Calcutta High Court (Appellete Side)
Steel Authority Of India Limited vs M/S Sms India Private Limited on 24 September, 2025
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
COMMERCIAL DIVISION
APPELLATE SIDE
Present:
The Hon'ble Justice Arijit Banerjee
AND
The Hon'ble Justice Rai Chattopadhyay
FMAT (ARBAWARD) No. 7 of 2024
With
FMAT (ARBAWARD) No. 8 of 2024
Steel Authority of India Limited
Vs.
M/s SMS India Private Limited
For the Appellant : Mr. Sarathi Dasgupta
: Mr. Arijit Basu
For the Respondent : Mr. A. Tripathi, ld. Sr. Adv.
: Ms. Sneha Nath
: Ms. Suprava Jana
: Mr. Ayanava Acharya
Heard on : 03.09.2025
Judgment on : 24.09.2025
Rai Chattopadhyay, J. :-
1. Two identical judgments and orders of the Commercial Court at Asansol
dated December 21, 2023 in proceedings under section 34 of the
Arbitration and Conciliation Act 1996 being Misc Arbitration Case No.
10 of 2022 and Misc Arbitration Case No. 11 of 2022, are assailed in
the instant appeals, which are filed by the award debtor/Steel Authority
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of India Limited [in short „SAIL‟] under section 37 of the said Act of
1996. The appeals have been heard together and are being disposed of
by dint of the following common judgment.
2. The issue involved and required to be decided here is with regard to
construction of terms of a contract, entered into between the parties on
May 23, 2008. This Court may not enter into the enormous details of
the background facts. Suffice to state for the time being that, being
aggrieved with the deductions made by the appellant in disbursement of
bills, the respondent sought to bring the dispute before the arbitral
tribunal. The tribunal decided the act of the appellant as above to be
improper and illegal and directed for refund of the deducted sum of
money to the respondent, in its award dated June 28, 2022 [in
Arbitration Case No. 25594/HTG]. The present appellant being
aggrieved with the said award of the tribunal, dated June 28, 2022,
filed its cases under section 34 of the Arbitration and Conciliation Act
1996, before the Commercial Court at Asansol [being Misc Arbitration
Cases No. 10 & 11 of 2022], which have ultimately culminated into the
judgments dated December 21, 2023. Those judgments are identical in
nature and have been assailed in the instant appeals, filed by the
appellant /SAIL, under section 37 of the Arbitration and Conciliation
Act 1996.
3. Details of the two contract agreements are as follows:
(a) Contract Agreement for Basic Oxygen Furnace ("Contract 1"), dated
19 March 2008 signed by the Parties, SMS Demag AG and Bridge and
Roof (I) Ltd. This Contract is the subject matter of Arbitration Case No.
25594/HTG.
(b) Contract Agreement for Secondary Refining Unit ("Contract 2"), dated
23 May 2008, signed by the Parties, SMS Mevak UK Ltd., and Shriram
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EPC Ltd. This Contract is the subject matter of Arbitration Case No.
25595/HTG arises out of this Contract.
It may be mentioned at the outset that the provisions of the two
Contracts are similar. In fact, those provisions which are relevant for
determining the controversy/disputes that have arisen in these
proceedings are identical. It is also pointed out at this stage itself that
all the concerned clauses of the Special Conditions of the Contract
(SCC) and General Conditions of the Contract (GCC) in both the
Contract 1 and Contract 2 are also identical.
4. The respondent/claimant‟s case in a nutshell is as follows:
Pursuant to the award of work and in terms of the agreement entered
between the parties, the contractor‟s obligation covered design &
engineering; supply of technological steel structures; manufacture
(including associated purchases and/or sub-contracting) & supply of
plant & equipment and commissioning spares; customs & port
clearances (excluding all taxes, duties, levies, cess, etc. as may be
applicable in India other than withholding tax on design & engineering,
supervision and training services as may be applicable in India for
which prices are quoted in Foreign currency); inland transportation;
marine and inland transit insurance, erection, testing, pre-
commissioning, start-up & commissioning and demonstration &
establishment of performance guarantees of the Facilities, in
accordance with the plans, specifications, drawings, codes and any
other documents as specified in the Contract Technical Specifications.
For providing these services a lump sum price was fixed. However, in
the Price Schedule appended with the contract, this amount was
further categorized into following elements: (a) Basic price, (b) Excise
Duty (ED), (c) Central Sales Tax (CST), (d) Value Added Tax (VAT) and
(e) Service Tax (ST) etc.
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5. Upon completion of works on 19 May 2019, the appellant issued a
Performance Guarantee Certificate dated 06.07.2019 to all the
consortium members including the respondent/claimant certifying that
the works had been successfully completed. Accordingly, in terms of the
contract, the claimant on 29 July 2019 submitted invoices towards 5%
payments upon issuance of Performance Guarantee Certificate. Out of
the said invoices, the appellant withheld an amount of INR
23,98,07,285. On 24 December 2019 the appellant informed that the
said payment had been kept on hold on account of shortfall in the
amount of guaranteed CENVAT Credit, which had not been passed on
to the appellant by the respondent/claimant. The claimant protested
against the said withholding through letters dated 2 January 2020 and
24 January 2020 wherein it was explained that such withholding was
not in terms of the contract. However, the appellant, vide its letter dated
4 March 2020, reiterated its stand and justified the withholding of the
amount.
6. In terms of Article 10 of the Contract read with Clause 6 of the GCC,
the respondent issued a notice of Conciliation to resolve the disputes
vide letters dated 19 March 2020 (in respect to 25594/HTG) and 19
March 2020 (in respect to 25595/HTG). In the said letter, the
respondent stated: "Failure on your part to release the payment within
15 days shall be deemed to have exhausted all attempts towards
amicable settlement of the dispute and we shall be constrained to take
appropriate actions as may be advised and permissible under our
contract and law to enforce our rights". The appellant did not respond
to the above letters and hence, the respondent invoked the arbitration
clause and filed its Request for Arbitration (RFA) before the ICC on 24
August 2020.
7. The contra-case of the appellant is also stated below:
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The appellant say that arbitration invoked by the respondent is time
barred, non-maintainable and de-hors the contractual agreements and
law. Contracts were awarded by the appellant to a Consortium of three
members entities of which the respondent is one of the members. The
Arbitration Agreement contained in the contracts provide for arbitration
only between the consortium (collectively composed of three parties)
and the appellant. In the RFA, the appropriate law governing this
arbitration proceeding has been agreed to be held under the aegis of the
Indian Laws and the settled Indian Law prohibits arbitration proceeding
being filed by individual member of consortium. Accordingly, where the
parties to an arbitration agreement in their wisdom have agreed to enter
into the agreement only as a consortium, clearly the obligation to
arbitrate is between the consortium as a whole with the appellant on
the other side. The respondent‟s attempt to individually invoke the
arbitration proceedings is, thus, highly flawed and is in contravention
to the terms and conditions of the Contract.
8. The respondent was awarded the contract by the appellant after
evaluating all Bids received (including that of the respondent) net of
taxes as all the Bidders including the respondent had, while quoting
price under their respective Bids, specified "minimum guaranteed
CENVAT Credit". The Bidders were to indicate Minimum Guaranteed
CENVAT Credit that can be availed by the appellant against materials
supplies for subject work and, in case of any shortfall in CENVAT Credit
from that guaranteed by the Bidder, the said shortfall shall be deducted
by the appellant from the contract. In this case, the respondent failed to
discharge its obligation to pass on the specified amount of CENVAT
Credit to the appellant. Not only has the respondent failed to perform
its contractual obligation, but also it has unilaterally amended the
contract Price by nullifying the guaranteed tax credit which has
resulted into loss to the appellant and Public Exchequer. Further, in
terms of the minimum guaranteed assurance given by respondent
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under the contract, to provide a specific value of tax credits, which is
unconditional, the shortfall from such assured sum is recoverable by
appellant from the respondent as per contract. Therefore, the appellant
acting within the four corners of the terms and conditions of the
awarded contract, has made payments to the respondents against the
invoices received and has recovered the shortfall that it has incurred
from the assured sum of guaranteed credit. Since the shortfall in the
tax credits have not been disputed by the respondent, the appellant is
entitled to deduct the same from payments due to the respondent. The
respondent is interested in denying the right of the appellant to recover
the said guaranteed sum under the contractual agreement.
9. The appellant seeks the relief by stating that the respondent does not
have any cause of action against the appellant, nor does the alleged
claim of the respondent disclose any cause of action. It is submitted
that no ground has been made justifying any of the claims and the
reliefs sought by the respondent. Accordingly, the same should be
dismissed. The appellant, therefore, seeks relief in the form of
declaration that it is entitled to withhold such payments from the
monies due to the respondent under the terms of the contract.
Consequently, the appellant is also entitled to an award of the
guaranteed sum less adjustments already made thereunder.
10. Before the arbitration tribunal, the respondent/claimant has sought for
the following relief:
CASE NO. 25594/HTG (Contract 1)
Sl Particulars Amount in INR
No.
A. Outstanding payment due towards 23,98,07,285
Invoice No. Prof/18-19/48 dated
29.07.2019 of supply issued against
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Performance Guarantee certificate.
B. Interest @18% on the To be Quantified
aforementioned claim from the date
the same became due till the date of
realization of the payment.
C. Costs on actual To be determined
Total Outstanding Amount 23,98,07,285
CASE NO. c-25595/HTG (Contract 2)
Sl Particulars Amount in INR
No.
A. Outstanding payment due towards 4,19,63,769
Invoices dated 23.07.2018 issued
against Commissioning certificate.
B. Interest @18% on the To be Quantified
aforementioned claim from the date
the same became due till the date of
realization of the payment.
C. Costs on actual To be determined
Total Outstanding Amount 4,19,63,769
11. Summary of the tribunal‟s award is as follows:
"M1 BOF Contract (Case No. 25594/HTG)
Claim Particulars Tribunal's
No. Decision
A. Outstanding payment of INR Awarded INR
23,98,07,285 due towards Invoice 23,98,07,285 in
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No. Prof/18-19/48 dated favour of the
29.07.2019 of supply issued Claimant
against Performance Guarantee
certificate.
B. Interest @18% on the Awarded simple
aforementioned claim from the date interest @ 7% per
the same became due till the date annum (refer
of realization of the payment. paragraph L6.3
above)
M2 BOF Contract (Case No. c-25595/HTG)
Claim Particulars Tribunal's
No. Decision
A. Outstanding payment of INR Awarded INR
4,19,63,769 due towards Invoices 4,19,63,769 in
dated 23.07.2018 issued against favour of the
Commissioning certificate. Claimant
B. Interest @18% on the Awarded simple
aforementioned claim from the date interest @ 7% per
the same became due till the date annum (refer
of realization of the payment. paragraph L6.3
above)
181. In addition, the tribunal awards combined cost of US$ 285,000 plus
INR 2,100,000 in Case No. 25594/HTG and Case No. c-25595/HTG in
favour of the Claimant."
12. The operative part of the tribunal‟s award is quoted bellow:
"OPERATIVE PART
In summation, various findings of the Tribunal on different issues
and claims are recapitulated below:
(a) The Additional Parties are not necessary for adjudication of
disputes raised in the present proceedings.
(b) The arbitration initiated by the Claimant is not premature.
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(c) The Tribunal has the jurisdiction over the Respondent pursuant
to the Arbitration Agreement to adjudicate upon the disputes.
For all the reasons set out above, the Tribunal has concluded and
declares that SMS INDIA PVT. LTD. is held entitled to the following
reliefs:
(a) STEEL AUTHORITY OF INDIA LIMITED shall pay SMS INDIA PVT.
LTD. the outstanding payment of INR 23,98,07,285 due towards
Invoice no. Prof/18-19/48 dated 29.07.2019 of supply issued against
Performance Guarantee certificate and outstanding payment of INR
4,19,63,769 due towards Invoices dated 23.07.2018 issued against
the commissioning certificate from Respondent;
(b) STEEL AUTHORITY OF INDIA LIMITED shall pay SMS INDIA PVT.
LTD. simple interest @ 7% per annum on the aforesaid amount of
INR 23,98,07,285 and INR 4,19,63,769 from the date of invocation of
the arbitration, i.e., from 24 August 2020 until full payment by
Respondent;
(c) STEEL AUTHORITY OF INDIA LIMITED shall pay SMS INDIA PVT.
LTD. costs of INR 2,10,000 being the legal costs incurred by
Claimant, and US$ 285,000 being the costs of the arbitration; and
(d) All other requests and claims are rejected.
Wherever necessary, relevant portions of the Contract Agreement,
judgments, laws, etc. are reproduced in the Award. Despite all care
having been taken, it may be possible that some typographical
and/or clerical errors in the quoted portions may have crept in. It is
observed that such errors would be treated as corrected and
substituted by the original text of the concerned documents and/or
evidence."
13. The Commercial Court, Asansol in its judgments dated December 21,
2023, has held inter-alia that, the arbitral award does not suffer from
any perversity and that the interpretation of the contract made therein
is reasonable; that individual facts of the case have been duly
considered with reference to the relevant clauses of the contract, and
the award cannot be said to be based on any conjecture or surmises.
Hence, it has declined to interfere with the arbitral award and the
proceedings initiated before it by the present appellant/SAIL, under
section 34 of the Arbitration and Conciliation Act 1996 were dismissed.
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14. Mr. Dasgupta, learned counsel, has represented the appellant/SAIL. He
has submitted that the parties are bound by the terms of the concluded
contract entered into by and between them. He says that the contract
dated May 23, 2008 is such a concluded and binding contract between
the parties. That the terms thereof cannot be varied while performing
the same and if so, can only be done pursuant to a specific stipulation
to that effect, made in the contract itself. Otherwise, that will attract the
consequential penal or compensatory provisions as enumerated in the
contract itself. He submits that according to the terms of the said
contract entered into between the parties, the
contractor/claimant/present respondent would be obliged to fulfil
requirement of raising demand for tax reimbursement to the tune of
optimum ceiling limit as prescribed in the said contract. This condition
of contract being prescribed in the contract itself, has been well known
to the respective parties from the day of entering into such contract. He
elaborates further that reimbursement of tax to the optimum ceiling
limit as prescribed under the contract, by the appellant/SAIL, would
fetch the appellant credits, with regard to its own contractual outflow
and the taxes payable by it. He elaborates further that the instant
provision in the contract is the safeguard so that the appellant/SAIL is
not twice vexed with the liability to pay the tax. He says that according
to the terms of the contract, any lesser credit obtained by the
appellant/SAIL and attributable to the
claimant/contractor/respondent, would be recoverable by the SAIL, as
per the contractual terms. He submits that the contractor would be
obliged to arrange his affairs in such a manner, that a minimum
guaranteed credit be available to the SAIL. He has ventilated the
grievance of the appellant that in the instant cases, the
respondent/contractor has not fulfilled its obligations under the
contract to secure the minimum guaranteed credit for the
appellant/SAIL, resulting in non-receipt of or receipt of lesser amount
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of credit by the SAIL against its own contractual outflow. According to
the appellant, this amounts to deviation in performance of contract by
the respondent/contractor, in terms thereof, rendering it to be liable for
the process of recovery of the deficit credit amount, than the optimum
ceiling limit thereof. Hence, according to the appellant, withholding of
the shortfall from the milestone payments to be made to the respondent
/claimant is maintainable as per the terms of the contract. Hence that
there would not be any infirmity or illegality as alleged and held, as
regards deductions made by the appellant/SAIL, from the milestone
payments to be disbursed to the respondent/claimant. It is the
contention of the appellant/SAIL that in such view of the matter, both
the decisions of the arbitral tribunal as well as the Commercial Court at
Asansol are erroneous and unreasonable. The judgments of the
Commercial court at Asansol, challenged in the instant proceeding
under section 37 of Arbitration and Conciliation Act 1996 are thus
liable to be set aside.
15. Per contra, Mr. A. Tripathi, learned Senior counsel appearing for the
respondent/claimant/contractor, has vehemently objected to the
contentions and prayer made by the appellant in the instant appeals.
He has vehemently objected to the contention of the appellant/SAIL
that the amount of CENVAT credit in favour of the appellant would only
be static and guaranteed amount, in terms of the contract entered into
between the parties. He has argued that the credit allowable to the
appellant is dependent on and subject to the amount of tax reimbursed
by the appellant towards the respondent/contractor, while disbursing
its bills. The tax reimbursement sought for by the
respondent/contractor has diminished over time, from the date of
entering into the contract, pursuant to reduction in the rate of taxes
over the period of time. Mr. Tripathi has stated that the Excise Duty
payable by the contractor which was 12 percent and odd at the time of
entering into the contract, subsequently reduced to 10 per cent and
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thereafter to 8 percent. Hence, the contractor, having remitted tax at a
reduced rate, would not ever raise a bill for reimbursement thereof, at a
rate or for an amount greater than what the contractor has actually
remitted. More so, when his demand should be supported by
appropriate and relevant documents. That, with reduction of rate of tax,
the contractor had to pay less on account of tax and therefore sought
for reimbursement at a rate and for an amount which was actually paid
by the same as tax. Mr. Tripathi submits that the contractor would not
have any control over the change in the rate of taxes over the period of
time. He says that in accordance with the contractual terms, cent
percent tax liability of the contractor is reimbursable by the SAIL, that
in turn fetches it the adequate credit. It is submitted that there cannot
be any minimum unchangeable guaranteed amount for which the
contractor would be liable to raise bill, irrespective of whatever actual
amount of tax paid by the contractor, as the rate of tax is always
subject to change in pursuance of the policies of the government in this
regard.
16. Mr. A. Tripathi, learned Senior Counsel has submitted further that in
absence of any patent error, illegality or perversity being traced in the
impugned judgments of the Ld. Commercial Court or in the award of
the arbitral tribunal, this Court while deciding the appellant‟s case
under section 37 of the Arbitration and Conciliation Act 1996, may not
venture to re appreciate the evidence, as it is the dictum of the law as
settled on date. He has stated that after due consideration of the
materials on record and the evidence, a proper and reasoned decision
has been arrived at by the arbitral tribunal, which has not been
unsettled or varied or interfered into by the Ld. Commercial Court,
Asansol, in any manner whatsoever. That, the Appeal Court exercises
only limited supervisory role as to any patent illegality or perversity of
the said decision. He says that this principle applies both in cases of
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Court exercising power under section 34 of the said Act and this Court
which exercises power under section 37 thereof. Rather it is more
narrow in case of this Court, he says. The appellate power of section 37
of the Act is said to be limited within the domain of section 34 of the
Act; that it is exercisable only to find out if the Court exercising power
under section 34 of the Act, has acted within its limits as prescribed
under the law or has exceeded or failed to exercise the power so
conferred. With reference to one judgment of the Supreme Court in
Punjab State Civil Supplies Corporation Limited vs Salman Rice
Mills, reported at 2024 SCC Online SC 2632, Mr. Tripathi has stated
that the Appellate Court shall have no authority of law to consider the
matter in dispute before the arbitral tribunal on merits, so as to find
out as to whether the decision of the arbitral tribunal is right or wrong,
upon reappraisal of evidence, as if it is sitting in an ordinary Court of
Appeal. To buttress his argument and on the proposition of law as
mentioned above, he has relied on some other judgments also, as stated
below:
(I) AC Chokshi Share Broker Private Limited Vs. Jatin
Pratap Desai And Another reported at (2025) 5 SCC 321
(II) UHL Power Company Limited Vs. State of Himachal
Pradesh reported at (2022) 4 SCC 116
(III) MMTC Limited Vs. Vedanta Limited reported at (2019) 4
SCC 163
(IV) Associate Builders Vs. Delhi Development Authority
reported at (2015) 3 SCC 49
(V) Executive Engineer Vs. S. Bose reported at 2025 SCC
OnLine Cal 567
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(VI) National Highways Authority of India Vs. Manta Kumar
Saha and Others reported at 2024 SCC OnLine Cal 7587
(VII) South City Projects (Kolkata) Limited and Another Vs.
Kolkata Metropolitan Development Authority reported at
2023 SCC Online Cal 2050
17. Mr. A. Tripathi, learned Senior counsel has further submitted that in
these appeals, the appellant makes endeavour to prompt the Court to
appreciate materials and evidence one again, which is however, not
permissible under the law. He submits that the award of the arbitral
tribunal would not be proper to be interfered with, since the same has
not been challenged on the ground of any illegality or perversity. He
submits further that in this case the Court exercising power under
section 34 of the said Act has neither acted beyond its power as
prescribed nor has exceeded or failed to exercise the power conferred
by law, on the same. Therefore, he submits further, that this Court
while exercising power conferred under section 37 of the said Act is
not authorised to see if the decision of the arbitral tribunal or the
Commercial Court was right or not, upon re-appraisal of the evidence
and the case on merits. The respondent has stated that within the
narrow scope and purview of section 37 of the Arbitration and
Conciliation Act 1996, and while exercising the power of
superintendence as vested in it by law, this Court may not enter into
the questions of the impugned orders or the arbitral award being right
or wrong, as sought for by the appellant. Instead the said impugned
orders being not patently erroneous, illegal or perverse, may not be
interfered into by this Court. Mr. Tripathi, learned Senior Counsel for
the respondent seeks that the appeals as above may be dismissed.
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18. Before proceeding further with the discussions, relevant terms of the
contract may be extracted as herein below, for benefit of the discussion:
"The Summary Price Schedule reads as follows:
S.N Description Total Price at base date
In INR (INR Million)
at base date for SMS
(I) Pvt. Ltd.
A B
14. Total Contract Price 1857.643
15. CENVAT Credit 125.643
16. VAT Credit (Input Tax Credit)
17. VAT on Works Contract Credit
18. Total Package Price-net of 1732.00
CENVAT, VAT & Vat On Works
Contract
2.1 Contract Price (Reference GCC Clause 11)
The employer hereby agrees to pay to the Contractor the Contract Price
in consideration of the performance by the Contractor of its obligations
hereunder. The Contract Price shall be the aggregate of : GBP 4000,000/-
(GBP four million only), and Indian Rupees 1944913000/- (Rupees one
billion nine hundred forty four million nine hundred thirteen thousand
only) or such other sums as may be determined in accordance with the
terms and conditions of the Contract. The guaranteed amount of
CENVAT and VAT Credit to be passed on to the Employer in Indian
Rupees 134,913,000 Million (Rupees One Hundred Thirty Four Million
Nine Hundred Thirteen Thousand Only).
"GCC Clause 11.2, Price Basis
11.2.1 The Contract Price indicated in Indian Rupees shall comprise
Basic price, Excise Duty, Central Sales Tax/VAT (including sales
tax/VAT/Works Contract Tax for the erection portion of the contract
only) Octroi, Service Tax, Education Cess and any other duties, taxes and
levies, as may be applicable and prevailing on base date of the Contract.
While the basic price will constitute the consideration under the
Contract, the payment of duties, taxes, levies, etc., will be reimbursed
(on actual)/ paid against documentary evidence to be produced by the
Contractor, subject to a ceiling indicated in Price Schedule given in
Appendix 1. In no case the reimbursement towards duties and taxes, etc.,
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shall exceed the amount indicated in Appendix 1 towards duties, taxes,
levies, etc., except as indicated in Sub-clause 14.06.1, hereof.
Service Tax and Excise Duty shall mean to cover applicable Education
Cess, Secondary and Higher Education Cess or any other surcharge
thereon as applicable.
"GCC Clause 14. Taxes and Duties
14.1 Except as otherwise specifically provided in the Contract, the
Contractor shall bear and pay all taxes, duties, levies and charges
assessed on the Contractor, its Sub-Contractors or their employees by
Municipal, State or Central Government Authorities.
However, subject to stipulations of the Contract, the payment of
duties, taxes, levies, cess etc., will be reimbursed / paid (on actual)
against documentary evidence to be produced by the Contractor,
subject to a ceiling indicated in price schedule (s) of the Contract. In
no case the reimbursement / payment towards duties, taxes, levies, cess
etc., shall exceed the amount indicated in price schedule(s) of the
Contract towards duties, taxes, levies, cess etc., except on account of
statutory variation in Taxes & Duties and / or imposition of new taxes
and duties. All taxes and duties payable outside India in respect of
performance of the Contract, shall be borne & paid by the Contractor.
"GCC Clause 14.5 CENVAT, VAT, VAT ON WCT
14.5.1 Contractor shall furnish the Employer along with the billing
schedule the list of goods for which CENVAT Credit can be availed
indicating the Tariff headings to enable the Employer to declare the same
to Appropriate Authority.
14.5.3 Excise Invoices for all indigenous plant, equipment and materials
shall be made consigned to "Steel Authority of India Limited-IISCO
Steel Plant" for availing CENVAT Credit under relevant Rules and shall
be furnished by the Contractor to the Employer for availing CENVAT
Credit.
14.5.5 The Contractor shall also submit any other Document required by
the Employer to avail the CENVAT Credit. In case, the Contractor fails
to submit the required document for availing the CENVAT credit by the
Employer in respect of supplies, the amount of Excise Duty on such
indigenous plant & equipment and countervailing duty on imported plant
& equipment for which the prices are in Indian Rupees shall not be paid
by the Employer to the Contractor.
14.5.6 Contractors has indicated Minimum Guaranteed CENVAT Credit
that can be availed by the Employer against material supplies for subject
work for which price quoted is in Indian Rupees. In case of any shortfall
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in CENVAT credit from the value guaranteed by the Contractor, the
shortfall shall not be reimbursed to the Contractor.
In case, Employer is not able to avail CENVAT credit for reasons,
attributable to the Contractor and the ED amount for such cenvat credit
has already been paid to the contractor as per the approved billing
schedule, the same shall be recovered by the Employer from the
Contractor. CENVAT credit in excess of the guaranteed amount will be
shared in proportion of 50: 50 between the Employer and the contractor.
Sharing of CENVAT Credit as detailed above shall not include in
CENVAT credit amount on account of statutory variation.
14.5.8 For direct supply of the indigenous brought-out plant & equipment
by the Sub-contractor to the Employer, the contractors will draw their
invoices as per relevant trade notice to enable the Employer to avail the
CENVAT Credit.
"GCC Clause 14.6 Variations in Taxes & Duties"
14.6.1 For the purposes of the Contract, it is agreed that the 'Contract
Price' specified in Article 2 ("Contract" & "Terms of Payment") of the
Contract Agreement is based on the taxes, duties, levies etc., and
charges prevailing on Base Rate (hereinafter called "Tax" in this Sub-
Clause 14.6 hereof). If any rate of tax is increased or decreased, a new
tax is introduced, an existing tax is abolished, or any change in
interpretation or application of any tax occurs in the course of the
performance of Contract, which was or will be assessed on the
Contractor, Sub-Contractors or their employees in connection with
performance of the Contract, an adjustment of the Contract Price or
indigenous portion for which prices are indicated in Indian Rupees
shall be made as per Sub-Clause 14.6.2 & 14.6.3 hereof, by addition to
the Contract Price or deduction therefrom, as the case may be.
14.6.2 The adjustment in the Contract Price towards variation in the taxes
shall be made by the Employer on production of the documentary
evidence by the Contractor."
19. On a careful reading of the provisions under sections 34 and 37 of the
Arbitration and Conciliation Act 1996 and the verdicts of the Court in
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interpretation thereof, the law as it stands on the date emerges to be
that the Court in exercise of power under the said provisions of statute
shall only have a limited supervisory power, as enshrined in the said
provisions of law. The Court cannot intervene beyond the specific
grounds, enumerated in the statute and cannot correct errors in the
arbitral award. The Court cannot undertake an independent
assessment of the merits of the award by appreciating evidence or
interfering with a reasonable interpretation of contractual terms by the
arbitral tribunal. The law has been narrated by the Supreme Court
that a Court under section 37 must only determine whether the
section 34 Court has exercised its jurisdiction properly and rightly,
without exceeding its scope as enumerated in the statute itself.
Otherwise, the Court‟s verdict would be marred with erroneous
exercise of jurisdiction as per law. In the case of Jatin Pratap Desai
(supra), the Supreme Court has dwelled on these principles.
20. The law is now settled that the scope of intervention of the Court in
arbitral matters is virtually prohibited. The interference if any, is
confined only to the extent envisaged under the said statutory
provisions, including that the appellate power of section 37 of the Act
is limited within the domain of section 34 of the Act. That it is
excisable only to find out if the Court exercising power under section
34 of the Act, has acted within its limits as prescribed under the law or
has exceeded or failed to exercise the power so conferred. That the
Appellate Court has no authority of law to consider the matter in
dispute before the arbitral tribunal on merits so as to find out as to
whether the decision of the arbitral tribunal is right or wrong, upon
appraisal of evidence. As it has been held by the Supreme Court in the
case of Sanman Rice Mills (supra), that it is only where the Court
exercising power under section 34 has failed to exercise its jurisdiction
vested in it under section 34 or has travelled beyond its jurisdiction,
the Appellate Court can step in and set aside the order passed under
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section 34 of the Act. The Supreme Court says that the power of the
Appellate Court is more akin to that of superintendence, as is vested in
civil Courts while exercising revisionary power.
21. Pertinent is to note what the Supreme Court has laid down while
discussing the scope and extent of 2015 amendments to section 34 of
the Arbitration and Conciliation Act 1996, in the case of Vedanta
Limited (supra), which is in the following words:
"13. It is relevant to note that after the 2015 Amendment to Section 34,
the above position stands somewhat modified. Pursuant to the insertion
of Explanation 1 to Section 34(2), the scope of contravention of Indian
public policy has been modified to the extent that it now means fraud or
corruption in the making of the award, violation of Section 75 or Section
81 of the Act, contravention of the fundamental policy of Indian law, and
conflict with the most basic notions of justice or morality. Additionally,
sub-section (2-A) has been inserted in Section 34, which provides that in
case of domestic arbitrations, violation of Indian public policy also
includes patent illegality appearing on the face of the award. The
proviso to the same states that an award shall not be set aside merely
on the ground of an erroneous application of the law or by
reappreciation of evidence."
22. The scope of the provision under section 37 has been discussed therein
in the following manner:
"14. As far as interference with an order made under Section 34, as
per Section 37, is concerned, it cannot be disputed that such
interference under Section 37 cannot travel beyond the restrictions
laid down under Section 34. In other words, the court cannot
undertake an independent assessment of the merits of the award,
and must only ascertain that the exercise of power by the court
under Section 34 has not exceeded the scope of the provision. Thus,
it is evident that in case an arbitral award has been confirmed by
the court under Section 34 and by the court in an appeal under
Section 37, this Court must be extremely cautious and slow to
disturb such concurrent findings."
Page 20 of 27
23. Similarly, in the other judgments of the Supreme Court and this Court,
as relied on by the respondent in this appeal, the law as mentioned,
have been elaborately discussed. Findings of this Court in South City
Projects (supra), may also be apt and beneficial to be mentioned in this
regard, which is as follows:
"41. From the above decisions the following principles may be culled out. An
award may be interfered with only if:--
a) It is perverse i.e. the conclusions are not based on the evidence on record
and/or based on extraneous considerations and/or material.
b) No reasonable man can arrive at the conclusion arrived at by the Arbitral
Tribunal.
c) The findings of the Tribunal are such that would shock the conscience of a
reasonable person.
d) The award is patently illegal or irrational.
e) The award is against the basic and/or fundamental and/or public policy of
India or Indian Law.
f) Any of the parties have been denied a reasonable opportunity to put forth
their case or an equal opportunity is not given to the parties and there is denial
of the principles of natural justice and the procedure followed is dehors a judicial
approach.
g) If the award is against the specific term of the contract and against the
substantive law if India."
24. Within the limited power vested under the law this Court would only
be justified to assess whether the Commercial Court at Asansol, while
exercising its power under section 34 of the Arbitration and
Conciliation Act 1996, has travelled beyond scope of that vested in it
by the law or has committed any patent illegality or been patently
irrational or that if it has failed to consider whether the arbitral award
was against the terms of contract or any substantive law or public
policy of the of the country.
25. Going back to the case as made out by the appellant in this Court, we
find that the appellant‟s case is basically with regard to the alleged
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invalidity of the arbitral award due to the reason of it not being in
terms of the contractual terms. The terms of contract as relied on by
the appellant are elaborately referred to above. It is the case of the
appellant herein that they were entitled to deduct the shortfall in
CENVAT credit from the bills of the respondent and that arbitral
tribunal misinterpreted Clause 14.5.6 of the GCC and erroneously
came to the conclusion that the appellant has no power or right to
deduct or withhold the amount of shortfall in the CENVAT credit.
According to the respondent, the contract does not permit
withholding/deducting amount of shortfall in the CENVAT credit from
bills of the respondent.
26. It would be pertinent to mention the finding of the tribunal, as follows:
"128. To sum up, the "guaranteed amount of CENVAT Credit" records
minimum assured amount of CENVAT Credit in the Contract on the basis
of quotations given by the Contractor in the bid. The Employer keeps in
mind that it will be able to avail the stated figure of CENVAT Credit.
However, even when the Contractor fulfils its assurance and enables the
Employer to avail the figure of minimum CENVAT Credit mentioned in
the Contract, the Employer does not gain anything therefrom. On the
one hand, the Employer avails the CENVAT Credit and on the other hand,
it pays this very amount to the Contractor in the form of
"reimbursement" of the taxes paid by the Contractor. The position
remains the same even when the CENVAT Credit availed of by the
Employer is lesser than the minimum guaranteed amount thereof as
mentioned in the Contract....."
"136. Clause 14.5.6 of GCC in no uncertain terms states that "in case of
any shortfall in CENVAT Credit from the value guaranteed by the
contractor, the shortfall shall not be reimbursed to the contractor". As
noted above, this shortfall can be for the reason that proper and valid
documents are not given by the Claimant to the Respondent to enable
the Respondent to avail full credit. It may also be for the reason that
excise duty paid was lesser than which was guaranteed. This clause
takes care of both the situations resulting in shortfall of CENVAT Credit.
The stipulation that "the shortfall shall not be reimbursed to the
contractor" applies to both the eventualities. Apart from this, there is no
provision in the Contract which entitles the Employer/Respondent to
"withhold" or "deduct" the said shortfall from the amounts that are
payable to the Contractor/Claimant under the Contract. In the absence
of such a provision in Clause 14.5.6 of GCC or anywhere in the Contract,
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it can safely be inferred that the Respondent has no right to deduct or
withhold the amount of shortfall in the CENVAT Credit. Clause 14.5.6 of
GCC, thus, provides the complete answer."
"141 To sum up, the Contract provides for Contract Price (Article 2.1 of
the Contract) and also gives the basis of this price (Clause 11.2.1 of GCC)
by bifurcating it into the basic price (which is the consideration for the
performance and its obligation under the Contract by the Contractor)
and the duties, taxes, etc. No doubt, the Contract also mentions the
minimum guaranteed CENVAT Credit that is assured by the Contractor to
the Employer. However, in case of shortfall, the consequence thereof is
also provided in the Contract itself (Clause 14.5.6 of the GCC). To repeat,
the only consequence is that the Contractor shall not be reimbursed for
the amount of taxes, etc. which it has not paid. This clause nowhere
provides for "deduction" or "withholding" of such a shortfall from the
basic price which is the consideration payable by the Respondent to the
Claimant under the Contract."
27. The reasoning given by the tribunal was further endorsed by the
Commercial Court at Asansol with the following words:
"23. Having examined the various contentions of the Learned
Advocate for the petitioner on the touchstone of the parameter of
interference as laid down by the Hon'ble Apex Court in several
judgments referred to above I am of the view that the impugned
award does not suffer from any infirmity. The Learned Arbitral
Tribunal has deliberated on all issues under reference and has duly
explained the reasons for arriving at its decision. There is nothing to
indicate that the award is in conflict with the basic notion of justice
and fair play and fundamental of policy of Indian Law or is in
contravention of the terms of the contract or lacks reasoning. The
impugned award therefore does not call for any interference.
Hence,
It is, ORDERED
That Misc. Arbitration case being Misc. Arbitration Case No.10 of
2022 is rejected on contest.
The impugned award is upheld."
Page 23 of 27
28. The basic contract price (Net Package Price) as specified in the contract is a
lump-sum price, which the appellant agreed to pay to the respondent.
Thus, the lump sum price payable to the respondent was Rs. 1732 million
(Item 18). If, as per the Summary Price Schedule, the respondent had
submitted CENVAT documents of Rs. 125.643 Million (Item 15), they would
have been paid Rs. 1857.643 Million (Item 14) by the appellant (Rs. 1732
Million + Rs. 125.643 Million = Rs. 1857.643 Million). In the present case,
the respondent submitted documents (on which appellant received CENVAT
credit) of Rs. 58.323 Million. Thus, as per contract, the respondent is
entitled to Rs. 1790.323 Million (Rs. 1732 Million + Rs. 58.323 Million). If
somehow no tax had been paid (assuming indirect taxation was abolished),
the respondent would have been entitled only to the sum of Rs. 1732
Million. From the above, it is evident that the amounts mentioned in the
contract can change on the basis of a host of factors, including market
dynamics, change in rates of taxes etc. The shortfall in the documentation
pertaining to ED, ST, Education cess etc. is due to a number of factors,
including (a) change in rates of taxation (b) change in rates of items (c)
changes in quantity of materials to be supplied. The respondent could not
have paid more taxes than demanded by the Government. Moreover, there
was no reason for the respondent to hide the taxes paid since they were, in
any case, to be reimbursed by the appellant for the taxes paid by them.
Merely because the words "guaranteed" and "minimum" have been used in
the contract does not make the said figure a constant figure. A conjoint
reading of Article 2.1 of the agreement and GCC Clause 14.5.6 would make
the intention of the terms "Minimum" and "Guaranteed" clear and
unequivocal. Thus, the averment of the appellant that the contract price as
set out in the contract is not changeable, is unacceptable. The Gross
Contract Price depends upon a number of variables, including changes in
rates of taxes, price variation etc. and hence, it cannot ever be stated that
the Contract Price is a fixed amount. Accordingly, Article 2.1 of the
agreement read with clause 14.5.6 and 14.6 envisages that the Contract
Page 24 of 27
Price as well as CENVAT amount is subject to changes (upwards or
downwards). They cannot remain constant as stated by the appellant.
29. A perusal of the paragraphs of the award quoted above would show that
the appellant has no power under the contract to make any deduction
and that the amount of minimum guaranteed CENVAT credit is not a
sum due to the appellant but depends upon factors, which are
changeable in nature. Hence, the insistence of the appellant on the
amount of shortfall is beyond the provisions of the contract and was
correctly held as such by the learned arbitral tribunal. The contention of
the appellant that the shortfall in the CENVAT amount had any impact
on their financial planning has also been dealt with in the Award and
endorsed in the judgment of the Commercial Court at Asansol.
30. This court finds the tribunal's award to be based on a careful examination
of the contract, contemporaneous records, evidence of parties, and
consistent application of law. Under Section 34 of the Act, such findings are
not liable to be interfered with, even if an alternative view is possible. The
Hon'ble Supreme Court in Ssangyong Engineering & Construction Co.
Ltd. v. NHAI reported at (2019) 15 SCC 131 has held that unless the
award is perverse or patently illegal, no interference is permissible. None of
the conclusions in the present award satisfy that threshold.
31. The challenge that the tribunal exceeded its mandate under Section
34(2)(a)(iv) is wholly unfounded. The tribunal adjudicated the dispute
framed in the Terms of Reference, namely, whether the appellant was
contractually entitled to withhold ₹23.98 crores under Clause 14.5.6. The
award does not travel beyond this issue. No extraneous relief was granted.
The findings remain strictly confined to the scope of submission. In fact,
Page 25 of 27
the tribunal repeatedly emphasized its interpretive limits and derived all
conclusions from specific clauses, notably Clause 14.5.6 and Article 13.
32. The appellant alleges patent illegality, but this challenge is an
impermissible attempt to reargue the merits. As per Ssangyong
Engineering (supra) to show a patent illegality, challenge must be held as
to a contravention of law on the face of the award. Here, the tribunal's
analysis of Clause 14.5.6 is cogent, reasoned, and entirely consistent with
commercial logic. The award was never improbable but only a plausible
outcome, considering that the deduction was made unilaterally against a
certified invoice. No error of law or fact is manifest on the face of the record.
The appellant did not demonstrate any claim under Clause 14.5.6.
Moreover, no contemporaneous amendment under Article 13 existed
permitting any such deduction. The tribunal therefore rightly held that the
deduction was baseless.
33. The Commercial Court, in its judgment dated 21st December 2023, while
rejecting the Section 34 petition, has categorically upheld the arbitral
award as being reasoned, legally sound, and consistent with both the
contractual terms and settled legal principles. The judgment reinforces
several key conclusions of the arbitral tribunal and highlights the absence
of any grounds for interference under Section 34 of the Arbitration and
Conciliation Act, 1996. The Court reaffirmed that the arbitral tribunal had
interpreted clause 14.5.6 of the General Conditions of Contract (GCC)
correctly by holding that the said clause does not authorize unilateral
deductions from certified invoices. Instead, the only consequence
contemplated by the clause is the non-reimbursement of excess duty
amounts in the event of a shortfall of CENVAT credit. At Paragraphs 135-
141 of the judgment, the Commercial Court observed that "there is no
provision in the Contract which entitles the Employer to „withhold‟ or
Page 26 of 27
„deduct‟ the said shortfall from the amounts that are payable," thereby
endorsing the tribunal‟s core finding.
34. The Court has further held that the invocation of arbitration by the
respondent was entirely valid and permissible. Interpreting clause 1 of the
GCC and the structure of the consortium, the Court found that each
member, including the respondent herein, was independently treated as a
"Contractor" under the terms of the agreement. The Court also recorded
that the other consortium members neither raised claims nor objected to
exclusion from arbitration, and thus their non-participation did not vitiate
the proceedings. The Court specifically cited the tribunal's holistic
interpretation of Articles 1.3, 10.1, 12.1.1, and the Terms of Payment,
concluding that the contract was divisible and permitted independent
invocation of arbitration by any consortium member. The Court has also
emphasized the well-established limitations on judicial review of arbitral
awards. It relied on precedents including Associate Builders (supra,)
Ssangyong Engineering (supra) to reiterate that re-appreciation of
evidence or alternate interpretations of contractual clauses are
impermissible unless the award suffers from patent illegality or is contrary
to the fundamental policy of Indian law. The Court observed that the
arbitral award was well-reasoned, based on documentary evidence, and not
rendered in violation of any procedural mandate, thereby precluding any
interference. Lastly, the Court upheld the tribunal's award of interest and
costs under Sections 31(7) and 31A of the Act. It noted that the simple
interest at 7% per annum was neither excessive nor arbitrary, and the
costs awarded reflected the prevailing norms and the conduct of the
parties.
35. These judicial observations lend further credence to the Award and
demonstrate that the tribunal's reasoning has passed judicial scrutiny on
Page 27 of 27
all relevant parameters, jurisdiction, contractual interpretation, procedural
confirmation, significantly diminishing any scope for further challenge.
36. The present appeal essentially seeks reappraisal of facts and interpretation
of contractual clauses,, impermissible under settled arbitration law. The
tribunal's award as well as the order by the Commercial Court at Asansol in
regard to the application filed by the appellant under Section 34 of the
Arbitration and Conciliation Act, 1996 is well-reasoned and contractually
consistent, withstands all grounds of challenge presented by the appellant.
37. Hence, on the basis of the entire discussion as above, this Court finds
no merits in the instant appeals.
38. The appeals being FMAT (ARBAWARD) No. 7 of 2024 and FMAT
(ARBAWARD) No. 8 of 2024 are dismissed. There will be no order as to
costs.
39. Urgent certified copy of this judgment, if applied for, be supplied to the
parties upon compliance with all requisite formalities.
I agree.
Arijit Banerjee, J. Rai Chattopadhyay, J.
