Supreme Court Restores Arbitral Award in Dispute Over BOQ Rates for Increased Quantities of Geogrid, Emphasizes Limited Scope of Judicial Review Under Sections 34 and 37 of the Arbitration Act

1. Court’s Decision

The Supreme Court overturned the Delhi High Court Division Bench’s decision that had set aside an arbitral award favoring the contractor. It reinstated the award, emphasizing that:

1. Courts should exercise restraint while reviewing arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
2. The arbitral tribunal’s findings, if reasonable and plausible, must be respected unless they are found to be patently illegal or contrary to public policy.

2. Facts

1. The Contract: The National Highways Authority of India (NHAI) awarded a contract for four-laning a section of NH-2 in Uttar Pradesh. The contractor, a joint venture, agreed to execute the work at a price of ₹4961 crore.
2. The Dispute: A specific item in the Bill of Quantities (BOQ)—geogrid material for a reinforced earth wall—was found to have significantly underestimated quantities. The actual quantity required was much higher, leading to a dispute over whether:
   • The excess quantity constituted a “variation” as per the contract.
   • The contractor was entitled to the original BOQ rates for the increased quantity or whether new rates should be negotiated.
3. Previous Adjudications:
   • The Dispute Review Board (DRB) and the Arbitral Tribunal ruled in favor of the contractor, holding that the increase in quantity was not a “variation” under Clause 51.1 of the contract and thus payable at the BOQ rate.
   • A Single Judge of the Delhi High Court upheld the arbitral award under Section 34.
   • The Division Bench of the High Court, however, set aside the award under Section 37, concluding that the award was perverse and contrary to public policy.
4. Supreme Court’s Review: The contractor appealed the Division Bench’s decision in the Supreme Court.

3. Issues

1. Primary Issue: Whether the increased quantity of geogrid constituted a variation under Clauses 51 and 52 of the contract.
2. Secondary Issue: Whether the Division Bench of the High Court erred in overturning the concurrent findings of the DRB, Arbitral Tribunal, and Single Judge.
3. Scope of Judicial Review: To what extent can courts interfere with arbitral awards under Sections 34 and 37 of the Arbitration Act?

4. Petitioner’s Arguments (Contractor)

1. Error in BOQ Estimates: The appellant argued that the increased quantity of geogrid was due to NHAI’s incorrect estimation during the tender process, not a change in design or instructed variation.
2. Concurrent Findings: The DRB, Arbitral Tribunal, and Single Judge all agreed that the increase was not a variation under Clause 51.1, and the BOQ rate applied to the entire quantity.
3. Limited Scope of Review: The Division Bench exceeded its jurisdiction under Section 37 by reinterpreting evidence and contractual terms.

5. Respondent’s Arguments (NHAI)

1. Variation in Quantity: NHAI contended that the increased quantity qualified as a variation under Clause 51.1, allowing renegotiation of rates by the Engineer.
2. Public Policy Violation: The arbitral award ignored contractual provisions and was contrary to public policy and fundamental principles of justice.
3. Renegotiation Triggered: Clauses 51 and 52 allowed for renegotiation when actual quantities exceeded estimated quantities by more than 25%.

6. Analysis of the Law

1. Clauses 51 and 52 of the Contract:
   • Clause 51.1: Allows the Engineer to make variations in the form, quality, or quantity of work, but only if instructed.
   • Clause 51.2 (Proviso): Specifies that increases in quantity due to BOQ underestimation are not variations if not instructed by the Engineer.
   • Clause 52.2: Allows renegotiation of rates for instructed variations but requires compliance with certain thresholds (e.g., quantity exceeding 25% of estimates or cost exceeding 2% of contract value).
2. Supreme Court’s Findings:
   • The increase in geogrid quantity was an automatic adjustment due to incorrect BOQ estimates, not an instructed variation.
   • The DRB and Arbitral Tribunal correctly interpreted the contractual provisions, ruling that the BOQ rate applied to the additional quantity.

7. Precedent Analysis

The Supreme Court cited several rulings to emphasize limited judicial interference in arbitral awards:

1. MMTC v. Vedanta (2019): Judicial review under Section 34 does not extend to reappreciating evidence or second-guessing arbitrators’ interpretations of contracts.
2. Ssangyong Engineering v. NHAI (2019): Awards can only be set aside for patent illegality or if they shock the conscience of the court.
3. PSA Sical Terminals v. Chidambaranar Port Trust (2023): Courts should not act as appellate forums for arbitral decisions.
4. Reliance Infrastructure v. State of Goa (2024): The appellate court’s review under Section 37 is narrower than the review under Section 34.

8. Court’s Reasoning

1. Plaintiff’s Interpretation: The contractor’s interpretation of Clauses 51 and 52, upheld by the DRB and Arbitral Tribunal, was reasonable and based on contractual context.
2. High Court’s Error: The Division Bench erred by:
   • Reinterpreting the contractual provisions beyond its jurisdiction under Section 37.
   • Ignoring concurrent findings of three technical bodies.
   • Expanding the scope of judicial review to reassess evidence and draw alternative conclusions.
3. Role of Expertise: The DRB and Arbitral Tribunal were composed of technical experts familiar with the contract and dispute. Their findings deserved deference.

9. Conclusion

The Supreme Court:

1. Reinstated the arbitral award favoring the contractor.
2. Held that the Division Bench overstepped its jurisdiction under Section 37 by interfering with plausible and reasoned findings of the Arbitral Tribunal.
3. Cautioned courts against frequent interference in arbitration, as it undermines the purpose of the Arbitration Act.

10. Implications

1. Minimal Judicial Intervention: The judgment reinforces arbitration as a reliable dispute resolution mechanism by limiting judicial interference.
2. Respect for Expertise: The decision highlights the importance of respecting findings of technical experts in arbitral tribunals.
3. Contractual Integrity: The ruling underscores that courts should not rewrite or reinterpret contracts unless there is clear evidence of illegality or perversity.

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