Madras High Court
M/S.Chennai Metro Rail Limited vs M/S.Transtonnelstroy-Afcons Jv on 21 June, 2024
Author: C.Saravanan
Bench: C.Saravanan
Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 15.12.2023
Pronounced on 21.06.2024
CORAM :
THE HONOURABLE MR.JUSTICE C.SARAVANAN
Arb.O.P.(Com.Div.) Nos.360 and 361 of 2017
M/s.Chennai Metro Rail Limited,
Administration Building,
Chennai Metro Rail Depot,
Poonamallee High Road,
Koyambedu, Chennai – 600 107. ... Petitioner in both O.Ps.
Vs.
M/s.Transtonnelstroy-Afcons JV,
Represented by Afcons Infrastructure Limited
and comprising
1.Transtonnelstroy Limited,
4/1, Luganskaya Str,
Moscow, 115583,
Russia.
2.Afcons Infrastructure Limited,
Afcons House,
16, Shah Industrial Estate,
Veera Desai Road,
Azad Nagar (P.O.),
Post Box No.11878, Andheri (W),
Mumbai – 400 053. ... Respondents in both O.Ps.
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Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
Prayer in both O.Ps: Original Petition is filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (as amended in 2015), praying to set aside the
impugned Award dated 07.03.2017 by the majority of the Hon'ble Arbitral
Tribunal, allow this petition with costs throughout.
Arb.O.P.(Com.Div.) No.360 of 2017
For Petitioner : Mr.Yashood Vardhan
Senior Counsel
for Mr.Raghavendra Ross Divakar
For Respondent : Mr.G.Masilamani
Senior Counsel
for Mr.D.Balaraman
Arb.O.P.(Com.Div.) No.361 of 2017
For Petitioner : Mr.Arjun Suresh
and M/s.Apoorva Vinjamur
For Respondent : Mr.G.Masilamani
Senior Counsel
for Mr.D.Balaraman
COMMON ORDER
By this common order, both the petitions filed by the petitioner under Section 34 of the Arbitration and Conciliation Act, 1996 (as amended in 2015) are being disposed of. They were argued simultaneously. The dispute in these original petitions arise under two separate contracts awarded by the Petitioner to the Respondent/Claimant as detailed below:-
https://www.mhc.tn.gov.in/judis 2/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Sl. Arb.O.P.(Com.D Contract Package No. Value of the No. iv.) No. No. Contract
1. 360 of 2017 UAA-01 Package-01 Rs.1566 Crores (Egmore to Washermanpet)
2. 361 of 2017 UAA-05 Package-05 Rs.1030 Crores (Shenoy Nagar to Thirumangalam)
2. The petitioner was the Respondent before the Arbitral Tribunal who is before this Court in Arb.O.P.(Comm.Div.) Nos.360 and 361 of 2017 aggrieved by the the Impugned Arbitral Awards both dated 07.03.2017 of the Arbitral Tribunal.
3. The Arbitral Tribunal consisted of three Arbitrators, two nominated by each of the parties to the dispute and one presiding arbitrator appointed by the two arbitrators.
4. The constitution of the Arbitral Tribunal in the respective Original Petition are as under:-
Sl. Arb.O.P.(Com. Presiding Arbitrator Arbitrator nominated Arbitrator nominated by No. Div.)No. by the Petitioner the Respondent
1. 360 of 2017 Mr.J.C.Shah Mr.G.Sivakumar Mr.P.Sridharan
2. 361 of 2017 Mr.K.Dharmalingam https://www.mhc.tn.gov.in/judis 3/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
5. The Arbitral Tribunal in the Impugned Awards both dated 07.03.2017 has by majority of 2:1 allowed the claim of the Respondent/Claimant. The Arbitrator nominated by the Petitioner has given a minority view while the respective Presiding Arbitrators and the same Arbitrator nominated by the Respondent/Claimant in the respective cases have given their majority views by accepting the claim petition of the Respondent/Claimant.
6. The Arbitral Tribunal has awarded a sum of Rs.61,03,79,409/- and Rs.45,59,76,382/- with interest at 12% to the Respondent/Claimant in respect of Contract No. UAA-01 (Washermanpet to Egmore) and Contract No.UAA-05 (Shenoy Nagar to Thirumangalam) which are challenged in Arb.O.P.(Comm.Div.) No.360 and Arb.O.P.(Comm.Div.) No.361 of 2017 respectively as detailed below:-
Sl. Arb.O.P. Award Amount Contract No. Package No. No (Com.Div.)No .
1. 360 of 2017 Rs.17,03,43,787/- UAA-01 (Washermanpet to Package-01 + Egmore) Rs.44,00,35,622/-
Total Rs.61,03,79,409/-
2. 361 of 2017 Rs.12,83,88,674/- UAA-05 Package-05
+ (Shenoy Nagar to
Rs.32,75,87,708/- Thirumangalam)
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Total Rs.45,59,76,382/-
7. Operative portion of the majority view of the Arbitral Tribunal in the Impugned Awards both dated 07.03.2017 viz., 2:1 assailed in Arb.O.P.(Com.Div.) No.360 of 2017 and Arb.O.P.(Com.Div.) No.361 of 2017 are as under:-
Arb.O.P.(Com.Div.) No.360 of 2017 Arb.O.P.(Com.Div.) No.361 of 2017 Now, the Majority Arbitrators, Now, the Majority Arbitrators, accordingly hereby pass an award in accordingly hereby pass an award in respect of Claim 4 as under:- respect of Claim 4 as under:-
1. The Claimant is entitled for a 1. The Claimant is entitled for sum of Rs.17,03,43,787/- on a sum of Rs.12,83,88,674/-
account of Price Variation on account of Price Variation Payment for Steel component Payment for Steel and the Respondent is directed component and the to pay the Claimant a sum of Respondent is directed to Rs.17,03,43,787/- (Seventeen pay the Claimant a sum of Crores Three Lakhs Forty Rs.12,83,88,674/- (Twelve Three Thousand Seven Crores Eighty Three Lakhs Hundred and Eighty Seven Eighty Eight Thousand Six Only). Hundred and Seventy Four Only).
2. The Claimant is entitled for a 2. The Claimant is entitled for sum of Rs.44,00,35,622/- on a sum of Rs.32,75,87,708/-
account of Price Variation on account of Price Variation
Payment for Cement Payment for Cement
component and the component and the
Respondent is directed to pay Respondent is directed to
the Claimant a sum of pay the Claimant a sum of
Rs.44,00,35,622/- (Forty Four Rs.32,75,87,708/- (Thirty
Crores Thirty Five Thousand Two Crores Seventy Five
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Six Hundred and Twenty Two Lakhs Eighty Seven
Only). Thousand Seven Hundred
and Eight Only).
Interest: Interest:
3. The Respondent is directed to 3. The Respondent is directed
pay the Claimant simple to pay the Claimant simple
interest @ 12% per annum interest @ 12% per
on the total sum awarded under annum on the total sum
item 1) and 2) above from awarded under item 1) and
20.08.2015 to till the date of 2) above from 21.08.2015 to
this award. till the date of this award.
4. If the Respondent fails to pay 4. If the Respondent fails to
the above sums awarded pay the above sums awarded
together with interest to the together with interest to the
Claimant within 90 days from Claimant within 90 days
the date of award, the from the date of award, the
Respondent shall pay to the Respondent shall pay to the
Claimant interest @ 14% per Claimant interest @ 14%
annum (the rate of pre-award per annum (the rate of pre-
interest i.e., 12% plus 2% as award interest i.e., 12% plus
per the amended Arbitration 2% as per the amended
Act, 2015) on the above sums Arbitration Act, 2015) on
(Principal as well as interest) the above sums (Principal as
from the date of award till the well as interest) from the
date of payment. date of award till the date of
Cost of Arbitration: payment.
5. Arbitrator's fees and cost of
Arbitration proceedings is to be
shared equally by both the 5. The Arbitration Award has parties. The Tribunal does not been made pursuant to the award any cost to either party. provision of the Arbitration The Arbitration Award has & Conciliation Act, 1996 as been made pursuant to the amended in 2015.
provision of the Arbitration & 6. The Award has been made Conciliation Act, 1996 as on non-judicial stamp papers amended in 2015. The Award of Rs.150. The Award as has been made on non-judicial above is signed and stamp papers of Rs.150. The delivered by the undersigned Award as above is signed and at Chennai on this 7 th day of delivered by the undersigned at March 2017. Signed copy of Chennai on this 7th day of the award has been delivered https://www.mhc.tn.gov.in/judis 6/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 March 2017. Signed copy of to the parties.
the award has been delivered to the parties.
8. Operative portion of the Impugned Award dated 07.03.2017 based on which the claim of the Respondent/Claimant have been allowed read as under:-
“7.5.16 The Tribunal analysed the contentions of both parties along with the relevant contract provisions and documents relied by them. As stated in the previous paragraphs it is common case of both parties that the Price Variations is incorporated through CPA 32. Hence there is no dispute between the parties with reference to application of Price Variations in this contract. Further, both parties agreed with the formula for Price Variation which is contemplated in Sub- Clause 13.1 (b) i) through CPA 32. The parties also agreed with the coefficients to the Price Variation formulae which are "a" fixed coefficient, "b", "c", "d" and "e" are coefficients representing the estimated proportions of each cost elements namely labour, steel, cement and fuel in the works or sections thereof, as specified in Item no. 38 of Appendix FT-1 of the Form of Tender. Pursuant to the above, both parties under Table-2 of Appendix FT-1 agreed that the weighting of fixed coefficient "a" is 0.15, the other coefficients "b", "c", "d" and "e" namely labour, steel, cement and fuel, are quoted by the Claimant as 0.30, 0.25, 0.15 and 0.15 respectively, within the ranges provided by the Respondent. Hence there is no dispute between parties with reference to weightings under Table 2 of Appendix FT-1.
7.5.17 Similarly in the Price Variation formulae, "Ln", "Sn", "Cn" and "Fn" are the current cost indices or reference prices for the month "n", determined pursuant to Item no. 38 of Appendix FT-1 of the Form of Tender, applicable to each cost element and "Lo", "So", "Co" and "Fo" are the base cost indices or reference prices corresponding to the above cost https://www.mhc.tn.gov.in/judis 7/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 elements at the date specified in item no. 38 of Appendix FT-1 of the Form of Tender. As per Sub-Clause 13.1 (b) (ii) (a), the base cost indices or prices shall be those base, prevailing on the 28 days prior to the closing date for submission of the bids. In the present case, the closing date of submission of bid was 05.08.2010, hence the base date is 08.07.2010, which was admitted by the parties. Similarly the current indices or prices shall be those prevailing on the 28 days prior to the last day of the period to which a particular interim payment certificate is related. Here again there was no dispute between the parties in the application or adopting the current date in the IPCs.
7.5.18 The next issue for consideration is Table 3 of Appendix FT-1 referred under Sub- Clause 13.1 (b) (i) Price Variation formulae. Both parties agree that Table 3 shall be read with Sub-Clause 13.1 (b) Price Variation formulae. Further Table 3 cannot be interpreted in isolation and should be read conjointly with Sub-Clause 13.1 (b) (i) and 13.1 (b) (ii) (a).
The admitted position of both parties is that Table 3 provides WPI "Iron & Steel" (RBI) for the cost element of steel and WPI "Cement" (RBI) for the cost element of cement. In this regard there is a consensus between the parties and there is no dispute.
7.5.19 The next crucial issue is after closing date of submission of bid, the indices agreed with reference to the cost elements representing steel and cement under the Table 3, were discontinued even according to the Respondent and hence the same were not applicable anymore as contended by the Claimant. However the Respondent contended that the indices were only suitably modified. Now the issue for adjudication is:
whether the indices agreed under Table 3 of Appendix FT-1 are discontinued as contended by the Claimant or suitably modified as contended by the Respondent ?.
7.5.20 The bare perusal of the Wholesale Price Indices (WPI) https://www.mhc.tn.gov.in/judis 8/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 agreed under Table 3 with reference to the cost elements "Steel" and "Cement" and the Wholesale Price Indices (WPI) applied by the ER for the cost elements "Steel" and "Cement", while certifying the IPCs, are different and certainly are not the same. From the contention of the Respondent that the said indices were suitably modified also confirms that they are not the same as agreed under the Table 3 of Appendix FT-1 of the contract. This is also confirmed from the statement of the ER in his letter dated 08.01.2015 that the indices for Cement and Iron & Steel have been discontinued and suitable indices are replaced. Therefore, the Tribunal has come to a clear conclusion from the documents as well as from the submissions of the parties as to what was agreed indices under Table 3 of Appendix FT-1, does not exist or ceased to exist, after submission of bids, for applying the price variations for certification of IPCs during the course of execution of the works. Therefore, it is a clear case of change in agreed facts situations i.e., change in the agreed indices, after submission of the bids.
7.5.21 As a result of the above conclusion of the Tribunal, further issue that arises for adjudication is: which of the following inputs to the Price variation formula are correct and more appropriate to achieve the object of Price adjustinent contemplated under the CPA 32 of the contract agreed by the parties;
(i) The new indices as per 2004-05 WPI series adopted by the ER for the cost elements Cement and Steel or
(ii) Reference prices of cement and steel claimed by the Claimant for the cost elements Cement and Steel. 7.5.22 With reference to the contention of the Respondent that the contract did not specifically contemplate only 1993-94 series to be adopted for price variation, the Claimant https://www.mhc.tn.gov.in/judis 9/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 submitted that their case is not about a particular series to be adopted or only 1993-94 WPI series to be applied for price variations. The case of the Claimant is that the indices for the commodities in the WPI, agreed as input for price variation payment are discontinued / ceased to exist and further, the ER is adopting indices of the different commodities in the WPI, for payment of price variation, which is not correct. The same was due to change in the WPI series from 1993-94 to 2004-05 series. In this regard, the Claimant also submitted that only with reference to cost elements of steel and cement the present dispute arose between the parties. However, the indices for the other cost elements namely WPI All Commodities (Labour), WPI mineral oils (Fuel) are in the 1993-94 WPI series are continued in the 2004-05 WPI series without any change and as such, there is no dispute with reference to cost elements of Labour and Fuel. Therefore, it is not the case of the Claimant that the dispute arose due to change in the series but due to discontinuation in the agreed commoditics representing the cost elements in the price variation formulae namely steel and cement. The Tribunal considering the submissions of both parties, fully agrees with the submission made by the Claimant. As rightly pointed out by the Claimant, even after the change in the WPI series from 1993-94 to 2004-05, admittedly there is no dispute with reference to the other cost elements of Labour and Fuel. Therefore, it is clear that the dispute arose only due to discontinuation of the agreed commodities in the WPI representing the cost elements of steel and cement, which has resulted due to change in the series.
7.5.23 Further, for the adoption of new indices for the Price adjustment, the Claimant pointed out that the Claimant in its submission of bid considered the Consumer Price Index for Industrial workers, for the Labour component, which is more appropriate. However, the Respondent has not accepted the said CPI indices stating Consu that for Labour the "WPI indices for all commodities" as given in the tender is to be followed. Accordingly, the Claimant accepted the same vide its https://www.mhc.tn.gov.in/judis 10/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 letter dated 09.10.2010. Therefore, the Respondent is more specific in adopting only what was specified in the tender. In such circumstances, the Tribunal is of the considered view that the parties agreed a specific commodity indices for Cement and Iron & Steel representing the cost elements of Cement and Steel and the same were ceased to exist/discontinued due to change in series. While so the ER/Respondent cannot adopt different commodity indices (not agreed under the contract) stating that the same are "suitably modified" indices. In any event, the different commodity indices or suitably modified indices, cannot be adopted by the ER without consent or concurrence of the Claimant for computing price variation. 7.5.24 Further, as pointed out by the Claimant, the WPI indices under Table 3 of Appendix FT-1 while issuing the tenders were only RBI, which was general in nature. However, in the Addendum no.1, the Respondent consciously modified the said general index to WPI specific index to relevant cost element adding thereby special significance to specific index. Therefore, there is substance in the contention of the Claimant to insist to apply reference prices instead of the said new indices.
7.5.25 Apart from the above, whether the new indices for the cost elements of Cement and Steel can be applied in lieu of the agreed indices under the contract are to be justified by the Respondent. The Respondent comparing the dictionary meaning of various components of Steel and Cement justified the application of new indices. Further, the Respondent also contended that the new indices 'adequately' cover the cost elements of steel and cement. From the contention of the Respondent that "adequately covers" means that it is not the same as agreed under the contract and also means that it is not entirely covered as agreed under the contract. The considered view of the Tribunal is that such comparison alone will not justify adopting the same by the Respondent and it https://www.mhc.tn.gov.in/judis 11/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 should be tested whether the said changed indices will serve the agreed intended purpose of the Price adjustment under the contract. In this context, Tribunal also analysed the WPI series of 1993- 94 and 2004-05. Basic metals, Alloys & Metal products and Non-metallic mineral product, which had different weightings in 1993-94 and in 2004-05. Further, there is no linking factor available between the two commodities i.e., Commodities as agreed under the contract and the commodities applied by the ER representing the cost elements of Steel and Cement.
From the above analysis the following emerge:
• The commodities in the 1993-94 series and the commodities in 2004-05 series basket are different. • The classification of commodities is different. • The weightage attached to commodity group differs.
• Number of quotations considered for computing the indices are different.
• No specific method is available to work out the commodity-wise indices.
• There is nothing in common to compare each commodity on like with like basis.
For the above said simple reasons, the adoption of new indices by the ER for payment of price variation, is not correct and the same will not serve the intended purpose agreed by the parties the payment of price variation. Further, the adoption of new indices by the ER is a novation of contract, which cannot be done without consent of the parties to the contract.
7.5.26 In the light of the above detailed analysis of Tribunal, the further issue that arises for adjudication is whether the reference prices contemplated under Sub-Clause 13.1 (b) (i) https://www.mhc.tn.gov.in/judis 12/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Price Variation formula can be adopted as an alternative for indices agreed under Table 3, or not?. As analysed above and perusal of Sub-Clause 13.1 (b) Price Variation formula, it is observed that the parties have agreed for both "indices" and "reference prices" in the said formula. Therefore, the contract also contemplates reference prices along with indices for application in the price variation formula.
7.5.27 The Respondent contended that there was no agreement between the parties to apply a specific reference prices for the purpose of computing price variation under Table 3 of appendix FT-1. It may be correct that a particular reference price was not agreed by the parties however, the contract has a provision to adopt "reference price" as an alternative. Further, it is also a matter of record that the parties agreed "WPI Iron and Steel (RBI)" for cost element of steel and "WPI cement (RBI)" for cost element of cement. However, the ER vide its letter dated 08.01.2015 (Exhibit CD-12) categorically stated that the indices for "Cernent" and "Iron and Steel" have been discontinued (which are agreed indices under Table-3). In the light of the above categorical statement of the ER and on bare perusal of the indices, the said agreed indices do not exist in the 2004-05 WPI series. Therefore, in the above circumstances, there are no agreed indices or agreed reference prices for the cost elements of cement and steel; in such circumstances, the parties have to agree indices or a specific reference prices. The Claimant requested the ER under Clause 3.5 of the contract to give consent to apply reference prices, which was not agreed by the ER. Similarly, the ER having accepted the fact that the agreed indices for cost elements of cement and steel under Table-3 was discontinued due to change in the series, ought to have taken steps for exercising his authority to agree indices with consultation of the parties, However, the ER without having consultation and arriving at a consensus, as per Clause 3.5, unilaterally applied the new indices for the steel and cement on the ground that the said new indices are suitable replacement indices. The ER ought not have come to a https://www.mhc.tn.gov.in/judis 13/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 conclusion without any consultation with the Claimant more particularly, when the Claimant is insisting to adopt the reference prices, which is already contemplated under the contract. As a matter of fact, the adoption of new indices by the ER which is a novation of contract, cannot be done without the consent of the party (Claimant) to the contract. From the above analysis, it is clear that after the cessation of the agreed indices under Table 3, there are no agreed indices for the cost elements of Steel and Cement by the parties.
7.5.28 In the absence of agreed indices in Table 3, for the cost elements of steel and cement, naturally the parties have to fall back to sub-Clause 13.1 (b) Price Variation formula, which contemplates reference prices as an alternate in such eventuality as analysed above. Therefore the claim of the Claimant to apply reference prices for Price Variations is within the terms of the contract as an alternative to the indices. 7.5.29 Further, the Claimant vide their letters dated 06.08.2012 (Exhibit CD-7) and 21.08.2012 (Exhibit CD-8), referring to the new indices along with the reference prices of market, demonstrated that with the adoption of new indices as inputs in the Price Variation formula, the Claimant is not getting the Price Adjustment to the extent as agreed under the contract. The ER failed to consult and determine the said issue in a proper and prospective manner in terms of Clause 3.5 of GCC of the contract. The ER in his letter dated 08.12.2012 (Exhibit CD-9) simply relieved its obligations stating that the Sub-Clause 3.5 of Conditions of Contract is not applicable under the contract, which statement is not correct and such, reply of the ER is against the terms of the contract. Since the ER has not discharged his authority to determine the issue, the Tribunal elaborately analysed the same as discussed above with the materials and submissions of both the parties and Tribunal has come to the conclusion that the application of new indices 2004-05 base WPI series as input in price https://www.mhc.tn.gov.in/judis 14/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 variation formula for the cost element of Steel and Cement is not justified by the Respondent and the Tribunal accepts the submissions of the Claimant that the application of new indices in the price variation formula has not served the intended purpose of the price adjustment Clause.
In the light of the foregoing paragraphs, the Tribunal holds that the adoption of new WPI series 2004-05 relating to Cement and Steel cost elements is not correct. Further, such an adoption will defeat the intended purpose for Price Adjustment agreed under the contract.
7.5.30 After elaborate analysis of the contractual provisions, Tribunal is fully convinced that the adoption of reference price is an alternative to the indices under the contract. Now the issue is which prices could be taken as a reference prices for the cost element of Cement and Steel As rightly pointed out by the Respondent, the parties have not agreed for any specific prices. It is also necessary to point out that for application of reference prices in the price variation formula there must be a base price and continuous monthly current prices of the cost elements which are required for IPAs and IPCs. The Claimant initially under IPA / Claim Report adopted market prices and requested the ER to apply the market prices in the payment of price adjustment. Subsequently the Claimant made a claim based on market prices converted to indices. Even though for the current prices supporting documents such as invoices towards procurement of the materials were available and submitted to the ER for collateral purpose of claiming TNVAT, authenticated base prices (of 08.07.2010) were not furnished. The Claimant also submitted that for determination of value of variations, the ER adopted the CPWD-Delhi Schedule of Rates (DSR) of Chennai region for the concrete and Reinforcement works. In support of the said submission the Claimant submitted that the variation determined by the ER (Exhibit CD
24) were based on CPWD and to maintain uniformity and https://www.mhc.tn.gov.in/judis 15/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 consistency, the Claimant made the claim based on the CPWD prices of cement and steel as reference prices in the price variations formula. The Claimant also submitted that determination of value of variations based on, Clause 1.3.4.4 of volume VI of contract contemplates;
1) Southern Railway Schedule of Rates,
2) Delhi Schedule of Rates and
3) TNPWD Schedule of Rates.
The Southern Railway and the TNPWD are publishing schedule of rates on yearly basis, hence the same cannot be applied for price variation on monthly basis. Therefore, the CPWD-DSR, Chennai region is the only source as per the terms of the contract, issued on monthly basis. The Respondent admitted the application of the CPWD-DSR of the Chennai region while determining the value of variations; however, the Respondent contended that the said prices are only applicable for variation works and the same was not accepted under Clause CPA 32 for price variations. The Tribunal considered submissions of both parties. To arrive at the price variations, a base price and monthly current prices of the same source are essential inputs of price variation formula, which will reflect the correct and fair fluctuations and the respective payment of price adjustment as agreed under the contract. Therefore application of CPWD rates for Steel & Cement as reference prices to arrive the price variation payment under CPA-32 is correct and sustainable.
7.5.31 It is also significant to note that the actual prices of cost elements are not paid and these prices are considered only to measure the fluctuations (movement of prices), which is the object and intended purpose of price variation agreed under the contract. Therefore, a proper, reliable and consistent https://www.mhc.tn.gov.in/judis 16/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 source of prices is required for payment of price adjustment under CPA 32 of the contract. The Respondent having contemplated in the contract the CPWD-DSR of Chennai Region for valuation and payment for variation works and having adopted the same by the Respondent in the CMRL projects, now the Respondent cannot contend that the said CPWD-DSR is not applicable for price variations payments. Further the Respondent simply has not agreed for application of CPWD-DSR Chennai Region, however they are unable to justify their disagreement with proper reasons. Therefore, the Tribunal is not accepting the said contention of the Respondent. The Claimant has substantiated that the base and current prices of CPWD-DSR, Chennai Region for the cost element of Cement and Steel, is as per the terms of the contract and the same is reliable source of the Government department. Therefore, the Tribunal has come to the conclusion that in the absence of the agreed indices under Table-3, the prices of Cement and Steel issued by CPWD-DSR of Chennai region on monthly basis is correct and appropriate alterifate source of inputs for payment of price variations under Clause CPA 32 of the contract. In view of the above, the Tribunal holds that the Claimant is entitled for price variations payment for the cost elements of Cement and Steel based on the reference prices of CPWD-DSR of Chennai region, which is in terms of the contract.
7.5.32 In summary, Tribunal holds that the new indices with base year 2004-05 cannot be applied for the cost elements of cement and steel in the price variation formula contemplated under CPA 32. The Claimant is entitled to price adjustment based on the CPWD-DSR Chennai Region as reference prices for the cost elements of cement and steel in the price variation formula CPA 32.”
9. The Respondent/Claimant had raised 51 Interim Payment Applications https://www.mhc.tn.gov.in/judis 17/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 (hereinafter referred to as IPAs) under Contract No.UAA-01 covered by the Award in Arb.O.P.(Com.Div.) No.360 of 2017 and 47 Interim Payment Applications (IPAs) under the Contract No.UAA-05covered by the Award in Arb.O.P.(Com.Div.) No.361 of 2017.
10. The dispute has arisen in respect of 11 IPAs under each contracts (22 IPAs) as detailed below from and out of 51 Interim Payment Applications (IPAs) raised/claimed by the Respondent/Claimant on the Petitioner in respect of the Contract No.UAA-01 covered by Arb.O.P.(Com.Div.) No.360 of 2017 and out of 47 Interim Payment Applications (IPAs) raised/claimed by the Respondent/Claimant on the Petitioner in respect of the Contract No.UAA-05 covered by Arb.O.P.(Com.Div.) No.360 of 2017 as detailed below:-
Arb.O.P.(Com.Div.)No.360 of 2017 - Contract No.UAA-01 IPAs Time Period Amount Claimed Amount settled by the petitioner IPA 4-claim based on End of August 2011 Rs.50,66,95,682/- Rs.32,62,90,161/- 2004 series IPA 10-claim based on End of February 2012 Rs.28,57,21,359/- Rs.27,58,13,378/- 2004 series IPA 11-claim based on Till 11th of March, Rs.8,64,82,822/-
2004 series 2012
IPA 13-claim based on Till 31st of March, Rs.23,87,98,932/- Rs.18,53,12,600/-
2004 series 2012 For the whole for
March
IPA 33-claim based on Till October 2013 Rs.64,41,06,967/- Rs.21,26,60,276/-
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2004 series
IPA 34-claim based on Upto November 2013 Rs.1,14,04,46,167/- Rs.15,00,67,681/-
market prices
IPA 40-claim based on Upto May 2014 Rs.1,33,11,89,326/- Rs.9,54,03,766/-
market prices
IPA 41-claim based on Upto June 2014 Rs.53,77,40,912/- Rs.10,22,00,641/-
2004 series
Annexure based on
market prices
IPA 44-claim based on Upto Sep 2014 Rs.92,11,80,317/- Rs.24,61,64,297/-
2004 Series
Annexure based on
market prices
IPA 45-claim based on Upto Oct 2014 Rs.75,68,57,948/- Rs.15,21,47,450/-
2004 series
Annexure based on
1993 series
IPA 51-claim based on 06.03.2015 to Rs.4,71,21,96,776/- Rs.7,86,33,143/-
2004 series 20.03.2015 (Includes carry overs
Annexure based on from earlier claims
1993 series which were rejected)
Arb.O.P.(Com.Div.)No.361 of 2017 - Contract No.UAA-05 IPAs Time Period Amount Claimed Amount settled by the petitioner IPA 4-claim based on Upto the end of Rs.33,85,20,623/- Rs.32,62,90,161/-
2004 series August 2011
IPA 10-claim based on End of February 2012 Rs.21,03,59,886/- Rs.27,85,13,378/-
2004 series
IPA 11-claim based on Till 11th of March Rs.11,05,27,402/- Rs.10,11,79,443/-
2004 series
IPA 13-claim based on Till 31st of March, Rs.21,37,59,411/- Rs.16,78,33,283/-
2004 series 2012
IPA 33-claim based on Till October 2013 Rs.40,69,82,238/- Rs.18,94,42,065/-
2004 series
IPA 34-claim based on Upto November 2013 Rs.93,49,44,598/- Rs.19,94,98,848/-
market prices
IPA 40-claim based on Upto May 2014 Rs.89,28,40,770/- Rs.4,99,01,379/-
market prices
IPA 41-claim based on Upto June 2014 Rs.40,43,60,911/- Rs.10,00,68,566/-
2004 series
https://www.mhc.tn.gov.in/judis
19/100
Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
Annexure based on
market prices
IPA 44-claim based on Upto Sep 2014 Rs.50,97,26,543/- Rs.11,46,69,459/-
2004 Series
Annexure based on
market prices
IPA 45-claim based on Upto Oct 2014 Rs.47,56,12,428/- Rs.6,68,66,292/-
2004 series
Annexure based on
1993 series
IPA 51-claim based on Upto Dec 2014 Rs.2,10,05,88,855/- Rs.24,25,96,240/-
2004 series
Annexure based on
1993 series
11. Insofar as 51 IPAs covered by Arb.O.P.(Com.Div.) No.360 of 2017, a total sum of Rs.166.21 Crores has been paid towards the price variation/escalation by adopting Wholesale Price Index of RBI 2004-2005 Series (“WPI (RBI) Index 2004-2005 Series” for brevity).
12. Similarly, in respect of contract covered by Arb.O.P.(Com.Div.) No.361 of 2017, the Petitioner has paid a sum of Rs.130.07 Crores by adopting the WPI (RBI) 2004-2005 series.
13. Out of the aforesaid sum of Rs.166.21 Crores and Rs.130.07 Crores, the Petitioner has already paid the following amounts to the https://www.mhc.tn.gov.in/judis 20/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Respondent/Claimant towards the price variation/escalation as per the agreed formula under the respective Contracts on “Steel” and “Cement” as detailed below:-
Arb.O.P.(Com.Div.)No.360 of 2017 Arb.O.P.(Com.Div.)No.361 of 2017 Steel Factor = Rs.44,43,00,000/- Steel Factor = Rs.44,43,00,000/- Cement Factor = Rs.12,88,00,000/- Cement Factor = Rs.12,88,00,000/-
----------------------- ---------------------- Total = Rs.57,31,00,000/- Total = Rs.44,34,00,000/-
---------------------- ----------------------
14. The afore extracted Claim Report depict the difference in amount claimed by the Respondent/Claimant. It is on the account of price escalation of the components “Steel” and “Cement” factor by adopting Market Price/Rates and calculated the price adjustment by applying the base and current prices of “Cement” and “Steel”.
15. In respect of “Steel” and “Cement” factor, the Respondent/claimant had claimed the following amounts :-
Factor Arb.O.P.(Com.Div)No.360 Arb.O.P.(Com.Div)No.36 of 2017 1 of 2017 Steel Factor Rs.17,03,43,787/- Rs.12,83,88,674/- Cement Factor Rs.44,00,35,622/- Rs.32,75,87,708/- Total Rs.61,03,79,409/- Rs.45,59,76,382/- https://www.mhc.tn.gov.in/judis 21/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
16. The dispute between the Petitioner and the Respondent/Claimant had arisen on account of application of the formula towards price variation under the respective contracts between them due to a change in the WPI (RBI) Series between the Letter of Offer of respondent/claimant on 05.08.2010 and Letter of Acceptance on 28.12.2010 of the petitioner.
17. At the time when the Tender was floated by the Petitioner on 21.04.2010, and when Letter of Offer of respondent/claimant was made, the WPI (RBI) 1993-1994 Series was in force. The Respondent/Claimant had made its Offer on 05.08.2010 in response to the Tender floated by the Petitioner on 21.04.2010 by adopting the WPI (RBI) 1993-1994 Series only for the month of July, 2010 as the base price as per the Tender Conditions.
18. After the Respondent/Claimant gave its Offer on 05.08.2010, WPI (RBI) 1993-1994 Series dated 31.01.2011 was replaced and stood substituted with the WPI (RBI) 2004-2005 Series with effect from 14th September, 2010.
The Petitioner however accepted the Offer dated 05.08.2010 of the Respondent/Claimant vide Letter of Acceptance dated 28.12.2010 though the https://www.mhc.tn.gov.in/judis 22/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 WPI (RBI) 1993-1994 Series stood replaced and substituted with WPI (RBI) 2004-2005 Series with effect from 14.09.2010.
19. Curiously, after the Letter of Acceptance dated 28.12.2010 was issued, the parties also entered into two separate contracts both dated 31.01.2011 bearing Contract No. UAA-01 and Contract No. UAA-05 wherein the Works in Corridor I and Corridor II were given to the respondent/claimant.
20. Thus, the Acceptance of Offer of respondent/claimant in the Letter of Acceptance dated 28.12.2010 of the petitioner was based on the Offer of the Respondent/Claimant dated 05.08.2010 which itself was based on the WPI (RBI) 1993-1994 Series when indeed, the aforesaid Series stood replaced and substituted with the WPI (RBI) 2004-2005 Series from 14.09.2010.
21. “Steel” and “Cement” were no longer in the WPI (RBI) 2004-2005 Series. Instead, there was further refinement and there were further classification for both “Steel” and “Cement” as detailed below:-
Wholesale Price Index 1993-1994 Series 2004-2005 Series (WPI) (RBI) https://www.mhc.tn.gov.in/judis 23/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Series Cement (i) Non-Metalic Mineral Products: (i) Non-Metalic Mineral
(a) Structural Clay Products Products:
(b) Glass, Earthernware, (a) Structural Clay Products Chinaware & their Products. (b) Glass, Earthenware,
(c) Cement Chinaware & their
(d) Cement, Slate & Graphite Products.
Products. (c) Cement and Lime
(d) Cement, Slate & Graphite
Products.
Steel (j) Basic Metals Alloys & Metals (j) Basic Metals Alloys & Metals
Products: Products:
a. Basic Metals & Alloys a. Ferrous Metals
a1. Iron & Steel a1. Iron & Semis
a2. Foundries for Casting, Forging & a2. Steel Long
Structurals. a3. Steel Flat
a3. Pipes, Wires Drawing & others. a4. Steel : Pipes & Tubes
a4. Ferro Alloys. a5. Stainless Steel & Alloys
a6. Castings & Forgings
b. Non-Ferrous Metals. a7. Ferro Alloys
b1.Aluminium.
b2.Other Non-Ferrous Metals. b. Non-Ferrous Metals
b1. Aluminium
c. Metal Products. b2. Other Non-Ferrous Metals.
c. Metal Products
22. The Petitioner had addressed two communications dated 27.06.2011 to M/s.EMBYE Consortium, an Engineer who was appointed as a General Consultant for the Petitioner as its Representative viz., Employees Representative (“ER”) under the respective contract in respect of contract covered by Arb.O.P.(Com.Div.) No.360 of 2017 and Arb.O.P.(Com.Div.) No.361 of 2017. The Respondent/Claimant flagged the issue as below:-
https://www.mhc.tn.gov.in/judis 24/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 “Dear Sir, As per the Tender document, the price variation shall be calculated for steel considering the item provided in the RBI Bulletin as Iron & Steel as per the Base Index of July 2010. During this period, the RBI Bulletins were released as provisional index with a Base of 1993-94=100. The approved RBI indices for July 2010 was released only during September 2010 with a Base of 2004-05=100 as Iron & Semis and Steel:Long. There has been no item provided in the RBI Bulletin for Iron & Steel.
Therefore, we request you to clarify whether we have to take Iron & Semis or Steel Long for calculating the price variation of steel.
A copy of relevant pages of RBI Bulletin is attached for your ready reference.
Payment against IPC 01 is realized, we intent to submit the IPA against Price Variation. Therefore, your early action in this regard is appreciated.
Thanking you and assuring you of our best services at all times.”
23. It appears that it was orally agreed by the parties after discussions that for “Steel”, the sub-heading “Steel Long” of the WPI (RBI) 2004-2005 Series can be adopted for determining the Price Variation as well. The Respondent/Claimant, thus started raising Interim Payment Applications (IPA’s) as per Clause 13.3 of the GCC based on the WPI (RBI) 2004-2005 Series. https://www.mhc.tn.gov.in/judis 25/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
24. Up to a particular point of time, the Respondent/Claimant had raised claims vide various Interim Payment Applications (IPAs) based on the WPI (RBI) 2004-2005 Series. It also appears that deductions were made by the Petitioner for various Interim Payment Applications of the Respondent/Claimant on account of various factors while issuing ‘Interim Payment Certificates (IPCs) to the Respondent/Claimant against the respective Interim Payment Applications (IPA’s).
25. In the Interim Payment Applications.Nos.34 to 40, with regard to both the contracts covered by the respective Original Petitions, the Respondent/Claimant however altered the claim based on “Market Prices” for “Steel” and “Cement” alone. However, in Interim Payment Applications.Nos.4 to 33 and 40 to 44, with regard to respective contracts, the Respondent/Claimant had raised Interim Payment Applications (IPAs) based on the WPI (RBI) 2004-2005 Series but along with it filed annexures based on the ‘Market Prices’ of “Steel” and “Cement”.
26. Similarly, insofar as the Interim Payment Application Nos. 45 to 51 in the Contract covered by Arb.O.P.(Com.Div.) No.360 of 2017 is concerned, the https://www.mhc.tn.gov.in/judis 26/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 claim was based on the WPI (RBI) 2004-2005 Series along with Annexure based on the WPI (RBI) 1993-1994 Series. On the other hand, insofar as the Interim Payment Application Nos.45 to 47 in the contract covered by Arb.O.P.(Com.Div.) No.361 of 2017 is concerned, claims were made in the similar pattern by the Respondent/Claimant for the components ‘Steel’ and ‘Cement’. Court is not really concerned in he intricate details which have gone into the working of the calculations.
27. Series of correspondence have been exchanged between the Petitioner and the Respondent/Claimant on account of the variation in the claims in the Interim Payment Applications (IPAs) and deduction of amount while issuing Interim Payment Certificates (IPCs). Ultimately, the Respondent/Claimant submitted the ‘Claim Report’ dated 14.11.2014 and 18.11.2014, in the respective Original Petitions.
28. The Employer’s Representative, i.e., M/s.EMBYE Consortium, an Engineer who was appointed as a General Consultant for the Petitioner as its Representative viz., Employees Representative (“ER”) vide Letter dated 08.01.2015, eventually rejected the claims stating that the Claims Report were in contravention of the express terms of the Contract signed between the parties. https://www.mhc.tn.gov.in/judis 27/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
29. The said Employer’s Representative, namely M/s.EMBYE Consortium in its further Letters dated 11.09.2015 and 06.10.2015 stated that although indices for “Cement” and “Iron and Steel” were discontinued in the WPI (RBI) 2004-2005 Series, suitable replacement were introduced to adopt the Price Variation Formula in CPA 32 and therefore, no additional cost towards reimbursement on account of Price Variation Formula can be accepted under the afore stated items.
30. It is in this background, the Respondent/Claimant, referred the disputed claims for amicable settlement vide Ex.CD-14 Letter dated 08.12.2015 between the Petitioner and the Respondent/Claimant in terms of the Contract by submitting stipulated documents.
31. In furtherance to the afore stated Ex.CD-14 Letter dated 08.12.2015, the Petitioner vide Ex CD - 15 Letter dated 02.02.2016 stated the Respondent/Claimant is not in a position to consider the disputed claim for amicable settlement. Thereafter, the Respondent/Claimant issued Ex.CD-16 Notice dated 15.02.2016 under Sub-clause 20.6.3 of CPA 43 and invoked the Arbitration Clause which has now culminated in the Impugned Awards both https://www.mhc.tn.gov.in/judis 28/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 dated 07.03.2017 of the Arbitral Tribunal.
32. Assailing the Impugned Awards, the Learned Senior Counsel for the Petitioner in Arb.O.P.(Com.Div.)No.360 of 2017 submits that the Impugned Awards have re-written the contract and thus, there is a patent illegality in the Impugned Awards as they are contrary to Section 28(3) of the Arbitration and Conciliation Act, 1996. The above submission of the Learned Senior Counsel for the Petitioner in Arb.O.P.(Com.Div.) No.360 of 2017 was reiterated by the Learned Counsel for the Petitioner in Arb.O.P.(Com.Div.) No.361 of 2017.
33. The Learned Senior Counsel for the Petitioner submitted that though the Arbitral Tribunals had rightly confirmed that CPA 32 must be read along with Form of Tender, Item 38, Appendix FT 1 (Table 3), however, the Arbitral Tribunals has erroneously held that the indices agreed in Table 3 for “Steel” and “Cement” has ceased to exist/been discontinued and merely because the description/nomenclature for “Steel” and “Cement”, i.e “Iron and Steel” and “Cement” under the WPI (RBI) 1993-1994 Series was changed under the WPI (RBI) 2004-2005 Series would not disentitle the respondent/claimant the amounts on account of price variations.
https://www.mhc.tn.gov.in/judis 29/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
34. It is submitted that “Steel” and “Cement”, being major commodities, could not be deleted from the WPI (RBI) Index and that in this regard, the nomenclature “Iron and Steel” in the WPI (RBI) 1993-1994 Series was described with more specificity in WPI (RBI) 2004-2005 Series as “Iron and Semis, Steel Longs, Steel Flats etc.”. Similarly, “Cement” under the WPI (RBI) 1993-1994 Series was substituted with “Cement and Lime” under the WPI (RBI) 2004-2005 Series.
35. It is submitted by the Petitioner that the respective Arbitral Tribunals have failed to consider that even as per the understanding of the Respondent/Claimant vide its Letter dated 27.06.2011, the WPI (RBI) 2004- 2005 Series would apply. It is stated that by the afore stated letter, the Respondent/Claimant had only sought for a clarification relating to the use of ‘Iron & Semis’ or ‘Steel Long’ under the WPI (RBI) 2004-2005 Series for calculating the Price Escalation Formula and that there was no ambiguity or doubts regarding the series or use of indices.
36. It is further submitted that the nomenclature used in the CPWD unpublished (internal work) rates, adopted by the Arbitral Tribunals is entirely different from the nomenclature used in the WPI (RBI) 2004-2005 Series. https://www.mhc.tn.gov.in/judis 30/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Consequently, the Arbitral Tribunals has committed a patent error in holding that the indices for “Steel” and “Cement” under the WPI (RBI) 2004-2005 Series was discontinued merely because the description/nomenclature of the commodity representing the same had changed, but adopted CPWD unpublished (internal work) rates which also uses a different nomenclature.
37. The Learned Senior Counsel appearing for the Petitioner placed reliance on the Judgment of the Hon’ble Supreme Court in Ssangyong Engineering Construction Company Limited Vs. National Highways Authority of India, 2019 15 SCC 131, stating that the Price Escalation Formula is workable even after a change from the WPI (RBI) 1993-1994 Series to the WPI (RBI) 2004-2005 Series. It is stated that a substantial part of the disputed period in Ssangyong's case (cited supra) overlaps with the disputed period in the instant case.
38. It was further argued that the Hon’ble Supreme Court has emphatically held that the substitution of a workable formula with another formula de-hors the agreement would amount to creating a new contract and hence, contrary to the fundamental principles of justice. In addition, it is stated https://www.mhc.tn.gov.in/judis 31/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 that the Price Escalation Formula in that case was inter alia, also regarding ‘Cement’ and ‘Steel’ arising out of the substitution of WPI (RBI) 1993-1994 Series with WPI (RBI) 2004-2005 Series with effect from 14.09.2010.
39. Therefore, it is stated that in the light of Ssyangyong's case (cited supra), the findings of the Arbitral Tribunals that the formula does not serve the intended purpose despite being workable and that adoption of WPI (RBI) 2004-2005 Series would constitute a novation of the contract are flawed and unsustainable. It was argued, as held by the Hon’ble Supreme Court that workable Price Escalation Formulas cannot be substituted, more so when the formula is workable under the WPI (RBI) 2004-2005 Series and therefore, such formulas are to be applied notwithstanding the extent/quantum of price escalation.
40. It is submitted that the Respondent/Claimant has admittedly received a sum of Rs.166.21 Crores and Rs.130.47 Crores under the respective contracts in Arb.O.P.(Com.Div.) Nos.360 & 361 of 2017 respectively during the claim period from February, 2011 to March, 2015. It is stated that as of IPC 99 and IPC - 83, the Petitioner has certified and paid a sum of Rs.236.36 Crores and Rs.174.34 Crores under the contracts in Arb.O.P.(Com.Div.) https://www.mhc.tn.gov.in/judis 32/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Nos.360 & 361 of 2017 respectively towards price escalation, on the basis of WPI (RBI) 2004-2005 Series. Therefore, it is submitted that it is evidently clear that WPI (RBI) 2004-2005 Series is workable and applicable considering the indices have been used for all four factors in price escalation and the Respondent/Claimant has been receiving monies in this regard.
41. It was argued by the Learned Senior Counsel for the Petitioner that the contractual terms/conditions cannot be changed/altered at the expense of the public exchequer merely because the Respondent/Claimant wants to maximize its gains through price escalation, which is paid over and above the value of the actual work done.
42. It is submitted by the Petitioner that the respective Arbitral Tribunals have re-written the terms of the contracts and have imposed commercial terms on the Petitioner by unilaterally modifying the Price Escalation Formula under CPA 32 to calculate the “Steel” and “Cement” factor, basis of Reference Price (CPWD - DSR as applicable to Chennai) which is patently illegal and contrary to the Public Policy of India, in spite of the Arbitral Tribunals stating that there is no agreed Reference Price.
https://www.mhc.tn.gov.in/judis 33/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
43. It is submitted that the Arbitral Tribunals has erroneously held that the Contract had a provision for “Reference Price”. It is stated that the Arbitral Tribunals has wrongly applied the clauses relating to Variation/Additional works for determination of “Reference prices” in the price escalation when the price adjustment and additional work clauses in the contract are distinct, different clauses and not interchangeable. It is submitted that CPA 32, Clause 13.1(b) governs price escalation and further CPA 32, Clause 13.1(b)(iii) mandates that the Price Adjustment Formula cannot be applied for variation works and therefore, it is submitted that the additional work rates cannot be adopted to calculate the price adjustment/escalation formula as well.
44. It is submitted that the adoption of “Reference Price” constitutes a novation of Contract. It is stated that the Arbitral Tribunals holds that adoption of new series, i.e., the WPI (RBI) 2004-2005 Series would amount to novation of a contract and cannot be done unilaterally but, however, the Arbitral Tribunals as against its own stand by adopting a “Reference Price” i.e, CPWD which admittedly was not provided for or agreed to by the parties under the contract. Therefore, it is submitted that the adoption of CPWD is in contravention of Section 62 of the Indian Contracts Act, 1872. https://www.mhc.tn.gov.in/judis 34/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
45. It is submitted by the Petitioner that the findings of the Arbitral Tribunals is against the law laid down by the Hon’ble Supreme Court in the case of PSA Sical Terminal Pvt.Ltd Vs. Board of Trustees of V.O. Chidambaranar Port Trust Tuticorin and Ors, 2021 SCC Online SC 508, wherein it was held that thrusting a new term in the contract against the objection of the other party will result in the creation of new contract, which is impermissible and a breach of the fundamental principles of justice. It was further held that the Arbitral Tribunals are bound by the terms of the Contract and cannot vary/alter the same.
46. It was further argued by the Learned Senior Counsel for the Petitioner that the Arbitral Tribunal interpretation results in unjust enrichment and is opposed to Public Policy of India and it is abhorrent under the Fundamental Policy of India and therefore the respective Awards warrant interference. It is submitted that CPWD unpublished (internal work) rates are only for CPWD works. Therefore, it is submitted that the Impugned Awards passed by the Arbitral Tribunals are patently erroneous and illegal as it fails to consider that the claims are barred by acquiescence, waiver and estoppel.
47. In support of these Original Petitions, the Learned Senior Counsel for https://www.mhc.tn.gov.in/judis 35/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 the Petitioner in Arb.O.P.(Com.Div.) No.360 of 2017, the Learned Counsel for the Petitioner in Arb.O.P.(Com.Div.) No.361 of 2017 have relied on the following decisions of the Court:-
i. Rashtriya Chemicals and Fertilizers Limited Vs. Chowgule Brothers and others, (2010) 8 SCC 563; ii. Ssangyong Engineering Construction Company Limited Vs. National Highways Authority of India (NHAI), (2019) 15 SCC 131;
iii. Dyna Technologies Private Limited Vs. Crompton Greaves Limited, (2019) 20 SCC 1;
iv. Godhra Electricity Co. Ltd. Vs. State of Gujarat & Anr, (1975) 1 SCC 199;
v. Patel Engineering Limited Vs. North Easter Electric Power Corporation Limited, (2020) 7 SCC 167;
vi. PSA Sical Terminals Pvt. Ltd. Vs. Board of Trustees of V.O.Chidambaranar Port Trust, Tuticorin and others, 2021 SCC Online SC 508;
vii.Kinnar Mullick & Anr. V. Ghanshyam Das Damani, (2018) 11 SCC 328;
viii.Major (Retd.) Inder Singh Rekhi Vs. Delhi Development Authority, (1988) 2 SCC 338;
ix. State of Orrisa & Anr. V. Damodar Das, (1996) 2 SCC 216;
x. Khatri Hotels Private Limited & Anr. V. Union of India & Anr, (2011) 9 SCC 126;
xi. Shakti Bhog Food Industries Limited Vs. Central Bank of India & Anr, (2020) 17 SCC 260;
xii.Board of Trustees of the Port of Chennai Vs. X-
press Container Line(UK) Ltd & Ors, 2020 SCC Online Mad 2484;
xiii.M/s.Chennai Water Desalination Ltd. Vs. CMWSSB in O.P.No.298 of 2019 dated 26.07.2022;
xiv.National Highways Authority of India Vs. CEC https://www.mhc.tn.gov.in/judis 36/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 HC (JV), 2013 (133) DRJ 582 (DB);
xv. National Hydroelectric Power Corporation Ltd. Vs. General Electric Company Ltd. & Ors, 2013 SCC Online Del 1646.
48. Defending the Impugned Awards, the Learned Senior Counsel for the Respondent/Claimant would submit that the Impugned Awards are well- reasoned and do not require any interference in the hands of the Court. It is submitted that the work was carried out in good faith so as to ensure that there is no unjust enrichment by either of the parties.
49. It is submitted by the Respondent/Claimant that the indices for “Steel” and “Cement” ceased to exist/been discontinued in the WPI (RBI) 2004-2005 Series and that the Arbitral Tribunal has dealt in detail and decided that the agreed indices has ceased to exist. It is further submitted that the Employees Representative (ER) himself vide Letter dated 08.01.2015 had categorically admitted that the agreed indices for “Cement” and “Steel” has been discontinued.
50. It is submitted by the Respondent/Claimant that the contention of the Petitioner that parties did not agree on ‘Reference Price’ cannot be taken into account as while modifying the GCC/CPA through addendum, it is stated that https://www.mhc.tn.gov.in/judis 37/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 the Petitioner consciously retained the ‘Reference Prices’ as an alternative to Indices and that both the ‘Reference Prices’ and ‘Cost Indices’ were present in CPA 32.
51. It is further stated that while interpreting the Contract every word should be given meaning and that nothing should be treated as surplus age. Therefore, it is stated that the Petitioner’s endeavour to render the ‘Reference Prices’ as redundant/otiose during the dispute adjudication proceedings as an afterthought is impermissible under Law and unsustainable.
52. The Learned Senior Counsel appearing for the Respondent/Claimant argued that there is no ambiguity in the usage of ‘Reference Prices’ and in addition as per the Rule of Contra Proferentem, any clause considered to be ambiguous should be interpreted against the interest of the party that created and introduced the clause and therefore, the interpretation of the Respondent/Claimant should be sustained and the contention of the Petitioner is liable to be rejected.
53. It is further submitted that the adoption of new indices by the Employees Representative (ER) is a novation of contract, which cannot be done without consent of the parties to the contract and that the Respondent/Claimant https://www.mhc.tn.gov.in/judis 38/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 had proposed CPWD prices as ‘Reference Prices’ which is contemplated under the contract and hence, it cannot be termed as unilateral novation of contract. It is further submitted that the adoption of reference prices would not amount to novation of contract as the same is within the terms of the contract.
54. The Learned Senior Counsel appearing for the Respondent/Claimant stated that the representing inputs/cost elements of the formula shall reflect the changes in the cost during the performance of the Contract, however, the indices adopted by the Employees Representative (ER) was not reflecting the changes in the cost during the performance of the Contract.
55. It is stated that the case of the Respondent/Claimant is not that the formula is unworkable and also not due to change in series but that the agreed inputs to the formula were discontinued, in precise, two inputs “Steel” and “Cement” were discontinued while the other two inputs were available and were used by the Respondent/Claimant. It is further submitted that the case of the Respondent/Claimant is to adopt the “Reference Prices” as an alternative in lieu of the discontinued indices, is provided in the Contract.
56. It is submitted by the Respondent/Claimant that the contention of the https://www.mhc.tn.gov.in/judis 39/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Petitioner that the formula is hybrid, Price Escalation Formula is a misconception and misleading. It is submitted that the Respondent/Claimant has adopted the same price variation formula as contemplated in the contract and that the contract contemplates both “Indices” and “Prices” as inputs for the Price Variation Formula. It is stated that since the agreed indices for two cost components were discontinued, “Prices” were used in lieu of the same, to achieve the object of the Price Variation, to measure the fluctuations and reflect the changes.
57. It is further submitted that in the Price Variation Formula, there is condition/stipulation to adopt either only the “Indices” or only the “Prices” are to be used. Further, in the construction contracts, it is common practice in the Price Variation Formula that both “Indices” and “Indices” are being adopted simultaneously. Therefore, it is submitted that the contrary contention of the Petitioner is not correct.
58. It is submitted that the “Reference Prices” contemplated in Clause 13.4.4 of Price Centre in the Contract are applicable for variation of work/additional work, however, there is no specific prohibition that the prices should not be applied for any other purpose. Therefore, the ‘Reference Prices’ https://www.mhc.tn.gov.in/judis 40/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 can also be adopted in the Price Variation Formula.
59. It is submitted by the Respondent/Claimant that contention of the Petitioner that even CPWD rates, “Steel” and “Cement” is not described as “Iron” and “Steel” and “Cement” and that it is not as if the nomenclature/description remained the same under the CPWD rates cannot be considered as the Petitioner did not raise the above contentions before the Arbitral Tribunal and that these contentions are raised for the first time before this Hon’ble Court and that in addition, it is stated that the aforesaid contention is also not factually right.
60. The Learned Senior Counsel appearing for the Respondent/Claimant placed reliance on the Associate Builder Vs. Delhi Development Authority, 2015 3 SCC 49 and submitted that the Court should not interfere with the Arbitral Award unless there is an illegality that goes to the root of the matter; that the Arbitral Tribunal constructed the contract in such a way that no fair- minded person could do that. It is submitted that the Courts should not substitute its view thinking that the Arbitrator’s view is unjust on the facts of a case.
https://www.mhc.tn.gov.in/judis 41/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
61. The Learned Senior Counsel further stated that the power of the Courts under Section 34 of the Arbitration and Conciliation Act, 1996, in interference with the Arbitral Award is restricted and that the Hon’ble Supreme Court has held that the Court cannot go into the merits of the dispute. It is submitted that in Ssangyong's case (cited supra), the Impugned Award was set aside only on the ground that the Arbitral Tribunal took the materials behind the back of the parties and thereby the parties were unable to present their case as provisioned under the Act. It is stated in the present case, there is no contention in those lines and therefore, the ratio decidendi of Ssangyong's case (cited supra) would not apply to the facts and circumstances of the present case.
62. The Learned Senior Counsel for the Respondent/Claimant has relied on the following decisions of the Hon'ble Supreme Court and that of the Bombay High Court:-
i. Oriental Insurance Co. Ltd. Vs. Smt.Raj Kumari & Ors, (2007) 12 SCC 768;
ii. Padmasundara Rao Vs. State of Tamil Nadu & Ors, (2002) 3 SCC 533;
iii. Associate Builders Vs. Delhi Development Authority, (2015) 3 SCC 49;
iv. Ssangyong Engineering Construction Company Limited Vs. National Highways Authority of India (NHAI), (2019) 15 SCC 131;
v. Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd., 2022 (1) SCC 131;
https://www.mhc.tn.gov.in/judis 42/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 vi. Hindustan Construction Company Limited Vs. National Highways Authority of India, 2023 SCC Online SC 1063;
vii.McDermott International Inc. Vs. Burn Standard Co. Ltd and Others, 2006 (11) SCC 181;
viii.United India Insurance Co. Ltd. Vs. Pushpalaya Printers, 2004 (3) SCC 694;
ix. Bank of India and Another Vs. K.Mohandas and others, 2009 (5) SCC 313;
x. Municipal Corporation of Greater Vs. Jyoti Construction Company, 2003 (4) Mh.L.J;
xi. Shree Ram Mills Ltd. Vs. Utility Premises (P) Ltd., 2007 (4) SCC 599;
xii.Municipal Corporation of Delhi Vs.
M/s.Gurbachan Singh & Sons, 2014 SCC OnLine
Del.
63. I have considered the arguments advanced by the Learned Senior Counsel for the Petitioner in Arb.O.P.(Com.Div.) No.360 of 2017, the Learned counsel for the Petitioner in Arb.O.P.(Com.Div.) No.361 of 2017, the Learned Senior Counsel for the Respondent/Claimant in both the original petitions.
64. A reading of the respective Impugned Awards, Claim Petitions before the Arbitral Tribunal, response of the petitioner before respective the Arbitral Tribunal filed and the Case Laws filed make it clear that the dispute had arisen on account of change in the Wholesale Price Index of the Reserve Bank of India [WPI (RBI)] 1993-1994 with Wholesale Price Index of the Reserve Bank of India [WPI (RBI)] 2004-2005 Series with effect from 14.09.2010. https://www.mhc.tn.gov.in/judis 43/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
65. The offer of the Respondent/Claimant in response to the Tender floated by the petitioner on 05.08.2010 was based on the WPI (RBI) 1993- 1994 Series. WPI (RBI) 1993-1994 Series was substituted by WPI (RBI) 2004-2005 Series on 14.09.2010.
66. The Offer of the Respondent/Claimant dated 05.08.2010 was accepted by the Petitioner on 28.12.2010. Prior to the Letter of Acceptance on 28.12.2010, the WPI (RBI) 1993-1994 Series stood replaced and substitued by WPI (RBI) 2004-2005 Series, with effect from 14.09.2010.
67. As per the decision of the Hon’ble Supreme Court in Ssangyong Engineering and Construction Co.Ltd., vs. National Highway Authority of India, (2019) 15 SCC 131, even under WPI (RBI) 2004-2005 Series, the indices for the previous years beginning from April 2005 were also being published by the Ministry.
68. Thus, despite the change in the Reserve Bank of India Whole Sale Price Index, the offer of the Respondent/Claimant dated 05.08.2010 was accepted by the Petitioner vide Letters of Acceptance dated 28.12.2010 of the https://www.mhc.tn.gov.in/judis 44/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Respondent/Claimant based on indices in WPI (RBI) 1993-1994 Series.
69. Letters of Acceptance dated 28.12.2010 was followed by two Contracts both dated 31.01.2011 between the petitioner and the Respondent/Claimant viz., UAA-01 for Package 01 between Egmore and Washermanpet and for Package 05 between Shenoy Nagar and Thirumangalam. There was no reference to change and substitution of WPI (RBI) 1993-1994 Series with WPI (RBI) 2004-2005 Series. Thus, there was mistake of fact while signing the respective Contracts on 31.01.2011.
70. The Offer of the Respondent/Claimant on 05.08.2010 would have factored the price of “Steel”, “Cement”, “Fuel” and “Labour” and other commodities in WPI (RBI) 1993-1994 Series for the base price. Consequently, the acceptance of the offer dated 05.08.2010 of the Respondent/Claimant vide Letter of Acceptance on 28.12.2010 would also have been based on WPI (RBI) 1993-1994 Series only as otherwise it would have stated so.
71. The parties have signed the contract under the assumption that the WPI (RBI) 1993-1994 Series will govern the contract, when WPI (RBI) 1993-1994 Series stood replaced by WPI (RBI) 2004-2005 Series with effect from 14.09.2010. Since there was a mistake of fact both on the part of the https://www.mhc.tn.gov.in/judis 45/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Petitioner and the Respondent/Claimant on the the date of Contracts on 31.01.2011, after Offer dated 05.08.2010 of the Respondent/Claimant was accepted by the Petitioner, with the issuance of Letter of Acceptance on 28.12.2010, the Arbitral Tribunal ought to have examined the issue from the perspective of Section 20 of the Contract Act, 1872 and its consequence under Section 65 of the Contract Act, 1872.
72. In case of any loss to the Respondent/Claimant, the Petitioner can be called upon to suitably compensate the Respondent/Claimant by applying the principle in Section 65 read with Section 70 of the Indian Contracts Act, 1872. On the other hand, if any amount was paid in excess, the Petitioner would have been entitled to re-claim amounts from the Respondent/Claimant. This aspect ought to have been seen by the Arbitral Tribunal.
73. Strangely, even the learned Senior Counsel failed to address this issue despite repeated queris for the Bench during long course of hearing. The law in the subject is also well evolved. There are different kinds of mistakes. Bilateral Mistake as categorized into Mutual Mistake and Common Mistakes are as follows:-
Bilateral Mistake https://www.mhc.tn.gov.in/judis 46/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Mutual Mistake Common Mistake Mutual mistake occurs where the parties Common mistake arises where both misunderstand each other and are at parties are ad idem, but for eg, the cross-purposes with each other. There is subject matter of the contract has already no real corresponding offer and perished. This is also void. Section 20 is acceptance. The parties are not really concerned with common mistake of fact consensus ad idem. There is thus no and not mutual mistake. It is a mistake agreement at all; and this contract is also possessed or shared alike by both or all void. For example, A intends to offer his the persons or things in question and 8 hp car, but B believes it to be 10 hp. mutual means possessed or entertained Here, there is a misunderstanding in the by each of two persons towards or with communication between the parties, regard to each other. But it is common to which prevents there being an effective use the term ‘mutual mistake’ for this agreement type of mistake, and has been so used below.
There is yet a fourth kind of mistake – non est factum; but it really falls under ss.13 or 18 and has been dealt with there.
74. In Apvodedo NV Vs. Collins, (2008) EWHC 775 (Ch), at (43) and (46), Henderson, J sought to reconcile the two different formulations of the test in the following way:-
“43. However, Associated Japanese… shows that there are cases where a defence of common mistake can succeed even though performance of the relevant contractual obligation is possible (in that case payment by a bank under a guarantee). This suggests that the true test may rather be whether the non-existence of the state of affairs renders performance of the contract in accordance with the common assumption impossible
46. Associated Japanese is also of importance because it demonstrates that a defence of common mistake can succeed even if it is on the face of the contract perfectly possible for the defendant to do precisely what he has https://www.mhc.tn.gov.in/judis 47/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 contracted to do.”
75. In Triple Seven Msn 27251 Ltd and another Vs. Azman Air Servces Ltd, (2018) EWHC 1348 (Comm), the Queen’s Bench Division held as under:-
“69. There is no precise test to measure what constitutes a fundamental assumption underlying the contract and what constitutes a fundamental or essential or radical difference between the assumed and actual state of affairs. It is obviously a question of degree, but the nature of the test is such that it necessarily applies to a small number degree, but the nature of the test is such that it necessarily applies to a small number of cases, given that the doctrine applies in circumstances which, in Steyn, J’s words, are “unexpected and wholly exceptional” (see also paras 84-85 of Lord Phillips, MR’s judgment in Great Peace Shipping Ltd vs. Tsavliris Salvage (International) Ltd.)”
70. Moreover, the fundamental nature of the common mistake is not one necessarily to be equated with the inducing effect of the commonly shared assumption upon the parties. In other words, it is not sufficient if both parties would not have entered into the contract had they known of the true state of affairs. If such were the test, it might well be on the facts of the particular case that both parties might not have entered into the contract had they known the true state of affairs, even where the commonly shared assumption related to a less important or non-
fundamental matter. Therefore, if there had been a misrepresentation by one of the parties, the fact that the representee would not have entered into the contract had the misrepresentation not been made, is not necessarily https://www.mhc.tn.gov.in/judis 48/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 indicative of the importance or fundamental nature of the representation itself. The reason for this is simple. Unlike misrepresentation or a unilateral mistake known or encouraged by one of the parties, a common mistake exists where neither party is at fault for the mistaken assumption, and the contract which they have voluntarily concluded should not be disturbed unless that assumption renders the contract wholly different from what they understood the case to be.”
76. In Cooper Vs. Phibbs, LR 2 HL 149, “A” agreed to take a lease of a fishery from “B”, though contrary to the belief of both parties at the time “A” was tenant for life of the fishery and “B” had no title at all. There Lord Westbury applied the principle that if parties to contract were under a mutual mistake and misapprehension as to their relative and respective rights, the result is that the agreement was liable to be set aside as having proceeded upon a common mistake.
77. In Solle Vs. Butcher, [1950] 1 KB 671, the defendant agreed to let a flat to the plaintiff for £250 a year. The flat had previously been let at a rent of £140. Substantial work had been done on the flat and both parties believed that this so altered the nature of the premises as to free them from relevant Rent Control. In this they were mistaken. The defendant would have been able to charge the plaintiff an increased rent of £250 to reflect the work done on the flat https://www.mhc.tn.gov.in/judis 49/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 had he complied with the requisite formalities but, under the influence of the mistake, he failed to do so. In the result, he could not lawfully charge a rent higher than £140. The plaintiff obtained a declaration in the county Court that the rent was to be restricted to £140 and an order for repayment of rent overpaid. The Judge rejected the contention that the contract had been concluded under a common mistake of fact, holding that the mistake was one of law. The Court of Appeal, by a majority, reversed this decision.
78. Court of Appeal held that the parties had concluded the agreement under a common mistake of fact, namely that the alterations had turned the premises into “in effect, a different flat”. The Court further held that this common mistake was on a matter of fundamental importance and that the defendant was entitled to rescind the agreement under the principle in Cooper's case (cited supra).
79. The Court further held that Denning LJ identified the effect of common mistake under principles of common law in Solle vs. Butcher [1950] 1 KB 671, 691:
“Let me first consider mistakes which render a contract a nullity. All previous decisions on this subject must now be read in the light of Bell v https://www.mhc.tn.gov.in/judis 50/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Lever Bros Ltd [1932] AC 161, 222, 224, 225– 227, 236. The correct interpretation of that case, to my mind, is that, once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake. A fortiori, if the other party did not know of the mistake, but shared it. The cases where goods have perished at the time of sale, or belong to the buyer, are really contracts which are not void for mistakebut are void by reason of an implied condition precedent, because the contract proceeded on the basic assumption that it was possible of performance.”
80. Applying the above principles Denning LJ held that it was clear that there was a contract. The parties had agreed in the same terms on the same subject matter. True it was that there was a fundamental mistake as to the rent which could be charged, but that did not render the lease a nullity. Turning to equity, he observed that the court could set aside a contract when it was unconscientious for the other party to take advantage of it. As to what was https://www.mhc.tn.gov.in/judis 51/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 considered unconscientious, equity had shown a progressive development. A material misrepresentation would suffice, even if not fraudulent or fundamental, Denning LJ observed as under:-
“A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.”
81. For this proposition Denning LJ relied primarily on Cooper v Phibbs, LR 2 HL 149. Of this he said [1950] 1 KB 671, 693–694. Paragraph 124 of Great peace Shipping Ltd vs. Tsavliris Salvage (International) Ltd, [2002] EWCA Civ 1407.
“In that case an uncle had told his nephew, not intending to misrepresent anything, but being in fact in error, that he (the uncle) was entitled to a fishery; and the nephew, after the uncle's death, acting in the belief of the truth of what the uncle had told him, entered into an agreement to rent the fishery from the uncle's daughters, whereas it actually belonged to the nephew himself. The mistake there as to the title to the fishery did not render the tenancy agreement a nullity. If it had done, the contract would have been void at law from the beginning and equity would have had to follow the law. There would have been no contract to set aside and no terms to impose. The https://www.mhc.tn.gov.in/judis 52/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 House of Lords, however, held that the mistake was only such as to make it voidable, or, in Lord Westbury's words ‘liable to be set aside’ on such terms as the court thought fit to impose; and it was so set aside. The principle so established by Cooper v Phibbs LR 2 HL 149 has been repeatedly acted on:
see, for instance, Earl Beauchamp v Winn LR 6 HL 223, 234 and Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273. It is in no way impaired by Bell v Lever Bros Ltd [1932] AC 161, which was treated in the House of Lords as a case at law depending on whether the contract was a nullity or not. If it had been considered on equitable grounds, the result might have been different. In any case, the principle of Cooper v Phibbs has been fully restored by Norwich Union Fire Insurance Society Ltd v Wm H Price Ltd [1934] AC 455, 462–463.” He added [1950] 1 KB 671, 695: “Cooper v Phibbs affords ample authority for saying that, by reason of the common misapprehension, this lease can be set aside on such terms as the court thinks fit.”
125. Denning LJ held, at p 695, that the lease should be set aside because there had been “a common misapprehension, which was fundamental”. The terms on which the lease was set aside were such as, in effect, to give the tenant the option of substituting the lease for one at the full rent which the law permitted.”
82. In Bell Vs. Lever Bros Limited, [1932] AC 161, it was held as under:-
“The real question, therefore, is whether the erroneous assumption on the part of both parties to the agreements that https://www.mhc.tn.gov.in/judis 53/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 the service contracts were undeterminable except by agreement was of such a fundamental character as to constitute an underlying assumption without which the parties would not have made the contract they in fact made, or whether it was only a common error as to a material element, but one not going to the root of the matter and not affecting the substance of the consideration. With the knowledge that, I am differing from the majority of your Lordships, I am unable to arrive at any conclusion except that in this case the erroneous assumption was essential to the contract which without it would not have been made.”
83. There, the plaintiff Lever Bros Limited held employed the two defendants. The two defendants had committed serious breaches of their contracts of employment, which would have justified their summary dismissal. In ignorance of this fact, the plaintiff Lever Bros Limited entered into agreements with them under which their services were terminated on terms that they would receive substantial sums in compensation. The defendants themselves did not have in mind, when these agreements were concluded, that they could have been dismissed without compensation. Thus, the agreements were concluded under a common mistake as to the respective rights of the parties. The plaintiff Lever Bros Limited claimed rescission of the agreements and repayment of the compensation paid under them.
84. There Lord Thankerton [1932] AC 161, 235-236, when considering https://www.mhc.tn.gov.in/judis 54/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 the type of mistaken assumption that would render a contract void in the light of a number of common law authorities, added:-
"The phrase 'underlying assumption by the parties', as applied to the subject matter of a contract, may be too widely interpreted so as to include something which one of the parties had not necessarily in his mind at the time of the contract; in my opinion it can only properly relate to something which both must necessarily have accepted in their minds as an essential and integral element of the subject matter. In the present case, however probable it may be, we are not necessarily forced to that assumption. Cooper v Phibbs is a good illustration, for both parties must necessarily have proceeded on the mistaken assumption that the lessor had the right to grant the lease and that the lessee required a lease.”
85. Summarizing the position, the Court of Appeal in Great Peace Shipping Ltd. vs. Tsavliris Salvage (International) Ltd, [2003] QB 679, summarized the position as follows:-
“153. A number of cases, albeit a small number, in the course of the last 50 years have purported to follow Solle v Butcher [1950] 1 KB 671, yet none of them defines the test of mistake that gives rise to the equitable jurisdiction to rescind in a manner that distinguishes this from the test of a mistake that renders a contract void in law, as identified in Bell v Lever Bros Ltd [1932] AC 161. This is, perhaps, not surprising, for Denning LJ, the author of the test in Solle v Butcher, set Bell v Lever Bros Ltd at nought. It is possible to reconcile Solle v Butcher and Magee v Pennine Insurance Co Ltd [1969] 2 QB https://www.mhc.tn.gov.in/judis 55/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 507 with Bell v Lever Bros Ltd only by postulating that there are two categories of mistake, one that renders a contract void at law and one that renders it voidable in equity. Although later cases have proceeded on this basis, it is not possible to identify that proposition in the judgment of any of the three Lords Justices, Denning, Bucknill and Fenton Atkinson, who participated in the majority decisions in the former two cases.
Nor, over 50 years, has it proved possible to define satisfactorily two different qualities of mistake, one operating in law and one in equity.
154. In Solle v Butcher Denning LJ identified the requirement of a common misapprehension that was “fundamental”, and that adjective has been used to describe the mistake in those cases which have followed Solle v Butcher. We do not find it possible to distinguish, by a process of definition, a mistake which is “fundamental” from Lord Atkin's mistake as to quality which “makes the thing [contracted for] essentially different from the thing [that] it was believed to be” : [1932] AC 161, 218.
155. A common factor in Solle v Butcher and the cases which have followed it can be identified. The effect of the mistake has been to make the contract a particularly bad bargain for one of the parties. Is there a principle of equity which justifies the court in rescinding a contract where a common mistake has produced this result?
“Equity is … a body of rules or principles which form an appendage to the general rules of law, or a gloss upon them. In origin at least, it represents the attempt of the English legal system to meet a problem which confronts all legal systems reaching a certain stage of development. In order to ensure the smooth running of society it is necessary to formulate general rules which work well enough in the majority of cases. Sooner or later, however, cases arise in which, in some unforeseen set of facts, the general rules produce substantial unfairness.” (Snell's Equity, 30th ed (2000), para 1–03.) https://www.mhc.tn.gov.in/judis 56/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
156. Thus the premise of equity's intrusion into the effects of the common law is that the common law rule in question is seen in the particular case to work injustice, and for some reason the common law cannot cure itself. But it is difficult to see how that can apply here. Cases of fraud and misrepresentation, and undue influence, are all catered for under other existing and uncontentious equitable rules. We are only concerned with the question whether relief might be given for common mistake in circumstances wider than those stipulated in Bell v Lever Bros Ltd [1932] AC 161. But that, surely, is a question as to where the common law should draw the line; not whether, given the common law rule, it needs to be mitigated by application of some other doctrine. The common law has drawn the line in Bell v Lever Bros Ltd. The effect of Solle v Butcher [1950] 1 KB 671 is not to supplement or mitigate the common law : it is to say that Bell v Lever Bros Ltd was wrongly decided.
157. Our conclusion is that it is impossible to reconcile Solle v Butcher with Bell v Lever Bros Ltd. The jurisdiction asserted in the former case has not developed. It has been a fertile source of academic debate, but in practice it has given rise to a handful of cases that have merely emphasised the confusion of this area of our jurisprudence. In paras 110 to 121 of his judgment, Toulson J has demonstrated the extent of that confusion. If coherence is to be restored to this area of our law, it can only be by declaring that there is no jurisdiction to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable on ordinary principles of contract law. That is the conclusion of Toulson J. Do the principles of case precedent permit us to endorse it? What is the correct approach where this court concludes that a decision of the Court of Appeal cannot stand with an earlier decision of the House of Lords? There are two decisions which bear on this question.
158. Noble v Southern Railway Co [1940] AC 583 involved a https://www.mhc.tn.gov.in/judis 57/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 claim under the Workmen's Compensation Act 1925 in respect of a railway employee killed by a passing train. The Court of Appeal dismissed the claim, holding itself bound to follow a previous decision of the Court of Appeal that was on all fours- Clarke v Southern Railway (1927) 96 LJKB 572- notwithstanding that this was in conflict with an earlier decision of the House of Lords-Wilsons and Clyde Coal Co Ltd v M'Ferrin [1926] AC 377. Lord Wright made the following comment on this situation [1940] AC 583, 598 :
“I can understand the difficulty in which both the county court judge and the Court of Appeal were placed in the present case. What a court should do when faced with a decision of the Court of Appeal manifestly inconsistent with the decisions of this House is a problem of some difficulty in the doctrine of precedent. I incline to think it should apply the law laid down by the House and refuse to follow the erroneous decision.”
159. Lord Lane CJ, when delivering the judgment of the Court of Appeal, invoked this statement of opinion in Holden & Co v Crown Prosecution Service [1990] 2 QB 261. At issue was the scope of the jurisdiction of the court to order a solicitor to pay personally costs thrown away in criminal proceedings. The court was faced with reasoning on the point in a previous decision of the Court of Appeal which was at odds with an earlier decision of the House of Lords. Lord Lane CJ, having referred to the opinion of Lord Wright, went on to hold that the court regarded itself as free to disregard the previous decision of the Court of Appeal.
160. We have been in some doubt as to whether this line of authority goes far enough to permit us to hold that Solle v Butcher [1950] 1 KB 671 is not good law. We are very conscious that we are not only scrutinising the reasoning of Lord Denning MR in Solle v Butcher and in Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 but are also faced with a https://www.mhc.tn.gov.in/judis 58/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 number of later decisions in which Lord Denning MR's approach has been approved and followed. Further, a division of this court has made it clear in West Sussex Properties Ltd v Chichester District Council 28 June 2000 that they felt bound by Solle v Butcher. However, it is to be noticed that while junior counsel in the court below in the West Sussex Properties case had sought to challenge the correctness of Solle v Butcher, in the Court of Appeal leading counsel accepted that it was good law unless and until overturned by their Lordships' House. In this case we have heard full argument, which has provided what we believe has been the first opportunity in this court for a full and mature consideration of the relation between Bell v Lever Bros Ltd [1932] AC 161 and Solle v Butcher. In the light of that consideration we can see no way that Solle v Butcher can stand with Bell v Lever Bros Ltd. In these circumstances we can see no option but so to hold.
161. We can understand why the decision in Bell v Lever Bros Ltd did not find favour with Lord Denning MR. An equitable jurisdiction to grant rescission on terms where a common fundamental mistake has induced a contract gives greater flexibility than a doctrine of common law which holds the contract void in such circumstances. Just as the Law Reform (Frustrated Contracts) Act 1943 was needed to temper the effect of the common law doctrine of frustration, so there is scope for legislation to give greater flexibility to our law of mistake than the common law allows.”
86. Ultimately the Court summarized the policy as follows:-
“162. We revert to the question that we left unanswered at paragraph 94. It was unquestionably a common assumption of both parties when the contract was concluded that the two vessels were in sufficiently close proximity to enable the Great Peace to carry out the service that she was engaged to perform. Was the distance between the two vessels so great as https://www.mhc.tn.gov.in/judis 59/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 to confound that assumption and to render the contractual adventure impossible of performance? If so, the defendants would have an arguable case that the contract was void under the principle in 0Bell v Lever Bros Ltd [1932] AC 161.”
87. In Associated Japanese Bank (International) Ltd Vs. Credit du Nord SA, (1989) 1 WLR 255, 266-270, Steyn, J said that the doctrine of common mistake was concerned with “the impact of unexpected and wholly exceptional circumstances on apparent contracts”. The elements of a common mistake identified by Steyn, J were as follows:-
1) The mistake must be substantially shared by both parties and must relate to fats as they existed at the date of the contract. The parties must have had reasonable grounds for their mistaken belief;
2) The mistake must render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist;
3) If the contract itself provides for the allocation of risk or the consequences of such a mistake, the contract must be applied to the exclusion of any applicable doctrine.”
88. In Ganga Retreat & Towers Ltd., Vs. State of Rajasthan, (2003) 12 SCC 91, the Hon'ble Supreme Court observed that under Section 20 of the Contract Act, a mistake of fact avoids the agreement when both the parties to an agreement are under a mistake as to a matter of fact essential to the https://www.mhc.tn.gov.in/judis 60/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 agreement. It is further observed that it is necessary that both the parties should be under a mistake. As far as mistake of law under Section 21 of the Contract Act is concerned, the Court observed that the vitiating effect of the alleged mistake of law shall stand obliterated no sooner it is found that one of the party, in spite of the so-called mistake being discovered, yet, chosen to stand by the contract, ratifying the same by its conduct and went ahead to exercise the rights which accrued under the contract. The Court held, a contract is voidable because it was caused by a mistake on their part or misrepresentation on the part of both being the laws in force in India.
89. Since the offer of the Respondent/Claimant dated 05.08.2010 was based on the WPI (RBI) 1993-1994 Series, the bid amount of the Respondent/Claimant and the acceptance of the bid amount by the Petitioner also would have been based on the WPI (RBI) 1993-1994 Series. The bid value for the respective contracts under the Tender and the contract price under the respective contract and the Award amount also would have been based on the WPI (RBI) 1993-1994 Series.
90. The nomenclature of “Cement” under WPI (RBI) 1993-1994 Series was under Heading Non-Metalic Minerals Products. The nomenclature of https://www.mhc.tn.gov.in/judis 61/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 “Steel” was under Heading Basic Metal Alloys and Metal Products as “Iron” and “Steel” in WPI (RBI) 1993-1994 Series.
91. In the WPI (RBI) 2004-2005 Series, the nomenclature of “Cement” was changed to “Cement and Lime”. Similarly, “Steel” was grouped along with “Ferrous metals” as “Iron & Semis”, “Steel Long”, “Steel Flat”, “Ferro Alloys” etc., as below:-
Wholesale Price Index 1993-1994 Series 2004-2005 Series (WPI) (RBI) Series Cement (i) Non-Metalic Mineral Products: (i) Non-Metalic Mineral
(a) Structural Clay Products Products:
(b) Glass, Earthernware, (a) Structural Clay Products Chinaware & their Products. (b) Glass, Earthenware,
(c) Cement Chinaware & their
(d) Cement, Slate & Graphite Products.
Products. (c) Cement and Lime
(d) Cement, Slate &
Graphite Products.
Steel (j) Basic Metals Alloys & Metals (j) Basic Metals Alloys &
Products: Metals Products:
a. Basic Metals & Alloys a. Ferrous Metals
a1. Iron & Steel a1. Iron & Semis
a2. Foundries for Casting, Forging a2. Steel Long & Structurals. a3. Steel Flat a3. Pipes, Wires Drawing & others. a4. Steel : Pipes & Tubes a4. Ferro Alloys. a5. Stainless Steel & Alloys a6. Castings & Forgings b. Non-Ferrous Metals. a7. Ferro Alloys b1.Aluminium. b. Non-Ferrous Metals b2. Other Non-Ferrous Metals. b1. Aluminium https://www.mhc.tn.gov.in/judis 62/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Wholesale Price Index 1993-1994 Series 2004-2005 Series (WPI) (RBI) Series b2. Other Non-Ferrous Metals.
c. Metal Products. c. Metal Products
92. The actual price of both these items namely “Cement” and “Steel” or for that matter, the price of fuel and cost of labour incurred are not the basis of an evaluation offer of the respondent/claimant in response to the Tender floated by the petitioner. They are also not the basis of claims under the respective Interim Payment Advice.
93. The offer of the respondent/claimant was based on the RBI Indices for the four items namely “Cement”, “Steel”, “Labour” and “Petroleum Products” based on the rate that were prevailing 28 days before the date of Offer on 05.08.2010.
94. The rate of both “Steel” and “Cement” in the WPI (RBI) 2004-2005 Series has drastically reduced from the value in WPI (RBI) 1993-1994 Series.
95. The base price of “Iron” and “Steel” during July, 2010 was https://www.mhc.tn.gov.in/judis 63/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Rs.343.3 under the WPI (RBI) 1993-1994 Series, whereas, for“Iron” and “Semis”, it was Rs.127.9 under WPI (RBI) 2004-2005 Series. Following table will show the comparison:-
WPI (RBI) 1993-1994 Series WPI (RBI) 2004-2005 Series Iron & Steel Rs.343.3 Iron & Semis Rs.127.9 Cement Rs.211.5 Cement & Lime Rs.150.8
96. The Manual on Wholesale Price Index (Base:2011-12 = 100) published by the Office of the Economic Adviser Department of Industrial Policy & Promotion Ministry of Commerce & Industry Government of India, New Delhi has explained the purpose of Price Index as follows:-
“1.3 Need for revisiting the present base year 2004-2005 1.3.1 The set of Wholesale Price Index numbers with base year 2004-05 was introduced with effect from 14th September, 2010. Significant structural changes have taken place in the Indian economy since then. Therefore, it became necessary to revise the index basket of the existing series of Index numbers of Wholesale Price in India (Base 2004-05=100) and revisit a range of issues such as examination of the coverage of commodities, base year, and weighting diagram etc.”
97. In the same, Literature in Chapter I deals with Introduction, https://www.mhc.tn.gov.in/judis 64/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Importance of Wholesale Price Index. It has been explained as follows:-
“1.1 Importance of Wholesale Price Index 1.1.1 An Index is a measure of the change in a group of related variables over two different situations. Group of variables may be the prices of a specified set of commodities, the volumes of production in different sectors of an industry. Two different situations may be two different times, two different places etc. Index numbers are the indicators which reflect changes over a specified period of time in respect of prices of different commodities, industrial production, sales, imports and exports, cost of living, etc. These indicators are important tools for review and management of present economic positions and plan formulation. Some of the important indices like Wholesale Price Index (WPI), Index of Industrial Production (IIP), Consumer Price Index (CPI), etc. give a fairly good idea as to what is happening in the economy. Among the price indices in India, WPI is compiled and released on monthly basis by the Office of Economic Adviser, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, CPI (Urban, Rural and All India) is released by Central Statistics Office (CSO), Ministry of Statistics & Programme Implementation (MoSPI); and CPI (Industrial Workers), CPI (Agricultural Labour) and CPI (Rural Labour) are a set of Indices released by the Labour Bureau, Ministry of Labour. Some States also compile variants of CPI and WPI indices at the State level.”
98. It has further explained that WPI is used as a deflator of various https://www.mhc.tn.gov.in/judis 65/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 nominal macroeconomic variables including Gross Domestic Product (GDP).
The WPI based inflation estimates also serve as an important determinant, in formulation of trade, fiscal and other economic policies by the Government. WPI is also used for the purpose of escalation clauses in the supply of raw materials, machinery and construction work. Business firms in search of effective methods for coping with changes in prices often employ price adjustment (escalation) clauses in long-term sales and purchase contracts. It also stated that WPI is widely recognized among business people, economists, statisticians, and accountants as a useful 'objective indexing tool in price adjustment clauses.
99. It further states that Since 1947 the index is being published regularly. Six revisions have taken place introducing the new base years, viz., 1952-53, 1961-62, 1970-71, 1981-82, 1993-94 and 2004-05.
100. WPI (RBI) 2004-2005 in the above literate index also dealt with linking factor in its above mentioned publication. It reads as under:-
“2.11 Linking Factor In order to maintain continuity in the time series data on wholesale price index, it is imperative to provide a linking factor so that the new series may be compared with the https://www.mhc.tn.gov.in/judis 66/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 outgoing one. The Office of the Economic Adviser has been using the arithmetic conversion method to link the various prices index series. The linking factor for the three broad groups of commodities WPI are in the Table 2.3 below. Users are, however, free to choose any other method as may be considered appropriate by them.”
101. The purpose of price escalation in a contract is to ensure that neither the contractor nor the employer is subjected to a loss on account of the price variation as it is bench marked based on the best indices prevailing on a particular date prior to the date of offer. Therefore, a price variation is provided in the contracts.
102. FT-1 of form of Tender in ITT floated by the petitioner reads as under:-
“13. Contract Price and Payment:-
13.1 Unless otherwise stated n Part II:
(a)payment for the Works shall be made on a fixed lump sum basis:
(b)the Contract Price shall not be adjusted for changes in the cost of labour; materials or other matters;
(c) The Contractor shall pay all duties and taxes in consequence of his obligations under the Contract, and the Contract Price shall not be adjusted for https://www.mhc.tn.gov.in/judis 67/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 such costs, except as stated in Sub-Clause 13.16;
(d)any quantities which may be set out in a Schedule are only estimated quantities and are not to be taken as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligations under the Contract; and
(e) any quantities, prices or rates of payment per unit quantity which may be set out in a Schedule are only to be used for the purposes stated in such Schedule.
If any part of the Works is to be paid according to quantity supplied or work done, the provisions for measurement and valuation shall be as stated in Para II.
103. Clause 13.1 deals with the “Price Variation Formula” of the General Conditions of Contract. It was modified by CPA 31, 32 and 33.
104. However, as mentioned Clause 13.1 (a) was modified by CPA 32. CPA 32 in turn refers to CPA Item 38 of Appendix FT-1 of the Form of Tender in the ITT, representing the nonadjustable portion in contractual payments. CPA 32 reads as under:-
CPA No. Part I The following clauses in this Part II Conditions of Particular Sub-clause Application supplement Part I General Conditions, unless No. otherwise stated CPA 32 13.1 Replace Sub clause 13.1 (b) of Part I General Conditions with Price Variation the following sub-clauses Formula 13.1(b)(1) Price Variation Formula Prices payable to the Contractor, in accordance with the Contract, shall be subject to adjustment during performance https://www.mhc.tn.gov.in/judis 68/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 of the contract to reflect changes in the cost of labor and material components and other inputs to the works, in accordance with the following general formula for each currency specified;
Pn = a+b(Ln/Lo)+c(Sn/So)+d(Cn/Co)+e(Fn/Fo) Where “Pn” is the adjustment factor to be applied to the estimated value of the work carried out in month “n”, determined in accordance with GCC Clause 13, which shall be applied to each different currency;
“a” is a fixed coefficient as specified in item No.38 of Appendix FT-1 of the Form of Tender in the ITT, representing the nonadjustable portion in contractual payments; “b”, “c”, “d” and “e” are coefficients representing the estimated proportion of each cost element (labour, steel, cement and fuel) in the Works or sections thereof, as specified in Item No.38 of Appendix FT-1 of the Form of Tender in the ITT, “Ln” “Sn” , “Cn” and “Fn” are the current cost indices or reference prices for month “n” determined pursuant to item No.38 of Appendix FT-1 of the Form of Tender in the ITT, applicable to each cost element; and “Lo,”So”, “Co” and “Fo” are the base cost indices or reference prices corresponding to the above cost elements at the date specified in Item No.38 of Appendix FT-1 of the Form of Tender in the ITT.
(b)(ii) Conditions Applicable to Price Adjustment The Tenderer shall indicate the source of the indexes and the base date indexes as per Item No.38 of Appendix FT-1 of the Form of Tender of the ITT as follows;
(a) The base cost indices or prices shall be those Base, prevailing on the day 28 days prior to the closing date for submission of bids. Current indices or prices shall be those prevailing on the day 28 days prior to the last day of the period to which a particular interim Payment Certificate is related. If at any time the current indices are not available, provisional indices as determined by https://www.mhc.tn.gov.in/judis 69/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 the Engineer will be used subject to subsequent correction of the amounts paid to the “Contractor” when the current indices become available.
(b) Price adjustment will be applied only if the resulting increase or decrease is more than two percent (2%) of the Contract Price.
(c) No price adjustment shall be payable on the portion of the Contract Price paid to the Contractor as an advance payment.
(d) The responsibility for arranging copies of the labour and material indices, from the Reserve Bank of India and/or the appropriate Government Institutions abroad, to be the delivered to the Employer and the Employer’s Representative on a monthly basis, shall rest with the Contractor.
(b)(iii)Non-application of Price Variation Clause to extra items.
The Price Variation Clause above shall not be applicable to any extra item of works, not included in the Pricing Document Volume 7, and for which the rates are fixed separately under Clause 14 of Part I- General Conditions.
(b)(iv) Adjustment on Account of Price Variation Adjustments on account of Price Variations may be positive (in which case an additional amount shall be paid to the contractor), or negative ( in which case the amount of Price Variation shall be recovered from the Contractor). Adjustment on account of Price Variation shall be calculated separately, for each period between two successive dates of the Contractor’s statements and paid with the IPC. After verifying the statement, the Employer’s Representative shall certify the adjustment amount and advise the same to the Employer along with the IPC. Should any extra amount be due to Contractor, the Employer shall pay the same as far as possible within 28 days of certification by the Employer’s Representative. Any amount due from the Contractor on account of negative adjustment shall be recovered from his pending or other statements at the earliest.
(b)(v) Procedure in case of delay in availability of final indices https://www.mhc.tn.gov.in/judis 70/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Where the final Price indices are not available in the Reserve Bank of India Bulletins and/or indices used from abroad, while making payment towards an IPC, payment towards the Price Variation will be made on provisional basis based on the indices available, to be adjusted in subsequent statement as and when the final indices figures become available.
(b)(vi) Price Variation during extended period of completion. The price adjustment as worked out above i.e. either increase or decrease will be applicable up to the stipulated completion Date of the Works, including the extended period of completion where such extension has been granted under Sub-Clauses 8.3 of the Part I – General Conditions, and where such an extension has been granted, the price adjustment will be due as follows:-
(a) In case, the indices increase above the indices applicable to a bill made on the last date of original completion period or the extended period under Sub-
Clauses 8.3, the price adjustment for the period of extension granted in accordance with GC sub-clause 8.3 will be limited to the amount payable as per the indices applicable to the statement made on the last date of the original completion period or the extended period as the case may be.
(b) In case, the indices fall below the indices applicable to a statement made on the last date of the original or extended period of completion, then the lower indices will be adopted for Price Adjustment for the period of extension.
(c) No price increase will be allowed for periods of delay for which the contractor is held responsible. The Employer will, however, be entitled to any price decrease occurring during such periods of delay.
105. The formula for the “price variation” in CPA 32 under the Contracts between the petitioner and the respondent/claimant reads as follows:-
“Pn = a+b(Ln/Lo) + c(Sn/So) + d(Cn/Co) + e(Fn/Fo)” https://www.mhc.tn.gov.in/judis 71/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
106. The formula in CPA 32 stipulates Ln, Sn, Cn & Fn as the Current Cost Indices or 'reference price' determined pursuant to It.No.38 of appendix FT-1 of form of tender in ITT, applicable to each non-element. In It.No.38 of appendix FT-1 of form of tender in ITT, the parties have not determined the 'reference price'.
107. Lo, So, Co & Fo are the Base Indices. The Base Indices were to be based on the price/cost of “Labour”, “Steel”, “Cement” and “Fuel” with reference to the price/cost that prevailed 28 days before the offer to Bid on 05.08.2010. Thus, Lo, So, Co & Fo were to be reckoned on the price in the WPI (RBI) 1993-1994 Series for the month of July, 2010. The parties have however adopted base price from WPI (RBI) 2004-2005 Series as the Base Price that prevailed during July 2010 which was available under the said Series with effect from 14.09.2010.
108. The parties have however not agreed upon “reference prices” corresponding to the caution element at the date specified in Contrat No.UAA- 05 It.No.38 of appendix FT-1 of Form of Tender in ITT which reads as under:-
https://www.mhc.tn.gov.in/judis 72/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Sl.No Item CoC Sub-Clause Description
38. Price Variation Part I 13.1 Refer Tables 2,3 and 4 below Formula Part II CPA 32
109. Table 2, 3 & 4 referred to in Contract No.UAA-05 Clause 13.1 in It.No.38 of appendix FT-1 of Form of Tender in ITT reads as under:-
Table 2.(Refer Item 38) Factor and Description % Range of Weighting
(a) Fixed 0.30
(b) Labour 0.10 to 0.30
(c) Steel 0.05 to 0.25
(d) Cement 0.05 to 0.15
(e) Fuel 0.15 to 0.35 Table 3.(Refer Item 38) Index for: Origin of Input Currency of Published Source Base Value on (factor) (country) Index of Index 16th June 2010 Labour India Indian Rupees RBI Steel India Indian Rupees RBI Cement India Indian Rupees RBI Fuel India Indian Rupees RBI Labour Steel Cement Fuel https://www.mhc.tn.gov.in/judis 73/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Note: Table 3 can be expanded to include any four of the indices for local and foreign inputs.
Index Constant Labour Steel Cement Fuel Currency Currency Total Indian Rupees Japanese Yen Foreign Currency No.1 Foreign Currency No.2 Index Total 0.30 1.00
110. Interim Payment Applications (IPAs) were initially also filed by the rate/cost applying the indices in the WPI (RBI) 2004-2005 Series although the same was not in contemplation by the parties when the contracts were signed on 31.01.2011. Thereafter, the Respondent/Claimant raised Interim Payment Applications based on “Current Market Value” i.e., based on the invoices raised on it.
111. In the Interim Payment Applications (IPAs), the Respondent/Claimant adopted the Base Indices for “Labour”, “Steel”, “Cement” and “Fuel” from the WPI (RBI) 2004-2005 Series. In other words, https://www.mhc.tn.gov.in/judis 74/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 the base price indices for “Labour”, “Steel”, “Cement” and “Fuel” viz., Lo, So, Co & Fo were adopted by the Respondent/Claimant from the WPI (RBI) 2004-2005 Series.
112. Similarly, the Current Cost Indices for “Labour”, “Steel”, “Cement” and “Fuel” i.e., Ln, Sn, Cn and Fn were also adopted from WPI (RBI) 2004-2005 Series. If the the base price indices for “Labour”, “Steel”, “Cement” and “Fuel” viz., Lo, So, Co & Fo were adopted from WPI (RBI) 1993-1994 Series, the above formula could not have been worked as the base price of “Labour”, “Steel”, “Cement” and “Fuel” i.e., Ln, Sn, Cn and Fn in WPI (RBI) 2004-2005 Series were much lower as compared to the price in WPI (RBI) 1993-1994 Series. The current price of “Cement” , “Steel”, “Labour”, and “Fuel” are also much lower under WPI (RBI) 2004-2005 Series as compared to the price in WPI (RBI) 1993-1994 Series.
113. For “Steel” and “Cement” alone, the Respondent/claimant altered the indices to the “Market Price” and thereafter, once again to WPI (RBI) 2004-2005 Series in Interim Payment Applications. However, before the Arbitral Tribunal in the claim petition, altogether a different calculation was given by the Respondent/Claimant by placing reliance on the Central Public https://www.mhc.tn.gov.in/judis 75/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Works Department Rates (CPWD Rates) for “Steel” and “Cement”, though there was no agreement for the Central Public Works Department Rates (CPWD Rates) for “Steel” and “Cement” as the reference price.
114. In the Claim Statement dated 18.05.2018 that was filed before the Arbitral Tribunal, the claims of the Respondent/Claimant were based on the CPWD Rates for “Steel” and “Cement” even though the nomenclature in CPWD Rate is not exactly pari materia either to the WPI (RBI) 1993-1994 Series or to the WPI (RBI) 2004-2005 Series. The Arbitral Tribunal has however accepted the same.
115. The Respondent/Claimant thus adopted a hybrid of indices for the purpose of “price variation” under the Contracts. For “Labour” and “Petroleum products”, the Respondent/Claimant has adopted WPI (RBI) 2004-2005 Series in the IPAs. For “Steel” and “Cement”, the Respondent/Claimant has adopted prevailing market price in some of the IPAs.
116. Before the Arbitral Tribunal in the Claim Statement dated 18.05.2018 that were filed, the claims were based on the CPWD Rates for “Steel” and “Cement” even though the nomenclature in the CPWD Rate are not https://www.mhc.tn.gov.in/judis 76/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 exactly pari materia either to the WPI (RBI) 1993-1994 Series or to the WPI (RBI) 2004-2005 Series. The Arbitral Tribunal in the Impugned Awards has accepted the views of the Respondent/Claimant while awarding the amounts to the Respondent/Claimant.
117. Thus, indices in the periodical WPI (RBI) 2004-2005 Series was not adopted before the Arbitral Tribunal while awarding amounts towards Price Variation to the Respondent/Claimant for “Steel” and “Cement”. As far as “Steel” and “Cement” are concerned, the Respondent/Claimant has relied on Central Public Works Department Rates (CPWD Rates) which was not agreed between the parties although under the above formula, both “Current Cost Indices” and “Reference Prices” have been referred. However, parties have not agreed as to which of the “Reference Price” was to be applied for the month/reference price corresponding to the cost of element at the date specified in Item.No.38 of Appendix FT-1 of the Form of Tender in ITT.
118. Neither the contract signed between the parties have referred to the aforesaid “Reference Price” nor there was no consensus ad idem for adoption of the CPWD Rates for determining the price variation with reference to “Steel” and “Cement”.
https://www.mhc.tn.gov.in/judis 77/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
119. That apart, the Arbitral Tribunal has also adopted a hybrid form of “Reference Price” for “Steel” and “Cement” alone from the CPWD rates and the Wholesale Price Index for ‘Labour’ and ‘Petroleum products’ from the WPI (RBI) 2004-2005 Series. As CPWD rates was not in contemplation of the parties when they signed the Contract on 31.01.2011 for Contract No. UAA- 01 & UAA-05 after the Respondent/Claimant’s Offer dated 05.08.2010 was accepted by the Petitioner vide Letter of Acceptance dated 28.12.2010, the Awards of the respective Arbitral Tribunals are liable to be declared as patently illegal.
120. Since the Arbitral Tribunal has however adopted the CPWD price for current indices, it is is in variance with the Contract agreed between the parties under the respective Contracts dated 31.01.2011 incorporating the Terms and Conditions of FDIC and CPA 31, 32, 33 and 36 to the General Conditions of Contract of FDIC.
121. The Impugned Awards are thus clearly against Section 28(3) of the Arbitration and Conciliation Act, 1996 as it militates the Contracts between them. There is novation of the Contracts. Thus, the Impugned Awards are liable https://www.mhc.tn.gov.in/judis 78/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 to be set aside as being patently illegal.
122. In terms of Section 20 of the Contract Act, 1872, where both parties contract were harboring under a mistake of fact, the Contract signed between them based on such mistake of fact is void ab initio. However, despite the same being brought to the knowledge of the Petitioner by the Respondent in its Communication dated 27.06.2011, content of which was extracted elsewhere in the course of the narration, the parties decided to proceed further with the contract as mentioned above. The contract was void ab-initio.
123. For the sake of clarity, Section 20 of the Contracts Act, 1872 and Section 65 of the Contracts Act, 1872 are reproduced below:-
Contracts Act, 1872 Section 20 Section 65
20. Agreement void where both 65. Obligation of person who has parties are under mistake as to matter received advantage under void of fact. agreement, or contract that becomes void.-
Where both the parties to an agreement When an agreement is discovered to be are under a mistake as to a matter of void, or when a contract becomes void, fact essential to the agreement the any person who has received any agreement is void. advantage under such agreement or contract is bound to restore it, or to Explanation.—An erroneous opinion make compensation for it to the person as to the value of the thing which forms from whom he received it. the subject-matter of the agreement, is not to be deemed a mistake as to a matter of fact.
Illustrations https://www.mhc.tn.gov.in/judis 79/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Illustrations
(a) A pays B 1,000 rupees in
(a) A agrees to sell to B a specific consideration of B’s promising to cargo of goods supposed to be on its marry C, A’s daughter. C is dead at the way from England to Bombay. It turns time of the promise. The agreement is out that, before the day of the bargain void, but B must repay A the 1,000 the ship conveying the cargo had been rupees.
cast away and the goods lost. Neither party was aware of these facts. The agreement is void.
(b) A contracts with B to deliver to him
(b) A agrees to buy from B a certain 250 maunds of rice before the first of horse. It turns out that the horse was May. A delivers 130 maunds only dead at the time of the bargain, though before that day, and none after. B neither party was aware of the fact. retains the 130 maunds after the first The agreement is void. of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the
(c) A, being entitled to an estate for the manager of a theatre, to sing at his life of B, agrees to sell it to C, B was theatre for two nights in every week dead at the time of agreement, but both during the next two months, and B parties were ignorant of the fact. The engages to pay her a hundred rupees agreement is void. for each night’s performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A for the five nights on which she had sung.
(d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance.
124. The respective bid value and the contract price under the two contracts are as under:-
https://www.mhc.tn.gov.in/judis 80/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Sl. No. Contract Bid Value Contract Price Amount Awarded No.
1. UAA-01 Rs.1658.00 Crs. Rs.1566.81 Crs. Rs.61,03,79,409/-
2. UAA-05 Rs.1091.00 Crs. Rs.1030.99 Crs. Rs.45,59,76,382/-
125. Since the WPI (RBI) 1993-1994 Series was discontinued with effect from 14.09.2010, it would have materially altered the performance of the contract as the indices under the whole series would have been not available after 14.09.2010 when the WPI (RBI) 2004-2005 Series came into force.
126. Law on the subject is also very clear as held by the Hon'ble Supreme Court in Ssangyong's case (cited supra), wherein an identical situation had arisen out of the change in the WPI (RBI) 1993-1994 Series with the WPI (RBI) 2004-2005 with effect from 14.09.2010 which came up for consideration before the Hon’ble Supreme Court.
127. Relevant Paragraphs from the Hon'ble Supreme Court in Ssangyong's case (cited supra) reads as under:-
“76. However, when it comes to the public policy of India argument based upon “most basic notions of justice”, it is clear that this ground can be attracted only in very exceptional https://www.mhc.tn.gov.in/judis 81/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 circumstances when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice. It can be seen that the formula that was applied by the agreement continued to be applied till February, 2013 – in short, it is not correct to say that the formula under the agreement could not be applied in view of the Ministry’s change in the base indices from 1993-94 to 2004-05. Further, in order to apply a linking factor, a Circular, unilaterally issued by one party, cannot possibly bind the other party to the agreement without that other party’s consent.Indeed, the Circular itself expressly stipulates that it cannot apply unless the contractors furnish an undertaking/affidavit that the price adjustment under the Circular is acceptable to them. We have seen how the appellant gave such undertaking only conditionally and without prejudice to its argument that the Circular does not and cannot apply. This being the case, it is clear that the majority award has created a new contract for the parties by applying the said unilateral Circular and by substituting a workable formula under the agreement by another formula de hors the agreement. This being the case, a fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court. However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation in the present case. Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which, as we have seen, is contrary to the https://www.mhc.tn.gov.in/judis 82/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 ethos of Section 34 of the 1996 Act, as has been noted earlier in this judgment.
77.The judgments of the Single Judge and of the Division Bench of the Delhi High Court are set aside. Consequently, the majority award is also set aside. Under the Scheme of Section 34 of the 1996 Act, the disputes that were decided by the majority award would have to be referred afresh to another arbitration. This would cause considerable delay and be contrary to one of the important objectives of the 1996 Act, namely, speedy resolution of disputes by the arbitral process under the Act. Therefore, in order to do complete justice between the parties, invoking our power under Article 142 of the Constitution of India, and given the fact that there is a minority award which awards the appellant its claim based upon the formula mentioned in the agreement between the parties, we uphold the minority award, and state that it is this award, together with interest, that will now be executed between the parties. The minority award, in paragraphs 11 and 12, states as follows:
“11. I therefore award the claim of the Claimant in full.
12. Costs – no amount is awarded to the parties. Each party shall bear its own cost.”
78. Given the reliefs claimed by the appellant in their statement of claim before the learned arbitrators, what is awarded to the appellant is the principal sum of INR 2,01,42,827/- towards price adjustment payable under sub-
clause 70.3 of the contract, for the work done under the contract from September 2010 to May 2014, as well as interest at the rate of 10%, compounded monthly from the due date of payment to the date of the award, i.e., 02.05.2016, plus future interest at the rate of 12% per annum (simple) till the date of payment.” https://www.mhc.tn.gov.in/judis 83/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
79. The appeal is allowed in the aforesaid terms.”
128. There the contract was signed between the parties on 30.12.2005. The Bills/Invoices were also settled accordingly. Thereafter, there was a change in the Wholesale Price Index (WPI) (RBI) Series on 14.09.2010. The said Company viz., Ssangyong's case (cited supra) thus continued to raise bill by adopting the indices under the WPI (RBI) 2004-2005 Series for the work done after 14.09.2010.
129. The Hon’ble Supreme Court there observed that even under the new Series, the Wholesale Price Index (WPI) for the previous years beginning from April 2005 were being published by the Ministry. On facts, it observed that 90% of the payments were made on the basis of new Series to the said Company for the period starting from September 2010 to February 2013.
130. The National Highways Authority of India issued a Policy Circular on 15.02.2013 in which a new formula for determining indices was specified by applying a “Linking Factor” based on the base price for 2009-2010. Relevant portion of the said Circular dated 15.02.2013 as extracted in the decision of the Hon’ble Supreme Court in Ssangyong's case (cited supra) reads as under:-
https://www.mhc.tn.gov.in/judis 84/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 “Thus, payment on account of price adjustment may be made by adopting the above process subject to the condition that the contractors furnish undertaking/affidavit that this price adjustment is acceptable to them and they will not make any claim, whatsoever, on this account in future after this payment.”
131. In the facts of the present case, no such similar Circular for “Linking Factor” as in Ssangyong's case (cited supra) has been issued by the Petitioner for applying a “Linking Factor”.
132. It appears that after the “Linking Factor” was applied in Ssangyong's case (cited supra), Ssangyong Engineering and Construction Company Limited tended to lose amounts already paid, for the work done after 14.09.2010.
133. Therefore, Ssangyong Engineering and Construction Company Limited did not accept the proposal for the work done by it after 14.09.2010. Therefore, the Ssangyong Engineering and Construction Company Limited rushed to the High Court of Madhya Pradesh by way of a Writ Petition reported in Ssangyong Engg. and Construction Co.Ltd. vs. NHAI, 2013 SCC OnLine MP 2916.
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134. The said Writ Petition was however was disposed of with an observation that there exists a dispute resolution mechanism through the Dispute Adjudication Board and thereafter, by way of an Arbitration and therefore, the said Company was relegated to work out the remedy accordingly.
135. The National Highways Authority of India therefore had asked Ssangyong Engineering and Construction Company Limited for a consent to receive monthly payments under Circular dated 15.02.2013. Ssangyong Engineering and Construction Company Limited, therefore, gave a conditional undertaking dated 17.05.2013 to the National Highways Authority of India. The said Conditional undertaking reads as under:-
“The above undertaking is without prejudice to the contractor’s right to challenge the said Circular dated 15.02.2013 as per the provisions of the contract and other legal remedies available to the contractor before the appropriate forum.”
136. Under these circumstances the Ssangyong Engineering and Construction Company Limited approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 for an interim protection https://www.mhc.tn.gov.in/judis 86/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 against the deduction and recoveries to be made by the National Highways Authority of India under the 15.02.2013 Circular from payments already made to it.
137. The Delhi High Court by its Order dated 31.05.2013 restrained the National Highways Authority of India from implementing the Circular dated 15.02.2013 retrospectively. Thereafter, the dispute was referred to the Dispute Adjudicating Board. The Dispute Adjudicating Board by its majority recommendation dated 31.10.2013 recommended certain “linking factor” and then arrived at the price adjustment in respect of “Cement”, “Iron and Steel”, “Labour” and “Petroleum Products” and “Plant and Machinery”.
138. There was however a dissent by one of the member of the Dispute Adjudicating Board which was in favour of the Ssangyong Engineering and Construction Company Limited recommending that in view of the express terms of the contract, the provisions contained in the Circular cannot be applied for calculation of price adjustment.
139. The matter went up to the Arbitral Tribunal wherein, the Ssangyong Engineering and Construction Company Limited raised a claim for a sum of Rs.2,01,42,827/- towards the unpaid price adjustment for the period between https://www.mhc.tn.gov.in/judis 87/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 September 2010 and May 2014. Plus, a sum of Rs.1,00,86,417/- towards the interest on the unpaid amount.
140. The dispute before the Tribunal was whether the price adjustment would continue under the terms of the contract or under the Circular dated 15.02.2013 applying the “Linking Factor”. The Arbitral Tribunal by majority answered Circular could be applied as it was within the contractual stipulations as held by the Dispute Adjudicating Board and hence, rejected the appellant’s claim.
141. Aggrieved by the aforesaid Award, the Company preferred the Petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court. The Delhi High Court by its Judgment dated 09.08.2016 rendered in Ssangyong Engg. and Construction Co. Ltd Vs. NHAI, 2016 SCC OnLine Del 4536 held that possible view was taken by the majority Arbitrator which therefore could not be interfered with, given the parameters of challenge to Arbitral Awards. The Division Bench of the Delhi High Court also confirmed the aforesaid view vide its Judgment dated 03.04.2017 rendered in Ssangyong Engg. and Construction Co. Ltd Vs. NHAI, 2017 SCC OnLine Del 7864.
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142. It is in this background, the Hon’ble Supreme Court delineated the position regarding the scope of Section 34 of the Arbitration and Conciliation Act, 1996 and answered the appeal in favour of the Ssangyong Engineering and Construction Company Limited with the following observations:-
“77. The judgments of the Single Judge and of the Division Bench of the Delhi High Court are set aside. Consequently, the majority award is also set aside. Under the scheme of Section 34 of the 1996 Act, the disputes that were decided by the majority award would have to be referred afresh to another arbitration. This would cause considerable delay and be contrary to one of the important objectives of the 1996 Act, namely, speedy resolution of disputes by the arbitral process under the Act. Therefore, in order to do complete justice between the parties, invoking our power under Article 142 of the Constitution of India, and given the fact that there is a minority award which awards the appellant its claim based upon the formula mentioned in the agreement between the parties, we uphold the minority award, and state that it is this award, together with interest, that will now be executed hetween the parties. The minority award, in paras 11 and 12, states as follows:-
“11. I therefore award the claim of the claimant in full.
12. Costs its own cost." no amount is awarded to the parties. Each party shall bear.”
78. Given the reliefs claimed by the appellant in their statement of claim before the learned arbitrators, what is awarded to the appellant is the principal sum of INR 2,01,42,827 towards price adjustment payable under sub-
clause 70.3 of the contract, for the work done under the contract from September 2010 to May 2014, as well as interest https://www.mhc.tn.gov.in/judis 89/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 @ 10%, compounded monthly from the due date of payment to the date of the award i.e. 2-5-2016, plus future interest @ 12% p.a. (simple) till the date of payment.
79. The appeal is allowed in the aforesaid terms”
143. Thus, the decisions of the Delhi High Court i.e., the Petitions under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 reported in 2016 SCC OnLine Del 4536 and 2017 SCC OnLine Del 7864 were set aside by the Hon’ble Supreme Court.
144. The Hon’ble Supreme Court felt that since the matter would have to be referred to a fresh arbitration and would cause considerable delay and be contrary to the important objects of this Act, to do due complete justice between the parties, the Hon’ble Supreme Court exercising its power under Article 142 of the Constitution of India upheld the minority Award and held that the Company was entitled to the Award amount claim together with interest as concluded in Paragraph 78 which has been extracted above.
145. This view cannot be applied even if this Court arrives at a similar finding on facts. Such a view is not possible as this Court does not have a https://www.mhc.tn.gov.in/judis 90/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 similar power like the Hon’ble Supreme Court under Article 142 of the Constitution of India.
146. The facts of the present case indicate that the ‘Tender’ was floated on 21.04.2010. The Respondent/Claimant responded and gave it offer on 05.08.2010 based on the rates prevailing in July, 2010 as per the WPI (RBI) 1993-1994 Series as per the ‘Tender’.
147. Pursuant to the Letter of Acceptance dated 28.12.2010 of the Petitioner, contracts were signed on 31.01.2011 between the Petitioner and the Respondent/Claimant for both the package which are subject matter of the present dispute. The work commenced on 07.02.2011.
148. Mistake on fact and its legal implications under the Contract Act, 1872 would have been noticed at once, if the Arbitral Tribunal had a mix of Judicially trained Members with Technical members. This fundamental aspect of the Contract Act, 1872 would have not gone unnoticed, if the Arbitral Tribunal consisted of a mix of a Judicially trained person duly supported by Technical Members who bring their expertise on the technicality involved in the https://www.mhc.tn.gov.in/judis 91/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 execution of complicated work under the contracts.
149. Perhaps, if the Arbitral Tribunal was constituted two Technical Members and of a retired Supreme Court Judge or a retired High Court Judge or a Senior Lawyer or a retired Judge of a District Court as the presiding Arbitrator duly supported by the two Technical Members nominated by the two Technical Members, this fundamental mistake perhaps may not have gone unnoticed.
150. Thus, it is evident that at the time when offer was made by the Respondent/Claimant on 05.08.2010, the WPI (RBI) 1993-1994 Series was in force. The bid by the Respondent/Claimant was based on the WPI (RBI) 1993-1994 Series for the month of July 2010. This was to be the base cost indices for the purpose of determination of “Price Variation” in terms of the formula given in the contract in the ‘Tender’.
151. The Petitioner while issuing the Letter of Acceptance dated 28.12.2010 has also not taken note of the fact that the WPI (RBI) 1993-1994 Series was substituted with the WPI (RBI) 2004-2005 Series. This was also not taken note of by the parties when contract were signed on 31.01.2011. https://www.mhc.tn.gov.in/judis 92/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017
152. Only on 27.06.2011, the Respondent/Claimant sent a Letter to the Petitioner’s Employees Representative (‘ER’) viz., M/s.Embye Consortium stating that the approved RBI Indices for July 2010 was released only during September 2010 with a Base of 2004-2005 as Iron & Semis and Steel Long and that no specific item was provided for ‘Iron & Steel’ as in the previous indices.
153. Relevant portion of the Letter dated 27.06.2011 is extracted below:-
“As per the Tender document, the price variation shall be calculated for steel considering the item provided in the RBI Bulletin as Iron & Steel as per the Base Index of July 2010. During this period the RBI Bulletins were released as provisional index with a Base of 1993-04-100. The approved RBI Indices for July 2010 was released only during September 2010 with a Base of 2004-05-100 as Iron & Semis and Steel:Long. There has been no Item provided Bulletin for Iron & Steel.
Therefore, we request you to clarify whether we have to take Iron & Semis or Steel:Long for calculating the price variation of steel.
A copy of relevant pages of RBI Bulletin is attached for your ready reference.
Payment against IPC 01 Is realized, we intent to submit the IPA against Price Variation. Therefore your early action in this regard is appreciated.” Thus, the Respondent/Claimant wanted to know whether it has to take ‘Iron & Semis’ or ‘Steel Long’ for calculating the price variation of steel.
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154. The above request of the Respondent/Claimant was orally rejected by the Petitioner’s Employees Representative (‘ER’) viz., M/s.Embye Consortium. It is evident that at the time when the offer was made on 05.08.2010 and at the time when the Letter of Acceptance was issued by the Petitioner on 28.12.2010 and on the date of signing of the respective Contracts on 31.01.2011, the parties were not aware of the changes in the Wholesale Price Index (WPI) (RBI) Series.
155. There was a mistake of fact. Thus, the contract was void ab initio. The Respondent/Claimant’s Offer dated 05.08.2010 was based on the indices in WPI (RBI) 1993-1994 Series. The evaluation of the Respondent/Claimant’s Offer also would have been based on the indices in WPI (RBI) 1993-1994 Series. This is material to the acceptance of the Offer.
156. RBI Indices are not only crucial for “Price Variation” under the contracts but also for assessing the bid amount of the Respondent/Claimant. Though not referred, the Manual on Wholesale Price Index (WPI) of Office of the Economic Adviser Department of Industrial Policy & Promotion Ministry of Commerce & Industry is relevant.
157. In accordance with the manual, the set of Wholesale Price Index https://www.mhc.tn.gov.in/judis 94/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 numbers with base year 2004-2005 was introduced with effect from 14th September, 2010 as significant structural changes have taken place in the Indian Economy. Therefore, it became necessary to revise the index basket of the existing series of Index numbers of Wholesale Price in India (Base 2004- 05=100) and revisit a range of issues such as examination of the coverage of commodities, base year, and weighting diagram etc.
158. In order to maintain continuity in the time series data on wholesale Price Index, it was felt imperative to provide a “Linking Factor” so that the new series may be compared with the outgoing one. The Office of the Economic Adviser has been using the arithmetic conversion method to link the various prices index series. This has not been examined.
159. These aspects ought to have been gone into by the Arbitral Tribunal and arrived at a proper conclusion as to whether there was any loss suffered by the Respondent/Claimant on account of the adoption of the WPI (RBI) 2004- 2005 Series for ‘Cement’ and ‘Steel’.
160. The correct method for proceeding with the contract that was awarded to the Respondent/Claimant by the Petitioner would have been to resile from the contract and thereafter, the parties should have re-negotiated the terms https://www.mhc.tn.gov.in/judis 95/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 from the bid stage up to the Letter of Acceptance dated 28.12.2010 was the WPI (RBI) 1993-1994 Series stood replaced/substituted with the WPI (RBI) 2004-2005 Series with effect from 14.09.2010.
161. In this case, the Petitioner has not made any claim on the same from the Respondent/Claimant. There is also no “Linking Factor” as in Ssyangyong's case (cited supra). There is also no similar Circular dated 17.05.2013 as in Ssyangyong's case (cited supra)
162. This aspect ought to have been examined by the Arbitral Tribunals instead the Arbitral Tribunals have allowed deviation in the indices by partly adopting the current cost indices in the WPI (RBI) Series for the month of July, 2010 for the purpose of Base Price and adopted CPWD price as the “Reference price” which was not agreed upon by the parties.
163. Therefore, I am constrained to conclude that the contract was void ab initio in so far as the price variation clasue under the contract as the parties agreed for a formula based on the WPI (RBI) 1993-1994 Series. Whereas the said Series was not available with effect from 14.09.2010 as it stood replaced by the WPI (RBI) 2004-2005 Series.
164. Thus, either way the Impugned Awards passed by the Arbitral https://www.mhc.tn.gov.in/judis 96/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Tribunals are also clearly contrary to Section 28(3) of the Arbitration and Conciliation Act, 1996 apart from the fact that the respective contracts were void ab initio on account of mistaken of fact.
165. The decision of the Hon’ble Supreme Court in Ssangyong's case (cited supra) also makes it clear that when an Award results in modification of the contract between the parties, such an Award would be liable to be set aside on the ground of “patent illegality”.
166. In view of the above, I hold that there is a patent illegality in the respective impugned Awards and therefore, the impugned Awards are liable to be set aside. Accordingly, the impugned Awards are set aside leaving open for the parties to workout their remedy in accordance with law.
167. The parties waited for a period since 2016 for resolving the dispute primarily on account of both the Petitioner and the Respondent/Claimant have not given a fair assistance to the Arbitral Tribunal on fundamental issue arising out of a “mistake of fact”. Since the contracts are void ab initio and its implications under Section 65 of the Contract Act, 1872 ought to have been examined. The parties have also not assisted the Arbitral Tribunal and are thus https://www.mhc.tn.gov.in/judis 97/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 responsible for the delay in a proper resolution of the dipute.
168. Therefore, while setting aside the impugned Awards, I leave it open for the parties to work out their remedy in the manner known to law excluding the time spent from the date of initiation of the arbitration proceedings before the Arbitral Tribunal till the date of receipt of this certified copy of this order.
* 169. The respondent/claimant is directed to maintain status quo, as far as the invocation of bank guarantee for a period of 4 weeks to facilitate the petitioner either to explore the possibility of reworking the issue before the Fresh Arbitral Tribunal as has been ordered or in the alternative for the petitioner to file an appeal under Section 37 of the Arbitration and Conciliation Act,1996.
170. Accordingly, both these Arbitration Original Petitions (Comm.Div.) are allowed leaving the parties to bear their own costs.
21.06.2024 Index : Yes/No Internet : Yes/No Speaking Order/Non-Speaking Order https://www.mhc.tn.gov.in/judis 98/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 Neutral Citation : Yes/No arb/rgm/jen Note: * on being mentioned by the learned counsel for the petitioner on 28.06.2024 C.SARAVANAN, J.
arb/rgm/jen Pre-Delivery Common Order made in Arb.O.P.(Com.Div.) Nos.360 and 361 of 2017 https://www.mhc.tn.gov.in/judis 99/100 Arb.O.P(Com.Div.) Nos.360 & 361 of 2017 21.06.2024 https://www.mhc.tn.gov.in/judis 100/100