TaxTMI 
TaxTMI 
2015 (4) TMI 1096
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....e identical questions and as such are being dealt with and considered by this common judgment. The learned counsel for the parties agreed that Civil Appeal No.9799 of 2010 be taken and was accordingly dealt with as the lead case. CIVIL APPEAL NO. 9799 OF 2010 3. Civil Appeal No. 9799 of 2010, by Special Leave seeks to challenge the judgment and order dated 30.11.2007 passed by the Division Bench of the High Court of Delhi at New Delhi in FAO (OS) No.216 of 2007. 4. The dispute in question relates to the consequences of an additional amount of royalty payable by the respondent as a result of the notification for upward revision of royalty (Seignorage Fee as named in Tamil Nadu) on minor minerals. This additional royalty was imposed by the State of Tamil Nadu w.e.f. 01.11.2002. It is the plea of the appellant that the additional amount of fee was not liable to be paid to the respondent in view of certain clauses in the contract which provided for a formula of escalation, while according to the respondent the full amount had to be compensated. 5. A contact was awarded to the respondent by the appellant on 17.10.2001 for execution of work of widening of lanes and rehabilita....
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....ubricants in accordance with the following principles and procedures as per formulae given below. The amount certified in each payment certificate shall be adjusted by applying, the respective price increase or decrease. a) Price adjustment shall apply for work carried out within the stipulated time or extensions granted by the Employer and shall not apply for work carried out beyond the stipulated time. Price adjustment for reasons attributable to the Contractor, shall be paid in accordance with Sub-Clause 70.6; b) Following expressions and meanings are assigned to the value of the work done during the period under consideration: RI= Total value of work done during the period under consideration and payable in Indian Rupee currency, it would include the value of materials on which secured advance has been granted, if any, during the period, less the value of materials in respect of which the secured advance has been recovered , if any, during the period. This will exclude cost of work an items for which rates were fixed under variation Clauses (51 and 52) for which the escalation will be regulated as mutually agreed at the time of fixation of rate. To the extent that f....
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.... be those as mentioned in Sub-clause 70.3 of Section III Volume I of the Bid documents. Sub-Clause 70.5: Increase or Decrease of Price of Specified Materials (i) Increase or decrease of price of specified materials will be adjusted by either an addition to or a deduction to or a deduction from the Contract Prices. For the purpose of this Sub-Clause: "Specified materials" means the materials stated in Schedule 2 of Section VII of the Bidding Documents and required on the site for the execution and completion of the Permanent Works. "Basic Price" means the price for "Specified materials" indicated in Schedule 2 of Section VII of the Bidding Documents. (ii) a) Adjustments to the Contract Price for Bitumen .............. ............... b) Adjustment to the Contract Price for Cement and Steel: ............................ .......................... Sub-Clause 70.6: Limit of Price Adjustment .......................... .......................... Sub-Clause 70.7: Exemption from Price Adjustment ........................ Sub-clause 70.8: Subsequent Legislation If, after the date 28 days prior to the closing date for submission of bids f....
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....uired to be made under Sub-clause 70.8 of COPA as payment was already made under the Price Adjustment formula for price increase. In the circumstances, the appellant on 03.09.2003 wrote to the Economic Advisor, Ministry of Commerce and Industry, Government of India seeking clarification and advice. Relevant portion of the letter dated 03.09.2003 is quoted hereunder:- "Anand Bordia Member (Finance) NATIONAL HIGHWAYS Tel: 011-25074100 AUTHORITY OF INDIA 011-25074200 Ext.1612 (MINISTRY OF ROAD 011-25093506 TRANSPORT & HIGHWAYS) Fax:011-25074100 G-5 & 6, Sector-10, 011-25074200 Ext.2617 DWARKA, NEW DELHI-110045 E-mail: [email protected] D.O. NO.NHAI/11033/GM/2003-04 September 3, 2003 Dear Shri Nigam Sub: Wholesale Price Index 1. NHAI was set up by the National Highways Authority of India Act, 1988 to develop, maintain and manage the national highways and any other highways vested in, or entrusted to, it by the Government. 2. Incidental to this function, for the construction of highways, NHAI appoints highway construction contractors, selected by a process of competitive bidding. The bidding process involves the bidder quoting his delivery....
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....1 to 70.7 by way of the formula based price adjustments. Affording the benefit under "Subsequent Legislation" would amount to a double benefit. Hence they would automatically fail to come under the clause "Subsequent Legislation" by virtue of the restrictive proviso. 9. In view of the above, we will be grateful if you could clarify the following: (a) Will the WPI assessment include or deemed to include such local factors as Octroi Entry Tax and Royalty introduced/enhanced in one state etc. on items mentioned in paragraph 6 of this letter such as earth, morram, aggregate, sand, stones etc. which it appears do not come under the items considered to work out WPI. (b) The WPI based compensation for price changes will create an imbalanced structure between two contractors, one operating within the locality subject to a local impost and another in an adjoining area outside such an impost, if CAG auditors opinion is accepted. How can the WPI mechanism be used by NHAI to create an equitable structure? You may recall that the Chairman NHAI Shri Santosh Nautiyal had spoken to you about this matter. Kind Regards, Yours sincerely, Sd/- (ANAND BORDIA) Shri Shra....
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....Tribunal comprising of three experienced Engineers who had retired from Govt. service Departments above the rank of Chief Engineer framed the following questions for determination: "1) Whether the increase in the rates of Royalty has caused additional cost to the Claimant and 2) Whether the increase in cost because of increase in the rates of Seigniorage Fee on materials like aggregate, sand and earth has been taken into account in the indexing of any inputs to the Price Adjustment Formula in Sub-Clause 70.3(B) relating to the General Materials." After going through the pleadings and evidence the Arbitral Tribunal unanimously found that the respondent had incurred additional cost because of the change in rates of Seigniorage fee pursuant to change in legislation and that the said increase in the rates had not been taken into account in the indexing of any inputs to the price adjustment formula in general materials and therefore the respondent would be entitled to be paid the additional cost incurred by. It was held as under: 21. We have thoroughly gone through the entire evidence adduced by the parties and gone through the relevant Contract provisions. We have also judi....
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....s not help us in arriving at any contrary conclusion. Having answered the question, the Arbitral Tribunal rejected the contention of the respondent that it was unnecessary for it to prove actual incurring of such additional cost. The contention that the respondent would be entitled to the difference in the royalty payable on the material by a theoretical calculation based on the agreed quantities, even without proving that any such additional cost had been actually incurred was rejected. On the issue whether the respondent had produced any evidence to substantiate its claim that any such additional cost had been incurred, the Arbitral Tribunal found that the material placed on record was lacking in particulars and as such the quantification of the impact of change in the rates of royalty was left to be determined by the appellant. 12. The appellant being aggrieved by the Arbitral award made and published on 12.05.2006 filed OMP No.432 of 2006 in the High Court of Delhi which was dismissed by a Single Judge of the High Court vide judgment and order dated 14.05.2007. It was observed that the Arbitral Tribunal had found that the minerals in question did not find place in the bas....
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....h however agreed with the appellant on the second submission and remitted the matter to the Arbitral Tribunal on the limited issue of quantification of the amount. 13. In this appeal by special leave challenging the judgment and order passed by the Division Bench of the High Court, this Court at the interim stage had directed the arbitration proceedings to continue in terms of the order of the High Court. The Arbitral Tribunal by its award dated 07.05.2010 quantified the sum that the respondent was entitled to on account of increase in the rates at Rs. 43,06,810/- and awarded interest @ 12% p.a. from the date of publication till realization. By order dated 15.11.2010 this Court directed the appellant to deposit sum of Rs. 46 lakhs, being the amount so quantified. The amount has since then been deposited and stands invested in a fixed deposit. 14. Mr. Parag P. Tripathi learned Senior Advocate assisted by Ms. Monisha Handa, learned Advocate appeared for the appellant in the lead case. Ms. Indu Malhotra, learned Senior Advocate and Ms. Gunjan S. Jain, learned Advocate appeared for the appellants in the companion matters. It was submitted by them that WPI is a general or represen....
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.... audit objection, the appellant itself was of the opinion that this additional payment was admissible separately. Reliance was placed on the letter dated 03.09.2003 addressed by the appellant to the Economic Advisor. Mr. Shyam Divan learned Senior Advocate appearing for respondent in Civil Appeal No.9909 of 2011 submitted that both parties understood the terms of the Contract in a particular manner, that the view taken by the Arbitral Tribunal was affirmed by the Single Judge and the Division Bench on independent assessment and such view being a plausible view no interference was called for. Mr. Vinay Navare, learned Advocate appearing for respondent in Civil Appeal No.3150 of 2012 and other learned Counsel adopted the submissions. 16. Since it was argued that the Arbitral Tribunal disregarded the material terms of the Contract while making its assessment and failed to consider the impact of sub clauses 70.1 to 70.3 (B) and exclusion in sub clause 70.8, the law on the point needs to be briefly adverted to. In Mc Dermott International Vs. Burn Standard Co. Ltd. (Supra) this Court held as under:- "112. It is trite that the terms of the contract can be express or implied. ....
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....the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding." 19. In a recent decision in Associate Builders Vs. DDA (2015) 3 SCC 49 while discussing "the public policy of India" contained in Section 34(2) (b) (ii) of the Arbitration Act, 1996 this Court dealt with each of the heads contained in Saw Pipes Judgment (Supra) in the light of three distinct and fundamental juristic principles added in ONGC Ltd. Vs. Western Geco. International Ltd. (Supra). "Patent-illegality" which is one of the heads contained in Saw Pipes judgment (Supra) was then elaborated and we quote paras 42 to 42.3:- 42. In the 1996 Act, this principle is substituted by the 'patent illegality' principle which, in turn, contains three sub heads: 42.1 (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such ....
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....t the provision for cost escalation based on the agreed price adjustment formulae falls in one compartment while the compensation for additional cost resulting from a subsequent legislation falls in a separate category. In other words, the contention that stands accepted was, that the escalation in price premised on fluctuation in market value of the inputs stands on one footing, while the additional cost resulting form the impact of any statute, decree, ordinance, law etc as referred to in sub-clause 70.8 stands on the other. Resultantly the governing clauses in the instant case were held not to be sub-clauses 70.1 to 70.7 but the substantive part of sub-clause 70.8. The award also considered whether minor minerals in question were or were not included in the basket of materials whose cost variation was taken into account as an input while arriving at WPI. It also considered that the WPI is an index applicable uniformly in all states while the increase in Seigniorage Fee would vary from state to state. It further dealt with the aspect that NHAI itself was of the opinion that the additional impact as a result of subsequent legislation was admissible separately, as signified by the ....
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....id cases, the clauses in question are not identical and hence this matter is being dealt with separately. 26. The appellant awarded contract dated 30.08.2001 to the respondent for the work of six laning of NH-7 from KM 539 to KM 556 in the State of Karnataka, Contract Package No. NS-24/KN. Clause 13.3 of the contract pertained to Taxes and Other Levies which is set out hereinbelow : 13.3 All duties, taxes and other levies payable by the contractor under the contract, or for any other cause shall be included in the rates, prices and total Bid Price submitted by the bidder. Clause 13.4 of the contract pertained to price adjustment and is set out hereinbelow: 13.4 The rates and prices quoted by the bidder are subject to adjustment during the performance of the Contract in accordance with the provisions of Clause 47 of the Conditions of Contract. Clause 32.1 of the contract pertaining to Early Warning was as under: 32.1 The contractor is to warn the Engineer at the earliest opportunity of specific likely events or circumstances that may adversely affect the quality of work, increase the Contract Price or delay the execution of works. The Engineer may require....
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....f such other rise fall in costs. 27. In this case the disputes which have arisen between the parties were: (i) With respect to a claim for reimbursement as a result of imposition of fresh "Cess" with effect from 29.01.2004 i.e. after the formal agreement was executed in 2001. The claim was subject matter of Arbitral Award dated 13.11.2006 which was affirmed by Single Judge and later by the Division Bench of the High Court vide judgments dated 02.07.2008 and 17.08.2009 respectively. The decision was accepted and the appellant paid to the respondent sum of Rs. 28,49,503 of 28.07.2010. We are not concerned with this issue. (ii) We are concerned with the claim for reimbursement arising out of the enhancement of royalty payable in respect of minor minerals with effect from 02.06.2003 pursuant to amendment in the Karnataka Mine and Minerals Concession Rules, 1994. It was contended by the respondent that the increase in royalty charges by the legislation during the pendency of the contract could not have been anticipated or foreseen and therefore the same falls within the ambit of Clause 32.1 of the contract. The appellant submitted that in terms of express provision in su....
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....The bank guarantee shall stand discharged. No order as to costs. C. Civil Appeal No.6158 of 2013 30.This appeal is directed against the judgment and order dated 13.02.2013 passed by the Division Bench of the High Court of Delhi at New Delhi dismissing FAO (OS) No.302 of 2012. 31. On 22.03.1999 the appellant awarded contract to the respondent for the work of four laning of NH24 from KM 27.643 to KM 48.638 and construction of Hapur Bypass at Ghaziabad, U.P. Clause 28.2 of the contract entered into between the parties pertained to royalties, which was as under:- Royalties 28.2 Except where otherwise stated, the Contractor shall pay all tonnage and other royalties, rent and other payments or compensation, if any, for getting stone, sand, gravel, clay or other materials required for Works. Clauses 70.1, 70.2 and 70.8 of Conditions of Particular Application (COPA) were identical as found in Civil Appeal 979 of 2010, dealt with earlier and as such they are not repeated here. 32. According to the respondent after the commencement of work, it was called upon vide letter dated 15.12.1999 by the District Authorities asking for payment of royalty on ordinary ....
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.... reasoning that prior to 03.02.2000 the State Government lacked competence and as such valid impact occurred for the first time vide notification dated 20.03.2001, in her submission was flawed and beyond the scope of the jurisdiction of the Arbitral Tribunal. On the other hand, it was submitted by the respondent that a demand letter from the District Collector was without the support of law and that the impost pursuant to notification of 20.3.2001 alone was valid and legal and as such it being after the contract was entered into, must qualify to be 'subsequent legislation'. 36. The question, therefore, is whether Claim No.8 is covered by Clause No.70.8 of COPA. In clause No.13.4 of the Invitation to Tender it was clearly stipulated in the contract that all duties, taxes and other levies payable by the contractor under the contract as of the date 28th days prior to the deadline for submission of bid shall be included in the rates and prices and the total bid price submitted by the bidder. The State Government, as a matter of fact, was levying royalty on ordinary earth and this situation was obtaining on such date. If the State Government lacked power to levy and collect such r....