National Highways Authority Of INDIA vs. C P Ramarao

Held

The Court held that the introduction of GST constituted a change in law as per clause 25(b) of the contract agreement, as it subsumed various indirect taxes. This part of the clause presented no difficulty. Regarding the second issue, the Court found that the Arbitral Tribunal and the learned Single Judge correctly concluded that the change in law had brought about a material adverse effect. This conclusion was supported by the reports of the Project Directors, which assessed the loss during the period July 1, 2017, to August 4, 2017, at Rs. 1,03,88,126/-. The Court noted that this amount could not be considered immaterial. Furthermore, the Court referred to a previous judgment of a coordinate bench in National Highways Authority of India vs. Sahakar Global Limited, where NHAI had accepted a similar decision and released payments held back on account of GST. The Court found no merit in NHAI's appeal and dismissed it.

Facts

The National Highways Authority of India (NHAI), the appellant, challenged an arbitral award dated December 12, 2020, before the learned Single Judge. The award concerned a contract for user fee collection at the Vemapadu toll plaza. A dispute arose regarding the waiver of Goods and Services Tax (GST) imposed from July 1, 2017, which the respondent claimed under clause 25(b) of the contract. The Arbitral Tribunal found that a force majeure event occurred due to GST, causing a material adverse effect on the respondent. The learned Single Judge dismissed NHAI's Section 34 petition, upholding the Arbitral Tribunal's decision. NHAI appealed this judgment.

Key Issues

1. Whether the introduction of GST, effective July 1, 2017, constituted a change in law as per clause 25(b) of the contract agreement? (Question of law) 2. Whether the change in law (introduction of GST) brought about a "material adverse effect" on the collection of toll fee by the respondent? (Question of mixed law and fact) Petitioner (NHAI) argued that the learned Single Judge's judgment was flawed. NHAI relied on its circular dated March 16, 2018, contending that paragraph 2 required ascertaining if the change in law (GST) caused a material adverse effect on toll fee collection before a waiver could be claimed. NHAI asserted that no such material adverse effect occurred, making the Arbitral Tribunal's conclusion erroneous. Respondent argued to the contrary, asserting that the change in law did cause a material adverse effect. The respondent drew attention to two reports from Project Directors concerning shortfalls in toll fee collection, quantifying the loss at Rs. 1,03,88,126/-.