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National Highways Authority of India vs. M/s Hindustan Construction Company Ltd.

Not available · 2024 INSC 388Decided 7 May 2024
Not available
Justice Abhay S. Oka · Justice Pankaj Mithal

Background

NHAI had awarded a road construction contract to the respondent for the Allahabad Bypass Project worth over Rs. 446 crore. Disputes arose over three claims: extra costs from increased royalty and sales tax on construction materials, non-payment for embankment work involving initial soil stripping, and extra costs from increased forest transit fees, and these went to arbitration. An Arbitral Tribunal ruled substantially in the contractor's favour on all three claims (with a 2-1 majority on the embankment claim), awarding several crores with interest. NHAI's challenges to the award were rejected first by a Single Judge and then by a Division Bench of the Delhi High Court, leading to this batch of appeals before the Supreme Court.

Decision Breakdown

The Supreme Court reiterated that courts have only a narrow scope to interfere with arbitral awards under Section 34 of the Arbitration Act, and an even narrower scope on appeal under Section 37. They cannot act as an appellate court re-examining facts, and must respect a reasonable interpretation of contract terms by the Arbitral Tribunal even if another view were possible. On the royalty and tax claims, the Court found the issue was already settled by an earlier Supreme Court decision (NHAI v. ITD Cementation) involving identical contract clauses, which held that additional costs from later legislation/tax changes are payable separately from the standard price-adjustment formula. On the embankment claim, since two of the three arbitrators (the technical experts) had ruled in the contractor's favour and their reasoning was not shown to be perverse or illegal, the Court declined to disturb that majority finding. Finding no merit in NHAI's challenge on any point, the Supreme Court dismissed all the connected appeals with no order as to costs.

Lesson Learnt

Courts will not re-open the merits of an arbitration award or substitute their own view for a reasonable interpretation the arbitrators gave to a contract: a party unhappy with an award needs to show the ruling is illegal or perverse, not merely arguable the other way.

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

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