Summary
The Supreme Court restored an arbitral award directing NHAI to pay a contractor the BOQ rate for the full quantity of geogrid actually required under the approved design, holding that the Dispute Review Board and the technically qualified Arbitral Tribunal had plausibly, indeed correctly, read Clauses 51 and 52 as allowing rate revision only for instructed variations, and that the High Court's Division Bench exceeded the narrow scope of Section 37 in overturning an award already upheld under Section 34.
Issues
- Whether, under Clauses 51 and 52 of the contract conditions, an increase in the quantity of a BOQ item beyond the estimate, not resulting from any instruction or design change, is a 'variation' empowering the Engineer to revise the BOQ rate.
- Whether the Division Bench, hearing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, could set aside an arbitral award that the Single Judge had upheld under Section 34.
Provisions considered
- Section 34, Arbitration and Conciliation Act, 1996The court under Section 34 does not sit in appeal; it may interfere on merits only for conflict with public policy or patent illegality going to the root, and not where the arbitrator's view is plausible. The Single Judge rightly declined to interfere with the award. (¶¶ 25, 26, 34, 36, 37, 38)
- Section 37, Arbitration and Conciliation Act, 1996An appeal against a Section 34 order cannot go beyond the limits of Section 34 and is even more circumscribed where the award has been upheld; the Division Bench erred in substituting its own reading of the contract by labelling the award perverse, patently illegal and against public policy. (¶¶ 28, 34, 36, 39, 40, 42)
Held
- Under Clause 51.1 the Engineer may instruct a variation of the form, quality or quantity of the works, and such instructed variations are valued under Clause 52; the proviso to Clause 51.2 shows that an increase in quantity which merely results from actual quantities exceeding the BOQ estimate, and not from an instruction, needs no instruction and is not such a variation. The 14-day notice proviso to Clause 52.2 likewise applies only to instructed variations. (¶¶ 29, 30)
- The COPA proviso to Clause 52.2, permitting a change in rate only where the item exceeds 2 per cent of the contract price and the quantity departs from the BOQ by more than 25 per cent, is an enabling provision allowing the parties to consider a rate change when both conditions are met, not a mandate requiring the rate to be changed. (¶¶ 31, 32)
- Where both the DRB and the Arbitral Tribunal, composed of technical experts, found that there was no design change and that the increased geogrid quantity arose because the tender estimate was wrong, their conclusion that the Engineer could not revise the rate was a plausible and in fact the correct reading of Clauses 51 and 52. (¶¶ 23, 28, 33, 34, 42)
- Under Section 34 the court cannot reappreciate evidence or review the merits; an error in interpreting contractual terms is within the arbitrator's jurisdiction, and a reasoned award interpreting the contract should not be lightly disturbed. (¶¶ 25, 36, 37, 38, 41)
- The Section 37 jurisdiction is narrower still; an appellate court must show great restraint where the award has been upheld under Section 34, and cannot set it aside by merely invoking expressions such as 'opposed to public policy', 'patent illegality' or 'shocking the conscience', as frequent interference defeats the purpose of the Act. (¶¶ 36, 39, 40, 42)
Result
Appeal allowed; the Division Bench judgment dated 17.11.2009 set aside and the arbitral award dated 03.06.2005 restored; no order as to costs.