The Bombay High Court delivered a detailed judgment that instantly drew murmurs from the lawyers present. The Court set aside a majority arbitral award that had saddled Konkan Railway Corporation Ltd. (KRCL) with liability to pay royalty on "ordinary earth" used for embankment construction in the massive Gadarwara NTPC project in Madhya Pradesh.
Background
The dispute arose from NTPC’s plan to establish a Super Thermal Power Plant at Gadarwara. KRCL, appointed as the project management agency, floated a tender in 2016 for construction of the coal transportation system.
SRC Company Infra Pvt. Ltd., emerging as the L1 bidder, executed the contract in 2017. Things went smoothly for a while. But in December 2018, the Collector (Mineral Branch), Madhya Pradesh, issued a demand letter requiring royalty payment of ₹100 per cubic meter for earth used in embankment works-totalling nearly ₹22 crore.
SRC argued that this royalty was never part of its bid because, according to internal tender committee impressions and a 2009 circular, royalty on "ordinary earth" was believed to be nil. KRCL said the opposite: the contract explicitly placed liability on the contractor.
Arbitration followed. In 2020, by majority, the Tribunal held KRCL liable and even directed modification of the contract to reflect a supposed "consensus ad idem" (meaning: both parties were on the same page). A dissenting arbitrator strongly disagreed, holding SRC liable instead.
KRCL challenged the majority award under Section 34 of the Arbitration and Conciliation Act, 1996.
Court’s Observations
Justice Chagla walked through the contract clauses in meticulous detail. As he spoke, many in the courtroom scribbled hastily; the judge wasn’t mincing words.
He noted that several clauses—particularly Clause 5, Clause 37 of the General Conditions of Contract, and Clause 57 of the Special Conditions—made it "abundantly clear" that payment of royalty was squarely the contractor’s responsibility.
The judge remarked that the Tribunal could not go into what it perceived as the "real intention" of the parties unless the contract itself was ambiguous. "The bench observed, 'Both parties agreed that on a plain reading of the contract, royalty liability rested with the contractor. The Tribunal could not disregard clear wording.'"
The Court was especially critical of how the Tribunal invoked Section 26 of the Specific Relief Act, which deals with rectification of instruments. There was no pleading seeking rectification, no framed issue, and no prayer. Yet the majority used this provision to practically rewrite the contract.
"The bench noted, 'This is not an option. Modifying the contract to reflect a supposed consensus amounts to rewriting it-an act wholly impermissible.'"
Justice Chagla reiterated that under the Supreme Court's settled principles, including Associate Builders, Nabha Power, and Food Corporation of India, an arbitrator cannot travel beyond the contract, introduce implied terms without satisfying strict tests, or adjudicate on matters not referred.
He also pointed out that SRC, having submitted an unconditional bid knowing the terms, could not later claim relief because they allegedly did not factor royalty into pricing. "Participation in the tender comes with consequences," the judge remarked plainly, drawing nods from several counsel.
Concluding the judgment, Justice Chagla held that the arbitral award suffered from patent illegality, violated fundamental policy of Indian law, and was based on findings perverse in light of the contract.
The Court, therefore, set aside the majority arbitral award in its entirety.
Case Title: Konkan Railway Corporation Ltd. vs. M/s SRC Company Infra Private Ltd.
Case Numbers: Commercial Arbitration Petition No. 646 of 2021
Commercial Arbitration Petition No. 641 of 2021
