Bombay High Court
Mumbai Metro Rail Corporation Limited vs Land T Stec Jv Mumbai on 10 October, 2025
2025:BHC-OS:19481
OJ-904-IAL-28857-2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO. 28857 OF 2025
IN
COMMERCIAL ARBITRATION PETITION (L) NO.28855 OF 2025
Mumbai Metro Rail Corporation Limited ...Applicant/
Petitioner
Versus
L&T-STEC JV Mumbai ...Respondent
Mr. Birendra Saraf, Advocate General, Senior Advocate, a/w
Simil Purohit, Ameya Gokhale, Kriti Kalyani, Siddhant Marathe,
Ansh Kumar, i/b Shardul Mangaldas, for the
Applicant/Petitioner.
Mr. Vikram Nankani, Senior Advocate, a/w Indrnil Deshmukh,
Saloni Kapadia, Karan Ghandhi, i/b Cyril Amarchand Mangaldas,
for Respondent.
CORAM : SOMASEKHAR SUNDARESAN, J.
DATE : OCTOBER 10, 2025
Oral Judgment:
Context and Factual Background:
1. Interim Application (L) No.28857 of 2025 is an Application
seeking a stay on the execution of an arbitral award dated June 16, 2025
("Impugned Order") pending the hearing and final disposal of
Digitally
signed by
ASHWINI
ASHWINI JANARDAN
JANARDAN VALLAKATI
VALLAKATI Date:
Commercial Arbitration Petition (L) No.28855 of 2025, which is an
2025.10.16
19:15:03
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application under Section 34 of the Act.
2. The Petitioner, Mumbai Metro Rail Corporation Limited
("Corporation") is essentially pressing for an unconditional stay without
any requirement to make any deposit of any component of the amounts
awarded, on the premise that the award is ex facie perverse and has
made such obvious blunders that no reasonable arbitral tribunal could
have taken the approach adopted by the Learned Arbitral Tribunal.
3. The contract in question entailed design and construction of
specific stations and tunnels in the Mumbai Metro Rail Project. The
price quoted and agreed upon was a firm and composite lumpsum price.
The bid for the contract had been made by the Respondent, L&T-STEC
JV Mumbai ("Contractor") in May 2015 before the introduction of
Goods and Services Tax ("GST"). The parties had agreed on a Change in
Law provision in Clause 13.7 to be used for effecting adjustments for the
impact of introduction of GST - the rationalization of indirect taxes in
the GST had led to fiscal benefits and exemptions that had been
available in other indirect taxes before GST getting subsumed into the
GST regime. This is the first head of the dispute between the parties.
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4. Whether a certain standard directed by the Corporation for
adoption by the Contractor constituted "additional work", necessitating
compensation for the Respondent, is the second head of dispute
between the parties. The standard of 'one strut failure' in place of
temporary earth retaining structures as plainly contracted, and whether
that necessitates compensation for the Respondent has been considered.
Impugned Award:
5. The Impugned Award is a majority award (passed by the
Presiding Arbitrator and the Learned Arbitrator nominated by the
Contractor) awarding a sum of Rs.~250.82 crores to the Contractor, of
which, Rs. ~21.26 crores is attributable to cost variation on account of
additional work said to be carried out outside the scope of the project,
while Rs. ~229.56 cores is attributable to the claim towards
reimbursement for the impact of GST introduction for the period
between July 1, 2017 and September 30, 2022.
6. The Learned Arbitrator nominated by the Corporation has
dissented from the majority. The Dissenting Arbitrator has held that on
the additional works, the Contractor would owe a refund of Rs. ~27.09
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Lakhs to the Corporation. On the GST front, the Dissenting Arbitrator
has not denied the claim on the reimbursement for GST, but has sought
a pro-rata weighted adjustment to the amount or Rs. ~229.56 crores
awarded by the majority by giving weightage to the two disputed
percentage components of the tax impact on the contract price (10.3%
as claimed by the Contractor and 6.78% as claimed by the Corporation).
Depicting the working of such adjustment, the Dissenting Arbitrator has
ruled that the impact of GST should be Rs. ~134.42 crores, about Rs.
~95 crores lower than what was granted by the majority. In the same
breath, the Dissenting Arbitrator also concludes that a reputed
chartered accountant firm must make an assessment to compensate the
Contractor for introduction of GST in terms of the Change in Law
provisions in the contract.
Contentions of the Parties:
7. Dr. Saraf, Learned Advocate General for the State of
Maharashtra would contend that the foundational perversity in the
approach of the Learned Arbitral Tribunal lies in the Learned Arbitral
Tribunal finding it unnecessary to call for components of the contract
price to examine the precise component of tax in the price quoted by the
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Contractor. He would submit that it was vital to investigate and
ascertain the precise impact of introduction of the GST regime on the
contract price, which was impossible knowing the other ingredients and
components of the price. It is contended that it is entirely arbitrary to
provide any compensation for impact of GST introduction, without such
data breaking down the components of the price bid of the Contractor.
8. Dr. Saraf would also point to various components of the
Impugned Award and submit that there was no itemized analysis of
each sub-segment of specific notifications and exemptions that had been
available earlier, with no means of analysing what precise effect the
introduction of GST would have. He would point to the exemptions
considered by the Learned Arbitral Tribunal to indicate that there was
nothing to show that such exemptions had been relied upon and
factored in while bidding by the Contractor, thereby rendering the
findings in this regard arbitrary.
9. Likewise, Dr. Saraf would contend, exemption that had been
available for work on construction of monorail and metro projects, that
were removed in the GST regime, has been applied even to elements
unconnected to construction such as housekeeping and refurbishment
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of certain components of contract. The upshot of this submission is that
without an itemized analysis of sub-elements, it would not be possible to
examine whether the removal of the exemption indeed had a material
impact on the contract price.
10. Dr. Saraf would also point to the agreed base date of April 4,
2015 for the assessment of impact of change in service tax on royalty. He
would submit that the Finance Bill introduced in Parliament in
February 2015 had been passed on April 30, 2015. Therefore, when the
contractor made a bid on May 15, 2015, the Contractor was well aware of
the implications of the Finance Bill. Yet, the Learned Arbitral Tribunal
has factored in the element of Presidential Assent for the Finance Bill
having been given only on May 14, 2015 (two days after the bid was
made by the Contractor). The upshot of the submission is that the
Impugned Award is contrary to commercial common sense, since no
bidder would shut his eyes to impact of tax changes in legislation
already passed by Parliament (the Finance Bill being a money bill),
solely on the premise that Presidential Assent was awaited.
11. As regards, compensation of additional work done, the
Learned Advocate General would submit that originally it was envisaged
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that a process of "anchoring" would be used when tunnelling for the
metro, to ensure that there is no collapse of structures including
heritage structures in the vicinity of the tunnelling. In the course of the
operation of the contract it had been decided to use the standard of a
"one strut failure". The dispute in this regard is about whether setting
up a one strut failure structure in the course of tunnelling constitutes
additional work. For purposes of making such a claim, the Contractor
was required to show how much additional steel had become necessary
and no evidence has been provided in this regard.
12. Most damagingly, the Learned AG would claim that the
Corporation's witness statement had been shut out. This witness was
the Engineer-in-Charge of the project. It is contended that the witness
has been disqualified by the Learned Arbitral Tribunal. The witness was
asked whether he is an expert with experience on the subject, and he
responded in the affirmative. This purportedly led to the Learned
Arbitral Tribunal taking a view that the evidence of this witness could
not be considered since he could not be regarded as an independent
expert witness but as a fact witness who was not on the pay roll of the
Corporation but had a specific role to play in the project. At the same
time, Dr. Saraf would contend, the Learned Arbitral Tribunal selectively
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chose to rely upon certain elements of the cross-examination of the
same witness but otherwise ignored the evidence in his examination in
chief.
13. Mr. Vikram Nankani, Learned Senior Advocate on behalf the
Contractor who would submit that none of the contentions on behalf of
the Corporation is tenable inasmuch as it is not open to the Corporation
to expect a "vivisection" of the contract price, which was a lumpsum
contract price, with the bidders competing on the margins they sought
to earn. The impact of GST is a narrow point and had been examined in
two rounds - once by the Engineer-in-Charge who chose to appoint a
chartered accountant, and then by the Dispute Adjudication Board
("DAB") set up under the contract.
14. The methodology for assessing the GST impact, Mr. Nankani
would submit, had already been thrashed out, and the dispute was about
the computation of amount, applying the agreed methodology. Mr.
Nankani would contend that it was the Corporation's case that the tax
component of the contract price had been 10.03% while it is the
Contractor's case that the tax component had been 6.65%. The DAB had
arrived at 6.78%. All three had converged on the same methodology
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with the assessment of impact varying among them.
15. Mr. Nankani would also submit that all the members of the
Learned Arbitral Tribunal were engineers and technically qualified to
deal with contracts of this nature. There were other contracts for other
metro projects that the Contractor had brought to bear, and the Learned
Arbitral Tribunal has well understood the parameters of the issues
involved.
16. Addressing the issue of how the Corporation's witness had
been handled, Mr. Nankani would submit that the witness was not shut
out at all. The Learned Arbitral Tribunal only took a view that the
factual inputs from the witness would be considered but his claim of
having expert knowledge and the probative value of his expert
extrapolations from the facts were handled with scepticism. This is a
perfectly logical and fair approach, he would submit, to treat with a
higher degree of scepticism, the evidence that had been led by a partisan
witness, claiming to be an expert, with the Learned Arbitral Tribunal not
treating his expertise as relevant for the determination. The legal
implications of law language used by engineers, Mr. Nankani would
submit, must not be analysed through the same prism as how language
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used by judges and lawyers should be analysed.
17. According to Mr. Nankani, the Learned Arbitral Tribunal
comprising technically qualified people would carry greater weight in
relation to the assessment of compensation for additional work.
According to Mr. Nankani, the Impugned Award is based on empirical
analysis for the material on record and merely because the Learned
Arbitral Tribunal used a phrase "preponderance of probability" it would
not follow that its assessment of damages and costs is speculative
without an appropriate adjudication.
Analysis and Findings:
18. At the threshold it is clarified that all observations by me here
are solely in aid of deciding whether a case for an unconditional stay has
been made out and nothing else.
GST Issue:
19. Having heard Learned Senior Advocates for the parties, and
having examined the record with their assistance, some broad facets of
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the matter are noteworthy. The contract was for building a few stations
in the metro rail project and the related tunnelling. The bidding took
place before the introduction of the GST regime. The parties indeed
have consensus that the impact of rationalization of GST, the framework
of the GST and its implications would lead to an impact on the contract
price and the consequential adjustments. The parties conducted
themselves in line with the GST regime for the residual period of the
contract after its introduction. Some of the benefits that were earlier
available to the Contractor were subsumed in the wider indirect tax
reform that the GST constituted. In terms of economic costs, the
dispute really is what is the manner in which these rationalized benefits
have to be split between the parties.
20. It is seen that the parties indeed engaged in minute detail on
the specific heads of differences on the GST impact. Ekbote Deshmukh
& Co, a chartered accountant firm engaged by the Engineer-in-Charge
who also deposed as the Corporation's witness, came up with an
assessment on August 27, 2022 that the tax component of the contract
price was 10.03%. The Contractor was of the view that the tax
component had been 6.65%.
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21. The difference of opinion among the parties centred around
the change in taxation treatment under seven heads, accounting for 99%
of the differences between the parties. These were: service tax on
labour; octroi on fuel and locally procured materials; service tax on
royalty; excise on safety materials; special additional duty on capital
goods; MVAT implications for overhead allocations; MVAT on sub-
contracting items and consequential octroi. Whether these heads were
subsumed under the GST regime, and if so, how and in what quantum
they were subsumed, fell for consideration.
22. The DAB heard the parties at length on the differences
between the two assessments, and concluded in its report dated
December 14, 2023, with detailed reasons, that the component of taxes
in the contract price was 6.78%. This was not acceptable to the
Corporation, which led to the arbitration. Indeed, the Learned Arbitral
Tribunal had the power to re-open and examine the evidence considered
by the DAB and equally, the DAB's report had been agreed by the parties
to constitute evidence for the Learned Arbitral Tribunal. The following
extracts from the arbitration agreement are noteworthy:
The arbitrator(s) shall have full power to open up, review and revise
any certificate, determination, instruction, opinion or valuation of the
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Engineer, and any decision of the DAB, relevant to the dispute.
Nothing shall disqualify the Engineer from being called as a witness
and giving evidence before the arbitrator(s) on any matter whatsoever
relevant to the dispute.
Neither Party shall be limited in the proceedings before the
arbitrator(s) to the evidence or arguments previously put before the
DAB to obtain its decision, or to the reasons for dissatisfaction given
in its notice of dissatisfaction. Any decision of the DAB shall be
admissible in evidence in the arbitration.
[Emphasis Supplied]
23. Therefore, the scope of review by the Learned Arbitral
Tribunal was wide and expansive and the DAB's report too formed an
integral part of the evidence. Yet, it cannot be forgotten that the parties
may have finely and sharply debatable differences on nuances of how to
interpret tax circulars and see if any component really had an impact on
the contract price. Fiscal statute by its nature could lead to multiple
interpretations. However, one cannot lose sight of the fact that these
fine multiple competing interpretations are meant for consideration in
the final hearing. The nature of the issues raised on behalf of the
Corporation, in my opinion, fall in this category. They do not scream
themselves aloud calling for an ex facie finding of abject perversity
warranting an unconditional stay. To interfere by way of an
unconditional stay, it would be necessary to establish such perversity
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that the findings cannot at all be countenanced. The Impugned Award
is more or less in line with the DAB's report, and provides its own
reasons for such conclusions.
24. One cannot lose sight of the fact that the Impugned Award is
in the nature of a money decree. Therefore, the scope of review has to be
one of examining whether the Impugned Award is of a nature that no
reasonable person could have ever come to the conclusions that it drew,
and whether it was so perverse that in the final hearing, there is a high
degree of prospect that the Impugned Award would be set aside.
25. Indeed, the framing of the challenge to the Impugned Award
has been fashioned with this standard in mind, but having examined the
Chartered Accountant's report, the DAB's report and the Impugned
Award, it cannot be said that the assessment of GST impact would be
perverse and that too of a degree warranting an unconditional stay.
One Strut Failure - Additional Works:
26. Likewise, with the issue of whether the one strut failure
standard was to be treated as additional work; or whether the quality of
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steel used for it was deliberately of a higher quality just to benefit from
its resale value after its temporary use (this was contended by the
Corporation in the arbitration), would at best present issues of
appreciation of evidence. Even in the final hearing of this Petition, the
Learned Arbitral Tribunal would have to be treated as the master of the
evidence and the best judge of the quality and quantity of evidence.
That the Dissenting Arbitrator made a case for refund of monies may be
his informed view, but the view of the majority constitutes the arbitral
award. At a prima facie stage, the view is not so perverse as to warrant
an unconditional stay.
Charge of Witness being Shut Out:
27. I have also examined if there was an abject process failure
such as the alleged shutting out of the evidence of the Corporation's
witness. What is apparent is that the Engineer-in-Charge was presented
as the Corporation's witness. The Learned Arbitral Tribunal found that
significant components of the evidence led by him delved deep into
opinions and matters of expertise. It is apparent that the witness was
not shut out by the Learned Arbitral Tribunal. The witness was
examined and cross-examined. In the Impugned Award, when
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examining the evidence, the Learned Arbitral Tribunal has stated that it
was discounting his claims to expertise in his opinions since he could
not be treated as an independent expert.
28. The Engineer-in-Charge is the first check and balance in the
relationship between the parties to a construction contract. His decision
was up for review before the DAB. That decision and the Engineer-in-
Charge's decision collided before the Learned Arbitral Tribunal. The
very same person being presented as the Corporation's witness, it is not
inappropriate for the Learned Arbitral Tribunal to have stated that it
would discount the claims to expertise in his opinions, since he was not
an independent expert.
29. The Learned Arbitral Tribunal held that significant portions
of the evidence led by the Engineer-in-Charge contained opinions rather
than facts. The Learned Arbitral Tribunal has stated that it would not
shut him out at all and has indeed taken into account the facts deposed
by him but has asserted that it would not lean on the interpretations and
extrapolations drawn by him.
30. In fact, it is seen that this discussion became necessary in the
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Impugned Award, because it was the Contractor that moved an
application to strike off the evidence of the Engineer-in-Charge as a
witness. The Learned Arbitral Tribunal rejected this application. The
Learned Arbitral Tribunal analysed the evidence to return a finding that
the witness had gone way beyond deposing to facts and had argued
extrapolations in his deposition, which the Learned Arbitral Tribunal
indicated it discount in its probative value. The language in which such
an observation is framed by the Learned Arbitral Tribunal comprising
all engineers and non-lawyers need not be as finessed in legal terms as
law language used by judges and lawyers, but the plain meaning of what
the Learned Arbitral Tribunal has sought to convey is that they are not
shutting out the witness at all and they were only being circumspect
when considering his probative assertions.
31. Now, even this can be up for adjudication in the course of the
final hearing, but at this stage, considering that the Learned Arbitral
Tribunal had actually rejected the Contractor's application to disallow
the witness and had explained in its words how it would consider the
evidence of this witness, a case is not made out for holding that there
has been a breakdown of natural justice pointing to perversity of a
magnitude that necessitates an unconditional stay on the Impugned
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Award.
Conclusions and Directions:
32. The multiple arguments about how to truly interpret
individual notifications and circulars can be considered in the final
hearing. At this stage, the interpretations adopted by the Learned
Arbitral Tribunal are not alien, even to the Corporation - they are in
line with much of what the DAB ruled. The Corporation may disagree
with the DAB and indeed with the Learned Arbitral Tribunal, but that
would not mean that the Impugned Award would automatically become
perverse.
33. That apart, even the Dissenting Award that was strongly
relied upon by the Corporation has not taken such an extreme stand as
taken by the Corporation in these proceedings. In fact, the Dissenting
Award provides for an award under the GST head at Rs. ~134 crores in
place of the Impugned Award granting Rs. ~229 crores. It is another
matter that the Dissenting Award, in the same breath, recommends
appointing yet another chartered accountant, little realising that such an
approach would be an abdication of the arbitral role - the parties had
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already been through the process of having a chartered accountant
examine facts, as also through the process of the DAB. It was now for
the Learned Arbitral Tribunal to rule, which the majority of the
arbitrators have done.
34. When parties proceed to arbitration and that too after a
detailed pre-arbitral process being contracted, there has to be a higher
credibility and credence given to the arbitral award. The contentions
sought to be raised on both counts (tax impact and additional work) fall
in the realm of purporting to raise finely nuanced points that are best
made in the final hearing. They do not constitute grounds to infer
perversity based on any reasonable review on the face of the record, to
warrant an unconditional stay. Taking a holistic view of the matter and
the relative strengths of the prima facie case canvassed by each side, I
am not satisfied that a case for an unconditional stay is made out.
35. In a nutshell, assuming all that is being said on behalf of the
Corporation is taken to be arguable, they present matters to be
considered at the final hearing. The contentions do not lend themselves
to serious interference into a reasoned outcome in the arbitral
proceedings.
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36. Nothing contained in this order is a final adjudication of
merits canvassed by the parties, but clearly, no case is made out such
that the Impugned Award is tainted by such perversity that it brooks no
deposit for stay on its execution. It is not facially untenable and is not
undermined by patent illegalities - the closest the Corporation came to
approaching this standard was with the contention about the witness
being shut out, but that is not a convincing manner of reading the
approach of the Learned Arbitral Tribunal to the witness.
37. In these circumstances, it is directed that subject to the
amount awarded, along with interest as awarded till date, being
deposited with the Registry of this Court within a period of eight weeks
from today, execution proceedings shall remain stayed.
38. Should such deposit be made, the Contractor shall be entitled
to withdraw the amount deposited along with accruals thereon by
providing a full unconditional bank guarantee for the amount sought to
be withdrawn, in accordance with the applicable rules of this Court.
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39. All actions required to be taken pursuant to this order shall
be taken upon receipt of a downloaded copy as available on this Court's
website.
[SOMASEKHAR SUNDARESAN, J.]
October 10, 2025
Ashwini Vallakati
