Arabian Jacking Enterprises For Contracting & Trading Company v. Municipal Corporation of Greater Bombay

(i) Price adjustment for increase or decrease in the cost due to labour shall be paid in accordance with the following formula: VL= 0.85 x Pl/100 x R x (L1-L0)/L0 VL= increase or decrease in the cost of work during the quarter under consideration due to changes in rates for local labour. L0= the average consumer price index for industrial workers for Mumbai centre on the day 28 days prior to the closing date of submission of bids as published by Labour Bureau, Ministry of Labour, Government of India. L1= The average consumer price index for industrial workers for Mumbai centre on the day 28 days prior to the last day of the period to which a particular interim payment certificate is related as published by Labour Bureau, Ministry of Labour, Government of India. Pl= Percentage of labour component of the work. (ii) [Price Adjustment for cement component] (iii) [steel] (iv) [bitumen] (v) [cost POL] (vi) [local materials] (vii) [plant and machinery]

(viii) Foreign currency component

(a) The foreign currency component of each payment which is convertible into foreign currency at fixed exchange rate shall be adjusted according to the following formula: VFc= 0.85 x RF x (Fei-Feo)/Feo VFc= Increase or decrease in the cost of work payable due to changes in cost of foreign input. Feo= The index applicable for the foreign input (plant, material, engineer’s salary etc. as the case may be) on the day 28 days prior to date of submission of bids as published in the country of origin. Fei= Corresponding index on the day 28 days prior to the last day of the period to which a particular interim payment certificate is related (average index in case indices are published at lesser intervals). b) The bidder shall, in his tender, indicate the foreign input (plant, material, engineer’s salary etc.) and appropriate index, the source of which shall be the Government or Public organization. The bidder shall also attach specimens of the publications of the last 12 months for information of the Employer. If this index is not acceptable to the Employer, then he will specify an alternative index and the source of publishing of the index.

(c) If the bidder has requested payment in more than one foreign currency, RF should be suitably broken up and the formula applied separately to each currency component by taking into account the foreign input of the currency and corresponding Indicts (Index and currency belonging to the same country).

(d) The currency of foreign exchange payment and the index shall belong to the same country. (e) If the Contractor changes the country of origin of the source of supply of any input to the Works, he shall immediately notify the Engineer who shall modify the price adjustment provisions subsequent to such change to reflect the relevant cost index from the actual country of origin of the input. If the currencies in which the Contract Price is expressed are different from the currencies of the sources of the relevant indices, the Engineer shall determine the correction to be applied in calculating the Price Adjustment Factor (formula vii(a) in order to avoid distortions in the amount of price adjustment. Such correction shall be applied to the increment of price fluctuation in the base costs of the respective inputs and shall correspond to the ratio of the exchange rates between the respective currencies on the date of the base indices and the date of the current indices as defined in sub-clause vii(a). The following percentages will govern the price adjustment for the entire contract:

1. Fixed 15%

2. Labour – Pl 15%

3. Cement – Pc 15%

4. Steel – Ps 5%

5. Bitumen – Pb 5%

6. POL – Pf 10%

7. Other materials – Pm 15%

8. Plants and spares – Pp 20% Total — 100%” (Emphasis added)

13. The formula is lengthy, but it is encapsulated in paragraph 13 of the impugned award at pages 124 and 125 of the appeal paperbook.

14. What this tells us is that in the formula there were two components, RI representing the Indian rupee component and RF, the foreign currency one. The arithmetical sum of these was said to be R.

15. Now sub-clauses (i) to (vii) dealt with seven distinct items i.e. labour, cement, steel, bitumen, costs pol, local materials and plant and machinery. In these seven clauses, the value was a factor inter alia of R, that is to say the arithmetical sum of RI and RF. We have extracted clause (i) fully, but the R factor appears in all seven clauses though with other metrics. It is only in clause (viii), separately captioned as the foreign currency component, that only RF is mentioned and not R. Equally important is the fact that clauses (i) to (vii) do not refer to RI, the INR component at all. They refer to, and only to, R, the sum of RI and RF. Yet, in the contract, R is clearly defined as being RI + RF. There is no ambiguity about this. So in seven of the eight clauses, there is an unambiguous use of the defined term R (and never RI). It is only in the eighth clause that we see a departure with the equally deliberate and unambiguous use of the term RF, referring only to the foreign currency component.

16. This is really the heart of the dispute. According to the MCGM, for the purposes sub-clauses (i) to (vii), R had to be read either as RI or the value of RF had to be zero, i.e., to exclude a foreign currency component for labour, cement, steel etc. It is only in clause (viii) that the foreign currency component RF would be factored. Otherwise, MCGM maintains, the foreign currency component was being included twice: once in the computation of sub-items (i) to (vii) and then again in the computation of (viii). According to the MCGM, this would result in a net payout to AJECT of 189% of the project cost instead of 100% and, therefore, such an interpretation could not have been accepted. Therefore, for clauses (i) to (vii), R had to be read as being R[1] or RF had to be, for those clauses, assigned a value of zero. Anything else, MCGM maintains, would result in “unjust enrichment”.

17. It was further argued before the tribunal and before the learned Single Judge that the failure to restrict sub-clauses (i) to (vii) to the RI or Indian currency component was either a mutual mistake or at any rate was an oversight on the part of the MCGM and could be corrected at any time.

18. The Angerlehner contract had an identical clause. The Angerlehner award was of about five years earlier and came from a separate arbitral tribunal under a different contract between different parties. In that award, as the learned Single Judge noted, the arbitral tribunal agreed with the MCGM’s submission. It is this interpretation that found favour with the learned Single Judge resulting in a dismissal of Angerlehner’s Section 34 challenge petition and an acceptance of MCGM’s challenge to the AJECT Award.

19. In paragraphs 35 to 37 at pages 59 to 61, the learned Single Judge set out the submissions and the Court’s interpretation of contract in these words: “ 35. Sub-clause 70.[3] is an agreement between the parties as to how to work out a particular component. Though this understanding is expressed in mathematical terms, it still remains a methodology agreed by the parties. All that the parties have agreed is how to calculate the foreign currency component and Indian currency component in a given situation. ‘R’ is not a prime number nor a pure mathematical quotient. What should be included in ‘R’ is a matter of contract between the parties. ‘R’ therefore being product of understanding between the parties, it is open to interpretation. It is not impermissible to find out what is meant by ‘R’. This enquiry has nothing to do with changing the mathematical formula. Operation of the formula remains unaltered. Once what is the input in ‘R’ is clear, then it has to be multiplied by 0.85 and other values. Thus, once the ingredients of ‘R’ are finalized, then the mathematical formula will take over. For example, the parties may agree that for a quantity of items given, four items will be correspondingly given back. If the ‘quantity of item given’ is expressed in ‘P’ and the ‘quantity returned’ is expressed in ‘S’, then the formula will be P X 4 =S. Multiplication effect of 4 will be beyond debate, but parties can certainly contest as how many items given and what is included in ‘P’. Similarly in the present case, there cannot be any debate about the mathematical part of the formula, but the parties can certainly dispute as to what would constitute ‘R. Therefore, the absolute proposition advanced by Mr. Andhyarujina that sub-clause 70.[3] is immune from interpretation, cannot be accepted. ‘R’ is merely a term in the Contract and as per the settled legal position it is open for interpretation.

36. The grievance of Mr. Andhyarujina is that differing stands have been taken by the Corporation in these two proceedings. According to him, at one point the Corporation has stated that specifying ‘RI’ as only ‘R’ is a mistake when it is ‘RI’, and other place that ‘R’ includes ‘RF’ but value is assigned ‘Zero’. In my opinion these stands are not mutually exclusive. Broadly, what the Corporation has stated in both the proceedings is the same. That, having made provision for a foreign currency component separately and having paid the same, again it can not to be included in clause

(i) to (vi) of clause 70.3. Though various themes of this main proposition have been urged there is no conflict within them. Even assuming these two variations have put forth, the main proposition remains the same, that the foreign currency component cannot be included again. There is therefore no dichotomy in the stands taken by the Corporation in both these matters.

37. The second sub-set of the first argument of Mr. Andhyarujina is that even if the clause is open to interpretation, ‘R’ will have to be read as ‘RF’ and it cannot be only ‘RI’. This submission is not correct. If the clauses

(i) to (vi) of sub-clause 70.[3] are seen, they specify the figure ‘R’. In the preamble it is stated that ‘R’ will consist of ‘RI’ + ‘RF’. Even in a mathematical formula, it is permissible to assign value Zero to an ingredient. Zero is also a value. Therefore if value Zero is assigned, it is not that the constituent is completely taken out of consideration. Once Zero is a value and is permissible to be assigned, then there is no modification of the formula. ‘R’ continues to be sum total of ‘RI’ + ‘RF’, however RF being assigned Zero, what remains for all practical purposes is only RI (RI+0). Therefore ‘R’ specified in clause (i) to (vi) will ultimately come down to only ‘RI’. The Contracts have not been prepared by mathematicians. They are business contracts. It has been consistent stand of the Corporation that ‘R’ will have to be read as only ‘RI’ because ‘RF’ is assigned value ‘Zero’. The Arbitrators in the case of Angerlehner have accepted this stand. It is not an impossible view. In AJECT, the Arbitrators have proceeded on the basis that they have no power to look beyond the contract.”

20. The learned Single Judge then proceeded to a question that is central to the AJECT appeal. In paragraph 46, the learned Single Judge held, quite correctly, that the arbitrators were not powerless to interpret the formula or its exact meaning. He then extracted the relevant portion from the Angerlehner award. In paragraph 47, the learned Single Judge approved of the Angerlehner arbitral interpretation.

21. The error in the AJECT appeal begins with paragraph 48. For it is here that the learned Single Judge held that the AJECT tribunal had failed to apply its mind to a correct interpretation of the formula and had expressed a helplessness or said that it was powerless to interpret the contract. The learned Single Judge said that the AJECT arbitral tribunal “had completely sidestepped the arena”. Then in paragraph 49 the learned Single Judge set out the arguments before him about a “mutual mistake”. In paragraph 51, the learned Single Judge rejected the arguments that the arbitrators have no power to interpret the contract or that there was no unilateral or mutual mistake. He held— again correctly — that the arbitrators did indeed have full power to interpret the terms of the contract and to arrive at the conclusion that a particular interpretation resulted in an absurdity. The learned single Judge’s formulation of the legal position — that an arbitral tribunal can interpret a contract — is unexceptionable. What is erroneous is the appreciation of what it was the AJECT tribunal actually did.

22. Paragraph 51 should be reproduced in full. It reads thus: “51. In the case of Angerlehner, majority award has interpreted a term of contract, in the light of all the surrounding circumstances, and have held that if ‘R’ in Clauses 70.[3] (i) to (vii) is taken as ‘RI’ then it will result into harmonious reading of the contract with no unjust consequences to either of the parties. The arguments advanced that the Arbitrators had no power to interpret the contract and there was no unilateral or mutual mistake, cannot be accepted. The Arbitrators had full power to interpret the term of the contract and hold that a particular interpretation will result in absurdity. The Arbitrators had a power to construe ‘R’ in a manner wherein ‘RF’ is given value Zero. By reading ‘R’ as ‘RI’ alone or giving ‘RF’ value Zero, the consequence is the same. There is no perversity or error of law in the view taken by the Arbitrators. Angerlehner has been given the foreign currency component and wants another 65% under the same head, ultimately seeking 165% instead of 100%, which has rightly been refused by the Arbitrators. The Arbitrators committed no error in refusing to grant excess component, which was already accounted for.”

23. In paragraph 54, the learned Single Judge summarized his findings on the AJECT award in these words: “54. The manner in which the Arbitrators have proceeded in the case of AJECT, has given rise to various heads of challenge. The relevant instructions to the bidders, admissions in the cross-examination are kept out of consideration by the Arbitrators. Non-consideration of such germane material is a perversity and is a ground for setting aside this Award. The Arbitrators failed to exercise their jurisdiction to interpret the terms of the contract by creating an artificial barrier against their mandate. By holding that they had no power to interpret the terms of the contract whatever the consequence, the Arbitrators acted against the terms of the contract itself. After the completion of work, the Corporation has made the payment of 100% of the work done. It is for the additional 65% over and above 100% that the litigation is fought by the two Contractors. If the argument of the Contractors is accepted, it lead to them blatantly enriching themselves over and above what they are entitled. Such completely unjust enrichment, that too at the cost of public funds, is abhorrent under the fundamental policy of Indian Law. The award in AJECT, which permits such blatant enrichment is therefore is also vitiated on the ground that it is against the fundamental policy of Indian Law.”

24. Two questions immediately present themselves. The first is whether the learned Single Judge was correct in his reading of the award that the arbitrators had failed to exercise jurisdiction vested in them and had refused to interpret the formula and the contract. The second question would be whether an interpretation contrary to the MCGM’s submission would inevitably result in what the learned Single Judge called “an absurdity”.

25. We are unable to accept the correctness of the finding that the AJECT arbitral tribunal had abdicated its arbitral duty, had failed to exercise jurisdiction or had sidestepped the question. It had done nothing of the sort. In at least seven paragraphs, the arbitral tribunal dealt with the MCGM’s submission on interpretation. It did so carefully and elaborately and at length. These paragraphs are not even referenced in the impugned order. We reproduce them below: “56. On a conjoint reading of these clauses and subclauses, it is abundantly clear that what the Respondent wants to contend could be possible only by substitution of the term “RI” in place of the term “R” in the formulae provided for in Sub-Clauses 70.[3] (i) to 70.[3] (vii). We are afraid that cannot be done. We are duty bound to read and interpret the contract as it is made and signed by the parties.

57. We have given a serious consideration to the argument of the Respondent that use of “R” in the formulae in Sub-Clauses 70.3(i) to 70.3(ii) is not in keeping with the spirit of the contract, it contradicts various provisions in the other contract clauses and that such use of “R” provides double benefit of escalation on foreign currency component of the work etc. We have also considered the argument that logically RF is equal to zero in case of formulae under Sub-Clauses 70.[3] (i) to 70.[3] (vii) and therefore R=R1+RF=RI+0=RI in case of these formulae. But if that was so, no one prevented the Respondent to put “RI” in place of “R” in the formulae while drafting the bid documents and providing these documents to the prospective bidders to base their quote on the basis of the said bid document. We observe that in spite of what is stated by the Respondent; it cannot wish away the presence of “R” in Sub-Clause 70.[3] for all these reasons. The term “R” (and not the term “RI”) is very much present in the said contract which has been signed by the parties. There is no ambiguity in the algebraic formulae those have been incorporated in the contract if they are read individually. Therefore we do [not] agree that on true and correct interpretation of this particular contract which has been signed between the parties, there is any scope to read the expression “R” in Sub-Clause 70.[3] (i) to 70.[3] (vii) as “RI”.

58. We shall now examine in the following paragraphs whether this is a mutual mistake or otherwise. Having said so, if at all the Respondent wishes to “R” as “RI” in this particular Sub-Clause and in the relevant seven algebraic formulae, it has to take into account what the Claimant has to say about this anomaly. We do not agree that the Respondent can unilaterally bring about any change in the signed contract document.

59. On the basis of record that is put before us the chronological sequence of events that unfolds is as under— a. The work of preparation of the tender documents was outsourced by the MCGM to a Consultant as per the World Bank requirements (Exhibit C-3). b. While preparing these tender documents the Consultants used the term “R” in various formulae incorporated in Sub-Clauses 70.[3] (i) to 70.[3] (vii). (Exhibit C-10). c. The bids were invited on the basis of tender documents so prepared and the work was awarded to the Claimant on 19/01/99. d. Both the parties continued in implement the contract (as per the existing contract provision) using the term “R” in various formulae till 16th Interim Payment Certificate paid in June 2001. The work of the contract by this time was almost over. e. In the meanwhile a supplementary contract as extension of the main contract was signed with the Claimant for some additional work under the same terms and conditions. The Sub-Clause 70.3(i) to 70.[3] (vii) was incorporated in the supplementary contract with the term “R” in the formulae under reference. f. Sometime thereafter Audit Officer of the MCGM (A.O.51(SP) informed the Respondent that formulae for calculation of price variation in the contract is having error and as such the result of calculation of price variation is not correct and is leading to excess payment (Exhibit C-3). g. A clarification was sought from the Consultant who had prepared the bid document. The Consultant admitted vide its letter dated 10/09/2001 that there is an apparent error in the document prepared by it. When asked to for advise on effecting any amendments consistent with Indian Contract Act and FIDIC, it could not advise the remedy. (Exhibit C-10). h. In due course, the Respondent decided to replace “R” in the formulae in Sub-Clause 70.[3] (i) to 70.[3] (vii) and recovered the difference in payment that has been paid to the Claimant due to replacement of the word “R” by the word “RI” in respective formulae. The matter was referred to the DRB by the Claimant-contractor.

60. On the basis of the facts that have been brought out above, we observe that in Sub-Clause 70.3(i) to 70.3(vii), the term “R” has been used by the Respondent during the bid document preparation stage and the anomaly had not been discovered by it almost till towards the end of the project. The Respondent continued to treat “R” as “R” and not as “RI” all through this period. It even signed a supplementary agreement with the Claimant extending the scope of the work with the same understanding. Therefore even if for argument sake its argument that use of “R” is not in keeping with the spirit of the contract is given a consideration, the Respondent’s own actions were contrary to what its argument is.

61. We observe that the Claimant was for the first time formally told that there is some error in the calculation of price variation in the contract sometime in September 2001. In fact Respondent itself discovered this anomaly around the same period when Audit Officer brought it to the notice of the Employer and the Employer brought in turn to the notice of the Engineer. The Respondent’s case is that “None of the parties could contemplate or understand the formulae under Sub-Clauses 70.3(i) to 70.3(vii) so as to make the party unjustly enriched by getting double price adjustment and more particularly when the other provisions of the contract clearly provide that only contract price was liable to be adjusted. And therefore it is a mutual mistake”. We do not subscribe to this point of view. This is a commercial contract. The Respondent as Employer has put in its bid document for prospective bidders to quote their bids in a competitive environment. No prospective bidder can be expected to read a bid document differently than what it reads in black and white. There is no evidence on record to show that there was any mistake on the part of the Claimant. The only inaction that can be attributed to the Claimant is that it did not point out this anomaly in the pre-bid meeting. But none of the other bidders also brought it out in the pre-bid meeting. The Claimant has asserted that it was fully aware of the formulae as they stood and that the formulae had not gone unnoticed. It is the sworn testimony of the Claimant’s witness that in arriving at the amount of its tender bid, the Claimant took full account of the formulae. The Claimant cannot be faulted for the mistake in the document drafted by the Respondent-employer. It cannot be said as a mutual or common mistake.

62. Even for the sake of argument if is accepted that it is a mutual mistake, the Respondent is not seeking rectification in mutual consultation. It has gone ahead and forced rectification as deemed fit by it on the Claimant. There is nothing on record to show that the Respondent perceived it as a ‘mutual mistake’ at material time and held consultations with the Claimant to resolve the issue by rectification.

63. In any case, as observed by Bombay High Court in Haji Abdul Rahman v The Bombay and Persia Steam Navigation Co (1892) 16 Bom 561 “for a claim for rectification to succeed it must be shown that the parties had, prior to the contract being recorded to the document, agreed on terms that differed from those expressed in the document.” There is no evidence in the present case which would substantiate that there was a common mistake and there is a case for its rectification. We therefore rule that it is not a common or mutual mistake.

64. It has been argued by the Respondent that bid price has no bearing on the price adjustment formulae. It says that bid is the price that the contract quotes for doing the job where as price adjustment Clause is for adjustment of price of material, labour etc. If there is no increase in the price of the material, labour etc. (read factors that have been used in the concerned formulae to measure such change in prices for example indices etc.) there is no question of giving any relief to the contractor. We observe that to that extent what the Respondent says is right and if the parameters governing the price variation provisions in the contract do not change, no contractor would be entitled for any price variation. However once a prospective bidder purchases a bid document, it would take into account all the provisions made in the bid document including the provisions made relating to adjustment of prices and its effect on its bid price to be quoted. The very Sub-Clause 70.[2] quoted by the Respondent “To the extent that full compensation for any rise or fall in costs to the Contractor is not covered by the provisions of this or other Clauses in the Contract, the unit rates and prices included in the Contract shall be deemed to include amounts to cover the contingency of such other rise or fall of costs” cautions the prospective bidder that it needs to take into account the provisions made in the price variation Clauses while preparing and quoting its price bid. Then how one can say that the bid price submitted by the Claimant did not have any bearing on the price adjustment formulae?

65. Therefore we cannot fault a prospective bidder for evaluating its offer based on the document that is before it. Claimant has pleaded that because it read “R” as it stood in the Sub-Clause 70.3(i) to 70.3(vii), its bid is half the price of bids quoted by its competitors. We observe that this is just a matter of chance. The other prospective bidders also had the same bid document before them and had an equal opportunity to read the Sub-Clause 70.[3] as it stood. We however do not consider it unusual that many (rather none) of the other bidders did not read the term “R” as it stood in the formulae contained in Sub-Clause 70.3(i) to 70.3(ii), as is evidence from the bid prices quoted by them. If the Consultant who prepared the bid document, other authorities including the Respondent who approved the bid document and finally the Engineer and the Employer who supervised the implementation of the Contract did not discover the anomaly till almost towards the end of the execution of the project, one would not expect each and every prospective bidder to take into account the provisions of Sub-Clause 70.3(i) to 70.3(vii) as they stood in the bid document. This is because a prospective bidder has to apprehend the document and make its bid in a very limited period of time.

66. We thus observe that bid price offered by any bidder has bearing on the entire bid document that is made available to it by the Respondent-employer, including the provisions made in the price variation formulae.”

26. As the portions emphasized above clearly show there was absolutely no warrant for the finding returned by the learned Single Judge of an arbitral ‘failure to exercise jurisdiction in interpreting the contract’ or of saying that the AJECT arbitral tribunal had abdicated its statutory duty. On the contrary, the specific questions of ‘absurdity’, ‘mutual mistake’, ‘unilateral rectification’, of RF being ignored in sub-clauses (i) to (vii), and of RF being assigned a value of zero were all specifically noted and considered. In paragraph 61, the arbitral tribunal noted two important things. First, that this was a commercial contract. Second, that no bidder had noted any such anomaly in a pre-bid meeting. This has been completely overlooked in the impugned award. Indeed, in this context we would venture to suggest that accepting the MCGM’s argument would possibly imperil the validity of the entire contract. What this really means is that the formula, though clearly and unambiguously stated, is to be read in totally different manner. Of necessity, this means that if RF was to be taken out of the formula or formulae in clauses (i) to (vii) or assigned a value of zero, the entire bid structure would change. Other bidders who had been eliminated could then legitimately complain that such a clarification was not given to them. The arbitral tribunal was therefore completely correct in saying that without evidence of a clarification being sought or made at a pre-bid meeting this very late re-think could not possibly be used to justify a wholesale rewriting of the contract.

27. The only real justification for the view taken by the learned Single Judge was, as we have noted earlier, that not taking RF as zero would result in what the learned Single Judge called ‘an absurdity’. But agreeing to pay a certain amount according to a prescribed formula in a commercial contract is not in and of itself an ‘absurdity’. This is the bargain that the parties struck, and none objected until after disputes arose. As the AJECT arbitral tribunal noted, though the project started in 1999, it was not until September 2001 that the MCGM for the first time came up with this approach.

28. The argument of absurdity seems to us to be based on the submission by the MCGM that this would amount to ‘unjust enrichment’, a submission also made before the arbitral tribunal and noted in paragraph 61 of the AJECT award at page 146.

29. We believe we must put these findings in some context. The dispute is about an interpretation of a price variation clause, i.e., one that provides for fluctuations. Such clauses are well known, especially in construction contracts. They are designed to adjust the final contract price in either direction — upwards or downwards — by taking into account the increase or decrease in the contractor’s costs during the contract. These increases or decreases are the result of certain identified factors beyond the contractor’s control. These factors may be financial, or real-time costs of supplies, equipment, labour, etc. They may even take into account legislative and fiscal (tax) changes during the contract period. In international contracts, there is often the added factor of currency restrictions. Therefore price variation clauses — as the term itself suggests — take into account the effect of changes in price, that is to say, the additional price that the contractor is compelled to pay to perform his obligations. Such clauses shift the financial burden from the contractor to the project owner by this process of ‘adjustment’. Consequently, price variations are applied on the value of the work done. It must “bite” on the full value of the work done.[2] These price adjustment or variation clauses are calculated on the FIDIC formula so that the final contract price is adjusted (upwards or downwards) depending on the increase or decrease in the price rates for defined inputs such as labour, material, etc. The fundamental basis of the price variation clause and formula is the value of the work done and certified to be done. The currency in which payment is to be made is immaterial (though currency fluctuations may affect the cost to the contractor). Therefore, the determinant is the increase or decrease in the “cost-to-contractor”. Payment may be required to be made in domestic or foreign currency (as in this case, with RI and RF), but

2 Blaenau Gwent Borough Council v Lock (Contractors’ Equipment) Ltd, (1994) 3 Con LR 121. the mode of payment is immaterial and has no impact on the fundamentals of price variation. In the present case, items (i) to (vii) all dealt with increases/decreases in the cost-to-contractor of defined items. Each was a factorial of R, the arithmetical sum of RI, the cost in local currency, and RF, the cost in foreign currency. It must be borne in mind that RF is the portion of R payable in foreign currency at a fixed exchange rate. R is thus the total value of the work done, and the amount payable by the owner is split into payment in INR and payment in USD. R does not enter clause (viii). Only RF does. That clause tells us in sub-entry (a), that the foreign exchange component of each payment, convertible into foreign exchange at a fixed exchange rate, is also to be adjusted according to the formula. The foreign input is indexed, and the resultant figure is the increase or decrease (the upwards or downwards adjustment) in the cost of work payable due to change in cost of the foreign component. In clauses (i) to (viii), the exchange rate is fixed, and there is no adjustment by indexation for any cost variation in the foreign input. This only happens in clause (viii).

30. In the present case, the tender itself demanded that bidders set out separately their estimates of foreign currency and local currency requirements. This is why AJECT split its bid into a USD component (the bulk of the bid) and an INR component. The contract itself said that the contractor’s rates and prices were subject to ‘adjustment’ according to Clause 70. Bidders were to furnish indices and weightages for price adjustment formulae.

31.

AJECT insists, and we think correctly, that price variation clause must necessarily be applied to the full value of the works. What the MCGM attempts is to derive the price adjustment on the basis of the foreign exchange currency component regarding payments, and which were to be made on pre-contractual estimates. The MCGM takes out of the price adjustment reckoning the value of the work. This is completely contrary to the stated contractual formula. The ‘value of the work’ is reflected in the periodic interim invoices. It is by linking price adjustment to the currency of payment that MCGM arrives at its ‘unjust enrichment’ theory. But what this means is that all inputs that AJECT purchased for performing its obligations would have to be restricted only to the domestic INR cost component of 11.89% of the contract bid — thus excluding the value of the works and the changes in the cost of input, and consequently defeating the price adjustment clause entirely. We do not see how the price variation could be divorced from the value of the works and, instead, made dependent on an externality, viz., the currency of payment. This would be in the teeth of the contractual provision.

32. The consequence is not trivial.

3.34 crores. The difference is roughly Rs.[6] crores. Incidentally, there was no real prejudice to the MCGM, as these payments were all from World Bank provided funds. In Taisei Corporation v West Bengal State Electricity Distribution Co Ltd,[3] a Division Bench of the Calcutta High Court reversed a learned single Judge who had set 3 2015 SCC OnLine Cal 48: (2015) 3 Arb LR 260. aside an arbitral award which had held for the contractor. There, the State Electricity Distribution Company had advanced precisely the same contention as the MCGM does here. In paragraph 11 (of the SCC OnLine report), the Division Bench summarized and dealt with the State Electricity Distribution Company’s case like this:

11. Learned Counsel appearing for the Respondents before us have also attempted to make out a case that the Bill of Quantities shows two different currencies and that contract price and price adjustment being two different factors, the formula for price adjustment can be applied only to the INR portion. Learned Counsel for the Respondents have further argued before us that the estimated value of work would mean the estimated INR value of the work which would exclude the JPY portion because the co-efficient in ‘a’, ‘c’ and ‘h’ are non-variable factors. Therefore, by applying the ‘P’ factor to those portions, the JPY portion will stand varied. We are at a loss to understand such a submission because the formula itself has taken care of these aspects and such a formula was known to all the parties at the time when they entered into the contract. Therefore, attempting to virtually “perform a surgical intervention” of a clause of the contract already signed after disputes were raised cannot be permitted because the parties are bound by the contract.

33. In paragraph 42 of the impugned judgment, the learned single Judge was persuaded to hold that an arbitrator can look at the ‘mechanics’ of a clause to avoid a ‘patent absurdity’. But this rather misses the point entirely: the price variation clause is not to be assessed on anything other than the full value of the work performed, not on the currency of payment. Once having struck this bargain, no party can attempt to go behind the terms of it (including the formula) to arrive at a complete rewriting or rethinking of the contract. We also find that the learned single Judge was in error in looking at the instructions to bidders. Those are immaterial once the contract is signed and begins. They are specifically excluded from the contract, and the contract documents themselves say so.

34. We must also note that before MCGM first began disputing AJECT’s application of the price variation clause and formulae, it had paid out 16 running account (RA) bills on precisely the plain wording of the formula. It is only at a late date that MCGM contended — unilaterally — that there was a ‘mistake’ in drafting. Until then, the MCGM never contended that there was either ‘double payment’ or ‘unjust enrichment’. MCGM had also executed a supplementary contract with AJECT on 28th June 2001. This incorporated an identical price variation clause. The MCGM did not once contend, even for this supplementary contract, that R would have to be read as only RI, or that RF would have to be held to be zero. By the time the MCGM awakened to its very latter-day epiphany (between September and December 2001), the bulk of the work was done, and there was no scope for AJECT to seek a revision its 88.014% USD to 11.986% ratio of payments.[4]

35. The central error in the impugned judgment is the ‘double payment’ fallacy, holding that AJECT received 189% of the ‘contract value’. This is reflected in the finding of the learned single Judge

4 The MCGM’s Engineer had the power under Clause 70.[7] and 72.[4] to amend this ratio, by agreement and subject to certain provisos. that the foreign currency component ‘had already been taken into consideration and is sought to be taken again into consideration.’ The allegation of ‘over payment’ is on pre-contractual bid data. In fact, there was no double payment for reasons that suggest themselves. The conceptual flaw is to mistakenly see this contract not as a Bill of Quantities or BoQ contract but a fixed-price, lump sum, single value contract. A BoQ contract depends on measurements of actuals, or re-measurements of what is actually used and what price or rate the used component is procured. Therefore, periodic progressive or RA bills and their corresponding interim payment certificates continuously measure/re-measure quantities and rates. MCGM’s formulation assumes that the tender bid price is the entirety of the contract price and the contract value. This is plainly incorrect. The contract value is a factor of the value of the work done and measured as done. The price variation clause and formula attach to the work certified as measured in the interim payment certificates under Clause 60.[1] of the CoPA.

36. The underlying flaw in MCGM’s argument, and in the learned single Judge’s impugned order, is that this price adjustment formula is designed to work only in one direction, i.e., upwards. But the formula itself takes into account a possibility of a downward adjustment, i.e., a reduction. This is actual a ‘patent absurdity’ that the learned single Judge ought to have considered: if RF is always to be taken as zero in the formulae from (i) to (vii), then there could never have been a downward reduction or price adjustment. The only interpretation possible was one that took into account both upwards and downwards price adjustments. This is a price adjustment clause. The learned single Judge mistakenly took it for a price escalation clause. The two are materially different in every way.

37. The double payment argument is entirely without substance. It is predicated on a false a priori assumption that this is a fixed price, lump-sum contract and that the pre-bid estimate is the contract price. Once this misconception is dislodged, there remains no question of concluding that there was ‘double payment’ or that AJECT was seeking 189% of the so-called ‘contract value’. Pre-bid data cannot override the CoPA, particularly Clause 60.1. This would reduce the FIDIC Contract to a shadow of itself. Consequently, the RF component in R can never be taken as zero. It is restricted, certainly, and that restriction is to the payment in foreign currency on value of work performed on the basis of the set indices. RF in the formulae in (i) to (vii) is thus confined to the mode of payment, not an additional value leading to a conclusion of ‘unjust enrichment’.

38. Viewed thus, no question of ‘unjust enrichment’ arises at all. The learned single Judge held in paragraph 54 that ‘unjust enrichment’ (“blatantly enriching”; “blatant enrichment”) is “against the fundamental policy of Indian law”. It is not. The statement is entirely incorrect. Unjust enrichment does not constitute a ground of public policy — or the fundamental policy of India law — to set aside an award. In Renusagar Power Co Ltd v the Supreme Court did not go into the question of whether the principle of unjust enrichment as embodied in Sections 70 and 72 of the Indian Contract Act, 1872 was part pf the public policy of India. What the Supreme Court said was that even assuming that unjust enrichment was contrary to the public policy of India, it must relate to the enforcement of the award and not to its merits, i.e., with regard to the quantum awarded in arbitration. The Supreme Court said the mere award of a higher amount would not constitute unjust enrichment. Thus, where compensatory damages were awarded without deducting tax on regular and delinquent interest, this did not constitute unjust enrichment. As we shall see, Renusagar has been considered by the later decision of the Supreme Court in Ssangyong Engineering & Construction Co Ltd v National Highways Authority of India.[6] The concept of “unjust enrichment” must necessarily be in the context of an alleged breach of contract. Otherwise, any contract may be repudiated by a party only because a term is onerous.[7] Parties must be held to the bargain they, with full knowledge, struck.[8] Clauses in commercial contracts are bilateral and have been mutually agreed.[9]

39. The scope of ‘public policy’ as a ground for challenge to arbitral awards has now narrowed considerably, especially after the 2015 amendments to the Arbitration Act and the decision of the Supreme Court in Ssangyong Engineering, which authoritatively settled the jurisprudence regarding the scope for interference in arbitral awards after the 2015 statutory amendments. Amended Section 34 of the Arbitration and Conciliation Act reads thus:

7 Thomas Abraham & Ors v National Tyre & Rubber Co, Kottayam, (1973) 3 SCC 458.

9 Export Credit Guarantee Corporation of India Ltd v Garg Sons International, (2014) 1 SCC 686, paragraphs 11 and 13.

34. Application for setting aside arbitral award.— (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3). (2) An Arbitral award may be set aside by the Court only if— (a) the party marking the application establishes on the basis of the record of the arbitral tribunal that —

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1.— For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.— For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrators, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award; Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence. (3) An application for setting aside my not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon other party.”

40. As the Section itself shows, the scope for challenge is exceedingly narrow. In Ssangyong Engineering, the Supreme Court analysed the previous law, including Associate Builders v Delhi ONGC Ltd v Western Geco International Ltd,11 Renusagar Power Co Ltd v General Electric Co12 and other decisions, and the effect of the statutory amendments. Ssangyong Engineering effectively says: (a) “Public policy of India”, whether in Section 34 or Section 48 means the ‘fundamental policy of Indian law’ as explained in paragraphs 18 and 27 of Associate Builders. This is a return to the Renusagar position: violation of (i) the fundamental policy of Indian law;

(ii) the interest of India; and (iii) justice or morality.13

(b) The Western Geco expansion, i.e. the requirements of a judicial approach (as interpreted in Western Geco) and placing ‘unreasonableness’ in the ‘public policy’ head,

13 Ssangyong Engineering, supra, paragraphs 34 and 36. is now a thing of the past.14 To do so would be to enter impermissibly into a merit-based review of an arbitral award.

(c) Violations of principles of natural justice continue to be a ground for interference.15 (d) “The interest of India” does not survive as a ground for challenge.16 (e) The ‘justice or morality’ standard is now to be viewed as a test of whether the award violates ‘the most basic notions of morality or justice’, in accord with paragraphs 36 to 39 of Associate Builders — the award must shock the judicial conscience to admit of interference on this ground.17 (f) Domestic awards must now survive an additional test: that set out in Section 34(2A), the ‘patent illegality’ standard. This must be a facially patent illegality. It cannot be an erroneous application of the law. A backdoor entry is not permitted: a ground not within ‘the fundamental policy of Indian law’ — the contravention of a statute unlinked to public policy or

15 Arguably, though, this would not be on ‘merits’ strictly speaking, so much as a question of procedure and a violation of the equal-treatment standard.

17 Ssangyong Engineering, supra, paragraph 35. public interest — cannot slither in under the ground of ‘patent illegality’.18 (g) There is distinction between ‘an erroneous application of the law’ and an ‘incorrect invocation of the law’. For instance, ignoring a binding decision of a superior court is not an erroneous application of the law. It is a ground of patent illegality, because it does not state the law correctly. But an award that correctly states the law is not vulnerable because its application of that correctly stated law to the contractual dispute is said (or even shown) to be erroneous. (h) Patent illegality does not extend to a re-appreciation of evidence. Only an appellate court can do that. A Section 34 court cannot. It is not an appellate court.19

(i) A mere contravention of substantive Indian law is no longer a ground to set aside an arbitral award.20 (j) But an award with no reasons is a violation of Section 31(3) of the Arbitration Act and constitutes a patent illegality. Paragraph 42.[2] of Associate Builders stands.21 (k) 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

21 Ssangyong Engineering, supra, paragraph 39. 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).22 (l) ‘Perversity’, as understood in paragraphs 31 and 32 of Associate Builders, is no longer under the ‘public policy of India’ head. Yet it continues to exist. It is now repositioned to fall under the ‘patent illegality appearing on the face of the award’ head. This would include: a finding based on no evidence at all; an award which ignores vital evidence in arriving at its decision; or, say, a finding based on documents taken behind the back of the parties.23

(m) The patent illegality standard is unavailable for international commercial arbitrations.24 (n) Section 34(2)(a) does not permit a challenge to an arbitral award on merits.25

41. In Union of India v Recon,26 the decision of the Supreme Court in Ssangyong Engineering has been further analysed to cull out the emergent principles. Paragraph 17.[4] reads thus. 17.[4] This yields the following result:

(i) A lack of a ‘judicial approach’, being the

(ii) A violation of the principles of natural justice is a ground for challenge as one under Section 18 read with Section 34(2)(a)(iii) — that is to say, not under the ‘fundamental policy’ head nor the ‘patent illegality’ head, but distinctly under this sub-section.27

(iii) A lack of reasons is a patent illegality under

(iv) In interpreting the contract, the arbitral view must be fair-minded and reasonable. If the view is one that is not even possible, or if the arbitrator wanders beyond the contract, that would amount to a ‘patent illegality’. (v) ‘Perversity’ as understood in Associate Builders, is now dishoused from ‘fundamental policy’ (where Western Geco put it), and now has a home under ‘patent illegality’. This includes: (A) a finding based on no evidence at all; 26 2020 SCC OnLine Bom 2278: (2020) 6 Mah LJ 509: (2020) 6 AIR Bom R 613: (2021) 1 Bom CR 167 27 34(2)(a)(iii): the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case. (B) an award that ignores vital evidence; and

(C) a finding based on documents taken behind the back of the parties. … … Combining (iv) and (v) above, therefore, while the explicit recognition or adoption of the Wednesbury unreasonableness standard (introduced in Western Geco) is probably done away with, there is even yet a requirement of reasonableness and plausibility in matters of contractual interpretation. If the interpretation of the contract is utterly unreasonable and totally implausible — the view taken is not even possible — a challenge lies. Therefore: an award that was impossible either in its making (by ignoring vital evidence, or being based on no evidence, etc) or in its result (returning a finding that is not even possible), then a challenge on the ground of ‘perversity’ lies under Section 34(2-A) as a dimension of ‘patent illegality’.

42. Paragraph 29 of the Supreme Court decision in Delhi Airport Metro Express Pvt Ltd v Delhi Metro Rail Corporation Ltd28 says:

29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression “patent illegality”. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression “patent illegality”. What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2- A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression “patent illegality”.

43. Some of this law was reaffirmed and restated recently by the Supreme Court in Gemini Bay Transcription Pvt Ltd v Integrated Sales Service Ltd & Anr.29

44. As to the scope of Section 37 Appeal, we may profitably refer to the decision of a three-judge Bench of the Supreme Court in UHL Power Company Limited v State of Himachal Pradesh.30 In paragraphs 16 and 17, the Supreme Court said:

16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the

Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed.…

45. Thus, if unjust enrichment cannot be taken as a ground under the public policy head to unseat an arbitral award, then what remains is its invocation as a ground in equity. But this, too, is proscribed except in limited circumstances in view of Section 28 of the Arbitration Act.

46. But unjust enrichment is surely a plea in equity. It is at this stage that we must refer to Section 28 of the Arbitration Act: “28. Rules applicable to substance of dispute.— (1) … (2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so. (3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.”

47. The award in question is dated 18th April 2012. This was before the introduction of sub-clause (3) in Section 28. That was introduced by the 2015 amendment with effect from 23rd October

2015. It was nonetheless very much on the statute book at the time of impugned order of 31st March 2017. What sub-section (3) of Section 28 tells us is that the arbitral tribunal must in all cases (the word used is “shall”), take into account the terms of the contract and trade usages applicable to the transaction. It is therefore not possible to ‘zero-out’ any term of the contract; and the FIDIC template is certainly a ‘trade usage’. But sub-clause (2) always existed, and it says that an arbitral tribunal could decide ex aequo et bono, that is to say, on justice and equity only if there was a specific agreement or authorization by the parties to the arbitral tribunal. In other words, it is not the remit of an arbitral tribunal to decide according to its notions of equity unless the parties so permit. Absent such an agreement to decide according to equity, the arbitral tribunal must decide strictly accordingly to the terms of the contract. As Mr Gaya points out, an arbitrator himself is a creature of the contract. He cannot wander beyond it. In our view, it is not and was not permissible for the AJECT arbitral tribunal to insert an interpretation into the formula that would denude it of its plain meaning on the basis that it was equitable to do so.

48. As regards the question of mistake, that would have required evidence and the AJECT tribunal found no evidence sufficient to support a finding of mistake. In any case, any such argument of mistake is adequately addressed by paragraph 61 of the Award and the observations in regard to the clause existing in the bid documents, and there being no pre-bid meeting to seek a clarification or raise a query.

49. Returning to the impugned order, we therefore do not see how the learned Single Judge could possibly have said that the AJECT arbitral tribunal had ‘failed to exercise jurisdiction’ or that it had put up an artificial barrier against the arbitral mandate. We do not believe that it was any part of the Section 34 court’s remit to do more than assess whether the interpretation of the arbitral tribunal was a possible view, and not a view that no reasonable person could take. As the extracted portion above shows, the arbitral tribunal did interpret the contract. There is therefore no justification for holding that the arbitrators acted against the terms of the contract itself.

50. Ssangyong Engineering is of particular interest for another reason. There, too, there was a price adjustment formula. The respondent-authority unilaterally stipulated a fresh formula. The Supreme Court held that a fundamental principle of justice had been breached, namely, that a unilateral addition or alteration of a contract was sought to be foisted on an unwilling party. This could not be done, and the contractor could not be made liable to perform a bargain not entered into. This is an exact parallel to what has happened here, for the MCGM, almost at the end of the contract, seeks to foist on AJECT a wholly new unilateral alteration, one that was not so understood by the MCGM itself.

51. Mr Setalvad for the MCGM invites our attention to the decision of the Supreme Court in National Highway Authority of India v Progressive-MVR (JV).31 This is an interesting case because it also dealt with conflicting interpretations of a price adjustment mathematical formula, i.e., for computing the prices or costs of various components of work during the currency of a contract.

Before the Supreme Court, the respondents in different appeals (there seem to have been three civil appeals in all) were all contractors awarded contracts by NHAI for construction of roads etc. Again, there seems to have been a FIDIC contract with the usual CoPA and, again, a clause that dealt with the bitumen component amongst others. There, as here, there was the provision for a reference to a DRB. For some items, defined percentages were to govern the price adjustment. For others, including bitumen, the percentages were expressed as X%, Y% and Z%. The contractors said that X, Y and Z should be the prevailing market rate for a particular month, and this would be determinative while computing the actual percentage cost of bitumen, cement, and steel. NHAI contended that it would be the base rate (that prevailing 28 days prior to the submission of the bid) that would apply. There was no foreign currency component issue involved. The Supreme Court held that it had to be the base rate, because the increased percentage would otherwise be applied twice. There was no plea of unjust enrichment. But Mr Setalvad relies on this decision to advance an argument of issue estoppel, contending that the Angerlehner arbitral view had to be followed. As the Supreme Court noted, cases such as these do present a dilemma especially when there are two separate interpretations resulting in conflicting awards, that is to say that different tribunals adopt a different basis for their final awards. It is one thing to say, as we might perhaps do, that the Angerlehner tribunal view is a possible view or a plausible one; but so too was the AJECT tribunal view. Mr Setalvad submits that Angerlehner having been decided one way and that interpretation having been upheld, there was no cause for the Single Judge to take a different view. To avoid a situation where both views are held to be possible, as the Supreme Court said in Progressive-MVR, impermissible. But in paragraph 40 of Progressive-MVR, the Supreme Court held: “40. Once we interpret the formula in the manner indicated above, the necessary consequences would be to hold that the Arbitral Tribunal (s) did not decide the cases with the correct application of the formula and further that the claim for price adjustment in respect of bitumen laid by the contractors was not correct. Therefore, it can be held that the award(s) are contrary to the contractual terms. At the same time, this outcome poses a dilemma inasmuch as in these cases, the Arbitral Tribunal has taken a particular view and when this was a plausible view, keeping in mind the parameters of judicial review of the Court in exercise of powers under Section 34 of the Act, normally the Court would not interfere with such awards. However, as already indicated above, such a situation has arisen because of conflicting awards given by the Arbitral Tribunals themselves, which has provoked this Court to take a final view in the matter, necessitated by the aforesaid reason. If one takes into consideration the theory that one applies, the principle mechanically i.e. that a plausible view is not to be interfered with, then it may lead to very anomalous situation. In such an eventuality, view taken by a particular Arbitral Tribunal in favour of NHAI as well as a plausible view. Therefore, the purpose is to avoid such a situation which cannot be permitted as it would result in upholding both kinds of arbitral awards interpreting the same clause, whether they go in favour of the employer or they go in favour of the contractor. When the exercise is done keeping in view these considerations and outcome thereof is not determined, interest of justice would also demand that this result has to be applied to the pending cases, which have not attained finality. Therefore, in these peculiar circumstances, we hold that the principle of issue estoppel will apply only in those cases where matters have attained finality and no judicial proceedings are pending. In all those cases, including the present one, where awards are challenged on this particular aspect, this judgment will govern the outcome.”

52. Progressive-MVR was cited before a learned Single Judge of the Delhi Court in GMR Pochanpalli Expressways Ltd v National Highway Authority of India.32 We note, though only in passing, that in GMR Pochanpalli there were two appeals against a single award. The learned Single Judge correctly rejected the argument that Progressive-MVR was rendered under Article 142 of the Constitution of India. We agree. We also agree that where two conflicting arbitral views are before a Section 34 court, that court must adopt or prefer one view to the other. We find no fault with the learned single Judge in this case for having embarked on this exercise. But we do find that the interpretation adopted by the learned single Judge was entirely incorrect and unwarranted.

53. Further, Progressive-MVR may not be squarely applicable to the facts of this case, not because of what two tribunals did, but because of how the learned Single Judge in this case proceeded to approach the AJECT award. He did not in fact conclude that the AJECT tribunal’s interpretation was implausible or not a possible view. He held that the AJECT tribunal had not interpreted the award at all and had failed to exercise its jurisdiction. As we have seen that is completely incorrect. Merely because there is no appeal Angerlehner is no reason to uphold an otherwise incorrect interpretation. In restricting ourselves to the AJECT appeal, we have only to see whether the grounds for upholding the MCGM claim and setting aside the award of the AJECT tribunal are good. As we have noted the only ground on which the AJECT award has been rejected is of a failure to exercise jurisdiction and nothing else.

54. The learned Judge seems to have indicated that the AJECT tribunal should have considered whether AJECT submission on interpretation would have resulted in an absurdity. But that is precise what it has done when it rejected MCGM submission on unjust enrichment by holding that these were commercial term that were long undisputed.

55. Mr Setalvad also invites our attention to a Division Bench of this Court in Patel Engineering Company Ltd v Konkan Railway Paragraphs 22 and 23 of this decision in fact do not assist Mr Setalvad. Correctly read, they are against the proposition he advances. More importantly paragraph 33 of this very decision deals with Section 28, although it is limited to a consideration of Section 28(3) and does not address Section 28(2).

56. To upset the AJECT arbitral award, the finding would have had to be that the interpretation by the AJECT tribunal was not even a possible view. In the impugned order, there is no such finding 33 2009 SCC OnLine Bom 657: (2009) 5 Bom CR 256. at all. The only finding is of a failure to exercise jurisdiction. As we have noted earlier, that finding cannot be supported.

57. Consequently, the appeal succeeds. The impugned order is set aside to the extent that it allows the Arbitration Petition No. 95 of 2012 filed by the MCGM. The award dated 18th April 2012 of the AJECT arbitral tribunal is upheld.

58. At Mr Setalvad’s request there will be a stay on the operation of this order to the extent that AJECT will not put the award into execution for a period of eight weeks from today. (Gauri Godse, J) (G. S. Patel, J)