Mr. Purohit has submitted that the aforementioned
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findings of the Arbitral Tribunal show that the Arbitral Tribunal
affirms the terms of the Contract, which unequivocally holds that the
Respondent-Claimant is to bear the royalty payable towards
earthwork in filing in embankment as per the terms of the Contract
between the parties. Despite the same, the said Award seeks to make
the Petitioner-Respondent liable to pay such royalty amount.
16. Mr. Purohit has submitted that although it is the case of
the Respondent-Claimant that it did not factor in the royalty payable
towards the earth used in filing in embankment while submitting its
bid, the same cannot be a ground of the Respondent-Claimant to
claim such royalty amount from the Petitioner-Respondent. He has
submitted that the defence raised by the Respondent-Claimant is that
it considered the royalty payable towards the earth used in filing in
embankment as NIL. This would be at the risk and costs of the
Respondent-Claimant itself. He has submitted that the Arbitral
Tribunal has erroneously held that although there was no ambiguity
on the subject of the payment of royalty, somehow, the Respondent-
Claimant had missed / excluded the royalty while working out the
costs of earthwork, due to ignorance of law. He has submitted that
ignorance of law is not a valid defence as per the settled law.
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17. Mr. Purohit has submitted that it is the contention of the
Respondent-Claimant that the Collector's office (Mineral Branch),
Madhya Pradesh vide its Demand Letter dated 27th December 2018
made a demand for the royalty charges at the rate of Rs. 100/- per
cubic meter (cum) for the earth used in making the embankment for
the subject work aggregating to approximately Rs. 22,00,00,000/-. It
is contended that this Demand Letter imposes liability for the first
time, and that under an earlier Circular issued by the Government of
Madhya Pradesh, Mining Department dated 18th August 2009
("2009 Circular"), no royalty was payable on earth having a CBR
value less than 12. He has submitted that the contention of the
Respondent-Claimant on the 2009 Circular is untenable. It has been
observed by the Arbitral Tribunal that all the relevant Circulars,
notifications, directives, etc. were issued prior to the issuance of the
Notice Inviting Tender dated 23rd November 2016 and the opening
of the technical bids on 26th December 2016. He has submitted that
on reading of the 2009 Circular, it is evident that the same does not
make any kind of categorical assertions that no royalty is payable on
the earth used in filing in embankment having a CBR value less than
12. He has submitted that neither the said Demand Letter nor the
relevant Act / Rules have been challenged by the Respondent-
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Claimant.
18. Mr. Purohit has submitted that in order for the
Respondent-Claimant to succeed, the Arbitral Tribunal would have to
interpret the 2009 Circular and arrive at a definitive conclusion that
no royalty was payable on the earth used in filing in embankment
having a CBR value less than 12, and that the royalty demand under
the Demand Letter dated 27th December 2018 was a subsequent
levy, which was not in force prior thereto. He has submitted that
unless such a finding is rendered, the Respondent-Claimant cannot
succeed in its claim.
19. Mr. Purohit has submitted that the Arbitral Tribunal has
refrained from deciding the effect and the consequence of the 2009
Circular, since the Arbitral Tribunal felt that this issue remained
outside the purview of the Arbitral Tribunal and that the limited issue
before the Arbitral Tribunal was as to which party is required to pay
royalty.
20. Mr. Purohit has submitted that the only basis for the
Respondent-Claimant to seek payment of royalty on the earth used in
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filing in embankment having a CBR value less than 12 is on its
'understanding'. The same has not been decided by the Arbitral
Tribunal and hence, the question of the Petitioner-Respondent to pay
the amount of royalty does not arise.
21. Mr. Purohit has submitted that the parties are bound by
the terms of Contract as agreed, and any mistake of law does not
permit any party to avoid the consequences of a Contract.
22. Mr. Purohit has submitted that the Arbitral Tribunal has
relied upon the minutes of the meeting of the Tender Committee
constituted by the Petitioner-Respondent. He has submitted that the
Tender Committee is an in-house advisory body to advice the
Petitioner-Respondent on the financial and technical aspects of the
matter. He has submitted that being only an advisory body, its
recommendations do not bind the Petitioner-Respondent. The
question of the same being binding on the parties to the final
Contract does not arise.
23. Mr. Purohit has submitted that the Tender Committee
has evaluated the various bids submitted by the tenderers. The
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minutes of the meeting of the Tender Committee is a confidential
document. It is a part of the internal decision making process of the
Petitioner-Respondent. The minutes of the meeting of the Tender
Committee was never communicated to the Respondent-Claimant.
Thus, the minutes are not available in the public domain and were
only produced for the first time during the course of the arbitral
proceedings on the request of the Respondent-Claimant and on the
specific directions of the Arbitral Tribunal.
24. Mr. Purohit has submitted that it is well settled that inter
departmental communications / file notings cannot be relied upon on
the basis to claim any right, as the same have no legal sanctity. He
has placed reliance upon the judgments of the Supreme Court in
Delhi Development Authority Vs. Hello Home Education Society 2,
Mahadeo Vs. Sovan Devi3 and Union of India Vs. Airwide Express
Cargo4.
25. Mr. Purohit has submitted that the Arbitral Tribunal
could not have relied upon the minutes of the meeting of the Tender
2 (2024) 3 SCC 148
3 (2023) 10 SCC 807
4 2015 SCC OnLine Bom 4917
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Committee, as the basis of its Award. Further, the Arbitral Tribunal
erred in holding that the minutes of the meeting of the Tender
Committee reflected the intention of the parties. He has submitted
that the minutes of meeting of the Tender Committee was not a
bilateral document, but an internal evaluation of the bids submitted
by the tenderers.
26. Mr. Purohit has submitted that the Arbitral Tribunal
based on the minutes of meeting of the Tender Committee proceeded
to hold that the Contract entered into between the parties did not
incorporate that the royalty towards earthwork in filing in
embankment was to be paid by the Petitioner-Respondent, as the
Respondent-Claimant had not considered the same while submitting
its bid.
27. Mr. Purohit has referred to the findings of the Arbitral
Tribunal that the Petitioner-Respondent having decided to accept the
rates quoted on lower side, has failed to incorporate in the said
Contract for the corresponding basis for accepting the earthwork in
filing in embankment. He has submitted that the Arbitral Tribunal is
duty bound to ascertain whether the intention of the parties are fully
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covered by the Contract, particularly when the Petitioner-Respondent
is the author of the Contract. It is necessary to ensure that the
intention of the parties before Award of the Contract are transformed
into writing. He has submitted that all the above findings of the
Arbitral Tribunal are contrary to the stated case of the Respondent-
Claimant.
28. Mr. Purohit has submitted that the Respondent-Claimant
has neither in its prayers sought rectification of the Contract under
Section 26 of the Specific Relief Act, 1963 nor has the Respondent-
Claimant alleged or made out any case for contra proferentem. He
has submitted that the Arbitral Tribunal assumed suo motu powers
and awarded a claim for rectification of the Contract. He has
submitted that it is trite law that reliefs not specifically prayed for by
a party cannot be granted. He has placed reliance upon Mrs. Akella
Lalitha Vs. Sri Konda Hanumantha Rao5 in this context.
29. Mr. Purohit has submitted that the Arbitral Tribunal by
finding that non execution of a formal agreement / amendment to
the said Contract to exclude the royalty payable towards earthwork
5 2022 SCC OnLine SC 928
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in filing in embankment cannot be an impediment to honour the
intention of the parties at the time of tender evaluation. This is by
overlooking Clause 41 of the GCC, which expressly provides that any
modification(s) to the Contract were to be in writing signed by both
parties and no work was to proceed under such modification until
this has been done.
30. Mr. Purohit has submitted that finding of the Arbitral
Tribunal relying upon Clause 57.2 of the SCC - Part A is also
erroneous. He has submitted that assuming whilst specifically
denying that the Petitioner-Claimant has failed to ascertain the
royalty payable, the said clause still does not make the Petitioner-
Claimant liable for payment of royalty towards earthwork in filing in
embankment. The said Clause also makes it clear that it is the
Respondent-Claimant that has to make payment of all royalty
obligations. He has submitted that the findings of the Arbitral
Tribunal that the Petitioner-Respondent did not respond to letter
dated 4th June 2018 addressed by the Respondent-Claimant is of no
consequence. He has submitted that in any event, the obligation to
perform the Contract was on the Respondent-Claimant.
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31. Mr. Purohit has submitted that for all these reasons, it is
prayed that the present Arbitration Petition under Section 34 of the
Arbitration Act be allowed and the said Award be set aside.
32. Mr. Anturkar, the learned Senior Counsel appearing for
the Respondent-Claimant has submitted that the crucial issue
involved in the matter is as to whether the approach of the
Arbitrators in not limiting themselves to the literal interpretation of
the terms and conditions of the Contract, but instead making a bona
fide and sincere effort to ascertain the real intention of the parties to
find out as to whether the parties had reached a consensus on the
disputed position, cannot be considered so erroneous, as to warrant
interference under Section 34 of the Arbitration Act.
33. Mr. Anturkar has submitted that the majority Arbitrators
in Clause 15.6.2 of the said Award have clearly articulated that they
had chosen to proceed on the basis of consensus, i.e. to discover the
real intention of the parties, rather than by a literal interpretation of
the Contract. He has submitted that notably, even the minority view,
as expressed in paragraphs 2.9 and 2.10, demonstrates that the
parties were in consensus that no royalty was payable on ordinary
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earth. He has placed reliance upon the judgments of the Supreme
Court as well as this Court in support of his contention that the
manner in which the Arbitrators chose to interpret the terms and
conditions of the Contract to demonstrate real intentions of the
parties is not to be interfered with. These judgments include Konkan
Railway Corporation Limited Vs. Chenab Bridge Project Undertaking 6
at paragraphs 19, 20 and 27; McDermott International Inc. Vs. Burn
Standard Co. Ltd.7 at paragraphs 112 and 113 and Ivory Properties &
Hotels Private Limited Vs. Vasantben Ramniklal Bhuta 8 at paragraph
43. He has submitted that all these judgments have consistently held
that the interpretation of the terms and conditions of the Contract by
the Arbitrator and the manner, in which interpretations are made,
cannot be faulted and cannot be substituted, even if another
interpretation is possible.
34. Mr. Anturkar has submitted that the reliance placed by
the Petitioner-Respondent upon Clause 41 of the said Contract is
misconceived. Clause 41 applies only when there is an explicit
provision in the Contract, of which modification has been sought and
6 (2023)9 SCC 85
7 (2006)11 SCC 181
8 2024 SCC OnLine Bom 1900
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which is required to be in writing. He has submitted that Clause 41
would not apply when no explicit provision exists in the Contract. He
has submitted that if the intention of the parties to a Contract is
established, then there would be no need to modify the provision of
the Contract, because no explicit provision requires modification. The
parties are behaving according to their real intentions. He has
submitted that the latter portion of Clause 41 expressly allows for
such verbal arrangements - abandoning, modifying, extending,
reducing, or supplementing the Contract. He has submitted that if the
first part of Clause 41 is given effect to, i.e. no work shall proceed
under such modification until this has been done, this would result in
the stoppage of work, which under no such circumstances, should be
resorted to, because that would cause loss to Petitioner-Respondent
and stop the ongoing work. He has submitted that the Arbitral
Tribunal has determined the real intention of the parties and not
modified the terms of the Contract, as contended by the Petitioner-
Respondent.
35. Mr. Anturkar has submitted that no fault can be found
with the approach of the Arbitrators in the present case in not given
importance only to the actual verbatim of the Contract, but by trying
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to identify what was the real mutual intention of the parties and
what was the consensus ad idem of both the parties. He has
submitted that this is the correct approach of adjudication, either by
the Court or by the Arbitrator.
36. Mr. Anturkar has submitted that the reliance placed by
the Petitioner-Respondent upon the judgments of the Supreme Court
in Union of India Vs. Airwide Express Cargo (supra) and Mahadeo
Vs. Sovan Devi (supra) is wholly misplaced. These judgments are
applicable only to those cases, wherein it is contended that a certain
decision has been taken in the noting which are internal in nature
and that decision reflected in the noting is sought to be enforced. It
was held in the context of inter-departmental communications that
they cannot be used to claim legal rights and merely writing
something in a file does not constitute an official order.
37. Mr. Anturkar has submitted that it is not the
Respondent-Claimant's contention that any "decision" has been taken
in the internal noting of the Tender Committee (minutes of Tender
Committee) and is relied upon not to contend that there is any such
decision taken there, but for the purpose to bring the real consensus
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ad idem between the parties and the real and mutual intention of the
parties vis-a-vis the issue viz. whether both the parties were under
the mutual impression, factually that no royalty is payable on the
ordinary earth and in such circumstances, whose responsibility it is to
pay the royalty on ordinary earth.
38. Mr. Anturkar has submitted that the Supreme Court in
Subodh Kumar Singh Rathour Vs. Chief Executive Officer 9 has held
that internal deliberations or file notings that formed part of decision
making process can certainly be looked into by the Court for the
purpose of judicial review to satisfy itself of the impeccability of the
said decision.
39. Mr. Anturkar has submitted that the Petitioner-
Respondent and the Respondent-Claimant at all stages, were at
consensus ad idem that no royalty is payable on ordinary earth. He
has submitted that as per Clause 57.2 of the said Contract, it was the
obligation of the Petitioner-Respondent to confirm the percentage of
royalty charges to be recovered for supply of minor minerals in
consultation with the State Government. He has submitted that the
9 2024 SCC OnLine SC 1682
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parties never intended for the Contractor to pay royalty on the
ordinary earth. These circumstances show that it was the consensus
ad idem between the parties, which was given effect to by the
Arbitrators and cannot be faulted under Section 34 of the Arbitration
Act.
40. Mr. Anturkar has submitted that it is an admitted
position that Schedule B of the Tender pertaining to the earthwork in
filing in embankment did not include charges for royalty on ordinary
earth, which submission is taken by the Respondent-Claimant in
paragraph 18 of the claim. He has submitted that the Respondent-
Claimant had also made specific averment in their Statement of
Claim at paragraph 3.4 that during the pre-award negotiated meeting
with the Tender Committee, the fact of non-consideration of royalty
on ordinary earth in the bid has been conveyed. There is no specific
denial as far as paragraph 3.4 is concerned and general denial is
resorted to.
41. Mr. Anturkar has submitted that it was not only on the
Tender Committee's recommendations, but even the Directors
Committee on 15th May 2017 reviewed the Tender Committee
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minutes, deliberated, and agreed with the Tender Committee's
recommendations to accept the financial bid offer of the lowest
bidder. Tender Committee's recommendations, which were reviewed
and agreed upon by the Directors Committee have been accepted as
recommended by the Chairman and Managing Director on 15th May
2017. He has submitted that on receipt of approval from the
Chairman and Managing Director, the draft Letter of Acceptance was
prepared as per the recommendations of the Tender Committee
(financial bid) which is evident from the noting dated 16th May
2017. He has submitted that at all stages, namely, at the Tender
Committee, the Directors Committee and the Managing Directors
level everyone was under the impression that no royalties were
payable on ordinary earth. It was in accordance with such consensus
that the draft Letter of Acceptance was prepared as per the Tender
Committee recommendations and which is deemed to be an integral
part of the Agreement.
42. Mr. Anturkar has submitted that the minutes of the
Tender Committee which show that no royalty was payable on
ordinary earth is not based on the Government Circular dated 18th
August 2009, but also on account of confirmation from WCR /
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Jabalpur vide email dated 29th April 2017 that no royalty is payable
on ordinary earth in Madhya Pradesh State. This was also the
impression carried by the Petitioner-Respondent.
43. Mr. Anturkar has submitted that the Arbitration Award
cannot be set aside on the mere possibility of an alternative view of
the facts or interpretation of the Contract. He has placed reliance
upon the judgment of the Supreme Court in Konkan Railway
Corporation Limited Vs. Chenab Bridge Project Undertaking (supra)
at paragraph 19 in this context.
44. Mr. Anturkar has submitted that it is settled law that
contravention of substantial law of India would not sound the death-
knell for an Arbitral Award. He has in this context relied upon the
judgment in Ivory Properties & Hotels Private Limited Vs. Vasantben
Ramniklal Bhuta (supra) at paragraph 43. He has also placed reliance
upon the judgment of the Supreme Court in McDermott International
Inc. Vs. Burn Standard Co. Ltd. (supra) at paragraphs 112 and 113
and 115, 116. The Supreme Court has held that construction of the
Contract is within the jurisdiction of the Arbitrator and
correspondence exchanged between the parties are required to be
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taken into consideration for the purpose of construction of the
Contract. Interpretation of a Contract is a matter for the Arbitrator to
determine, even if it gives rise to the determination of a question of
law. He has also placed reliance upon MMTC Limited Vs. Vedanta
Limited10 in this context.
45. Mr. Anturkar has submitted that it is now not open for
the Petitioner-Respondent to argue that the Arbitrators should not
have called for the documents before the formation of the Contract,
viz. documents like the minutes of the Tender Committee, the
minutes of the Directors Committee, the decision taken by the
Managing Director, etc. He has submitted that the Arbitrator did this
on the application made by the Contractor as seen from paragraph
5.2.2 of the said Award. The said application was not opposed. It was
at the time of making of the application for the Petitioner-
Respondent to contend that the Arbitrators cannot go beyond the ad
verbum of the Contract.
46. Mr. Anturkar has submitted that reliance upon the
grounds in the Petition where it is alleged that the Arbitrators have
10 (2019)4 SCC 163
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exceeded their authority is impermissible in the light of Section 4 and
Section 16(3) of the Arbitration Act and the judgment given in
Narayan Prasad Lohia Vs. Nikunj Kumar Lohia & Ors. 11 at paragraphs
15 and 16.
47. Mr. Anturkar has submitted that a mere erroneous
application of law by itself is not a ground to set aside the Award. He
has placed reliance upon the judgment of the Supreme Court in OPG
Power Generation Private Limited Vs. Enexio Power Cooling
Solutions India Private Limited12 at paragraph 45. He has submitted
that on a careful reading of the entire Award, coupled with the
documents relied upon, along with the underlying reasons, factual or
legal that form the basis of the Award is discernible or intelligible,
the same does not exhibit any perversity, and the Court need not set
aside the Award in exercising the power under Section 34 of the
Arbitration Act.
48. Mr. Anturkar has submitted that the Petitioner has at the
stage of Rejoinder erroneously submitted that the tender quoted rates
11 (2002) 3 SCC 572
12 2024 SCC OnLine SC 2600
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and the quotations of all the other Contractors included royalty on
ordinary earth. This submission is without any pleading to that effect
either before the Arbitral Tribunal or in the Arbitration Petition filed
before this Court. He has submitted that in any event, the submission
on behalf of the Petitioner-Respondent is entirely incorrect and
contrary to the documents on record.
49. Mr. Anturkar has submitted that both the Petitioner-
Respondent and NTPC Limited being Government owned
undertakings are duty bound to act fairly and inspite of which, they
have sought recovery of royalty charges with complete knowledge
that the quoted rates by the Respondent-Claimant did not include
royalty on ordinary earth. Such action on the part of the Petitioner-
Respondent and NTPC Limited is unconscionable.
50. Mr. Anturkar has submitted that the contention of the
Petitioner-Respondent that Arbitrators have traversed beyond the
scope of reference and modified / rectified the Contract is factually
incorrect, as the operative part of the Award in Clause 20 directs the
Respondent to make the payment of royalty for ordinary earth and
merely provides that "the Respondent may modify / amend the
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Contract with the Claimant to this extent so as to correctly reflect the
consensus ad idem, if need be". He has submitted that this is merely
an option provided by the Arbitral Tribunal and no directions are
passed either rectifying or modifying the Contract.
51. Mr. Anturkar has accordingly submitted that the present
Arbitration Petition be dismissed, as not raising any valid ground of
challenge under Section 34 of the Arbitration Act.
52. Having considered the submissions, the limited issue
which fell for determination before the Arbitral Tribunal was whether
the royalty levied by the State Government of Madhya Pradesh
towards earthwork in filing in embankment used in the said work
was payable by the Petitioner-Respondent or the Respondent-
Claimant. It was therefore, necessary for the Arbitral Tribunal to
determine this issue in consonance with the terms of the Contract
between the Petitioner-Respondent and the Respondent-Claimant. It
is well settled that the Arbitral Tribunal being a creature of Contract
cannot traverse beyond and is bound by the Contract. This has been
held in the judgment relied upon by the Petitioner-Respondent viz.
Union of India Vs. Bharat Enterprise (supra).
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53. The Arbitral Tribunal has in the said Award accepted the
literal interpretation of the Contract, viz. that royalty payments are to
be borne by the Respondent-Claimant. In so doing, it was not
competent for the Arbitral Tribunal to delve into "real intention" of
the parties. For the Arbitral Tribunal to examine the "real intention"
of the parties, it would first need to hold that the terms of the
Contract are ambiguous or vague. This is not the case of the
Respondent-Claimant as can be seen from the pleadings and/or
issues framed and there is no finding on this aspect rendered. The
Petitioner-Respondent and the Respondent-Claimant are ad idem
that on a plain reading of the Contract, it was the Respondent-
Claimant's liability to pay royalty. The Arbitral Tribunal by
disregarding the plain terms of the Contract, which are clear and
unambiguous and inferring a different intention from that
contemplated by the terms of the Contract has committed a patent
illegality.
54. The reliance placed by the Respondent-Claimant upon
the judgments, namely Konkan Railway Corporation Limited Vs.
Chenab Bridge Project Undertaking (supra), McDermott International
Inc. (supra) and Ivory Properties & Hotels Private Limited (supra) in
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support of their contention that merely because the Court would
have interpreted the Contract differently interference with the Award
is not warranted, is misplaced.
55. The above contention of the Respondent-Claimant is
misconceived as the present case is not one involving two competing
interpretations of the Contract. Here all the parties concerned
including the majority Arbitrators, the dissenting Arbitrator,
Respondent-Claimant and the Petitioner-Respondent have accepted
that the Contract requires the Respondent-Claimant to bear the
royalty liability. The ground of challenge raised in the Arbitration
Petition is not to seek a new and different interpretation from that
arrived at by the Arbitrators, but to point out that the final conclusion
of the majority Arbitrators contradict their own interpretation of the
Contract. The majority Arbitrators having first held that the
Respondent-Claimant must pay royalty as per the Contract, have
thereafter rendered an Award that shifts the burden onto the
Petitioner-Respondent. This is not a permissible cause of action and
renders the Award perverse apart from being patently illegal.
56. The reliance placed by the majority Arbitrators on the
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minutes of the meeting of the Tender Committee, is misplaced. It is
settled law that inter-departmental communications / file notings
have no legal sanctity and/or do not create any enforceable rights.
The judgment relied upon by the Petitioner-Respondent, namely
Mahadeo Vs. Sovan Devi (supra) is apposite. It has been held that
these inter-departmental communications are at best preparatory
steps or expressions of tentative views. Unless notings culminate in a
final decision, they cannot be relied upon as a basis for any legal
right or liability. It has also been held by this Court in Union of India
Vs. Airwide Express Cargo (supra), relied upon by the Petitioner-
Respondent that inter-departmental notings have no legal effect
unless communicated to the other party. This Court set aside the
Arbitral Award, which relied upon such uncommunicated notings,
observing that internal discussions cannot alter Contract terms or
bind parties unless formally conveyed.
57. The Arbitral Tribunal has erroneously relied on such
internal notings to make the Petitioner-Respondent liable for royalty
payment. This constitutes a gross error in law and failure to apply
settled legal principles. The minutes of the meetings of the Tender
Committee records a speculative understanding of the Tender
Jt-CARBP-641&646-2021.doc
Committee as to what the bid of the Respondent-Claimant
constituted and how they have factored royalty. This is not a decision
of the Petitioner-Respondent to treat royalty as Nil for this project. It
is pertinent to note that the minutes of the Tender Committee
meeting is dated 28th August 2017 and it is only thereafter, that the
parties entered into the said Contract on 5th December 2017.
Therefore, the minutes of the Tender Committee meeting at best
were pre-Contract negotiations which cannot supersede the final
written document.
58. The minutes of the Tender Committee meeting does not
make the Petitioner-Respondent liable for the royalty. The said
minutes would show that the parties contemplated that bid of the
Respondent-Claimant did not provide for any amount of the royalty.
However, the parties still agreed that any royalty payable will be
borne by the Respondent-Claimant.
59. The judgment relied upon by the Respondent-Claimant
in Subodh Kumar Singh Rathour (supra) in support of their
submission that official records can be looked into by the Arbitrator
for the purpose of finding the real intention of the parties is
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distinguishable on facts. In that case, there was a challenge to a
Tender cancellation based on alleged mala fides, where internal
notings were examined to ascertain intent in the present case, the
reliance on internal notings as a substantive basis for imposing
liability, is impermissible.
60. Presuming that the Arbitral Tribunal could have relied
upon the minutes of the Tender Committee meeting, which suggested
that the parties contemplated that royalty is not payable on ordinary
earth, it does not in any manner affect the interpretation of the
Contract or make the Petitioner-Respondent liable for royalty. The
said Contract between the Petitioner-Respondent and Respondent-
Claimant overrides and supersedes any prior or collateral
correspondence, minutes or opinions, unless they are incorporated
into the Contract. It is well settled that once the parties have reduced
their understanding into a written agreement, the said agreement
becomes conclusive of their intentions. The said Contract clearly and
unambiguously provides that the Respondent-Claimant is liable to
bear or to pay the royalty.
Jt-CARBP-641&646-2021.doc
61. Another fact which the Arbitral Tribunal ought to have
considered is that at no point of time was the Contract rectified,
modified or novated by mutual consent. The terms of the Contract
remain valid, binding, and enforceable and the parties had acted
upon the same during the performance of their obligations. Clause
1.11 of the SCC, clearly defines what constitutes the "Contract" and
governs the rights and obligations of the parties. Thus, the reliance
on the minutes of the Tender Committee meeting by the Arbitral
Tribunal is untenable and de hors of the Contract. The Arbitral
Tribunal having failed to confine itself to interpretation of the
binding Contract would render the said Award liable to be set aside
on this ground itself.
62. The bid documents which conclude standardized Tender
document incorporating the General Conditions of Contract, Special
Conditions of Contract and related specifications were made
available to all bidders. The Respondent-Claimant at the time of
participating in the bid had full opportunity to examine their terms. If
the Respondent-Claimant was under impression that no royalty
would be payable, they ought not to have participated. The onus was
on the Respondent-Claimant in the event, assuming that negotiated /
Jt-CARBP-641&646-2021.doc
modified royalty payment clause were permissible, to seek
clarification or modification of the tender terms. On the contrary, the
Respondent-Claimant submitted its bid unconditionally, accepting
the terms including those that placed an unconditional liability for
royalty on the Contractor. Further, had the royalty amount be
factored in the bid amount, then the Respondent-Claimant would not
have emerged the L1 bidder. Having accepted the Contract as it
stands and being the successful bidder, the Respondent-Claimant
cannot be permitted to revise the bid amount. The Arbitral Tribunal
by arriving at a finding de hors the terms of the Contract, has created
a parallel negotiation after Contract finalization, which defeats the
very purpose of tendering.
63. This Court is mindful of the fact that judicial interference
with Arbitral Awards under Section 34 of the Arbitration Act is
limited. However, where the Arbitral Tribunal departs from the terms
of the Contract or acts beyond its jurisdiction by making a new
Contract of the parties, such interference is not only be permissible
but necessary. The Supreme Court in Associate Builders Vs. Delhi
Development Authority13 laid down that an Award would be liable to
13 (2015) 3 SCC 49
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be set aside under Section 34, if it suffers from patent illegality,
including contravention of substantive provisions of law; ignoring
binding judicial precedents; or misconstruction of the terms of the
Contract. The present case is one such case where the Award is liable
to be set aside under Section 34 of the Arbitration Act, as it suffers
from patent illegality.
64. The Arbitral Tribunal has in the present case improperly
invoked Section 26 of the Specific Relief Act, 1963 by effectively
rewriting the Contract, despite the absence of any pleading, prayer or
issues framed to that effect. Section 26 requires specific prayer for
rectification of a written instrument supported by clear averments or
pleadings. It is settled law that rectification of the Contract cannot be
granted in the absence of a foundational plea and/or prayer. The
Arbitral Tribunal has by rewriting the Contractual terms by invoking
Section 26, has not only violated the procedural safeguards under the
statute, but also offended the fundamental policy of Indian law,
which requires adjudicatory bodies to remain within the scope of the
dispute as framed by the parties.
65. I do not find any merit in the submission on behalf of the
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Respondent-Claimant that the Arbitral Tribunal has not re-written
the Contract, but has merely in Clause 20 of the said Award provided
an option for the Petitioner-Respondent to modify / amend the
Contract with the Respondent-Claimant to reflect the purported
consensus ad idem, if needed. This cannot be considered as an option
as it would require the re-writing of the Contract. Further, the finding
of the Arbitral Tribunal that the Petitioner-Respondent is liable for
the royalty payment inspite of the terms of the Contract providing
otherwise, is perverse.
66. It has been held by the Supreme Court in Nabha Power
Ltd. Vs. Punjab State Power Corporation Limited 14 that in the absence
of ambiguity, an Arbitrator must strictly enforce the terms of the
Contract and cannot introduce terms on the basis of business efficacy
unless the rigorous test is satisfied. The Supreme Court accordingly,
formulated the "Penta Test" for identifying implied Contractual
terms. The Supreme Court in Food Corporation of India Vs. Chandu
Construction15 has held that the Arbitrator cannot travel beyond the
express terms of the Contract and that doing so constitutes
14 (2018) 11 SCC 508
15 (2007) 10 SCC 697
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misconduct and jurisdiction overreach. It reaffirmed that an Arbitral
Award which ignores or contradicts binding Contractual provisions
cannot be sustained under law.
67. I find that there is no waiver of the Petitioner-
Respondent's rights in the arbitral proceedings. The Petitioner-
Respondent's have not waived their legal objections to the Arbitral
Tribunal's reliance on certain documents produced by the Petitioner-
Respondent in compliance with the directions of the Arbitral
Tribunal. These documents in question, being internal notings, inter-
departmental correspondence, etc. fall within the category, not
susceptible to the evidentiary reliance. The Petitioner-Respondent
adhering to the Tribunal's direction to produce these documents
cannot be construed as a conscious relinquishment or abandonment
of their substantive legal right to object to the admissibility or
evidentiary value of such documents. It is well settled that waiver in
law, requires a clear and unequivocal intent to forgo a known right;
mere compliance with the judicial or quasi-judicial directive does not
meet this standard. The embargo on the use of such documents is not
merely a private right of the party to assert or waive, but a limitation
imposed upon the Adjudicating Authority itself. The Tribunal is
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precluded by law by relying upon documents such as internal notings
and communications even if they are inadvertently or compliantly
placed on record.
68. Accordingly, the said Award is liable to be set aside on
the valid grounds raised in the present Petition under Section 34 of
the Arbitration Act. The said Award suffers from "patent illegality"
and offends the fundamental policy of the Indian law.
69. Commercial Arbitration Petition No. 646 of 2021 is
accordingly allowed and the said Award impugned therein is quashed
and set aside.
70. The Commercial Arbitration Petition No. 641 of 2021
which challenges an identical Award as that challenged in
Commercial Arbitration Petition No. 646 of 2021 is also allowed. The
said Award impugned therein is also set aside.
71. The Commercial Arbitration Petitions are accordingly
disposed of. There shall be no order as to costs.
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72. All pending Interim Applications, if any in the
Commercial Arbitration Petitions, do not survive and are accordingly
disposed of.
[R.I. CHAGLA J.]
