Highest railway bridge builder denied tax refund. Supreme Court says — too late to reinterpret contract.

The contractor built the world's highest railway bridge. Then the government raised taxes. The arbitrator said: sorry, the contract doesn't cover that.

For nine years, two High Court judges and the Supreme Court wrestled over a single question: who gets to decide what a contract means — the arbitrator chosen by the parties, or a court that wasn't there when the deal was signed?

The answer, delivered by Chief Justice Dhananjaya Y. Chandrachud's bench in August 2023, was a sharp reminder of how little room Indian courts have to rewrite commercial bargains. For a contractor who had spent nearly a decade fighting for Rs 1.37 crore in tax reimbursements, it meant starting over at square one.

When the tax exemption vanished

In 2004, Konkan Railway Corporation Limited hired Chenab Bridge Project Undertaking to build what was then the highest railway bridge in the world — a steel arch spanning the Chenab River on the Katra-Laole section in Jammu & Kashmir. The contract was a standard construction agreement with detailed clauses on how costs would be shared.

Then the J&K government changed the rules. It withdrew an entry tax exemption the contractor had been counting on. It also raised toll tax rates. The contractor's costs shot up by over Rs 1.37 crore — Rs 1.32 crore in entry tax and Rs 5.23 lakh in additional toll tax.

The contractor asked Konkan Railway to reimburse these amounts. The corporation refused. The dispute went to arbitration.

The arbitrator said no

A Standing Arbitral Tribunal heard the case. The contractor argued that two clauses — Clause 5.1.2 and Clauses 7.1.1/7.1.2 — entitled it to be compensated for any tax increases imposed by the government after the contract was signed.

The tribunal disagreed. It read Clause 5.1.2 narrowly: that clause only covered taxes the contractor directly charged on the corporation's bills, not indirect cost increases like entry tax. As for the toll tax, the tribunal held that the Price Variation clauses already accounted for such cost fluctuations, and those clauses specifically barred individual item adjustments.

On November 15, 2014, the tribunal rejected all claims. The contractor had lost.

The High Court rewrites the contract

The contractor challenged the award before a Single Judge of the Bombay High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (the provision that allows a court to set aside an arbitral award on limited grounds like patent illegality or public policy). The Single Judge examined the tribunal's reasoning and found it was a plausible interpretation. On January 17, 2019, he dismissed the challenge.

But the contractor appealed to a Division Bench — two judges — under Section 37 of the Act (which allows appeals against orders passed under Section 34). And here, the contractor found a sympathetic ear.

The Division Bench did something the Single Judge had refused to do: it reinterpreted the contract. Applying two legal principles — ejusdem generis (Latin for "of the same kind" — a rule that when a list of specific items is followed by a general term, the general term is limited to items of the same type) and harmonious construction (the rule that all clauses of a contract must be read together to give effect to every part) — the Division Bench concluded that the tribunal had read the clauses too narrowly. It allowed the contractor's claims.

On September 23, 2022, the Division Bench partly allowed the appeal. The contractor was now winning.

The Supreme Court: jurisdiction, not interpretation

Konkan Railway appealed to the Supreme Court. The question before Chief Justice Chandrachud's bench was not whether the contract actually allowed the tax reimbursement. It was whether the Division Bench had the power to substitute its own interpretation for the arbitrator's.

The answer, the Supreme Court said, was no.

The court traced the boundaries of judicial interference under the Arbitration Act. Section 34 allows a court to set aside an award only if the tribunal's view is "perverse" or "manifestly arbitrary" — a very high bar. Section 37, which governs appeals, does not give the appellate court any wider powers. It is not a regular civil appeal where the court can re-examine facts and law afresh.

"The jurisdiction under Section 34 of the Act is exercised only to see if the Arbitral Tribunal's view is perverse or manifestly arbitrary," the bench held. "The question of reinterpreting the contract on an alternative view does not arise."

The court specifically rejected the Division Bench's use of ejusdem generis and harmonious construction to override the tribunal's interpretation. Those principles, the court said, do not have absolute application. They cannot be deployed in Section 34/37 proceedings to substitute a plausible interpretation with another plausible interpretation.

Why this matters for every commercial contract

For lawyers and parties in arbitration, the message is clear: choose your arbitrator carefully, because that person's interpretation of the contract is likely to be final. Courts will not rescue you from a bad bargain or a narrow reading of clauses — as long as that reading is not completely irrational.

The Supreme Court cited its own judgment in MMTC Ltd. v. Vedanta Ltd. (2019) and South East Asia Marine Engineering and Constructions Ltd. v. Oil India Ltd. (2020) to reinforce that the arbitrator is the master of the contract. A court cannot interfere simply because it would have interpreted the contract differently.

THE PLAY: When drafting arbitration clauses, assume the arbitrator's interpretation of the contract will be final — courts will not rewrite your bargain unless the interpretation is so unreasonable that no reasonable person could have reached it.

The Supreme Court restored the original arbitral award. The contractor's Rs 1.37 crore claim was dead. The nine-year fight had ended exactly where it began: with the words of a contract that, in the arbitrator's reading, simply did not cover the taxes the government had raised.

The world's highest railway bridge stands. The tax burden stayed where the contract placed it.