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National Highway Authority of India v. M/s. ProgressiveMVR (JV)

Civil Appeal · 2018 INSC 195Decided 23 Feb 2018
Civil Appeal No. 458 of 2018
Justice A.K. Sikri · Justice Ashok Bhushan

Background

NHAI's standard construction contracts contain a price-adjustment formula (Clause 70.3) meant to compensate contractors for rises or falls in the cost of materials like bitumen, cement and steel during the life of a project. A dispute arose over whether the percentage-weight of each material in that formula should be calculated using the "base rate" (the price fixed 28 days before the bid was submitted) or the "current rate" (the price in the month the work was actually billed). Different Arbitral Tribunals, across this and connected appeals involving the same NHAI contract terms, had reached conflicting answers, some favouring the contractors' current-rate approach and some favouring NHAI's base-rate approach, and the matter reached the Supreme Court through three connected civil appeals.

Decision Breakdown

The Supreme Court held that the base rate (fixed 28 days before the bid) must be used to calculate the percentage weight of bitumen, cement and steel in the price-adjustment formula, not the fluctuating current rate, reasoning that using current rates could even produce an absurd "negative" material percentage, and that the formula already compensates contractors for price rises through a separate component of the same clause. Because this interpretation showed the Arbitral Tribunals had misapplied the formula, the resulting awards were held contrary to the contract terms. The Court made its ruling binding on all pending cases raising the same clause-interpretation dispute (though not on awards that had already finally attained closure), allowed all three appeals, and set aside both the High Court's judgment and the Arbitral Tribunal's award on the bitumen price-adjustment claim, with no order as to costs.

Lesson Learnt

Where multiple arbitral tribunals interpret the identical contract clause in conflicting ways across similar disputes, a court can step in to settle the correct interpretation definitively rather than treating each conflicting award as an equally "plausible view" immune from interference, and that settled interpretation will bind other pending (not yet finally concluded) disputes over the same clause.

Official source (sci.gov.in)View Judgment (PDF)

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