IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26TH DAY OF SEPTEMBER, 2025 PRESENT THE HON'BLE MRS. JUSTICE ANU SIVARAMAN AND THE HON'BLE MR. JUSTICE RAJESH RAI K COMMERCIAL APPEAL NO.379 OF 2024 C/W. COMMERCIAL APPEAL NO. 388 OF 2024 BETWEEN: KARNATAKA ROAD DEVELOPMENT CORPORATION LIMITED SAMPARKA SOUDHA, BEP PREMISES OPPOSITE ORION MALL, RAJAJI NAGAR BENGALURU-560 010 REP. BY ITS MANAGING DIRECTOR ...COMMON APPELLANT (BY SRI. MANU K., ADVOCATE) AND: 1 . M/S. DRN INFRASTRUCTURE PVT. LTD. DOOR No.110, NAYAK'S HOUSE 3RD FLOOR, DOLLARS COLONY GOKUL ROAD, HUBBALLI-580 030 REPRESENTED BY ITS GPA HOLDER- MR. ARUN KUMAR C NADGOUDA 2 . STATE OF KARNATAKA REP. BY THE SENIOR GEOLOGIST DEPT. MINES AND GEOLOGY DAVANGERE-577 002 3 . STATE OF KARNATAKA REP. BY ITS CHIEF SECRETARY - 2 VIDHANA SOUDHA BANGALURU-560 001 4 . THE SECRETARY TO GOVERNMENT DEPARTMENT OF COMMERCE AND INDUSTRIES VIKASA SOUDHA BANGALURU-560 001 5 . THE DIRECTOR AND COMMISSIONER DEPARTMENT OF MINES AND GEOLOGY KHANIJA BHAVAN, RACE COURSE ROAD BENGALURU-560 001 … COMMON RESPONDENTS (BY SRI. RAVEENDRA G. KOLLE, ADVOCATE FOR C/R1; SRI. ADITYA VIKRAM BHAT, AGA FOR R2 TO R5) THESE COMMERCIAL APPEALS ARE FILED UNDER SECTION 13 (1-A) OF THE COMMERCIAL COURTS ACT, 2015 READ WITH SECTION 37(1)(c) OF THE ARBITRATION AND CONCILIATION ACT, 1996, PRAYING TOCALL FOR THE RECORDS AND SET ASIDE THE JUDGMENT DATED 19.07.2024 ON THE FILE OF LXXXV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE AT BENGALURU (CCH-86) IN COM A.Ps. No.158/2023 AND 157/2023. THESE COMAPs HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 07.08.2025 AND COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN J., PRONOUNCED THE FOLLOWING: CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN and HON'BLE MR. JUSTICE RAJESH RAI K - 3 CAV JUDGMENT (PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN) These Commercial Appeals are preferred under Section 13(1-A) of the Commercial Courts Act, 2015 read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 ('Arbitration Act' for short). Commercial Appeals No.379/2024 and 388/2024 are preferred against an order dated 19.07.2024 passed by the LXXXV Additional City Civil and Sessions Judge, Bengaluru (CCH-86) (Commercial Court) in Com.A.Ps.No.158/2023 and 157/2023, respectively. 2. We have heard Shri. Manu. K, learned counsel appearing for the appellant, Shri. Raveendra G Kolle, learned counsel appearing for respondent No.1 and Shri. Aditya Vikram Bhat, learned Additional Government Advocate appearing for respondents No.2 to 5 in both the appeals. 3. The question which arises for consideration in these two appeals is common. Hence, they are being considered together. The question is whether enhancement - 4 in royalty of minerals notified by the Government after the contracts in question were entered into would amount to a factor permitting price variation under the contracts. 4. The claimant is a Class-I contractor and was a successful bidder in a tender floated by the appellant. The two contracts in question were entered into between the claimant and the first respondent for 'Improvements to road from Sindhanur-Kushtagi via Tawaragera, State Highway-30 for the length of 64.30 KM in Kushtagi Taluk, Koppa District' (COMAP No.379/2024) and 'Improvements to road from Honnali Town to Honnali Taluk Border from 168.500 KM to 185.00 KM in State Highway-48 and from 37.450 KM to 62.050 KM in State Highway-26 in Davangere District' (COMAP No.388/2024). 5. The contracts entered into were identical in the relevant aspects. The claimant was given permission to extract minor minerals and convert the same as jelly by a mechanical process for use is the construction of the roads. The claimant quoted rates taking into account the royalty payable as per Government Notification No.CI 56 MMN 2006 - 5 dated 23.06.2007 read with Rule 36 and Schedule I of Karnataka Minor Mineral Concession Rules, 1994 ('KMMC Rules' for short). The works were duly completed and work completion certificates were issued to the claimant. However, by Notification dated 05.12.2014, the royalty for the minor minerals was enhanced and the enhanced amount was deducted from the running bills paid to the Contractor. The claim statement was filed by the contractor claiming refund of the entire enhanced royalty amount deducted from his running account bills under the contracts with interest. After considering the contentions advanced on both sides, the claim petition was allowed by the Arbitral Tribunal and the enhanced royalty was directed to be refunded with interest at 15% per annum from the date of claim petition till realization. 6. The appellant had filed an application under Section 34 of the Arbitration Act challenging the award on the ground that it was patently illegal and was against the public policy. After considering the contentions advanced, the Section 34 Court found that there is no patent illegality - 6 appearing on the face of the award and that the levy and collection of enhanced royalty was not at all provided in the contract. The appellant, aggrieved by the rejection of the Section 34 application, is before this Court in these appeals. 7. It is submitted by the learned counsel appearing for the appellant that the learned Arbitrator as well as the Section 34 Court have placed reliance of the decision of the Apex Court in National Highways Authority of India v. ITD Cementation India Limited reported in (2015) 14 SCC 21. 8. It is further submitted that the sole Arbitrator had specifically held that the contractual Clause 32.1 in the contract considered by the Apex Court in National Highways Authority of India's case (supra), was identical to clause 38.4 in the instant case and that the amount of enhanced royalty was liable to be refunded. Though it was specifically contended by the appellant before the Arbitrator as well as the Section 34 Court that the specific clauses of the contract in the instant case and the National Highways Authority of India's case (supra), were different and - 7 distinct, the refusal on the part of the learned Arbitrator and Section 34 Court to consider the said differences has resulted in a patent illegality which vitiates the award. 9. Further, the learned counsel has also relied on the following decisions:- • Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) reported in (2019) 15 SCC 131; and • Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd. reported in 2024 SCC OnLine SC 522. 10. The learned counsel appearing for the first respondent No.1, on the other hand, contends that the power of the Court under Section 34 of the Arbitration Act is limited to determining whether the order of the Commercial Court is vitiated:- (i) by fraud or corruption; (ii) is in contravention with the fundamental policy of Indian Law; (iii) is in conflict with the basic norms of morality of justice; and (iv) is patently illegal. - 8 11. The power under Section 37 of the Arbitration Act can also be exercised only in cases where the conditions as provided in Section 34 of the Arbitration Act exist. It is submitted that the sole arbitrator has specifically considered the contractual clauses and has issued a well-reasoned arbitral award. It is submitted that an error in appreciation of a clause of a contract can, by no stretch of imagination, be termed as a contravention of the fundamental policy of the Indian Law or a patent illegality vitiating the arbitral award. It is further submitted that a fact that another view was possible and that another interpretation can be given to the contractual clause in question, is definitely not a ground on which an arbitration award can be set aside. 12. The learned counsel has placed reliance on the following decisions of the Apex Court in:- • K. Sugumar v. Hindustan Petroleum Corpn. Ltd. reported in (2020) 12 SCC 539; • Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd reported in (2019) 7 SCC 236, and • NHAI v. Hindustan Constructions Co. Ltd reported in (2024) 6 SCC 809. - 9 13. We have considered the contentions advanced. Clause 38 of the contract in question in these cases provides for compensation events. The said clause reads as under:- "38. Compensation events 38.1 The following are Compensation events unless they are caused by the Contractor. (a) The Employer does not give access to a part of the Site by the Site Possession Date stated in the Contract Data. (b) The Employer orders a delay or does not issue drawings, specifications or instructions required for execution of works on time. (c) The Employer instructs the Contractor to uncover or to carry out additional tests upon work which is then found to have no Defects. (d) The Employer gives an instruction for dealing with an unforeseen condition, caused by the Employer, or additional work required for safety or other reasons. (e) The effect on the Contractor of any of the Employer's Risks. (f) The Employer unreasonably delays issuing a Certificate of Completion. "(g) Other Compensation Events listed in the Contract Data or mentioned in the Contract." 38.2 If a Compensation Event would cause additional cost or would prevent the work being completed before the Intended Completion Date, the Contract Price shall be increased and/or the Intended Completion Date is extended. The Employer shall - 10 decide whether and by how much the Contract Price shall be increased and whether and by how much the Intended Completion Date shall be extended. 38.3 As soon as information demonstrating the effect of each Compensation event upon the Contractor's forecast cost has been provided by the Contractor, it is to be assessed by the Employer and the Contract Price shall be adjusted accordingly. If the Contractor's forecast is deemed unreasonable, the Employer shall adjust the Contract Price based on Employer's own forecast. The Employer will assume that the Contractor will react competently and promptly to the event. 38.4 The Contractor shall not be entitled to compensation to the extent that the Employer's interests are adversely affected by the Contractor not having given early warning or not having cooperated with the Employer." {{{ 14. The learned Arbitrator as well as the Section 34 Court have relied on the decision in National Highways Authority of India's case (supra), and had held that the contractual Clause 32.1 in the contract which was being considered by the Apex Court and contractual Clause 38.4 in the instant case are identical. Clause 32.1 as available from - 11 the judgment of the Apex Court at paragraph 32 would read as under:- "32.1 The contractor is to warn the engineer at the earliest opportunity of the specific likely events or circumstances that may adversely affect the quality of work, increase the contract price or delay the execution of works. The engineer may require the contractor to provide an estimate of the expected effect of the future event or circumstance on the contract price and completion date. The estimate is to be provided by the contractor as soon as reasonably possible." 15. The learned counsel appearing for the appellant has specifically contended that the Clause in the contracts was completely different and that the said aspect has not been considered at all. 16. Having considered the contentions advanced, we notice that the claim was specifically with regard to deduction of the royalty as enhanced by Notification dated 05.12.2014. It was the case of the claimant that the deduction of the enhanced royalty was illegal and royalty had to be collected as per the Notification dated 23.06.2007, which was in operation as on the date of the contract. The claimant had relied on Clauses 38.1(d), 38.2 and 38.4 of the - 12 contract in the claim petition. The appellant herein, who was the respondent before the Tribunal had specifically raised a contention that royalty, being a statutory amount, the appellant was obliged in law to deduct the same in terms of Clauses 37.1 and 39.1 of the contract coupled with Sections 9 and 15 of the Mines and Minerals (Development and Regulation) Act, 1957. It was further contended that the claim was barred by limitation and that the contract does not reveal any Clause for payment of fixed royalty and since the holder of the license is liable to pay the prescribed royalty, the deduction of enhanced royalty was perfectly legal. On these pleadings, the Arbitral Tribunal raised the specific issues as follows:- "4. Whether the claimant is entitled to refund of the excess royalty collected as claimed in the claim statement? 5. Whether the Respondent proves that the collection of excess royalty than what was contemplated in the original agreement has been duly deducted in accordance with law?" 17. The Additional issues raised which are relevant for the purpose of these appeals are as follows:- - 13 "1. Whether the respondent No.1 proves that the enhanced royalty collected is in the nature of tax, therefore under the Contract the claimant is not entitled to seek refund of the same? 2. Whether the respondent No.1 proves that the additional royalty collected is on the basis of circular dated 20.02.2014, and therefore, the additional royalty collected is not under the contract?" 18. The Arbitral Tribunal considered the provisions of the Karnataka Public Works Departments Code, 2014 which is referred to in the contract as also the specific terms of the contract including Clauses 11.3, 11.4, 37.1, 38.1(d), 38.4 39.1 and 40. 19. The specific finding of the Apex Court in National Highways Authority of India's case (supra), was also referred to by the Arbitral Tribunal. Thereafter, the Arbitral Tribunal came to the conclusion that the contractual Clause at 32.1 referred to by the Apex Court in the decision in National Highways Authority of India's case (supra) was identical to Clause 38.4 in the instant contract. It was found - 14 that the interpretation given to Clause 32.1 in the contract considered by the Apex Court would apply equally to Clause 38.4 and the situation at hand. 20. It was in the above circumstances, that the Arbitral Tribunal came to the conclusion that the enhanced amount of royalty is liable to be refunded to the claimant. The appellant had filed an application under Section 34 of the Arbitration Act specifically contending that the Arbitral Award is patently illegal and is in contravention with the fundamental policy of the Indian Law since there was no change in law Clause in the instant contract. The said aspect of the matter was also considered by the Section 34 Court. The clauses in the contract were considered by the Court and it was held that the Court cannot set aside an Arbitral award on the ground that there was an error in application of Law and the Court cannot undertake an exercise of re- appreciation of the evidence. The Court held that the learned Arbitrator had referred to the Government Circular dated 18.02.2014 as well as the specific provisions of the Contract and had come to the conclusion that the royalty - 15 payable was only in accordance with the Government Notification dated 23.06.2007. The Section 34 Court held that it cannot substitute its reasoning for the reasoning of the Arbitral Tribunal and interference was declined and the application was dismissed. 21. It is trite law that in exercise of the powers under Section 37 of the Arbitration Act, this Court is also bound by the same limitations as the Section 34 Court. A mere error in the consideration or appreciation of the evidence would not be enough for this Court to interfere with an order passed by the Court under Section 34 and set aside an arbitral award. In the instant case, the specific provisions of the contract were brought to the notice of the Tribunal and the Tribunal had applied its mind to the conjoint effect of such provisions. 22. The Apex Court, in National Highways Authority of India's case (supra), was considering an identical question of increased royalty in stone, sand and earth and price adjustment claimed in respect of the same. It was held as follows:- - 16 ”25. It is thus well settled that construction of the terms of a contract is primarily for an arbitrator to decide. He is entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the contract. The Court while considering challenge to an arbitral award does not sit in appeal over the findings and decisions unless the arbitrator construes the contract in such a way that no fair-minded or reasonable person could do. 34. The award accepted that revision in royalty rates in respect of minor minerals by the Government of Karnataka being subsequent to the contract would be covered under the expression "future events" in Clause 32.1 entitling the respondent to raise a claim. It was observed that there was no dispute between the parties that royalty was not included in WPI and that in other contracts the reimbursement towards additional costs incurred as a result of subsequent legislation was granted by relying on Clause 70.8 or similar clauses. The High Court while affirming the view of the Arbitral Tribunal additionally relied upon the fact that claim as regards reimbursement on account of "cess" was accepted by a separate award relying on very same submission, which view was affirmed by the High Court as stated hereinabove. 35. We have gone through the record and considered rival submissions. The view that as a result of upward variation in the rates of royalty pursuant to subsequent legislation, the matter would be covered by Clause 32.1 is certainly a plausible view. While quoting - 17 the initial rates and prices, it would not have been in contemplation of a party as to the framework of any revision in rates of royalty at a future date. Clause 32.1 can be said to have covered such eventualities. We, therefore, see no error in the assessment and approach of the Arbitral Tribunal. The High Court, in our view, was right in dismissing the challenge. Consequently, this appeal fails and is dismissed. The decretal amount deposited and invested in a fixed deposit, pursuant to the orders of this Court, was ordered to be released on furnishing of a bank guarantee by the respondent. The bank guarantee shall stand discharged. No order as to costs." 23. Though the learned counsel for the appellant contends that there is no change of law clause in the contract in question, we are of the opinion that since the specific question has been considered by the Arbitral Tribunal, a finding on fact by the Tribunal cannot amount to a patent illegality so as to warrant interference by this Court under Section 37 of the Arbitration Act. An erroneous interpretation of a clause of the contract cannot be a ground for interference with an arbitral award. Further, there can also be no interference on a different view being possible on re-appreciation of the evidence. - 18 24. In the above view of the matter, we are of the opinion that no grounds have been made out for interference in the order dated 19.07.2024 passed by the LXXXV Additional City Civil and Sessions Judge, Bengaluru (CCH-86) (Commercial Court) in Com.A.Ps.No.158/2023 and 157/2023. These appeals therefore fail and are accordingly dismissed. All pending interlocutory applications shall stand dismissed in both the appeals. Sd/- (ANU SIVARAMAN) JUDGE Sd/- (RAJESH RAI K) JUDGE cp*