Chenab Bridge Project Undertaking v. Konkan Railway Corporation Ltd

15. An additional aspect considered by the Arbitral Tribunal related to Clause 11.[7] of the bill of quantities or the schedule of rates (page 239, Volume I). It reads thus: “11.[7] The rates and prices tendered in the priced Bill of Quantities, shall except in so far as it is otherwise provided under the contract, include all construction plant, labour, supervision, materials, all temporary works, false works, all leads and lifts, erection, specified finishes, maintenance, establishment and overhead charges, insurance, profits, foreign taxation and levies, taxes, royalties and duties together with all general risks, liabilities and obligations set out or implied in the contract and including remedy of any defects during the Defects Liability Period.”

16. The Arbitral Tribunal rejected the contention advanced by Chenab Bridge that the wholesale price index could never include taxes, and therefore the price variation clauses would have no application. The Arbitral Tribunal also held that at the time of bid Chenab Bridge knew that it was ‘only’ entitled to additional payments under Chapter VII of price variation. The contract did not contemplate additional payment for every increase in price of materials and taxes. Ms Bhagalia is at some pains to submit that this was a turnkey project, the contract price for which was ‘firm’. When the contractor put in its bid, it knew what it was bidding for. The accepted bid contained enough monetary compensation slack, so that even if the contractor was abruptly required to pay an additional tax, that was more than compensated and fully offset by the accepted rates, and within the permissible limits, price variation. Increases in taxes and rates were not by themselves subject to price variation.

17. She also submits that if read as Mr Khambata for Chenab Bridge commends, Clause 5.1.[2] would be directly contrary to and would defeat the price variation provisions and the restrictions or limitations in those provisions. She submits that if there is a conflict between two clauses, then it is the one that finds place later in the contract that must prevail. No question arises, she says, of the price variation clauses being ‘general’ and Clause 5.1.[2] being ‘special’, so as to give precedence or prevalence to the latter over the former.

18. The learned Single Judge upheld the arbitral view, saying that this could not be said to be unreasonable or impossible or a view that no fair or judicially minded person could have taken.

19. This takes us immediately to a consideration of the law in this regard and in which context we must access both the arbitral award and findings of the learned Single Judge. It is true that the scope for interference with arbitral award is narrow and was narrowed further by the 2015 amendment to the Arbitration Act. In its interpretation of the Act after those amendments, the Supreme Court in Ssangyong Engineering & Construction Co Ltd v National Highways Authority of India[1] and later judgments[2] defined the limited contours or the restricted remit of a Section 34 Court. We are not concerned in this case with an argument that germane evidence was left out of consideration, nor that irrelevant evidence was considered. What concerns us is the question of interpretation of contracts. Settled law would have it that the arbitrator is empowered to interpret the contract. This means that no court can interpret the contracts for the arbitrator. But the arbitrator is also creature of the contract and is fully bound by it. He cannot wander outside it. Any interpretation that the arbitral tribunal takes must be demonstrated to be one that conforms to basic principles of construction of contracts. This is not a subjective evaluation by a Section 34 Court. In other words, it is not possible for a Section 34 Court without cogent reasons and without a closer analysis to simply say that the arbitral view is a possible view. What must be assessed is whether, in forming the opinion that it did, the Arbitral Tribunal hewed to the express terms of the contract. Certain overarching principles, long settled in law, will undoubtedly govern. A contractual provision must be interpreted according to its plain meaning and language. Words and expressions used in a contractual clause cannot be read out of it. The Arbitral Tribunal cannot inject or introduce into a contractual provision an expression or a phrase that does not exist there. Parties will be held to bargain that they struck. Commercial contracts must be interpreted in a commercial manner and viewed from the perspective of persons of commercial common sense. The one thing

2 See: Delhi Airport Metro Express Pvt Ltd v Delhi Metro Rail Corporation Ltd, (2022) 1 SCC 131; UHL Power Company Limited v State of Himachal Pradesh, (2022) 4 SCC 116. that is completely impermissible is for an arbitral tribunal to rewrite the plain terms of the contract. It also cannot ignore the plain text of a contractual provision. It is entirely impermissible for an arbitral tribunal to introduce an ambiguity where none exists.

20. Some portions of the Supreme Court decision in Ssangyong Engineering are material.[3] There, the previous law including Associate Builders v Delhi Development Authority,[4] ONGC Ltd v Renusagar Power Co Ltd v General and other decisions were considered. In paragraph 40 of Ssangyong Engineering, the Supreme Court said that the interpretation and construction of a contract is primarily for the arbitrator to decide. If the tribunal does so in a way no fair-minded or reasonable person would — that is, the arbitrator’s view is not even minimally a possible one — or if he wanders outside the contract and deals with mattes not assigned to him (for instance, in a dispute about a leave and license agreement considering whether a particular communication is defamatory and awarding damages or an injunction), then the award is vulnerable as a jurisdictional error within Section 34(2A) of the Arbitration Act. If the arbitral view is one that is not even possible, or if the arbitrator wanders beyond the contract, that is a ‘patent illegality’.[7]

7 Union of India v Recon, 2020 SCC OnLine Bom 2278: (2020) 6 Mah LJ 509: (2020) 6 AIR Bom R 613: (2021) 1 Bom CR 167.

21. What was the Arbitral Tribunal’s view on Clause 5.1.[2] read with provisions of Chapter VII? Was it fair-minded and reasonable? Did it follow the plain language of the contract? Or did it read some terms out of it and introduce others? These are the questions before us, as they were before the learned single Judge. We find the arbitral view from paragraph 32 onwards in the Award.[8] The background facts are undisputed. At the time when Chenab Bridge put in its bid, and even at the time of the contract, there was undoubtedly in place a State Government exemption from payment of entry tax on earthmoving equipment. This was amended with effect from 25th January 2008, and the amendment introduced a proviso saying that no such exemption would be granted in respect of earthmoving machines. Chenab Bridge therefore contended that entry tax became leviable by the State Government not only after tenders were opened but after the contract itself. Therefore, anything that Chenab Bridge was required to pay on account of entry tax would have to be ‘borne by KRCL’, meaning that it was reimbursable by KRCL to Chenab Bridge on actuals. The claim was positioned squarely under Clause 5.1.[2] of the Special Conditions of Contract.

22. In paragraph 37 the Arbitral Tribunal considered Clauses 11.7, 7.1.1, 7.1.[2] and 2.11.[2] of the invitation to bid. The last of these reads as follows (the others have been set out earlier): “2.11.[2] of ITB (Vol-I/VI: page 26): No variation in prices of materials or wages escalation any account whatsoever or compensation for ‘Force Majeure’ etc. shall be payable under this Contract except price escalation clause payable

8 Since the copy of the Award is given separately, we refer to the paragraph numbers rather than the page number of the appeal paper book. as per price variation clause, if any, provided separately in the tender documents.”

23. Before the Arbitral Tribunal, Chenab Bridge argued that Clause 5.1.[2] would prevail over any other condition that directly or indirectly conflicted. It was a ‘special provision’ for reimbursement, and even in the Instructions to Bidders or ITB, an order of precedence was established. KRCL argued that Clauses 7.1.1. and 7.1.2. would operate until the completion of works. Entry tax or any increase in entry tax on earthmoving equipment was, it was then argued before the Arbitral Tribunal, and is even now supported by Ms Bhagalia before us, nothing but an ‘indirect cost’ and that is inbuilt in the rates Chenab Bridge quoted in its Bill of Quantities and Schedule of Rates (“BoQ”). Entry tax is not a tax or a duty leviable on Chenab Bridge’s bills and is therefore not reimbursable. If at all there is a variation, any fluctuations in entry tax (and this includes any increase above zero) would be governed by Chapter VII and price variation. Since price variation did not allow for any compensation for change in taxes, the claim had to fail.

24. Before we proceed further, we note that other than a general statement that indirect taxes are ‘inbuilt’ in the BoQ, we are shown nothing to support this. Even this argument does not withstand a logical test. What is the rate that was ‘inbuilt’ regarding entry tax on earthmoving equipment? This was at the time when the entry tax was under exemption and was therefore zero. It can hardly be suggested that a tenderer should have anticipated that an exemption then in place would at some unknown and distant point in future, in the middle of the contract period, stand withdrawn. Would the contractor be able to tell whether that tax was to be withdrawn the next day or the day after? Or, for that matter, whether the withdrawal would come only after the project was complete?

25. Within Clause 5.1.[2] itself there lie clues to how this ‘freezing’ of entry and toll tax was intended to work. That clause says that some taxes are indeed reimbursable. The clause also says that the tax rates as applicable for a 15-day period prior to the date of opening of the tender would be considered as included in the rates quoted by tenderers in the BoQ. This is a complete answer to Ms Bhagalia’s argument. If taxes were included in the quoted BoQ rates, then these were the taxes that were known during this 15-day window. They were, so to say, ‘locked into’ the BoQ, but only for the 15-day period before tenders were opened. That this was the lock-in and the only such lock-in is clear from the next portion of the same clause. This says that if there was any increase or decrease outside that 15-day period, i.e., after the 15-day period before tenders were opened, then any such change would be — and this important — ‘borne/recovered’ by the corporation. And here lies the third clue. For such a clause must be assessed for both situations that it contemplates. This is not a one-way street, where only an increase is reimbursable. If there was a given tax that was known for that 15-day period prior to the opening of the bid, and that tax was decreased, then KRCL was entitled to a ‘recovery’. That is the plain wording of Clause 5.1.2. It is therefore not possible to accept that every single item, whatever the period for which it was known, and irrespective of when that change happened, was locked into the BoQ rates. If what Ms Bhagalia says is to be accepted, then it necessarily follows that KRCL could never recover if there was a reduction in the tax rates after this 15-day period. Effectively Clause 5.1.[2] was rendered otiose.

26. The Arbitral Tribunal said this in paragraphs 40, 41 and 43 of the Award: “40. A careful reading of the relevant provisions of the contract shows that claimant will not be entitled to reimbursement of Entry Tax paid by it. Clause 5.12 of Special Conditions provides that sales tax or turnover tax on works contract or other tax on the amount billed to respondent, levied or increased during the execution of the work, shall be borne by the respondent. For example, if the price of goods sold is Rs. 2000/- and at the time of contract, the goods were not subject to Sales Tax, but subsequently during the execution of the work, the State subjected such sale of goods to Sales Tax, at the rate of 5%, the contractor will be entitled to receive under clause 5.1.2, the Sales Tax at 5% on the price of Rs. 2000/-. Similarly, if Works Contract Tax is increased from the rate of 4.2% prevailing at the time of making the contract, the contractor will be entitled to the higher rate, by claiming the difference. Therefore, what clause 5.1.[2] deals with is taxes “chargeable” by the contractor on the bills raised on the respondent. It does not deal with or provide for reimbursement of increase in taxes which may indirectly be a component of the price or rate quoted and which is be governed only by the price variation clause. This is obviously because when a contractor quotes a rate for an item of work, such rate will have various components like material cost, labour cost, fuel cost, overheads and profits. The contractor does not indicate the break-up of the various components that make up the quoted price. Obviously the rates so quoted, if it involves use of a material, will include the cost of the material plus any tax paid thereon; and if it involves use of some machinery/equipment, it will include the hire charges in respect of the machinery/ equipment and any taxes thereon. It is clear from the contract that in regard to such components of a rate, claimant is not entitled to seek reimbursement of any increase in price or taxes and all that it will be entitled to, will be an increase that is permitted in accordance with the formula in the price variation clause. The price variation clause only provides for price variation in a general manner in accordance with a standardized price variation formula, and not reimbursement of the actual increases. That is why clause 11.[7] of BoQ provides that the rates/prices shall include all taxes and clauses 7.[1] and 7.1.[2] clearly provide that rates quoted by the tenderer and accepted by the KRCL shall hold good till the completion of the work and no additional individual claim shall be admissible on account of increases in tax or other levies except for the provision made by way of price variation clause.

41. The contention of the claimant that clause 5.1.[2] of the Technical Special Conditions will prevail over clauses 7.1.[1] and 7.1.[2] by reason of priority of application provided under clause 2.9.[2] is also untenable. Firstly, clauses 5.1.[2] on the one hand, clauses 7.1.[1] and 7.1.[2] on the other, do not deal with the same matter, nor relate to the same field, nor occupy the same space in the contract. They operate and apply in different areas. Therefore, the question of considering whether clause 5.1.[2] will prevail or clause 7.1.[1] and 7.1.[2] will prevail does not arise. On the other hand, the question is whether on the facts of the case and the nature of the claim, clause 5.1.[2] will apply or clauses 7.1.[1] and 7.1.[2] will apply. As we have concluded that clauses 7.1.[1] and 7.1.2, in which event, claimant is not entitled to any variation. Secondly, the contention that clause 5.1.[2] will prevail over clauses 7.1.1, 7.1.[2] of Special Conditions, and 11.[7] of BoQ because of the order of priority laid down in clause 2.9.2, is based on an erroneous assumption that clause 5.1.[2] has a higher priority. Both Chapter 5 (dealing with Taxes) containing clause 5.1.[2] and Chapter 7 (dealing with price variation) containing clauses 7.1.[1] and 7.1.[2] are parts of Special Conditions of Contract (vide clause 2.9.[1] of ITB) and are of the same level of priority, but clause 11.[7] in BoQ relied on by respondent will prevail over clause 5.1.[2] as it is at higher tier than Special Conditions, vide clause 2.9.2. Therefore, the argument that clause 5.1.[2] will prevail over the terms relied on by the respondent, is rejected.

43. The contention of the claimant that the guidelines relating to wholesale price index show that the taxes are not a part of the wholesale price as defined in the wholesale price index and therefore any increase in Entry Tax, may not be reflected in the wholesale price index and therefore the price variation clause will not cover the same is untenable. As noticed above, the contract does not contemplate reimbursement of indirect cost, taxes incurred by the claimant for executing the work. The contract contemplates the contractor quoting a price for executing a work by taking all circumstances into account all increases that may take place. The contractor knew when it quoted, that is entitled to only the price quoted and only variation in price as permitted by the price variation clause. The contract does not provide for payment or reimbursement of each and every increase in the price of material or tax thereon, which may go into the execution of a work.”

27. It is to this that Mr Khambata for Chenab Bridge takes strong objection. Clause 5.1.[2] does not, he says, and we think correctly, make any distinction between direct and indirect taxes. This is an artificiality introduced by the Arbitral Tribunal. Clause 5.1.[2] plainly uses the words ‘toll tax’ (although it does not mention in terms ‘entry tax’). It however says any other tax levied by the Central Government, State Government or local bodies — a phrase wide enough to cover entry tax. It is unclear, Mr Khambata says, again correctly, from where the arbitrators conceived, or on what basis, that the reimbursement contemplated in Clause 5.1.[2] is limited to ‘direct taxes payable on the bills that Chenab Bridge raised on KRCL’. Why it should not apply to taxes incurred by Chenab Bridge is unclear. Clause 5.1.[2] is not exhaustive. Its listing is inclusive or illustrative. Some of the entries in that clause clearly do not pertain to taxes on bills and could never pertain to taxes on bills. For instance, toll tax is mentioned. Toll tax can never be a tax on a bill. There is a mention of octroi and royalty. None of these are taxes on bills. Taxes on bills are in fact other forms of indirect taxation such as Service Tax, GST, Works Contract Tax, and so on. There is nothing in Clause 5.1.[2] that limits its application to taxes chargeable to Chenab Bridge on its bills. As noted above, Clause 5.1.[2] in fact operates bi-directionally. A decrease in taxes of the kind described in 5.1.[2] is recoverable, and we have not heard KRCL to say that its rights of recovery are prohibited by that clause either. In paragraphs 40, 41 and 43 extracted above, the Arbitral Tribunal completely ignored the specific wording of Clause 5.1.[2] and introduced a restriction of reimbursable taxes being limited to taxes on bills raised by Chenab Bridge and nothing else. Then the Arbitral Tribunal went on to say that Clauses 7.1.1, 7.1.[2] and 11.[7] operated to exclude Clause 5.1.2. Clause 11.[7] quoted above has the words ‘except in so far as otherwise provided’. Clause 5.1.[2] is, therefore, precisely the condition that is ‘otherwise provided’. Thus Clause 11.[7] can never prevail over Clause 5.1.2. If it were to do so, and this was the point that the Arbitral Tribunal completely missed, then Clause 5.1.[2] was effectively entirely written out of the contract. It became entirely superfluous. The task before the Arbitral Tribunal was to harmonise the various provisions of the contract and not to introduce contradictions.[9]

28. The increase in entry tax could not also fall under price variation. This reasoning was circular. The Arbitral Tribunal said, on a misreading of Clause 5.1.[2] and on a re-writing of it, that no claim for entry tax would lie under that clause. Therefore, it had to lie only in the price variation clause. The price variation clause forbade any claim for increased taxes. Therefore, Chenab Bridge’s claim had to fail. But this entire construct collapses if the interpretation by the Arbitrators on Clause 5.1.[2] is wrong to begin with. If the claim is correctly placed under Clause 5.1.2, then no question of applicability of Clauses 7.1.1, 7.1.[2] or 11.[7] arises. The correct approach by the Arbitral Tribunal ought to have been to read these Clauses harmoniously.

29. The Arbitrators impermissibly travelled beyond the terms of the contract by ignoring the clear terms of Clause 5.1.[2] and inserting words of limitation and restriction. It is settled law that if a specific clause is ignored to arrive at a conclusion on a wrong assumption,

9 Adani Power (Mundra) Ltd v Gujarat Electricity Regulatory Commission, then the Award is liable to be set aside.10 Paragraphs 40, 41 and 43 of the Award cannot be seen as anything but a wholesale re-writing of Clause 5.1.2. This is impermissible.11

30. We do not wish to engage in any greater discussion about the concept of ‘perversity’. What is more appropriate is the well-settled principle that if there are two constructions possible of a contract, then the one that gives effect and voice to all clauses will be preferred over the other that renders one of them otiose or nugatory.12 There is some law to suggest that if an Award does not construe the contract as a whole then it is not a possible view and it is perverse.13 As regards the dispute for reimbursement on account of toll tax effected by the Government of Jammu and Kashmir through various Notifications, Chenab Bridge’s case stands on an even stronger footing. This is because toll tax is specifically mentioned in Clause 5.1.[2] and the arbitral view amounts to an entire deletion of those two words. This is clearly impermissible.

31. The learned Single Judge was therefore not correct in concluding that the arbitral view was a ‘possible view’. It was not. The only way in which that view could have been arrived at was by ignoring specific terms of the contract and by introducing words not to be found in that clause. We have nothing before us to establish the

13 South East Asia Marine Engineering and Constructions Ltd v Oil India Ltd, (2020) 5 SCC 164; Patel Engineering Ltd v North Eastern Electric Power Corporation Ltd, (2020) 7 SCC 167. correctness of what Ms Bhagalia contends, viz., that the increase above zero for entry tax or the increase in toll tax was indeed subsumed within the BoQ rates. The submission that tax rates were included in the BoQ rates for all time is an assertion of fact, not one purely or only of law. KRCL could have insisted on oral evidence in this regard. It did not. Both parties agreed to proceed, for this claim at least, without evidence. That evidence could not be conjectured, nor assumed.

32. Ms Bhagalia’s submission that Clause 5.1.[2] is ‘predominantly about bills’ does not commend itself to us. Ms Bhagalia has taken us in detail through her written submissions. She argues that the intention of the parties was not to allow for separate cost components in execution of the works. How to bring earthmoving equipment on site was Chenab Bridge’s problem. Whether it had to pay entry or toll tax was a factor that it took into account and included in its BoQ rates. Strangely, we agree with Ms Bhagalia’s submission — and the arbitral finding — that Chapter 5 and Chapter 7 operate in different fields. That is precisely why a claim under Chapter 5 can never be negatived under Chapter 7.

33. Her submission is that if there is a conflict, the later of the two clauses would prevail is not correct, and there is some authority in fact to the contrary cited by Mr Khambata. Mascon Multiservices & Consultants Pvt Ltd v Bharat Oman Refineries Ltd14 is an authority for a proposition that a specific clause would prevail over a general clause. Clause 5.1.[2] is undoubtedly a specific clause. Its specificity 14 2014 SCC OnLine Bom 4832: (2015) 7 Bom CR 88. lies in two aspects. First, that it provides for reimbursement of certain types of levies. Second, that it also provides for recovery if those levies are reduced in future. The price variation clause is a more general clause in Chapter 7. It does not deal with reimbursements, which are conceptually different from price variations. Price variations are indexed and recoverable per a formula. Reimbursements of the kind contemplated in Clause 5.1.[2] are on actuals.

34. Ms Bhagalia relies on the decision of Privy Council in Forbes v GIT & Ors.15 We believe that this is against her. At page 259, the Privy Council set out the principle of law in the following words: “The principle of law to be applied may be stated in few words. If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails. In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the later. Thus, if A covenants to pay 100 and the deed subsequently provides that he shall not be liable under his covenant, that later provision is to be rejected as repugnant and void, for it altogether destroys the covenant. But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole. Thus, if A covenants to pay 100 and the deed subsequently provides that he shall be liable to pay only at a future named date or in a future defined event or if at the due date of payment he holds a defined office, then the 15 1922 AC 256 [PC]. absolute covenant to pay is controlled by the words qualifying the obligation in manner described. Furnivall v Coombes is an illustration of the former case: Williams v Hathaway is an illustration of the latter. In the latter case, there could be no question if the later provision of the deed were introduced by the word “but” or the words “provided always nevertheless,” or the like. But there is no necessity to find any such words. If a later clause says in so many words or as matter of construction that an earlier clause is to be qualified in a certain way, effect can be given and must be given to both clauses. Their Lordships do not find that any of the judges in the Supreme Court of Canada differed upon this point or doubted that the principle to be applied is such as stated above. But four of them found, while the Chief Justice and Duff J. did not find, repugnancy between the first clause and the third.”

35. She also relies on the decision of Supreme Court in Bangalore Electricity Supply Company Ltd v ES Solar Power Private Ltd & Ors.16 She draws attention to paragraph 16 for its statement of well settled canons of construction of contracts. The relevant paragraph read thus: “16. Before embarking on the exercise of interpretation of the agreement it is necessary to take stock of the wellsettled canons of construction of contracts. Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society ((1998) 1 WLR 896: (1998) 1 All ER 98 (HL)) summarised the broad principles of interpretation of contract as follows: (WLR pp. 912-13) “(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investment Co. Ltd v. Eagle Star Life Assurance Co. Ltd (1997 AC 749: (1997) 2 WLR 945 (HL)). (5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require Judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaious Compania Naviera S.A. v. Salen Rederiena A.B. (1085 AC 191: (1984) 3 WLR 592 (HL)),AC at page 201: (AC p.201) ‘…. if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

36. But the same judgment in paragraph 17 sets out a far more apposite principle that is against Ms Bhagalia: “17. The duty of the court is not to delve deep into the intricacies of human mind to explore the undisclosed intention, but only to take the meaning of words used i.e., to say expressed intentions (Kamla Devi v. Takhatmal Land ((1964) 2 SCR 152: AIR 1964 SC 859). In seeking to construe a clause in a contract, there is no scope for adopting either a liberal or a narrow approach, whatever that may mean. The exercise which has to be undertaken is to determine what the words used mean. It can happen that in doing so one is driven to the conclusion that clause is ambiguous, and that it has two possible meanings. In those circumstances, the court has to prefer one above the other in accordance with the settled principles. If one meaning is more in accord with what the court considers to be the underlined purpose and intent of the contract, or part of it, than the other, then the court will choose the former or rather than the latter. Ashville Investments Ltd. v. Elmer Contractors Ltd. (1989 QB 484: (1988) 3 WLR 867: (1988) 2 All ER 577 (CA)). The intention of the parties must be understood from the language they have used, considered in the light of the surrounding circumstances and object of the contract. Bank of India v. K. Mohandas ((2009) 5 SCC 313: (2009) 2 SCC (Civ.) 524: (2009) 2 SCC (L&S) 32). Every contract is to be considered with reference to it subject and the whole of its terms and accordingly the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated clause. Bihar SEB v. Green Rubber Industries, ((1990) 1 SCC 731)).”

37. We are unable to affirm the decision of the learned Single Judge in regard to arbitral findings on the claims for entry tax and increase in toll tax.

38. There remains the dispute regarding price variation. This is further limited to a claim for a price variation regarding structural steel. The claim has a contractual history. The contract has a general price variation scheme as we have noted from Clauses 7.1.[1] to 7.1.10. For structural steel, there is a separate schema in Clauses 7.2.[1] and 7.2.2. Chenab Bridge contended that Clause 7.[1] which had the general provision for price variation restricted reimbursement in Clause 7.1.[9] to variations exceeding 5%. Variations up to 5% were not included. It was argued then (as it is now) that the separate scheme for price variation for structural steel did not have this 5% restriction or threshold. Therefore, the entire price variation for structural steel was reimbursable without excluding any initial percentage. Chenab Bridge claimed that an amount of Rs. 68,13,559/- has been withheld from escalation bills.

39. KRCL argued in arbitration, as Ms Bhagalia does before us, and we think completely correctly that Clauses 7.1.[3] to Clause 7.1.10 set out a procedure for calculating permissible price variations and this was allowed only for price variations exceeding 5% of the gross bills. But Chenab Bridge’s claim ignores what actually happened. Initially, there was a separate scheme for price variation proposed in Clause 7.2. There was a pre-bid meeting with tenderers on 28th May 2004. Clause 7.[2] (specifically Clauses 7.2.[1] and 7.2.2), proposed in the original tender document, were replaced by a corrigendum dated 21st May 2004. The new clauses did not provide for a different price variation for structural steel but merely substituted two components in the formula for arriving at the price variation. To cut a long story short, the overall cap of 5% in Clauses 7.1.[1] to 7.1.10 remained but in Clauses 7.2.[1] and 7.2.2, the formulation, i.e., the factors that went into the formula regarding structural steel were substituted. This was the only substitution. There is an instructive tabulation below paragraph 17 of the Award which shows the change. We reproduce it. Clause 7.[2] before amendment by Corrigendum No. 3 Clause 7.[2] after amendment by Corrigendum No. 3 7.2.0. PRICE VARIATION OF STEEL – A SPECIAL CASE: Normal Price Variation of steel is covered under the price variation clause under para 7.1. 7.2.0. PRICE VARIATION OF STEEL – A SPECIAL CASE: Normal Price Variation of steel is covered under the price variation clause under para 7.1. 7.2.1. In addition to normal Price Variation applicable for the total value of the contract, the special price variation for supply of steel is incorporated as under, taking into account the volume of steel involved. 7.2.[1] The special price variation for superstructure and substructure involving the structural steel items is considered instead of normal Price Variation, taking into account the volume of steel involved and fluctuation of steel prices. 7.2.2. The prevailing base price of steel for the purpose of the contract is nominally fixed at Rs. 25,000/- per MT for the purpose of calculating the compensation for increase in price of steel. The variation in steel prices shall be calculated on the basis of percentage of variation in price of steel declared by CRU steel price index on closing day of the previous week of the tender opening and price of steel declared on the closing day of the previous week of date of measurement. The amount of variation in prices of steel shall be worked out as per the following formulae: S = Amount of Special Price Variation in Steel. Rs = Gross quantity of steel supplied during the quarter under consideration (Qty. x 25000). Nominal steel price fixed in Rupees = 25000/Metric Tonne CRUI = Average rate of CRU STEEL PRICE INDEX for steel for the Quarter under consideration. CRUIo = CRU STEEL PRICE INDEX for the steel for the base period (i.e., closing day of the previous week of the opening of tender). 7.2.[2] For purpose of calculating price variation (A) For superstructure and substructure, involving the structural steel items for material component ‘M’, average index number of wholesale price (published in the RBI bulletin) shall be replaced by the index only for the group iron and steel [item (J) a-a[1] of bulletin NO. 40 of RBI]. Whereas, Wso = Index No. of whole sale price for the group iron and steel [item (J) a-a[1] of bulletin No. 40 of RBI] for the base period. Ws = Average Index No. of wholesale prices of the group iron and steel [item (J) a-a[1] of bulletin No. 40 of RBI] for the average of the quarter under consideration. (B) For other components, normal Price Variation Clause is applicable. The adjustment for variation in prices if required shall be made once in every quarter in the on account payments. If more than on account payment is made to the contractor in a quarter, the adjustment, if required, shall be made in each bill. If the amount of variation in prices, either upward or downward is less than 15% of the Gross Qty. of steel supplied at nominal price fixed (Rs.), no adjustment shall be made. Further, reimbursement/recovery due to variation in price shall be made only for the amount in excess of 15% of the Gross Amount of Steel supplied to the contractor. Sample calculations enclosed as Annexure ‘C’.

40. This tabulation shows that, by consent, what was substituted was only the price variation formula to be applied for the structural steel component. This change did not affect the overall cap, that only price variations exceeding 5% were admissible. Chenab Bridge’s case proceeds on the unproven assumption that structural steel was for some reason treated as an exception to the general price variation cap. There was no evidence of this at all, nor is there even today a logical argument presented as to why this should be so.

41. Our approach to this is two-fold. To begin with, we agree with the Arbitral Tribunal and therefore with the learned Single Judge that the case submitted by Ms Bhagalia is in fact the correct interpretation of the contract. It is not possible view. No interference is therefore called for. But we would further. So far as the price variation for structural steel is concerned, we would venture to add that the view of the Arbitral Tribunal is the only possible view having regard to the circumstances of the case.

42. The Appeal succeeds in part. In regard to the finding for price variation on structural steel, the Appeal fails and is dismissed. As regards the finding for reimbursement of entry tax and toll tax, the Appeal succeeds. The finding of the learned single Judge and of the Arbitral Tribunal is quashed and set aside. The correct interpretation is the one that we have set out above.

43. The Appeal is disposed of in these terms. In the facts and circumstances of the case, there will be no order as to costs. (Gauri Godse, J) (G. S. Patel, J)