A) ABSTRACT / HEADNOTE

Somdatt Builders-NCC-NEC (JV) v. National Highways Authority of India & Ors., [2025] 2 S.C.R. 203 : 2025 INSC 113, concerns the scope of judicial interference with arbitral awards and construction-contract interpretation of Clauses 51–52 (GCC) read with COPA where measured quantities exceeded Bill of Quantities (BOQ) estimates. The dispute arose from item 7.07 (geogrid) used in reinforced earth (RE) walls: actual geogrid requirement proved substantially higher than provisional BOQ quantities. The Dispute Review Board (DRB), and subsequently a majority Arbitral Tribunal of technical experts, concluded the excess was an automatic quantity outcome on final measurement (not a change in design) and ordered payment at BOQ rate for the full executed quantity.

A Single Judge under s.34 upheld the award; a Division Bench reversed under s.37, invoking public policy/patent illegality and ordering re-negotiation. The Supreme Court restored the award, holding that:

(i) the view taken by technical fora was plausible and within their jurisdiction,

(ii) courts’ review under s.34/s.37 is narrowly circumscribed and must not re-appraise merits, and

(iii) public policy means fundamental policy of Indian law and cannot be invoked to convert a possible contractual interpretation into illegality.

Emphasis was placed on the contractual text Clauses 51.1, 51.2, 52.1, 52.2 and COPA provisos—and on restraint in appellate interference where an award has been affirmed under s.34.

Keywords: Dispute Review Board; Arbitral award; Public policy of India; Bill of Quantities; Variation; Clause 52.2; Patent illegality; Reinforced earth wall; Geogrid; s.34 & s.37 Arbitration Act.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

Somdatt Builders-NCC-NEC (JV) entered a World Bank-assisted NHAI contract (27.03.2002) for four-laning a stretch of NH-2, executed as an item-rate/unit-rate contract with provisional BOQ quantities. The contract provided a technical Engineer (appointed consultant) and a three-member DRB mechanism with binding interim effect. While designing and executing reinforced earth (RE) walls the contractor’s approved design revealed a much higher geogrid requirement than the provisional BOQ quantity for item 7.07(ii). The parties’ disagreement focused on whether the excess geogrid was (a) an uninstructed automatic change in final measured quantities payable at BOQ rates, or (b) a variation attracting Clause 52.2 and the Engineer’s power to renegotiate/fix new rates when thresholds (14-day notice; >25% quantity change and >2% contract value) are met.

DRB found no change of concept or design and recommended BOQ rate payment for full executed quantity; the Arbitral Tribunal (majority 2:1, technical members) affirmed that view and ordered payment. A Single Judge under s.34 refused NHAI’s challenge. A Division Bench under s.37 reversed labeling the award unreasonable, patently illegal and contrary to public policy and ordered reconsideration. The Supreme Court, while reiterating narrow judicial review under s.34/s.37, restored the arbitral award, holding the technical fora’s interpretation plausible and consistent with contractual drafting and established arbitration jurisprudence.

D) FACTS OF THE CASE

The contract was a large item-rate project covering roads, bridges, culverts and RE walls with three sub-items: RCC facia panels, filter media, and geogrid. The BOQ listed provisional quantities; contractor priced the BOQ and designed RE walls later for approval. On design approval, the actual required geogrid rose substantially (≈300%) above BOQ estimates. Initially payments were made at BOQ rates; subsequently a new Engineer sought renegotiation. Contractor invoked DRB which, after technical analysis, held:

(i) design concept unchanged,

(ii) geogrid quantity is contingent on facia area and is an anticipated provisional variation by measurement not an instructed variation,

(iii) Clause 51.2 excludes instruction for cases where BOQ provisional quantities are exceeded, and

(iv) therefore payment must follow BOQ rates.

NHAI rejected DRB and proceeded to arbitration; the Arbitral Tribunal endorsed DRB’s findings and directed payment for actual measured geogrid at BOQ rates. NHAI challenged award under s.34; Single Judge affirmed award. Division Bench reversed under s.37, holding contractual clauses allowed rate re-fixation where quantities cross thresholds; termed the arbitral view implausible and against public policy. Supreme Court examined clause text, DRB/tribunal expertise, and appellate scope and restored the award.

E) LEGAL ISSUES RAISED

1. Whether an increase in executed quantities beyond provisional BOQ estimates, without change in design or instruction, constitutes a “variation” under Clause 51.1 attracting Clause 52.2 valuation powers of the Engineer?

2. Whether the Engineer could re-fix/renegotiate rates for additional geogrid quantities where the thresholds under COPA (14-day notice; >25% and >2% contract value) are satisfied?

3. Whether a Division Bench under s.37 can re-appraise/conclude on contractual interpretation and set aside an arbitral award that a Single Judge upheld under s.34?

4. Whether the arbitral award in these facts offended the “public policy of India” or disclosed patent illegality warranting interference?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Petitioner / Appellant submitted that:

• The DRB and the Arbitral Tribunal were technical fora whose concurrent findings about no change in design and the resultant conclusion (BOQ rates apply) are plausible and entitled to deference. s.34 does not permit re-appraisal of evidence and the Single Judge correctly refused interference.

• Division Bench exceeded narrow appellate scope under s.37 by substituting its view and by resort to dictionary semantics, rendering contractual provisos otiose.

• The excess arose from erroneous provisional BOQ estimates by NHAI, not contractor action; thus it was not an instructed variation and Clause 52.2 (requiring notice for instructed variations) does not apply.

G) RESPONDENT’S ARGUMENTS

The counsels for Respondent submitted that:

• Clauses 51.1/51.2/52.1/52.2 read together show all variations (instructed or uninstructed) remain variations; when thresholds in COPA are crossed (>25% and >2% contract value), the Engineer is empowered to re-fix rates.

• NHAI gave timely 14-day notice (28.10.2003) and the circumstances satisfy COPA thresholds, entitling it to renegotiate.

• Arbitral Tribunal ignored contractual text and evidence; award rewrote contract and is perverse, therefore divisible under public policy/patent illegality.

H) RELATED LEGAL PROVISIONS 

• Section 34, Arbitration & Conciliation Act, 1996 (challenge to award).

• Section 37, Arbitration & Conciliation Act, 1996 (appeal from order under s.34).

• Clause 51.1 & 51.2 (GCC) — variation and when instruction is required.

• Clause 52.1 & 52.2 (GCC/COPA) — valuation and power to fix rates; 14-day notice proviso; COPA thresholds (>25% & >2%).

I) JUDGEMENT

Supreme Court analyzed clause language and concurrency of findings: DRB and Arbitral Tribunal were technical fact-finders who concluded the excess geogrid resulted from provisional BOQ under-estimation and not a change in design or instructed variation. The Court emphasized the contract type item/unit rate with provisional quantities where ultimate measured quantities often differ and parties price on that basis; therefore, an automatic measurement-driven increase ordinarily attracts BOQ rates unless an instructed variation is established.

The Court held the Single Judge correctly applied the principle that courts under s.34 may not reappraise evidence and must respect plausible arbitral interpretations. The Division Bench was faulted for adopting dictionary analysis and substituting its view, using emotive phrases (“shocking the conscience,” “public policy”) without showing illegality that goes to the root. Relying on precedents (e.g., MMTC v. Vedanta, Ssangyong v. NHAI, PSA Sical), the Court reiterated that public policy covers fundamental legal policy, statute violations, or awards against basic notions of justice; mere erroneous contractual interpretation or a different plausible view does not suffice. The impugned Division Bench order was set aside and the arbitral award restored.

a. RATIO DECIDENDI

The controlling ratio is twofold: first, where technical fact-finding bodies (DRB and tribunal) make concurrent plausible findings that an excess arises from measurement of provisional BOQ quantities and not an instructed change in design, courts must not disturb that conclusion under s.34 or lightly under s.37; second, public policy and patent illegality permit setting aside only where illegality goes to the root (awards that are arbitrary, perverse, or shock fundamental notions of justice), not where another plausible contractual interpretation exists. The contractual text of Clauses 51–52 read with COPA supports paying measured overruns at BOQ rates unless an instructed variation is proved; COPA thresholds are enabling, not mandatory. These legal propositions must guide judicial restraint in reviewing arbitration awards.

b. OBITER DICTA

The Court made important observations:

(i) engineers’ competence to instruct variations must be understood contextually;

(ii) COPA provisos (14-day notice; >25% & >2%) are procedural/enabling safeguards not automatic mandates to reprice every overrun;

(iii) technical expertise of arbitrators/DRB merits deference in construction disputes;

(iv) appellate courts must avoid dictionary-led exercises divorced from contractual context; and

(v) repeated judicial interference defeats arbitration’s efficacy. These dicta underline policy concerns—contractual stability, deference to specialist tribunals, and limits of judicial review.

c. GUIDELINES 

• Courts must show restraint under s.34 and s.37; interference requires illegality that is patent and goes to the award’s root.

• In construction disputes, give due weight to DRB/arbitral technical findings on design/quantity issues.

• Interpret Clauses 51–52 contextually—distinguish instructed variations from measurement-driven outcomes.

• Treat COPA thresholds (>25% & >2%) as enabling triggers to consider revaluation, not automatic mandates obliging re-fixation.

• Avoid invoking public policy to displace reasonable contractual interpretations; reserve it for violations of fundamental law, statutory mandates, or awards that shock conscience.

J) CONCLUSION & COMMENTS

The judgment reaffirms arbitration finality and judicial modesty in construction contracts where provisional BOQ quantities may dramatically change on measurement. It clarifies that Clauses 51–52, COPA provisos and thresholds must be read together and that an excess caused by initial estimation error without change in design or instruction can lawfully attract BOQ rates. Practically, the decision signals procurement authorities to ensure accurate BOQs and to use COPA thresholds and notice requirements sensibly.

For contractors, it underscores the protective value of item-rate contracts with provisional quantities and the importance of securing DRB/arbitral technical findings. Legally, the judgment tightens the ambit of public policy/patent illegality challenge and reiterates precedent that mere disagreement with an arbitrator’s plausible view is not a ground for setting aside awards. The ruling strengthens commercial predictability in infrastructure arbitration and cautions appellate courts against substituting their views for specialist tribunals.

K) REFERENCES

a. Important Cases Referred

1. Somdatt Builders-NCC-NEC (JV) v. National Highways Authority of India & Ors., [2025] 2 S.C.R. 203 : 2025 INSC 113.

2. Ssangyong Engineer & Construction Co. Ltd. v. NHAI, [2019] 7 SCR 522 : (2019) 15 SCC 131.

3. MMTC Ltd. v. Vedanta Ltd., [2019] 3 SCR 1023 : (2019) 4 SCC 163.

4. PSA Sical Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, [2021] 5 SCR 408 : (2023) 15 SCC 781.

5. M/s Hindustan Construction Company Ltd. v. M/s NHAI, [2023] 11 SCR 623 : (2024) 2 SCC 613.

6. Reliance Infrastructure Ltd. v. State of Goa, [2023] 8 SCR 379 : (2024) 1 SCC 479.

7. Grinaker Construction (TVL) Ltd v. Transvaal Provincial Administration, 1982 (1) AD 78.

b. Important Statutes Referred

1. The Arbitration and Conciliation Act, 1996: Sections 34 & 37.