Supreme Court of India
PSA SICAL TERMINALS PVT. LTD.versusTHE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORT TRUST TUTICORIN AND OTHERS
- Citation
- 2021 INSC 365
- Decided
- 28 July 2021
- Disposal
- Dismissed
- Bench
- R F NARIMAN
Holding
The award was set aside because the arbitral tribunal exceeded its jurisdiction by making findings based on no evidence, resulting in patent illegality, and the court may not re‑appreciate evidence or rewrite the contract.
Summary
The dispute arose from a BOT concession for the seventh berth at V.O. Chidambaranar Port, where PSA SICAL Terminals (SICAL) sought to replace a royalty payment model with a revenue‑sharing model, alleging a change in law under Article 14 of its licence agreement. The arbitral tribunal awarded SICAL relief, finding that government policy changes in 2003 and 2005 constituted a change in law that adversely affected SICAL. TPT challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the tribunal exceeded its jurisdiction, ignored vital tariff orders, and substituted contractual terms without consent. The Supreme Court held that courts may only interfere on the limited grounds listed in Section 34, notably patent illegality or violation of public policy, and that the tribunal’s findings were based on no evidence and were perverse, amounting to patent illegality. Consequently, the award was set aside and the appeals dismissed. The Court emphasized that arbitral tribunals cannot re‑appreciate evidence or rewrite contracts, and that the scope of judicial interference is narrowly confined.
Issues considered
- The arbitral tribunal's finding of a change in law under Article 14.3 was justified.
- Whether the tribunal was authorized to substitute the royalty payment module with a revenue‑sharing module without the licensor's consent.
- Whether the award can be set aside on the ground of patent illegality arising on its face.
- Whether the court may re‑appreciate evidence or interfere with the merits of the award under Section 34/37 of the Arbitration Act.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 18, s. 31(3), s. 34, s. 34(2)-A, s. 34(2)(a)(iii), s. 34(2)(b)(ii), s. 37
- Indian Contract Act, 1872s. 56
- Major Port Trusts Act, 1963
Subjects
ArbitrationSection 34Public policy of IndiaPatent illegalityChange in lawRoyalty vs revenue sharingContract amendmentPerverse awardScope of judicial interference
Judgment
408 [2021]
SUPREME COURT 5 S.C.R. 408
REPORTS [2021] 5 S.C.R.
A PSA SICAL TERMINALS PVT. LTD.
v.
THE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORT
TRUST TUTICORIN AND OTHERS
(Civil Appeal Nos. 3699-3700 of 2018)
B
JULY 28, 2021
[R. F. NARIMAN AND B. R. GAVAI, JJ.]
Arbitration and Conciliation Act, 1996: s.34 – Application
for setting aside award – Scope of interference – Held: In an
C application under s.34, the court is not expected to act as an
appellate court and re-appreciate the evidence – The scope of
interference would be limited to grounds provided under s.34 of the
Arbitration Act – The interference would be so warranted when the
award is in violation of “public policy of India”, which has been
D held to mean “the fundamental policy of Indian law” – A judicial
intervention on account of interfering on the merits of the award
would not be permissible – However, the principles of natural justice
as contained in s.18 and 34(2)(a)(iii) of the Arbitration Act would
continue to be the grounds of challenge of an award – The ground
for interference on the basis that the award is in conflict with justice
E or morality is now to be understood as a conflict with the “most
basic notions of morality or justice” – It is only such arbitral awards
that shock the conscience of the court, that can be set aside on the
said ground – An award would be set aside on the ground of patent
illegality appearing on the face of the award and as such, which
F goes to the roots of the matter – However, an illegality with regard
to a mere erroneous application of law would not be a ground for
interference – Equally, re-appreciation of evidence would not be
permissible on the ground of patent illegality appearing on the face
of the award.
Arbitration and Conciliation Act, 1996: s.34 – Arbitral
G
Tribunal passed the award in favour of SICAL holding that there
was a change in law and thereby granting reliefs as prayed for by
SICAL – It directed conversion of Container Terminal of TPT from
royalty model to revenue share model – The finding of the Arbitral
Tribunal was based on a premise that when TPT entered into a
H
408
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 409
CHIDAMBRANAR PORT TRUST TUTICORIN
contract with SICAL there was an existing policy, which provided A
royalty to be factored into the cost while fixation of tariff and that
subsequently, the GoI changed its policy on 29th July, 2003 thereby
providing that royalty payment/revenue sharing will not be factored
into/taken into account as cost for fixation/revision of tariff by TAMP;
and that there was subsequent change in policy on 31st March, 2005
B
by which part of royalty was permitted to be factored into the cost –
According to the Arbitral Tribunal, there was a change in policy,
which amounted to change in law, which, in turn, adversely affected
SICAL – Award of Arbitral Tribunal challenged by TPT before the
District Judge – District Judge dismissed the s.34 petition – TPT
successfully challenged before the High Court – Aggrieved SICAL C
filed instant appeals – Held: When the bid document was notified
and when SICAL submitted its bid and LoI was issued to it, there
were no guidelines in vogue – Even the guidelines of February
1998 do not provide for royalty being factored as cost while fixation
of tariff – On the contrary, the tariff order of 1999 specifically
D
clarifies that it has left the royalty issue to be decided by TPT and
the GoI – It has specifically clarified that the approval by TAMP
should not be interpreted to be amounting to any implicit approval
of royalty-related issue – Further, the tariff order issued on 20 th
September, 2002 specifically rejects the claim of SICAL for factoring
any royalty as cost while tariff/price fixation – SICAL has challenged E
the said order before the High Court by way of writ petition, which
petition has been allowed – It is also not in dispute, that on account
of interim order passed by the High Court dated 8th November, 2002,
SICAL is still continuing to charge at rates notified in the 1999
tariff order – In this scenario, the finding of the Arbitral Tribunal,
F
that there was a law when the Agreement was entered into between
the parties, which provided royalty as a pass-through and that the
said law has been changed for the first time in 2003 and
subsequently again changed in 2005, is a finding based on ‘no
evidence’ – Had the Arbitral Tribunal perused the tariff orders of
1999 and 2002, it would have found that in the 1999 tariff order G
TAMP has specifically observed that its approval of the tariff should
not be construed as its implicit approval of royalty-related issue
and the 2002 tariff order specifically states that royalty was not
permitted to be factored in the cost while determining tariff – The
Arbitral Tribunal has totally failed to take into consideration this
H
410 SUPREME COURT REPORTS [2021] 5 S.C.R.
A aspect of the matter – As such, since the finding of the Arbitral
Tribunal, that there was an existing law to the effect that the royalty
payable shall be permitted as a pass-through in cost while fixation
of tariff, is based on ‘no evidence’ and the finding, that there was a
change in law in 2003 and 2005 is based on without taking into
consideration the relevant evidence, would come in the realm of
B
perversity as explained by this Court in paragraph 31 of the Associate
Builders – The findings are based on ‘no evidence’ and ‘ignorance
of vital evidence’ in arriving at its decision.
Arbitration and Conciliation Act, 1996: s.34 – Whether the
Arbitral Tribunal was justified in passing an award thereby
C substituting ‘royalty payment module’ to the ‘revenue-sharing
module’ – A contract duly entered into between the parties cannot
be substituted unilaterally without the consent of the parties – The
intention of the parties could be gathered from the documents on
record – SICAL made representation to TPT seeking a relief under
D the terms of Article 14.3 of the Agreement – TPT informed SICAL
that the issues raised by it were under examination – However, TPT
refused to consider SICAL’s application for relief since, according
to it, the issue raised by SICAL was pending before the High Court
– SICAL filed writ petition before High Court – High Court allowed
the writ petition clarifying that the petition pending before the High
E Court had nothing to do with the representation under Article 14 of
the License Agreement and remanded the matter to TPT for
consideration afresh – TPT rejected the claim of SICAL – TPT has
specifically observed that any change in the Agreement cannot be
done without prior approval of the GoI – SICAL wrote to TPT
F invoking arbitration under Article 15.3 of the License Agreement –
TPT strenuously contested the claim of SICAL with regard to prayer
for change from ‘royalty payment mode’ to ‘revenue sharing mode’
– It could, thus, be seen that SICAL wanted the Agreement to be
amended so as to change the ‘royalty payment method’ to ‘revenue-
sharing method’ – TPT was always opposed to it – The intention of
G TPT is apparent from its various communications and its stand before
the Arbitral Tribunal, that it was not agreeable for amendment of
the Agreement from ‘royalty payment method’ to ‘revenue-sharing
method’ – However, ignoring the stand of TPT, by the impugned
Award, the Arbitral Tribunal has thrust upon a new term in the
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PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 411
CHIDAMBRANAR PORT TRUST TUTICORIN
Agreement between the parties against the wishes of TPT – The A
‘royalty payment method’ has been totally substituted by the Arbitral
Tribunal, with the ‘revenue-sharing method’ – It is thus clear, that
the Award has created a new contract for the parties by unilateral
intention of SICAL as against the intention of TPT.
Arbitration: An Arbitral Tribunal is not a Court of law – Its B
orders are not judicial orders – Its functions are not judicial functions
– It cannot exercise its powers ex debito justitiae.
Dismissing the appeals, the Court
HELD : 1. The scope of interference would be limited to
grounds provided under Section 34 of the Arbitration Act. An C
award would be set aside on the ground of patent illegality
appearing on the face of the award and as such, which goes to the
roots of the matter. However, an illegality with regard to a mere
erroneous application of law would not be a ground for
interference. Equally, re-appreciation of evidence would not be D
permissible on the ground of patent illegality appearing on the
face of the award. A decision which is perverse, though would not
be a ground for challenge under “public policy of India”, would
certainly amount to a patent illegality appearing on the face of
the award. However, a finding based on no evidence at all or an
award which ignores vital evidence in arriving at its decision would E
be perverse and liable to be set aside on the ground of patent
illegality. [Paras 42, 43][434-H; 435-C-E]
2. Article 14 of the bid document deals with ‘change in law’.
Article 14.3 provides for relief under change in law. If, after the
date of Agreement, there is a change in the law which substantially F
and adversely affects the rights of the Licensee under the
Agreement so as to alter the commercial viability of the project,
the Licensee may, by written notice, request amendments to the
terms of the Agreement. It further provided, that subject to
provisions of Article 14.3, the Licensee shall not be entitled to G
any compensation whatsoever from the Licensor as a result of
change in law. [Para 55][442-G-H; 443-B-C]
MMTC Limited v. Vedanta Limited (2019) 4 SCC 163:
[2019] 3 SCR 1023 – relied on.
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412 SUPREME COURT REPORTS [2021] 5 S.C.R.
A 3.1 Neither under Section 34 nor under Section 37 of the
Arbitration Act, the Court is entitled to reappreciate the evidence.
The said limitation would be equally applicable to this Court also.
Admittedly, the bid document was published on 9th April, 1997.
The technical bid of SICAL was submitted on 24th October, 1997.
The financial offer of SICAL was submitted on 19th December,
B
1997. LoI was issued on 29th January, 1998. All this has happened
prior to the guidelines issued by TAMP in February 1998. As
such, it is beyond any doubt, that when the bid document was
notified and when SICAL submitted its bid and LoI was issued to
it, there were no guidelines in vogue. For the first time, the
C guidelines were adopted by TAMP in the workshop held in
Chennai on 26th/27th February, 1998. [Para 60][444-C-F]
3.2 Even 1998 guidelines do not mention, that the royalty
could be factored in the cost while determining the tariff. Though
the said guidelines observed, that the port pricing may continue
D to be cost-based with an assured rate of return, it further
observed, that such a concept of an assured rate of return is not
in consonance with a competitive system. Thus, it is amply clear,
that when the bids were invited, and SICAL submitted its bid
and LoI was issued to it, there was no policy at all. Even the 1998
guidelines do not provide for factoring the royalty in cost while
E determining the tariff. [Para 63][445-G-H; 446-A]
4. A conjoint reading of all documents would reveal that
when the bid document was published in April 1997; SICAL
tendered its bid in October, 1997 and submitted its financial offer
in December,1997; and the LoI was issued to SICAL on 29 th
F January, 1998, there were no guidelines at all. Even the guidelines
of February 1998 do not provide for royalty being factored as
cost while fixation of tariff. On the contrary, the tariff order of
1999 specifically clarifies that it has left the royalty issue to be
decided by TPT and the GoI. It has specifically clarified that the
G approval by TAMP should not be interpreted to be amounting to
any implicit approval of royalty-related issue. Further, the tariff
order issued on 20th September, 2002specifically rejects the claim
of SICAL for factoring any royalty as cost while tariff/price fixation.
SICAL has challenged the said order before the Madras High
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PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 413
CHIDAMBRANAR PORT TRUST TUTICORIN
Court by way of writ petition, which petition has been allowed. It A
is also not in dispute, that on account of interim order passed by
the Madras High Court dated 8th November, 2002, SICAL is still
continuing to charge at rates notified in the 1999 tariff order.
[Para 76][451-A-D]
5.1 In this scenario, the finding of the Arbitral Tribunal, B
that there was a law when the Agreement was entered into
between the parties, which provided royalty as a pass-through
and that the said law has been changed for the first time in 2003
and subsequently again changed in 2005, is a finding based on
‘no evidence’. Had the Arbitral Tribunal perused the tariff orders
of 1999 and 2002, it would have found that in the 1999 tariff order C
TAMP has specifically observed that its approval of the tariff
should not be construed as its implicit approval of royalty-related
issue and the 2002 tariff order specifically states that royalty was
not permitted to be factored in the cost while determining tariff.
The Arbitral Tribunal has totally failed to take into consideration D
this aspect of the matter. [Para 77][451-D-F]
6.2 As such, since the finding of the Arbitral Tribunal, that
there was an existing law to the effect that the royalty payable
shall be permitted as a pass-through in cost while fixation of tariff,
is based on ‘no evidence’ and the finding, that there was a change E
in law in 2003 and 2005 is based on without taking into
consideration the relevant evidence, would come in the realm of
perversity as explained by this Court in paragraph 31 of the
Associate Builders. The findings are based on ‘no evidence’ and
‘ignorance of vital evidence’ in arriving at its decision. [Para
78][451-F-H] F
Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 : [2014] 13 SCR 895 – relied on.
7.1 This brings us to the next issue viz., as to whether the
Arbitral Tribunal was justified in passing an award thereby G
substituting ‘royalty payment module’ to the ‘revenue-sharing
module’. A contract duly entered into between the parties cannot
be substituted unilaterally without the consent of the parties. The
intention of the parties could be gathered from the documents
on record. SICAL, for the first time, made representation to TPT
H
414 SUPREME COURT REPORTS [2021] 5 S.C.R.
A on 6th October, 2006 thereby seeking a relief under the terms of
Article 14.3 of the Agreement. On 14 th October, 2006, TPT
informed SICAL that the issues raised by it were under
examination. However, vide order dated 27th October, 2006, TPT
refused to consider SICAL’s application for relief since, according
B to it, the issue raised by SICAL was pending before the Madras
High Court. SICAL therefore filed writ petition being Writ Petition
No. 4361 of 2006 before the Madras High Court. The Madras
High Court allowed the said writ petition vide order dated 21st
August, 2007 clarifying that the petition pending before the High
C Court had nothing to do with the representation under Article 14
of the License Agreement and remanded the matter to TPT for
consideration afresh. Vide a reasoned letter dated 25th April, 2008,
TPT rejected the claim of SICAL. TPT has specifically observed
that any change in the Agreement cannot be done without prior
approval of the GoI. SICAL on 19th November, 2012 addressed a
D
letter to TPT invoking arbitration under Article 15.3 of the License
Agreement. TPT strenuously contested the claim of SICAL with
regard to prayer for change from ‘royalty payment mode’ to
‘revenue sharing mode’. [Para 79][452-A-E]
E 7.2 It could thus be seen, that SICAL wanted the Agreement
to be amended so as to change the ‘royalty payment method’ to
‘revenue-sharing method’. TPT was always opposed to it. The
intention of TPT is apparent from its various communications
and its stand before the Arbitral Tribunal, that it was not agreeable
F for amendment of the Agreement from ‘royalty payment method’
to ‘revenue-sharing method’. [Para 80][453-E-F]
7.3 However, ignoring the stand of TPT, by the impugned
Award, the Arbitral Tribunal has thrust upon a new term in the
Agreement between the parties against the wishes of TPT. The
G ‘royalty payment method’ has been totally substituted by the
Arbitral Tribunal, with the ‘revenue-sharing method’. It is thus
clear, that the Award has created a new contract for the parties
by unilateral intention of SICAL as against the intention of TPT.
[Para 81][453-G]
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CHIDAMBRANAR PORT TRUST TUTICORIN
Ssangyong Engineering and Construction Company A
Limited v. National Highway Authority of India (NHAI)
(2019) 15 SCC 131 : [2019] 7 SCR 522 – relied on.
8. An Arbitral Tribunal is not a Court of law. Its orders are
not judicial orders. Its functions are not judicial functions. It
cannot exercise its powers ex debito justitiae. It has been held B
that the jurisdiction of the arbitrator being confined to the four
corners of the agreement, he can only pass such an order which
may be the subject-matter of reference.The impugned Award
would come under the realm of ‘patent illegality’ and therefore,
has been rightly set aside by the High Court. [Paras 87, 88]
[456-A-C] C
Bharat Coking Coal Ltd. v. Annapurna Construction
(2003) 8 SCC 154 : [2003] 3 Suppl. SCR 122; Md.
Army Welfare Housing Organization v. Sumangal
Services (P) Ltd. (2004) 9 SCC 619 : [2003] 4 Suppl.
SCR 385 – relied on. D
State of Jharkhand and Others v. HSS Integrated SDN
and Another (2019) 9 SCC 798; Sumitomo Heavy
Industries Limited v. Oil and Natural Gas Corporation
Limited (2010) 11 SCC 296 : [2010] 9 SCR 176; Kwality
Manufacturing Corporation v. Central Warehouse E
Corporation (2009) 5 SCC 142; Rashtriya Ispat Nigam
Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306
: [2012] 4 SCR 1; Steel Authority of India Limited v.
Gupta Brother Steel Tubes Limited (2009) 10 SCC 63 :
[2009] 14 SCR 253; Pure Helium India (P) Limited v. F
Oil and Natural Gas Corporation Limited (2003) 8 SCC
593 : [2003] 4 Suppl. SCR 561; P.V. Subba Naidu and
Others v. Government of A.P. and Others (1998) 9 SCC
407; Dhannalal v. Kalawati Bai and Others (2002) 6
SCC 16 : [2002] 1 Suppl. SCR 19; Swamy Atmananda
and Others v. Shri Ramakrishna Tapovanam and Others G
(2005) 10 SCC 51 : [2005] 3 SCR 556; Transcore v.
Union of India and Another (2008) 1 SCC 125 : [2006]
9 Suppl. SCR 785; Sandvik Asia Private Limited v.
Vardhman Promoters 2007 (94) DRJ 762; Hansalaya
H
416 SUPREME COURT REPORTS [2021] 5 S.C.R.
A Properties v. Dalmia Cement (Bharat) Limited 2008
(106) DRJ 820; Adani Power (Mundra) Limited v.
Gujarat Electricity Regulatory Commission and Others
(2019) 19 SCC 9; Raghunathrao Ganpatrao v. Union
of India (1994) 1 SCC Supp 191 : [1993] 1 SCR 480;
Nagubai Ammal and Others v. B. Shama and Others
B
[1956] SCR 451; Suresh Kumar Wadhwa v. State of
Madhya Pradesh and Others (2017) 16 SCC 757 :
[2017] 14 SCR 1; All India Power Engineer Federation
and Others v. Sasan Power Limited and Others (2017)
1 SCC 487 : [2016] 9 SCR 901; Rashtriya Chemicals
C and Fertilizers Limited v. Chowgule Brothers and Others
(2010) 8 SCC 563 : [2010] 7 SCR 962; South East
Asia Marine Engineering and Constructions Limited v.
Oil India Limited (2020) 5 SCC 164; J.G. Engineers
Private Limited v. Union of India and Another (2011) 5
SCC 758 : [2011] 8 SCR 486; Satyanarayana
D
Construction Company v. Union of India and Others
(2011) 15 SCC 101 – referred to.
Case Law Reference
(2019) 9 SCC 798 referred to Para 26
E [2010] 9 SCR 176 referred to Para 26
(2009) 5 SCC 142 referred to Para 26
[2012] 4 SCR 1 referred to Para 26
[2009] 14 SCR 253 referred to Para 26
F
[2003] 4 Suppl. SCR 561 referred to Para 26
(1998) 9 SCC 407 referred to Para 26
[2002] 1 Suppl. SCR 19 referred to Para 26
[2005] 3 SCR 556 referred to Para 26
G
[2006] 9 Suppl. SCR 785 referred to Para 26
(2019) 19 SCC 9 referred to Para 29
[1993] 1 SCR 480 referred to Para 33
[1956] SCR 451 referred to Para 33
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CHIDAMBRANAR PORT TRUST TUTICORIN
[2017] 14 SCR 1 referred to Para 33 A
[2016] 9 SCR 901 referred to Para 33
[2010] 7 SCR 962 referred to Para 33
(2020) 5 SCC 164 referred to Para 33
[2011] 8 SCR 486 referred to Para 33 B
(2011) 15 SCC 101 referred to Para 33
[2019] 7 SCR 522 relied on Para 33
[2019] 3 SCR 1023 relied on Para 58
C
[2014] 13 SCR 895 relied on Para 78
[2003] 3 Suppl. SCR 122 relied on Para 84
[2003] 4 Suppl. SCR 385 relied on Para 86
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3699-
3700 of 2018. D
From the Judgment and Order dated 01.11.2017 of the High Court
of Madras at Madurai Bench in CMA(MD) No. 345 of 2016 and C.M.P.
(MD) No. 4867 of 2016.
Dr. A.M. Singhvi, Gopal Jain, Sr. Advs., Sonal Jain, Zerick Dastur,
E
Ms. Sneha Sheth, Ishkaran Singh, Ms. Archana Uppuluri, Ms. Kajal
Sharma, Advs. for the appellant.
Mrs. Madhvi Dewan, ASG, Keshav Thakur, Ayush Puri, Mahesh
Prasad, Shikhar Sardana, Ajay Singh, Babu Malayil, Rajesh Singh
Chauhan, Advs. for the respondents.
F
The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. The appellant has approached this Court being aggrieved by
the judgment and order dated 1st November 2017, passed by the Division
Bench of the Madras High Court in C.M.A. (MD) No. 345 of 2016 and G
C.M.P. (MD) No. 4867 of 2016, thereby allowing the appeal of the
respondent No.1 herein under Section 37(1)(c) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as ‘the Arbitration Act’)
vide which the High Court set aside the award dated 14th February 2014,
passed by the Arbitral Tribunal and the order passed by the District H
418 SUPREME COURT REPORTS [2021] 5 S.C.R.
A Judge dated 25th February 2016, rejecting the application filed by the
respondent No.1 herein under Section 34 of the Arbitration Act.
2. The facts necessary for adjudication of the present appeals are
as under:-
The respondent No.1-The Board of Trustees of V.O.
B Chidambranar Port Trust, Tuticorin (hereinafter referred to as ‘TPT’)
issued a global tender on 9th April 1997, inviting bids for development of
the Seventh Berth at V.O. Chidambranar Port, Tuticorin as a Container
Terminal and for operating and maintaining the same for 30 years on a
Build, Operate and Transfer (hereinafter referred to as ‘BOT’) basis.
C In response to the tender, the appellant-PSA Sical Terminals Pvt. Ltd.
(hereinafter referred to as ‘SICAL’) submitted its bid on 24th October
1997. The financial offer was submitted by SICAL on 19th December
1997. Since SICAL’s offer was the highest, the same was accepted and
a Letter of Intent (hereinafter referred to as ‘LoI’) was issued to it on
29th January 1998 and the same was followed by a License Agreement
D dated 15th July 1998.
3. In the meantime, the Tariff Authority for Major Ports (hereinafter
referred to as ‘TAMP’) which is an authority constituted under the Major
Port Trusts Act, 1963 adopted guidelines on 26th/27th February 1998.
SICAL submitted its tariff proposal with regard to the Container Terminal
E on 28th September 1999. A revised proposal came to be submitted by
SICAL on 8th October 1999, thereby including royalty as an element of
cost. The said proposal was approved by TAMP’s order dated 8 th
December 1999. TAMP notified its order of 8th December 1999 vide
gazette notification dated 28th December 1999, thereby approving the
F tariff as proposed by SICAL vide proposal dated 8th October 1999.
SICAL submitted a further proposal on 8th February 2002 for review in
tariff, again including therein an increase in royalty to be paid as an
element of cost and proposed for an increase in the tariff. TPT vide
communication dated 10th April 2002, objected to the proposal of SICAL
for increase in tariff. TAMP vide its order dated 20th September 2002,
G rejected the proposal of SICAL for increase in tariff.
4. SICAL filed Writ Petition Nos. 40637-40639 of 2002 before
the Madras High Court for quashing of the TAMP order dated 20 th
September 2002. In the said proceedings, the Madras High Court passed
an order dated 8th November 2002 granting interim relief in favour of
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PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 419
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
SICAL, thereby staying the TAMP order dated 20th September 2002. A
Vide the said order, SICAL was permitted to charge tariff at the rate
prevailing prior to the TAMP order impugned in those petitions.
5. Ministry of Shipping, Government of India (hereinafter referred
to as ‘GoI’) vide notification dated 29th July 2003, clarified that revenue
sharing/royalty payment shall not be factored into as cost for fixation/ B
revision of tariff by TAMP and further directed that the same shall be
clearly indicated in subsequent bid documents. On 31st March 2005,
TAMP notified the revised guidelines thereby disallowing royalty as an
element of cost. However, it also provided that in BOT cases where
bidding processes were finalized before 29 th July 2003, the tariff
computation will take into account royalty/revenue share as cost for C
tariff fixation in such a manner as to avoid likely loss to the operator on
account of the royalty/revenue share not being taken into account. This
was subject to a maximum of the amount quoted by the next lowest
bidder. This was also to be allowed only for the period up to which such
likely loss would arise. It further provided that this would not be applicable D
if there is a provision in the concession agreement on treatment of royalty/
revenue share.
6. On 17 th August 2005, a Memorandum of Compromise
(hereinafter referred to as the ‘MoC’) came to be filed before the Madras
High Court between SICAL, GoI and TAMP who were parties to the E
Writ Petition Nos. 40637-40639 of 2002. As per the said MoC, SICAL
was to submit a proposal to the Ministry of Shipping and Transport, GoI
in the matter of permitting royalty to be allowed to be factored into cost
while fixation of tariff for the period prior to 31st March 2005. It was
also clarified that for the period thereafter, new guidelines provide the
manner and mode in which this has to be done. The MoC provided that F
on receipt of the proposal, the Central Government would consider the
same and pass appropriate orders consistent with the policy decision of
the Government of India (hereinafter referred to as the ‘GoI’) in the
matter of Chennai Container Terminal Limited (hereinafter referred
to as the ‘CCTL’) dated 5th August 2003 and accordingly issue a directive G
under Section 111 of the Major Port Trusts Act, 1963. Vide the said
MoC, it was further provided that SICAL would continue to charge the
1999 Tariff which was permitted as per the interim orders passed by the
High Court till new tariff was gazetted. It further provided that
advantages/ gains, if any, that SICAL has enjoyed by virtue of not
H
420 SUPREME COURT REPORTS [2021] 5 S.C.R.
A implementing the 2002 Tariff, will be quantified by TAMP and such
advantages/gains will be adjusted/set-off in the proposed new tariff and
such set-off will be spread over a period of three years.
7. In pursuance of the aforesaid MoC, GoI issued a directive/
order to TAMP in case of SICAL on 17th April 2006. Vide the said
B directive/order, the request of SICAL for claiming a part of royalty as
pass through came to be rejected. SICAL thereafter submitted its proposal
for fixation of tariff on 18th April 2006. TAMP passed a tariff order on
23rd August 2006, which came to be notified on 15th September 2006,
vide which SICAL’s proposal for increase in tariff was rejected.
C 8. SICAL made a written representation to TPT on 6th October
2006, thereby seeking relief under the terms of Article 14.3 of the License
Agreement. Vide the said representation, SICAL requested for amending
the License Agreement so as to incorporate the revenue sharing method
and incidental changes.
D 9. SICAL also filed Writ Petition Nos. 38845 and 38846 of 2006
before the Madras High Court on 9th October 2006, thereby challenging
the GoI directive dated 17th April 2006 and the TAMP order dated 23rd
August 2006. On 27th October 2006, TPT refused to consider SICAL’s
application for amendment of the License Agreement on the ground that
the issues raised were pending consideration before the Madras High
E Court. The said communication dated 27th October 2006 came to be
challenged by SICAL before the Madras High Court vide Writ Petition
No.43461 of 2006. The Madras High Court passed an order dated 21 st
August 2007, in Writ Petition No. 43461 of 2006 filed by SICAL, observing
therein that the representation dated 6th October 2006, had nothing to do
F with the pendency of said writ petition and quashed the communication
dated 27th October 2006. It directed TPT to consider and decide the
representation of SICAL on its own merits.
10. Vide subsequent order dated 22nd August 2007, Writ Petition
Nos. 38845 and 38846 of 2006 were allowed by setting aside the TAMP
G order dated 23rd August 2006 and the GoI directive dated 17th April
2006. The said order was passed on the ground that SICAL was not
given sufficient opportunity of being heard by TAMP and GoI and
therefore, directed TAMP and GoI to pass fresh order after giving
opportunity of hearing to the SICAL.
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 421
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
11. In pursuance of the order passed by the High Court, the GoI A
issued a directive on 20th February 2008, therein considering the
contentions raised on behalf of SICAL. The said directive provided that
TAMP, while fixing the tariff in case of SICAL, should take into
consideration the benefit given in the case of CCTL.
12. TAMP vide notification dated 26th February 2008, notified the B
guidelines for upfront tariff fixation for Public Private Partnership projects
at Major Ports.
13. In pursuance of the order passed by the High Court dated 21 st
August 2007, the Chairman, TPT passed an order on 25th April 2008,
observing therein that any change in the bidding parameter is a matter of C
policy regarding which a decision can be taken only by the GoI and in
effect, rejected the proposal of SICAL for amending the License
Agreement, so as to incorporate the revenue sharing method.
14. SICAL thereafter submitted its proposal for fixation of tariff
thereby proposing an increase in tariff on 3rd October 2008. TAMP D
passed tariff order dated 17th December 2008, which came to be notified
on 30th December 2008, rejecting SICAL’s proposal for increase in tariff.
SICAL thereafter again on 6th January 2009, made a representation to
TPT for amendment of the License Agreement in view of Article 14.3.
SICAL also filed Writ Petition Nos. 1350 and 1351 of 2009, challenging
the tariff order dated 17th December 2008 and the policy direction issued E
by GoI dated 20th February 2008. The Madras High Court vide order
dated 15th October 2009 allowed those petitions by setting aside the
tariff order of 2008 and the GoI directive of 20th February 2008. Vide
the said order, the Madras High Court directed TAMP to issue fresh
tariff order after obtaining necessary proposal from SICAL and after F
according sufficient opportunity including personal hearing to SICAL.
The GoI directive of 2008 also came to be set aside with a direction to
the GoI to consider the matter afresh after giving an opportunity of hearing
to SICAL. The said orders have been challenged by TAMP by filing
Writ Appeal No. 1845 of 2009 which is pending. It also appears that an
appeal has also been filed by SICAL which is also pending before the G
Division Bench of the Madras High Court.
15. SICAL thereafter addressed a letter to TPT dated 1 st
December 2009, raising therein the ground of change in law and therefore
again praying for shifting to revenue sharing model. A meeting was held
H
422 SUPREME COURT REPORTS [2021] 5 S.C.R.
A by the Secretary, Ministry of Shipping, GoI on 28th February 2011, wherein
the representatives of TPT and SICAL were present. It was decided in
the said meeting that two proposals each should be submitted by SICAL
as well as TPT. These proposals were to be considered by the Expert
Committee.
B 16. SICAL thereafter on 28th June 2011, moved a petition under
Section 9 of the Arbitration Act before the District Judge, Tuticorin with
a grievance that the royalty payable for each Twenty-foot Equivalent
Unit (hereinafter referred to as “TEU”) was scheduled to exceed the
tariff. On 30th June 2011, District Judge, Tuticorin passed an order
granting ad-interim stay in the Section 9 petition, thereby restraining TPT
C from demanding or recovering any royalty at an escalated rate. In July
2011, SICAL addressed a letter to the Chairman, TPT requesting for
referring the dispute for arbitration under Article 15.3 of the License
Agreement. The said request came to be rejected by the Chairman,
TPT vide communication dated 28th September 2011.
D 17. In the meanwhile, the proposals submitted by SICAL as well
as TPT were being considered by the Expert Committee. On 30th April
2012, District Judge, Tuticorin passed an order thereby allowing the
Section 9 petition filed by SICAL and made absolute the ad-interim
injunction granted in its favour. Thereafter, there was exchange of certain
E communications between SICAL and TPT with regard to the submission
of performance bank guarantee at an escalated rate. In the meantime,
TPT challenged the order of injunction granted by the District Judge by
filing an appeal being C.M.A.(MD) No. 1131 of 2012 and the same is
pending consideration before the Madurai Bench of the Madras High
Court. SICAL addressed a letter dated 19th November 2012, invoking
F arbitration clause under Article 15.3 of the License Agreement. In the
meantime, on 8 th August 2013, TAMP issued 2013 Guidelines for
determination of tariff for projects at Major Ports.
18. On 5th April 2013, SICAL filed its Statement of Claim in the
arbitration proceedings. TAMP filed its counter statement in June 2013
G to which a statement in rejoinder came to be filed by SICAL on 28th
June 2013. TPT filed its reply to the rejoinder in August 2013. Vide
award dated 14th February 2014, the Arbitral Tribunal passed the award
in favour of SICAL holding that there was a change in law and thereby
granting reliefs as prayed for by SICAL. It directed conversion of
H Container Terminal of TPT from royalty model to revenue share model.
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 423
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
19. The award of Arbitral Tribunal dated 14th February, 2014 came A
to be challenged by TPT by filing a petition under Section 34 of the
Arbitration Act being OP No. 389 of 2014 before the Madras High Court.
SICAL challenged the jurisdiction of the Madras High Court to adjudicate
the petition filed under Section 34 of the Arbitration Act. There were
certain interlocutory proceedings to which reference would not be
B
necessary. By order dated 9th June 2015, the Madras High Court held
that the petition filed by TPT under Section 34 of the Arbitration Act
was not tenable on the ground of jurisdiction. As such TPT re-presented
its Section 34 petition on 30th June 2015, before the District Judge, Tuticorin
being Ar.O.P. No. 260 of 2015. The District Judge, Tuticorin vide order
dated 25th February 2016, dismissed the Section 34 petition filed by TPT. C
Being aggrieved thereby, TPT filed an appeal before the Madras High
Court which came to be allowed by the order dated 1st November 2017,
vide which the award of the Arbitral Tribunal dated 14th February 2014
and the order passed by the District Court dated 25th February 2016,
came to be set aside. Being aggrieved thereby, SICAL has approached
D
this Court by way of the present appeals.
20. We have heard Dr. A.M. Singhvi and Shri Gopal Jain, learned
Senior Counsel on behalf of the appellant-SICAL, Smt. Madhavi Divan,
learned Additional Solicitor General of India and Shri Keshav Thakur,
learned counsel on behalf of TPT.
E
21. Dr. Singhvi submitted that Article 14 of the License Agreement
specifically provides that if after the date of the agreement, there is a
change in law which substantially and adversely affects the rights of the
Licensee under the said agreement, so as to alter the commercial viability
of the project, the Licensee may, by written notice, request amendments
to the terms of the agreement. He submitted that the definition of law in F
Article 14 is wide enough and includes any valid act, ordinance, rule,
regulation, notification, directive, orders, policy, bye-laws, administrative
guidelines, ruling or instruction having the force of law, enacted or issued
by Government Authority. The learned Senior Counsel submitted that
Article 14.3 also provides that subject to the provisions of Article 15.3, G
the Licensee shall not be entitled to any compensation whatsoever from
the Licensor as a result of change in law. He submitted that if Article
14.3 is read in the correct perspective, it will be clear that compensation
is not provided to the Licensee on account of any change in law inasmuch
as a relief could be provided to the Licensee by suitably amending the
H
424 SUPREME COURT REPORTS [2021] 5 S.C.R.
A terms of the agreement when such a change substantially and adversely
affects the rights of the Licensee. He submitted that the said Article is a
unique one.
22. Dr. Singhvi submitted that the Nhava Sheva Container Terminal
Limited (hereinafter referred to as the ‘NSCT’) was the first project
B which was built on BOT basis. The second one being the Seventh Berth
of TPT. He submitted that these are the only projects wherein royalty
method has been adopted. He submitted that all subsequent projects
provide for revenue sharing model. He submitted that it will be clear
from the stand of TPT, when the proposal was moved by SICAL for
increase in tariff in 1999, that it also understood that the royalty was also
C to be factored in while finalizing the tariff. He submitted that perusal of
the tariff order dated 8th December 1999, would reveal that even TAMP
has allowed royalty as a pass through. He submitted that the guidelines
of 1998 would also clarify that it was a policy of TAMP that the port
pricing was to continue to be cost based with an assured rate of return.
D He submitted that the said guidelines provide for an assured rate of
return. He submitted that TPT, as a matter of fact, vide communication
dated 3rd November 1999 addressed to TAMP, had opposed any reduction
of tariff as proposed by SICAL.
23. Dr. Singhvi submitted that the first change in law was effected
E vide order of the GoI dated 29th July 2003, by which no percentage of
royalty was permitted as a pass through. The second change in law was
effected on 31st March 2005, by which the royalty was permitted as a
pass through, however, restricting the same to the maximum of the amount
quoted by the next lowest bidder. He therefore submitted that on account
of these changes in law, SICAL was entitled to get a relief of amendment
F of the License Agreement and on failure of TPT to provide the relief,
SICAL was entitled to invoke arbitration. He submitted that though several
representations were made to TPT, the same had not been responded to
and as such, SICAL was left with no alternative than to invoke the
arbitration clause. He submitted that this has been rightly construed by
G the Arbitral Tribunal. However, the Division Bench of the High Court
has erroneously interfered with the finding of fact recorded by the Arbitral
Tribunal which was upheld by the District Judge.
24. Dr. Singhvi further submitted that SICAL has been put in a
very precarious situation. He submitted that on one hand it is required to
H pay royalty to TPT on the basis of annual increment, however the tariff
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 425
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
which it can charge, has been so fixed so as not to allow royalty as a A
pass through. He submitted that at one point of time in 2011, the tariff
has been so fixed that it surpasses the amount of royalty per TEU, SICAL
would be required to pay to TPT. He submitted that if the same is
permitted, SICAL would not be in a position to continue its operations.
He submitted that SICAL has provided a minimum guarantee to lift a
B
minimum of 4.5 lakh tons of cargo. He submitted that this has been
rightly appreciated by the Arbitral Tribunal wherein it has observed that
if such a position is permitted to continue, it will substantially and adversely
affect SICAL. He submitted that a chart at Page No. 1132 shows that
SICAL would incur a gross loss of Rs. 2250 crores. He further submitted
that TAMP and the GoI have acted in a discriminatory manner. He C
submitted that when in case of NSCT, a complete pass through so far as
royalty is concerned, is permitted, the same is denied in case of SICAL.
25. Dr. Singhvi further submitted that the High Court has grossly
erred in referring to the writ petitions and the MoC filed in one of the
writ petitions, while setting aside the award. He submitted that the writ D
petitions filed by SICAL were basically against TAMP and with regard
to the fixation of tariff. However, the arbitration proceedings were about
the change in law which changed the policy of permitting pass through
of royalty to denial of pass through of royalty. Whereas the proceedings
before TAMP are pertaining to fixation of tariff. He further submits that
the proceedings before the High Court pertain to the period prior to E
2013, whereas the present proceedings pertain to the relief to which
SICAL is entitled under Article 14 of the agreement on account of change
in law. He submitted that SICAL was compelled to approach the
arbitrator since in 2011-12, the royalty payable to TPT crossed the tariff.
He submitted that the contention considered by the High Court with F
regard to the MoC was only an oral argument made by TPT and not
part of the pleadings.
26. Dr. Singhvi submitted that the scope of interference in an
application under Section 34 and in an appeal filed under Section 37 is
very limited. He submitted that unless a finding recorded by the arbitrator G
amounts to perversity, an interference would not be warranted either
under Section 34 or Section 37. He submitted that the District Judge had
rightly rejected the Section 34 Application. He further submitted that it
was erroneous on part of the High Court in exercise of its jurisdiction
under Section 37 to interfere with a well-reasoned award of the Arbitral
H
426 SUPREME COURT REPORTS [2021] 5 S.C.R.
A Tribunal. He relies on the following judgments in support of his
submissions:-
MMTC Limited v. Vedanta Limited 1, Associate Builders v.
Delhi Development Authority2, State of Jharkhand and Others v.
HSS Integrated SDN and Another3, Sumitomo Heavy Industries
B Limited v. Oil and Natural Gas Corporation Limited 4, Kwality
Manufacturing Corporation v. Central Warehouse Corporation5,
Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran6, Steel
Authority of India Limited v. Gupta Brother Steel Tubes Limited 7,
Pure Helium India (P) Limited v. Oil and Natural Gas Corporation
Limited8, P.V. Subba Naidu and Others v. Government of A.P. and
C Others 9 , Dhannalal v. Kalawati Bai and Others 10 , Swamy
Atmananda and Others v. Shri Ramakrishna Tapovanam and
Others11 and Transcore v. Union of India and Another12.
27. Dr. Singhvi submitted that the UNIDROIT Principles of
International Commercial Contracts provide the rules of interpretation
D of contracts. He submitted that the said principles provide that a contract
shall be interpreted according to the common intention of the parties. It
is only when the intention cannot be established that the contract shall
be interpreted according to the meaning that a reasonable person of the
same kind as a party, would give it in the same circumstances. He
E submitted that from the perusal of Article 14 as well as the conduct of
the parties, it is clear that the parties intended that if there was any
change in lawto the detriment of the Licensee, the Licensee was entitled
to relief from the Licensor by amendment of the contract. He submitted
that such intention is clarified from the fact that in such an event, the
Licensee was not entitled to claim any compensation. The learned Senior
F Counsel in this respect relies on the judgments of the Delhi High Court
1
(2019) 4 SCC 163
2
(2015) 3 SCC 49
3
(2019) 9 SCC 798
4
(2010) 11 SCC 296
5
(2009) 5 SCC 142
G 6
(2012) 5 SCC 306
7
(2009) 10 SCC 63
8
(2003) 8 SCC 593
9
(1998) 9 SCC 407
10
(2002) 6 SCC 16
11
(2005) 10 SCC 51
12
H (2008) 1 SCC 125
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 427
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
in Sandvik Asia Private Limited v. Vardhman Promoters 13and A
Hansalaya Properties v. Dalmia Cement (Bharat) Limited14.
28. Dr. Singhvi further submitted that the agreement has to be
read as a whole. In his submission, whereas Articles 10.8, 13.4.7 and
13.4.8 make the Licensor’s decision binding, Article 14 does not provide
it. He submitted that Article 14 is unique in the sense that it provides for B
restoration of equilibrium. He submitted that the Tribunal had two choices
either to grant a pass through or revenue sharing. If it has chosen one of
them, then even if it is considered to be a possible view, an interference
therein was not warranted.
29. Shri Gopal Jain, learned Senior Counsel submitted that economic C
viability for long term contracts has to be provided. He submitted that
Article 14 was provided as an in-built safeguard for the said purpose.
Relying on the judgment of this Court in Adani Power (Mundra) Limited
v. Gujarat Electricity Regulatory Commission and Others 15, he
submitted that while construing business contracts, business efficacy is
a relevant consideration which has been considered by the Arbitral D
Tribunal and as such, an interference would not be warranted.
30. Smt. Divan, the learned ASG submitted that the financial offer
made by SICAL was made on 19th December 1997 i.e. much before the
1998 Guidelines came to be published. She submitted that it is unthinkable
that the rates quoted by SICAL in 1997 were on the basis of the guidelines E
which were for the first time published in the year 1998. She submitted
that even the said guidelines do not provide for permitting royalty as a
pass through. It is further submitted that while submitting the bid, SICAL
has submitted the bid on the basis of royalty payable to TPT during the
concession period. F
31. Smt. Divan further submitted that SICAL has indulged into
the conduct of approbate and reprobate. She submitted that whereas in
the writ petitions filed by it, SICAL has taken a specific stand that the
guidelines do not have the force of law, it has now turned around and
taken a stand in the arbitration proceedings that it amounts to change of G
law. She further submitted that on the date on which the arbitration
proceedings were commenced, the tariff orders were already quashed
in the writ proceedings in favour of SICAL and only with a view to take
13
2007 (94) DRJ 762
14
2008 (106) DRJ 820
15
(2019) 19 SCC 9 H
428 SUPREME COURT REPORTS [2021] 5 S.C.R.
A double advantage, SICAL has initiated arbitration proceedings. She
further submitted that because of the interim order passed by the High
Court, the 1999 tariff order is still holding the field,thereby giving a huge
undue benefit to SICAL. She submitted that even the conduct of SICAL
needs to be taken into consideration. Though as per MoC which was
filed way back in 2005, SICAL was required to compensate TPT, it has
B
not done so. She therefore submitted that on one hand, SICAL is taking
advantage of orders of the Court and on the other hand not complying
with the obligations set out in the MoC, on the basis of which the High
Court has disposed of writ petition.
32. Smt. Divan submitted that even the third tariff order passed in
C case of SICAL had been quashed by the Madras High Court, challenge
to which is pending before the Division Bench. She further submitted
that on account of an order passed in Section 9 proceedings, TPT is
getting a very meagre amount from SICAL.
33. Smt. Divan further submitted that by the award, the Tribunal
D has provided for entire substitution of the terms of the contract between
the parties. She submitted that when the agreement between the parties
was based on royalty method, the Tribunal, by a substitution, has provided
for revenue sharing method. She submitted that this is not permissible at
all in law. A party cannot be thrusted with a new contract against its
E wishes. Smt. Divan further submitted that SICAL having elected/availed
the remedies of filing of the writ petition, cannot for the same relief
under the bogey of so-called change in law, invoke arbitration proceedings.
She therefore submitted that the High Court has rightly considered the
same and set aside the award. Smt. Divan relied on the following
judgments of this Court in support of her submissions.
F
Raghunathrao Ganpatrao v. Union of India 16, Nagubai
Ammal and Others v. B. Shama and Others 17, Suresh Kumar
Wadhwa v. State of Madhya Pradesh and Others18, All India Power
Engineer Federation and Others v. Sasan Power Limited and
Others19, Rashtriya Chemicals and Fertilizers Limited v. Chowgule
G Brothers and Others20, South East Asia Marine Engineering and
16
(1994) 1 SCC Supp 191
17
[1956] SCR 451
18
(2017) 16 SCC 757
19
(2017) 1 SCC 487
20
H (2010) 8 SCC 563
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 429
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
Constructions Limited v. Oil India Limited21, J.G. Engineers Private A
Limited v. Union of India and Another 22 , Satyanarayana
Construction Company v. Union of India and Others23, Ssangyong
Engineering and Construction Company Limited v. National
Highway Authority of India (NHAI)24
34. Dr. Singhvi, in rejoinder, submitted that a stray statement made B
by SICAL that the guidelines do not have the force of law, would not be
relevant. Inasmuch as in the counter filed by TPT as well as TAMP,
they have themselves stated before the High Court that the said guidelines
will have the force of law. He therefore submitted that SICAL was
entitled in law to invoke Article 14 since there was a change in law
which adversely affects the Licensee. C
35. Dr. Singhvi further submitted that the contention of Smt. Divan
that reliance has been placed by SICAL on change of law for the first
time in 2013, is factually incorrect inasmuch as right from 2006, SICAL
has been making representations to TPT for giving relief under Article
14. To counter the submission of Smt. Divan that the bid of SICAL was D
tendered in December 1997, he submitted that though the bid was tendered
in December 1997, the agreement was entered into in July 1998, when
the guidelines had already come into effect from February 1998. He
submitted that the perusal of the proposals submitted by TPT in pursuance
of the meeting held by Secretary, Ministry of Shipping and Transport, E
GoI, would show that TPT as well as its consultant had agreed for
revenue share model. He reiterated that the proceedings before the High
Court were restricted only to TAMP orders and had nothing to do with
change of law. He submitted that none of the case laws cited by Smt.
Divan considers a clause analogous to Article 14 and therefore, the said
cases would not be applicable to the facts of the present case. He further F
submitted that the argument with regard to doctrine of election is also
without substance.
36. With the assistance of the learned counsel for the parties, we
have gone through the documents placed on record. Though various
judgments of this Court as well as some of the High Courts have been G
cited by counsel of both the parties, we do not find it necessary to refer
21
(2020) 5 SCC 164
22
(2011) 5 SCC 758
23
(2011) 15 SCC 101
24
(2019) 15 SCC 131 H
430 SUPREME COURT REPORTS [2021] 5 S.C.R.
A to all of them. In our view, a reference to few recent judgments of this
Court will be sufficient.
37. A bench of this Court, of which one of us (R.F. Nariman, J.)
was a party, has considered various judgments of this Court in the case
of Associate Builders (supra).
B 38. Another bench of this Court, again to which one of us (R.F.
Nariman, J.) was a party, has considered various judgments of this Court
including the judgment in Associate Builders (supra)and the effect of
the Arbitration and Conciliation (Amendment) Act, 2015 in the case of
Ssangyong Engineering and Construction Company Limited v.
National Highways Authority of India (NHAI)25, to which we will
C refer shortly.
39. Before that, it will be apposite to refer to judgment of this
Court in the case of MMTC Limited (supra),wherein this Court has
revisited the position of law with regard to scope of interference with an
arbitral award in India.
D 40. It will be relevant to refer to the following observations of this
Court in the case of MMTC Limited (supra):
“11. As far as Section 34 is concerned, the position is well-settled
by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground provided
E under Section 34(2)(b)(ii) i.e., if the award is against the public
policy of India. As per the legal position clarified through decisions
of this Court prior to the amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn, includes a violation of the
fundamental policy of Indian law, a violation of the interest of
India, conflict with justice or morality, and the existence of patent
F
illegality in the arbitral award. Additionally, the concept of the
“fundamental policy of Indian law” would cover compliance with
statutes and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice,
and Wednesbury [Associated Provincial Picture
G Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)]
reasonableness. Furthermore, “patent illegality” itself has been
held to mean contravention of the substantive law of India,
contravention of the 1996 Act, and contravention of the terms of
the contract.
25
H (2019) 15 SCC 131
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 431
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
12. It is only if one of these conditions is met that the Court may A
interfere with an arbitral award in terms of Section 34(2)(b)(ii),
but such interference does not entail a review of the merits of the
dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
B
trivial but goes to the root of the matter. An arbitral award may
not be interfered with if the view taken by the arbitrator is a possible
view based on facts. (See Associate Builders v. DDA [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes
Ltd., (2003) 5 SCC 705] ; Hindustan Zinc Ltd. v. Friends Coal C
Carbonisation [Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445] ; and McDermott
International Inc. v. Burn Standard Co. Ltd. [McDermott
International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC
181] )
D
13. It is relevant to note that after the 2015 Amendment to Section
34, the above position stands somewhat modified. Pursuant to the
insertion of Explanation 1 to Section 34(2), the scope of
contravention of Indian public policy has been modified to the
extent that it now means fraud or corruption in the making of the
award, violation of Section 75 or Section 81 of the Act, E
contravention of the fundamental policy of Indian law, and conflict
with the most basic notions of justice or morality. Additionally,
sub-section (2-A) has been inserted in Section 34, which provides
that in case of domestic arbitrations, violation of Indian public
policy also includes patent illegality appearing on the face of the F
award. The proviso to the same states that an award shall not be
set aside merely on the ground of an erroneous application of the
law or by reappreciation of evidence.
14. As far as interference with an order made under Section 34,
as per Section 37, is concerned, it cannot be disputed that such G
interference under Section 37 cannot travel beyond the restrictions
laid down under Section 34. In other words, the court cannot
undertake an independent assessment of the merits of the award,
and must only ascertain that the exercise of power by the court
under Section 34 has not exceeded the scope of the provision.
H
432 SUPREME COURT REPORTS [2021] 5 S.C.R.
A Thus, it is evident that in case an arbitral award has been confirmed
by the court under Section 34 and by the court in an appeal under
Section 37, this Court must be extremely cautious and slow to
disturb such concurrent findings.”
41. In Ssangyong Engineering and Construction Company
B Limited (supra), this Court after considering various judgments including
the judgment in Associate Builders (supra) observed thus:
“34. What is clear, therefore, is that the expression “public policy
of India”, whether contained in Section 34 or in Section 48, would
now mean the “fundamental policy of Indian law” as explained in
C paras 18 and 27 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e.
the fundamental policy of Indian law would be relegated to
“Renusagar” understanding of this expression. This would
necessarily mean that Western Geco [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]
D
expansion has been done away with. In short, Western
Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC
263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29
of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under
E the guise of interfering with an award on the ground that the
arbitrator has not adopted a judicial approach, the Court’s
intervention would be on the merits of the award, which cannot
be permitted post amendment. However, insofar as principles of
natural justice are concerned, as contained in Sections 18 and
34(2)(a)(iii) of the 1996 Act, these continue to be grounds of
F
challenge of an award, as is contained in para 30 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar
as it concerns “interest of India” has since been deleted, and
G therefore, no longer obtains. Equally, the ground for interference
on the basis that the award is in conflict with justice or morality is
now to be understood as a conflict with the “most basic notions of
morality or justice”. This again would be in line with paras 36 to
39 of Associate Builders [Associate Builders v. DDA, (2015) 3
H SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 433
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
awards that shock the conscience of the court that can be set A
aside on this ground.
36. Thus, it is clear that public policy of India is now constricted
to mean firstly, that a domestic award is contrary to the
fundamental policy of Indian law, as understood in paras 18 and
27 of Associate Builders [Associate Builders v. DDA, (2015) 3 B
SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award is
against basic notions of justice or morality as understood in paras
36 to 39 of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to
Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was
added by the Amendment Act only so that Western C
Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC
263: (2014) 5 SCC (Civ) 12], as understood in Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015)
2 SCC (Civ) 204], and paras 28 and 29 in particular, is now done
away with. D
37. Insofar as domestic awards made in India are concerned, an
additional ground is now available under sub-section (2-A), added
by the Amendment Act, 2015, to Section 34. Here, there must be
patent illegality appearing on the face of the award, which refers
to such illegality as goes to the root of the matter but which does E
not amount to mere erroneous application of the law. In short,
what is not subsumed within “the fundamental policy of Indian
law”, namely, the contravention of a statute not linked to public
policy or public interest, cannot be brought in by the backdoor
when it comes to setting aside an award on the ground of patent
illegality. F
40. The change made in Section 28(3) by the Amendment Act
really follows what is stated in paras 42.3 to 45 in Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015)
2 SCC (Civ) 204], namely, that the construction of the terms of a
contract is primarily for an arbitrator to decide, unless the arbitrator G
construes the contract in a manner that no fair-minded or
reasonable person would; in short, that the arbitrator’s view is not
even a possible view to take. Also, if the arbitrator wanders outside
the contract and deals with matters not allotted to him, he commits
H
434 SUPREME COURT REPORTS [2021] 5 S.C.R.
A an error of jurisdiction. This ground of challenge will now fall
within the new ground added under Section 34(2-A).
38. Secondly, it is also made clear that reappreciation of evidence,
which is what an appellate court is permitted to do, cannot be
permitted under the ground of patent illegality appearing on the
B face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204],
namely, a mere contravention of the substantive law of India, by
itself, is no longer a ground available to set aside an arbitral award.
C Para 42.2 of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], however, would remain,
for if an arbitrator gives no reasons for an award and contravenes
Section 31(3) of the 1996 Act, that would certainly amount to a
patent illegality on the face of the award.
D 41. What is important to note is that a decision which is perverse,
as understood in paras 31 and 32 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015)
2 SCC (Civ) 204], while no longer being a ground for challenge
under “public policy of India”, would certainly amount to a patent
illegality appearing on the face of the award. Thus, a finding based
E on no evidence at all or an award which ignores vital evidence in
arriving at its decision would be perverse and liable to be set aside
on the ground of patent illegality. Additionally, a finding based on
documents taken behind the back of the parties by the arbitrator
would also qualify as a decision based on no evidence inasmuch
F as such decision is not based on evidence led by the parties, and
therefore, would also have to be characterised as perverse.
42. Given the fact that the amended Act will now apply, and that
the “patent illegality” ground for setting aside arbitral awards in
international commercial arbitrations will not apply, it is necessary
G to advert to the grounds contained in Sections 34(2)(a)(iii) and
(iv) as applicable to the facts of the present case.”
42. It will thus appear to be a more than settled legal position, that
in an application under Section 34, the court is not expected to act as an
appellate court and reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34 of the Arbitration
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 435
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
Act. The interference would be so warranted when the award is in A
violation of “public policy of India”, which has been held to mean “the
fundamental policy of Indian law”. A judicial intervention on account of
interfering on the merits of the award would not be permissible. However,
the principles of natural justice as contained in Section 18 and 34(2)(a)(iii)
of the Arbitration Act would continue to be the grounds of challenge of
B
an award. The ground for interference on the basis that the award is in
conflict with justice or morality is now to be understood as a conflict
with the “most basic notions of morality or justice”. It is only such arbitral
awards that shock the conscience of the court, that can be set aside on
the said ground. An award would be set aside on the ground of patent
illegality appearing on the face of the award and as such, which goes to C
the roots of the matter. However, an illegality with regard to a mere
erroneous application of law would not be a ground for interference.
Equally, reappreciation of evidence would not be permissible on the ground
of patent illegality appearing on the face of the award.
43. A decision which is perverse, though would not be a ground D
for challenge under “public policy of India”, would certainly amount to a
patent illegality appearing on the face of the award. However, a finding
based on no evidence at all or an award which ignores vital evidence in
arriving at its decision would be perverse and liable to be set aside on the
ground of patent illegality.
E
44. To understand the test of perversity, it will also be appropriate
to refer to paragraph 31 and 32 from the judgment of this Court in
Associate Builders (supra), which read thus:
“31. The third juristic principle is that a decision which is perverse
or so irrational that no reasonable person would have arrived at F
the same is important and requires some degree of explanation. It
is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to
the decision which it arrives at; or G
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing H
436 SUPREME COURT REPORTS [2021] 5 S.C.R.
A Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was
held: (SCC p. 317, para 7)
“7. … It is, no doubt, true that if a finding of fact is arrived at by
ignoring or excluding relevant material or by taking into
consideration irrelevant material or if the finding so outrageously
B defies logic as to suffer from the vice of irrationality incurring the
blame of being perverse, then, the finding is rendered infirm in
law.”
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10: 1999
SCC (L&S) 429], it was held: (SCC p. 14, para 10)
C “10. A broad distinction has, therefore, to be maintained between
the decisions which are perverse and those which are not. If a
decision is arrived at on no evidence or evidence which is
thoroughly unreliable and no reasonable person would act upon it,
the order would be perverse. But if there is some evidence on
D record which is acceptable and which could be relied upon,
howsoever compendious it may be, the conclusions would not be
treated as perverse and the findings would not be interfered with.”
45. Keeping these principles in mind, we will have to examine the
present case.
E 46. The facts in the present case are not in much dispute. It will
be relevant to refer to clause 5.6 of the bid document, which was published
by TPT on 9th April, 1997, which reads thus:
“5.6 TERMS OF THE FINANCIAL OFFER
The license to develop the seventh berth as a full-fledged container
F
terminal with ship to shore and shore to ship handling facility,
manage, operate and maintain the terminal shall be given for a
period of 30 years inclusive of construction period.
The bidder shall state his financial offer to the TPT as the sum of
the following components:
G
a) Quantum of initial payment at the time of executing the contract
in order to secure the agreement;
b) Royalty fee payable (before the day of each calendar month)
after the commissioning of the terminal for each TEU handled at
H the terminal in the preceding calendar month. In case actual
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 437
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
throughput falls below the minimum throughput guaranteed by A
the Licensee in his bid, then the Licensee shall pay royalty as per
his minimum guaranteed throughput.
(The operator shall pay to the port royalty fee in the same currency
in which charges are realised from users. The exchange rate to
be used would be notified rate on the date of realisation). B
c) Guaranteed minimum TEU throughput that will be handled in
each year of the contract.
The offer shall be in the format shown in Attachment 4.1.”
47. Perusal of the bid document would reveal, that the bid was for C
a license to develop the seventh berth as a full-fledged container terminal
with ship-to-shore and shore-to-ship handling facility and also to manage,
operate and maintain the same for a period of 30 years inclusive of
construction period. The bidder was to state his financial offer to TPT
comprising of three aspects:
D
(a) quantum of initial payment at the time of executing the
contract in order to secure the agreement;
(b) royalty fee payable (before the day of each calendar month)
after the commissioning of the terminal for each TEU
handled at the terminal in the preceding calendar month. It
E
is also clear, that in case actual throughput falls below the
minimum throughput guaranteed by the Licensee in his bid,
then the Licensee shall pay royalty as per his minimum
guaranteed throughput. It also clarifies, that royalty was to
be paid in the same currency in which the Licensee realizes
the charges from users; and F
(c) guaranteed minimum TEU throughput that will be handled
in each year of the contract.
48. It will also be necessary to refer to clause 4.7.1 and 4.7.2 of
the bid document, which reads thus:
G
“4.7.1 SETTING OF PRICES
The prescribed rates and charges to be collected by the LICENSEE
from users shall not exceed the maximum rates as approved by
the Government/Tariff Regulatory Authority. The proposed rates
for handling are given in Annexure II. H
438 SUPREME COURT REPORTS [2021] 5 S.C.R.
A The LICENSEE shall bill the users of the container terminal for
services including terminal charges, wharfage on cargo
containerised, container box and cargo related charges to be
collected by the LICENSEE. These revenues shall be collected
from cargo interests and the owners or agents of the vessels and
shall accrue to and be payable to the LICENSEE. Charges on
B
account of Berth Hire, Port Dues, Pilotage etc shall be raised and
recovered directly by TPT from the users.
4.7.2 REGULATION & REVIEW
Normally the tariff will be revised by the Government/Tariff
C Regulatory Authority once in 3 years.
For any increase from prevailing scales, the LICENSEE may apply
for revision of tariff to the Licensor. The Licensor may recommend
it for approval of the Committee constituted by the Government/
Tariff Regulatory Authority.”
D It would thus be clear, that the bid document itself provides, that
the prescribed rates and charges to be collected by the Licensee from
users shall not exceed the maximum rates as approved by the
Government/Tariff Regulatory Authority. The proposed rates for handling
were prescribed in Annexure-II of the bid document. It is also provided,
E that the tariff will be revised by the Government/Tariff Regulatory
Authority once in three years. It is further provided, that for any increase
from prevailing scales, the Licensee may apply for revision of tariff to
the Licensor and that the Licensor may recommend it for approval of
the Committee constituted by the Government/Tariff Regulatory Authority.
F 49. It will be relevant to note that the offer was required to be in
the format shown in Attachment 4.1 (Bidders Financial Offer),which
requires to give details in three columns. The first one being ‘Traffic
guaranteed from the Seventh Berth (in TEUS)’. The second being ‘Rate
of royalty/TEU’; and the third being ‘Amount (Rupees)’. These details
were to be provided for all 30 years. It will also be relevant to refer to
G Attachment 4.4, which reads thus:
“All Responsive Bids which meet the Qualification criteria laid
down for the technical evaluation will be ranked based on the
present value of the expected payments to the TPT by the Bidder
(discounted @ 16% per annum) according to the payment schedule
H presented in the financial proposal in Attachment 4.1. The
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 439
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
calculation of the royalty fees will be based on the Licensee’s A
minimum guaranteed volume of traffic.
If, in the opinion of TPT, the prices quoted in a bid including royalties
and schedule of royalties are found to be unrealistic, then such bid
will be rejected and not considered for ranking.”
50. Attachment 4.4 makes it amply clear, that all responsive bids B
which meet the qualification criteria for technical evaluation will be ranked
on the basis of the royalty fees quoted by the bidder.
51. It will also be relevant to refer to Article 7.3.1 and 7.3.5.1 of
the Agreement, which read thus:
C
“7.3.1 Setting Prices
The Licensee shall be entitled to recover from the owners/
consignees or vessel owners/agents rates and/or charges due and
payable by them for use of the Container Terminal services
including terminal charges, wharfage on cargo containerised, D
container box and cargo related charges in respect of cargo and
other services provided by the Licensee provided however that
the rates and/or charges to be collected by the Licensee shall not
exceed the rates fixed by Licensor in respect of similar services
and duly notified by the GoI in official gazette or to be fixed by the
Tariff Authority for Major Ports constituted under Article 47A of E
the Major Port Trusts Act, 1963, as applicable, from time to time.
For the purpose of fixing or revising existing Tariff, the GoI has
set up an independent Tariff Authority for Major Ports constituted
under Article 47A of the Major Port Trusts Act, 1963. The Tariff
to be fixed by such authority would be the maximum rate of tariff F
and the Licensee would be free to fix the tariff at a rate lower
than that fixed by such authority. Regarding fixation of tariff and
setting prices, the Licensee shall follow the rules and regulations
stipulated by TAMP for fixing/review of tariff.
These charges shall be collected from cargo interests and the
G
owners or agents of the vessels and shall accrue to and be payable
to the Licensee. The rates prevailing at the time of signing this
Agreement are contained in Appendix 15 to this Agreement.
Charges on account of Berth Hire, Port Dues and Pilotage shall
be raised and recovered directly by the Licensor from the users.
H
440 SUPREME COURT REPORTS [2021] 5 S.C.R.
A The Licensee shall be free to give discounts in tariff. However,
such discounts shall be given by the Licensee only in respect to
the charges due and payable by the consignees/owners or vessel
owners/agents to the Licensee and not in respect of the charges
payable by such persons directly to the Licensor.
B xxx xxx xxx
7.3.5 Payment and Payment Terms
7.3.5.1 Initial Payment
In consideration of the grant of this License, the Licensee shall
C pay to the Licensor an initial amount of Rs.45 million (Rupees
Forty Five Millions only) simultaneously on the Date of Award of
License.
The Licensee shall pay to the Licensor, royalty calculated on the
basis of Minimum guaranteed traffic royalty rates, as set out in
D Appendix 12 irrespective of discounts in tariffs, if any, that may
be granted by the Licensee. Royalty shall be paid every Month on
the basis of annual minimum guaranteed traffic as set out in
Appendix 12. Monthly royalty shall be initially calculated
proportionately to the yearly royalty based on the annual minimum
guaranteed traffic as per the Appendix 12 and shall be paid latest
E by the 7th Day of the subsequent Month. At the end of each 3
Month period the total royalty payable shall be computed and the
difference, if any, between the amount of royalty actually payable,
calculated on the basis of actual TEUs handled and the
corresponding amount as set out in the Appendix 12, and the amount
F of royalty already remitted, shall be paid by the Licensee to the
Licensor within fifteen Days of expiry of the relevant 3 Months
period.
In case the actual traffic falls below the annual minimum
guaranteed traffic as guaranteed by the Licensee and as set out
in the Appendix l2, then the Licensee shall pay the amount of
G
royalty as per its annual minimum guaranteed traffic.
It is to be noted that the minimum guaranteed traffic royalty rate
as set out in Appendix 12 will be adjusted upwards or downwards
as a one time measure on fixation of tariff for containers by the
TAMP for the first time. This adjustment will be carried out by
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 441
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
the Port based on a single percentage (plus or minus) to be applied A
to all the figures quoted as royalty vide Appendix 12. This single
percentage shall be decided on the basis of sum of weighted
average of variations to the rates in respect of tariff or containers
in the following manner...”
52. Perusal of Article 7.3.1 would reveal, that the Licensee was B
entitled to recover from owners/consignees or vessel owners/agents,
rates and/or charges due and payable by them for use of Container
Terminal services including terminal charges, wharfage on cargo
containerized, container box and cargo related charges in respect of
cargo and other services provided by the Licensee. However, it was
provided, that the rates and/or charges to be collected by the Licensee C
shall not exceed the rates fixed by Licensor in respect of similar services
and duly notified by the GoI in official gazette or to be fixed by TAMP
constituted under Section 47A of the Major Port Trusts Act, 1963. The
Agreement itself clarifies, that the tariff to be fixed by TAMP should be
the maximum rate of tariff and the Licensee would be free to fix the D
tariff at a rate lower than that fixed by such authority. It is also clear,
that the Licensee was to follow the rules and regulations stipulated by
TAMP regarding fixation of tariff. Appendix-15 to the Agreement also
details out the rates prevailing at the time of signing of the Agreement.
The Article specifies that the Licensee was free to give discounts on
tariffs. However, such discount would be given only in respect of the E
charges payable to the Licensee and not payable to the Licensor.
53. Article 7.3.5.1 provides for initial payment of Rs.45 million
simultaneously on the date of award of license. The Agreement further
clarifies, that the Licensee shall pay to the Licensor royalty calculated
on the basis of minimum guaranteed traffic royalty as set out in Appendix- F
12. It is also provided, that minimum guaranteed traffic royalty rate as
set out in Appendix-12 will be adjusted upwards or downwards as a
one-time measure on fixation of tariff for containers by TAMP for the
first time.
54. It will be relevant to refer to Article 14, which is the bone of G
contention between the parties, which reads thus:
“ARTICLE 14
CHANGE IN LAW
H
442 SUPREME COURT REPORTS [2021] 5 S.C.R.
A 14. Change in Law
14.1 Definition of Law
For the purposes of this Agreement, “Law” means any valid act,
ordinance, rule, regulation, notification, directive, order policy,
bylaw, administrative guideline, ruling or instruction having the
B force of law enacted or issued by a Government authority.
14.2 Definition of Change in Law
For the purposes of this Agreement “Change in Law” means any
amendment, alteration, modification or repeal of any existing law
C by Government Authority or through any interpretation thereof by
the court of law or enactment or any new law coming into effect
after the date of this Agreement, provision for which has not been
made elsewhere in this Agreement.
14.3 Relief under Change in Law
D If, after the date of this Agreement, there is a ‘Change in the Law
which substantially and adversely affects the rights of the Licensee
under this Agreement so as to alter the commercial viability of the
project, the Licensee may, by written notice request amendments
to the terms of this Agreement.
E Subject to provisions of Article 14.3, the Licensee shall not be
entitled to any compensation whatsoever from the Licensor as a
result of Change in Law.
14.4 Changes in Tax Laws and Regulations
The Licensee is not entitled to any compensation for any increase
F in direct and/or indirect tax which the Licensee is liable to pay in
respect of the Project.”
55. Article 14 deals with ‘change in law’. Article 14.1, which
defines ‘law’, states, that law means any valid act, ordinance, rule,
regulation, notification, directive, order policy, bylaw, administrative
G guideline, ruling or instruction having the force of law enacted or issued
by a Government Authority.
Article 14.2, which deals with ‘change in law’, states, that ‘change
in law’ would mean any amendment, alteration, modification or repeal of
any existing law by Government Authority or through any interpretation
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 443
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
thereof by a court of law or enactment of any new law coming into A
effect after the date of this Agreement, provision for which has not been
made elsewhere in the said Agreement.
Article 14.3 provides for relief under change in law. If, after the
date of Agreement, there is a change in the law which substantially and
adversely affects the rights of the Licensee under the Agreement so as B
to alter the commercial viability of the project, the Licensee may, by
written notice, request amendments to the terms of the Agreement. It
further provided, that subject to provisions of Article 14.3, the Licensee
shall not be entitled to any compensation whatsoever from the Licensor
as a result of change in law.
C
56. The questions therefore that we will have to answer are:
(i) As to whether the Arbitral Tribunal was justified in finding a
change in law, which entitled the Licensee to invoke Article 14.3
of the Agreement; and
(ii) As to whether the Arbitral Tribunal was justified in converting D
the contract from royalty payment module to revenue-sharing
module of Berth No. VII with the claimant’s liability to the revenue
share being fixed at 55.19%.
57. For answering the aforesaid questions, we will have to consider
the documents placed on record. Apart from that, we will also have to E
take into consideration the conduct of the parties and their intention as
could be gathered from the said material.
58. In this respect, it will be relevant to refer to paragraph 16 in
the case of MMTC Limited (supra), which reads thus:
F
“16. It is equally important to observe at this juncture that while
interpreting the terms of a contract, the conduct of parties and
correspondences exchanged would also be relevant factors and it
is within the arbitrator’s jurisdiction to consider the same.
[See McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., G
(2006) 11 SCC 181]; Pure Helium India (P) Ltd. v. ONGC [Pure
Helium India (P) Ltd. v. ONGC, (2003) 8 SCC 593] and D.D.
Sharma v. Union of India [D.D. Sharma v. Union of India,
(2004) 5 SCC 325].]”
H
444 SUPREME COURT REPORTS [2021] 5 S.C.R.
A 59. The entire finding of the Arbitral Tribunal is based on a premise
that when TPT entered into a contract with SICAL there was an existing
policy, which provided royalty to be factored into the cost while fixation
of tariff and that subsequently, the GoI changed its policy on 29th July,
2003 thereby providing that royalty payment/revenue sharing will not be
factored into/taken into account as cost for fixation/revision of tariff by
B
TAMP; and that there was subsequent change in policy on 31st March,
2005 vide which part of royalty was permitted to be factored into the
cost. However, it being subjected to a maximum amount of the bid of the
second lowest bidder. According to the Arbitral Tribunal, there was a
change in policy, which amounted to change in law, which, in turn,
C adversely affected SICAL.
60. Let us examine the correctness of this finding. We are fully
aware, that neither under Section 34 nor under Section 37 of the
Arbitration Act, the Court is entitled to reappreciate the evidence. The
said limitation would be equally applicable to this Court also. Admittedly,
D the bid document was published on 9th April, 1997. The technical bid of
SICAL was submitted on 24th October, 1997. The financial offer of
SICAL was submitted on 19th December, 1997. LoI was issued on 29th
January, 1998. All this has happened prior to the guidelines issued by
TAMP in February 1998. As such, it is beyond any doubt, that when the
bid document was notified and when SICAL submitted its bid and LoI
E was issued to it, there were no guidelines in vogue. For the first time, the
guidelines were adopted by TAMP in the workshop held in Chennai on
26th/27th February, 1998.
61. Let us examine what do these guidelines provide.
F “The TAMP must adhere to established costing systems and
pricing principals, its overall objective shall be to move towards
competitive pricing.
There are various approaches to tariff fixation. Until more
information/knowledge becomes available. Attempts may be made
G to smoothen the system within the existing framework.
During the Interregnum, port pricing may continue to be cost-
based with an assured rate of return. Although the concept of
an assured rate of return is not consonant with a completive
system. It will be advisable to maintain it for the time being
so as not to destabilize the system with abrupt changes. At
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 445
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
the same time, to militate the full impact of its continuance, A
the reasonableness of the existing base and the absolute
total costs may have to be examined to ensure that costs of
inefficiencies, uneconomic user /practices or excess are not
passed on to users. Even if the TAMP is not equipped at present
to cope with the load of work relating to such scrutiny, it must at
B
least start pressuring against such costs being built into tariffs.
An assured rate of return can be achieved either by increasing
the surplus through a rationalized tariff structure and/or reducing
the cost of services; or by reducing the capital base by eliminating
unproductive and obsolete assets.”
C
[emphasis supplied]
62. It could thus be clearly seen that what is provided is that
TAMP must adhere to established costing systems and pricing principals
and its overall objective should be to move towards competitive pricing.
It further provides that until more information/knowledge becomes D
available, attempts should be made to smoothen the system within the
existing framework. It further provides that during the interregnum, port
pricing is to be continued to be cost-based with an assured rate of return.
It however specifically observes that the concept of an assured rate of
return is not consonant with a competitive system. It provides that
however, it will be advisable to maintain it for the time being so as not to E
destabilize the system with abrupt changes. It further provides that to
militate the full impact of its continuance, the reasonableness of the
existing base and the absolute total costs may have to be examined to
ensure that costs of inefficiencies, uneconomic user/practices or excess
are not passed on to users. It further observed, that an assured rate of F
return can be achieved either by increasing the surplus through a
rationalized tariff structure and/or reducing the capital base by eliminating
unproductive and obsolete assets.
63. It could thus clearly be seen, that even 1998 guidelines do not
mention, that the royalty could be factored in the cost while determining G
the tariff. Though the said guidelines observed, that the port pricing may
continue to be cost-based with an assured rate of return, it further
observed, that such a concept of an assured rate of return is not in
consonance with a competitive system. Thus, it is amply clear, that when
the bids were invited, and SICAL submitted its bid and LoI was issued
H
446 SUPREME COURT REPORTS [2021] 5 S.C.R.
A to it, there was no policy at all. Even the 1998 guidelines do not provide
for factoring the royalty in cost while determining the tariff.
64. No doubt that when the first proposal for revision of tariff
was submitted by SICAL, in its comments submitted to TAMP, TPT has
supported the proposal submitted by SICAL. It is also undisputed, that
B TAMP vide order dated 08th December, 1999(notified on 28th December,
1999)has approved the proposal with regard to fixation of tariff insofar
as SICAL is concerned. It will be relevant to refer to sub-para (iv) of
paragraph 7 of the TAMP order, which reads thus:
“(iv) It will be necessary at this point to refer to the royalty issue.
C Even though some considerations relating to royalty have
tariff- implications, we have not so far chosen to interfere
in this regard; the royalty issue has been left to be settled
by the Port Trust and the Government. That being so, in
the light of the TPT’s conditional support to the request
for dollar-denomination, it will be necessary for us to clarify
D that our approval of the tariffs cannot be interpreted to
amount to any implicit approval of royalty-related issues.
Specifically, in the context of the TPT’s condition about dollar-
denomination of royalty, the method of conversion adopted by the
Applicant for the purpose of financial statements based on tariffs
E denominated in dollar terms cannot be deemed to have been
approved by us.”
[emphasis supplied]
65. It could thus be clear, that TAMP has observed, that though
some considerations relating to royalty have tariff-implications, it had
F not so far chosen to interfere in that regard. The royalty issue has been
left to be settled by TPT and the GoI. It has been clarified that its approval
to the tariff cannot be interpreted to be amounting to any implicit approval
of royalty-related issues. It is thus clear, that even the 1999 TAMP order
made it clear, that the said order should not be interpreted to amount to
G any implicit approval of royalty related issues. It is thus clear, that royalty
was permitted to be factored in cost only on account of TPT’s conditional
support to the proposal submitted by SICAL. It will also be relevant to
note that TAMP order of 1999 is much after the TAMP guidelines, which
were issued in February 1998. Undisputedly, the said order has been
accepted by SICAL including the aforesaid observations in sub-para
H (iv) of paragraph 7.
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 447
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
66. The second tariff order in case of SICAL came to be passed A
on 20th September, 2002 (notified on 4th October, 2002). It will be relevant
to refer to sub-para (xi) of paragraph 15.
“(xi) One of the main items of expenditure considered by the
PSA SICAL is the royalty payment it has to make to the TPT as
per the Concession Agreement. This liability accounts for about B
11.4%, 15.4% and 19.2% of the operating income estimated on
the basis of the existing tariffs for the years 2002, 2003 and 2004
respectively. As has been mentioned earlier, the existing tariffs
were allowed to the PSA SICAL by accepting its proposal to
adopt the (then) existing CHPT rates. That being so, there was
no detailed cost analysis carried out then. C
It is admitted that the issue of admissibility of ‘royalty’ as a
cost item has come under a focused scrutiny only in the
case relating to the CCTL which was disposed of in March,
2002. In that case, this Authority decided not to allow
‘revenue share’ as a cost element for computation of tariffs D
at the CCTL. This Authority held that allowing royalty in
tariff would mean that the CCTL (Private Terminal
Operator) and the CHPT (the Licensor) both of whom
enjoyed a dominant position, could enter into any
commercial arrangement between themselves and pass on E
the consequential cost to customers. This Authority also
observed that there had been no commitment from anywhere about
consequential tariff adjustments and the CA also did not give any
assurance to the Licensee about tariff adjustments corresponding
to the royalty quoted.
F
In view of the principle set out in the CCTL case, it is
necessary to accord a similar treatment in the case of the
PSA SICAL also. It is noteworthy that no extraordinary
circumstances appear to emerge in this case warranting
any exceptional consideration. That being so, royalty has
not been considered as an admissible item of cost for this G
tariff exercise.”
[emphasis supplied]
67. Perusal of the aforesaid sub-para would clearly reveal that
one of the main items of expenditure considered by SICAL was the
H
448 SUPREME COURT REPORTS [2021] 5 S.C.R.
A royalty payment it has to make to TPT as per the Concession Agreement.
It states that the existing tariffs were allowed to SICAL by accepting its
proposal to adopt the then existing Chennai Port Trust (hereinafter
referred to as “CHPT”) rates. It clarifies that there was no detailed cost
analysis carried out then. It further states that the issue of admissibility
of royalty as a cost item came under a focused scrutiny only in the case
B
relating to CCTL, which was disposed of in March 2002. It states, that
in that case, the Authority decided not to allow ‘revenue share’ as a cost
element for computation of tariffs for CCTL. It observes, that allowing
royalty in tariff would mean that CCTL (Private Terminal Operator) and
CHPT (the Licensor), both of whom enjoyed a dominant position, could
C enter into any commercial arrangement between themselves and pass
on the consequential cost to customers. It further specifies, that the
Authority had observed, that there had been no commitment from
anywhere about consequential tariff adjustments corresponding to the
royalty quoted. It further observed that no extraordinary circumstances
appear to emerge in the case of SICAL warranting any exceptional
D
consideration. As such, royalty had not been considered as an admissible
item of cost in the tariff.
68. The said order is passed when the 1998 guidelines were still
holding the field. In this factual background, it is difficult to appreciate
as to how it could be said that the 1998 guidelines issued by TAMP
E permitted royalty to be factored in cost while fixation of tariff.
69. The 2002 tariff order has been challenged by SICAL by filing
Writ Petitions being Writ Petition Nos 40637-40639 of 2002 before the
Madras High Court. The Madras High Court has also passed interim
order on 8th November, 2002 thereby staying the 2002 notification and
F permitting SICAL to charge tariff on the basis of the 1999 tariff order.
70. Then comes the notification dated 29th July, 2003 issued by
the GoI, which is in the following terms:
“In a few cases recently a question arose as to what treatment to
G be given to revenue sharing/royalty payment made by private
terminal operators to the concerned major ports for the purpose
of fixation/revision of tariff. TAMP has also requested for
guidelines from Ministry in the matter. The matter has been
discussed with Chairman, TAMP and considered in this Ministry
and it has been decided to clarify as a matter of policy that
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 449
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
the revenue sharing/royalty payment shall not be factored A
into/taken into account as cost for fixation/revision of tariff
by TAMP for the following reasons:-
(i) The benefit of higher efficiency on account of private
participation in ports should also be passed on to shippers or the
users which will not be so if royalty is allowed to be factored in B
the cost of private operators.
(ii) If royalty is allowed as cost, the private bidder can offer any
high percentage which he will recover from the shippers/users in
the shape or royalty cost lectured in fixing of higher rates.
It has also been decoded that the position in this regard may be C
clearly indicated in the bid documents itself while inviting bids for
private sector participation at major ports.”
[emphasis supplied]
71. Perusal of the said notification would clearly show that the D
GoI has decided to clarify, as a matter of policy, that the revenue-sharing/
royalty payment shall not be factored into/taken into account as cost for
fixation/revision of tariff by TAMP. The said notification specifically
provides that the benefit of higher efficiency on account of private
participation in ports should also be passed on to shippers or the users
which will not be so if royalty is allowed to be factored in the cost of E
private operators. It further provides that if royalty is allowed as cost,
the private bidder can offer any high percentage which he will recover
from the shippers/users in the shape of royalty cost factored in fixing of
higher rates.
72. Then comes a notification dated 31st March, 2005 issued by F
TAMP. It willbe relevant to note that these guidelines have been issued
subsequent to the consultation meetings held with the stake-holders at
Kolkata, Chennai and Mumbai. It will be relevant to refer to clause
1.4.2, which reads thus:
“1.4.2. The earlier guidelines adopted in Feb. 1998 stand G
superseded. The principles evolved through various tariff orders
will, however, continue to apply to the extent they are consistent
with and not specifically superseded by these guidelines. A
compendium or digest of principles evolved will be published
periodically.”
H
450 SUPREME COURT REPORTS [2021] 5 S.C.R.
A 73. It is thus clear, that the 31st March, 2005 notification specifically
states that the guidelines adopted in February 1998 stand superseded.
However, it provides, that the principles evolved through various tariff
orders would continue to apply to the extent they are consistent with and
not specifically superseded by the 2005 guidelines.
B 74. It will also be relevant to refer to paragraph 2.8.1 of the 2005
guidelines.
“2.8.1. ‘Royalty/Revenue share’ payable to the landlord port
by the private operator will not be allowed as an admissible
cost for tariff computation as decided by the Govt. in the
C Ministry of Shipping vide its Order No. PR-14019/6/2002-
PG dt. 29th July, 2003. In those BOT cases where bidding
process was finalized before 29 July, 2003, the tariff
computation will take into account royalty / revenue sharing
as cost for tariff fixation in such a manner as to avoid likely
loss to the operator on account of royalty / revenue share
D not being taken into account, subject to maximum of the
amount quoted by the next lowest bidder. This would,
however, be allowed for the period upto which such likely
loss will arise. This would not be applicable if there is provision
in the concession agreement on treatment of ‘Royalty/Revenue
E Share’.”
[emphasis supplied]
75. The said guidelines specifically provide that ‘royalty/revenue
share’ payable to the landlord port by the private operator will not be
allowed as an admissible cost for tariff computation as decided by the
F Government in the Ministry of Shipping vide its Order No.PR-14019/6/
2002-PG dated 29th July, 2003. It further provided, that in those BOT
cases where bidding process was finalized before 29th July, 2003, tariff
computation will take into account royalty/revenue sharing as cost for
tariff fixation in such a manner as to avoid likely loss to the operator on
G account of the royalty/revenue share not being taken into account.
However, this was subjected only to a maximum of the amount quoted
by the next lowest bidder. This was further subjected to be allowed for
the period upto which such likely loss would arise. It further provided
that this would not be applicable if there is provision in the concession
agreement on treatment of royalty/revenue share.
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 451
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
76. A conjoint reading of all these documents would reveal that A
when the bid document was published in April 1997; SICAL tendered its
bid in October, 1997 and submitted its financial offer in December,1997;
and the LoI was issued to SICAL on 29th January, 1998, there were no
guidelines at all. Even the guidelines of February 1998 do not provide for
royalty being factored as cost while fixation of tariff. On the contrary,
B
the tariff order of 1999 specifically clarifies that it has left the royalty
issue to be decided by TPT and the GoI. It has specifically clarified that
the approval by TAMP should not be interpreted to be amounting to any
implicit approval of royalty-related issue. Further, the tariff order issued
on 20th September, 2002 specifically rejects the claim of SICAL for
factoring any royalty as cost while tariff/price fixation. As already stated C
herein above, SICAL has challenged the said order before the Madras
High Court by way of writ petition, which petition has been allowed. It is
also not in dispute, that on account of interim order passed by the Madras
High Court dated 8th November, 2002, SICAL is still continuing to charge
at rates notified in the 1999 tariff order.
D
77. In this scenario, the finding of the Arbitral Tribunal, that there
was a law when the Agreement was entered into between the parties,
which provided royalty as a pass-through and that the said law has been
changed for the first time in 2003 and subsequently again changed in
2005, in our view, is a finding based on ‘no evidence’. Had the Arbitral
Tribunal perused the tariff orders of 1999 and 2002, it would have found E
that in the 1999 tariff order TAMP has specifically observed that its
approval of the tariff should not be construed as its implicit approval of
royalty-related issue and the 2002 tariff order specifically states that
royalty was not permitted to be factored in the cost while determining
tariff. The Arbitral Tribunal has totally failed to take into consideration F
this aspect of the matter.
78. As such, we are of the view, that since the finding of the
Arbitral Tribunal, that there was an existing law to the effect that the
royalty payable shall be permitted as a pass-through in cost while fixation
of tariff, is based on ‘no evidence’ and the finding, that there was a G
change in law in 2003 and 2005 is based on without taking into
consideration the relevant evidence, would come in the realm of perversity
as explained by this Court in paragraph 31 of the Associate Builders
(supra). The findings are based on ‘no evidence’ and ‘ignorance of vital
evidence’ in arriving at its decision.
H
452 SUPREME COURT REPORTS [2021] 5 S.C.R.
A 79. This brings us to the next issue viz., as to whether the Arbitral
Tribunal was justified in passing an award thereby substituting ‘royalty
payment module’ to the ‘revenue-sharing module’. A contract duly
entered into between the parties cannot be substituted unilaterally without
the consent of the parties. The intention of the parties could be gathered
from the documents on record. SICAL, for the first time, made
B
representation to TPT on 6th October, 2006thereby seeking a relief under
the terms of Article 14.3 of the Agreement. On 14th October, 2006, TPT
informed SICAL that the issues raised by it were under examination.
However, vide order dated 27th October, 2006, TPT refused to consider
SICAL’s application for relief since, according to it, the issue raised by
C SICAL was pending before the Madras High Court. SICAL therefore
filed writ petition being Writ Petition No. 4361 of 2006 before the Madras
High Court. The Madras High Court allowed the said writ petition vide
order dated 21st August, 2007 clarifying that the petition pending before
the High Court had nothing to do with the representation under Article
14 of the License Agreement and remanded the matter to TPT for
D
consideration afresh. Vide a reasoned letter dated 25th April, 2008, TPT
rejected the claim of SICAL. TPT has specifically observed that any
change in the Agreement cannot be done without prior approval of the
GoI. SICAL on 19th November, 2012 addressed a letter to TPT invoking
arbitration under Article 15.3 of the License Agreement. TPT strenuously
E contested the claim of SICAL with regard to prayer for change from
‘royalty payment mode’ to ‘revenue sharing mode’. The stand of TPT
has been crystalized by the Arbitral Tribunal in paragraph 5 of the Award,
which reads thus:
“5. Sum and substance of the defence is as follows:
F “There is no dispute at all. The grievance of the SICAL is that
there is an error committed by TAMP in fixing the tariff. That
grievance had been repeatedly taken before the High Court of
Madras by SICAL and at all stages orders have been passed
by setting aside the orders challenged. Therefore, the real
G grievance of SICAL is only against TAMP and not against
PORT. Since the issue regarding fixing of tariff is pending
finality, SICAL cannot maintain any claim legally or factually
against PORT. PORT is bound by the order of TAMP.
Whatever order TAMP passes, the PORT is bound to obey.
The PORT has no right to interfere with the tariff fixing power
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 453
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
of TAMP which is their exclusive domain and jurisdiction. The A
Contract is not entered into on the basis of any guidelines.
There was no guideline, as contended by SICAL, on the date
of the contract. By the present dispute, SICAL is trying to
change the entire nature of the contract, namely, from the
royalty module to the revenue sharing module. It is
B
impermissible for a court or this Tribunal to compel any party
to enter into a new contract. Contract is always by consent of
parties. All the grievance put forward before the Tribunal by
SICAL is their grievance in sum and substances before TAMP
and High Court of Madras in all challenges made against the
order of TAMP. Neither a Court nor the Tribunal can rewrite C
the Contract. The contract is an enforceable one and simply
because SICAL is stated to be losing monetarily, the relief
sought for in this dispute cannot be granted. If the case of
SICAL is true, it is open to them to put an end to the contract
and seek appropriate relief. If such a termination of the contract
D
takes place at the instance of SICAL, then the PORT will take
steps to get appropriate relief. Section 56 of the Contract Act
is applicable to this case”
A number of case laws have been cited by the learned Senior
Counsel for the PORT and we will refer to them at the appropriate
stage.” E
80. It could thus be seen, that SICAL wanted the Agreement to
be amended so as to change the ‘royalty payment method’ to ‘revenue-
sharing method’. TPT was always opposed to it. The intention of TPT is
apparent from its various communications and its stand before the Arbitral
Tribunal, that it was not agreeable for amendment of the Agreement F
from ‘royalty payment method’ to ‘revenue-sharing method’.
81. However, ignoring the stand of TPT, by the impugned Award,
the Arbitral Tribunal has thrust upon a new term in the Agreement
between the parties against the wishes of TPT. The ‘royalty payment
method’ has been totally substituted by the Arbitral Tribunal, with the G
‘revenue-sharing method’. It is thus clear, that the Award has created a
new contract for the parties by unilateral intention of SICAL as against
the intention of TPT.
82. After referring to various international treaties on arbitration
and judgments of other jurisdictions, this Court in Ssangyong H
454 SUPREME COURT REPORTS [2021] 5 S.C.R.
A Engineering and Construction Company Limited (supra), observed
thus:
“76. However, when it comes to the public policy of India,
argument based upon “most basic notions of justice”, it is clear
that this ground can be attracted only in very exceptional
circumstances when the conscience of the Court is shocked by
B
infraction of fundamental notions or principles of justice. It can be
seen that the formula that was applied by the agreement continued
to be applied till February 2013 — in short, it is not correct to say
that the formula under the agreement could not be applied in view
of the Ministry’s change in the base indices from 1993-1994 to
C 2004-2005. 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 itself expressly stipulates that it cannot apply unless
the contractors furnish an undertaking/affidavit that the price
adjustment under the Circular is acceptable to them. We have
D seen how the appellant gave such undertaking only conditionally
and without prejudice to its argument that the Circular does not
and cannot apply. This being the case, it is clear that the
majority award has 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
E
dehors the agreement. This being the case, a fundamental
principle of justice has been breached, namely, that a
unilateral addition or alteration of a contract can never be
foisted upon an unwilling party, nor can a party to the
agreement be liable to perform a bargain not entered into
F with the other party. Clearly, such a course of conduct would
be contrary to fundamental principles of justice as followed
in this country, and shocks the conscience of this Court.
However, we repeat that this ground is available only in
very exceptional circumstances, such as the fact situation
in the present case. Under no circumstance can any court
G interfere with an arbitral award on the ground that justice has not
been done in the opinion of the Court. That would be an entry into
the merits of the dispute which, as we have seen, is contrary to
the ethos of Section 34 of the 1996 Act, as has been noted earlier
in this judgment.”
H [emphasis supplied]
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 455
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
83. As such, as held by this Court in Ssangyong Engineering A
and Construction Company Limited (supra), the fundamental principle
of justice has been breached, namely, that a unilateral addition or alteration
of a contract has been foisted upon an unwilling party. This Court has
further held that a party to the Agreement cannot be made liable to
perform something for which it has not entered into a contract. In our
B
view, re-writing a contract for the parties would be breach of fundamental
principles of justice entitling a Court to interfere since such case would
be one which shocks the conscience of the Court and as such, would fall
in the exceptional category.
84. We may gainfully refer to the following observations of this
Court in Bharat Coking Coal Ltd. v. Annapurna Construction26. C
“22. There lies a clear distinction between an error within the
jurisdiction and error in excess of jurisdiction. Thus, the role of
the arbitrator is to arbitrate within the terms of the contract. He
has no power apart from what the parties have given him under
the contract. If he has travelled beyond the contract, he would be D
acting without jurisdiction, whereas if he has remained inside the
parameters of the contract, his award cannot be questioned on
the ground that it contains an error apparent on the face of the
record.”
85. It has been held that the role of the Arbitrator is to arbitrate E
within the terms of the contract. He has no power apart from what the
parties have given him under the contract. If he has travelled beyond the
contract, he would be acting without jurisdiction.
86. It will also be apposite to refer to the following observations
of this Court in the case of Md. Army Welfare Housing Organization F
v.Sumangal Services (P) Ltd.27
“43. An Arbitral Tribunal is not a court of law. Its orders are not
judicial orders. Its functions are not judicial functions. It cannot
exercise its power ex debito justitiae. The jurisdiction of the
arbitrator being confined to the four corners of the agreement, he G
can only pass such an order which may be the subject-matter of
reference.”
26
(2003) 8 SCC 154
27
(2004) 9 SCC 619 H
456 SUPREME COURT REPORTS [2021] 5 S.C.R.
A 87. It has been held that an Arbitral Tribunal is not a Court of law.
Its orders are not judicial orders. Its functions are not judicial functions.
It cannot exercise its powers ex debito justitiae. It has been held that
the jurisdiction of the arbitrator being confined to the four corners of the
agreement, he can only pass such an order which may be the subject-
matter of reference.
B
88. In that view of the matter, we are of the considered view, that
the impugned Award would come under the realm of ‘patent illegality’
and therefore, has been rightly set aside by the High Court.
89. The High Court has gone into various other aspects of the
C matter. Arguments have also been advanced before us with regard to
NSCT being given a discriminatory treatment as against SICAL. The
arguments have also been advanced on the ground of approbate and
reprobate and doctrine of election. It has also been argued on behalf of
SICAL that it is incurring huge losses. Per contra, it is submitted on
behalf of TPT, that it is incurring huge losses on account of various
D interim orders passed by the High Court and the District Judge in Section
9 applications.
90. We do not propose to go into those aspects of the matter.
TAMP has issued various notifications with regard to fixation of tariff so
also various orders have been passed by the GoI with regard to the
E aspect of grant or refusal of pass through of royalty payable. Various
petitions have been filed by SICAL challenging the said orders and
notifications. All the petitions were allowed thereby remanding the matters
to TAMP and GoI. However, it is not in dispute, that SICAL, by virtue of
the interim order passed dated 8th November, 2002 in Miscellaneous
F Petition No. 60240 of 2002 in Writ Petition No.40638 of 2002 is continuing
to levy charges on the basis of 1999 tariff order (dated 8th December,
1999) passed by TAMP.
91. The last notification issued by TAMP with regard to price/
tariff fixation dated 17th December, 2008, gazetted vide notification dated
G 30th December, 2008 was challenged by SICAL by way of Writ Petition
No.1350 of 2009. The last direction issued by the GoI dated 20th February,
2008 was also challenged by SICAL by way of Writ Petition No.1351 of
2009. By an order dated 15th October, 2009, the High Court has allowed
these writ petitions by setting aside the order of the GoI dated 20th
February, 2008 and the notification dated 17th December, 2008 issued by
H
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O. 457
CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
TAMP and has directed the GoI as well as TAMP to consider the issue A
afresh.
92. It is informed at the Bar, that the said order has been carried
in appeal before the Division Bench of the High Court both by SICAL
as well as TAMP, which are still pending before the High Court.
93. We are of the considered view, that if we make any observation B
on merits of the issue with regard to aforesaid submissions made before
us, it may prejudicially affect the rights of either of the parties. We
therefore refrain from making any observation with regard to the
aforesaid arguments, though heavily contested before us.
94. We therefore, confine ourselves with the issue as regards the C
validity of the Award. We also clarify that any observations made by the
High Court with regard to other aspects of the matter except the validity
of the Award, would not come in the way of either of the parties raising
their grievances in either the proceedings which are pending before the
Division Bench of the High Court or any other proceedings to which D
either of it would be entitled to take recourse in law.
95. In the result, with these observations, we dismiss the appeals.
However, in the facts and circumstances of the case, there shall be no
order as to costs. Pending applications, if any, shall stand disposed of
accordingly. E
Devika Gujral Appeals dismissed.
F
G
H
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