Dalveer Bhandari, J.
These appeals are directed against the judgment of the
High Court of judicature at Bombay delivered in Appeal Nos.141
and 142 of 1995 dated 8th February, 2000.
Brief facts which are necessary to dispose of these appeals
are recapitulated as under:
On 2nd March, 1983, the appellant, Oil and Natural Gas
Corporation Limited entered into an Agreement with the
respondent, Atwood Oceanic International, S.A. for carrying out
drilling operations in offshore waters of India and for rendering
other related services with regard to the drilling unit Sagar
Pragati belonging to the appellant on the terms and conditions
set forth in the said Agreement.
The said Agreement contained an Arbitration Clause 11.
The said Arbitration Clause 11 reads as under:-
"Arbitration :
If any dispute, difference or question shall at
any time hereafter arise between the parties
hereto or their respective representative
concerning anything herein contained or
arising out of these presents or as to the
rights, liabilities, or duties of the said parties
hereunder and cannot be mutually resolved
the same shall be referred to arbitration,
proceedings of which shall be held at (Bombay)
India. Within thirty(30) days of the receipt of
the notice of any dispute, each party shall
appoint an arbitrator and such arbitrators
shall appoint an Umpire before they enter
upon the reference and not later than one
month from the latest date of their respective
appointments. If any of the parties fail to
appoint arbitrators within the specified period
or should the two arbitrations fail to agree
upon the selection of an Umpire within the
stipulated period, the Hon’ble Chief Justice of
the Supreme Court of India shall nominate the
required arbitrator or the Umpire as the case
may be, who shall be a resident of India, but
not a national of the country of neither of the
parties. The decision of the arbitrators and
failing an agreed decision by them, the
decision of the Umpire shall be final and
binding on the parties thereto.
The arbitration proceedings shall be held in
accordance with the provisions of the Indian
Arbitration Act, 1940 and the rules made
thereunder as amended from time to time.
The arbitrator or the Umpire, as the case may
be, shall decide by whom and in what
proportion the arbitrators and Umpire’s fees as
well as the costs incurred in arbitration shall
borne.
The arbitrators or the Umpire may, with the
consent of the parties enlarge the time, from
time, to make and publish their or his Award."
At the material time, when the agreement was entered into,
the provisions of the Indian Income Tax Act, 1961 (hereinafter
referred to as the ‘1961 Act’) were not applicable beyond the
territorial waters of India, i.e., beyond the limit of 12 nautical
miles.
On 31st March, 1983 the Government of India issued a
notification in exercise of powers conferred by section 6(6)(a) and
7(7)(a) of the Territorial Waters, Continental Shelf, Exclusive
Economic Zone, and other Maritime Zones Act, 1976 extending
the provisions of the 1961 Act to the Continental Shelf and
Exclusive Economic Zone of India with effect from 1st April, 1983
with some modifications. It is not necessary to deal with those
modifications because they are not relevant so far as the
controversy involved in the instant case is concerned.
The respondent on 5th March, 1985 forwarded an invoice to
the appellant claiming that pursuant to the notification dated
31st March, 1983 issued by the Government of India there was a
change in the law with regard to income tax which had resulted
in the employees of the respondent becoming liable for income
tax and consequently under the employment contract, the
respondent had incurred additional liability for payment of
personnel income tax which the respondent claimed under the
terms of the contract had to be reimbursed. The appellant
refuted this claim by its reply dated 15th March, 1985 and took
up the stand that the appellant was not liable to reimburse the
personnel tax dues due to change of law by way of extension of
the tax jurisdiction to offshore areas. On 22nd March, 1986 the
respondent sought arbitration of the dispute between itself and
the appellant on the aforesaid issues.
On 27th July, 1987, the dispute on the aforesaid issues was
referred to arbitration of Mr. Justice D.V. Patel (Retd.) and Mr.
Justice D.M. Rege (Retd.). On 2nd March, 1989, Mr. Justice D.V.
Patel made a speaking award by which he rejected the claim of
the respondent. The other learned arbitrator Mr.Justice D.M.
Rege (Retd.) made a note of disagreement on 15th June, 1989.
In view of the disagreement between the two arbitrators,
the dispute was referred to the arbitration of Mr. Justice
Tulzapurkar (Retd.) as Umpire. The learned Umpire made his
award on 13th October, 1989 by which the claims of the
respondent were allowed.
The appellant aggrieved by the award of the Umpire
challenged the same before the learned Single Judge of the
Bombay High Court. It was urged by the appellant that there
was error apparent on the face of the record. Reliance was
placed on Clauses 5-A and 7 of the Agreement dated 2nd March,
1983. Clauses 5-A and 7 read as under:
"Clause 5-A: Taxes.
A. Personnel - Any taxes assessed on
employees of Contractor and based on
income earned in the performance of work
for owner or otherwise shall be the
responsibility of the Contractor."
Clause 7:
"In the event there occur changes in the laws
of Government of India during the course of
the contract from those prevalent on
25.8.1982, which result in increase decrease
to the Contractor’s cost of carrying out its
duties and responsibilities under this
Agreement, then the increase/decrease in the
cost shall be settled and paid/recovered after
mutual discussion."
It was contended that in view of the above clauses, tax
assessed on the employees of the contractor was the
responsibility of the contractor/claimants. It is contended that
in view of clause 5-A, the learned Umpire erred in awarding the
amount by way of increased costs, particularly because the
responsibility was that of the contractor. It was further
contended that taxes assessable on the employees of a
contractor and based on the income earned in the performance
of work was one of the items. It cannot constitute increase in
the cost of carrying out responsibilities/duties on the part of the
claimants/contractor under the Agreement. It was further
contended that in view of clause 5-A of the Agreement, the
appellant was not liable to pay the amounts on the ground of
increased cost of the contract. The learned Single Judge
observed as under:
"I do not see any merit in the said submissions
advanced on behalf of ONGC. The contractor has
incurred increased costs for the accounting year
ending 31st March, 1983 and 31st March, 1984. The
Government of India issued Notification on 31st
March, 1983 which made the salaries earned by the
expatriates taxable for the accounting year ending
31st March 1983 and 31st March, 1984.
The judgment of this Court took the view that
the said Notification was prospective and not
retrospective. In the above circumstances, the
Arbitrator came to the conclusion that since the
Notification is dated 31st March, 1983, Clause 7 of
the said Agreement would apply. The learned
Umpire came to the conclusion that the Notification
constituted change in law of the Central Government
during the course of the contract. The said change
admittedly came into force after 25th August, 1982.
In the above circumstances, on reading Clause 2
read with Clause 5 read with Clause 7 of the
Agreement, the learned Umpire came to the
conclusion that there was an increase in the
contractors’ cost under the Agreement on account of
change in the income-tax Law and which resulted in
the increase in the costs. The learned Umpire also
came to the conclusion on the basis of the evidence
on record that the claimant/contractor had agreed to
pay the taxes assessable on the expatriates and in
the circumstances, the claimant had incurred the
increased costs, and, therefore, the taxes have been
paid by the claimants and they are entitled to that
extent to the increased cost. The learned Umpire
agreed with the decision of one of the Arbitrators Shri
D.M. Rege."
After hearing learned counsel for the parties, the learned
Single Judge further observed as under:-
"In the present case, the dispute referred to
the Umpire was a very narrow dispute viz.
whether the contractor was entitled to be
reimbursed for the increased cost borne by
him on account of salaries of the expatriates
being made eligible to income-tax pursuant to
the Notification dated 31st March, 1983. The
learned Umpire, after construing the various
provisions of Clause 2, 5A and Clause 7 of the
Agreement has come to the conclusion that
since the tax law has been changed after 25th
August, 1982 and since the contractor has
paid the tax on behalf of its
employees/expatriates, the cost of contract
had increased and to that extent under Clause
7 he was entitled to be reimbursed. There is
no merit in the contention of ONGC that there
was no increased cost of carrying out the
contract on account of taxes borne by the
contractor on behalf of its
employees/expatriates.
For the foregoing reasons, there is no
merit in the above Two Arbitration Petitions.
Both the Arbitration Petitions are accordingly
dismissed with costs. Consequently, the
th
impugned Award dated 13 October, 1989 is
made Rule of this court. Decree in terms of
the Award. Further, interest to be paid @ 12%
per annum from the date of the Decree till
payment on the respective principal amounts
to be calculated in terms of the said Awards."
The appellant aggrieved by the said judgment of the learned
Single Judge preferred an appeal before the Division Bench of
the Bombay High Court. The Division Bench heard the learned
counsel for the parties at length and examined the material
documents.
The Division Bench carefully perused the award of the
Umpire and the judgment of the learned Single Judge and
observed that the Umpire has taken one of the possible views on
a fair reading of the contractual terms and this court cannot
interfere with it. The court further observed that we perceive no
jurisdictional error committed by the learned Umpire.
Before the Division Bench it was contended on behalf of the
appellant that at least with regard to Assessment Year 1983-84,
the direction in the award was clearly contrary to law and,
therefore, it ought to be interfered with. The Division Bench
found substance in this argument. The Division Bench held as
under:
"Though in para 1 of the impugned Award, the
Umpire granted the claims pertaining to the
two Assessment years 1983-84 and 1984-85,
in para 2, he referred to the judgment of this
court in Mcdermott International Inc. Vs.
Union of India and Others, reported in 173 ITR
155 and noticed that the said judgment had
taken the view that the Notification dated
31.3.1983 making the Indian Income Tax Act applicable to personnel working within the Continental Shelf had no retrospective effect and that it would not apply to Assessment Year 1983-84 (accounting year 1982-83). The Umpire thereafter proceeded to give a direction that since the said decision was pending in Appeal before the Supreme Court and there was a possibility of the Respondent being able to recover refund of the income tax paid by it from the Income Tax Department, the respondent while obtaining the decree from the appropriate Court, should give a written undertaking to the Court that in case it recovers a refund of the concerned amount of income tax it shall refund the said amount to the Appellant. The award states that this direction was given at the instance of the respondent itself with a view to prevent the respondent from receiving the amount of income tax paid by it twice over, and for protection of the interest of the Appellant.
Mr. Madon, learned Counsel for the respondent, contended that the directions with regard to the claims were only contained in para 1 of the award which gave no reasons in support of the said directions. Consequently, the entire award is a non-speaking award and is immune from scrutiny of the Court. He explained away the reasons contained in para 2 of the award as pertaining to the ancillary direction with regard to the undertaking to be given by the respondent and not with regard to the award itself. It is not possible to percept the contention that the award has to be read in compartments. In our view, both paragraphs 1 and 2 of the award have to be read in conjunction. When read in
conjunction, it appears to us, the Umpire was
alive to the fact that in Modermott
International (supra) this Court had taken the
view that the Notification dated 31.3.1983 had
no retrospective effect and would not apply to
Assessment Year 1983-84. If this was the law,
then the respondent’s employees were not
liable for making payment of income tax
during the year 1983-84 for income earned
while carrying out work beyond the territorial
waters of India. Consequently, there was no
question of increased cost of services within
the meaning of Clause 7 of the Contract
between the parties, or was there any scope for
passing on a non-existing liability to the
Appellant. At least to this extent, it appears to
us that this contention must succeed."
The Division Bench in the concluding para of the judgment
observed that the learned Single Judge erred in not interfering
with the direction contained in the award pertaining to
assessment year 1983-84, but the conclusion of the learned
Single Judge with regard to the direction pertaining to
assessment year 1984-85 is perfectly justified and needs no
interference.
The Division Bench partly allowed the appeal filed by the
appellant and set aside the direction contained in the Umpire’s
award with regard to the payment of Rs.28,26,359/- for the year
ending 31st March, 1983 (assessment year 1983-84) and uphold
the rest of the judgment of the learned Single Judge. The
Division Bench further directed that the decree is modified to the
extent that there shall be a decree in accordance with the award
only pertaining to assessment year 1984-85, together with
interest as directed in the award and as granted by the learned
Single Judge.
The appellant aggrieved by the said judgment preferred
these appeals before this Court. The appellant reiterated the
same argument before this court. The scope for interference by
this court is extremely limited in a case of this nature. We have
carefully perused the entire material on record and analysed the
impugned judgment. In our considered opinion, no interference
is called for. The appeals being devoid of any merit are
accordingly dismissed. In the facts and circumstances of the
case, we direct the parties to bear their own costs.
(Tarun Chatterjee)
(Dalveer Bhandari) New Delhi; May 13, 2008