SSANGYONG CONSTRUCTION CO. LTD. versus NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)

Citation: [2019] 7 S.C.R. 522 · Decided: 08-05-2019 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

Cited by 30 judgment(s) · cites 5 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
522
SUPREME COURT REPORTS
[2019] 7 S.C.R.
SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD.
v.
NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)
(Civil Appeal No. 4779 of 2019)
MAY 08, 2019
[R. F. NARIMAN AND VINEET SARAN, JJ.]
Arbitration and Conciliation Act, 1996 – ss.34(2)(b)(ii),
34(2)(a)(iii) – Respondent invited bids for construction of a four-
lane bypass on National Highway 26 in the State of Madhya Pradesh
– Appellant’s bid was accepted – Price adjustment for four of the
components used in execution of the contract i.e. cement, steel, plant
and machinery, and other local materials was to be calculated as
per formula given in sub-clause 70.3 of the contract – Price
adjustment was being paid to the appellant by using the Wholesale
Price Index (WPI) published by the Ministry of Industrial
Development, which followed the years 1993-94= 100 (Old Series)
– However, w.e.f 14.09.10, the Ministry stopped publishing the WPI
for the Old Series and started publishing indices under the WPI
series 2004-05= 100 (New Series) – As both the indices C1 and Co
were available to the appellant under the New Series for calculating
price adjustment, the appellant raised bills accordingly – On
15.02.13, the respondent issued a Policy Circular in which a new
formula for determining indices was used stating that the Circular
would be applied to the contract in question, as a result of which, a
linking factor would have to be provided by which the Old Series
was connected to the New Series – Appellant challenged the Circular
– Eventually, the arbitral tribunal consisting of three members by
majority award held that the Circular could be applied as it was
within contractual stipulations – Petition u/s.34 filed by the appellant
– Rejected by the High Court – Appellant inter alia pleaded that
s.34(2)(b)(ii) was attracted as the award was in conflict with the
public policy of India and that s.34(2)(a)(iii) would also be attracted
as principles of natural justice were violated – Held: Government
guidelines that were referred to and relied upon by the majority
award to arrive at the linking factor were never in evidence before
the Tribunal – Tribunal relied upon the said guidelines by itself
   [2019] 7 S.C.R. 522
522
A
B
C
D
E
F
G
H
523
stating that they are to be found on a certain website – This being
the case, the appellant would be directly affected, not being allowed
to comment on the applicability or interpretation of those guidelines
– Thus, majority award set aside u/s.34(2)(a)(iii) – Further, in order
to apply a linking factor, a Circular, unilaterally issued by one party,
cannot possibly bind the other party to the agreement without that
other party’s consent – Indeed, the Circular expressly stipulated
that it cannot apply unless the contractors furnish an undertaking/
affidavit that the price adjustment under the Circular is acceptable
to them – Appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not and
cannot apply – Majority award created a new contract for the parties
by applying the said unilateral Circular and by substituting a
workable formula under the agreement by another formula de hors
the agreement – Thus, a fundamental principle of justice was
breached – Such a course of conduct would be contrary to
fundamental principles of justice as followed in this country and
shocks the conscience of the Court – However, this ground is
available only in very exceptional circumstances, as in the present
case – Judgments of the Single Judge and the Division Bench of
the High Court, set aside – Consequently, the majority award is
also set aside – In order to do complete justice between the parties,
invoking power u/Art.142 of the Constitution of India, the minority
award is upheld – This award, together with interest now be executed
between the parties – Foreign Awards (Recognition and
Enforcement) Act, 1961 – s.7 – Constitution of India – Art.142 –
UNCITRAL Model Law on International Commercial Arbitration –
Art.26.
Arbitration and Conciliation Act, 1996 – s.34 – Setting aside
an arbitral award, in conflict with “public policy of India”– Law
post Amendment Act, 2015 – Held: “Public policy of India”, whether
contained in s.34 or s.48 of the 1996 Act would now mean the
“fundamental policy of Indian law” as explained in paragraphs 18
and 27 of Associate Builders case i.e. the fundamental policy of
Indian law would be relegated to the “Renusagar” understanding
of this 

Excerpt shown. Read the full judgment & AI analysis in Lexace.