Bombay High Court: The present interim application was filed seeking a stay on the arbitral award dated 16-06-2025, till the Commercial Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996, was disposed of. A Single Judge Bench of Somasekhar Sundaresan, J., while dismissing the application, held that no such case was made out for an unconditional stay as there was nothing to show that the award was tainted by such perversity that it brooked no deposit for stay on its execution. The Court ordered that the execution proceedings would be stayed, provided the awarded amount and accrued interest were deposited with the Registry within eight weeks. The Court opined that when parties proceed to arbitration after a detailed pre-arbitral process has been contracted, then there must be higher credibility and credence given to the arbitral award.
Background:
The Mumbai Metro Rail Corporation Limited (‘Corporation’) entered into a contract, entailing the design and construction of specific stations and tunnels in the Mumbai Metro Rail Project at a composite lumpsum price. The bid for the contract was made by L&T-STEC JV Mumbai (‘Contractor’), in May 2015 before the introduction of Goods and Services Tax (‘GST’). The parties agreed on a Change in Law provision for effecting adjustments for the impact of introduction of GST.
A sum of Rs 250.82 crore was awarded to the Contractor by a majority award, of which, Rs 21.26 crore was attributable to additional work said to be carried out outside the scope of the project, while Rs 229.56 cores was attributable to the claim towards reimbursement for the impact of GST introduction. However, the Arbitrator nominated by the Corporation dissented from the majority and held that on the additional works, the Contractor would owe a refund of Rs 27.09 lakh to the Corporation and on the GST front the impact of GST should be Rs 134.42 crore.
The Corporation pressed for an unconditional stay without any requirement to make any deposit of the amounts awarded, on the premise that the award was ex facie perverse and was such that no reasonable arbitral tribunal could have taken the approach adopted by the Arbitral Tribunal (‘Tribunal’).
The Advocate General contended that the Tribunal found it unnecessary to call for components of the contract price to examine the precise component of tax in the price quoted by the Contractor. He contended that the exemptions available for work on construction of monorail and metro projects, that were removed in the GST regime, were applied even to elements unconnected to construction and that without an itemized analysis of sub-elements, it would not be possible to examine whether the removal of the exemption indeed had a material impact on the contract price. He further submitted that the award was contrary to commercial common sense, since no bidder would shut his eyes to the impact of tax changes in Finance Bill already passed by the Parliament on 30-04-2015, solely on the premise that Presidential assent was awaited. Therefore, when the Contractor made a bid on 15-05-2015, he was aware of the implications of the Finance Bill.
For the additional work done, it was envisaged that ‘anchoring’ would be used when tunnelling for the metro, but later it was decided to use the standard of a ‘one strut failure’, which was to be shown additional work, but the Contractor could not show how much additional steel became necessary. The Advocate General also pointed out that the Corporation’s witness, the Engineer-in-Charge of the project, was disqualified as the Tribunal did not consider him an independent witness, however, it selectively chose to rely upon certain elements of his cross-examination but otherwise ignored the evidence in his examination-in-chief.
The Contractor’s counsel submitted that it was not open to the Corporation to expect a vivisection of the contract price. It was the Corporation’s case that the tax component of the contract price had been 10.03% while it was the Contractor’s case that it had been 6.65%. The Dispute Adjudication Board (‘DAB’), set up under the contract, arrived at 6.78% for the same. On the issue of the witness being shut out, he submitted that the Tribunal held that the factual inputs from the witness would be considered and not his claim of having expert knowledge. He further submitted that the award was based on empirical analysis for the material-on-record and merely because the Tribunal, which comprised of technically qualified people, used a phrase ‘preponderance of probability’, it would not follow that its assessment of damages and costs was speculative.
Analysis:
The Court discussed the case under the following heads:
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GST Issue
The Court noted that the difference of opinion among the parties centered around the change in taxation treatment under the seven heads, namely, service tax on labour; octroi on fuel and locally procured materials; service tax on royalty; excise on safety materials; special additional duty on capital goods; MVAT implications for overhead allocations; MVAT on sub-contracting items and consequential octroi. The DAB concluded that the component of taxes in the contract price was 6.78%, which was not acceptable to the Corporation, leading to arbitration. The Court opined that the Tribunal had the power to re-open and examine the evidence considered by the DAB and equally, the DAB’s report was agreed by the parties to constitute as an integral part of the evidence.
The Court further opined that fiscal statute by its nature could lead to multiple interpretations, but these competing interpretations were meant for consideration in the final hearing. The nature of the issues raised on behalf of the Corporation did not call for an ex facie finding of abject perversity warranting an unconditional stay.
The Court noted that the award was in line with the DAB’s report and provided its own reasons for such conclusions. The award was a money decree and therefore, the scope of review was only to examine whether the award was of a nature that no reasonable person could have ever come to the conclusions that it drew, and whether it was so perverse that in the final hearing, there was a high degree of prospect that it would be set aside.
The Court concluded that having examined the Chartered Accountant’s report, the DAB’s report and the Award itself, it could not be said that the assessment of GST impact would be perverse and that too of a degree warranting an unconditional stay.
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One Strut Failure — Additional Works
The Court observed that the Tribunal would be treated as the master of the evidence and the best judge of the quality and quantity of evidence to decide whether the one strut failure standard was to be treated as additional work or whether the quality of steel used for it was deliberately of a higher quality just to benefit from its resale value after its temporary use. The Court further observed that though the dissenting Arbitrator made a case for refund, the view of the majority constituted the arbitral award. At a prima facie stage, the view was not so perverse as to warrant an unconditional stay.
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Charge of Witness being Shut Out
The Court noted that the Tribunal found that significant components of the evidence led by the Engineer-in-Charge delved deep into opinions and matters of expertise, and the Tribunal had stated that it was discounting his claims to expertise since he could not be treated as an independent expert as he was the first check and balance in the relationship between the parties to a construction contract.
The Court also noted that Tribunal had actually rejected the Contractor’s application to disallow the witness and had explained in its words how it would consider the evidence of this witness, and observed that a case was not made out for holding that there had been a breakdown of natural justice pointing to perversity of a magnitude that necessitated an unconditional stay on the award.
Decision:
The Court opined that the multiple interpretations of the notifications and circulars could be considered in the final hearing, and at present, the interpretations adopted by the Tribunal were in line with much of what the DAB ruled. The Court observed that the dissenting award was not correct in recommending appointing yet another chartered accountant, and it was for the Tribunal to rule which the majority arbitrators had already done.
The contentions sought to be raised on both counts, i.e., tax impact and additional work, fell in the realm of purporting to raise finely nuanced points that were best made in the final hearing. They did not constitute grounds to infer perversity on the face of the record.
The Court took a holistic view of the matter and the relative strengths of the prima facie case and held that no case for an unconditional stay was made out. The Court directed that subject to the amount awarded, along with interest as awarded till date, being deposited with the Registry of this Court within a period of eight weeks, the execution proceedings would remain stayed. The Court further clarified that if such a deposit was made, the Contractor would be entitled to withdraw the amount along with accruals thereon by providing a full unconditional bank guarantee for the amount sought to be withdrawn.
[Mumbai Metro Rail Corpn. Ltd. v. L&T-STEC JV Mumbai, Interim Application (L) No. 28857 of 2025, decided on 10-10-2025]
Advocates who appeared in this case :
For the Petitioner: Birendra Saraf, Advocate General, Senior Advocate, a/w Simil Purohit, Ameya Gokhale, Kriti Kalyani, Siddhant Marathe, Ansh Kumar, i/b Shardul Mangaldas.
For the Respondents: Vikram Nankani, Senior Advocate, a/w Indrnil Deshmukh, Saloni Kapadia, Karan Ghandhi, i/b Cyril Amarchand Mangaldas.
Buy Arbitration and Conciliation Act, 1996 HERE
