Holding

The price‑adjustment formula must be applied using the base rate, and arbitral awards that used the current rate are contrary to the contract and are set aside.

Summary

The National Highway Authority of India (NHAI) awarded road construction contracts that contained a price‑adjustment clause (Clause 70.3) requiring calculation of adjustments for components such as bitumen, cement and steel. The clause stipulated percentages (x, y, z) to be the "actual percentage of cost" of these materials, but it was disputed whether the "cost" meant the base rate (the price 28 days before bid submission) or the current market rate at the time of each interim payment. The contractors argued for the current rate, while NHAI insisted on the base rate. The Dispute Review Board and the Arbitration Tribunal both ruled in favour of the contractors, applying the current rate, and awarded substantial price‑adjustment sums. NHAI challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Supreme Court held that the formula, read in its entirety, requires the base rate, not the current rate, and that the arbitral awards were contrary to the contract. Consequently, the Court set aside the awards and allowed NHAI’s appeal.

Issues considered

Whether the price‑adjustment formula under Clause 70.3(xi) of the contract requires the use of the base rate or the current market rate for calculating the percentage of cost of bitumen, cement and steel.
Whether an arbitral award that interprets the formula contrary to the contract can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Whether the doctrine of issue estoppel applies to arbitral awards that have not attained finality.

Legislation cited

Subjects

price adjustmentcontract interpretationarbitration awardSection 34base ratecurrent rateissue estoppelNHAI contractsconstruction contractsFIDIC

Judgment

[2018] 2 S.C.R. 1015 1015

NATIONAL HIGHWAY AUTHORITY OF INDIA A
v.
M/S. PROGRESSIVEMVR (JV)
(Civil Appeal No. 458 of 2018)
FEBRUARY 23, 2018 B
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Contract – NHAI Contracts – Price adjustment formula, ‘note’
appended thereto – Interpretation of – Respondents-contractors
awarded contracts by appellant-NHAI for construction of roads
C
etc. – Tender document envisaged a ‘Price Adjustment formulae –
Sub-clause 70.3 of the Contract provided for the ‘adjustment
formulae’ for calculating the price adjustment amount wherein the
work is divided into seven components for which specific
percentages were given to govern the price adjustment– However,
such specific percentages were given only for 4 components, and D
for rest three components i.e. bitumen, cement and steel, variable
percentages were given as x%, y%, z% which were to be worked
out – ‘Note’ after sub-para (xi) of sub-clause 70.3 mentioned that
x, y, z were the actual percentage of the cost of material of bitumen,
cement and steel respectively which were used for execution of the
E
work – Dispute between parties as to basis for calculation of actual
percentage of cost of material of bitumen – Plea of NHAI that base
rate (i.e. the rate prevailing 28 days prior to the submission of the
bid) of these materials should be considered while applying the
formula – Respondents contended that it is the prevailing rate in
that particular month which would be the determining factor – F
Dispute Review Board (DRB) held in favour of NHAI – Respondents
invoked arbitration – Arbitration Tribunal allowed the claim – NHAI
filed objections u/s.34, 1996 Act before High Court – Objections
dismissed by High Court – On appeal, held: Clause relating to price
adjustment indicates that certain components which go into the
G
execution of the projects like labour component, cement component,
steel component, plant and machinery and spares component,
bitumen component etc. may not remain static insofar as their price
is concerned – There is a possibility that from the date when the
price of these components was quoted by the contractor in his bid,
there may be increase or decrease in the said price from time to time H
1015
1016 SUPREME COURT REPORTS [2018] 2 S.C.R.

A during the execution of the contract – Towards this, adjustment
formula for working out the cost, at the time of execution of the
contract, is provided – This adjustment has to be arrived at, in
comparison with the base price/rates referred by the contractor/
bidder – Thus, while applying price adjustment formula for
calculating the price adjustment of bitumen, it is the base rate which
B
is to be applied and not the current rate – Arbitration and
Conciliation Act, 1996 – s.34.
Allowing the appeals, the Court
HELD: 1.1 Clause 70 of Conditions of Particular Application
C (COPA) of the contract pertains to price adjustment. Clause
70.3(v) deals with ‘Adjustment for Bitumen Component’. As per
this clause, the price adjustment for increase or decrease in the
cost of bitumen is to be paid in accordance with the following
formula:
D “ Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo”
Vb is increase or decrease in the cost of work during the month
under consideration due to changes in the rate of bitumen. Pb
denotes percentage of bitumen component of the work and R1 is
the total value of the work. Bi denotes current rate/cost as it is
E the average official retail price of bitumen at IOC Depot at
Barauni/Haldia on the day 28 days prior to the submission of bids,
which makes it clear that it is equivalent to the base rate. Thus,
when this formula is considered of its own, Bo clearly refers to
the base rate. [Paras 14-16] [1029-E-F, G-H; 1030-F-G, G]

F 1.2 Pb = X% is calculated by NHAI by following
mathematical formula:
“Pb = Quantity of Bitumen consumed during the month x base
rate of bitumen x 100
Total Work done during the month of x BOQ rates.”
G [Para 18] [1031-B-C]
1.3 The issue relates to price adjustment and such an
adjustment can be made in respect of various components which
are used in the contract. The contractual provisions specifically
deal with adjustment for labour component, cement, steel etc.
H These components are seven in numbers which may undergo
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1017
M/S. PROGRESSIVEMVR (JV)

price adjustment during the period when the contract is in A
progress, depending upon the market conditions, namely,
increase or decrease in market prices of these components from
time to time. The very nature of this price adjustment suggests
that such variation would have relevance with the price which
was indicated in respect of these components at the time of
B
submitting the tender by the successful contractor and, in that
sense, it can have reference only to the base price. The clause
relating to price adjustment indicates that certain components
which go into the execution of the projects like labour component,
cement component, steel component, plant and machinery and
spares component, bitumen component etc. may not remain static C
insofar as their price is concerned. There is a possibility that
from the date when the price of these components was quoted by
the contractor in his bid, there may be increase or decrease in
the said price from time to time during the execution of the
contract. It is for this reason, clause relating to price adjustment
D
is provided so as to give effect to the rise or fall in the costs to
the contractor. To this adjustment formula for working out the
cost, at the time of execution of the contract, is provided. This
adjustment which has to be arrived at, naturally, has to be in
comparison with the base price that was stated by the contractor.
[Paras 25, 26] [1037-C-E, F-H; 1038-A-B] E
1.4 In the present case, the intention in the formula as well
is to keep in mind the base cost while arriving at the price
adjustment. Clause 70.3 (xi) deals with percentages on various
components that will govern the price adjustment. Insofar as
labour, plant and machinery and spares, and POL (Petrol, Oil and F
Lubricants) are concerned, there is a fixed percentage prescribed,
i.e., 20%, 20% and 10% respectively. However, with regard to
the other three components, namely, bitumen, cement and steel
variable percentage is mentioned which has to be calculated.
Seventh component is ‘Other Material’. Insofar as this
component is concerned, it is the balance percentage, after G
percentage of bitumen, cement and steel is arrived at, as it
mentions “50 – (x+y+z)” percentage. From this, one can infer
that normally the combined percentages of x, y and z has to be
less than 50%. However, when the current cost is taken into
consideration while working the formula, the percentages of x, y H
1018 SUPREME COURT REPORTS [2018] 2 S.C.R.

A and z far exceed 50% which would make the percentage of other
materials in the negative. Such a negative aspect has to be
avoided. [Paras 27, 28] [1038-C-F]
1.5 The word “actual” in the note under sub-clause 70.3(xi)
of Conditions of Particular Application (COPA) relates to the
B percentage and not to the cost. The percentage x, y, z are
mentioned to ensure that the contractor is compensated
realistically on the actual material used each Interim Payment
Certificate (IPC). Therefore, it seems more logical and proper
to adopt the base cost of material while working out the price
adjustment. When the dispute was raised, as per the provisions
C contained in the contract, in the first instance, it was referred to
the Dispute Review Board (DRB) which went into the issue in
detail. [Paras 29, 30] [1039-B-C]
1.6 The DRB thereafter worked out a formula. It also
pointed out that if the current cost of material is adopted, instead
D of base cost as claimed by the contractor, price adjustment will
be paid twice. One due to increase in percentage factor (x, y and
z) due to use of current rate instead of base rates and second due
to application of price adjustment factor b 1 -bo/bo. It also
demonstrated, by giving examples, that when the base rate is
E adopted, the price adjustment was quote proximate with the
prevailing price which compensated the contractor realistically.
On the other hand, on adoption of current rate, the calculation of
price adjustment was almost three times the amount of increase
in cost of bitumen incurred by the contractor. The aforesaid
analysis carried out by the DRB is quite acceptable. [Paras 31 -
F 33] [1040-G; 1041-D-F]
1.7 As a result, it is held that while applying price adjustment
formula for calculating the price adjustment of bitumen, it is the
base rate which is to be applied and not the current rate. [Para
35] [1043-F-G]
G
1.8 The NHAI has entered into multiple contracts with
different parties containing the same clauses of price variation.
Arbitral Tribunals have been taking different views, and the view
taken in favour of the NHAI is also one of the possible
interpretations, the effect thereof would be to uphold both kinds
H of awards even when they are conflicting in nature in respect of
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1019
M/S. PROGRESSIVEMVR (JV)

the same contractual provision. It may not be appropriate to A
countenance such a situation which needs to be remedied. Once
the formula is interpreted 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
B
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 C
of powers under Section 34 of the Arbitration and Conciliation
Act, 1996 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
D
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 the Contractor would be upheld as plausible view. Likewise, E
the Court will have to uphold the 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
F
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, it is
held that the principle of issue estoppel will apply only in those G
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. [Paras 13, 36 and 37] [1026-
C-D; 1043-H; 1044-A-F]
H
1020 SUPREME COURT REPORTS [2018] 2 S.C.R.

A Hindustan Zinc Ltd v. Friends Coal
Carbonisation (2006) 4 SCC 445; Associate Builders
v. Delhi Development Authority (2015) 3 SCC 49;
Bhakra Beas Management Board v. Krishan Kumar Vij
& Anr. (2010) 8 SCC 701 : [2010] 10 SCR 462; Bhanu
Kumar Jain v. Archana Kumar & Anr. (2005) (1)
B
SCC 787 : [2004] 6 Suppl. SCR 1104; Godhra
Electricity Co. Ltd. & Anr. v. State of Gujarat & Anr.
(1975) 1 SCC 199; Bank of India v. K.Mohandas & Ors.
(2009) 5 SCC 313 – referred to.
Case Law Reference
C
(2006) 4 SCC 445 referred to Para 21
(2015) 3 SCC 49 relied on Para 21
[2010] 10 SCR 462 referred to Para 21
[2004] 6 Suppl. SCR 1104 relied on Para 24
D (1975) 1 SCC 199 referred to Para 24
(2009) 5 SCC 313 relied on Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 458 of
2018
From the Judgment and Order dated 16.09.2016 of the High Court
E
of Delhi at New Delhi in FAO (OS) (COMM) No. 81 of 2016 arising
from OMP (COMM) No. 1211 of 2013.
WITH
C. A. NOS. 459 and 460 of 2018
F N. K. Kaul, P. S. Patwalia, Sr. Advs., S. Nandakumar, Naresh
Kumar, Ms. Tanupriya Gupta, S. Sarankumar, Ram Dhan Singh Narwal,
Ms. Deepikananda Kumar, Sugam Kumar Jha, Manish K. Bishnoi,
Devansh Srivastava, Ms. Ila Haldia, Ms. Harshika Verma, Archit
Upadhayay, S. Gurukrishna Kumar, K. Parameshwar, Amit George, Udit
G Gupta, Ajay Kumar Jha, Abhishek Chaudhary, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
A. K. SIKRI, J. All these appeals involve the lis of an identical
nature. National Highway Authority of India (NHAI) is the appellant in
H
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1021
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

these appeals. Respondents in different appeals are the contractors who A
were awarded the contracts by the appellant/NHAI for construction of
roads etc. The terms and conditions on which the contracts were to be
executed are identical in all these cases, as the standard form contract
was signed by the parties. Dispute had arisen about the interpretation
that is to be given to sub-clause 70.3 of Conditions of Particular Application
B
(COPA) of the contract which contains ‘Price Adjustment Formula’.
The tender document of the NHAI, modeled upon generic FIDIC
construction contracts, envisage that since the estimation of work
including the rates, prices and costs of various items of work is done on
the basis of prices/costs of materials, labour and other inputs prevailing
on and around the date of the submission of bid, ‘Price Adjustment’ C
(also generally known as Price Escalation/Variation) is needed so as to
protect both the parties in cases of rise or fall of prices/costs of various
components of work during the period when the work is being executed.
In the NHAI contracts, as opposed to one lump financial quote, the
entire work to be executed under the Contract is divided into various
D
estimated quantities of work unit wise in the BOQ (Bills of Quantities)
document which is part of tender document. Each bidder is required to
quote rates/prices for each estimated quantities or items of work. These
rates are also referred to as ‘Base Unit Rates and Prices’ or ‘BOQ
Rates/Prices’.
Sub clause 70.3 provides for the ‘adjustment formulae’ for E
calculating the price adjustment amount. In this sub clause, the work is
divided into seven components of work and price adjustment, in each
interim payment made month-wise, is given for these components only,
which is made clear in sub-clause 70.2 which provides that price
adjustment on any account other than the seven components enumerated F
in 70.3, is deemed to have been included in the price bid amount. These
seven components of works are Labour, Plant & Machinery and Spares,
Petrol, Oil and Lubricants (POL), Bitumen, Cement, Steel and Other
Components/materials. Since the BOQ rate or base unit rate/prices are
the composite rate for a particular item of work in the Bills of Quantity
(BOQ) submitted by the claimants and does not specifically give the G
base rates/prices of the seven components of works given in sub-clause
70.3 (xi).
2. The dispute concerns interpretation of sub-clause 70.3 (xi) which
is quoted hereinbelow:
H
1022 SUPREME COURT REPORTS [2018] 2 S.C.R.

A “ a) Labour-PI 20%
b) Plant and Machinery and 20%
Spares - Pp
c) POL-Pf 10%
d) Bitumen-Pb x%
B e) Cement-Pc y%
f) Steel-Ps z%
g) Other materials-Pm 50 – (x+y+z)%
Total : 100%
(Note: x, y, z are the actual percentage of cost of material of
C bitumen, cement and steel respectively used for execution of
work as per the Interim Payment Certificate for the month)”
3. The entire controversy is with regard to the ‘Note’ after sub-
para (xi) of sub-clause 70.3 of the conditions, which has been extracted
above. This note mentions that x, y, z are the actual percentage of the
D cost of material of bitumen, cement and steel respectively which are
used for execution of the work as per the Interim Payment Certificate
(IPC). The issue is, while calculating the actual percentage of cost of
material of bitumen, cement and steel respectively, it is the base rate
(i.e. the rate prevailing 28 days prior to the submission of the bid) of
these materials which is to be taken into consideration while working out
E
the price adjustment as per the formula provided or it is the current cost
of the material in that particular month.
4. The respondents (hereinafter referred to as the ‘contractors’)
contend that it is the prevailing rate in that particular month which would
be the determining factor, whereas the NHAI insists on taking base rate
F
while applying the formula.
5. Before proceeding further, at this juncture, we would like to
state the historical background giving rise to the dispute in question. For
the sake of convenience, the facts are taken note of from Civil Appeal
No. 458 of 2018 in which M/s. ProgressiveMVR (JV) is the contractor.
G
The NHAI is a statutory body constituted under Section 3 of the
NHAI Act, 1988. The functions assigned to NHAI under Section 16 of
the NHAI Act, 1988 are to develop, maintain and manage the National
Highways entrusted to it by the Central Government. In the year 2005,
the NHAI issued an invitation for bid for four laning from Km. 402.00 to
H
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1023
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

Km 440.00 of Gopalganj – Muzaffarpur section of NH-28 in Bihar in A
contract package No. LMNHP-EW-II- (WB-10). The contractor was
found successful bidder and accordingly the letter of acceptance was
issued to it where it is clearly stated that your bid is accepted by NHAI
for the contract price of Rs.263,97,29,718/- (Two Hundred Sixty Three
Crore Ninety Seven Lac Twenty Nine Thousand Seven Hundred
B
Eighteen Rupees Only). According to the NHAI, the Engineer was
paying the price adjustment as per the base rate and the contractor had
not raised any dispute in this regard. The contractor first time raised a
dispute about price adjustment by applying current cost while arriving
XYZ percentage as per sub-clause 70.3 (viii) of COPA. The contractor
vide letter dated April 13, 2008 raised objection with the Engineer at the C
time of submission of IPA 9. The team leader rejected the dispute raised
by the contractor by stating that the essence of price adjustment cannot
be maintained by considering the current rates of the materials and the
claim cannot be accepted. This resulted in a dispute between the parties
and on September 2, 2008, the contractor invoked the provision of sub-
D
clause 67.1 of COPA and referred the matter for recommendation from
the DRB (Dispute Resolution Board).
6. The DRB vide its majority gave its recommendation dated
January 4, 2009 to the effect that ‘the contractor’s interpretation is not
in accordance with contract and should be rejected.’ Being aggrieved
by the order passed by the DRB, the contractor issued a notice to invoke E
arbitration in terms of provisions of clause 67 of COPA against the order
passed by the DRB. Arbitral Tribunal was constituted. The respondent
filed the statement of claim before the Arbitral Tribunal for the following
claim:
Claim No. 1 – Reimbursement of escalation amount paid less F
Rs.24,93,52,493/-
Claim No. 2 – Interest- past interest, pendentilite and future.
Claim No. 3 – Cost of Arbitration.
7. After conclusion of the proceedings, the Arbitral Tribunal in G
their majority award dated August 7, 2013 (with one member dissenting)
decided the issue in favour of the contractor, inter alia holding that:
“Arbitral Tribunal finds that the whole dispute is hinging on the
word ‘cost’ as appearing in sub-clause 70.3 (xi). Contractor says
that cost should be read as actual expenditure incurred by him in H
1024 SUPREME COURT REPORTS [2018] 2 S.C.R.

A procurement of these materials as per current invoices while the
respondent says that this word “cost” should be read as the cost
of these materials to be worked out on base rates. In this way
an element of ambiguity has crept in the contract. So in spite of
analyzing the dispute from different angles as discussed in the
foregoing para, even if we apply the thumb rule i.e. Rule of
B
Contra Proferentem, the word cost will have to be construed
against the employer who has prepared the draft.”
It, thus, allowed the claim raised by the respondent.
8. In dissenting note, the dissenting arbitrator held in para 11
C that:
“In my opinion Pb or Pc or Ps in the price variation formula do
not take into account the actual expenditure at the time of IPC
and the definition of cost as given in para 1.1 (g)(1) of the GCC
is not pertinent to the case.”
D He further held that the contractor is very much aware about the
interpretation on the NHAI more than five months before the contractor
submitted their bid and even after knowing the method of applicability
they had not raised any doubt or clarification with regard to the method
of calculation of XYZ nor seek any clarification to the note appended
E below 70.3 (viii) which shows that they are fully aware about the method
of calculation of XYZ and afterwards signing of contract construed the
acceptance of the contractor to the NHAI’s method and interpretation
related to “Notes”.
9. Against the said majority award allowing the claim of the
F contractor, the NHAI filed objections in the form of Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as the
‘Act’) before the High Court of Delhi. It was numbered as OMP (Comm.)
No. 1211 of 2013.
10. We may also mention at this stage that in other dispute between
the NHAI and M/s. NCC-VEE (JV), where also the award had gone in
G
favour of the said contractor, similar objections filed by the NHAI had
been dismissed by the learned Single Judge on December 17, 2014 and
appeal thereagainst was also dismissed by the Division Bench of the
High Court on March 10, 2015. So much so, the Special Leave Petition
(SLP) filed by the NHAI was also dismissed by this Court on March 10,
H 2015. When the things rested at that, another significant and interesting
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1025
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

development took place. In another identical dispute raised by one M/s. A
Ssangyong Engineering and Construction Co. Ltd., the Arbitral Tribunal
constituted in that case gave its award dated December 14, 2015 whereby
it accepted the interpretation being urged by the NHAI and dismissed
the claim of the said contractor.
11. Be that as it may, insofar as petition of the NHAI under Section B
34 filed in the High Court against the award given in M/s.
ProgressiveMVR (JV) is concerned, the learned Single Judge dismissed
the same vide its order dated August 23, 2016 holding that the matter
was covered by the decision of the Division Bench in M/s. NCC-VEE
(JV) matter. Against that order of the learned Single Judge, NHAI filed
intra-court appeal which has also been dismissed by the High Court vide C
impugned judgment dated September 16, 2016, following its earlier
judgment dated March 10, 2015. This is how the appeal of the NHAI
against M/s. ProgressiveMVR(JV) had come up for consideration.
Likewise, in other cases also, the judgments of the High Court have
gone in favour of the contractors in somewhat similar circumstances. D
12. Another pertinent observation needs a mention at this juncture.
In para 11 above, we have noted that in the case of M/s. NCC-VEE
(JV) identical award interpreting the same clause which was in favour
of the contractor and against the NHAI was upheld and the objection
petition filed by the NHAI was dismissed. That order was upheld by the E
Division Bench of the High Court on March 10, 2015 and SLP
thereagainst was also dismissed. Pertinently, while dismissing the appeal,
Division Bench of the High Court in its order dated March 10, 2015
noted as under:
“10. We have also examined the judgment of the learned Single F
Judge. We find that the interpretation given by the Arbitral Tribunal
is not an impossible view. Although, there may be some substance,
in what the learned counsel for the appellant submits by way of
interpretation of the said note, but that would only be one of the
possible interpretations. Another possible interpretation is the one,
adopted by the Arbitral Tribunal. G
11. It is well settled that the interpretation of a term of contract
is within the domain of the Arbitral Tribunal and if the Arbitral
Tribunal interprets a particular clause in a particular manner, which
is a possible interpretation, then the court ought not to interfere
in its jurisdiction under Section 34 of the said Act. The only H
1026 SUPREME COURT REPORTS [2018] 2 S.C.R.

A exception being where the interpretation results in a perversity
and shocks the conscious of the Court, the latter eventuality has
not happened in the present case.”
13. Thus, the main reason because of which the NHAI lost in
those proceedings was that two possible interpretations could be given
B to the clause in question and, therefore, the recourse taken by the Arbitral
Tribunal by adopting one particular interpretation was not required to be
interfered with. SLP against that was dismissed. In a situation like this,
this Court would not have undertaken further exercise in the matter.
However, another Arbitral Tribunal in the case of M/s. Ssangyong
Engineering and Construction Co. Ltd. has accepted the other view,
C which goes in favour of the NHAI. It leads to an anomalous situation.
The NHAI has entered into multiple contracts with different parties
containing the same clauses of price variation. Once we find that Arbitral
Tribunals are taking different views, and the view taken in favour of the
NHAI is also one of the possible interpretations, the effect thereof would
D be to uphold both kinds of awards even when they are conflicting in
nature in respect of the same contractual provision. It may not be
appropriate to countenance such a situation which needs to be remedied.
Therefore, under this peculiar situation, we deem it proper to go into the
exercise of interpreting the said clause so that there is a uniformity in the
approach of the Arbitral Tribunals dealing with this particular dispute
E and a sense of certainty is attached in the outcomes.
14. As mentioned above, clause 70 is the relevant clause which
pertains to price adjustment, with which we are concerned. Accordingly,
we reproduce hereunder the relevant portions:

F “Clause 70: Changes in Cost and Legislation
Delete clause 70 in its entirety, and substitute:
Sub-Clause 70.1: Price Adjustment
The amount payable to the Contractor in various currencies
pursuant to Sub-Clause 60.1 shall be adjusted in respect of the
G
rise or fall in the cost of labour, Contractor’s equipment, Plant
materials and other inputs to the Work, by applying to such
amounts the formulae prescribed in this Clause.
Sub-Clause 70.2: Other Changes in Cost
H To the extent that full compensation for any rise or fall in the
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1027
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

costs to the Contractor is not covered by the provisions of this or A
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 in cost.
Sub-Clause 70.3 :Adjustment Formulae
Contact price shall be adjusted for increase or decrease in rates B
and price of labour, materials, Plant, machinery, equipment, spares,
fuels and lubricants in accordance with the following principles
and procedures as per formulae given below. The amount certified
in each payment certificate shall be adjusted by applying, the
respective price adjustment factor to the payment amounts due C
in each currency.
a) Price adjustment shall apply for work carried out within the
stipulated time or extensions granted by the Employer and shall
not apply for work carried out beyond the stipulated time. Price
adjustment for reasons attributable to the Contractor, shall be D
paid in accordance with Sub-Clause 70.6;
b) Price adjustment shall be calculated for the local and foreign
components of the payment for work done as per formulae given
below; and
c) Following expressions and meanings are assigned to the value E
of the work done during the period under consideration:
R= Total value of work done during the period under consideration
and payable in Indian Rupee currency, it would include the value
of materials on which secured advance has been granted, if any,
during the period, less the value of materials in respect of which F
the secured advance has been recovered , if any, during the
period. This will exclude cost of work an items for which rates
were fixed under variation Clauses (51 and 52) for which the
escalation will be regulated as mutually agreed at the time of
fixation of rate.
G
Ri = Portion of ‘R’ as payable in Indian Rupees
Rf = Portion of ‘R’ as payable in foreign currency (at first
exchange rates)
R = Ri + Rf
H
1028 SUPREME COURT REPORTS [2018] 2 S.C.R.

A To the extent that full compensation for any rise or fall in indexed
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 be include amount to cover
the contingency of such other rise or fall in costs.
B i) Adjustment for Labour Component
xxx xxx xxx
ii) Adjustment for Cement Component
xxx xxx xxx
C iii) Adjustment for steel component
xxx xxx xxx
iv) Adjustment for plant and machinery and spares component
xxx xxx xxx
D v) Adjustment for Bitumen Component
Price adjustment for increase or decrease in the cost of
bitumen shall be paid in accordance with the following formula:
Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo
E Vb = Increase or decrease in the cost of work during the month
under consideration due to changes in the rate of bitumen.
Bo = The average official retain price of bitumen at IOC depot
at Barauni/Haldia on the day 28 days prior to the date of
submission of bids.
F
Bi = The average official retail price of bitumen at IOC depot at
Barauni/Haldia on the day 28 days prior to the last day of the
period to which a particular interim payment certificate is related.
Pb = Percentage of bitumen component of the work.
G vi) Adjustment for fuel and lubricants
xxx xxx xxx
vii) Adjustment for other Local Materials
xxx xxx xxx
H
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1029
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

viii) Adjustment for Foreign Currency Component A
xxx xxx xxx
xi) The following percentages will govern the price adjustment
for the local currency portion (RI) of the contract:
1. Labour – P1 20% B
2. Plant and Machinery and Spares – Pp 20%
3. POL – Pf 10%
4. Bitumen – Pb X%
5. Cement – Pc Y% C
6. Steel – Ps Z%
7. Other materials – Pm 50 (X+Y+Z)%
Total 100%
(Note: X, Y, Z are the actual percentage of cost of bitumen, D
cement and steel respectively used for execution of work as per
the Interim Payment Certificate for the month)
Sub-Clause 70.4 : Sources of Indices
xxx xxx xxx
E
Sub-Clause 70.5: Base, Current and Provisional Indices
The base cost indices or prices shall be those prevailing on the
day 28 days prior to the closing date for submission of bids.
Current indices or prices shall be those prevailing on the day 28
days prior to the last day of the period to which a particular F
Interim Payment Certificate is related. If at any time the current
indices are not available, provision indices as determined by the
Engineer will be used, subject to subsequent correction of the
amounts paid to the Contractor when the current indices become
available.”
G
15. Clause 70.3(v) deals with ‘Adjustment for Bitumen
Component’. As per this clause, the price adjustment for increase or
decrease in the cost of bitumen is to be paid in accordance with the
following formula:
“Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo” H
1030 SUPREME COURT REPORTS [2018] 2 S.C.R.

A 16. Pb denotes percentage of bitumen component of the work
and R1 is the total value of the work. Bi denotes current rate/cost as it
is the average official retail price of bitumen at IOC Depot at Barauni/
Haldia on the day 28 days prior to the submission of bids, which makes
it clear that it is equivalent to the base rate. Thus, when this formula is
considered of its own, Bo clearly refers to the base rate. However, little
B
confusion is generated because of the note which is appended to Clause
70.3(xi). A perusal of sub-clause (xi) shows that insofar as labour, plant
and machinery and spares and POL (Petrol, Labour and Lubricant) are
concerned, specific percentages are given that were to govern the price
adjustment and these are 20%, 20% and 10% respectively. However,
C insofar bitumen, cement and steel components are concerned,
percentages are to be worked out which are denoted as X%, Y% and
Z% respectively. X, Y, Z are the actual percentage of cost of bitumen,
cement and steel respectively, used for execution of work as per the
IPC for the month.
D 17. According to the Contractors, the word ‘cost’ mentioned therein
is to be assigned as per the definition thereof contained in the contract
which is as under:
“Cost means all expenditure properly incurred or to be incurred,
whether on or off the site, including overhead and other charges
E properly allocated thereto but does not include any allowance
for profit”.
However, according to the NHAI, ‘actual percentage of cost’
refers to the percentage which is to be assigned to particular component,
namely, bitumen in this case and it does not refers to the actual cost. No
F doubt, there is no mention of ‘base rate’ in this note. However, submission
of the NHAI is that since it is the cost which is used for execution of
work as per the Interim Payment Certificate. Insofar as IPC is concerned,
the same is worked out on base rate and, therefore, it refers to base
rate. In order to support its contention, the NHAI has given the following
illustration for calculating the bitumen (X%) as follows:
G
“Vb = 0.85 x Pb/100 x Ri x (Bi – Bo)/Bo
(0.85 which is 85% as 15% is profit on which there cannot be
any adjustment)
Vb = Increase or decrease in the cost of work during the month
H under consideration due to changes in the rate of bitumen.
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1031
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

Bo = The average official retain price of bitumen at IOC depot A
at Barauni/Haldia on the day 28 days prior to the date of
submission of bids.
Bi = The average official retail price of bitumen at IOC depot at
Barauni/Haldia on the day 28 days prior to the last day of the
period to which a particular interim payment certificate is related. B
Pb = X% = Percentage of bitumen component of the work.
18. Pb = X% is calculated by NHAI by following mathematical
formula:
“Pb = Quantity of Bitumen consumed during the month x base C
rate of bitumen x 100
Total Work done during the month of x BOQ rates.”
19. R1 in the aforesaid formula denotes the value of work as per
IPC which according to the NHAI is calculated at the base rate. It is
further stated that in the aforesaid mathematical formula, base rate of D
bitumen is taken having regard to the effect that the denominator clearly
mentions the base rate and, therefore, it cannot be actual rate in the
enumerator. Further, as noted above, according to the NHAI, it is not
price adjustment formula but only to arrive at percentage of X. It is
argued that in order to arrive at the correct percentage of X (bitumen)
E
component, it is mathematically required that rates in numerator and
denominator has to be same otherwise correct percentage cannot be
achieved.
20. Commenting upon the definition of ‘cost’ which is relied upon
by the Contractors, it is the submission of the NHAI that it is totally
F
misconceived because the definition of cost does not provide that
wherever the word ‘cost’ is used in the contract, it is to be always
construed as current or actual cost. Further, the definition of ‘cost’ per
se is not an issue but ‘cost occurring on what date and on what rate’ is
the real question. It was argued that the word ‘cost’ is in fact used in
various sub-clauses of Clause 70 which clearly demonstrate that it would G
mean ‘the base cost’. Sub-clauses 70.1, 70.2 and 70.7 are relied upon in
support of this contention.
21. Mr. Patwalia, learned senior counsel appearing for the NHAI,
after highlighting the aforesaid aspects, made a passionate plea to the
effect that the interpretation given to the ‘Note’ in sub-clause 70.3(xi) H
1032 SUPREME COURT REPORTS [2018] 2 S.C.R.

A by the Arbitral Tribunal would lead to disastrous and unrealistic price
adjustment amounts in favour of the contractors. To demonstrate the
same, it is pointed out that in the case of M/s. ProgressiveMVR (JV),
the total amount paid to the contractor upto 41 IPC is about Rs.210
crores. The price adjustment amount upto 41 IPC calculated and paid
by taking into account the base rates, is Rs.77.70 crores. The contractor
B
on the other hand is claiming an amount of Rs.127 crore as the price
adjustment amount which is around more than 60% of the entire contract
amount and, therefore, clearly exaggerated and unjustified. It was, thus,
argued that Court could interfere with the award when it was clearly
contrary to the terms of the contract. Mr. Patwalia went to the extent
C of arguing that no reasonable person would come to such a conclusion
as arrived at by the Arbitral Tribunal and, therefore, this Court could
interdict such an award. Reliance was placed on the following judgments:
(i) Hindustan Zinc Ltd v. Friends Coal Carbonisation1, (ii) Associate
Builders v. Delhi Development Authority2 and (iii) Bhakra Beas
Management Board v. Krishan Kumar Vij & Anr.3
D
22. Senior Advocates Mr. Neeraj Kishan Kaul, Mr. S. Gurukrishna
Kumar and Mr. Dhruv Mehta argued the case on behalf of different
respondents. It was submitted that when two views are possible, a
particular view taken by the Arbitral Tribunal which was also reasonable
should not be interfered with, as rightly done by the High Court. It was
E stressed that the contract in question was item rate contract and the
only way Pb (i.e. percentage of bitumen component of the work) in the
formula provided for adjustment for bitumen component was to calculate
said Pb at current rate. Otherwise, there would not be a realistic figure
of work done. Reading from the majority opinion of the Arbitral Tribunal,
F it was submitted that the view taken was correct view wherein the
Tribunal has observed as under:
“A plain reading of the words ‘actual percentage of cost of
bitumen’ conveys these to the mind that actual percentage based
on cost of bitumen, cement or steel used for carrying out a work
G in particular month shall be accounted for. These words, even
from remote consideration, do not carry the mind of the reader
to the cost of bitumen as prevailing at the time of submission of
1
(2006) 4 SCC 445
2
(2015) 3 SCC 49
3
(2010) 8 SCC 701
H
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1033
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

Bid. If the intention of the contract would have been to account A
for the base rates of cement, steel and bitumen or the rates as
prevailing at the time of submission of bid, this would have been
specifically mentioned so. Not only it would have been so
mentioned, also these rates would have been clearly laid down
in the tender, as these could not be left to be determined by the
B
parties after finalization of the contract.”
It was also submitted that the Tribunal, while giving the aforesaid
interpretation to this clause in the contract, had not only gone by the
words used but also by the intention of the parties behind such a clause,
as discussed in detail in the Award.
C
23. Mr. Gurukrishna extensively read out from the order of the
learned Single Judge in the case in which he is representing (Civil Appeal
No. 459 of 2018) and is reported as (2015) 1 Arbitral Law Reporter 129,
which was upheld by the Division Bench in the impugned judgment. He
also relied upon para 27 of the judgment in the case of Associate Builders
which reads as under: D

“27. Coming to each of the heads contained in Saw Pipes [(2003)
5 SCC 705 : AIR 2003 SC 2629] judgment, we will first deal
with the head “fundamental policy of Indian law”. It has already
been seen from Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] judgment E
that violation of the Foreign Exchange Act and disregarding orders
of superior courts in India would be regarded as being contrary
to the fundamental policy of Indian law. To this it could be added
that the binding effect of the judgment of a superior court being
disregarded would be equally violative of the fundamental policy F
of Indian law.”
24. Mr. Dhruv Mehta who appeared in Civil Appeal No. 460 of
2018 submitted that as far as case of his client is concerned viz. M/s.
NCC-VEE (JV), in the earlier round, SLP has been specifically dismissed
and as per the award, payment was made to the contractors. Therefore, G
there was no reason to deny the payment for subsequent period where
again, the Award had gone in its favour and the principle of issue estoppel
clearly applies in his case. He also submitted that there was only one
possible interpretation and the interpretation given by the NHAI was
clearly unacceptable. In any case, submitted the learned senior counsel,
H
1034 SUPREME COURT REPORTS [2018] 2 S.C.R.

A even in case of doubt, benefit should go to the contractors. It was
further submitted that in case of his client, 21 interim payments were
made as per the current costs. He also referred to few judgments in
support of his contentions which are as under:
(i) Bhanu Kumar Jain v. Archana Kumar & Anr.4
B “29. There is a distinction between “issue estoppel” and “res
judicata”. (See Thoday v. Thoday[(1964) 1 All ER 341 : (1964)
2 WLR 371 : 1964 P 181 (CA)] .)
30. Res judicata debars a court from exercising its jurisdiction
to determine the lis if it has attained finality between the parties
C whereas the doctrine issue estoppel is invoked against the party.
If such an issue is decided against him, he would be estopped
from raising the same in the latter proceeding. The doctrine of
res judicata creates a different kind of estoppel viz. estoppel
by accord.
D 31. In a case of this nature, however, the doctrine of “issue
estoppel” as also “cause of action estoppel” may arise.
In Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371 : 1964 P
181 (CA)] Lord Diplock held: (All ER p. 352 B-D)
“cause of action estoppel’, is that which prevents a party to
E an action from asserting or denying, as against the other
party, the existence of a particular cause of action, the non-
existence or existence of which has been determined by a
court of competent jurisdiction in previous litigation between
the same parties. If the cause of action was determined to
F exist i.e. judgment was given on it, it is said to be merged in
the judgment.… If it was determined not to exist, the
unsuccessful plaintiff can no longer assert that it does; he
is estopped per rem judicatam.” [Ed.: The rest of the extract
from Thoday [(1964) 1 All ER 341 : (1964) 2 WLR 371 :
1964 P 181 (CA)] may usefully be referred to (All ER p.
G 352, B-F)”Estoppel per rem judicatam is a generic term
which in modern law includes two species. The first species,
‘cause of action estoppel’, is that which prevents a party to
an action from asserting or denying, as against the other
party, the existence of a particular cause of action, the non-
4
H (2005) 1 SCC 787
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1035
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

existence or existence of which has been determined by a A
court of competent jurisdiction in previous litigation between
the same parties. If the cause of action was determined to
exist, i.e., judgment was given on it, it is said to be merged
in the judgment, or for those who prefer Latin, transit in
rem judicatam. If it was determined not to exist, the
B
unsuccessful plaintiff can no longer assert that it does; he
is estopped per rem judicatam. This is simply an application
of the rule of public policy expressed in the Latin maxim,
‘nemo debet bis vexari pro una at eadem causa’. In this
application of the maxim, causa bears its literal Latin
meaning. The second species, ‘issue estoppel’, is an C
extension of the same rule of public policy. There are many
causes of action which can only be established by proving
that two or more different conditions are fulfilled. Such
causes of action involve as many separate issues between
the parties as there are conditions to be fulfilled by the plaintiff
D
in order to establish his cause of action; and there may be
cases where the fulfilment of an identical condition is a
requirement common to two or more different causes of
action. If in litigation on one such cause of action any of
such separate issues whether a particular condition has been
fulfilled is determined by a court of competent jurisdiction, E
either on evidence or on admission by a party to the litigation,
neither party can, in subsequent litigation between them on
any cause of action which depends on the fulfilment of the
identical condition, assert that the condition was fulfilled if
the court has in the first litigation determined that it was
F
not, or deny that it was fulfilled if the court in the first
litigation determined that it was.”]
32. The said dicta was followed in Barber v. Staffordshire
County Council [(1996) 2 All ER 748 (CA)] . A cause of
action estoppel arises where in two different proceedings
identical issues are raised, in which event, the latter proceedings G
between the same parties shall be dealt with similarly as was
done in the previous proceedings. In such an event the bar is
absolute in relation to all points decided save and except
allegation of fraud and collusion. [See C.(A Minor) v. Hackney
H
1036 SUPREME COURT REPORTS [2018] 2 S.C.R.

A London Borough Council [(1996) 1 All ER 973 : (1996) 1
WLR 789 (CA)] .]”
(ii) Godhra Electricity Co. Ltd. & Anr. v. State of Gujarat & Anr.5
“11. In the process of interpretation of the terms of a contract,
the court can frequently get great assistance from the
B interpreting statements made by the parties themselves or from
their conduct in rendering or in receiving performances under
it. Parties can, by mutual agreement, make their own contracts;
they can also by mutual agreement remake them. The process
of practical interpretation and application, however, is not
C regarded by the parties as a remaking of the contract; nor do
the courts so regard it. Instead, it is merely a further expression
by the parties of the meaning that they give and have given to
the terms of their contract previously made. There is no good
reason why the courts should not give great weight to these
further expressions by the parties, in view of the fact that they
D still have the same freedom of contract that they had originally.
The American Courts receive subsequent actings as admissible
guides in interpretation. It is true that one party cannot build up
his case by making an interpretation in his own favour. It is the
concurrence therein that such a party can use against the other
E party. This concurrence may be evidence by the other party’s
express assent thereto, by his acting in accordance with it, by
his receipt without objection of performances that indicate it,
or by saying nothing when he knows that the first party is
acting on reliance upon the interpretation (see Corbin on
Contracts, Vol. 3, pp.249 & 254-56).
F xxx xxx xxx
18. In these circumstances, we do not think we will be justified
in not following the decision of this Court in Abdulla
Ahmed v. Animendra Kissen Mitter [AIR 1950 SC 15 : 1950
SCR 30, 46] where this Court said that extrinsic evidence to
G determine the effect of an instrument is permissible where
there remains a doubt as to its true meaning and that evidence
of the acts done under it is a guide to the intention of the parties,
particularly, when acts are done shortly after the date of the
instrument.”
5
(1975) 1 SCC 199
H
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1037
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

(iii) Bank of India & Anr. v. K. Mohandas & Ors.6 A
“32. The fundamental position is that it is the banks who were
responsible for formulation of the terms in the contractual
Scheme that the optees of voluntary retirement under that
Scheme will be eligible to pension under the Pension
Regulations, 1995, and, therefore, they bear the risk of lack of B
clarity, if any. It is a well-known principle of construction of a
contract that if the terms applied by one party are unclear, an
interpretation against that party is preferred (verba chartarum
fortius accipiuntur contra proferentem).”
25. We have given our serious consideration to the respective C
submissions of the counsel for the parties. First and foremost aspect
which is to be kept in mind is that the issue relates to price adjustment
and such an adjustment can be made in respect of various components
which are used in the contract. The contractual provisions specifically
deal with adjustment for labour component, cement, steel etc. These
components are seven in numbers which may undergo price adjustment D
during the period when the contract is in progress, depending upon the
market conditions, namely, increase or decrease in market prices of these
components from time to time. The very nature of this price adjustment
suggests that such variation would have relevance with the price which
was indicated in respect of these components at the time of submitting E
the tender by the successful contractor and, in that sense, it can have
reference only to the base price. The formula which is provided for
working out the price adjustment has to be examined in this hue.
26. In the aforesaid circumstances, there appears to be some force
in the submission of NHAI that formula indicates the base price which F
has to be taken for the purposes of working out the price adjustment.
After all, what is the purpose of giving price adjustment? The clause
relating to price adjustment indicates that certain components which go
into the execution of the projects like labour component, cement
component, steel component, plant and machinery and spares component,
bitumen component etc. may not remain static insofar as their price is G
concerned. There is a possibility that from the date when the price of
these components was quoted by the contractor in his bid, there may be
increase or decrease in the said price from time to time during the
execution of the contract. It is for this reason, clause relating to price
6
(2009) 5 SCC 313 H
1038 SUPREME COURT REPORTS [2018] 2 S.C.R.

A adjustment is provided so as to give effect to the rise or fall in the costs
to the contractor. To this adjustment formula for working out the cost, at
the time of execution of the contract, is provided. This adjustment which
has to be arrived at, naturally, has to be in comparison with the base
price that was stated by the contractor. Thus, even from the commonsense
point of view, it is the base price which has to be kept in mind while
B
working the price adjustment. However, we are not resting our decision
on this common sense approach as the final outcome has to depend on
the formula provided in the contract; being a contractual term.
27. In the present case, we find that the intention in the formula
as well is to keep in mind the base cost while arriving at the price
C adjustment. There are few reasons which drive us to take this opinion.
28. Clause 70.3 (xi) deals with percentages on various components
that will govern the price adjustment. Insofar as labour, plant and
machinery and spares, and POL (Petrol, Oil and Lubricants) are
concerned, there is a fixed percentage prescribed, i.e., 20%, 20% and
D 10% respectively. However, with regard to the other three components,
namely, bitumen, cement and steel variable percentage is mentioned which
has to be calculated. Seventh component is ‘Other Material’. Insofar
as this component is concerned, it is the balance percentage, after
percentage of bitumen, cement and steel is arrived at, as it mentions “50
E – (x+y+z)” percentage. From this, one can infer that normally the
combined percentages of x, y and z has to be less than 50%. However,
when the current cost is taken into consideration while working the
formula, the percentages of x, y and z far exceed 50% which would
make the percentage of other materials in the negative. Such a negative
aspect has to be avoided. Mr. Patwalia, learned senior counsel for the
F NHAI was able to successfully demonstrate it by giving various live
examples.
29. We may point out that submission of the learned counsel for
respondents was that when such an eventuality happens, the adjustment
of “other materials” can be in the negative, i.e., by reducing the price of
G the other material in giving the adjustment so that total remains 100%. It
is difficult to accept this suggested mode. What is important is that insofar
as other materials are concerned, the inputs thereof would be negligible
as compared to bitumen, cement and steel and, therefore, even if their
price is reduced to offset the negative elements, that would be substantially
H less than the gain which would accrue to the contractors by giving higher
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1039
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

cost adjustment for the aforesaid three components. Moreover, such a A
result cannot be countenanced by giving negative adjustment in the price
of “other material” even when, as a matter of fact, prices of other material
had also gone up. That could not have been the intention while laying
down the formulae. As mentioned above, the word “actual” in the note
under sub-clause 703(xi) of COPA relates to the percentage and not to
B
the cost. The percentage x, y, z are mentioned to ensure that the contractor
is compensated realistically on the actual material used each IPC.
Therefore, it seems more logical and proper to adopt the base cost of
material while working out the price adjustment.
30. We may mention here that when the dispute was raised, as
per the provisions contained in the contract, in the first instance, it was C
referred to the Dispute Review Board (DRB) which went into the issue
in detail and discussed the issue, inter alia, in the following manner:
“…d) The present dispute is what rate for the material i.e.
bitumen, cement and steel is to be considered in arriving at the
actual percentage of cost of the respective material used in the D
work in the IPC of that month. The Contractor’s plea is that it
should be current material cost of the material consumed in that
month while the Employer’s view is that it should be the base
price.
e) In support of his arguments, the Contractor says that base E
price is not specified in the Contract. The Contractor plea that
the base rates are not specified in the tender is not correct as
sub-clause 70.5 of COPA clearly states that ‘the base cost indices
or prices shall be those prevailing in the previous month prior to
the closing date for submission of Bids.’ F
Further, sub-clause 70.3(v) for price adjustment of bitumen
component of the work reads as under:
Vb = 0.85 x Pb x RI x (B1 – Bg)
100 Bo
G
In this formula to work out Vb i.e. increase or decrease in the
cost of work during the month under consideration, due to change
in the rates for bitumen, Bo has been defined as ‘the average
official retail price of bitumen at the IOC refinery Mathura on
the day 28 days prior to the date of submission of bids. Obviously,
this is the initial price or base price of bitumen. In all the relevant H
1040 SUPREME COURT REPORTS [2018] 2 S.C.R.

A IPCs value of Bo has been taken by the contractor as the retail
price of bitumen on the day 28 days prior to the date of submission
of bid which is base price only.
f) The Contract specified for calculation x, y and z factors every
month. The intention is to permit price adjustment based on
B actual consumption of respective materials issued in execution
of work in the particular month if they are fixed at tender stage
only just like labour and POL etc., the price adjustment is to be
allowed irrespective of whether the item is executed or not which
is not realistic. Hence in this Contract, the price adjustment is
linked to the actual usage of material viz. cement, steel and
C bitumen.
g) BOQ rates have been quoted based on the cost of materials
at the time of bidding. Therefore, in working out the actual
percentage of cost of any specific material in the BOQ cost,
rates of material applicable to the same datum period for BOQ
D costs i.e. base period is only logical and justified.
h) The weightage factor x, y and z for these materials have two
basic parameters namely their cost and cost of work done. In
order to ascertain the actual percentage of cost of these materials
in an IPC, cost of material has to be on the same basis as adopted
E in cost of work done. As the cost of work done is based on base
cost of materials, it is therefore natural that the cost of these
materials incorporated in the work should be calculated on the
base cost only. Calculating the cost of these materials on actual
procurement price is not justified and would go against the terms
and conditions of the Contract word ‘actual’ in the note under
F sub-clause 70.3(xi) 8 COPA relates to percentage and not to the
cost.”
31. The DAB thereafter worked out the formula in the following
manner:
“x, y, z percentages are to be worked out as per provisions note
G below sub-clause 70.3(ix).
Thus, p (x,y,z) percentages
Cost of material consumed during the month
= ————————————————— x 100
Work done in that month as per IPC
H
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1041
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

Quantity of material consumed during the month x Rate of material A
= ———————————————————— x 100
Work done
The Contractor has quoted rates in the tender based on base
rates of material and IPC is based on BOQ rates quoted by the
contractor on base rates of material. Therefore for working out B
actual percentage of cost of material of bitumen, cement and
steel used in execution of work as per the IPC for the month,
base rate of material can only be used as per the provisions of
contract in order to arrive at actual percentage, numerator and
denominator is based on BOQ rates determined on base rates. C
The numerator should also be based on base rates. This is why
rate of material in numerator should be rate of material at the
time of bid. This is a fixed rate and not variable as claimed by
the contractor. The contract provision is quite clear in this regard
and there is no ambiguity.”
D
32. It also pointed out that if the current cost of material is adopted,
instead of base cost as claimed by the contractor, price adjustment will
be paid twice. One due to increase in percentage factor (x, y and z) due
to use of current rate instead of base rates and second due to application
of price adjustment factor b1-bo/ bo. It also demonstrated, by giving
examples, that when the base rate is adopted, the price adjustment was E
quote proximate with the prevailing price which compensated the
contractor realistically. On the other hand, on adoption of current rate,
the calculation of price adjustment was almost three times the amount
of increase in cost of bitumen incurred by the contractor.
33. We are quite in agreement with the aforesaid analysis carried F
out by the DRB.
34. As mentioned above, the majority Award has held that even
the intention of the parties was to take into consideration the current
cost. For this purpose it had taken into consideration the manner in
which IPC payments were made. However, we find here, though G
unfortunately, that there was no consistent practice. Sometimes the
payments were made on the basis of current cost and sometimes on the
basis of base cost. May be different officers understood the formula in
a different manner which resulted in the aforesaid varied approach.
However, when it came to the knowledge of the Authorities at appropriate
H
1042 SUPREME COURT REPORTS [2018] 2 S.C.R.

A level, directions were given to pass the IPC keeping in view only the
base rate. Therefore, no such intention of the parties can be discerned,
which became the basis of the majority award. On the other hand, as
far as dissenting award is concerned it has pointed out the lacunae which
would arise if the contention of the contractors is accepted, in the following
manner:
B
“13. We now proceed to scrutinise IPC-12 for the months of
November and December, 2008 to highlight lacunae in the
argument/rational, as given by the claimant. The table below
given original details of percentage of cement, steel, bitumen
and other material which have been accepted by with parties
C and certified by the Engineer percentages are based on base
prices 28 days before the last date of submission of bid.
IPC-12
Month Cement Steel Bitumen Other Material Total
(a) Nov 2008 5.14% 5.22% 15.81% 23.83% 50%
D
(b) Dec2008 2.06% 2.44% 14.53% 30.96% 50%
In the method now adopted by the claimant, as part of their
claim, the above details get changed as under.
IPC-12
E Month Cement Steel Bitumen Other Material Total
(c) Nov 2008 9.52% 10.21% 50.82% (-) 20.55% 50%
(d) Dec2008 3.71% 4.78% 55.35% (-) 13.84% 50%
The above details are based on modified claim which were
submitted by the claimant when the proceeding were in progress.
F These were accepted by the AT as per section 23(3) of the
Arbitration and Conciliation Act, 1996. In their original claim
submitted by the claimant, the percentage of bitumen was
adjusted to ensure that total of Pb, Pc, Ps do not exceed 50%
and other material was made zero. This made the percentage of
bitumen hypothetical and factually incorrect. In their revised
G submissions, the percentage of bitumen is as per their calculations
and consequently the percentage of “other material” has been
made negative.
Now, if we consider the aim of price escalation formula as
compensation to either party for rise/fall in prices of various
H components, all material used in a particular IPC must be
NATIONAL HIGHWAY AUTHORITY OF INDIA v. 1043
M/S. PROGRESSIVEMVR (JV) [A. K. SIKRI, J.]

subjected to the formula, Negative figure implies that this material A
has been extracted from works completed earlier. This is physically
not possible unless works are ordered to be demolished at the
cost of the contractor and payments made earlier are to be
recovered. This is certainly not the present case. That apart, if
flexible pavement work (which is the case of IPC-12 as bitumen
B
percentage is high) bitumen consumption varies from 4 to 5% by
weight and the balance is other material like aggregate etc. how
can we consider the material as negative and what would happen
of price if this material goes down. Would we give additional
benefit to the contractor as the percentage has become negative
and the contractor would get increase in price variation as the C
quantity is negative and price has gone down. This makes the
price variation formulate unrealistic as the contractor would get
credit instead of debit when the price goes down. This would be
an absurd situation.
Yet another way to look at the formula is that component D
like Labour, POL, plant/machinery, cement, steel, bitumen and
other material are each a percentage or part of R which is based
on BOQ rates which in turn are based on base costs 28 days
prior to the last date of submission of bid. Obviously, the
percentage of various component must also be based on values
pertinent to BOQ rates. E
It must also be noted that the claimant is getting price
adjustment for current rates in the third portion of the formula
(B1–B0) where B1 is the price 28 days before the IPC and B0 is
the price 28 days before submission of bid. Therefore, the claimant
is getting compensated for procuring items at higher rates when F
the price is rising.”
35. We find due rationale in the aforesaid approach. As a result,
we hold that while applying price adjustment formula for calculating the
price adjustment of bitumen, it is the base rate which is to be applied and
not the current rate. G
36. Having arrived at the aforesaid finding, now we need to
determine the outcome of these cases.
37. 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 H
1044 SUPREME COURT REPORTS [2018] 2 S.C.R.

A 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
B
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
C 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 the Contractor would be upheld as plausible
view. Likewise, the Court will have to uphold the view taken by a particular
Arbitral Tribunal in favour of NHAI as well, as a plausible view.
D
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,
E 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
F
will govern the outcome.
As a consequence, all these appeals are allowed thereby setting
aside the impugned judgment and also the award given by the Arbitral
Tribunal on the claim pertaining to price adjustment of bitumen. There
shall, however, be no order as to cost.
G

Divya Pandey Appeals allowed.

H