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National Highways Authority of India v. M/S JSC Centrodorstroy

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 2529 of 2016)Decided 18 Apr 2016
Civil Appeal No. 2529 of 2016
Justice Dipak Misra · Justice Uday Umesh Lalit

Background

NHAI had awarded a highway construction contract to the respondent, a foreign contractor, which included a "Subsequent Legislation" clause (Clause 70.8) allowing additional costs caused by new or changed laws after the bid date to be added to the contract price. The respondent claimed additional costs arising from increases in service tax on its insurance premium and on bank guarantee charges for the project, and the Arbitral Tribunal awarded these amounts in the respondent's favour. NHAI's challenge to the award was dismissed by a Single Judge and then by a Division Bench of the Delhi High Court, leading to this appeal (along with a second, near-identical appeal concerning a different contract with the same respondent).

Decision Breakdown

The Supreme Court noted that similar COPA clauses had already been interpreted in NHAI v. ITD Cementation India Ltd., where a comparable arbitral view was upheld. NHAI argued that costs like bank guarantee service tax should be excluded because furnishing a bank guarantee was optional, but the respondent showed that an unconditional bank guarantee had in fact become a mandatory contractual requirement. The Court reiterated the settled principle that interpretation of contract terms is primarily for the arbitrator, and courts should not interfere unless the arbitrator's view is one no fair-minded or reasonable person could take. Finding the Arbitral Tribunal's view that the service tax increases were linked to the contract's performance terms to be a reasonable, possible interpretation, the Court held there was no merit in NHAI's appeals and dismissed both without costs.

Lesson Learnt

Courts give significant deference to an arbitrator's interpretation of contract terms; a party challenging an arbitral award cannot succeed merely by offering an alternative reading of the contract: it must show the arbitrator's view was one no reasonable person could have reached.

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

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