The Supreme Court on Wednesday held that any unilateral addition or alteration of a contract by the government can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. This conduct, according to the apex court, would be contrary to fundamental principles of justice as followed in India, and this ground would be available only in “very exceptional circumstances.”
In the case, Ssangyong Engineering and Construction vs NHAI, a Bench led by Justice RF Nariman held that when it comes to the public policy of India argument based upon “most basic notions of justice”, this ground can be attracted only in very exceptional circumstances when the conscience of the court is shocked by infraction of fundamental notions or principles of justice.
NHAI had in December 2005 awarded Rs 219-crore contract for construction on four-lane pass to Korean infrastructure firm Ssangyong Engineering and Construction. At the time of bidding, escalation was being paid to the foreign firm on the basis of the Wholesale Price Index (WPI) of 100 with the base year being 1993-1994 (old series). After August 2010, the ministry of industrial development introduced the New Series with WPI of 100 and the base year was changed to 2004-2005. Later, NHAI in February 2013 issued a circular providing ‘weighted average linking factor between the old and the new series, which formed the basis of the dispute between the parties. Ssangyong challenged the February 2013 circular in the Delhi High Court, which referred the matter for arbitration.
The top court said the formula applied by the government in its contract continued till February 2013 and it is not correct to say that the formula under the agreement could not be applied in view of the government’s change in the base indices from 1993-94 to 2004-05. “Further, in order to apply a linking factor, a circular, unilaterally issued by one party, cannot possibly bind the other party to the agreement without that other party’s consent,” the judgment stated.
“Indeed, the circular itself expressly stipulates that it cannot apply unless the contractors furnish an undertaking/affidavit that the price adjustment under the circular is acceptable to them… a fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court,” Justice Nariman said in the 90-page judgment.
Setting aside the Delhi High Court’s judgment that upheld the majority award passed by the arbitral tribunal in May 2016, the SC upheld the minority award that ruled in favour of the Korean firm. The majority arbitrators in May 2016 were of the view that, the New Series indices were not available at the time of bid of the project in 2005, the question of using the base indices of the New Series for the price adjustment did not arise.
However, the arbitrators recorded a dissenting note which said that the New Series was applicable with effect from September 2010 and thereafter, only the New Series was to be applied for working the formulae as provided under the agreement. A dissenting award expressly stated that neither the Circular nor the guidelines could be applied as they were de hors the contract between the parties.
via Supreme Court says unilateral altercation of contract by govt can’t be foisted upon unwilling party – The Financial Express