2015 (4) TMI 1096 - SC - Indian Laws

Supreme Court rulings on royalty costs in arbitration awards

National Highways Authority of India Versus M/s ITD Cementation India Limited

National Highways Authority of India Versus M/s ITD Cementation India Limited - 2015 (6) SCR 107, 2015 (5) SCALE 554, (2015) 14 SCC 21 Issues Involved:1. Entitlement to additional royalty due to upward revision by the State of Tamil Nadu.2. Interpretation of contract clauses related to price adjustment and subsequent legislation.3. Validity of arbitral awards and their adherence to the terms of the contract.4. Impact of subsequent legislation on contract pricing.5. Jurisdiction and scope of arbitral tribunals in interpreting contract terms.6. Specific clauses in different contracts and their implications on claims.Issue-wise Detailed Analysis:1. Entitlement to Additional Royalty Due to Upward Revision by the State of Tamil Nadu:The dispute centered on whether the additional royalty imposed by the State of Tamil Nadu from 01.11.2002 should be compensated under the contract. The appellant argued that the additional fee was covered under the price adjustment formula, while the respondent claimed full compensation under specific contract clauses.2. Interpretation of Contract Clauses Related to Price Adjustment and Subsequent Legislation:The contract included clauses for price adjustment due to market fluctuations (Clauses 70.1 to 70.7) and a separate clause for changes due to subsequent legislation (Clause 70.8). The Arbitral Tribunal concluded that the additional costs due to increased royalty were not covered under the price adjustment formula and thus fell under Clause 70.8, which required full compensation.3. Validity of Arbitral Awards and Their Adherence to the Terms of the Contract:The Arbitral Tribunal found that the additional costs due to increased seigniorage fees were not included in the wholesale price index (WPI) and thus should be compensated separately. The Tribunal's decision was upheld by the Single Judge and the Division Bench of the High Court, which found no reason to interfere with the Tribunal's interpretation of the contract.4. Impact of Subsequent Legislation on Contract Pricing:The Arbitral Tribunal and the High Court agreed that the increase in royalty due to subsequent legislation was not accounted for in the WPI and thus required separate compensation under Clause 70.8. The Tribunal's interpretation was deemed reasonable and consistent with the contract terms.5. Jurisdiction and Scope of Arbitral Tribunals in Interpreting Contract Terms:The Supreme Court reiterated that the interpretation of contract terms is primarily for the arbitrator to decide. The Court emphasized that it would not interfere with the arbitrator's decision unless it was unreasonable or perverse. The Tribunal's interpretation of the contract as requiring separate compensation for additional costs due to subsequent legislation was upheld.6. Specific Clauses in Different Contracts and Their Implications on Claims:In a separate case (Civil Appeal No. 7373 of 2012), the contract did not include a clause similar to 70.8. The Tribunal found that the increase in royalty due to subsequent legislation was covered under a different clause (Clause 32.1), which dealt with future events. The Tribunal's decision was upheld by the High Court, which found the interpretation plausible.Separate Judgments Delivered:- Civil Appeal No. 9799 of 2010: The Supreme Court upheld the Arbitral Tribunal's award, affirming the interpretation that additional costs due to increased royalty were not covered under the WPI and required separate compensation under Clause 70.8.- Civil Appeal No. 7373 of 2012: The Supreme Court upheld the Tribunal's decision that the increase in royalty was covered under Clause 32.1, which dealt with future events, and dismissed the appeal.- Civil Appeal No. 6158 of 2013: The Supreme Court set aside the Arbitral Tribunal's award regarding Claim No. 8, finding that the Tribunal exceeded its jurisdiction by holding that the existing levy was without authority in law and that the imposition by subsequent notification created liability for the first time.Conclusion:The Supreme Court's judgments emphasized the importance of adhering to the specific terms of the contract and the limited scope of judicial interference in arbitral awards. The Court upheld the Tribunal's interpretation in most cases, except where it found that the Tribunal had exceeded its jurisdiction.