Summary of the Judgment
Case Name: Somdatt Builders-NCC-NEC (JV) v. National Highways Authority of India (NHAI) & Ors.
Date of Judgment: 27 January 2025
Judges: Hon’ble Mr. Justice Ujjal Bhuyan
Advocates:
For the Appellant: Mr. Arvind Minocha, Senior Advocate
For the Respondent: Mr. Krishnan Venugopal, Senior Advocate
Acts and Sections Discussed: Arbitration and Conciliation Act, 1996 – Sections 34 and 37
Cited Judgments:
Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49
Ssangyong Engineering and Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131
Hindustan Construction Company Ltd. v. NHAI, (2024) 2 SCC 613
MP Power Generation Co. Ltd. v. Ansaldo Energia SPA, (2018) 16 SCC 661
Introduction
The recent Supreme Court judgment in Somdatt Builders-NCC-NEC (JV) v. National Highways Authority of India (NHAI) highlights critical principles governing judicial review under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”). The case deals with the boundaries of appellate intervention, especially when technical findings by arbitrators are overturned by higher courts. The dispute, arising from a high-stakes infrastructure project funded under World Bank assistance, provides a meaningful context for arbitration practitioners in India.
Factual Background
The appellant, Somdatt Builders-NCC-NEC (JV), was awarded a contract by NHAI in 2002 for four-laning and strengthening of a section of NH-2 in Uttar Pradesh. Disputes arose regarding the quantities and rates for a specific Bill of Quantity (BOQ) item concerning geogrid materials. These issues were escalated to arbitration, resulting in an award in favour of the appellant. However, the award was set aside by a Division Bench of the Delhi High Court under Section 37 of the Act, leading to the present appeal before the Supreme Court.
Key Legal Issues
Scope of Judicial Review under Sections 34 and 37 The primary issue was whether the Division Bench was justified in overturning the arbitral award despite concurrent findings by the Arbitral Tribunal and the Single Judge under Section 34.
Interpretation of Variations in Contract Clauses The dispute revolved around whether an increase in quantities of geogrid material constituted an instructed variation under the contract’s provisions.
Observations by the Supreme Court
Limits of Judicial Interference
Hon’ble Mr. Justice Ujjal Bhuyan reiterated that courts must exercise restraint in interfering with arbitral awards. The Court observed:
“Section 37 of the Arbitration and Conciliation Act is not an appellate provision allowing the court to re-appreciate evidence or revisit contractual terms. It exists to correct perversity or illegality of the highest order.”
The Court criticised the Division Bench for engaging in re-evaluation of technical findings, contrary to the principle of minimal judicial intervention.
Importance of Technical Expertise in Arbitration
The Arbitral Tribunal’s composition, consisting of experts familiar with construction contracts, was a key factor in its findings. The judgment emphasised:
“Arbitrators chosen for their technical expertise are better equipped to interpret contractual clauses in specialised fields such as construction and infrastructure.”
This reinforces the idea that arbitral awards should not be easily disturbed unless they violate public policy or procedural fairness.
On the Contractual Clauses
The core contractual provisions were Clauses 51 and 52 of the Conditions of Particular Application (COPA), which regulated variations in quantities and pricing. The Court concurred with the Tribunal’s finding that the increased quantities did not constitute a change in design or an instructed variation. Instead, it was a result of inaccurate BOQ estimates provided at the tendering stage. The Court observed:
“A mere increase in quantity to meet design requirements cannot be classified as an instructed variation attracting renegotiated rates unless expressly stipulated.”
This interpretation aligns with the foundational principle that ambiguities in tender documents should be construed against the drafter.
Broader Implications for Arbitration in Public Contracts
Respecting Finality of Arbitral Awards
This judgment reiterates that the arbitral process is intended to provide finality. The Act explicitly limits court intervention to narrow grounds such as procedural irregularities or violations of fundamental public policy. The Court’s disapproval of the Division Bench’s expansive review underscores the importance of respecting arbitral autonomy.
Encouraging Specialised Dispute Resolution
Infrastructure projects often involve highly technical disputes that require domain-specific expertise. The judgment reinforces the value of appointing arbitrators with technical knowledge and underscores the judiciary’s role in supporting, rather than undermining, such specialised forums.
Clarity in Contract Drafting
The case highlights the importance of clear and precise drafting of contractual clauses, particularly in public contracts. Misinterpretations arising from vague or inconsistent provisions not only lead to disputes but also increase project costs and timelines.
Meaningful Precedents Cited
The judgment draws on landmark cases to underscore its reasoning:
Associate Builders v. DDA: The Court reaffirmed the principle that courts cannot interfere with arbitral awards merely because they would have interpreted the terms differently.
Ssangyong Engineering v. NHAI: The case emphasised the narrow scope of judicial intervention under Sections 34 and 37, particularly post the 2015 amendments to the Act.
Hindustan Construction Co. Ltd. v. NHAI: This case reinforced the principle that procedural fairness and adherence to public policy are the only legitimate grounds for setting aside arbitral awards.
Lessons
Drafting and Negotiating Contracts
Legal professionals must ensure that variation clauses in contracts are unambiguous and account for contingencies such as quantity deviations. Additionally, tender documents must be scrutinised to minimise scope for disputes.
Handling Arbitration Proceedings
This case illustrates the importance of presenting robust technical and evidentiary support during arbitration. Lawyers must focus on convincing arbitrators rather than relying on appellate courts for relief.
Judicial Strategy
For litigators, the judgment serves as a reminder to frame challenges under Sections 34 and 37 narrowly. Arguments should focus on demonstrating perversity or procedural violations rather than inviting courts to reappreciate evidence.
Conclusion
The Supreme Court’s ruling in Somdatt Builders-NCC-NEC (JV) v. NHAI is a significant addition to the evolving jurisprudence on arbitration in India. By reinforcing the principles of limited judicial intervention, respect for technical expertise, and clarity in contract interpretation, the judgment strengthens the arbitration regime’s credibility. For legal practitioners, it offers a wealth of insights into navigating arbitration disputes and advocating effectively within the framework of the Act.
The judgment serves as a beacon for the legal fraternity, urging all stakeholders to prioritise efficiency, expertise, and procedural integrity in resolving complex commercial disputes. As arbitration continues to play a pivotal role in India’s economic development, such judicial pronouncements will remain vital in shaping a robust and predictable dispute resolution ecosystem.
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