Automatic Quantity Increases Do Not Constitute “Instructed Variations”: Supreme Court’s Clarification in Som Datt Builders-NCC-NEC(JV) v. NHAI

I. Introduction

In its 2025 decision, the Supreme Court of India in Som Datt Builders-NCC-NEC(JV) v. National Highways Authority of India (2025 INSC 113) considered a crucial contractual dispute involving the interpretation of variation clauses under the Arbitration and Conciliation Act, 1996. The case revolved around whether increased quantities of materials—specifically geogrid in the construction of a Reinforced Earth (RE) wall—should be paid at the originally agreed rate in the Bill of Quantities (BOQ) or be subjected to re-negotiation under the variation provisions of the contract.

The dispute began when the contractor, a Joint Venture (Som Datt Builders-NCC-NEC), executed four-laning and strengthening works on National Highway–2 near Kanpur under a contract with the respondent, National Highways Authority of India (NHAI). After the contractor discovered that the geogrid quantity was underestimated in the BOQ, NHAI insisted that the rate for the additional quantity should be re-negotiated. Conversely, the contractor argued that such excess was an “automatic” increase and not an “instructed variation” requiring new rates.

An Arbitral Tribunal and a Single Judge of the High Court of Delhi agreed with the contractor. However, the High Court’s Division Bench reversed these findings. Ultimately, the Supreme Court restored the Arbitral Tribunal’s award, clarifying that automatically increased quantities, where there is no change in design or form by the Engineer, are not subject to renegotiation under variation clauses.

II. Summary of the Judgment

The Supreme Court found that no “instructed variation” took place simply because the actual quantity of geogrid required exceeded the BOQ estimates. Since there was neither a design change nor a formal directive from the Engineer altering the nature or form of the works, the variation provisions—Clauses 51 and 52—did not apply. The Court emphasized the difference between (1) an increase in quantities due to an erroneous estimate (“automatic” increase) and (2) an actual Engineer-driven variation or new work that triggers the possibility of a rate change.

Restoring the award of the Arbitral Tribunal, the Supreme Court ruled that the contractor was entitled to payment at the original BOQ rate for all actual geogrid material deployed. The Division Bench of the High Court had erred in overturning concurrent findings of the Arbitral Tribunal and the Single Judge without demonstrating a permissible ground of interference under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996.

III. Analysis

A. Precedents Cited

The Court referred to a series of judgments addressing the limits on judicial intervention under the Arbitration and Conciliation Act, 1996. Among the key precedents:

• MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163 – Explains that courts do not sit in appeal over arbitral awards except on the limited grounds provided in Section 34.
• Ssangyong Engg. & Constr. Co. Ltd. v. NHAI (2019) 15 SCC 131 – Clarifies that violation of “public policy” pertains to fundamental policy of Indian law, justice, or morality, and not to mere disagreement on contractual interpretation.
• PSA Sical Terminals Pvt. Ltd. v. V.O. Chidambranar Port Trust (2023) 15 SCC 781 – Reiterates constraints on reappreciation of evidence and underscores that “shocking the conscience” is a very high standard, not simply a difference of opinion.
• Reliance Infrastructure Ltd. v. State of Goa (2024) 1 SCC 479 – Confirms that the scope of appellate court interference under Section 37 is narrower than under Section 34.

These precedents collectively reinforce the principle that once an arbitral tribunal takes a plausible view of a contractual clause, courts must not intervene absent compelling grounds such as patent illegality or contravention of fundamental Indian public policy.

B. Legal Reasoning

1. Contractual Clauses 51 and 52: The Supreme Court dissected Clauses 51 and 52 concerning “variations” in a unit-rate contract. Clause 51.1 allows the Engineer to “instruct” changes to the form, quality, or quantity of works. Clause 52 details how such instructed variations are to be valued, including the possibility of renegotiated rates if the existing BOQ rates prove inapplicable. A crucial proviso in Clause 52.2 requires that written notice be given for changes instructed by the Engineer.

2. Distinction Between “Instructed” and “Automatic” Variations: The Court held that not every increase in quantity automatically becomes a variation entitling a new rate. If the Engineer has not directed a material alteration of design or other project parameters, merely discovering that the original quantity was underestimated does not constitute a Clause 51.1 variation. Therefore, the excess geogrid usage was not an instructed variation; rather, it was an “automatic change” in the quantity needed to complete the same design and scope of work.

3. Technical Findings of Fact: Simultaneously, the Court underscored that DRB (Dispute Review Board) and the Arbitral Tribunal—both composed of technical experts—made concurrent findings that the actual design approved at the outset did not change. The Tribunal concluded that the BOQ had erroneously underestimated the geogrid quantity yet required no instruction or conscious “variation” from the Engineer to carry out additional work.

4. Limits on Appellate Intervention
Referencing Sections 34 and 37, the Court reiterated that an appellate court must uphold an arbitrator’s interpretation if it is a “plausible” reading of the contract, even if other alternatives exist. Several Supreme Court rulings emphasize caution in disturbing arbitral awards absent fundamental defects such as patent illegality, jurisdictional error, or contravention of public policy.

C. Impact

This ruling has significant implications for construction and infrastructure contracts across India, particularly those structured as item-rate or unit-rate agreements with detailed BOQs. Key takeaways include:

• Reduced Litigation Risk: Parties cannot automatically trigger renegotiation for every overrun in estimated quantities unless there is a genuine “instructed variation.”
• Predictability: Contractors can rely on the originally quoted BOQ rates if they did not receive specific instructions to alter design or form. This lends predictability to final project costs.
• Clearer Engineer Instructions: Where an actual variation is required, the Engineer must issue clear instructions, failing which the original BOQ rates remain in effect.
• Arbitral Finality: This judgment reinforces deference to arbitral decisions, cautioning appellate courts against substituting their own interpretation unless the award reflects fundamental legal errors.

IV. Complex Concepts Simplified

• Instructed Variation: A change or alteration explicitly directed by the Engineer (or Contract Administrator) that alters the agreed scope, design, or method of works. Usually triggers a formal re-measurement and adjustment of rates.

• Automatic Increase in Quantities: In a unit-rate contract, the estimated quantity of material listed in the BOQ is often provisional. If the actual usage exceeds this projection—yet does not arise from new instructions—it does not necessarily allow the employer to seek a new rate.

• Section 34 of the Arbitration and Conciliation Act, 1996: Enables courts to set aside arbitral awards only on limited grounds, such as incapacity, illegal subject matter, fundamental procedural irregularities, or contravention of public policy.

• Section 37 of the Arbitration and Conciliation Act, 1996: Provides for appeals against certain judicial orders under the Act. The scope of appellate review is even narrower than under Section 34, reflecting the legislature’s intention that arbitral awards be final and binding with minimal judicial interruption.

V. Conclusion

In Som Datt Builders-NCC-NEC(JV) v. National Highways Authority of India, the Supreme Court definitively held that a mere underestimation of quantities in the BOQ does not of itself constitute a variation under Clauses 51 and 52 requiring rate renegotiation. Unless there are specific instructions from the Engineer—reflecting a material alteration to the design, form, or method—the original BOQ rates stand.

Significantly, this judgment underscores the principle that arbitral awards should remain largely unimpaired by judicial interference as long as arbitrators adopt a plausible reading of the contract. By clarifying the difference between an increase in quantity and an Engineer-ordered variation, the Court’s analysis provides improved certainty for large-scale construction projects and cements the finality of fair arbitral decisions.