REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION  CIVIL APPEAL NOS. 3699­3700 OF 2018 PSA SICAL TERMINALS PVT. LTD.     ...APPELLANT(S) VERSUS THE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORT TRUST TUTICORIN AND OTHERS ...RESPONDENT(S) J U D G M E N T B.R. GAVAI, J. 1. The   appellant   has   approached   this   Court   being   aggrieved by the judgment and order dated 1 st  November 2017, passed by the   Division   Bench   of   the   Madras   High   Court   in   C.M.A.   (MD) No.   345   of   2016   and   C.M.P.   (MD)   No.   4867   of   2016,   thereby allowing   the   appeal   of   the   respondent   No.1   herein   under Section   37(1)(c)   of   the   Arbitration   and   Conciliation   Act,   1996 (hereinafter   referred   to   as   ‘the   Arbitration   Act’)   vide   which   the 1 High   Court   set   aside   the   award   dated   14 th   February   2014, passed   by   the   Arbitral   Tribunal   and   the   order   passed   by   the District   Judge   dated   25 th   February   2016,   rejecting   the application   filed   by   the   respondent   No.1   herein   under   Section 34 of the Arbitration Act.  2. The facts necessary for adjudication of the present appeals are as under:­ The   respondent   No.1­The   Board   of   Trustees   of   V.O. Chidambranar   Port   Trust,   Tuticorin   (hereinafter   referred   to   as ‘TPT’) issued a global tender on 9 th   April 1997, inviting bids for development   of   the   Seventh   Berth   at   V.O.   Chidambranar   Port, Tuticorin   as   a   Container   Terminal   and   for   operating   and maintaining   the   same   for   30   years   on   a   Build,   Operate   and Transfer (hereinafter referred to as ‘BOT’) basis.  In response to the   tender,   the   appellant­PSA   Sical   Terminals   Pvt.   Ltd. (hereinafter   referred   to   as   ‘SICAL’)   submitted   its   bid   on   24 th October   1997.     The   financial   offer   was  submitted   by   SICAL   on 19 th   December   1997.     Since  SICAL’s   offer   was   the   highest,   the same   was   accepted   and   a   Letter   of   Intent   (hereinafter   referred 2 to as ‘LoI’) was issued to it on 29 th  January 1998 and the same was followed by a License Agreement dated 15 th  July 1998. 3. In   the   meantime,   the   Tariff   Authority   for   Major   Ports (hereinafter   referred   to   as   ‘TAMP’)   which   is   an   authority constituted   under   the   Major   Port   Trusts   Act,   1963   adopted guidelines   on   26 th /27 th   February   1998.     SICAL   submitted   its tariff   proposal   with   regard   to   the   Container   Terminal   on   28 th September   1999.   A  revised proposal came to  be submitted  by SICAL   on   8 th   October   1999,   thereby   including   royalty   as   an element   of   cost.     The   said   proposal   was   approved   by   TAMP’s order  dated   8 th   December   1999.     TAMP   notified   its   order   of   8 th December   1999   vide   gazette   notification   dated   28 th   December 1999,   thereby   approving   the   tariff   as   proposed   by   SICAL   vide proposal   dated   8 th   October   1999.   SICAL   submitted   a   further proposal   on   8 th   February   2002   for   review   in   tariff,   again including   therein   an   increase   in   royalty   to   be   paid   as   an element of cost and proposed for an increase in the tariff.   TPT vide   communication   dated   10 th   April   2002,   objected   to   the proposal   of   SICAL   for   increase   in   tariff.     TAMP   vide   its   order 3 dated   20 th   September   2002,   rejected   the   proposal   of   SICAL   for increase in tariff. 4. SICAL filed Writ Petition Nos. 40637­40639 of 2002 before the   Madras   High   Court   for   quashing   of   the   TAMP   order   dated 20 th  September 2002.  In the said proceedings, the Madras High Court   passed   an   order   dated   8 th   November   2002   granting interim   relief   in   favour   of   SICAL,   thereby   staying   the   TAMP order   dated   20 th   September   2002.     Vide   the   said   order,   SICAL was permitted to charge tariff at the rate prevailing prior to the TAMP order impugned in those petitions. 5. Ministry   of   Shipping,   Government   of   India   (hereinafter referred   to   as   ‘GoI’)   vide   notification   dated   29 th   July   2003, clarified   that   revenue   sharing/royalty   payment   shall   not   be factored into as cost for fixation/revision of tariff by TAMP and further   directed   that   the   same   shall   be   clearly   indicated   in subsequent bid documents. On 31 st  March 2005, TAMP notified the revised guidelines thereby disallowing royalty as an element of   cost.     However,   it   also   provided   that   in   BOT   cases   where bidding processes were finalized before 29 th  July 2003, the tariff 4 computation   will   take   into   account   royalty/revenue   share   as cost for tariff fixation in such a manner as to avoid likely loss to the operator on account of the royalty/revenue share not being taken   into   account.     This   was   subject   to   a   maximum   of   the amount quoted by the next lowest bidder.   This was also to be allowed  only   for   the   period   up  to   which   such   likely   loss   would arise.   It   further   provided   that   this   would   not   be   applicable   if 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 Madras   High   Court   between   SICAL,   GoI   and   TAMP   who   were parties to the Writ Petition Nos. 40637­40639 of 2002.   As per the  said MoC, SICAL was to  submit a proposal to  the Ministry of   Shipping   and   Transport,   GoI   in   the   matter   of   permitting royalty   to   be   allowed   to   be   factored   into   cost   while   fixation   of tariff   for   the   period   prior   to   31 st   March   2005.     It   was   also clarified   that   for   the   period   thereafter,   new   guidelines   provide the manner and mode in which this has to be done.   The MoC 5 provided   that   on   receipt   of   the   proposal,   the   Central Government   would   consider   the   same   and   pass   appropriate orders consistent with the policy decision of the Government of India   (hereinafter   referred   to   as   the   ‘GoI’)   in   the   matter   of Chennai Container Terminal Limited   (hereinafter referred to as   the   ‘CCTL’)   dated   5 th   August   2003   and   accordingly   issue   a directive under Section 111 of the Major Port Trusts Act, 1963. Vide   the   said   MoC,   it   was   further   provided   that   SICAL   would continue to charge the 1999 Tariff which was permitted as per the interim orders passed by the High Court till new tariff was gazetted.     It   further   provided   that   advantages/   gains,   if   any, that SICAL has enjoyed by virtue of not implementing the 2002 Tariff,   will   be   quantified   by   TAMP   and   such   advantages/gains will be adjusted/set­off in the proposed new tariff and such 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 said directive/order, the request of SICAL for claiming a   part   of   royalty   as   pass   through   came   to   be   rejected.     SICAL 6 thereafter   submitted   its   proposal   for   fixation   of   tariff   on   18 th April   2006.     TAMP   passed   a   tariff   order   on   23 rd   August   2006, which came to be notified on 15 th   September  2006, vide which SICAL’s proposal for increase in tariff was rejected.   8. SICAL made a written representation to TPT on 6 th  October 2006,   thereby   seeking   relief   under   the   terms   of   Article   14.3   of the   License   Agreement.   Vide   the   said   representation,   SICAL requested   for   amending   the   License   Agreement   so   as   to incorporate   the   revenue   sharing   method   and   incidental changes. 9. SICAL   also   filed   Writ   Petition   Nos.   38845   and   38846   of 2006   before   the   Madras   High   Court   on   9 th   October   2006, thereby challenging the 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’s   application   for   amendment   of the   License   Agreement   on   the   ground   that   the   issues   raised were pending consideration before the Madras High Court.  The said   communication   dated   27 th   October   2006   came   to   be challenged   by   SICAL   before   the   Madras   High   Court   vide   Writ 7 Petition No.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,   observing   therein   that   the   representation dated 6 th  October 2006, had nothing to do with the pendency of said   writ   petition   and   quashed   the   communication   dated   27 th October   2006.   It   directed   TPT   to   consider   and   decide   the representation of SICAL on its own merits. 10. Vide   subsequent   order   dated   22 nd   August   2007,   Writ Petition Nos. 38845 and 38846 of 2006 were allowed by setting aside   the   TAMP   order   dated   23 rd   August   2006   and   the   GoI directive  dated  17 th   April 2006.   The said order  was  passed on the   ground   that   SICAL   was   not   given   sufficient   opportunity   of being   heard   by   TAMP   and   GoI   and   therefore,   directed   TAMP and GoI  to pass fresh order  after  giving  opportunity of hearing to the SICAL. 11. In   pursuance   of   the   order   passed   by   the   High   Court,   the GoI   issued   a   directive   on   20 th   February   2008,   therein considering the contentions raised on behalf of SICAL.  The said directive   provided   that   TAMP,   while   fixing   the   tariff   in   case   of 8 SICAL,   should   take   into   consideration   the   benefit   given   in   the case of  CCTL . 12. TAMP  vide  notification   dated 26 th   February   2008,  notified the   guidelines   for   upfront   tariff   fixation   for   Public   Private Partnership projects at 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 of policy regarding which a decision can be taken only by the GoI and in effect, rejected the proposal of SICAL   for   amending   the   License   Agreement,   so   as   to incorporate the revenue sharing method. 14. SICAL   thereafter   submitted   its   proposal   for   fixation   of tariff   thereby   proposing   an   increase   in   tariff   on   3 rd   October 2008.     TAMP   passed   tariff   order   dated   17 th   December   2008, which   came   to   be   notified   on   30 th   December   2008,   rejecting SICAL’s   proposal   for   increase   in   tariff.     SICAL   thereafter   again on   6 th   January   2009,   made   a   representation   to   TPT   for amendment   of   the   License   Agreement   in   view   of   Article   14.3. 9 SICAL   also   filed   Writ   Petition   Nos.   1350   and   1351   of   2009, challenging   the   tariff   order   dated   17 th   December   2008   and   the policy   direction   issued   by   GoI   dated   20 th   February   2008.     The Madras High Court vide order dated 15 th   October 2009 allowed those petitions by setting aside the tariff order of 2008 and the GoI   directive   of   20 th   February   2008.     Vide   the   said   order,   the Madras   High   Court   directed   TAMP   to   issue   fresh   tariff   order after   obtaining   necessary   proposal   from   SICAL   and   after according   sufficient   opportunity   including   personal   hearing   to SICAL.  The GoI directive of 2008 also came to be set aside with a direction to the GoI to consider the matter afresh after giving an opportunity of hearing to SICAL.  The said orders have been challenged   by   TAMP   by   filing   Writ   Appeal   No.   1845   of   2009 which is pending.  It also appears that an appeal has also been filed by SICAL which is also pending before the Division 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   therefore   again   praying   for   shifting   to   revenue   sharing 10 model.     A   meeting   was   held   by   the   Secretary,   Ministry   of Shipping,   GoI   on   28 th   February   2011,   wherein   the representatives of TPT and SICAL were present.   It was decided in   the   said   meeting   that   two   proposals   each   should   be submitted by SICAL as well as TPT.  These proposals were to be considered by the Expert Committee. 16. SICAL   thereafter   on   28 th   June   2011,   moved   a   petition under Section 9 of the Arbitration Act before the District Judge, Tuticorin   with   a   grievance   that   the   royalty   payable   for   each Twenty­foot   Equivalent   Unit   (hereinafter   referred   to   as   “TEU”) was scheduled to exceed the tariff.  On 30 th  June 2011, District Judge,   Tuticorin   passed   an   order   granting   ad­interim   stay   in the Section 9 petition, thereby restraining TPT from demanding or   recovering   any   royalty   at   an   escalated   rate.     In   July   2011, SICAL   addressed   a   letter   to   the   Chairman,   TPT   requesting   for referring   the   dispute   for   arbitration   under   Article   15.3   of   the License Agreement.  The said request came to be rejected by the Chairman,   TPT   vide   communication   dated   28 th   September 2011.   11 17. In   the   meanwhile,   the   proposals   submitted   by   SICAL   as well   as   TPT   were   being   considered   by   the   Expert   Committee. On   30 th   April   2012,   District   Judge,   Tuticorin   passed   an   order thereby allowing the Section 9 petition filed by SICAL and made absolute   the   ad­interim   injunction   granted   in   its   favour. Thereafter,   there   was   exchange   of   certain   communications between   SICAL   and   TPT   with   regard   to   the   submission   of performance   bank   guarantee   at   an   escalated   rate.     In   the meantime,   TPT   challenged   the   order   of   injunction   granted   by the   District   Judge   by   filing   an   appeal   being   C.M.A.(MD)   No. 1131 of 2012 and the same is pending consideration before the Madurai Bench of the Madras High Court.   SICAL addressed a letter   dated   19 th   November   2012,   invoking   arbitration   clause under Article 15.3 of the License Agreement.   In the meantime, on   8 th   August   2013,   TAMP   issued   2013   Guidelines   for determination of tariff for projects at Major Ports. 18. On   5 th   April   2013,   SICAL   filed   its   Statement   of   Claim   in the   arbitration   proceedings.     TAMP   filed   its   counter   statement in June 2013 to which a statement in rejoinder came to be filed 12 by SICAL on 28 th  June 2013. TPT filed its reply to the rejoinder in   August   2013.     Vide   award   dated   14 th   February   2014,   the Arbitral  Tribunal  passed  the   award  in   favour   of   SICAL   holding that there was a change in law and  thereby  granting  reliefs as prayed   for   by   SICAL.     It   directed   conversion   of   Container Terminal of TPT from royalty model to revenue share model.  19. The award of Arbitral Tribunal dated 14 th   February, 2014 came to be challenged by TPT by filing a petition under Section 34   of   the   Arbitration   Act   being   OP   No.   389   of   2014   before   the Madras   High   Court.     SICAL   challenged   the   jurisdiction   of   the Madras   High   Court   to   adjudicate   the   petition   filed   under Section   34   of   the   Arbitration   Act.     There   were   certain interlocutory   proceedings   to   which   reference   would   not   be necessary.     By   order   dated   9 th   June   2015,   the   Madras   High Court held that the petition filed by TPT under Section 34 of the Arbitration   Act   was   not   tenable   on   the   ground   of   jurisdiction. As   such   TPT   re­presented   its   Section   34   petition   on   30 th   June 2015, before the District Judge, Tuticorin being Ar.O.P. No. 260 of   2015.     The   District   Judge,   Tuticorin   vide   order   dated   25 th 13 February 2016, dismissed the Section 34 petition filed by TPT. Being aggrieved thereby, TPT filed an appeal before the Madras High   Court   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 2014 and the order passed by the District Court   dated   25 th   February   2016,   came   to   be   set   aside.     Being aggrieved thereby, SICAL has approached this Court by way of the present appeals. 20. We   have   heard   Dr.   A.M.   Singhvi   and   Shri   Gopal   Jain, learned Senior Counsel on behalf of the appellant­SICAL, 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 Agreement   specifically   provides   that   if   after   the   date   of   the agreement,   there   is   a   change   in   law   which   substantially   and adversely   affects   the   rights   of   the   Licensee   under   the   said agreement, so as to alter the commercial viability of the project, the Licensee may, by written notice, request amendments to the terms of the agreement.  He submitted that the definition of law 14 in   Article   14   is   wide   enough   and   includes   any   valid   act, ordinance,   rule,   regulation,   notification,   directive,   orders, policy, bye­laws, administrative guidelines, ruling or instruction having   the   force   of   law,   enacted   or   issued   by   Government Authority.     The   learned   Senior   Counsel   submitted   that   Article 14.3 also provides that subject to the provisions of Article 15.3, the   Licensee   shall   not   be   entitled   to   any   compensation whatsoever from the Licensor as a result of change in law.   He submitted that if Article 14.3 is read in the correct perspective, it   will   be   clear   that   compensation   is   not   provided   to   the Licensee on account of any change in law inasmuch as a relief could   be   provided   to   the   Licensee   by   suitably   amending   the terms of the agreement when such a change substantially  and adversely affects the rights of the Licensee.   He submitted that the said Article is a unique one.   22. Dr.   Singhvi   submitted   that   the   Nhava   Sheva   Container Terminal Limited (hereinafter referred to as the ‘NSCT’) was the first   project   which   was   built   on   BOT   basis.     The   second   one being   the   Seventh   Berth   of   TPT.     He   submitted   that   these   are 15 the only projects wherein royalty method has been adopted. He submitted   that   all   subsequent   projects   provide   for   revenue sharing   model.     He   submitted   that   it   will   be   clear   from   the stand   of   TPT,   when   the   proposal   was   moved   by   SICAL   for increase   in   tariff   in   1999,   that   it   also   understood   that   the royalty was also to be factored in while finalizing the tariff.   He submitted   that   perusal   of   the   tariff   order   dated   8 th   December 1999,   would   reveal   that   even   TAMP   has   allowed   royalty   as   a pass through.   He submitted that the guidelines of 1998 would also   clarify   that   it   was   a   policy   of   TAMP   that   the   port   pricing was to continue to be cost based with an assured rate of return. He   submitted   that   the   said   guidelines   provide   for   an   assured rate of return. He submitted that TPT, as a matter of fact, vide communication   dated   3 rd   November   1999   addressed   to   TAMP, had opposed any reduction of tariff as proposed by SICAL.  23. Dr.   Singhvi   submitted   that   the   first   change   in   law   was effected vide order of the GoI dated 29 th  July 2003, by which no percentage   of   royalty   was   permitted   as   a   pass   through.     The second   change   in   law   was   effected   on   31 st   March   2005,   by 16 which   the   royalty   was   permitted   as   a   pass   through,   however, restricting the same to the maximum of the amount quoted by the next lowest bidder.  He therefore submitted that on account of   these   changes   in   law,   SICAL   was   entitled   to   get   a   relief   of amendment   of   the   License   Agreement   and   on   failure   of   TPT  to provide the relief, SICAL was entitled to invoke arbitration.   He submitted   that   though   several   representations   were   made   to TPT, the same had not been responded to and as such, SICAL was   left   with   no   alternative   than   to   invoke   the   arbitration clause.   He   submitted   that   this   has   been   rightly   construed   by the Arbitral Tribunal.  However, the Division Bench of the High Court   has   erroneously   interfered   with   the   finding   of   fact recorded   by   the   Arbitral   Tribunal   which   was   upheld   by   the District Judge. 24. Dr. Singhvi further submitted that SICAL has been put in a very precarious situation.   He submitted that on one hand it is   required   to   pay   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   a   pass   through.     He 17 submitted that at one point of time in 2011, the tariff has been so fixed that it surpasses the amount of royalty per TEU, SICAL would be required to pay to TPT.  He submitted that if the same is   permitted,   SICAL   would   not   be   in   a   position   to   continue   its operations. He submitted that SICAL has provided a minimum guarantee   to   lift   a   minimum   of   4.5   lakh   tons   of   cargo.     He submitted that this has been rightly appreciated by the Arbitral Tribunal   wherein   it   has   observed   that   if   such   a   position   is permitted to continue, it will substantially  and adversely affect SICAL.  He submitted that a chart at Page No. 1132 shows that SICAL  would  incur   a  gross   loss  of   Rs.   2250  crores.  He   further submitted   that   TAMP   and   the   GoI   have   acted   in   a discriminatory   manner.     He   submitted   that   when   in   case   of NSCT, a complete pass through so far  as royalty is concerned, is permitted, the same is denied in case of SICAL. 25. Dr.   Singhvi   further   submitted   that   the   High   Court   has grossly erred in referring to the writ petitions and the MoC filed in   one   of   the  writ   petitions,  while  setting   aside   the  award.     He submitted   that   the   writ   petitions   filed   by   SICAL   were   basically 18 against TAMP and with regard to the fixation of tariff.  However, the arbitration proceedings were about the change in law which changed   the   policy   of   permitting   pass   through   of   royalty   to denial   of   pass   through   of   royalty.   Whereas   the   proceedings before   TAMP   are   pertaining   to   fixation   of   tariff.     He   further submits   that   the   proceedings   before   the   High   Court   pertain   to the   period   prior   to   2013,   whereas   the   present   proceedings pertain to the relief to which SICAL is entitled under Article 14 of   the   agreement   on   account   of   change   in   law.     He   submitted that   SICAL   was   compelled   to   approach   the   arbitrator   since   in 2011­12,   the   royalty   payable   to   TPT   crossed   the   tariff.     He submitted   that   the   contention   considered   by   the   High   Court with regard to the MoC was only an oral argument made by TPT and not part of the pleadings. 26. Dr. Singhvi submitted that the scope of interference in an application   under   Section   34   and   in   an   appeal   filed   under Section 37 is very  limited.   He submitted that unless a finding recorded   by   the   arbitrator   amounts   to   perversity,   an interference would not be warranted either under Section 34 or 19 Section   37.     He   submitted   that   the   District   Judge   had   rightly rejected the Section 34 Application.   He further submitted that it   was   erroneous   on   part   of   the   High   Court   in   exercise   of   its jurisdiction   under   Section   37   to   interfere   with   a   well­reasoned award   of   the   Arbitral   Tribunal.     He   relies   on   the   following judgments in support of his submissions:­ 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   Industries   Limited   v.   Oil   and   Natural   Gas Corporation   Limited 4 ,   Kwality   Manufacturing   Corporation v. Central Warehouse Corporation 5 , Rashtriya Ispat Nigam Limited   v.   Dewan   Chand   Ram   Saran 6 ,   Steel   Authority   of India Limited v. Gupta Brother Steel Tubes Limited 7 , Pure Helium   India   (P)   Limited   v.   Oil   and   Natural   Gas 1 (2019) 4 SCC 163 2 (2015) 3 SCC 49 3 (2019) 9 SCC 798 4 (2010) 11 SCC 296 5 (2009) 5 SCC 142 6 (2012) 5 SCC 306 7 (2009) 10 SCC 63 20 Corporation   Limited 8 ,   P.V.   Subba   Naidu   and   Others   v. Government   of   A.P.   and   Others 9 ,   Dhannalal   v.   Kalawati Bai   and   Others 10 ,   Swamy   Atmananda   and   Others   v.   Shri Ramakrishna   Tapovanam   and   Others 11   and   Transcore   v. Union of India and Another 12 . 27. Dr.   Singhvi   submitted   that   the   UNIDROIT   Principles   of International   Commercial   Contracts   provide   the   rules   of interpretation   of   contracts.     He   submitted   that   the   said principles provide that a contract shall be interpreted according to   the   common   intention   of   the   parties.     It   is   only   when   the intention   cannot   be   established   that   the   contract   shall   be interpreted according  to the meaning  that a reasonable person of   the   same   kind   as   a   party,   would   give   it   in   the   same circumstances.     He   submitted   that   from   the   perusal   of   Article 14   as   well   as   the   conduct   of   the   parties,   it   is   clear   that   the parties   intended   that   if   there   was   any   change   in   law   to   the detriment   of   the   Licensee,   the   Licensee   was   entitled   to   relief 8 (2003) 8 SCC 593 9 (1998) 9 SCC 407 10 (2002) 6 SCC 16 11 (2005) 10 SCC 51 12 (2008) 1 SCC 125 21 from the Licensor by amendment of the contract.  He submitted that   such   intention   is   clarified   from   the   fact   that   in   such   an event, the Licensee was not entitled to claim any compensation. The   learned   Senior   Counsel   in   this   respect   relies   on   the judgments   of   the   Delhi   High   Court   in   Sandvik   Asia   Private Limited   v.   Vardhman   Promoters 13   and   Hansalaya Properties v. Dalmia Cement (Bharat) Limited 14 . 28. Dr.   Singhvi   further   submitted   that   the   agreement   has   to be read as a whole.    In his submission, whereas Articles 10.8, 13.4.7 and 13.4.8 make the Licensor’s decision binding, Article 14 does not provide it.   He submitted that Article 14 is unique in the sense that it provides for restoration of equilibrium.   He submitted   that   the   Tribunal   had   two   choices   either   to   grant   a pass through or revenue sharing.  If it has chosen one of them, then   even   if   it   is   considered   to   be   a   possible   view,   an interference therein was not warranted. 29. Shri   Gopal   Jain,   learned   Senior   Counsel   submitted   that economic   viability   for   long   term   contracts   has   to   be   provided. 13 2007 (94) DRJ 762 14 2008 (106) DRJ 820 22 He   submitted   that   Article   14   was   provided   as   an   in­built safeguard for the said purpose.  Relying on the judgment of this Court   in   Adani   Power   (Mundra)   Limited   v.   Gujarat Electricity   Regulatory   Commission   and   Others 15 ,   he submitted   that   while   construing   business   contracts,   business efficacy   is   a   relevant   consideration   which   has   been   considered by the Arbitral Tribunal and as such, an interference would not be warranted. 30. Smt. Divan, the learned ASG submitted that the financial offer   made   by   SICAL   was   made   on   19 th   December   1997   i.e. much   before   the   1998   Guidelines   came   to   be   published.     She submitted that it is unthinkable that the rates quoted by SICAL in 1997 were on the basis of the guidelines which were for the first time published in the year 1998.  She submitted that even the   said   guidelines   do   not   provide   for   permitting   royalty   as   a pass through.  It is further submitted that while submitting the bid,   SICAL   has   submitted   the   bid   on   the   basis   of   royalty payable to TPT during the concession period. 15 (2019) 19 SCC 9 23 31. Smt.   Divan   further   submitted   that   SICAL   has   indulged into   the   conduct   of   approbate   and   reprobate.   She   submitted that whereas in the writ petitions filed by it, SICAL has taken a specific stand that the guidelines do not have the force of law, it has   now   turned   around   and   taken   a   stand   in   the   arbitration proceedings   that   it   amounts   to   change   of   law.     She   further submitted   that   on   the   date   on   which   the   arbitration proceedings   were   commenced,   the   tariff   orders   were   already quashed   in   the   writ   proceedings   in   favour   of   SICAL   and   only with   a   view   to   take   double   advantage,   SICAL   has   initiated arbitration proceedings.  She further submitted that because of the   interim   order   passed   by   the   High   Court,   the   1999   tariff order   is   still   holding   the   field,   thereby   giving   a   huge   undue benefit   to   SICAL.     She   submitted   that   even   the   conduct   of SICAL needs to be taken into consideration. Though as per MoC which   was   filed   way   back   in   2005,   SICAL   was   required   to compensate   TPT,   it   has   not   done   so.     She   therefore   submitted that   on   one   hand,   SICAL   is   taking   advantage   of   orders   of   the Court and on the other hand not complying with the obligations 24 set   out   in   the   MoC,   on   the   basis   of   which   the   High   Court   has disposed of writ petition. 32. Smt.   Divan   submitted   that   even   the   third   tariff   order passed in case of SICAL had been quashed by the Madras High Court, challenge to which is pending before the Division Bench. She   further   submitted   that   on   account   of   an   order   passed   in Section   9   proceedings,   TPT   is   getting   a   very   meagre   amount from SICAL. 33. Smt.   Divan   further   submitted   that   by   the   award,   the Tribunal has provided for entire substitution of the terms of the contract   between   the   parties.     She   submitted   that   when   the agreement   between   the   parties   was   based   on   royalty   method, the   Tribunal,   by   a   substitution,   has   provided   for   revenue sharing method.   She submitted that this is not permissible at all   in   law.     A   party   cannot   be   thrusted   with   a   new   contract against   its   wishes.     Smt.   Divan   further   submitted   that   SICAL having elected/availed the remedies of filing of the writ petition, cannot  for  the  same relief under  the  bogey  of so­called change in law, invoke arbitration proceedings.  She therefore submitted 25 that   the   High   Court   has   rightly   considered   the   same   and   set aside the award.   Smt. Divan relied on the following judgments of this Court in support of her submissions. Raghunathrao   Ganpatrao   v.   Union   of   India 16 ,   Nagubai Ammal   and   Others   v.   B.   Shama   and   Others 17 ,   Suresh Kumar Wadhwa v. State of Madhya Pradesh and Others 18 , All   India   Power   Engineer   Federation   and   Others   v.   Sasan Power   Limited   and   Others 19 ,   Rashtriya   Chemicals   and Fertilizers   Limited   v.   Chowgule   Brothers   and   Others 20 , South   East   Asia   Marine   Engineering   and   Constructions Limited   v.   Oil   India   Limited 21 ,   J.G.   Engineers   Private Limited   v.   Union   of   India   and   Another 22 ,   Satyanarayana Construction   Company   v.   Union   of   India   and   Others 23 , Ssangyong   Engineering   and   Construction   Company Limited v. National Highway Authority of India (NHAI) 24 16 (1994) 1 SCC Supp 191 17 [1956] SCR 451 18 (2017) 16 SCC 757 19 (2017) 1 SCC 487 20 (2010) 8 SCC 563 21 (2020) 5 SCC 164 22 (2011) 5 SCC 758 23 (2011) 15 SCC 101 24 (2019) 15 SCC 131 26 34. Dr. Singhvi, in rejoinder, submitted that a stray statement made by SICAL that the guidelines do not have the force of law, would not be relevant. Inasmuch as in the counter filed by TPT as   well   as   TAMP,   they   have   themselves   stated   before   the   High Court   that   the   said   guidelines   will   have   the   force   of   law.     He therefore   submitted   that   SICAL   was   entitled   in   law   to   invoke Article   14   since   there   was   a   change   in   law   which   adversely affects the Licensee. 35. Dr. Singhvi further submitted that the contention of Smt. Divan that reliance has been placed by SICAL on change of law for   the   first   time   in   2013,   is   factually   incorrect   inasmuch   as right   from   2006,   SICAL   has   been   making   representations   to TPT   for   giving   relief   under   Article   14.   To   counter   the submission of Smt. Divan that the bid of SICAL was tendered in December   1997,   he   submitted   that   though   the   bid   was tendered in December 1997, the agreement was entered into in July   1998,   when   the   guidelines   had   already   come   into   effect from   February   1998.     He   submitted   that   the   perusal   of   the proposals   submitted   by   TPT   in   pursuance   of   the   meeting   held 27 by   Secretary,   Ministry   of   Shipping   and   Transport,   GoI,   would show that TPT as well as its consultant had agreed for revenue share model. He reiterated that the proceedings before the High Court   were  restricted  only   to   TAMP  orders  and   had   nothing   to do with change of law.  He submitted that none of the case laws cited by Smt. Divan considers a clause analogous to Article 14 and   therefore,   the   said   cases   would   not   be   applicable   to   the facts   of   the   present   case.     He   further   submitted   that   the argument   with   regard   to   doctrine   of   election   is   also   without substance. 36. With the assistance of the learned counsel for the parties, we   have   gone   through   the   documents   placed   on   record. Though various judgments of this Court as well as some of the High Courts have been cited by counsel of both the parties, we do   not   find   it  necessary  to   refer   to   all   of  them.     In  our   view,   a reference   to   few   recent   judgments   of   this   Court   will   be sufficient.   28 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 case of  Associate Builders  (supra) .   38. Another   bench   of   this   Court,   again   to   which   one   of   us (R.F.   Nariman,   J.)   was   a   party,   has   considered   various judgments   of   this   Court   including   the   judgment   in   Associate Builders   (supra)   and   the   effect   of   the   Arbitration   and Conciliation (Amendment) Act, 2015 in the case of   Ssangyong Engineering   and   Construction   Company   Limited   v. National Highways Authority of India (NHAI) 25 ,   to which we will refer shortly. 39. Before that, it will be apposite to refer to judgment of this Court in the case of  MMTC   Limited  (supra),   wherein this Court has   revisited   the   position   of   law   with   regard   to   scope   of interference with an arbitral award in India.   40. It  will  be relevant  to  refer  to  the   following  observations  of this Court in the case of  MMTC   Limited  (supra): 25 (2019) 15 SCC 131 29 “11.   As far as Section 34 is concerned, the position   is   well­settled   by   now   that   the Court   does   not   sit   in   appeal   over   the arbitral award and may interfere on merits on   the   limited   ground   provided   under Section   34(2)( b )( ii )   i.e.,   if   the   award   is against   the   public   policy   of   India.   As   per the   legal   position   clarified   through decisions   of   this   Court   prior   to   the amendments   to   the   1996   Act   in   2015,   a violation   of   Indian   public   policy,   in   turn, includes   a   violation   of   the   fundamental policy   of   Indian   law,   a   violation   of   the interest   of   India,   conflict   with   justice   or morality,   and   the   existence   of   patent illegality   in   the   arbitral   award. Additionally,   the   concept   of   the “fundamental   policy   of   Indian   law”   would cover   compliance   with   statutes   and judicial   precedents,   adopting   a   judicial approach,   compliance   with   the   principles of   natural   justice, and   Wednesbury   [ Associated   Provincial Picture   Houses   v.   Wednesbury   Corpn. , (1948)   1   KB   223   (CA)]   reasonableness. Furthermore,   “patent   illegality”   itself   has been   held   to   mean   contravention   of   the substantive   law   of   India,   contravention   of the   1996   Act,   and   contravention   of   the terms of the contract. 12.   It   is   only   if   one   of   these   conditions   is met   that   the   Court   may   interfere   with   an arbitral   award   in   terms   of   Section   34(2)( b ) ( ii ), but such interference does not entail a review  of  the   merits   of   the   dispute,   and  is 30 limited   to   situations   where   the   findings   of the   arbitrator   are   arbitrary,   capricious   or perverse,   or   when   the   conscience   of   the Court   is   shocked,   or   when   the   illegality   is not   trivial   but   goes   to   the   root   of   the matter.   An   arbitral   award   may   not   be interfered   with   if   the   view   taken   by   the arbitrator is a possible view based on facts. (See   Associate   Builders   v.   DDA   [ Associate Builders   v.   DDA ,   (2015)   3   SCC   49   :   (2015) 2   SCC   (Civ)   204]   .   Also   see   ONGC Ltd.   v.   Saw   Pipes   Ltd.   [ ONGC   Ltd.   v.   Saw Pipes   Ltd. ,   (2003)   5   SCC   705]   ;   Hindustan Zinc   Ltd.   v.   Friends   Coal Carbonisation   [ Hindustan   Zinc Ltd.   v.   Friends Coal Carbonisation , (2006) 4 SCC   445]   ;   and   McDermott   International Inc.   v.   Burn   Standard   Co.   Ltd.   [ McDermott International Inc.   v.   Burn Standard Co. Ltd. , (2006) 11 SCC 181] ) 13.   It   is   relevant   to   note   that   after   the 2015 Amendment to Section 34, the above position   stands   somewhat   modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of   Indian   public   policy   has   been   modified to   the   extent   that   it   now   means   fraud   or corruption   in   the   making   of   the   award, violation of Section 75 or Section 81 of the Act,   contravention   of   the   fundamental policy   of   Indian   law,   and   conflict   with   the most   basic   notions   of   justice   or   morality. Additionally,   sub­section   (2­A)   has   been inserted in Section 34, which provides that in   case   of   domestic   arbitrations,   violation 31 of Indian public policy also includes patent illegality   appearing   on   the   face   of   the award. The proviso to the same states that an  award shall  not  be  set  aside  merely  on the   ground   of   an   erroneous   application   of the law 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 such interference under Section 37 cannot travel   beyond   the   restrictions   laid   down under   Section   34.   In   other   words,   the court   cannot   undertake   an   independent assessment of the merits of the award, and must   only   ascertain   that   the   exercise   of power   by   the   court   under   Section   34   has not   exceeded   the   scope   of   the   provision. Thus, it is evident  that  in  case an  arbitral award   has   been   confirmed   by   the   court under   Section   34   and   by   the   court   in   an appeal   under   Section   37,   this   Court   must be  extremely  cautious   and  slow   to   disturb such concurrent findings.” 41. In  Ssangyong Engineering and Construction Company Limited  (supra), this Court after considering various judgments including the judgment in  Associate Builders  (supra) observed thus:  32 “34.   What   is   clear,   therefore,   is   that   the expression “public policy of India”, whether contained   in   Section   34   or   in   Section   48, would   now   mean   the   “fundamental   policy of   Indian   law”   as   explained   in   paras   18 and   27   of   Associate   Builders   [ Associate Builders   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   would   necessarily   mean that   Western   Geco   [ ONGC   v.   Western   Geco International   Ltd. ,   (2014)   9   SCC   263   : (2014) 5 SCC (Civ) 12] expansion has been done   away   with.   In   short,   Western Geco   [ ONGC   v.   Western   Geco   International Ltd. , (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]   ,   as   explained   in   paras   28   and   29 of   Associate   Builders   [ Associate Builders   v.   DDA ,   (2015)   3   SCC   49   :   (2015) 2 SCC (Civ) 204] , would no longer obtain, as   under   the   guise   of   interfering   with   an award   on   the   ground   that   the   arbitrator has   not   adopted   a   judicial   approach,   the Court's   intervention   would   be   on   the merits   of   the   award,   which   cannot   be permitted   post   amendment.   However, insofar   as   principles   of   natural   justice   are concerned,   as   contained   in   Sections   18 and   34(2)( a )( iii )   of   the   1996   Act,   these continue   to   be   grounds   of   challenge   of   an award,   as   is   contained   in   para   30 of   Associate   Builders   [ Associate Builders   v.   DDA ,   (2015)   3   SCC   49   :   (2015) 2 SCC (Civ) 204] . 33 35.   It   is   important   to   notice   that   the ground   for   interference   insofar   as   it concerns “interest of India” has since been deleted,   and   therefore,   no   longer   obtains. Equally, the ground for interference on the basis   that   the   award   is   in   conflict   with justice or morality is now to be understood as   a   conflict   with   the   “most   basic   notions of morality or justice”. This again would be in   line   with   paras   36   to   39   of   Associate Builders   [ Associate   Builders   v.   DDA ,   (2015) 3 SCC  49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience   of   the   court   that   can   be   set aside on this ground. 36.   Thus,   it   is   clear   that   public   policy   of India   is   now   constricted   to   mean   firstly, that   a   domestic   award   is   contrary   to   the fundamental   policy   of   Indian   law,   as understood   in   paras   18   and   27 of   Associate   Builders   [ Associate Builders   v.   DDA , (2015) 3 SCC 49: (2015) 2 SCC   (Civ)   204],   or   secondly,   that   such award is against basic notions of justice or morality   as   understood   in   paras   36   to   39 of   Associate   Builders   [ Associate Builders   v.   DDA ,   (2015)   3   SCC   49   :   (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)( b )( ii )   and   Explanation   2   to   Section 48(2)( b )( ii )   was   added   by   the   Amendment Act   only   so   that   Western Geco   [ ONGC   v.   Western   Geco   International Ltd. , (2014) 9 SCC 263: (2014) 5 SCC (Civ) 12],   as   understood   in   Associate Builders   [ Associate   Builders   v.   DDA ,   (2015) 34 3   SCC   49:   (2015)   2   SCC   (Civ)   204],   and paras 28 and 29 in particular, is now done away with. 37.   Insofar   as   domestic   awards   made   in India   are   concerned,   an   additional   ground is   now   available   under   sub­section   (2­A), added   by   the   Amendment   Act,   2015,   to Section   34.   Here,   there   must   be   patent illegality   appearing   on   the   face   of   the award,   which   refers   to   such   illegality   as goes   to   the   root   of   the   matter   but   which does   not   amount   to   mere   erroneous application of the law. In short, what is not subsumed   within   “the   fundamental   policy of   Indian   law”,   namely,   the   contravention of   a   statute   not   linked   to   public   policy   or public   interest,   cannot   be   brought   in   by the   backdoor   when   it   comes   to   setting aside   an   award   on   the   ground   of   patent illegality. 40.   The   change   made   in   Section   28(3)   by the   Amendment   Act   really   follows   what   is stated   in   paras   42.3   to   45   in   Associate Builders   [ Associate   Builders   v.   DDA ,   (2015) 3   SCC   49:   (2015)   2   SCC   (Civ)   204], namely, that the construction of the terms of   a   contract   is   primarily   for   an   arbitrator to   decide,   unless   the   arbitrator   construes the   contract   in   a   manner   that   no   fair­ minded   or   reasonable   person   would;   in short, that the arbitrator's view is not even a   possible   view   to   take.   Also,   if   the arbitrator   wanders   outside   the   contract and deals with matters not allotted to him, 35 he   commits   an   error   of   jurisdiction.   This ground of challenge will now fall within the new ground added under Section 34(2­A). 38.   Secondly,   it   is   also   made   clear   that reappreciation   of   evidence,   which   is   what an   appellate   court   is   permitted   to   do, cannot   be   permitted   under   the   ground   of patent   illegality   appearing   on   the   face   of the award. 39.   To   elucidate,   para   42.1   of   Associate Builders   [ Associate   Builders   v.   DDA ,   (2015) 3   SCC   49:   (2015)   2   SCC   (Civ)   204], namely,   a   mere   contravention   of   the substantive   law   of   India,   by   itself,   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 contravenes Section 31(3) of the 1996 Act, that   would   certainly   amount   to   a   patent illegality on the face of the award. 41.   What   is   important   to   note   is   that   a decision   which   is   perverse,   as   understood in   paras   31   and   32   of   Associate Builders   [ Associate   Builders   v.   DDA ,   (2015) 3   SCC   49:   (2015)   2   SCC   (Civ)   204],   while no   longer   being   a   ground   for   challenge under   “public   policy   of   India”,   would certainly   amount   to   a   patent   illegality appearing   on   the  face   of   the   award.   Thus, 36 a finding based on no evidence at all or an award   which   ignores   vital   evidence   in arriving   at   its   decision   would   be   perverse and liable to be set aside on the ground of patent   illegality.   Additionally,   a   finding based   on   documents   taken   behind   the back of the parties by the arbitrator would also   qualify   as   a   decision   based   on   no evidence inasmuch as such decision is not based   on   evidence   led   by   the   parties,   and therefore,   would   also   have   to   be characterised as perverse. 42.   Given   the   fact   that   the   amended   Act will   now   apply,   and   that   the   “patent illegality”   ground   for   setting   aside   arbitral awards   in   international   commercial arbitrations   will   not   apply,   it   is   necessary to   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, that   in   an   application   under   Section   34,   the   court   is   not expected   to   act   as   an   appellate   court   and   reappreciate   the evidence.  The scope of interference would be limited to grounds provided   under   Section   34   of   the   Arbitration   Act.     The interference   would   be   so   warranted   when   the   award   is   in violation   of   “public   policy   of   India”,   which   has   been   held   to 37 mean   “the   fundamental   policy   of   Indian   law”.     A   judicial intervention   on   account   of   interfering   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 of an   award.     The   ground   for   interference   on   the   basis   that   the award   is   in   conflict   with   justice   or   morality   is   now   to   be understood   as   a   conflict   with   the   “most   basic   notions   of morality or justice”.   It is only such arbitral awards that shock the   conscience   of   the   court,   that   can   be   set   aside   on   the   said ground.   An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes   to   the   roots   of   the   matter.     However,   an   illegality   with regard   to   a   mere   erroneous   application   of   law   would   not   be   a ground   for   interference.     Equally,   reappreciation   of   evidence would   not   be   permissible   on   the   ground   of   patent   illegality appearing on the face of the award.    43. A   decision   which   is   perverse,   though   would   not   be   a ground   for   challenge   under   “public   policy   of   India”,   would 38 certainly amount to a patent illegality appearing on the face of the award.  However, a finding based on no evidence at all or an award   which   ignores   vital   evidence   in   arriving   at   its   decision would   be   perverse   and   liable   to   be   set   aside   on   the   ground   of patent illegality.       44. To   understand   the   test   of   perversity,   it   will   also   be appropriate to refer to paragraph 31 and 32 from the judgment of this Court in  Associate Builders  (supra), which read thus: “31.   The   third   juristic   principle   is   that   a decision   which   is   perverse   or   so   irrational that   no   reasonable   person   would   have arrived   at   the   same   is   important   and requires   some   degree   of   explanation.   It   is settled law that where: ( i ) a finding is based on no evidence, or ( ii ) an Arbitral Tribunal takes into account something irrelevant to the 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 two judgments. In   Excise and Taxation   Officer­cum­Assessing Authority   v.   Gopi   Nath   &   Sons   [1992   Supp 39 (2)   SCC   312],   it   was   held:   (SCC   p.   317, para 7) “ 7 . … It is, no doubt, true that if a finding of   fact   is   arrived   at   by   ignoring   or excluding   relevant   material   or   by   taking into   consideration   irrelevant   material   or   if the   finding   so   outrageously   defies   logic   as to   suffer   from   the   vice   of   irrationality incurring   the   blame   of   being   perverse, then,   the   finding   is   rendered   infirm   in law.” In   Kuldeep   Singh   v.   Commr.   of Police   [(1999)   2   SCC   10:   1999   SCC   (L&S) 429], it was held: (SCC p. 14, para 10) “ 10 .   A   broad   distinction   has,   therefore,   to be   maintained   between   the   decisions which   are   perverse   and   those   which   are not.   If   a   decision   is   arrived   at   on   no evidence   or   evidence   which   is   thoroughly unreliable and no reasonable person would act   upon   it,   the   order   would   be   perverse. But   if   there   is   some   evidence   on   record which   is   acceptable   and   which   could   be relied   upon,   howsoever   compendious   it may   be,   the   conclusions   would   not   be treated as perverse and the findings would not be interfered with.” 45. Keeping these principles in mind, we will have to examine the present case.  46. The facts in the present case are not in much dispute.   It will   be   relevant   to   refer   to   clause   5.6   of   the   bid   document, 40 which   was   published   by   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   full­fledged   container   terminal   with   ship to   shore   and   shore   to   ship   handling facility, manage, operate and maintain the terminal   shall   be   given   for   a   period   of   30 years inclusive of construction period.  The bidder shall state his financial offer to the   TPT   as   the   sum   of   the   following components:  a) Quantum   of   initial   payment   at   the time   of   executing   the   contract   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 TEU   handled   at   the   terminal   in   the preceding   calendar   month.   In   case   actual throughput   falls   below   the   minimum throughput   guaranteed   by   the   Licensee   in his bid, then the Licensee shall pay royalty as   per   his   minimum   guaranteed throughput.  (The  operator  shall  pay   to  the  port  royalty fee in the same currency in which charges are realised from users. The exchange rate 41 to   be   used   would   be   notified   rate   on   the date of realisation). c) Guaranteed   minimum   TEU throughput   that   will   be   handled   in   each 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 for  a license to develop the seventh berth as a full­fledged container   terminal   with   ship­to­shore   and   shore­to­ship handling facility and also to manage, operate and maintain the same   for   a   period   of   30   years   inclusive   of   construction   period. The bidder was to state his financial offer to TPT comprising of three aspects: (a) quantum   of   initial   payment   at   the   time   of   executing   the contract 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 TEU   handled   at   the   terminal   in   the   preceding   calendar month.     It   is   also   clear,   that   in   case   actual   throughput falls   below   the   minimum   throughput   guaranteed   by   the 42 Licensee in his bid, then the Licensee shall pay royalty as per his minimum guaranteed throughput.  It also clarifies, that royalty was to be paid in the same currency in which the Licensee realizes the charges from users; and  (c) guaranteed   minimum   TEU   throughput   that   will   be handled in each year of the contract. 48. It will also be necessary to refer to clause 4.7.1 and 4.7.2 of the bid document, which reads thus:  “4.7.1  SETTING OF PRICES The   prescribed   rates   and   charges   to   be collected   by   the   LICENSEE   from   users shall   not   exceed   the   maximum   rates   as approved   by   the   Government/Tariff Regulatory   Authority.   The   proposed   rates for handling are given in Annexure II. The   LICENSEE   shall   bill   the   users   of   the container   terminal   for   services   including terminal   charges,   wharfage   on   cargo containerised,   container   box   and   cargo related   charges   to   be   collected   by   the LICENSEE.   These   revenues   shall   be collected   from   cargo   interests   and   the owners   or   agents   of   the   vessels   and   shall accrue   to   and   be   payable   to   the 43 LICENSEE.   Charges   on   account   of   Berth Hire,   Port   Dues,   Pilotage   etc   shall   be raised   and   recovered   directly   by   TPT   from the users. 4.7.2  REGULATION & REVIEW Normally   the   tariff   will   be   revised   by   the Government/Tariff   Regulatory   Authority once in 3 years.  For   any   increase   from   prevailing   scales, the   LICENSEE   may   apply   for   revision   of tariff   to   the   Licensor.   The   Licensor   may recommend   it   for   approval   of   the Committee   constituted   by   the Government/Tariff Regulatory Authority.” It   would   thus   be   clear,   that   the   bid   document   itself provides,  that  the  prescribed  rates and   charges  to  be  collected by the Licensee from users shall not exceed the maximum rates as   approved   by   the   Government/Tariff   Regulatory   Authority. The proposed rates for handling were prescribed in Annexure­II of the bid document.   It is also provided, that the tariff will be revised by the Government/Tariff Regulatory Authority once in three   years.     It   is   further   provided,   that   for   any   increase   from prevailing scales, the Licensee may apply for revision of tariff to the   Licensor   and   that   the   Licensor   may   recommend   it   for 44 approval   of   the   Committee   constituted   by   the Government/Tariff Regulatory Authority.  49. It will be relevant to note that the offer was required to be in   the   format   shown   in   Attachment   4.1   (Bidders   Financial Offer),   which requires to give details in three columns. The first one   being   ‘Traffic   guaranteed   from   the   Seventh   Berth   (in TEUS)’.   The second being  ‘Rate of royalty/TEU’; and the third being ‘Amount (Rupees)’.   These details were to be provided for all 30 years.   It will also be relevant to refer to Attachment 4.4, which reads thus:  “All   Responsive   Bids   which   meet   the Qualification   criteria   laid   down   for   the technical   evaluation   will   be   ranked   based on   the   present   value   of   the   expected payments   to   the   TPT   by   the   Bidder (discounted   @   16%   per   annum)   according to   the   payment   schedule   presented   in   the financial   proposal   in   Attachment   4.1.   The calculation of the royalty fees will be based on   the   Licensee’s   minimum   guaranteed volume of traffic. If, in the opinion of TPT, the prices quoted in a bid including royalties and schedule of royalties   are   found   to   be   unrealistic,   then 45 such   bid   will   be   rejected   and   not considered for ranking.”  50. Attachment   4.4   makes   it   amply   clear,   that   all   responsive bids   which   meet   the   qualification   criteria   for   technical evaluation will be ranked on 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 of the Agreement, which read thus: “7.3.1 Setting Prices  The   Licensee   shall   be   entitled   to   recover from   the   owners/consignees   or   vessel owners/agents   rates   and/or   charges   due and   payable   by   them   for   use   of   the Container   Terminal   services   including terminal   charges,   wharfage   on   cargo containerised,   container   box   and   cargo related   charges   in   respect   of   cargo   and other   services   provided   by   the   Licensee provided   however   that   the   rates   and/or charges   to   be   collected   by   the   Licensee shall not exceed the rates fixed by Licensor in   respect   of   similar   services   and   duly notified   by   the   GoI   in   official   gazette   or   to be   fixed   by   the   Tariff   Authority   for   Major Ports   constituted   under   Article   47A   of   the Major Port Trusts Act, 1963, as applicable, from time to time. For the purpose of fixing 46 or   revising   existing   Tariff,   the   GoI   has   set up   an   independent   Tariff   Authority   for Major   Ports   constituted   under   Article   47A of   the   Major   Port   Trusts   Act,   1963.   The Tariff   to   be   fixed   by   such   authority   would be   the   maximum   rate   of   tariff   and   the Licensee would be free to fix the tariff at a rate   lower   than   that   fixed   by   such authority.   Regarding   fixation   of   tariff   and setting prices, the Licensee shall follow the rules   and   regulations   stipulated   by   TAMP for fixing/review of tariff.  These   charges   shall   be   collected   from cargo interests and the owners or agents of the   vessels   and   shall   accrue   to   and   be payable   to   the   Licensee.   The   rates prevailing   at   the   time   of   signing   this Agreement   are   contained   in   Appendix   15 to this Agreement.  Charges   on   account   of   Berth   Hire,   Port Dues   and   Pilotage   shall   be   raised   and recovered directly by the Licensor from the users.  The Licensee shall be free to give discounts in tariff. However, such discounts shall be given by the Licensee only in respect to the charges   due   and   payable   by   the consignees/owners   or   vessel owners/agents   to   the   Licensee   and   not   in respect   of   the   charges   payable   by   such persons directly to the Licensor. xxx xxx xxx 47 7.3.5 Payment and Payment Terms  7.3.5.1 Initial Payment  In   consideration   of   the   grant   of   this License,   the   Licensee   shall   pay   to   the Licensor an initial amount of Rs.45 million (Rupees   Forty   Five   Millions   only) simultaneously   on   the   Date   of   Award   of License. The   Licensee   shall   pay   to   the   Licensor, royalty   calculated   on   the   basis   of Minimum   guaranteed   traffic   royalty   rates, as   set   out   in   Appendix   12   irrespective   of discounts   in   tariffs,   if   any,   that   may   be granted   by   the   Licensee.   Royalty   shall   be paid   every   Month   on   the   basis   of   annual minimum   guaranteed   traffic   as   set   out   in Appendix   12.   Monthly   royalty   shall   be initially   calculated   proportionately   to   the yearly   royalty   based   on   the   annual minimum   guaranteed   traffic   as   per   the Appendix   12   and   shall   be   paid   latest   by the   7th   Day   of   the   subsequent   Month.   At the   end   of   each   3   Month   period   the   total royalty payable shall be computed and the difference,   if   any,   between   the   amount   of royalty  actually  payable, calculated  on the basis   of   actual   TEUs   handled   and   the corresponding   amount   as   set   out   in   the Appendix   12,   and   the   amount   of   royalty already   remitted,   shall   be   paid   by   the Licensee   to   the   Licensor   within   fifteen 48 Days   of   expiry   of   the   relevant   3   Months period.  In   case   the   actual   traffic   falls   below   the annual   minimum   guaranteed   traffic   as guaranteed by the Licensee and as set out in the Appendix l2, then the Licensee shall pay   the   amount   of   royalty   as   per   its annual minimum guaranteed traffic.  It   is   to   be   noted   that   the   minimum guaranteed traffic royalty rate as set out in Appendix   12   will   be   adjusted   upwards   or downwards   as   a   one   time   measure   on fixation of tariff for containers by the TAMP for   the   first   time.   This   adjustment   will   be carried   out   by   the   Port   based   on   a   single percentage (plus or minus) to be applied to all   the   figures   quoted   as   royalty   vide Appendix 12.   This single percentage shall be decided on the basis of sum of weighted average of variations to the rates in respect of   tariff   or   containers   in   the   following manner...” 52. Perusal   of   Article   7.3.1   would   reveal,   that   the   Licensee was   entitled   to   recover   from   owners/consignees   or   vessel owners/agents, rates and/or charges due and payable by them for   use   of   Container   Terminal   services   including   terminal charges,   wharfage   on   cargo   containerized,   container   box   and 49 cargo   related   charges   in   respect   of   cargo   and   other   services provided   by   the   Licensee.     However,   it   was   provided,   that   the rates   and/or   charges   to   be   collected   by   the   Licensee   shall   not exceed the rates fixed by Licensor in respect of similar services and duly notified by the GoI in official gazette or to be fixed by TAMP   constituted   under   Section   47A   of   the   Major   Port   Trusts Act,   1963.     The   Agreement   itself   clarifies,   that   the   tariff   to   be fixed   by   TAMP   should   be   the   maximum   rate   of   tariff   and   the Licensee would be free to fix the tariff 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   by   TAMP regarding fixation of tariff.   Appendix­15 to the Agreement also details   out   the   rates   prevailing   at   the   time   of   signing   of   the Agreement.   The   Article   specifies   that   the   Licensee   was   free   to give   discounts   on   tariffs.     However,   such   discount   would   be given only in respect of the charges payable to the Licensee and not payable to the Licensor.   53. Article 7.3.5.1 provides for initial payment of Rs.45 million simultaneously on the date of award of license.  The   Agreement 50 further   clarifies,   that   the   Licensee   shall   pay   to   the   Licensor royalty   calculated   on   the   basis   of   minimum   guaranteed   traffic royalty   as   set   out   in   Appendix­12.     It   is   also   provided,   that minimum guaranteed traffic royalty rate as set out in Appendix­ 12   will   be   adjusted   upwards   or   downwards   as   a   one­time measure on fixation of tariff for containers by TAMP for the first time.   54. It will be relevant to refer to Article 14, which is the bone of contention between the parties, which reads thus: “ARTICLE 14 CHANGE IN LAW 14.  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   the   force   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   any   amendment, 51 alteration,   modification   or   repeal   of   any existing   law   by   Government   Authority   or through   any   interpretation   thereof   by   the court   of  law   or  enactment   or  any   new   law coming   into   effect   after   the   date   of   this Agreement,   provision   for   which   has   not been made elsewhere in this Agreement. 14.3  Relief under Change in Law   If, after the date of this Agreement, there is a   'Change   in   the   Law   which   substantially and   adversely   affects   the   rights   of   the Licensee   under   this   Agreement   so   as   to alter   the   commercial   viability   of   the project,   the   Licensee   may,   by   written notice request amendments to the terms of this Agreement. Subject   to   provisions   of   Article   14.3,   the Licensee   shall   not   be   entitled   to   any compensation   whatsoever   from   the Licensor as a result of Change in Law.  14.4   Changes   in   Tax   Laws   and Regulations   The   Licensee   is   not   entitled   to   any compensation   for   any   increase   in   direct and/or   indirect   tax   which   the   Licensee   is liable to pay in respect of the Project.” 55. Article  14  deals  with   ‘change   in  law’.     Article  14.1,   which defines   ‘law’,   states,   that   law   means   any   valid   act,   ordinance, rule,   regulation,   notification,   directive,   order   policy,   bylaw, 52 administrative   guideline,   ruling   or   instruction   having   the   force of law enacted or issued by a Government Authority.   Article 14.2, which deals with ‘change in law’, states, that ‘change   in   law’   would   mean   any   amendment,   alteration, modification   or   repeal   of   any   existing   law   by   Government Authority   or   through   any   interpretation   thereof   by   a   court   of law   or   enactment   of   any   new   law   coming   into   effect   after   the date of this Agreement, provision for which has not been made elsewhere in the said Agreement.   Article   14.3   provides   for   relief   under   change   in   law.     If, after the date of Agreement, there is a change in the law which substantially   and   adversely   affects   the   rights   of   the   Licensee under   the   Agreement   so   as   to   alter   the   commercial   viability   of the   project,   the   Licensee   may,   by   written   notice,   request amendments   to   the   terms   of   the   Agreement.     It   further provided, that subject to provisions of Article 14.3, the Licensee shall not be entitled to any  compensation whatsoever from the Licensor as a result of change in law.  56. The questions therefore that we will have to answer are:  53 (i) As to whether the Arbitral Tribunal was justified in finding a   change   in   law,   which   entitled   the   Licensee   to   invoke   Article 14.3 of the Agreement; and  (ii) As   to   whether   the   Arbitral   Tribunal   was   justified   in converting   the   contract   from   royalty   payment   module   to revenue­sharing   module   of   Berth   No.   VII   with   the   claimant’s liability to the revenue share being fixed at 55.19%. 57.   For   answering   the   aforesaid   questions,   we   will   have   to consider the documents placed on record.   Apart from that, we will   also   have   to   take   into   consideration   the   conduct   of   the parties   and   their   intention   as   could   be   gathered   from   the   said material.     58. In this respect, it will be relevant to refer to paragraph 16 in the case of  MMTC   Limited  (supra), which reads thus:  “16.   It   is   equally   important   to   observe   at this   juncture   that   while   interpreting   the terms of a contract, the conduct of parties and   correspondences   exchanged   would also be relevant factors and it is within the arbitrator's   jurisdiction   to   consider   the same.   [See   McDermott   International Inc.   v.   Burn   Standard   Co.   Ltd.   [ McDermott 54 International Inc.   v.   Burn Standard Co. Ltd. , (2006)   11   SCC   181];   Pure   Helium   India   (P) Ltd.   v.   ONGC   [ Pure   Helium   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].]” 59. The   entire   finding   of   the   Arbitral   Tribunal   is   based   on   a premise   that   when   TPT   entered   into   a   contract   with   SICAL there   was   an   existing   policy,   which   provided   royalty   to   be factored   into   the   cost   while   fixation   of   tariff   and   that subsequently,   the   GoI   changed   its   policy   on   29 th   July,   2003 thereby   providing   that   royalty   payment/revenue   sharing   will not   be   factored   into/taken   into   account   as   cost   for fixation/revision   of   tariff   by   TAMP;   and   that   there   was subsequent   change   in   policy   on   31 st   March,   2005   vide   which part   of   royalty   was   permitted   to   be   factored   into   the   cost. However, it being subjected to a maximum amount of the bid of the   second   lowest   bidder.     According   to   the   Arbitral   Tribunal, there was a change in policy, which amounted to change in law, which, in turn, adversely affected SICAL.   55 60. Let   us   examine   the   correctness   of   this   finding.     We   are fully aware, that neither under Section 34 nor under Section 37 of  the   Arbitration  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,   1997.     LoI   was   issued   on   29 th January,   1998.     All   this   has   happened   prior   to   the   guidelines issued   by   TAMP   in   February   1998.     As   such,   it   is   beyond   any doubt,   that   when   the   bid   document   was   notified   and   when SICAL submitted its bid and LoI was issued to it, there were no guidelines   in   vogue.       For   the   first   time,   the   guidelines   were adopted by TAMP in the workshop held in Chennai on 26 th /27 th February, 1998.   61. Let us examine what do these guidelines provide.   “The   TAMP   must   adhere   to   established costing  systems  and  pricing  principals, its overall   objective   shall   be   to   move   towards competitive pricing.  56   There   are   various   approaches   to   tariff fixation.   Until   more information/knowledge   becomes   available. Attempts   may   be   made   to   smoothen   the system within the existing framework.  During   the   Interregnum,   port   pricing   may continue to be cost­based with an assured rate   of   return.   Although   the   concept   of an   assured   rate   of   return   is   not consonant  with  a  completive   system.   It will   be   advisable   to   maintain   it   for   the time   being   so   as   not   to   destabilize   the system   with   abrupt   changes.   At   the same time, to militate the full impact of its   continuance,   the   reasonableness   of the existing base  and  the absolute total costs   may   have   to   be   examined   to ensure   that   costs   of   inefficiencies, uneconomic   user   /practices   or   excess are   not   passed   on   to   users.   Even   if   the TAMP   is   not   equipped   at   present   to   cope with   the   load   of   work   relating   to   such scrutiny,   it   must   at   least   start   pressuring against such costs being built into tariffs.  An assured rate of return can be achieved either by increasing the surplus through a rationalized   tariff   structure   and/or reducing   the   cost   of   services;   or   by reducing   the   capital   base   by   eliminating unproductive and obsolete assets.” [emphasis supplied] 57 62. It could thus be clearly seen that what is provided is that TAMP   must   adhere   to   established   costing   systems   and   pricing principals   and   its   overall   objective   should   be   to   move   towards competitive   pricing.     It   further   provides   that   until   more information/knowledge   becomes   available,   attempts   should   be made to smoothen the system within the existing framework.  It further provides that during the interregnum, port pricing is to be   continued   to   be   cost­based   with   an   assured   rate   of   return. It however  specifically observes that the concept of an assured rate   of   return   is   not   consonant   with   a   competitive   system.     It provides that however, it will be advisable to maintain it for the time   being   so   as   not   to   destabilize   the   system   with   abrupt changes.     It  further   provides  that   to   militate   the   full  impact   of its   continuance,   the   reasonableness   of   the   existing   base   and the absolute total costs may have to be examined to ensure that costs of inefficiencies, uneconomic user/practices or excess are not   passed   on   to   users.     It   further   observed,   that   an   assured rate of return can be achieved either by increasing the surplus 58 through   a   rationalized   tariff   structure   and/or   reducing   the capital base by eliminating unproductive and obsolete assets.   63. It could thus clearly be seen, that even 1998 guidelines do not mention, that the royalty could be factored in the cost while determining   the   tariff.     Though   the   said   guidelines   observed, that   the   port   pricing   may   continue   to   be   cost­based   with   an assured rate of return, it further observed, that such a concept of   an   assured   rate   of   return   is   not   in   consonance   with   a competitive system. Thus, it is amply clear, that when the bids were invited, and SICAL submitted its bid and LoI was issued to it, there was no policy at all.   Even the 1998 guidelines do not provide   for   factoring   the   royalty   in   cost   while   determining   the tariff.    64. No doubt that when the first proposal for revision of tariff was submitted by SICAL, in its comments submitted to TAMP, TPT has supported the proposal submitted by SICAL.  It is also undisputed,   that   TAMP   vide   order   dated   08 th   December,   1999 (notified   on   28 th   December,   1999)   has   approved   the   proposal with regard to fixation of tariff insofar as SICAL is concerned.  It 59 will   be   relevant   to   refer   to   sub­para   (iv)   of   paragraph   7   of   the TAMP order, which reads thus:  “(iv)  It   will   be   necessary   at   this   point   to refer   to   the   royalty   issue.   Even   though some   considerations   relating   to   royalty have tariff­ implications, we have not so far   chosen   to   interfere   in   this   regard; the   royalty   issue   has   been   left   to   be settled   by   the   Port   Trust   and   the Government. That being so, in the light of   the   TPT's   conditional   support   to   the request   for   dollar­denomination,   it   will be   necessary   for   us   to   clarify   that   our approval   of   the   tariffs   cannot   be interpreted   to   amount   to   any   implicit approval   of   royalty­related   issues. Specifically,   in   the   context   of   the   TPT's condition   about   dollar­denomination   of royalty,   the   method   of   conversion   adopted by   the   Applicant   for   the   purpose   of financial   statements   based   on   tariffs denominated   in   dollar   terms   cannot   be deemed to have been approved by us. ” [emphasis supplied] 65. It   could   thus   be   clear,   that   TAMP   has   observed,   that though   some   considerations   relating   to   royalty   have   tariff­ implications, it had not so far chosen to interfere in that regard. 60 The royalty issue has been left to be settled by TPT and the GoI. It   has   been   clarified   that   its   approval   to   the   tariff   cannot   be interpreted to be amounting to any implicit approval of royalty­ related issues.  It is thus clear, that even the 1999 TAMP order made  it   clear,  that  the   said  order   should   not   be  interpreted   to amount to any implicit approval of royalty related issues.   It is thus   clear,   that   royalty   was   permitted   to   be   factored   in   cost only   on   account   of   TPT’s   conditional   support   to   the   proposal submitted by SICAL.   It will also be relevant to note that TAMP order   of   1999   is   much   after   the   TAMP   guidelines,   which   were issued   in   February   1998.     Undisputedly,   the   said   order   has been accepted by SICAL including the aforesaid observations in sub­para (iv) of paragraph 7.   66. The second tariff order in case of SICAL came to be passed on 20 th   September, 2002 (notified on 4 th   October, 2002).   It will be relevant to refer to sub­para (xi) of paragraph 15. “(xi)   One   of   the   main   items   of   expenditure considered by the PSA SICAL is the royalty payment   it  has  to  make  to  the  TPT  as per the   Concession   Agreement.   This   liability accounts   for   about   11.4%,   15.4%   and 61 19.2%   of   the   operating   income   estimated on   the   basis   of   the   existing   tariffs   for   the years   2002,   2003   and   2004   respectively. As has been mentioned earlier, the existing tariffs   were   allowed   to   the   PSA   SICAL   by accepting   its   proposal   to   adopt   the   (then) existing   CHPT   rates.   That   being   so,   there was   no   detailed   cost   analysis   carried   out then. It   is   admitted   that   the   issue   of admissibility   of   ‘royalty’   as   a   cost   item has come under a focused scrutiny only in   the   case   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   tariffs   at   the   CCTL. This   Authority   held   that   allowing royalty   in   tariff   would   mean   that   the CCTL   (Private   Terminal   Operator)   and the   CHPT   (the   Licensor)   both   of   whom enjoyed   a   dominant   position,   could enter into any commercial arrangement between   themselves   and   pass   on   the consequential   cost   to   customers .   This Authority   also   observed   that   there   had been no commitment from anywhere about consequential   tariff   adjustments   and   the CA   also   did   not  give   any   assurance   to   the Licensee   about   tariff   adjustments corresponding to the royalty quoted. 62 In   view   of   the   principle   set   out   in   the CCTL   case,   it   is   necessary   to   accord   a similar treatment in the case of the PSA SICAL   also.   It   is   noteworthy   that   no extraordinary   circumstances   appear   to emerge   in   this   case   warranting   any exceptional   consideration.   That   being so,   royalty   has   not   been   considered   as an admissible item of cost for this tariff exercise. ” [emphasis supplied] 67. Perusal of the aforesaid sub­para would clearly reveal that one of the main items of expenditure considered by SICAL was the   royalty   payment   it   has   to   make   to   TPT   as   per   the Concession   Agreement.     It   states   that   the   existing   tariffs   were allowed   to   SICAL   by   accepting   its   proposal   to   adopt   the   then existing   Chennai   Port  Trust  (hereinafter   referred   to  as   “CHPT”) rates.     It   clarifies   that   there   was   no   detailed   cost   analysis carried out then.  It further states that the issue of admissibility of royalty as a cost item came under a focused scrutiny only in the   case   relating   to   CCTL,   which   was   disposed   of   in   March 2002.   It states, that in that case, the Authority decided not to allow   ‘revenue   share’   as   a   cost   element   for   computation   of tariffs   for   CCTL.     It   observes,   that   allowing   royalty   in   tariff 63 would   mean   that   CCTL   (Private   Terminal   Operator)   and   CHPT (the   Licensor),   both   of   whom   enjoyed   a   dominant   position, could   enter   into   any   commercial   arrangement   between themselves and pass on the consequential cost to customers.  It further   specifies,   that   the   Authority   had   observed,   that   there had   been   no   commitment   from   anywhere   about   consequential tariff   adjustments   corresponding   to   the   royalty   quoted.       It further observed that no extraordinary circumstances appear to emerge   in   the   case   of   SICAL   warranting   any   exceptional consideration.   As such, royalty had not been considered as an admissible item of cost in the tariff.  68. The   said   order   is   passed   when   the   1998   guidelines   were still holding the field.   In this factual background, it is difficult to   appreciate   as   to   how   it   could   be   said   that   the   1998 guidelines   issued   by   TAMP   permitted   royalty   to   be   factored   in cost while fixation of tariff.   69. The   2002   tariff   order   has   been   challenged   by   SICAL   by filing   Writ   Petitions   being   Writ   Petition   Nos   40637­40639   of 2002   before   the   Madras   High   Court.     The   Madras   High   Court 64 has   also   passed   interim   order   on   8 th   November,   2002   thereby staying   the   2002   notification   and   permitting   SICAL   to   charge tariff on the basis of the 1999 tariff order.  70. Then   comes   the   notification   dated   29 th   July,   2003   issued by the GoI, which is in the following terms:  “In   a   few   cases   recently   a   question   arose as   to   what   treatment   to   be   given   to revenue sharing/royalty payment made by private   terminal   operators   to   the concerned   major   ports   for   the   purpose   of fixation/revision   of   tariff.   TAMP   has   also requested   for   guidelines   from   Ministry   in the matter. The matter has been discussed with   Chairman,   TAMP   and   considered   in this   Ministry   and   it   has   been   decided   to clarify   as   a   matter   of   policy   that   the revenue   sharing/royalty   payment   shall not be factored into/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   private   participation   in   ports should   also   be   passed   on   to   shippers   or the users which will not be so if royalty is allowed to be factored in the cost of private operators. (ii) If   royalty   is   allowed   as   cost,   the private   bidder   can   offer   any   high 65 percentage   which   he   will   recover   from   the shippers/users in the shape or royalty cost lectured in fixing of higher rates.  It has  also  been  decoded that  the  position in   this   regard   may   be   clearly   indicated   in the bid documents itself while inviting bids for   private   sector   participation   at   major ports.” [emphasis supplied]     71. Perusal of the said notification would clearly show that the GoI   has   decided   to   clarify,   as   a   matter   of   policy,   that   the revenue­sharing/royalty   payment   shall   not   be   factored into/taken into account as cost for fixation/revision of tariff by TAMP.       The   said   notification   specifically   provides   that   the benefit of higher efficiency on account of private participation in ports should also be passed on to shippers or the users which will   not   be  so   if  royalty   is  allowed   to   be   factored   in  the   cost   of private   operators.     It  further   provides   that   if   royalty   is   allowed as cost, the private bidder can offer any high percentage which he will recover from the shippers/users in the shape of royalty cost factored in fixing of higher rates.  66 72. Then   comes   a   notification   dated   31 st   March,   2005   issued by TAMP.   It will   be relevant to note that these guidelines have been issued subsequent to the consultation meetings held with the   stake­holders  at  Kolkata,   Chennai  and  Mumbai.    It  will  be relevant to refer to clause 1.4.2, which reads thus: “1.4.2. The earlier guidelines adopted in Feb.   1998   stand   superseded.   The principles   evolved   through   various   tariff orders   will,   however,   continue   to   apply   to the extent they are consistent with and not specifically   superseded   by   these guidelines.   A   compendium   or   digest   of principles   evolved   will   be   published periodically.” 73. It   is   thus   clear,   that   the   31 st   March,   2005   notification specifically states that the guidelines adopted in February 1998 stand   superseded.     However,   it   provides,   that   the   principles evolved through various tariff orders would continue to apply to the   extent   they   are   consistent   with   and   not   specifically superseded by the 2005 guidelines.   74. It   will   also   be   relevant   to   refer   to   paragraph   2.8.1   of   the 2005 guidelines.   67 “2.8.1. ‘Royalty/Revenue   share’ payable   to   the   landlord   port   by   the private   operator   will   not   be   allowed   as an   admissible   cost   for   tariff computation  as  decided  by  the Govt.  in the   Ministry   of   Shipping   vide   its   Order No.   PR­14019/6/2002­PG   dt.   29 th   July, 2003. In those BOT cases where bidding process   was   finalized   before   29   July, 2003,   the   tariff   computation   will   take into   account   royalty   /   revenue   sharing as   cost   for   tariff   fixation   in   such   a manner   as   to   avoid   likely   loss   to   the operator   on   account   of   royalty   / revenue   share   not   being   taken   into account,   subject   to   maximum   of   the amount   quoted   by   the   next   lowest bidder.  This would, however,  be allowed for   the   period   upto   which   such   likely loss   will   arise.   This   would   not   be applicable   if   there   is   provision   in   the concession   agreement   on   treatment   of ‘Royalty/Revenue Share’.” [emphasis supplied] 75. The   said   guidelines   specifically   provide   that ‘royalty/revenue   share’   payable   to   the   landlord   port   by   the private   operator   will   not   be   allowed   as   an   admissible   cost   for tariff   computation   as   decided   by   the   Government   in   the Ministry   of   Shipping   vide   its   Order   No.PR­14019/6/2002­PG dated   29 th   July,   2003.     It   further   provided,   that   in   those   BOT 68 cases   where   bidding   process   was   finalized   before   29 th   July, 2003, tariff computation will take into account royalty/revenue sharing as cost for tariff fixation in such a manner as to avoid likely   loss   to   the   operator   on   account   of   the   royalty/revenue share   not   being   taken   into   account.     However,   this   was subjected only to a maximum of the amount quoted by the next lowest bidder.   This was further subjected to be allowed for the period   upto   which   such   likely   loss   would   arise.     It   further provided that this would not  be applicable if there is provision in   the   concession   agreement   on   treatment   of   royalty/revenue share.  76. A   conjoint   reading   of   all   these   documents   would   reveal that   when   the   bid   document   was   published   in   April   1997; SICAL   tendered   its   bid   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   no   guidelines   at   all. Even the guidelines of February 1998 do not provide for royalty being factored as cost while fixation of tariff.    On the contrary, the   tariff   order   of   1999   specifically   clarifies   that   it   has   left   the 69 royalty   issue   to   be   decided   by   TPT   and   the   GoI.     It   has specifically   clarified   that   the   approval   by   TAMP   should   not   be interpreted to be amounting to any implicit approval of royalty­ related   issue.   Further,   the   tariff   order   issued   on   20 th September,   2002   specifically   rejects   the   claim   of   SICAL   for factoring   any   royalty   as   cost   while   tariff/price   fixation.     As already   stated   herein   above,   SICAL   has   challenged   the   said order   before   the   Madras   High   Court   by   way   of   writ   petition, which petition has been allowed.   It is also not in dispute, that on   account   of   interim   order   passed   by   the   Madras   High   Court dated 8 th  November, 2002, SICAL is still continuing to charge at rates notified in the 1999 tariff order.    77. In  this  scenario,  the  finding  of  the   Arbitral  Tribunal,   that there was a law when the Agreement was entered into between the parties, which provided royalty as a pass­through and that the   said   law   has   been   changed   for   the   first   time   in   2003   and subsequently   again   changed   in   2005,   in   our   view,   is   a   finding based on ‘no evidence’.   Had the Arbitral Tribunal perused the tariff orders of 1999 and 2002, it would have found that in the 70 1999   tariff   order   TAMP   has   specifically   observed   that   its approval   of   the   tariff   should   not   be   construed   as   its   implicit approval   of   royalty­related   issue   and   the   2002   tariff   order specifically states that royalty was not permitted to be factored in   the  cost  while  determining  tariff.   The  Arbitral  Tribunal  has totally   failed   to   take   into   consideration   this   aspect   of   the matter.   78. As   such,   we   are   of   the   view,   that   since   the   finding   of   the Arbitral   Tribunal,   that   there   was   an   existing   law   to   the   effect that the royalty payable shall be permitted as a pass­through in cost   while   fixation   of   tariff,   is   based   on   ‘no   evidence’   and   the finding,   that   there   was   a   change   in   law   in   2003   and   2005   is based   on   without   taking   into   consideration   the   relevant evidence, would come in the realm of perversity as explained by this   Court   in   paragraph   31   of   the   Associate   Builders   (supra). The   findings   are  based   on  ‘no   evidence’   and   ‘ignorance   of   vital evidence’ in arriving at its decision.   79. This   brings   us   to   the   next   issue   viz.,   as   to   whether   the Arbitral   Tribunal   was   justified   in   passing   an   award   thereby 71 substituting   ‘royalty   payment   module’   to   the   ‘revenue­sharing module’.       A   contract   duly   entered   into   between   the   parties cannot   be   substituted   unilaterally   without   the   consent   of   the parties.  The intention of the parties could be gathered from the documents   on   record.     SICAL,   for   the   first   time,   made representation   to   TPT   on   6 th   October,   2006   thereby   seeking   a relief under the terms of Article 14.3 of the Agreement.  On 14 th October, 2006, TPT informed SICAL that the issues raised by it were   under   examination.     However,   vide   order   dated   27 th October, 2006, TPT refused to consider  SICAL’s application for relief   since,   according   to   it,   the   issue   raised   by   SICAL   was pending   before   the   Madras   High   Court.     SICAL   therefore   filed writ   petition   being   Writ   Petition   No.   4361   of   2006   before   the Madras High Court.     The Madras High Court allowed the said writ   petition   vide   order   dated   21 st   August,   2007   clarifying   that the   petition   pending   before   the   High   Court   had   nothing   to   do with   the   representation   under   Article   14   of   the   License Agreement   and   remanded   the   matter   to   TPT   for   consideration afresh.     Vide   a   reasoned   letter   dated   25 th   April,   2008,   TPT rejected the claim of SICAL.   TPT has specifically observed that 72 any   change   in   the   Agreement   cannot   be   done   without   prior approval of the GoI.   SICAL on 19 th   November, 2012 addressed a   letter   to   TPT   invoking   arbitration   under   Article   15.3   of   the License   Agreement.     TPT   strenuously   contested   the   claim   of SICAL   with   regard   to   prayer   for   change   from   ‘royalty   payment mode’   to   ‘revenue   sharing   mode’.     The   stand   of   TPT   has   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:  "There   is   no   dispute   at   all.   The grievance   of   the   SICAL   is   that there   is   an   error   committed   by TAMP   in   fixing   the   tariff.   That grievance   had   been   repeatedly taken   before   the   High   Court   of Madras   by   SICAL   and   at   all stages   orders   have   been   passed by   setting   aside   the   orders challenged.   Therefore,   the   real grievance of SICAL is only against TAMP   and   not   against   PORT. Since the issue regarding fixing of tariff   is   pending   finality,   SICAL cannot maintain any claim legally or   factually   against   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 73 with   the   tariff   fixing   power   of TAMP   which   is   their   exclusive domain   and   jurisdiction.   The Contract   is   not   entered   into   on the basis of any guidelines. There was   no   guideline,   as   contended by   SICAL,   on   the   date   of   the contract.   By   the   present   dispute, SICAL   is   trying   to   change   the entire   nature   of   the   contract, namely,   from   the   royalty   module to the revenue sharing module. It is   impermissible   for   a   court   or this Tribunal to compel any party to   enter   into   a   new   contract. Contract   is   always   by   consent   of parties.   All   the   grievance   put forward   before   the   Tribunal   by SICAL   is   their   grievance   in   sum and substances before TAMP and High   Court   of   Madras   in   all challenges   made   against   the order   of   TAMP.   Neither   a   Court nor   the   Tribunal   can   rewrite   the Contract.   The   contract   is   an enforceable   one   and   simply because   SICAL   is   stated   to   be losing   monetarily,   the   relief sought  for  in  this dispute  cannot be granted. If the case of SICAL is true, it is open to them to put an end   to   the   contract   and   seek appropriate   relief.   If   such   a termination   of   the   contract   takes place   at   the   instance   of   SICAL, then   the   PORT   will   take   steps   to get   appropriate   relief.   Section   56 of   the   Contract   Act   is   applicable to this case"  74 A number  of case laws have been cited by the   learned   Senior   Counsel   for   the   PORT and   we   will   refer   to   them   at   the appropriate stage.” 80. It could thus be seen, that SICAL wanted the Agreement to be   amended   so   as   to   change   the   ‘royalty   payment   method’   to ‘revenue­sharing method’.   TPT was always opposed to it.   The intention   of   TPT   is   apparent   from   its   various   communications and   its   stand   before   the   Arbitral   Tribunal,   that   it   was   not agreeable   for   amendment   of   the   Agreement   from   ‘royalty payment method’ to ‘revenue­sharing method’.  81. However,   ignoring   the   stand   of   TPT,   by   the   impugned Award, the Arbitral Tribunal has thrust upon a new term in the Agreement between the parties against the wishes of TPT.   The ‘royalty   payment   method’   has   been   totally   substituted   by   the Arbitral Tribunal, with the ‘revenue­sharing method’. It is thus clear, that the Award has created a new contract for the parties by unilateral intention of SICAL as against the intention of TPT. 82. After   referring   to   various   international   treaties   on arbitration   and   judgments   of   other   jurisdictions,   this   Court   in 75 Ssangyong   Engineering   and   Construction   Company Limited  (supra), observed thus:  “76.   However, when it comes to the public policy   of   India,   argument   based   upon “most   basic   notions   of   justice”,   it   is   clear that   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.   It   can   be   seen   that the   formula   that   was   applied   by   the agreement   continued   to   be   applied   till February 2013 — in short, it is not correct to   say   that   the   formula   under   the agreement   could   not   be   applied   in   view   of the   Ministry's   change   in   the   base   indices from 1993­1994 to 2004­2005. 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.   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. We have seen how the appellant   gave   such   undertaking   only conditionally   and   without   prejudice   to   its argument   that   the   Circular   does   not   and cannot   apply.   This   being   the   case,   it   is clear   that   the   majority   award   has created   a   new   contract   for   the   parties by   applying   the   said   unilateral   Circular and   by   substituting   a   workable   formula 76 under   the   agreement   by   another formula   dehors   the   agreement.   This being   the   case,   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. However, we repeat that this ground   is   available   only   in   very exceptional   circumstances,   such   as   the fact situation in the present case.  Under no   circumstance   can   any   court   interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits   of   the   dispute   which,   as   we   have seen, is contrary to the ethos of Section 34 of the 1996 Act, as has been noted earlier in this judgment.” [emphasis supplied] 83. As   such,   as   held   by   this   Court   in   Ssangyong Engineering   and   Construction   Company   Limited   (supra), the   fundamental   principle   of   justice   has   been   breached, namely, that a unilateral addition or alteration of a contract has 77 been foisted upon an unwilling party.     This Court has further held   that   a   party   to   the   Agreement   cannot   be   made   liable   to perform something for which it has not entered into a contract. In   our   view,   re­writing   a   contract   for   the   parties   would   be breach of fundamental principles of justice entitling a Court to interfere   since   such   case   would   be   one   which   shocks   the conscience   of   the   Court   and   as   such,   would   fall   in   the exceptional category.   84. We may gainfully refer to the following observations of this Court   in   Bharat   Coking   Coal   Ltd.   v.   Annapurna Construction 26 . “22.   There lies a  clear  distinction  between an   error   within   the   jurisdiction   and   error in   excess   of   jurisdiction.   Thus,   the   role   of the   arbitrator   is   to   arbitrate   within   the terms   of   the   contract.   He   has   no   power apart from what the parties have given him under   the   contract.   If   he   has   travelled beyond   the   contract,   he   would   be   acting without   jurisdiction,   whereas   if   he   has remained   inside   the   parameters   of   the contract,   his   award   cannot   be   questioned 26 (2003) 8 SCC 154 78 on   the   ground   that   it   contains   an   error apparent on the face of the record.” 85. It   has   been   held   that   the   role   of   the   Arbitrator   is   to arbitrate   within   the   terms   of   the   contract.     He   has   no   power apart from what the parties have given him under the contract. If   he   has   travelled   beyond   the   contract,   he   would   be   acting without jurisdiction.   86. It   will   also   be   apposite   to   refer   to   the   following observations   of   this   Court   in   the   case   of   Md.   Army   Welfare Housing Organization v.   Sumangal Services (P) Ltd. 27     “43.   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   power   ex   debito justitiae.   The   jurisdiction   of   the   arbitrator being   confined   to   the   four   corners   of   the agreement, he can only pass such an order which   may   be   the   subject­matter   of reference.” 87. 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 27 (2004) 9 SCC 619 79 justitiae . It has been held that the jurisdiction of the arbitrator being confined to the four corners of the agreement, he can only pass   such   an   order   which   may   be   the   subject­matter   of reference.  88. In  that  view of  the matter, we are of  the  considered view, that   the   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 the matter.     Arguments   have   also   been   advanced   before   us   with regard   to   NSCT   being   given   a   discriminatory   treatment   as against SICAL.  The arguments have also been advanced on the ground of approbate and reprobate and doctrine of election.   It has   also   been   argued   on   behalf   of   SICAL   that   it   is   incurring huge losses. Per contra, it is submitted on behalf of TPT, that it is   incurring   huge   losses   on   account   of   various   interim   orders passed   by   the   High   Court   and   the   District   Judge   in   Section   9 applications.   80 90. We do not propose to go into those aspects of the matter. TAMP has issued various notifications with regard to fixation of tariff  so   also   various   orders  have   been   passed   by   the  GoI   with regard   to   the   aspect   of   grant   or   refusal   of   pass   through   of royalty   payable.     Various   petitions   have   been   filed   by   SICAL challenging  the  said orders and  notifications.   All the petitions were allowed thereby remanding the matters to TAMP and GoI. However,   it   is   not   in   dispute,   that   SICAL,   by   virtue   of   the interim   order   passed   dated   8 th   November,   2002   in Miscellaneous   Petition   No.   60240   of   2002   in   Writ   Petition No.40638 of 2002 is continuing to 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   dated   30 th   December,   2008   was   challenged   by SICAL   by   way   of   Writ   Petition   No.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   of   2009. By   an   order   dated   15 th   October,   2009,   the   High   Court   has 81 allowed these writ petitions by setting aside the order of the GoI dated   20 th   February,   2008   and   the   notification   dated   17 th December,   2008   issued   by   TAMP   and   has   directed   the   GoI   as well as TAMP to consider the issue afresh.   92. It   is   informed   at   the   Bar,   that   the   said   order   has   been carried   in   appeal   before   the   Division   Bench   of   the   High   Court both by  SICAL as well as TAMP, which are still pending  before the High Court.    93. We   are   of   the   considered   view,   that   if   we   make   any observation   on   merits   of   the   issue   with   regard   to   aforesaid submissions   made   before   us,   it   may   prejudicially   affect   the rights of either of the parties.  We therefore refrain from making any observation with regard to the aforesaid arguments, though heavily contested before us.   94. We   therefore,   confine   ourselves   with   the   issue   as   regards the validity of the Award.   We also clarify that any observations made   by   the   High   Court   with   regard   to   other   aspects   of   the matter except the validity of the Award, would not come in the way of either of the parties raising their grievances in either the 82 proceedings which are pending before the Division Bench of the High Court or any other proceedings to which either 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   no   order   as   to   costs.     Pending   applications,   if any, shall stand disposed of accordingly.  …..….......................J. [R.F. NARIMAN] …….........................J.        [B.R. GAVAI] NEW DELHI; JULY 28, 2021 83