Delhi High Court
Icon Sleeper Track Private Ltd. & ... vs Rail Vikas Nigam Limited on 23 December, 2022
1 Neutral Citation Number 2022/DHC/005803
$-
* IN THE HIGH COURT OF DELHI AT NEW DELHI
BEFORE
HON'BLE MR. JUSTICE VIBHU BAKHRU
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV
+ FAO(COMM) 38/2022
Between:-
M/S. ICON SLEEPER TRACK PRIVATE
LIMITED
SURVEY NO. 255/1+2, PLOT NO. 3,
ASHINA PARK- II, AUNDH, PUNE- 411007
.....APPELLANT NO. 1
M/S VAMAN PRESTRESSING COMPANY PRIVATE
LIMITED,
303, ELPHINSTONE HOUSE, 17,
MARZABAN ROAD, MUMBAI 400001
.....APPELLANT NO. 2
(Through: Mr. Vinay Navari, Senior Advocate alongwith Mr.
Keshav Ranjan, Advocate)
AND
RAIL VIKAS NIGAM LIMITED
1st FLOOR, AUGUST KRANTI BHAVAN,
BHIKHAJI CAMA PLACE, R. K. PURAM,
NEW DELHI-110066 .....RESPONDENT
(Through: Mr. Udit Seth, Ms. Priya Kanwat & Mr. Vivek G.B.,
Advocates)
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% Pronounced on : 23.12.2022
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JUDGMENT
PURUSHAINDRA KUMAR KAURAV, J.
1. This appeal under Section 37 of the Arbitration & Conciliation
Act, 1996 (hereinafter referred to as „A&C Act‟) read with Section 13
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of the Commercial Courts Acts, 2015 (hereinafter referred to as
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2 Neutral Citation Number 2022/DHC/005803
„CCA‟) is directed against the order dated 10.12.2021, passed by the
District Judge (Commercial Court)-01 Patiala House Courts, New
Delhi, rejecting an application under Section 34 of the A&C Act and
affirming the arbitration award dated 03.08.2010 passed by the
Arbitral Tribunal (hereinafter referred as „AT‟).
2. The brief facts leading to filing of the present appeal are as
under:-
(i) The respondent-Rail Vikas Nigam Limited (RVNL)
invited bids for the work of "MANUFACTURE AND SUPPLY
OF PSC MONO-BLOCK SLEEPER PLANTS FOR VARIOUS
RAIL ROADS PROJECTS IN DIFFERENT REGIONS OF
INDIA".
(ii) The appellant No. 2/ M/s Vaman Prestressing Company
Private Limited (VPCL) was one of the bidders whose bid was
found to be viable and was offered for performance of the work
in question. The appellant No. 2/VPCL on 31.08.2007 accepted
the offer unconditionally and had a request for exemption from
excise duty on raw material and assignment of contract to M/s
Icon Sleeper Track Private Limited (ISTPL) as per Clause-36 of
Section VI of General Conditions of Contract (GCC). It be
noted that ISTPL is appellant No. 1 in the instant appeal.
(iii) On 14.09.2007, RVNL accepted the request of VPCL
granting an exemption for excise duty and assignment of
contract to ISTPL. The period for completion of the whole work
was 18 months from the date of acceptance of the counter-offer
by RVNL.
(iv) On 05.11.2007, an agreement was entered into between
VPCL & RVNL. During the course of execution of the work,
certain disputes arose between the contracting parties. In
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3 Neutral Citation Number 2022/DHC/005803
accordance with the provisions of Clause 10.1 of GCC of the
contract agreement, efforts for amicable settlement of the
disputes were made between the parties. However, the parties
failed to arrive at an amicable settlement. Resultantly, in
accordance with the provisions of Clause 10.2 of the GCC, the
AT was constituted, consisting of a presiding arbitrator and two
other members. The AT after conducting various hearings,
passed the final award on 05.08.2019, rejecting the claim of the
appellants.
(v) The appellants challenged the award passed by the AT in
an application under Section 34 of the A&C Act before the
learned Commercial Court. The learned Commercial Court
passed the impugned order and did not find any substance in the
said application and has rejected the same. Therefore, the
appellants have approached this court in the present application
under Section 37 of the A&C Act.
3. Learned senior counsel appearing on behalf of the appellants
vehemently submitted that the impugned order and award passed by
the AT is patently illegal and against the Public Policy of India and
hence, deserves to be set aside by this court. According to him, the
entire understanding of the AT and the Commercial Court is
erroneous, inasmuch as, the appellants are only insisting on the due
observance of the terms of the contract in their strict sense. While
taking this court through condition 15.2 of the GCC, he has
specifically pointed out that C0 is defined as the base cost of the
cement per MT including ED, ST/VAT and freight equal to Rs.4,080/-
and C1 is defined as the cost of the cement per MT including ED,
ST/VAT and freight on the date of adjustment. He, therefore,
submitted that C0 is the base cost of cement, which includes excise
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4 Neutral Citation Number 2022/DHC/005803
duty, ST/VAT and freight and is equal to Rs.4080/- PMT. According
to him, as per the agreement, the contractual price of a sleeper is Rs.
1053/- and for transportation (related service) Rs.100/- per sleeper as
per rate based on February, 2007, as the bids were submitted on
15.03.2007 and hence the appellants submitted their rate updating
proposal for the month of February, 2008 as per the price adjustment
formula provided in Clause No. 15.2.1 of GCC for price adjustment
of sleeper and transportation respectively. He, therefore, submitted
that the entire understanding of the respondent is erroneous to the
extent of including excise duty in working out the price rise for
cement in C0 and excluding excise duty (due to exemption) in working
out the price rise for cement in C1. He submitted that such an
understanding is against all logic and leads to absurd results inasmuch
as the excise duty is included in C0 but is excluded in C1 at the time of
adjustment even though the excise duty is exempted by the Central
Government. He contended that a purposive interpretation deserves to
be given to the contract and the excise duty component must be
excluded from the C0. Therefore, patent illegality has been committed
by the AT and the Commercial Court, in not accepting the claim of the
appellants.
4. Learned counsel appearing on behalf of the respondent opposed
the arguments made by learned senior counsel for the appellants and
submitted that this court in exercise of power under Section 37 of the
A&C Act is not supposed to re-examine the entire matter and should
confine its scope only to the extent of examining as to whether any
patent illegality has been committed warranting interference under
Section 37 of the A&C Act. He further submits that the AT, as well as
the Commercial Court, have extensively considered the case of the
appellants and after examining their contentions, it has been
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5 Neutral Citation Number 2022/DHC/005803
concluded by the AT & the Commercial Court that the submissions of
the appellants cannot be accepted as the same would result in
rewriting of the terms of the contract. It is also submitted that the
appellants have participated in the contract with open eyes and the
formula under Clause 15.2 of GCC of the contract is unequivocally
clear and the same is beyond any doubt. Therefore, any interference
with the unequivocal terms of the definition of C0 and C1 is not called
for.
5. No other points have been raised by any of the parties.
6. We have heard Shri Vinay Navari, learned senior counsel for
the appellants assisted by Shri Keshav Ranjan, Advocate and Shri
Udit Seth, learned counsel for the respondent and carefully perused
the material available on record.
7. The entire dispute in the instant case revolves around the
application of the PVC formula provided in Clause 15.2 of the
contract. The same is, therefore, reproduced as under:-
"GCC 15.2 1. Pursuant to GCC Sub-clause 15.2, prices
payable to the Supplier-
1.1 The Prices of Goods as stated in the Price Schedule.
Section IV: Bidding Forms, shall be subject to adjustment
during performance of the Contract to reflect changes in the
cost of labor and material components in accordance with
the formula:
P1 =P0(a+ b.L1/L0 + c.F1/F0 + d.C1/C0 +e .S1/S0) - P0"
8. The terms in the formula have been assigned their respective
meanings. Meaning of terms C0 and C1 are reproduced as under:-
"C0 = base cost of the cement per MT including ED ST/VAT
and freight equal to Rs.4080/-
C1 = cost of the cement per MT including ED, ST/VAT and
freight on the date of adjustment".
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6 Neutral Citation Number 2022/DHC/005803
9. As per sub-clause 1.1.1 of Clause 15.2 of GCC the value of
components (a), (b), (c), (d) & (e) is as under:-
S.No. Component Value(%)
3. Fuel Power Light and Lubricants c 25
10. The base date and date of adjustment shall have meaning as
under:-
"The base date and date of adjustment shall have meaning as
under:-
Base date = twenty-eight days prior to the deadline for
submission of the Bids.
Date of adjustment = 4 weeks prior to the date of manufacture
of goods"
11. The AT has considered the argument made by the appellants
that C0 should not be taken as Rs.4080/- but should be reduced to
Rs.3651.52 MT by the reverse calculation deleting its ED component.
It has been noted by the AT that Clause 15.2 of the Contracts defining
PVC formula is beyond any doubt and the same is in use in almost all
contracts not only in RVNL but also industry-wise in different formats
all over the world. The respondent in the pre-bid meeting stage itself
had clarified MODVAT benefit issues in answer to question no. 7 and
18. In answer to question no. 18 regarding MODVAT, respondent
directed the bidders to quote the price after taking MODVAT credit in
the input side. There were 7 projects in the same tender out of which
in 4 projects excise duty was exempted and in three projects the
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excise duty was leviable. The appellants were fully aware of the cost
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7 Neutral Citation Number 2022/DHC/005803
of the cement for both ADB and non-ADB-funded projects and RVNL
had stated only one price for Co for both types of projects. The AT,
therefore, did not find any ground to interfere with the understanding
of the respondent in applying the PVC formula.
12. The learned Commercial Court while placing reliance on
various decisions of the Hon'ble Supreme Court has held that from
day one it was clear that the base price of the cement will be
Rs.4080/- PMT including the tax component. When the tax
component was included in the base price, if it would have been
levied, the base price should have remained the same and, if the same
has been exempted by the Government, still it will not affect the base
price. Since the terms of the contract were clearly understood in a
particular way right from the inception of the bidding process, the
same was not required to be interfered with and accordingly, an
application under Section 34 of the A & C Act against the award of
the AT has been rejected by the Commercial Court.
13. We find no infirmity with the view that once the rates are fixed
in the contract for a particular work, the contractor is not entitled to
claim any benefit over and above the rates already fixed in the contract
merely because the fixation of the rates to some extent is
disadvantageous. The AT has interpreted the terms of the contract and
it is well settled that the views of an arbitral tribunal cannot be
interfered with, except on the grounds as set out in Section 34 of A&C
Act. The AT has held that any interference in the terms of the contract
or giving a different meaning thereto than the intent which was
understood by the contracting parties at the time of entering into
the contract is not permissible. This view is also supported by the
decision of the Hon'ble Supreme Court in the case of Satyanarayana
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Constructions Company v. Union of India and Others1. The Hon'ble
Supreme Court in another decision in the case of Shree Ambica
Medical Stores and Others v. Surat People's Co-operative Bank
Limited and Others2, while placing reliance on various earlier
decisions on the subject has held that the courts through their
interpretative process cannot re-write and create a new contract
between the parties. The courts are to simply apply the terms and
conditions of the agreement as agreed between the contracting parties.
The same principle has further been reiterated by the Hon‟ble
Supreme Court in the case of Maharashtra State Electricity
Distribution Company Limited v. Maharashtra Electricity
Regulatory Commission and Others3.
14. This court finds that the view taken by the AT and the
Commercial Court does not require any interference under Section 34
of the A&C Act. Firstly, the definition of C0 and C1 was clear and
unambiguous to all bidders before submission of their respective bids.
Pre-bid meetings were admittedly conducted and various
clarifications with respect to other aspects were sought but no
grievance with respect to working out of the PVC formula was raised.
The appellants were, therefore, accepting the PVC payments as per
the terms and conditions of the contract relating to which they had
sufficient information and knowledge. Secondly, the reverse
calculation sought by the appellants for C0 in ADB-funded projects
would amount to distinguishing two sets of contracts, one relates to
ADB-funded projects and the other non-ADB-funded projects. The
respondent did not distinguish the application of the PVC formula in
ADB-funded projects and non-ADB-funded projects and has left it
(2011) 15 SCC 101
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(2022) 4 SCC 657
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9 Neutral Citation Number 2022/DHC/005803
open for the respective bidders to submit their bids in terms of the
disclosed formula. Thirdly, if at a later stage, the application of the
concerned formula is resulting in any financial loss to the appellants,
that would not in itself necessarily call for interference in arbitral
proceedings. Fourthly, the base price of the cement cannot be allowed
to be reduced commensurate to the component of the excise duty as
the factum whether excise duty is payable or not was already made
clear to the parties before the agreement in question was entered. It
was, therefore, necessary on the part of the contractor to accordingly
work out the contract. We find no flow with the view that if the
argument of the appellants is accepted and the excise duty from the
fixed price of C0 of Rs.4080/- is deducted, then it would amount to re-
writing of the contract, which on terms of the law laid down by the
Hon‟ble Supreme Court, as referred to above, would be
impermissible.
15. Having considered the submissions in detail and the legal
position as applicable in the instant case, we find that the view taken
by the AT and the Commercial Courts cannot be said to be contrary to
(a) fundamental policy of Indian law; or (b) the interest of India; or (c)
justice or morality; neither the same can be said to be patently illegal,
therefore, we find no substance in the instant appeal and the same is
accordingly dismissed.
(PURUSHAINDRA KUMAR KAURAV)
JUDGE
(VIBHU BAKHRU)
JUDGE
DECEMBER 23, 2022
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p'ma
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