Psa Sical Terminals Pvt. Ltd. vs The Board Of Trustees Of V.O. … on 28 July, 2021


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Supreme Court of India

Psa Sical Terminals Pvt. Ltd. vs The Board Of Trustees Of V.O. … on 28 July, 2021

Author: B.R. Gavai

Bench: Rohinton Fali Nariman, B.R. Gavai

                                                                           REPORTABLE

                                      IN THE SUPREME COURT OF INDIA
                                       CIVIL APPELLATE JURISDICTION


                                   CIVIL APPEAL NOS. 3699­3700 OF 2018

                         PSA SICAL TERMINALS PVT. LTD.                ...APPELLANT(S)

                                                     VERSUS

                         THE BOARD OF TRUSTEES OF V.O.
                         CHIDAMBRANAR PORT TRUST
                         TUTICORIN AND OTHERS                      ...RESPONDENT(S)




                                                 JUDGMENT

B.R. GAVAI, J.

1. The appellant has approached this Court being aggrieved

by the judgment and order dated 1 st November 2017, passed by

the Division Bench of the Madras High Court in C.M.A. (MD)

No. 345 of 2016 and C.M.P. (MD) No. 4867 of 2016, thereby

Signature Not Verified
allowing the appeal of the respondent No.1 herein under
Digitally signed by R
Natarajan

Section 37(1)(c) of the Arbitration and Conciliation Act, 1996
Date: 2021.07.28
16:20:39 IST
Reason:

(hereinafter referred to as ‘the Arbitration Act’) vide which the

1
High Court set aside the award dated 14 th February 2014,

passed by the Arbitral Tribunal and the order passed by the

District 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.1­The Board of Trustees of V.O.

Chidambranar Port Trust, Tuticorin (hereinafter referred to as

‘TPT’) issued a global tender on 9 th 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. In response to

the tender, the appellant­PSA Sical Terminals Pvt. Ltd.

(hereinafter referred to as ‘SICAL’) submitted its bid on 24 th

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

2
to as ‘LoI’) was issued to it on 29th January 1998 and the same

was followed by a License Agreement dated 15 th 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 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 8th December 1999. TAMP notified its order of 8th

December 1999 vide gazette notification dated 28 th December

1999, thereby approving the 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

3
dated 20th September 2002, rejected the proposal of SICAL for

increase in tariff.

4. SICAL filed Writ Petition Nos. 40637­40639 of 2002 before

the Madras High Court for quashing of the TAMP order dated

20th September 2002. In the said proceedings, the Madras High

Court passed an order dated 8 th November 2002 granting

interim relief in favour of SICAL, thereby staying the TAMP

order dated 20th September 2002. 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 29 th July 2003,

clarified that revenue sharing/royalty payment shall not be

factored into as cost for fixation/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

4
computation will take into account royalty/revenue share as

cost for 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 if

there is a provision in the concession agreement on treatment

of royalty/revenue share.

6. On 17th 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 Writ Petition Nos. 40637­40639 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 31 st 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

5
provided that 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 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 implementing the 2002

Tariff, will be quantified by TAMP and such advantages/gains

will be adjusted/set­off 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 17 th April 2006.

Vide the said directive/order, the request of SICAL for claiming

a part of royalty as pass through came to be rejected. SICAL

6
thereafter submitted its proposal for fixation of tariff on 18 th

April 2006. TAMP passed a tariff order on 23 rd August 2006,

which came to be notified on 15 th September 2006, vide which

SICAL’s proposal for increase in tariff was rejected.

8. SICAL made a written representation to TPT on 6 th 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.

9. SICAL also filed Writ Petition Nos. 38845 and 38846 of

2006 before the Madras High Court on 9 th October 2006,

thereby challenging the GoI directive dated 17 th 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 Court. The

said communication dated 27th October 2006 came to be

challenged by SICAL before the Madras High Court vide Writ

7
Petition No.43461 of 2006. The Madras High Court passed an

order dated 21st 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 with the pendency of

said writ petition and quashed the communication dated 27 th

October 2006. It directed TPT to consider and decide the

representation of SICAL on its own merits.

10. Vide subsequent order dated 22 nd August 2007, Writ

Petition Nos. 38845 and 38846 of 2006 were allowed by setting

aside the TAMP order dated 23 rd 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.

11. In pursuance of the order passed by the High Court, the

GoI issued a directive on 20 th February 2008, therein

considering the contentions raised on behalf of SICAL. The said

directive provided that TAMP, while fixing the tariff in case of

8
SICAL, should take into consideration the benefit given in the

case of CCTL.

12. TAMP vide notification dated 26th February 2008, notified

the 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

21st August 2007, the Chairman, TPT passed an order on 25 th

April 2008, observing therein that any change in the bidding

parameter is a matter of 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 3 rd October

2008. TAMP passed tariff order dated 17 th December 2008,

which came to be notified on 30 th 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.
9
SICAL also filed Writ Petition Nos. 1350 and 1351 of 2009,

challenging the tariff order dated 17th December 2008 and the

policy direction issued by GoI dated 20 th 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

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 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

10
model. A meeting was held 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.

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

Twenty­foot Equivalent Unit (hereinafter referred to as “TEU”)

was scheduled to exceed the tariff. On 30 th June 2011, District

Judge, Tuticorin passed an order granting ad­interim stay in

the Section 9 petition, thereby restraining TPT 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.

11

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 ad­interim injunction granted in its favour.

Thereafter, there was exchange of certain 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 arbitration clause

under Article 15.3 of the License Agreement. In the meantime,

on 8th 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 to which a statement in rejoinder came to be filed

12
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 Container

Terminal of TPT from royalty model to revenue share model.

19. The award of Arbitral Tribunal dated 14 th February, 2014

came 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

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 re­presented its Section 34 petition on 30 th June

2015, before the District Judge, Tuticorin being Ar.O.P. No. 260

of 2015. The District Judge, Tuticorin vide order dated 25 th

13
February 2016, dismissed the Section 34 petition filed by TPT.

Being aggrieved thereby, TPT filed an appeal before the Madras

High Court which came to be allowed by the order dated 1 st

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 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 appellant­SICAL, Smt.

Madhavi Divan, learned Additional Solicitor General of India

and Shri Keshav Thakur, learned counsel on behalf of TPT.

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

14
in Article 14 is wide enough and includes any valid act,

ordinance, rule, regulation, notification, directive, orders,

policy, bye­laws, 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,

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

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 which was built on BOT basis. The second one

being the Seventh Berth of TPT. He submitted that these are

15
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 to be factored in while finalizing the tariff. He

submitted that perusal of the tariff order dated 8 th 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.

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 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 31 st March 2005, by

16
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 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

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 pay royalty to TPT on the basis of annual

increment, however the tariff which it can charge, has been so

fixed so as not to allow royalty as a pass through. He

17
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 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 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 petitions filed by SICAL were basically

18
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 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

2011­12, the royalty payable to TPT crossed the tariff. He

submitted that the contention considered by the High Court

with 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 amounts to perversity, an

interference would not be warranted either under Section 34 or

19
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 well­reasoned

award of the Arbitral Tribunal. He relies on the following

judgments in support of his submissions:­

MMTC Limited v. Vedanta Limited1, Associate Builders v.

Delhi Development Authority2, State of Jharkhand and

Others v. HSS Integrated SDN and Another3, Sumitomo

Heavy Industries Limited v. Oil and Natural Gas

Corporation Limited4, 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 Limited7, Pure

Helium India (P) Limited v. Oil and Natural Gas

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
6 (2012) 5 SCC 306
7 (2009) 10 SCC 63
20
Corporation Limited8, P.V. Subba Naidu and Others v.

Government of A.P. and Others9, Dhannalal v. Kalawati

Bai and Others10, 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 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 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 law to the

detriment of the Licensee, the Licensee was entitled to relief

8 (2003) 8 SCC 593
9 (1998) 9 SCC 407
10 (2002) 6 SCC 16
11 (2005) 10 SCC 51
12 (2008) 1 SCC 125
21
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 Counsel in this respect relies on the

judgments of the Delhi High Court in Sandvik Asia Private

Limited v. Vardhman Promoters13 and 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 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 viability for long term contracts has to be provided.

13 2007 (94) DRJ 762
14 2008 (106) DRJ 820
22
He submitted that Article 14 was provided as an in­built

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 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 19 th 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 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.

15 (2019) 19 SCC 9
23

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 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 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 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

24
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 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 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 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 so­called change

in law, invoke arbitration proceedings. She therefore submitted

25
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.

Raghunathrao Ganpatrao v. Union of India16, Nagubai

Ammal and Others v. B. Shama and Others 17, Suresh

Kumar Wadhwa v. State of Madhya Pradesh and Others 18,

All India Power Engineer Federation and Others v. Sasan

Power Limited and Others19, Rashtriya Chemicals and

Fertilizers Limited v. Chowgule Brothers and Others 20,

South East Asia Marine Engineering and Constructions

Limited v. Oil India Limited21, J.G. Engineers Private

Limited v. Union of India and Another22, Satyanarayana

Construction Company v. Union of India and Others23,

Ssangyong Engineering and Construction Company

Limited v. National Highway Authority of India (NHAI)24

16 (1994) 1 SCC Supp 191
17 [1956] SCR 451
18 (2017) 16 SCC 757
19 (2017) 1 SCC 487
20 (2010) 8 SCC 563
21 (2020) 5 SCC 164
22 (2011) 5 SCC 758
23 (2011) 15 SCC 101
24 (2019) 15 SCC 131
26

34. Dr. Singhvi, in rejoinder, submitted that a stray statement

made 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.

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 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
27
by Secretary, Ministry of Shipping and Transport, 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 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 cited by counsel of both the parties, we

do not find it necessary to refer to all of them. In our view, a

reference to few recent judgments of this Court will be

sufficient.

28

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).

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 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.

40. It will be relevant to refer to the following observations of

this Court in the case of MMTC Limited (supra):

25 (2019) 15 SCC 131
29
“11. As far as Section 34 is concerned, the
position is well­settled by now that the
Court does not sit in appeal over the
arbitral award and may interfere on merits
on the limited ground provided 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
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 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.

12. It is only if one of these conditions is
met that the Court may 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
30
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 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
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] )

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, contravention of the fundamental
policy of Indian law, and conflict with the
most basic notions of justice or morality.
Additionally, sub­section (2­A) has been
inserted in Section 34, which provides that
in case of domestic arbitrations, violation
31
of Indian public policy also includes patent
illegality appearing on the face of the
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 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.
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

Limited (supra), this Court after considering various judgments

including the judgment in Associate Builders (supra) observed

thus:

32
“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 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] 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 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 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] .

33

35. It is important to notice that the
ground for interference insofar as it
concerns “interest of India” has since been
deleted, and 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 SCC 49 : (2015) 2 SCC (Civ) 204] , as it
is only such arbitral awards that shock the
conscience of the court that can be set
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 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
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)
34
3 SCC 49: (2015) 2 SCC (Civ) 204], and
paras 28 and 29 in particular, is now done
away with.

37. Insofar as domestic awards made in
India are concerned, an additional ground
is now available under sub­section (2­A),
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 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.

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 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,
35
he commits an error of jurisdiction. This
ground of challenge will now fall within the
new ground added under Section 34(2­A).

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 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. 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.

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,

36
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. 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 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
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 Act. The

interference would be so warranted when the award is in

violation of “public policy of India”, which has been held to

37
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

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 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 for challenge under “public policy of India”, would

38
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.

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 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

(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 Officer­cum­Assessing
Authority v. Gopi Nath & Sons [1992 Supp

39
(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 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)
“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 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.

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,

40
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 full­fledged container 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:

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. 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.

(The operator shall pay to the port royalty
fee in the same currency in which charges
are realised from users. The exchange rate
41
to be used would be notified rate on the
date of realisation).

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 a license to develop the seventh berth as a full­fledged

container terminal with ship­to­shore and shore­to­ship

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:

(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 is also clear, that in case actual throughput

falls below the minimum throughput guaranteed by the

42
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

(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:

“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.

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

43
LICENSEE. Charges on 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 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.”

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 Annexure­II

of the bid document. It is also provided, 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

44
approval of the Committee constituted by the

Government/Tariff Regulatory Authority.

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 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 presented in the
financial proposal in Attachment 4.1. The
calculation of the royalty fees will be based
on the Licensee’s 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

45
such bid will be rejected and not
considered for ranking.”

50. Attachment 4.4 makes it amply clear, that all responsive

bids 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:

“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, 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 the
Major Port Trusts Act
, 1963, as applicable,
from time to time. For the purpose of fixing

46
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 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 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.

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.

xxx xxx xxx
47
7.3.5 Payment and Payment Terms

7.3.5.1 Initial Payment

In consideration of the grant of this
License, the Licensee shall 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 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 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 of royalty
already remitted, shall be paid by the
Licensee to the Licensor within fifteen

48
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 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 the Port based on a single
percentage (plus or minus) to be applied 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 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

49
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 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 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. Appendix­15 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 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

50
further clarifies, that the Licensee shall pay to the Licensor

royalty calculated on the basis of minimum guaranteed traffic

royalty as set out in Appendix­12. It is also provided, that

minimum guaranteed traffic royalty rate as set out in Appendix­

12 will be adjusted upwards or downwards as a one­time

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 contention between the parties, which reads thus:

“ARTICLE 14

CHANGE IN LAW

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 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,
51
alteration, modification or repeal of any
existing law 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

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.

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 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,
52
administrative 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 thereof by a court of

law or enactment of any new law coming into 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 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.

56. The questions therefore that we will have to answer are:

53

(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 the contract from royalty payment module to

revenue­sharing 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 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:

“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

54
International Inc. v. Burn Standard Co. Ltd.,
(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].]”

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 29 th 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 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, adversely affected SICAL.

55

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, 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 29 th

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 guidelines were

adopted by TAMP in the workshop held in Chennai on 26 th/27th

February, 1998.

61. Let us examine what do these guidelines provide.

“The TAMP must adhere to established
costing systems and pricing principals, its
overall objective shall be to move towards
competitive pricing.

56
There are various approaches to tariff
fixation. Until more
information/knowledge becomes available.
Attempts may be made to smoothen the
system within the existing framework.

During the Interregnum, port pricing may
continue to be cost­based 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 the
same time, 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. Even if the
TAMP is not equipped at present to cope
with the load of work relating to such
scrutiny, it must at 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.”

[emphasis supplied]
57

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 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 cost­based 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 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 return can be achieved either by increasing the surplus

58
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 the tariff. Though the said guidelines observed,

that the port pricing may continue to be cost­based 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 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 TAMP vide order dated 08 th December, 1999

(notified on 28th December, 1999) has approved the proposal

with regard to fixation of tariff insofar as SICAL is concerned. It

59
will be relevant to refer to sub­para (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. 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 dollar­denomination, it will
be necessary for us to clarify that our
approval of the tariffs cannot be
interpreted to amount to any implicit
approval of royalty­related issues.
Specifically, in the context of the TPT’s
condition about dollar­denomination of
royalty, the method of conversion adopted
by the Applicant for the purpose of
financial statements based on tariffs
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 not so far chosen to interfere in that regard.

60
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 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

sub­para (iv) of paragraph 7.

66. The second tariff order in case of SICAL came to be passed

on 20th September, 2002 (notified on 4 th October, 2002). It will

be relevant to refer to sub­para (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 11.4%, 15.4% and
61
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.

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 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 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.

62
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 tariff
exercise.”
[emphasis supplied]

67. Perusal of the aforesaid sub­para would clearly reveal that

one of the main items of expenditure considered by SICAL was

the 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 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

63
would mean that CCTL (Private Terminal Operator) and CHPT

(the Licensor), both of whom enjoyed a dominant position,

could 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

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 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 40637­40639 of

2002 before the Madras High Court. The Madras High Court

64
has also passed interim order on 8th November, 2002 thereby

staying the 2002 notification and permitting SICAL to charge

tariff on the basis of the 1999 tariff order.

70. Then comes the notification dated 29 th 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 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 the
revenue sharing/royalty payment shall
not be factored 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 the cost of private
operators.

(ii) If royalty is allowed as cost, the
private bidder can offer any high

65
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 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

GoI has decided to clarify, as a matter of policy, that the

revenue­sharing/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

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.

66

72. Then comes a notification dated 31st March, 2005 issued

by TAMP. It will be relevant to note that these guidelines have

been issued subsequent to the consultation meetings held with

the stake­holders 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 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.”

73. It is thus clear, that the 31 st 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.

74. It will also be relevant to refer to paragraph 2.8.1 of the

2005 guidelines.

67

“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 Ministry of Shipping vide its Order
No. PR­14019/6/2002­PG 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 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 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 Government in the

Ministry of Shipping vide its Order No.PR­14019/6/2002­PG

dated 29th July, 2003. It further provided, that in those BOT
68
cases where bidding process was finalized before 29 th 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 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.

76. A conjoint reading of all these 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 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,

the tariff order of 1999 specifically clarifies that it has left the

69
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. As

already stated 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.

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 pass­through 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 that in the

70
1999 tariff order TAMP has specifically observed that its

approval of the tariff should not be construed as its implicit

approval of royalty­related 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 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 pass­through 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 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.

79. This brings us to the next issue viz., as to whether the

Arbitral Tribunal was justified in passing an award thereby

71
substituting ‘royalty payment module’ to the ‘revenue­sharing

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 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 27 th

October, 2006, TPT refused to consider SICAL’s application for

relief since, according 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 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 25 th April, 2008, TPT

rejected the claim of SICAL. TPT has specifically observed that
72
any change in the Agreement cannot be done without prior

approval of the GoI. SICAL on 19 th November, 2012 addressed

a 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’. 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:

“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
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
73
with the tariff fixing power of
TAMP which is their exclusive
domain and jurisdiction. The
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 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 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 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”

74

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.”

80. It could thus be seen, that SICAL wanted the Agreement to

be amended so as to change the ‘royalty payment method’ to

‘revenue­sharing 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 from ‘royalty

payment method’ to ‘revenue­sharing 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 ‘revenue­sharing 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

75
Ssangyong 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
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 1993­1994 to 2004­2005. 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 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

76
under the agreement by another
formula 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 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 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.”
[emphasis supplied]

83. As such, as held by this Court in Ssangyong

Engineering and Construction Company Limited (supra),

the fundamental principle of justice has been breached,

namely, that a unilateral addition or alteration of a contract has

77
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 view, re­writing 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.

“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 acting
without jurisdiction, whereas if he has
remained inside the parameters of the
contract, his award cannot be questioned

26 (2003) 8 SCC 154
78
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 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 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 can only pass such an order
which may be the subject­matter of
reference.”

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

27 (2004) 9 SCC 619
79
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 subject­matter of

reference.

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

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 interim orders

passed by the High Court and the District Judge in Section 9

applications.

80

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 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 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 30th December, 2008 was challenged by

SICAL by way of Writ Petition No.1350 of 2009. The last

direction issued by the GoI dated 20 th 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

81
allowed these writ petitions by setting aside the order of the GoI

dated 20th February, 2008 and the notification dated 17 th

December, 2008 issued by TAMP and has directed the GoI as

well as TAMP to consider the issue 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 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 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
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proceedings which are pending before the Division Bench of the

High Court or any other proceedings to which 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.

…..……………………..J.

[R.F. NARIMAN]

………………………….J.

[B.R. GAVAI]
NEW DELHI;

JULY 28, 2021

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