PSA SICAL TERMINALS PVT. LTD. versus THE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORT TRUST TUTICORIN AND OTHERS on 28 July 2021

SUPREME COURT REPORTS

[2021] 5 S.C.R.

APSA SICAL TERMINALS PVT. LTD.

v.

THE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORTTRUST TUTICORIN AND OTHERS

(Civil Appeal Nos. 3699-3700 of 2018)

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JULY 28, 2021

[R. F. NARIMAN AND B. R. GAVAI, JJ.]

Arbitration and Conciliation Act, 1996: s.34 – Applicationfor setting aside award – Scope of interference – Held: In anCapplication under s.34, the court is not expected to act as anappellate court and re-appreciate the evidence – The scope ofinterference would be limited to grounds provided under s.34 of theArbitration Act – The interference would be so warranted when theaward is in violation of “public policy of India”, which has beenDheld to mean “the fundamental policy of Indian law” – A judicialintervention on account of interfering on the merits of the awardwould not be permissible – However, the principles of natural justiceas contained in s.18 and 34(2)(a)(iii) of the Arbitration Act wouldcontinue to be the grounds of challenge of an award – The groundfor interference on the basis that the award is in conflict with justiceEor morality is now to be understood as a conflict with the “mostbasic notions of morality or justice” – It is only such arbitral awardsthat shock the conscience of the court, that can be set aside on thesaid ground – An award would be set aside on the ground of patentillegality appearing on the face of the award and as such, whichFgoes to the roots of the matter – However, an illegality with regardto a mere erroneous application of law would not be a ground forinterference – Equally, re-appreciation of evidence would not bepermissible on the ground of patent illegality appearing on the faceof the award.

Arbitration and Conciliation Act, 1996: s.34 – ArbitralGTribunal passed the award in favour of SICAL holding that therewas a change in law and thereby granting reliefs as prayed for bySICAL – It directed conversion of Container Terminal of TPT fromroyalty model to revenue share model – The finding of the ArbitralTribunal was based on a premise that when TPT entered into aH

contract with SICAL there was an existing policy, which providedroyalty to be factored into the cost while fixation of tariff and thatsubsequently, the GoI changed its policy on 29[th] July, 2003 therebyproviding that royalty payment/revenue sharing will not be factoredinto/taken into account as cost for fixation/revision of tariff by TAMP;and that there was subsequent change in policy on 31[st] March, 2005by which part of royalty was permitted to be factored into the cost –According to the Arbitral Tribunal, there was a change in policy,which amounted to change in law, which, in turn, adversely affectedSICAL – Award of Arbitral Tribunal challenged by TPT before theDistrict Judge – District Judge dismissed the s.34 petition – TPTsuccessfully challenged before the High Court – Aggrieved SICALfiled instant appeals – Held: When the bid document was notifiedand when SICAL submitted its bid and LoI was issued to it, therewere no guidelines in vogue – Even the guidelines of February1998 do not provide for royalty being factored as cost while fixationof tariff – On the contrary, the tariff order of 1999 specificallyclarifies that it has left the royalty issue to be decided by TPT andthe GoI – It has specifically clarified that the approval by TAMPshould not be interpreted to be amounting to any implicit approvalof royalty-related issue – Further, the tariff order issued on 20[th]September, 2002 specifically rejects the claim of SICAL for factoringany royalty as cost while tariff/price fixation – SICAL has challengedthe said order before the High Court by way of writ petition, whichpetition has been allowed – It is also not in dispute, that on accountof interim order passed by the High Court dated 8[th] November, 2002,SICAL is still continuing to charge at rates notified in the 1999tariff order – In this scenario, the finding of the Arbitral Tribunal,that there was a law when the Agreement was entered into betweenthe parties, which provided royalty as a pass-through and that thesaid law has been changed for the first time in 2003 andsubsequently again changed in 2005, is a finding based on ‘noevidence’ – Had the Arbitral Tribunal perused the tariff orders of1999 and 2002, it would have found that in the 1999 tariff orderTAMP has specifically observed that its approval of the tariff shouldnot be construed as its implicit approval of royalty-related issueand the 2002 tariff order specifically states that royalty was notpermitted to be factored in the cost while determining tariff – TheArbitral Tribunal has totally failed to take into consideration this AB

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Aaspect of the matter – As such, since the finding of the ArbitralTribunal, that there was an existing law to the effect that the royaltypayable shall be permitted as a pass-through in cost while fixationof tariff, is based on ‘no evidence’ and the finding, that there was achange in law in 2003 and 2005 is based on without taking intoconsideration the relevant evidence, would come in the realm ofBperversity as explained by this Court in paragraph 31 of the AssociateBuilders – The findings are based on ‘no evidence’ and ‘ignoranceof vital evidence’ in arriving at its decision.

Conclusion

Arbitration and Conciliation Act, 1996: s.34 – Whether theArbitral Tribunal was justified in passing an award therebyCsubstituting ‘royalty payment module’ to the ‘revenue-sharingmodule’ – A contract duly entered into between the parties cannotbe substituted unilaterally without the consent of the parties – Theintention of the parties could be gathered from the documents onrecord – SICAL made representation to TPT seeking a relief underDthe terms of Article 14.3 of the Agreement – TPT informed SICALthat the issues raised by it were under examination – However, TPTrefused to consider SICAL’s application for relief since, accordingto it, the issue raised by SICAL was pending before the High Court– SICAL filed writ petition before High Court – High Court allowedthe writ petition clarifying that the petition pending before the HighECourt had nothing to do with the representation under Article 14 ofthe License Agreement and remanded the matter to TPT forconsideration afresh – TPT rejected the claim of SICAL – TPT hasspecifically observed that any change in the Agreement cannot bedone without prior approval of the GoI – SICAL wrote to TPTFinvoking arbitration under Article 15.3 of the License Agreement –TPT strenuously contested the claim of SICAL with regard to prayerfor change from ‘royalty payment mode’ to ‘revenue sharing mode’– It could, thus, be seen that SICAL wanted the Agreement to beamended so as to change the ‘royalty payment method’ to ‘revenue-sharing method’ – TPT was always opposed to it – The intention ofGTPT is apparent from its various communications and its stand beforethe Arbitral Tribunal, that it was not agreeable for amendment ofthe Agreement from ‘royalty payment method’ to ‘revenue-sharingmethod’ – However, ignoring the stand of TPT, by the impugnedAward, the Arbitral Tribunal has thrust upon a new term in theH

Agreement between the parties against the wishes of TPT – The‘royalty payment method’ has been totally substituted by the ArbitralTribunal, with the ‘revenue-sharing method’ – It is thus clear, thatthe Award has created a new contract for the parties by unilateralintention of SICAL as against the intention of TPT.

Arbitration: An Arbitral Tribunal is not a Court of law – Itsorders are not judicial orders – Its functions are not judicial functions– It cannot exercise its powers ex debito justitiae.

Dismissing the appeals, the Court

HELD : 1. The scope of interference would be limited togrounds provided under Section 34 of the Arbitration Act. Anaward would be set aside on the ground of patent illegalityappearing on the face of the award and as such, which goes to theroots of the matter. However, an illegality with regard to a mereerroneous application of law would not be a ground forinterference. Equally, re-appreciation of evidence would not bepermissible on the ground of patent illegality appearing on theface of the award. A decision which is perverse, though would notbe a ground for challenge under “public policy of India”, wouldcertainly amount to a patent illegality appearing on the face ofthe award. However, a finding based on no evidence at all or anaward which ignores vital evidence in arriving at its decision wouldbe perverse and liable to be set aside on the ground of patentillegality. [Paras 42, 43][434-H; 435-C-E]

2. Article 14 of the bid document deals with ‘change in law’.Article 14.3 provides for relief under change in law. If, after thedate of Agreement, there is a change in the law which substantiallyand adversely affects the rights of the Licensee under theAgreement so as to alter the commercial viability of the project,the Licensee may, by written notice, request amendments to theterms of the Agreement. It further provided, that subject toprovisions of Article 14.3, the Licensee shall not be entitled toany compensation whatsoever from the Licensor as a result ofchange in law. [Para 55][442-G-H; 443-B-C]

MMTC Limited v. Vedanta Limited (2019) 4 SCC 163:[2019] 3 SCR 1023 – relied on.

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A3.1 Neither under Section 34 nor under Section 37 of theArbitration 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 9[th] April, 1997.The technical bid of SICAL was submitted on 24[th] October, 1997.The financial offer of SICAL was submitted on 19[th] December,B1997. LoI was issued on 29[th] January, 1998. All this has happenedprior to the guidelines issued by TAMP in February 1998. Assuch, it is beyond any doubt, that when the bid document wasnotified and when SICAL submitted its bid and LoI was issued toit, there were no guidelines in vogue. For the first time, theCguidelines were adopted by TAMP in the workshop held inChennai on 26[th]/27[th] February, 1998. [Para 60][444-C-F]

3.2 Even 1998 guidelines do not mention, that the royaltycould be factored in the cost while determining the tariff. Thoughthe said guidelines observed, that the port pricing may continueDto be cost-based with an assured rate of return, it furtherobserved, that such a concept of an assured rate of return is notin consonance with a competitive system. Thus, it is amply clear,that when the bids were invited, and SICAL submitted its bidand LoI was issued to it, there was no policy at all. Even the 1998guidelines do not provide for factoring the royalty in cost whileEdetermining the tariff. [Para 63][445-G-H; 446-A]

4. A conjoint reading of all documents would reveal thatwhen the bid document was published in April 1997; SICALtendered its bid in October, 1997 and submitted its financial offerin December,1997; and the LoI was issued to SICAL on 29[th]FJanuary, 1998, there were no guidelines at all. Even the guidelinesof February 1998 do not provide for royalty being factored ascost while fixation of tariff. On the contrary, the tariff order of1999 specifically clarifies that it has left the royalty issue to bedecided by TPT and the GoI. It has specifically clarified that theGapproval by TAMP should not be interpreted to be amounting toany implicit approval of royalty-related issue. Further, the tarifforder issued on 20[th] September, 2002specifically rejects the claimof SICAL for factoring any royalty as cost while tariff/price fixation.SICAL has challenged the said order before the Madras High H

PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.CHIDAMBRANAR PORT TRUST TUTICORIN

Court by way of writ petition, which petition has been allowed. Itis also not in dispute, that on account of interim order passed bythe Madras High Court dated 8[th] November, 2002, SICAL is stillcontinuing to charge at rates notified in the 1999 tariff order.[Para 76][451-A-D]

5.1 In this scenario, the finding of the Arbitral Tribunal,that there was a law when the Agreement was entered intobetween the parties, which provided royalty as a pass-throughand that the said law has been changed for the first time in 2003and subsequently again changed in 2005, is a finding based on‘no evidence’. Had the Arbitral Tribunal perused the tariff ordersof 1999 and 2002, it would have found that in the 1999 tariff orderTAMP has specifically observed that its approval of the tariffshould not be construed as its implicit approval of royalty-relatedissue and the 2002 tariff order specifically states that royalty wasnot permitted to be factored in the cost while determining tariff.The Arbitral Tribunal has totally failed to take into considerationthis aspect of the matter. [Para 77][451-D-F]

6.2 As such, since the finding of the Arbitral Tribunal, thatthere was an existing law to the effect that the royalty payableshall be permitted as a pass-through in cost while fixation of tariff,is based on ‘no evidence’ and the finding, that there was a changein law in 2003 and 2005 is based on without taking intoconsideration the relevant evidence, would come in the realm ofperversity as explained by this Court in paragraph 31 of theAssociate Builders. The findings are based on ‘no evidence’ and‘ignorance of vital evidence’ in arriving at its decision. [Para78][451-F-H]

Associate Builders v. Delhi Development Authority(2015) 3 SCC 49 : [2014] 13 SCR 895 – relied on.

7.1 This brings us to the next issue viz., as to whether theArbitral Tribunal was justified in passing an award therebysubstituting ‘royalty payment module’ to the ‘revenue-sharingmodule’. A contract duly entered into between the parties cannotbe substituted unilaterally without the consent of the parties. Theintention of the parties could be gathered from the documentson record. SICAL, for the first time, made representation to TPT

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Aon 6[th] October, 2006 thereby seeking a relief under the terms ofArticle 14.3 of the Agreement. On 14[th] October, 2006, TPTinformed SICAL that the issues raised by it were underexamination. However, vide order dated 27[th] October, 2006, TPTrefused to consider SICAL’s application for relief since, accordingBto it, the issue raised by SICAL was pending before the MadrasHigh Court. SICAL therefore filed writ petition being Writ PetitionNo. 4361 of 2006 before the Madras High Court. The MadrasHigh Court allowed the said writ petition vide order dated 21[st]August, 2007 clarifying that the petition pending before the HighCCourt had nothing to do with the representation under Article 14of the License Agreement and remanded the matter to TPT forconsideration afresh. Vide a reasoned letter dated 25[th] April, 2008,TPT rejected the claim of SICAL. TPT has specifically observedthat any change in the Agreement cannot be done without priorapproval of the GoI. SICAL on 19[th] November, 2012 addressed aDletter to TPT invoking arbitration under Article 15.3 of the LicenseAgreement. TPT strenuously contested the claim of SICAL withregard to prayer for change from ‘royalty payment mode’ to‘revenue sharing mode’. [Para 79][452-A-E]

E7.2 It could thus be seen, that SICAL wanted the Agreementto be amended so as to change the ‘royalty payment method’ to‘revenue-sharing method’. TPT was always opposed to it. Theintention of TPT is apparent from its various communicationsand its stand before the Arbitral Tribunal, that it was not agreeableFfor amendment of the Agreement from ‘royalty payment method’to ‘revenue-sharing method’. [Para 80][453-E-F]

7.3 However, ignoring the stand of TPT, by the impugnedAward, the Arbitral Tribunal has thrust upon a new term in theAgreement between the parties against the wishes of TPT. TheG‘royalty payment method’ has been totally substituted by theArbitral Tribunal, with the ‘revenue-sharing method’. It is thusclear, that the Award has created a new contract for the partiesby unilateral intention of SICAL as against the intention of TPT.[Para 81][453-G]

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Ssangyong Engineering and Construction CompanyLimited v. National Highway Authority of India (NHAI)(2019) 15 SCC 131 : [2019] 7 SCR 522 – relied on.

8. An Arbitral Tribunal is not a Court of law. Its orders arenot judicial orders. Its functions are not judicial functions. Itcannot exercise its powers ex debito justitiae. It has been heldthat the jurisdiction of the arbitrator being confined to the fourcorners of the agreement, he can only pass such an order whichmay be the subject-matter of reference.The impugned Awardwould come under the realm of ‘patent illegality’ and therefore,has been rightly set aside by the High Court. [Paras 87, 88][456-A-C]

Bharat Coking Coal Ltd. v. Annapurna Construction(2003) 8 SCC 154 : [2003] 3 Suppl. SCR 122; Md.Army Welfare Housing Organization v. SumangalServices (P) Ltd. (2004) 9 SCC 619 : [2003] 4 Suppl.SCR 385 – relied on.

State of Jharkhand and Others v. HSS Integrated SDNand Another (2019) 9 SCC 798; Sumitomo HeavyIndustries Limited v. Oil and Natural Gas CorporationLimited (2010) 11 SCC 296 : [2010] 9 SCR 176; KwalityManufacturing Corporation v. Central WarehouseCorporation (2009) 5 SCC 142; Rashtriya Ispat NigamLimited v. Dewan Chand Ram Saran (2012) 5 SCC 306: [2012] 4 SCR 1; Steel Authority of India Limited v.Gupta Brother Steel Tubes Limited (2009) 10 SCC 63 :[2009] 14 SCR 253; Pure Helium India (P) Limited v.Oil and Natural Gas Corporation Limited (2003) 8 SCC593 : [2003] 4 Suppl. SCR 561; P.V. Subba Naidu andOthers v. Government of A.P. and Others (1998) 9 SCC407; Dhannalal v. Kalawati Bai and Others (2002) 6SCC 16 : [2002] 1 Suppl. SCR 19; Swamy Atmanandaand Others v. Shri Ramakrishna Tapovanam and Others(2005) 10 SCC 51 : [2005] 3 SCR 556; Transcore v.Union of India and Another (2008) 1 SCC 125 : [2006]9 Suppl. SCR 785; Sandvik Asia Private Limited v.Vardhman Promoters 2007 (94) DRJ 762; Hansalaya A

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AProperties v. Dalmia Cement (Bharat) Limited 2008(106) DRJ 820; Adani Power (Mundra) Limited v.Gujarat Electricity Regulatory Commission and Others(2019) 19 SCC 9; Raghunathrao Ganpatrao v. Unionof India (1994) 1 SCC Supp 191 : [1993] 1 SCR 480;Nagubai Ammal and Others v. B. Shama and OthersB[1956] SCR 451; Suresh Kumar Wadhwa v. State ofMadhya Pradesh and Others (2017) 16 SCC 757 :[2017] 14 SCR 1; All India Power Engineer Federationand Others v. Sasan Power Limited and Others (2017)1 SCC 487 : [2016] 9 SCR 901; Rashtriya ChemicalsCand Fertilizers Limited v. Chowgule Brothers and Others(2010) 8 SCC 563 : [2010] 7 SCR 962; South EastAsia Marine Engineering and Constructions Limited v.Oil India Limited (2020) 5 SCC 164; J.G. EngineersPrivate Limited v. Union of India and Another (2011) 5SCC 758 : [2011] 8 SCR 486; SatyanarayanaDConstruction Company v. Union of India and Others(2011) 15 SCC 101 – referred to.

PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.CHIDAMBRANAR PORT TRUST TUTICORIN

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3699-3700 of 2018.

From the Judgment and Order dated 01.11.2017 of the High Courtof Madras at Madurai Bench in CMA(MD) No. 345 of 2016 and C.M.P.(MD) No. 4867 of 2016.

Dr. A.M. Singhvi, Gopal Jain, Sr. Advs., Sonal Jain, Zerick Dastur,Ms. Sneha Sheth, Ishkaran Singh, Ms. Archana Uppuluri, Ms. KajalSharma, Advs. for the appellant.

Mrs. Madhvi Dewan, ASG, Keshav Thakur, Ayush Puri, MaheshPrasad, Shikhar Sardana, Ajay Singh, Babu Malayil, Rajesh SinghChauhan, Advs. for the respondents.

The Judgment of the Court was delivered by

B. R. GAVAI, J.

1. The appellant has approached this Court being aggrieved bythe judgment and order dated 1[st] November 2017, passed by the DivisionBench of the Madras High Court in C.M.A. (MD) No. 345 of 2016 andC.M.P. (MD) No. 4867 of 2016, thereby allowing the appeal of therespondent No.1 herein under Section 37(1)(c) of the Arbitration andConciliation Act, 1996 (hereinafter referred to as ‘the Arbitration Act’)vide which the High Court set aside the award dated 14[th] February 2014,passed by the Arbitral Tribunal and the order passed by the District

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AJudge dated 25[th] February 2016, rejecting the application filed by therespondent No.1 herein under Section 34 of the Arbitration Act.

2. The facts necessary for adjudication of the present appeals areas under:- The respondent No.1-The Board of Trustees of V.O.BChidambranar Port Trust, Tuticorin (hereinafter referred to as ‘TPT’)issued a global tender on 9[th] April 1997, inviting bids for development ofthe Seventh Berth at V.O. Chidambranar Port, Tuticorin as a ContainerTerminal and for operating and maintaining the same for 30 years on aBuild, Operate and Transfer (hereinafter referred to as ‘BOT’) basis.CIn response to the tender, the appellant-PSA Sical Terminals Pvt. Ltd.(hereinafter referred to as ‘SICAL’) submitted its bid on 24[th] October1997. The financial offer was submitted by SICAL on 19[th] December1997. Since SICAL’s offer was the highest, the same was accepted anda Letter of Intent (hereinafter referred to as ‘LoI’) was issued to it on29[th] January 1998 and the same was followed by a License AgreementDdated 15[th] July 1998.

3. In the meantime, the Tariff Authority for Major Ports (hereinafterreferred to as ‘TAMP’) which is an authority constituted under the MajorPort Trusts Act, 1963 adopted guidelines on 26[th]/27[th] February 1998.SICAL submitted its tariff proposal with regard to the Container TerminalEon 28[th] September 1999. A revised proposal came to be submitted bySICAL on 8[th] October 1999, thereby including royalty as an element ofcost. The said proposal was approved by TAMP’s order dated 8[th]December 1999. TAMP notified its order of 8[th] December 1999 videgazette notification dated 28[th] December 1999, thereby approving theFtariff as proposed by SICAL vide proposal dated 8[th] October 1999.SICAL submitted a further proposal on 8[th] February 2002 for review intariff, again including therein an increase in royalty to be paid as anelement of cost and proposed for an increase in the tariff. TPT videcommunication dated 10[th] April 2002, objected to the proposal of SICALfor increase in tariff. TAMP vide its order dated 20[th] September 2002,Grejected the proposal of SICAL for increase in tariff.

4. SICAL filed Writ Petition Nos. 40637-40639 of 2002 beforethe Madras High Court for quashing of the TAMP order dated 20[th]September 2002. In the said proceedings, the Madras High Court passedan order dated 8[th] November 2002 granting interim relief in favour ofH

SICAL, thereby staying the TAMP order dated 20[th] September 2002.Vide the said order, SICAL was permitted to charge tariff at the rateprevailing prior to the TAMP order impugned in those petitions.

5. Ministry of Shipping, Government of India (hereinafter referredto as ‘GoI’) vide notification dated 29[th] July 2003, clarified that revenuesharing/royalty payment shall not be factored into as cost for fixation/revision of tariff by TAMP and further directed that the same shall beclearly indicated in subsequent bid documents. On 31[st] March 2005,TAMP notified the revised guidelines thereby disallowing royalty as anelement of cost. However, it also provided that in BOT cases wherebidding processes were finalized before 29[th] July 2003, the tariffcomputation will take into account royalty/revenue share as cost fortariff fixation in such a manner as to avoid likely loss to the operator onaccount of the royalty/revenue share not being taken into account. Thiswas subject to a maximum of the amount quoted by the next lowestbidder. This was also to be allowed only for the period up to which suchlikely loss would arise. It further provided that this would not be applicableif there is a provision in the concession agreement on treatment of royalty/revenue share.

6. On 17[th] August 2005, a Memorandum of Compromise(hereinafter referred to as the ‘MoC’) came to be filed before the MadrasHigh Court between SICAL, GoI and TAMP who were parties to theWrit Petition Nos. 40637-40639 of 2002. As per the said MoC, SICALwas to submit a proposal to the Ministry of Shipping and Transport, GoIin the matter of permitting royalty to be allowed to be factored into costwhile fixation of tariff for the period prior to 31[st] March 2005. It wasalso clarified that for the period thereafter, new guidelines provide themanner and mode in which this has to be done. The MoC provided thaton receipt of the proposal, the Central Government would consider thesame and pass appropriate orders consistent with the policy decision ofthe Government of India (hereinafter referred to as the ‘GoI’) in thematter of Chennai Container Terminal Limited (hereinafter referredto as the ‘CCTL’) dated 5[th] August 2003 and accordingly issue a directiveunder Section 111 of the Major Port Trusts Act, 1963. Vide the saidMoC, it was further provided that SICAL would continue to charge the1999 Tariff which was permitted as per the interim orders passed by theHigh Court till new tariff was gazetted. It further provided thatadvantages/ gains, if any, that SICAL has enjoyed by virtue of not AB

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Aimplementing the 2002 Tariff, will be quantified by TAMP and suchadvantages/gains will be adjusted/set-off in the proposed new tariff andsuch 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 saidBdirective/order, the request of SICAL for claiming a part of royalty aspass through came to be rejected. SICAL thereafter submitted its proposalfor fixation of tariff on 18[th] April 2006. TAMP passed a tariff order on23[rd] August 2006, which came to be notified on 15[th] September 2006,vide which SICAL’s proposal for increase in tariff was rejected.

C8. SICAL made a written representation to TPT on 6[th] October2006, thereby seeking relief under the terms of Article 14.3 of the LicenseAgreement. Vide the said representation, SICAL requested for amendingthe License Agreement so as to incorporate the revenue sharing methodand incidental changes.

9. SICAL also filed Writ Petition Nos. 38845 and 38846 of 2006Dbefore the Madras High Court on 9[th] October 2006, thereby challengingthe GoI directive dated 17[th] April 2006 and the TAMP order dated 23[rd]August 2006. On 27[th] October 2006, TPT refused to consider SICAL’sapplication for amendment of the License Agreement on the ground thatthe issues raised were pending consideration before the Madras HighECourt. The said communication dated 27[th] October 2006 came to bechallenged by SICAL before the Madras High Court vide Writ PetitionNo.43461 of 2006. The Madras High Court passed an order dated 21[st]August 2007, in Writ Petition No. 43461 of 2006 filed by SICAL, observingtherein that the representation dated 6[th] October 2006, had nothing to doFwith the pendency of said writ petition and quashed the communicationdated 27[th] October 2006. It directed TPT to consider and decide therepresentation of SICAL on its own merits.

10. Vide subsequent order dated 22[nd] August 2007, Writ PetitionNos. 38845 and 38846 of 2006 were allowed by setting aside the TAMPGorder dated 23[rd] August 2006 and the GoI directive dated 17[th] April2006. The said order was passed on the ground that SICAL was notgiven sufficient opportunity of being heard by TAMP and GoI andtherefore, directed TAMP and GoI to pass fresh order after givingopportunity of hearing to the SICAL.

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11. In pursuance of the order passed by the High Court, the GoIissued a directive on 20[th] February 2008, therein considering thecontentions raised on behalf of SICAL. The said directive provided thatTAMP, while fixing the tariff in case of SICAL, should take intoconsideration the benefit given in the case of CCTL.

12. TAMP vide notification dated 26[th] February 2008, notified theguidelines for upfront tariff fixation for Public Private Partnership projectsat Major Ports.

13. In pursuance of the order passed by the High Court dated 21[st]August 2007, the Chairman, TPT passed an order on 25[th] April 2008,observing therein that any change in the bidding parameter is a matter ofpolicy regarding which a decision can be taken only by the GoI and ineffect, rejected the proposal of SICAL for amending the LicenseAgreement, so as to incorporate the revenue sharing method.

14. SICAL thereafter submitted its proposal for fixation of tariffthereby proposing an increase in tariff on 3[rd] October 2008. TAMPpassed tariff order dated 17[th] December 2008, which came to be notifiedon 30[th] December 2008, rejecting SICAL’s proposal for increase in tariff.SICAL thereafter again on 6[th] January 2009, made a representation toTPT for amendment of the License Agreement in view of Article 14.3.SICAL also filed Writ Petition Nos. 1350 and 1351 of 2009, challengingthe tariff order dated 17[th] December 2008 and the policy direction issuedby GoI dated 20[th] February 2008. The Madras High Court vide orderdated 15[th] October 2009 allowed those petitions by setting aside thetariff order of 2008 and the GoI directive of 20[th] February 2008. Videthe said order, the Madras High Court directed TAMP to issue freshtariff order after obtaining necessary proposal from SICAL and afteraccording sufficient opportunity including personal hearing to SICAL.The GoI directive of 2008 also came to be set aside with a direction tothe GoI to consider the matter afresh after giving an opportunity of hearingto SICAL. The said orders have been challenged by TAMP by filingWrit Appeal No. 1845 of 2009 which is pending. It also appears that anappeal has also been filed by SICAL which is also pending before theDivision 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 thereforeagain praying for shifting to revenue sharing model. A meeting was held A

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Aby the Secretary, Ministry of Shipping, GoI on 28[th] February 2011, whereinthe representatives of TPT and SICAL were present. It was decided inthe said meeting that two proposals each should be submitted by SICALas well as TPT. These proposals were to be considered by the ExpertCommittee.B16. SICAL thereafter on 28[th] June 2011, moved a petition underSection 9 of the Arbitration Act before the District Judge, Tuticorin witha grievance that the royalty payable for each Twenty-foot EquivalentUnit (hereinafter referred to as “TEU”) was scheduled to exceed thetariff. On 30[th] June 2011, District Judge, Tuticorin passed an ordergranting ad-interim stay in the Section 9 petition, thereby restraining TPTCfrom demanding or recovering any royalty at an escalated rate. In July2011, SICAL addressed a letter to the Chairman, TPT requesting forreferring the dispute for arbitration under Article 15.3 of the LicenseAgreement. The said request came to be rejected by the Chairman,TPT vide communication dated 28[th] September 2011.D

17. In the meanwhile, the proposals submitted by SICAL as wellas TPT were being considered by the Expert Committee. On 30[th] April2012, District Judge, Tuticorin passed an order thereby allowing theSection 9 petition filed by SICAL and made absolute the ad-interiminjunction granted in its favour. Thereafter, there was exchange of certainEcommunications between SICAL and TPT with regard to the submissionof performance bank guarantee at an escalated rate. In the meantime,TPT challenged the order of injunction granted by the District Judge byfiling an appeal being C.M.A.(MD) No. 1131 of 2012 and the same ispending consideration before the Madurai Bench of the Madras HighCourt. SICAL addressed a letter dated 19[th] November 2012, invokingFarbitration clause under Article 15.3 of the License Agreement. In themeantime, on 8[th] August 2013, TAMP issued 2013 Guidelines fordetermination of tariff for projects at Major Ports.

18. On 5[th] April 2013, SICAL filed its Statement of Claim in thearbitration proceedings. TAMP filed its counter statement in June 2013Gto which a statement in rejoinder came to be filed by SICAL on 28[th]June 2013. TPT filed its reply to the rejoinder in August 2013. Videaward dated 14[th] February 2014, the Arbitral Tribunal passed the awardin favour of SICAL holding that there was a change in law and therebygranting reliefs as prayed for by SICAL. It directed conversion ofHContainer Terminal of TPT from royalty model to revenue share model.

19. The award of Arbitral Tribunal dated 14[th] February, 2014 cameto be challenged by TPT by filing a petition under Section 34 of theArbitration Act being OP No. 389 of 2014 before the Madras High Court.SICAL challenged the jurisdiction of the Madras High Court to adjudicatethe petition filed under Section 34 of the Arbitration Act. There werecertain interlocutory proceedings to which reference would not benecessary. By order dated 9[th] June 2015, the Madras High Court heldthat the petition filed by TPT under Section 34 of the Arbitration Actwas not tenable on the ground of jurisdiction. As such TPT re-presentedits Section 34 petition on 30[th] June 2015, before the District Judge, Tuticorinbeing Ar.O.P. No. 260 of 2015. The District Judge, Tuticorin vide orderdated 25[th] February 2016, dismissed the Section 34 petition filed by TPT.Being aggrieved thereby, TPT filed an appeal before the Madras HighCourt which came to be allowed by the order dated 1[st] November 2017,vide which the award of the Arbitral Tribunal dated 14[th] February 2014and the order passed by the District Court dated 25[th] February 2016,came to be set aside. Being aggrieved thereby, SICAL has approachedthis Court by way of the present appeals.

20. We have heard Dr. A.M. Singhvi and Shri Gopal Jain, learnedSenior Counsel on behalf of the appellant-SICAL, Smt. Madhavi Divan,learned Additional Solicitor General of India and Shri Keshav Thakur,learned counsel on behalf of TPT.

21. Dr. Singhvi submitted that Article 14 of the License Agreementspecifically provides that if after the date of the agreement, there is achange in law which substantially and adversely affects the rights of theLicensee under the said agreement, so as to alter the commercial viabilityof the project, the Licensee may, by written notice, request amendmentsto the terms of the agreement. He submitted that the definition of law inArticle 14 is wide enough and includes any valid act, ordinance, rule,regulation, notification, directive, orders, policy, bye-laws, administrativeguidelines, ruling or instruction having the force of law, enacted or issuedby Government Authority. The learned Senior Counsel submitted thatArticle 14.3 also provides that subject to the provisions of Article 15.3,the Licensee shall not be entitled to any compensation whatsoever fromthe Licensor as a result of change in law. He submitted that if Article14.3 is read in the correct perspective, it will be clear that compensationis not provided to the Licensee on account of any change in law inasmuchas a relief could be provided to the Licensee by suitably amending the A

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Aterms of the agreement when such a change substantially and adverselyaffects the rights of the Licensee. He submitted that the said Article is aunique one.

22. Dr. Singhvi submitted that the Nhava Sheva Container TerminalLimited (hereinafter referred to as the ‘NSCT’) was the first projectBwhich was built on BOT basis. The second one being the Seventh Berthof TPT. He submitted that these are the only projects wherein royaltymethod has been adopted. He submitted that all subsequent projectsprovide for revenue sharing model. He submitted that it will be clearfrom the stand of TPT, when the proposal was moved by SICAL forincrease in tariff in 1999, that it also understood that the royalty was alsoCto be factored in while finalizing the tariff. He submitted that perusal ofthe tariff order dated 8[th] December 1999, would reveal that even TAMPhas allowed royalty as a pass through. He submitted that the guidelinesof 1998 would also clarify that it was a policy of TAMP that the portpricing was to continue to be cost based with an assured rate of return.DHe submitted that the said guidelines provide for an assured rate ofreturn. He submitted that TPT, as a matter of fact, vide communicationdated 3[rd] November 1999 addressed to TAMP, had opposed any reductionof tariff as proposed by SICAL.

23. Dr. Singhvi submitted that the first change in law was effectedEvide order of the GoI dated 29[th] July 2003, by which no percentage ofroyalty was permitted as a pass through. The second change in law waseffected on 31[st] March 2005, by which the royalty was permitted as apass through, however, restricting the same to the maximum of the amountquoted by the next lowest bidder. He therefore submitted that on accountof these changes in law, SICAL was entitled to get a relief of amendmentFof the License Agreement and on failure of TPT to provide the relief,SICAL was entitled to invoke arbitration. He submitted that though severalrepresentations were made to TPT, the same had not been responded toand as such, SICAL was left with no alternative than to invoke thearbitration clause. He submitted that this has been rightly construed byGthe Arbitral Tribunal. However, the Division Bench of the High Courthas erroneously interfered with the finding of fact recorded by the ArbitralTribunal which was upheld by the District Judge.

24. Dr. Singhvi further submitted that SICAL has been put in avery precarious situation. He submitted that on one hand it is required toHpay 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 apass through. He submitted that at one point of time in 2011, the tariffhas been so fixed that it surpasses the amount of royalty per TEU, SICALwould be required to pay to TPT. He submitted that if the same ispermitted, SICAL would not be in a position to continue its operations.He submitted that SICAL has provided a minimum guarantee to lift aminimum of 4.5 lakh tons of cargo. He submitted that this has beenrightly appreciated by the Arbitral Tribunal wherein it has observed thatif such a position is permitted to continue, it will substantially and adverselyaffect SICAL. He submitted that a chart at Page No. 1132 shows thatSICAL would incur a gross loss of Rs. 2250 crores. He further submittedthat TAMP and the GoI have acted in a discriminatory manner. Hesubmitted that when in case of NSCT, a complete pass through so far asroyalty is concerned, is permitted, the same is denied in case of SICAL.

25. Dr. Singhvi further submitted that the High Court has grosslyerred in referring to the writ petitions and the MoC filed in one of thewrit petitions, while setting aside the award. He submitted that the writpetitions filed by SICAL were basically against TAMP and with regardto the fixation of tariff. However, the arbitration proceedings were aboutthe change in law which changed the policy of permitting pass throughof royalty to denial of pass through of royalty. Whereas the proceedingsbefore TAMP are pertaining to fixation of tariff. He further submits that the proceedings before the High Court pertain to the period prior to2013, whereas the present proceedings pertain to the relief to whichSICAL is entitled under Article 14 of the agreement on account of changein law. He submitted that SICAL was compelled to approach thearbitrator since in 2011-12, the royalty payable to TPT crossed the tariff.He submitted that the contention considered by the High Court withregard to the MoC was only an oral argument made by TPT and notpart of the pleadings.

26. Dr. Singhvi submitted that the scope of interference in anapplication under Section 34 and in an appeal filed under Section 37 isvery limited. He submitted that unless a finding recorded by the arbitratoramounts to perversity, an interference would not be warranted eitherunder Section 34 or Section 37. He submitted that the District Judge hadrightly rejected the Section 34 Application. He further submitted that itwas erroneous on part of the High Court in exercise of its jurisdictionunder Section 37 to interfere with a well-reasoned award of the Arbitral AB

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ATribunal. He relies on the following judgments in support of hissubmissions:- MMTC Limited v. Vedanta Limited[1], Associate Builders v.Delhi Development Authority[2], State of Jharkhand and Others v.HSS Integrated SDN and Another[3], Sumitomo Heavy IndustriesBLimited v. Oil and Natural Gas Corporation Limited[4], KwalityManufacturing Corporation v. Central Warehouse Corporation[5],Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran[6], SteelAuthority of India Limited v. Gupta Brother Steel Tubes Limited[7],Pure Helium India (P) Limited v. Oil and Natural Gas CorporationLimited[8], P.V. Subba Naidu and Others v. Government of A.P. andCOthers[9], Dhannalal v. Kalawati Bai and Others[10], SwamyAtmananda and Others v. Shri Ramakrishna Tapovanam andOthers[11] and Transcore v. Union of India and Another[12].

27. Dr. Singhvi submitted that the UNIDROIT Principles ofInternational Commercial Contracts provide the rules of interpretationDof contracts. He submitted that the said principles provide that a contractshall be interpreted according to the common intention of the parties. Itis only when the intention cannot be established that the contract shallbe interpreted according to the meaning that a reasonable person of thesame kind as a party, would give it in the same circumstances. HeEsubmitted that from the perusal of Article 14 as well as the conduct ofthe parties, it is clear that the parties intended that if there was anychange in lawto the detriment of the Licensee, the Licensee was entitledto relief from the Licensor by amendment of the contract. He submittedthat such intention is clarified from the fact that in such an event, theLicensee was not entitled to claim any compensation. The learned SeniorFCounsel in this respect relies on the judgments of the Delhi High Court 1 (2019) 4 SCC 163

2 (2015) 3 SCC 49

3 (2019) 9 SCC 7984 (2010) 11 SCC 2965 (2009) 5 SCC 142G6 (2012) 5 SCC 3067 (2009) 10 SCC 638 (2003) 8 SCC 593

9 (1998) 9 SCC 40710 (2002) 6 SCC 16

11 (2005) 10 SCC 51H12 (2008) 1 SCC 125

in Sandvik Asia Private Limited v. Vardhman Promoters[13]andHansalaya Properties v. Dalmia Cement (Bharat) Limited[14].

28. Dr. Singhvi further submitted that the agreement has to beread as a whole. In his submission, whereas Articles 10.8, 13.4.7 and13.4.8 make the Licensor’s decision binding, Article 14 does not provideit. He submitted that Article 14 is unique in the sense that it provides forrestoration of equilibrium. He submitted that the Tribunal had two choiceseither to grant a pass through or revenue sharing. If it has chosen one ofthem, then even if it is considered to be a possible view, an interferencetherein was not warranted.

29. Shri Gopal Jain, learned Senior Counsel submitted that economicviability for long term contracts has to be provided. He submitted thatArticle 14 was provided as an in-built safeguard for the said purpose.Relying on the judgment of this Court in Adani Power (Mundra) Limitedv. Gujarat Electricity Regulatory Commission and Others[15], hesubmitted that while construing business contracts, business efficacy isa relevant consideration which has been considered by the ArbitralTribunal and as such, an interference would not be warranted.

30. Smt. Divan, the learned ASG submitted that the financial offermade by SICAL was made on 19[th] December 1997 i.e. much before the1998 Guidelines came to be published. She submitted that it is unthinkablethat the rates quoted by SICAL in 1997 were on the basis of the guidelineswhich were for the first time published in the year 1998. She submittedthat even the said guidelines do not provide for permitting royalty as apass through. It is further submitted that while submitting the bid, SICALhas submitted the bid on the basis of royalty payable to TPT during theconcession period.

31. Smt. Divan further submitted that SICAL has indulged intothe conduct of approbate and reprobate. She submitted that whereas inthe writ petitions filed by it, SICAL has taken a specific stand that theguidelines do not have the force of law, it has now turned around andtaken a stand in the arbitration proceedings that it amounts to change oflaw. She further submitted that on the date on which the arbitrationproceedings were commenced, the tariff orders were already quashedin the writ proceedings in favour of SICAL and only with a view to take13 2007 (94) DRJ 76214 2008 (106) DRJ 82015 (2019) 19 SCC 9

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Adouble advantage, SICAL has initiated arbitration proceedings. Shefurther submitted that because of the interim order passed by the HighCourt, the 1999 tariff order is still holding the field,thereby giving a hugeundue benefit to SICAL. She submitted that even the conduct of SICALneeds to be taken into consideration. Though as per MoC which wasfiled way back in 2005, SICAL was required to compensate TPT, it hasBnot done so. She therefore submitted that on one hand, SICAL is takingadvantage of orders of the Court and on the other hand not complyingwith the obligations set out in the MoC, on the basis of which the HighCourt has disposed of writ petition.

32. Smt. Divan submitted that even the third tariff order passed inCcase of SICAL had been quashed by the Madras High Court, challengeto which is pending before the Division Bench. She further submittedthat on account of an order passed in Section 9 proceedings, TPT isgetting a very meagre amount from SICAL.

33. Smt. Divan further submitted that by the award, the TribunalDhas provided for entire substitution of the terms of the contract betweenthe parties. She submitted that when the agreement between the partieswas based on royalty method, the Tribunal, by a substitution, has providedfor revenue sharing method. She submitted that this is not permissible atall in law. A party cannot be thrusted with a new contract against itsEwishes. Smt. Divan further submitted that SICAL having elected/availedthe remedies of filing of the writ petition, cannot for the same reliefunder the bogey of so-called change in law, invoke arbitration proceedings.She therefore submitted that the High Court has rightly considered thesame and set aside the award. Smt. Divan relied on the followingjudgments of this Court in support of her submissions.F

Raghunathrao Ganpatrao v. Union of India[16], NagubaiAmmal and Others v. B. Shama and Others[17], Suresh KumarWadhwa v. State of Madhya Pradesh and Others[18], All India PowerEngineer Federation and Others v. Sasan Power Limited andOthers[19], Rashtriya Chemicals and Fertilizers Limited v. ChowguleGBrothers and Others[20], South East Asia Marine Engineering and 16 (1994) 1 SCC Supp 19117 [1956] SCR 45118 (2017) 16 SCC 75719 (2017) 1 SCC 487H20 (2010) 8 SCC 563

Constructions Limited v. Oil India Limited[21], J.G. Engineers PrivateLimited v. Union of India and Another[22], SatyanarayanaConstruction Company v. Union of India and Others[23], SsangyongEngineering and Construction Company Limited v. NationalHighway Authority of India (NHAI)[24]

34. Dr. Singhvi, in rejoinder, submitted that a stray statement madeby SICAL that the guidelines do not have the force of law, would not berelevant. Inasmuch as in the counter filed by TPT as well as TAMP,they have themselves stated before the High Court that the said guidelineswill have the force of law. He therefore submitted that SICAL wasentitled in law to invoke Article 14 since there was a change in lawwhich adversely affects the Licensee.

35. Dr. Singhvi further submitted that the contention of Smt. Divanthat reliance has been placed by SICAL on change of law for the firsttime in 2013, is factually incorrect inasmuch as right from 2006, SICALhas been making representations to TPT for giving relief under Article14. To counter the submission of Smt. Divan that the bid of SICAL wastendered in December 1997, he submitted that though the bid was tenderedin December 1997, the agreement was entered into in July 1998, whenthe guidelines had already come into effect from February 1998. Hesubmitted that the perusal of the proposals submitted by TPT in pursuanceof the meeting held by Secretary, Ministry of Shipping and Transport,GoI, would show that TPT as well as its consultant had agreed forrevenue share model. He reiterated that the proceedings before the HighCourt were restricted only to TAMP orders and had nothing to do withchange of law. He submitted that none of the case laws cited by Smt.Divan considers a clause analogous to Article 14 and therefore, the saidcases would not be applicable to the facts of the present case. He furthersubmitted that the argument with regard to doctrine of election is alsowithout substance.

36. With the assistance of the learned counsel for the parties, wehave gone through the documents placed on record. Though variousjudgments of this Court as well as some of the High Courts have beencited by counsel of both the parties, we do not find it necessary to refer 21 (2020) 5 SCC 16422 (2011) 5 SCC 75823 (2011) 15 SCC 10124 (2019) 15 SCC 131

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Ato all of them. In our view, a reference to few recent judgments of thisCourt will be sufficient.

37. A bench of this Court, of which one of us (R.F. Nariman, J.)was a party, has considered various judgments of this Court in the caseof Associate Builders (supra).B38. Another bench of this Court, again to which one of us (R.F.

B38. Another bench of this Court, again to which one of us (R.F.Nariman, J.) was a party, has considered various judgments of this Courtincluding the judgment in Associate Builders (supra)and the effect ofthe Arbitration and Conciliation (Amendment) Act, 2015 in the case ofSsangyong Engineering and Construction Company Limited v.National Highways Authority of India (NHAI)[25], to which we willCrefer shortly.

39. Before that, it will be apposite to refer to judgment of thisCourt in the case of MMTC Limited (supra),wherein this Court hasrevisited the position of law with regard to scope of interference with anarbitral award in India.D40. It will be relevant to refer to the following observations of thisCourt in the case of MMTC Limited (supra):

“11. As far as Section 34 is concerned, the position is well-settledby now that the Court does not sit in appeal over the arbitralaward and may interfere on merits on the limited ground providedEunder Section 34(2)(b)(ii) i.e., if the award is against the publicpolicy of India. As per the legal position clarified through decisionsof this Court prior to the amendments to the 1996 Act in 2015, aviolation of Indian public policy, in turn, includes a violation of thefundamental policy of Indian law, a violation of the interest ofIndia, conflict with justice or morality, and the existence of patentFillegality in the arbitral award. Additionally, the concept of the“fundamental policy of Indian law” would cover compliance withstatutes and judicial precedents, adopting a judicial approach,compliance with the principles of natural justice,and Wednesbury [Associated Provincial PictureGHouses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)]reasonableness. Furthermore, “patent illegality” itself has beenheld to mean contravention of the substantive law of India,contravention of the 1996 Act, and contravention of the terms ofthe contract.

12. It is only if one of these conditions is met that the Court mayinterfere with an arbitral award in terms of Section 34(2)(b)(ii),but such interference does not entail a review of the merits of thedispute, and is limited to situations where the findings of thearbitrator are arbitrary, capricious or perverse, or when theconscience of the Court is shocked, or when the illegality is nottrivial but goes to the root of the matter. An arbitral award maynot be interfered with if the view taken by the arbitrator is a possibleview based on facts. (See Associate Builders v. DDA [AssociateBuilders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw PipesLtd., (2003) 5 SCC 705] ; Hindustan Zinc Ltd. v. Friends CoalCarbonisation [Hindustan Zinc Ltd. v. Friends CoalCarbonisation, (2006) 4 SCC 445] ; and McDermottInternational Inc. v. Burn Standard Co. Ltd. [McDermottInternational Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC181] )

13. It is relevant to note that after the 2015 Amendment to Section34, the above position stands somewhat modified. Pursuant to theinsertion of Explanation 1 to Section 34(2), the scope ofcontravention of Indian public policy has been modified to theextent that it now means fraud or corruption in the making of theaward, violation of Section 75 or Section 81 of the Act,contravention of the fundamental policy of Indian law, and conflictwith the most basic notions of justice or morality. Additionally,sub-section (2-A) has been inserted in Section 34, which providesthat in case of domestic arbitrations, violation of Indian publicpolicy also includes patent illegality appearing on the face of theaward. The proviso to the same states that an award shall not beset aside merely on the ground of an erroneous application of thelaw 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 suchinterference under Section 37 cannot travel beyond the restrictionslaid down under Section 34. In other words, the court cannotundertake an independent assessment of the merits of the award,and must only ascertain that the exercise of power by the courtunder Section 34 has not exceeded the scope of the provision.

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Thus, it is evident that in case an arbitral award has been confirmedby the court under Section 34 and by the court in an appeal underSection 37, this Court must be extremely cautious and slow todisturb such concurrent findings.”

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41. In Ssangyong Engineering and Construction CompanyBLimited (supra), this Court after considering various judgments includingthe judgment in Associate Builders (supra) observed thus:

“34. What is clear, therefore, is that the expression “public policyof India”, whether contained in Section 34 or in Section 48, wouldnow mean the “fundamental policy of Indian law” as explained inCparas 18 and 27 of Associate Builders [AssociateBuilders 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 wouldnecessarily mean that Western Geco [ONGC v. Western GecoInternational Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]Dexpansion has been done away with. In short, WesternGeco [ONGC v. Western Geco International Ltd., (2014) 9 SCC263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as underEthe guise of interfering with an award on the ground that thearbitrator has not adopted a judicial approach, the Court’sintervention would be on the merits of the award, which cannotbe permitted post amendment. However, insofar as principles ofnatural justice are concerned, as contained in Sections 18 and34(2)(a)(iii) of the 1996 Act, these continue to be grounds ofFchallenge of an award, as is contained in para 30 of AssociateBuilders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)2 SCC (Civ) 204] .

35. It is important to notice that the ground for interference insofaras it concerns “interest of India” has since been deleted, andtherefore, no longer obtains. Equally, the ground for interferenceon the basis that the award is in conflict with justice or morality isnow to be understood as a conflict with the “most basic notions ofmorality or justice”. This again would be in line with paras 36 to39 of Associate Builders [Associate Builders v. DDA, (2015) 3SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral G

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awards that shock the conscience of the court that can be setaside on this ground.

36. Thus, it is clear that public policy of India is now constrictedto mean firstly, that a domestic award is contrary to thefundamental policy of Indian law, as understood in paras 18 and27 of Associate Builders [Associate Builders v. DDA, (2015) 3SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award isagainst basic notions of justice or morality as understood in paras36 to 39 of Associate Builders [Associate Builders v. DDA,(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 toSection 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) wasadded by the Amendment Act only so that WesternGeco [ONGC v. Western Geco International Ltd., (2014) 9 SCC263: (2014) 5 SCC (Civ) 12], as understood in AssociateBuilders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015)2 SCC (Civ) 204], and paras 28 and 29 in particular, is now doneaway with.

37. Insofar as domestic awards made in India are concerned, anadditional ground is now available under sub-section (2-A), addedby the Amendment Act, 2015, to Section 34. Here, there must bepatent illegality appearing on the face of the award, which refersto such illegality as goes to the root of the matter but which doesnot amount to mere erroneous application of the law. In short,what is not subsumed within “the fundamental policy of Indianlaw”, namely, the contravention of a statute not linked to publicpolicy or public interest, cannot be brought in by the backdoorwhen it comes to setting aside an award on the ground of patentillegality.

40. The change made in Section 28(3) by the Amendment Actreally follows what is stated in paras 42.3 to 45 in AssociateBuilders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015)2 SCC (Civ) 204], namely, that the construction of the terms of acontract is primarily for an arbitrator to decide, unless the arbitratorconstrues the contract in a manner that no fair-minded orreasonable person would; in short, that the arbitrator’s view is noteven a possible view to take. Also, if the arbitrator wanders outsidethe contract and deals with matters not allotted to him, he commits A

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an error of jurisdiction. This ground of challenge will now fallwithin the new ground added under Section 34(2-A).

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39. To elucidate, para 42.1 of Associate Builders [AssociateBuilders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204],namely, a mere contravention of the substantive law of India, byitself, 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 contravenesSection 31(3) of the 1996 Act, that would certainly amount to apatent illegality on the face of the award.

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42. Given the fact that the amended Act will now apply, and thatthe “patent illegality” ground for setting aside arbitral awards ininternational commercial arbitrations will not apply, it is necessaryGto 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, thatin an application under Section 34, the court is not expected to act as anappellate court and reappreciate the evidence. The scope of interferencewould be limited to grounds provided under Section 34 of the Arbitration H

Act. The interference would be so warranted when the award is inviolation of “public policy of India”, which has been held to mean “thefundamental policy of Indian law”. A judicial intervention on account ofinterfering 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 ofan award. The ground for interference on the basis that the award is inconflict with justice or morality is now to be understood as a conflictwith the “most basic notions of morality or justice”. It is only such arbitralawards that shock the conscience of the court, that can be set aside onthe said ground. An award would be set aside on the ground of patentillegality appearing on the face of the award and as such, which goes tothe roots of the matter. However, an illegality with regard to a mereerroneous application of law would not be a ground for interference.Equally, reappreciation of evidence would not be permissible on the groundof patent illegality appearing on the face of the award.

43. A decision which is perverse, though would not be a groundfor challenge under “public policy of India”, would certainly amount to apatent illegality appearing on the face of the award. However, a findingbased on no evidence at all or an award which ignores vital evidence inarriving at its decision would be perverse and liable to be set aside on theground of patent illegality.

44. To understand the test of perversity, it will also be appropriateto refer to paragraph 31 and 32 from the judgment of this Court inAssociate Builders (supra), which read thus:

“31. The third juristic principle is that a decision which is perverseor so irrational that no reasonable person would have arrived atthe same is important and requires some degree of explanation. Itis settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account something irrelevant tothe 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 twojudgments. In Excise and Taxation Officer-cum-Assessing A

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“7. … It is, no doubt, true that if a finding of fact is arrived at byignoring or excluding relevant material or by taking intoconsideration irrelevant material or if the finding so outrageouslyBdefies logic as to suffer from the vice of irrationality incurring theblame of being perverse, then, the finding is rendered infirm inlaw.”

In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10: 1999SCC (L&S) 429], it was held: (SCC p. 14, para 10)

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“10. A broad distinction has, therefore, to be maintained betweenthe decisions which are perverse and those which are not. If adecision is arrived at on no evidence or evidence which isthoroughly unreliable and no reasonable person would act upon it,the order would be perverse. But if there is some evidence onDrecord which is acceptable and which could be relied upon,howsoever compendious it may be, the conclusions would not betreated as perverse and the findings would not be interfered with.”

45. Keeping these principles in mind, we will have to examine thepresent case.E46. The facts in the present case are not in much dispute. It willbe relevant to refer to clause 5.6 of the bid document, which was publishedby TPT on 9[th] April, 1997, which reads thus:

“5.6 TERMS OF THE FINANCIAL OFFER

The license to develop the seventh berth as a full-fledged containerFterminal with ship to shore and shore to ship handling facility,manage, operate and maintain the terminal shall be given for aperiod of 30 years inclusive of construction period.

The bidder shall state his financial offer to the TPT as the sum ofthe following components:

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a) Quantum of initial payment at the time of executing the contractin 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 atHthe terminal in the preceding calendar month. In case actual

throughput falls below the minimum throughput guaranteed bythe Licensee in his bid, then the Licensee shall pay royalty as perhis minimum guaranteed throughput.

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

c) Guaranteed minimum TEU throughput that will be handled ineach 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 fora license to develop the seventh berth as a full-fledged container terminalwith ship-to-shore and shore-to-ship handling facility and also to manage,operate and maintain the same for a period of 30 years inclusive ofconstruction period. The bidder was to state his financial offer to TPTcomprising of three aspects:

(a) quantum of initial payment at the time of executing thecontract 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 TEUhandled at the terminal in the preceding calendar month. Itis also clear, that in case actual throughput falls below theminimum throughput guaranteed by the Licensee in his bid,then the Licensee shall pay royalty as per his minimumguaranteed throughput. It also clarifies, that royalty was tobe paid in the same currency in which the Licensee realizesthe charges from users; and

(c) guaranteed minimum TEU throughput that will be handledin each year of the contract.

48. It will also be necessary to refer to clause 4.7.1 and 4.7.2 ofthe bid document, which reads thus:

“4.7.1 SETTING OF PRICES

The prescribed rates and charges to be collected by the LICENSEEfrom users shall not exceed the maximum rates as approved bythe Government/Tariff Regulatory Authority. The proposed ratesfor handling are given in Annexure II.

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AThe LICENSEE shall bill the users of the container terminal forservices including terminal charges, wharfage on cargocontainerised, container box and cargo related charges to becollected by the LICENSEE. These revenues shall be collectedfrom cargo interests and the owners or agents of the vessels andshall accrue to and be payable to the LICENSEE. Charges onBaccount of Berth Hire, Port Dues, Pilotage etc shall be raised andrecovered directly by TPT from the users.

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4.7.2 REGULATION & REVIEW

Normally the tariff will be revised by the Government/TariffRegulatory Authority once in 3 years.

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For any increase from prevailing scales, the LICENSEE may applyfor revision of tariff to the Licensor. The Licensor may recommendit for approval of the Committee constituted by the Government/Tariff Regulatory Authority.”

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It would thus be clear, that the bid document itself provides, thatthe prescribed rates and charges to be collected by the Licensee fromusers shall not exceed the maximum rates as approved by theGovernment/Tariff Regulatory Authority. The proposed rates for handlingwere prescribed in Annexure-II of the bid document. It is also provided,Ethat the tariff will be revised by the Government/Tariff RegulatoryAuthority once in three years. It is further provided, that for any increasefrom prevailing scales, the Licensee may apply for revision of tariff tothe Licensor and that the Licensor may recommend it for approval ofthe Committee constituted by the Government/Tariff Regulatory Authority.

F49. It will be relevant to note that the offer was required to be inthe format shown in Attachment 4.1 (Bidders Financial Offer),whichrequires to give details in three columns. The first one being ‘Trafficguaranteed from the Seventh Berth (in TEUS)’. The second being ‘Rateof royalty/TEU’; and the third being ‘Amount (Rupees)’. These detailswere to be provided for all 30 years. It will also be relevant to refer toGAttachment 4.4, which reads thus:

“All Responsive Bids which meet the Qualification criteria laiddown for the technical evaluation will be ranked based on thepresent value of the expected payments to the TPT by the Bidder(discounted @ 16% per annum) according to the payment scheduleHpresented in the financial proposal in Attachment 4.1. The calculation of the royalty fees will be based on the Licensee’sminimum guaranteed volume of traffic.

If, in the opinion of TPT, the prices quoted in a bid including royaltiesand schedule of royalties are found to be unrealistic, then such bidwill be rejected and not considered for ranking.”

50. Attachment 4.4 makes it amply clear, that all responsive bidswhich meet the qualification criteria for technical evaluation will be rankedon 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 ofthe Agreement, which read thus:

“7.3.1Setting Prices

The Licensee shall be entitled to recover from the owners/consignees or vessel owners/agents rates and/or charges due andpayable by them for use of the Container Terminal servicesincluding terminal charges, wharfage on cargo containerised,container box and cargo related charges in respect of cargo andother services provided by the Licensee provided however thatthe rates and/or charges to be collected by the Licensee shall notexceed the rates fixed by Licensor in respect of similar servicesand duly notified by the GoI in official gazette or to be fixed by theTariff Authority for Major Ports constituted under Article 47A ofthe Major Port Trusts Act, 1963, as applicable, from time to time.For the purpose of fixing or revising existing Tariff, the GoI hasset up an independent Tariff Authority for Major Ports constitutedunder Article 47A of the Major Port Trusts Act, 1963. The Tariffto be fixed by such authority would be the maximum rate of tariffand the Licensee would be free to fix the tariff at a rate lowerthan that fixed by such authority. Regarding fixation of tariff andsetting prices, the Licensee shall follow the rules and regulationsstipulated by TAMP for fixing/review of tariff.

These charges shall be collected from cargo interests and theowners or agents of the vessels and shall accrue to and be payableto the Licensee. The rates prevailing at the time of signing thisAgreement are contained in Appendix 15 to this Agreement.

Charges on account of Berth Hire, Port Dues and Pilotage shallbe raised and recovered directly by the Licensor from the users.

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The Licensee shall be free to give discounts in tariff. However,such discounts shall be given by the Licensee only in respect tothe charges due and payable by the consignees/owners or vesselowners/agents to the Licensee and not in respect of the chargespayable by such persons directly to the Licensor.

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7.3.5 Payment and Payment Terms

7.3.5.1 Initial Payment

In consideration of the grant of this License, the Licensee shallpay to the Licensor an initial amount of Rs.45 million (RupeesForty Five Millions only) simultaneously on the Date of Award ofLicense.

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The Licensee shall pay to the Licensor, royalty calculated on thebasis of Minimum guaranteed traffic royalty rates, as set out inDAppendix 12 irrespective of discounts in tariffs, if any, that maybe granted by the Licensee. Royalty shall be paid every Month onthe basis of annual minimum guaranteed traffic as set out inAppendix 12. Monthly royalty shall be initially calculatedproportionately to the yearly royalty based on the annual minimumguaranteed traffic as per the Appendix 12 and shall be paid latestEby the 7th Day of the subsequent Month. At the end of each 3Month period the total royalty payable shall be computed and thedifference, if any, between the amount of royalty actually payable,calculated on the basis of actual TEUs handled and thecorresponding amount as set out in the Appendix 12, and the amountFof royalty already remitted, shall be paid by the Licensee to theLicensor within fifteen Days of expiry of the relevant 3 Monthsperiod.

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In case the actual traffic falls below the annual minimumguaranteed traffic as guaranteed by the Licensee and as set outin the Appendix l2, then the Licensee shall pay the amount ofGroyalty as per its annual minimum guaranteed traffic.

It is to be noted that the minimum guaranteed traffic royalty rateas set out in Appendix 12 will be adjusted upwards or downwardsas a one time measure on fixation of tariff for containers by theTAMP for the first time. This adjustment will be carried out by H

the Port based on a single percentage (plus or minus) to be appliedto all the figures quoted as royalty vide Appendix 12. This singlepercentage shall be decided on the basis of sum of weightedaverage of variations to the rates in respect of tariff or containersin the following manner...”

52. Perusal of Article 7.3.1 would reveal, that the Licensee wasentitled to recover from owners/consignees or vessel owners/agents,rates and/or charges due and payable by them for use of ContainerTerminal services including terminal charges, wharfage on cargocontainerized, container box and cargo related charges in respect ofcargo and other services provided by the Licensee. However, it wasprovided, that the rates and/or charges to be collected by the Licenseeshall not exceed the rates fixed by Licensor in respect of similar servicesand duly notified by the GoI in official gazette or to be fixed by TAMPconstituted under Section 47A of the Major Port Trusts Act, 1963. TheAgreement itself clarifies, that the tariff to be fixed by TAMP should bethe maximum rate of tariff and the Licensee would be free to fix thetariff 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 byTAMP regarding fixation of tariff. Appendix-15 to the Agreement alsodetails out the rates prevailing at the time of signing of the Agreement.The Article specifies that the Licensee was free to give discounts ontariffs. However, such discount would be given only in respect of thecharges payable to the Licensee and not payable to the Licensor.

53. Article 7.3.5.1 provides for initial payment of Rs.45 millionsimultaneously on the date of award of license. The Agreement furtherclarifies, that the Licensee shall pay to the Licensor royalty calculatedon the basis of minimum guaranteed traffic royalty as set out in Appendix-12. It is also provided, that minimum guaranteed traffic royalty rate asset out in Appendix-12 will be adjusted upwards or downwards as aone-time measure on fixation of tariff for containers by TAMP for thefirst time.

54. It will be relevant to refer to Article 14, which is the bone ofcontention between the parties, which reads thus:

“ARTICLE 14

CHANGE IN LAW

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SUPREME COURT REPORTS

A14. 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 theBforce 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 anyamendment, alteration, modification or repeal of any existing lawCby Government Authority or through any interpretation thereof bythe court of law or enactment or any new law coming into effectafter the date of this Agreement, provision for which has not beenmade elsewhere in this Agreement.

14.3 Relief under Change in Law

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If, after the date of this Agreement, there is a ‘Change in the Lawwhich substantially and adversely affects the rights of the Licenseeunder this Agreement so as to alter the commercial viability of theproject, the Licensee may, by written notice request amendmentsto the terms of this Agreement.

Subject to provisions of Article 14.3, the Licensee shall not beentitled to any compensation whatsoever from the Licensor as aresult of Change in Law.

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14.4 Changes in Tax Laws and Regulations The Licensee is not entitled to any compensation for any increaseFin direct and/or indirect tax which the Licensee is liable to pay inrespect of the Project.”

55. Article 14 deals with ‘change in law’. Article 14.1, whichdefines ‘law’, states, that law means any valid act, ordinance, rule,regulation, notification, directive, order policy, bylaw, administrativeGguideline, ruling or instruction having the force of law enacted or issuedby a Government Authority.

Article 14.2, which deals with ‘change in law’, states, that ‘changein law’ would mean any amendment, alteration, modification or repeal ofany existing law by Government Authority or through any interpretationH

thereof by a court of law or enactment of any new law coming intoeffect after the date of this Agreement, provision for which has not beenmade elsewhere in the said Agreement.

Article 14.3 provides for relief under change in law. If, after thedate of Agreement, there is a change in the law which substantially andadversely affects the rights of the Licensee under the Agreement so asto alter the commercial viability of the project, the Licensee may, bywritten notice, request amendments to the terms of the Agreement. Itfurther provided, that subject to provisions of Article 14.3, the Licenseeshall not be entitled to any compensation whatsoever from the Licensoras a result of change in law.

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

(i) As to whether the Arbitral Tribunal was justified in finding achange in law, which entitled the Licensee to invoke Article 14.3of the Agreement; and

(ii) As to whether the Arbitral Tribunal was justified in convertingthe contract from royalty payment module to revenue-sharingmodule of Berth No. VII with the claimant’s liability to the revenueshare being fixed at 55.19%.

57. For answering the aforesaid questions, we will have to considerthe documents placed on record. Apart from that, we will also have totake into consideration the conduct of the parties and their intention ascould be gathered from the said material.

58. In this respect, it will be relevant to refer to paragraph 16 inthe case of MMTC Limited (supra), which reads thus:

“16. It is equally important to observe at this juncture that whileinterpreting the terms of a contract, the conduct of parties andcorrespondences exchanged would also be relevant factors and itis within the arbitrator’s jurisdiction to consider the same.[See McDermott International Inc. v. Burn Standard Co.Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd.,(2006) 11 SCC 181]; Pure Helium India (P) Ltd. v. ONGC [PureHelium 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].]”

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A59. The entire finding of the Arbitral Tribunal is based on a premisethat when TPT entered into a contract with SICAL there was an existingpolicy, which provided royalty to be factored into the cost while fixationof tariff and that subsequently, the GoI changed its policy on 29[th] July,2003 thereby providing that royalty payment/revenue sharing will not befactored into/taken into account as cost for fixation/revision of tariff byBTAMP; and that there was subsequent change in policy on 31[st] March,2005 vide which part of royalty was permitted to be factored into thecost. However, it being subjected to a maximum amount of the bid of thesecond lowest bidder. According to the Arbitral Tribunal, there was achange in policy, which amounted to change in law, which, in turn,Cadversely affected SICAL.

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60. Let us examine the correctness of this finding. We are fullyaware, that neither under Section 34 nor under Section 37 of theArbitration Act, the Court is entitled to reappreciate the evidence. Thesaid limitation would be equally applicable to this Court also. Admittedly,Dthe bid document was published on 9[th] April, 1997. The technical bid ofSICAL was submitted on 24[th] October, 1997. The financial offer ofSICAL was submitted on 19[th] December, 1997. LoI was issued on 29[th]January, 1998. All this has happened prior to the guidelines issued byTAMP in February 1998. As such, it is beyond any doubt, that when thebid document was notified and when SICAL submitted its bid and LoIEwas issued to it, there were no guidelines in vogue. For the first time, theguidelines were adopted by TAMP in the workshop held in Chennai on26[th]/27[th] February, 1998.

61. Let us examine what do these guidelines provide.

F“The TAMP must adhere to established costing systems andpricing principals, its overall objective shall be to move towardscompetitive pricing.

There are various approaches to tariff fixation. Until moreinformation/knowledge becomes available. Attempts may be madeGto smoothen the system within the existing framework.

During the Interregnum, port pricing may continue to be cost-based with an assured rate of return. Although the concept ofan assured rate of return is not consonant with a completivesystem. It will be advisable to maintain it for the time beingso as not to destabilize the system with abrupt changes. AtH

the same time, to militate the full impact of its continuance,the reasonableness of the existing base and the absolutetotal costs may have to be examined to ensure that costs ofinefficiencies, uneconomic user /practices or excess are notpassed on to users. Even if the TAMP is not equipped at presentto cope with the load of work relating to such scrutiny, it must atleast start pressuring against such costs being built into tariffs.

An assured rate of return can be achieved either by increasingthe surplus through a rationalized tariff structure and/or reducingthe cost of services; or by reducing the capital base by eliminatingunproductive and obsolete assets.”

62. It could thus be clearly seen that what is provided is thatTAMP must adhere to established costing systems and pricing principalsand its overall objective should be to move towards competitive pricing.It further provides that until more information/knowledge becomesavailable, attempts should be made to smoothen the system within theexisting framework. It further provides that during the interregnum, portpricing is to be continued to be cost-based with an assured rate of return.It however specifically observes that the concept of an assured rate ofreturn is not consonant with a competitive system. It provides thathowever, it will be advisable to maintain it for the time being so as not todestabilize the system with abrupt changes. It further provides that tomilitate the full impact of its continuance, the reasonableness of theexisting base and the absolute total costs may have to be examined toensure that costs of inefficiencies, uneconomic user/practices or excessare not passed on to users. It further observed, that an assured rate ofreturn can be achieved either by increasing the surplus through arationalized tariff structure and/or reducing the capital base by eliminatingunproductive and obsolete assets.

63. It could thus clearly be seen, that even 1998 guidelines do notmention, that the royalty could be factored in the cost while determiningthe tariff. Though the said guidelines observed, that the port pricing maycontinue to be cost-based with an assured rate of return, it furtherobserved, that such a concept of an assured rate of return is not inconsonance with a competitive system. Thus, it is amply clear, that whenthe bids were invited, and SICAL submitted its bid and LoI was issued AB

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Ato it, there was no policy at all. Even the 1998 guidelines do not providefor factoring the royalty in cost while determining the tariff.

64. No doubt that when the first proposal for revision of tariffwas submitted by SICAL, in its comments submitted to TAMP, TPT hassupported the proposal submitted by SICAL. It is also undisputed, thatBTAMP vide order dated 08[th] December, 1999(notified on 28[th] December,1999)has approved the proposal with regard to fixation of tariff insofaras SICAL is concerned. It will be relevant to refer to sub-para (iv) ofparagraph 7 of the TAMP order, which reads thus:

“(iv) It will be necessary at this point to refer to the royalty issue.CEven though some considerations relating to royalty havetariff- implications, we have not so far chosen to interferein this regard; the royalty issue has been left to be settledby the Port Trust and the Government. That being so, inthe light of the TPT’s conditional support to the requestfor dollar-denomination, it will be necessary for us to clarifyDthat our approval of the tariffs cannot be interpreted toamount to any implicit approval of royalty-related issues.Specifically, in the context of the TPT’s condition about dollar-denomination of royalty, the method of conversion adopted by theApplicant for the purpose of financial statements based on tariffsEdenominated in dollar terms cannot be deemed to have beenapproved by us.”

65. It could thus be clear, that TAMP has observed, that thoughsome considerations relating to royalty have tariff-implications, it hadFnot so far chosen to interfere in that regard. The royalty issue has beenleft to be settled by TPT and the GoI. It has been clarified that its approvalto the tariff cannot be interpreted to be amounting to any implicit approvalof royalty-related issues. It is thus clear, that even the 1999 TAMP ordermade it clear, that the said order should not be interpreted to amount toGany implicit approval of royalty related issues. It is thus clear, that royaltywas permitted to be factored in cost only on account of TPT’s conditionalsupport to the proposal submitted by SICAL. It will also be relevant tonote that TAMP order of 1999 is much after the TAMP guidelines, whichwere issued in February 1998. Undisputedly, the said order has beenaccepted by SICAL including the aforesaid observations in sub-paraH(iv) of paragraph 7.

66. The second tariff order in case of SICAL came to be passedon 20[th] September, 2002 (notified on 4[th] October, 2002). It will be relevantto refer to sub-para (xi) of paragraph 15.

“(xi) One of the main items of expenditure considered by thePSA SICAL is the royalty payment it has to make to the TPT asper the Concession Agreement. This liability accounts for about11.4%, 15.4% and 19.2% of the operating income estimated onthe basis of the existing tariffs for the years 2002, 2003 and 2004respectively. As has been mentioned earlier, the existing tariffswere allowed to the PSA SICAL by accepting its proposal toadopt the (then) existing CHPT rates. That being so, there wasno detailed cost analysis carried out then.

It is admitted that the issue of admissibility of ‘royalty’ as acost item has come under a focused scrutiny only in thecase 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 tariffsat the CCTL. This Authority held that allowing royalty intariff would mean that the CCTL (Private TerminalOperator) and the CHPT (the Licensor) both of whomenjoyed a dominant position, could enter into anycommercial arrangement between themselves and pass onthe consequential cost to customers. This Authority alsoobserved that there had been no commitment from anywhere aboutconsequential tariff adjustments and the CA also did not give anyassurance to the Licensee about tariff adjustments correspondingto the royalty quoted.

In view of the principle set out in the CCTL case, it isnecessary to accord a similar treatment in the case of thePSA SICAL also. It is noteworthy that no extraordinarycircumstances appear to emerge in this case warrantingany exceptional consideration. That being so, royalty hasnot been considered as an admissible item of cost for thistariff exercise.”

67. Perusal of the aforesaid sub-para would clearly reveal thatone of the main items of expenditure considered by SICAL was the A

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Aroyalty payment it has to make to TPT as per the Concession Agreement.It states that the existing tariffs were allowed to SICAL by accepting itsproposal to adopt the then existing Chennai Port Trust (hereinafterreferred to as “CHPT”) rates. It clarifies that there was no detailed costanalysis carried out then. It further states that the issue of admissibilityof royalty as a cost item came under a focused scrutiny only in the caseBrelating to CCTL, which was disposed of in March 2002. It states, thatin that case, the Authority decided not to allow ‘revenue share’ as a costelement for computation of tariffs for CCTL. It observes, that allowingroyalty in tariff would mean that CCTL (Private Terminal Operator) andCHPT (the Licensor), both of whom enjoyed a dominant position, couldCenter into any commercial arrangement between themselves and passon the consequential cost to customers. It further specifies, that theAuthority had observed, that there had been no commitment fromanywhere about consequential tariff adjustments corresponding to theroyalty quoted. It further observed that no extraordinary circumstancesappear to emerge in the case of SICAL warranting any exceptionalDconsideration. As such, royalty had not been considered as an admissibleitem of cost in the tariff.

68. The said order is passed when the 1998 guidelines were stillholding the field. In this factual background, it is difficult to appreciateas to how it could be said that the 1998 guidelines issued by TAMPEpermitted royalty to be factored in cost while fixation of tariff.

69. The 2002 tariff order has been challenged by SICAL by filingWrit Petitions being Writ Petition Nos 40637-40639 of 2002 before theMadras High Court. The Madras High Court has also passed interimorder on 8[th] November, 2002 thereby staying the 2002 notification andFpermitting SICAL to charge tariff on the basis of the 1999 tariff order.

70. Then comes the notification dated 29[th] July, 2003 issued bythe GoI, which is in the following terms:

“In a few cases recently a question arose as to what treatment toGbe given to revenue sharing/royalty payment made by privateterminal operators to the concerned major ports for the purposeof fixation/revision of tariff. TAMP has also requested forguidelines from Ministry in the matter. The matter has beendiscussed with Chairman, TAMP and considered in this Ministryand it has been decided to clarify as a matter of policy thatH

the revenue sharing/royalty payment shall not be factoredinto/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 privateparticipation in ports should also be passed on to shippers or theusers which will not be so if royalty is allowed to be factored inthe cost of private operators.

(ii) If royalty is allowed as cost, the private bidder can offer anyhigh percentage which he will recover from the shippers/users inthe shape or royalty cost lectured in fixing of higher rates.

It has also been decoded that the position in this regard may beclearly indicated in the bid documents itself while inviting bids forprivate sector participation at major ports.”

71. Perusal of the said notification would clearly show that theGoI has decided to clarify, as a matter of policy, that the revenue-sharing/royalty payment shall not be factored into/taken into account as cost forfixation/revision of tariff by TAMP. The said notification specificallyprovides that the benefit of higher efficiency on account of privateparticipation in ports should also be passed on to shippers or the userswhich will not be so if royalty is allowed to be factored in the cost ofprivate operators. It further provides that if royalty is allowed as cost,the private bidder can offer any high percentage which he will recoverfrom the shippers/users in the shape of royalty cost factored in fixing ofhigher rates.

72. Then comes a notification dated 31[st] March, 2005 issued byTAMP. It willbe relevant to note that these guidelines have been issuedsubsequent to the consultation meetings held with the stake-holders atKolkata, Chennai and Mumbai. It will be relevant to refer to clause1.4.2, which reads thus:

“1.4.2. The earlier guidelines adopted in Feb. 1998 standsuperseded. The principles evolved through various tariff orderswill, however, continue to apply to the extent they are consistentwith and not specifically superseded by these guidelines. Acompendium or digest of principles evolved will be publishedperiodically.”

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73. It is thus clear, that the 31[st] March, 2005 notification specificallystates that the guidelines adopted in February 1998 stand superseded.However, it provides, that the principles evolved through various tarifforders would continue to apply to the extent they are consistent with andnot specifically superseded by the 2005 guidelines.

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B74. It will also be relevant to refer to paragraph 2.8.1 of the 2005guidelines.

“2.8.1. ‘Royalty/Revenue share’ payable to the landlord portby the private operator will not be allowed as an admissiblecost for tariff computation as decided by the Govt. in theCMinistry of Shipping vide its Order No. PR-14019/6/2002-PG dt. 29[th] July, 2003. In those BOT cases where biddingprocess was finalized before 29 July, 2003, the tariffcomputation will take into account royalty / revenue sharingas cost for tariff fixation in such a manner as to avoid likelyloss to the operator on account of royalty / revenue shareDnot being taken into account, subject to maximum of theamount quoted by the next lowest bidder. This would,however, be allowed for the period upto which such likelyloss will arise. This would not be applicable if there is provisionin the concession agreement on treatment of ‘Royalty/RevenueEShare’.”

75. The said guidelines specifically provide that ‘royalty/revenueshare’ payable to the landlord port by the private operator will not beallowed as an admissible cost for tariff computation as decided by theFGovernment in the Ministry of Shipping vide its Order No.PR-14019/6/2002-PG dated 29[th] July, 2003. It further provided, that in those BOTcases where bidding process was finalized before 29[th] July, 2003, tariffcomputation will take into account royalty/revenue sharing as cost fortariff fixation in such a manner as to avoid likely loss to the operator onGaccount of the royalty/revenue share not being taken into account.However, this was subjected only to a maximum of the amount quotedby the next lowest bidder. This was further subjected to be allowed forthe period upto which such likely loss would arise. It further providedthat this would not be applicable if there is provision in the concessionagreement on treatment of royalty/revenue share.H

76. A conjoint reading of all these documents would reveal thatwhen the bid document was published in April 1997; SICAL tendered itsbid in October, 1997 and submitted its financial offer in December,1997;and the LoI was issued to SICAL on 29[th] January, 1998, there were noguidelines at all. Even the guidelines of February 1998 do not provide forroyalty being factored as cost while fixation of tariff. On the contrary,the tariff order of 1999 specifically clarifies that it has left the royaltyissue to be decided by TPT and the GoI. It has specifically clarified thatthe approval by TAMP should not be interpreted to be amounting to anyimplicit approval of royalty-related issue. Further, the tariff order issuedon 20[th] September, 2002 specifically rejects the claim of SICAL forfactoring any royalty as cost while tariff/price fixation. As already statedherein above, SICAL has challenged the said order before the MadrasHigh Court by way of writ petition, which petition has been allowed. It isalso not in dispute, that on account of interim order passed by the MadrasHigh Court dated 8[th] November, 2002, SICAL is still continuing to chargeat rates notified in the 1999 tariff order.

77. In this scenario, the finding of the Arbitral Tribunal, that therewas a law when the Agreement was entered into between the parties,which provided royalty as a pass-through and that the said law has beenchanged for the first time in 2003 and subsequently again changed in2005, in our view, is a finding based on ‘no evidence’. Had the ArbitralTribunal perused the tariff orders of 1999 and 2002, it would have foundthat in the 1999 tariff order TAMP has specifically observed that itsapproval of the tariff should not be construed as its implicit approval ofroyalty-related issue and the 2002 tariff order specifically states thatroyalty was not permitted to be factored in the cost while determiningtariff. The Arbitral Tribunal has totally failed to take into considerationthis aspect of the matter.

78. As such, we are of the view, that since the finding of theArbitral Tribunal, that there was an existing law to the effect that theroyalty payable shall be permitted as a pass-through in cost while fixationof tariff, is based on ‘no evidence’ and the finding, that there was achange in law in 2003 and 2005 is based on without taking intoconsideration the relevant evidence, would come in the realm of perversityas explained by this Court in paragraph 31 of the Associate Builders(supra). The findings are based on ‘no evidence’ and ‘ignorance of vitalevidence’ in arriving at its decision.

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A79. This brings us to the next issue viz., as to whether the ArbitralTribunal was justified in passing an award thereby substituting ‘royaltypayment module’ to the ‘revenue-sharing module’. A contract dulyentered into between the parties cannot be substituted unilaterally withoutthe consent of the parties. The intention of the parties could be gatheredfrom the documents on record. SICAL, for the first time, madeBrepresentation to TPT on 6[th] October, 2006thereby seeking a relief underthe terms of Article 14.3 of the Agreement. On 14[th] October, 2006, TPTinformed SICAL that the issues raised by it were under examination.However, vide order dated 27[th] October, 2006, TPT refused to considerSICAL’s application for relief since, according to it, the issue raised byCSICAL was pending before the Madras High Court. SICAL thereforefiled writ petition being Writ Petition No. 4361 of 2006 before the MadrasHigh Court. The Madras High Court allowed the said writ petition videorder dated 21[st] August, 2007 clarifying that the petition pending beforethe High Court had nothing to do with the representation under Article14 of the License Agreement and remanded the matter to TPT forDconsideration afresh. Vide a reasoned letter dated 25[th] April, 2008, TPTrejected the claim of SICAL. TPT has specifically observed that anychange in the Agreement cannot be done without prior approval of theGoI. SICAL on 19[th] November, 2012 addressed a letter to TPT invokingarbitration under Article 15.3 of the License Agreement. TPT strenuouslyEcontested the claim of SICAL with regard to prayer for change from‘royalty payment mode’ to ‘revenue sharing mode’. The stand of TPThas been crystalized by the Arbitral Tribunal in paragraph 5 of the Award,which reads thus:

“5. Sum and substance of the defence is as follows:F

“There is no dispute at all. The grievance of the SICAL is thatthere is an error committed by TAMP in fixing the tariff. Thatgrievance had been repeatedly taken before the High Court ofMadras by SICAL and at all stages orders have been passedby setting aside the orders challenged. Therefore, the realGgrievance of SICAL is only against TAMP and not againstPORT. Since the issue regarding fixing of tariff is pendingfinality, SICAL cannot maintain any claim legally or factuallyagainst PORT. PORT is bound by the order of TAMP.Whatever order TAMP passes, the PORT is bound to obey.The PORT has no right to interfere with the tariff fixing power H

of TAMP which is their exclusive domain and jurisdiction. TheContract is not entered into on the basis of any guidelines.There was no guideline, as contended by SICAL, on the dateof the contract. By the present dispute, SICAL is trying tochange the entire nature of the contract, namely, from theroyalty module to the revenue sharing module. It isimpermissible for a court or this Tribunal to compel any partyto enter into a new contract. Contract is always by consent ofparties. All the grievance put forward before the Tribunal bySICAL is their grievance in sum and substances before TAMPand High Court of Madras in all challenges made against theorder of TAMP. Neither a Court nor the Tribunal can rewritethe Contract. The contract is an enforceable one and simplybecause SICAL is stated to be losing monetarily, the reliefsought for in this dispute cannot be granted. If the case ofSICAL is true, it is open to them to put an end to the contractand seek appropriate relief. If such a termination of the contracttakes place at the instance of SICAL, then the PORT will takesteps to get appropriate relief. Section 56 of the Contract Actis applicable to this case”

A number of case laws have been cited by the learned SeniorCounsel for the PORT and we will refer to them at the appropriatestage.”

80. It could thus be seen, that SICAL wanted the Agreement tobe amended so as to change the ‘royalty payment method’ to ‘revenue-sharing method’. TPT was always opposed to it. The intention of TPT isapparent from its various communications and its stand before the ArbitralTribunal, that it was not agreeable for amendment of the Agreementfrom ‘royalty payment method’ to ‘revenue-sharing method’.

81. However, ignoring the stand of TPT, by the impugned Award,the Arbitral Tribunal has thrust upon a new term in the Agreementbetween the parties against the wishes of TPT. The ‘royalty paymentmethod’ has been totally substituted by the Arbitral Tribunal, with the‘revenue-sharing method’. It is thus clear, that the Award has created anew contract for the parties by unilateral intention of SICAL as againstthe intention of TPT.

82. After referring to various international treaties on arbitrationand judgments of other jurisdictions, this Court in Ssangyong AB

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AEngineering and Construction Company Limited (supra), observedthus:

“76. However, when it comes to the public policy of India,argument based upon “most basic notions of justice”, it is clearthat this ground can be attracted only in very exceptionalcircumstances when the conscience of the Court is shocked byinfraction of fundamental notions or principles of justice. It can beseen that the formula that was applied by the agreement continuedto be applied till February 2013 — in short, it is not correct to saythat the formula under the agreement could not be applied in viewof the Ministry’s change in the base indices from 1993-1994 to2004-2005. Further, in order to apply a linking factor, a Circular,unilaterally issued by one party, cannot possibly bind the otherparty to the agreement without that other party’s consent. Indeed,the Circular itself expressly stipulates that it cannot apply unlessthe contractors furnish an undertaking/affidavit that the priceadjustment under the Circular is acceptable to them. We haveseen how the appellant gave such undertaking only conditionallyand without prejudice to its argument that the Circular does notand cannot apply. This being the case, it is clear that themajority award has created a new contract for the partiesby applying the said unilateral Circular and by substitutinga workable formula under the agreement by another formuladehors the agreement. This being the case, a fundamentalprinciple of justice has been breached, namely, that aunilateral addition or alteration of a contract can never befoisted upon an unwilling party, nor can a party to theagreement be liable to perform a bargain not entered intowith the other party. Clearly, such a course of conduct wouldbe contrary to fundamental principles of justice as followedin this country, and shocks the conscience of this Court.However, we repeat that this ground is available only invery exceptional circumstances, such as the fact situationin the present case. Under no circumstance can any courtinterfere with an arbitral award on the ground that justice has notbeen done in the opinion of the Court. That would be an entry intothe merits of the dispute which, as we have seen, is contrary tothe ethos of Section 34 of the 1996 Act, as has been noted earlierin this judgment.”

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83. As such, as held by this Court in Ssangyong Engineeringand Construction Company Limited (supra), the fundamental principleof justice has been breached, namely, that a unilateral addition or alterationof a contract has been foisted upon an unwilling party. This Court hasfurther held that a party to the Agreement cannot be made liable toperform something for which it has not entered into a contract. In ourview, re-writing a contract for the parties would be breach of fundamentalprinciples of justice entitling a Court to interfere since such case wouldbe one which shocks the conscience of the Court and as such, would fallin the exceptional category.

84. We may gainfully refer to the following observations of thisCourt in Bharat Coking Coal Ltd. v. Annapurna Construction[26].

“22. There lies a clear distinction between an error within thejurisdiction and error in excess of jurisdiction. Thus, the role ofthe arbitrator is to arbitrate within the terms of the contract. Hehas no power apart from what the parties have given him underthe contract. If he has travelled beyond the contract, he would beacting without jurisdiction, whereas if he has remained inside theparameters of the contract, his award cannot be questioned onthe ground that it contains an error apparent on the face of therecord.”

85. It has been held that the role of the Arbitrator is to arbitratewithin the terms of the contract. He has no power apart from what theparties have given him under the contract. If he has travelled beyond thecontract, he would be acting without jurisdiction.

86. It will also be apposite to refer to the following observationsof this Court in the case of Md. Army Welfare Housing Organizationv.Sumangal Services (P) Ltd.[27]

“43. An Arbitral Tribunal is not a court of law. Its orders are notjudicial orders. Its functions are not judicial functions. It cannotexercise its power ex debito justitiae. The jurisdiction of thearbitrator being confined to the four corners of the agreement, hecan only pass such an order which may be the subject-matter ofreference.”

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A87. It has been held that an Arbitral Tribunal is not a Court of law.Its orders are not judicial orders. Its functions are not judicial functions.It cannot exercise its powers ex debito justitiae. It has been held thatthe jurisdiction of the arbitrator being confined to the four corners of theagreement, he can only pass such an order which may be the subject-matter of reference.B

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88. In that view of the matter, we are of the considered view, thatthe 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 theCmatter. Arguments have also been advanced before us with regard toNSCT being given a discriminatory treatment as against SICAL. Thearguments have also been advanced on the ground of approbate andreprobate and doctrine of election. It has also been argued on behalf ofSICAL that it is incurring huge losses. Per contra, it is submitted onbehalf of TPT, that it is incurring huge losses on account of variousDinterim orders passed by the High Court and the District Judge in Section9 applications.

90. We do not propose to go into those aspects of the matter.TAMP has issued various notifications with regard to fixation of tariff soalso various orders have been passed by the GoI with regard to theEaspect of grant or refusal of pass through of royalty payable. Variouspetitions have been filed by SICAL challenging the said orders andnotifications. All the petitions were allowed thereby remanding the mattersto TAMP and GoI. However, it is not in dispute, that SICAL, by virtue ofthe interim order passed dated 8[th] November, 2002 in MiscellaneousFPetition No. 60240 of 2002 in Writ Petition No.40638 of 2002 is continuingto levy charges on the basis of 1999 tariff order (dated 8[th] December,1999) passed by TAMP.

91. The last notification issued by TAMP with regard to price/tariff fixation dated 17[th] December, 2008, gazetted vide notification datedG30[th] December, 2008 was challenged by SICAL by way of Writ PetitionNo.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 of2009. By an order dated 15[th] October, 2009, the High Court has allowedthese writ petitions by setting aside the order of the GoI dated 20[th]February, 2008 and the notification dated 17[th] December, 2008 issued byH

TAMP and has directed the GoI as well as TAMP to consider the issueafresh.

92. It is informed at the Bar, that the said order has been carriedin appeal before the Division Bench of the High Court both by SICALas well as TAMP, which are still pending before the High Court.

93. We are of the considered view, that if we make any observationon merits of the issue with regard to aforesaid submissions made beforeus, it may prejudicially affect the rights of either of the parties. Wetherefore refrain from making any observation with regard to theaforesaid arguments, though heavily contested before us.

94. We therefore, confine ourselves with the issue as regards thevalidity of the Award. We also clarify that any observations made by theHigh Court with regard to other aspects of the matter except the validityof the Award, would not come in the way of either of the parties raisingtheir grievances in either the proceedings which are pending before theDivision Bench of the High Court or any other proceedings to whicheither 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 noorder as to costs. Pending applications, if any, shall stand disposed ofaccordingly.

Devika Gujral

Appeals dismissed.

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