Dhv Bv Vs. Tahal Consulting Engineers Ltd.
& Ors. [2007] Insc 913 (12 September 2007)
D.K.
Jain
O R D
E R D.K. JAIN, J.:
1.
This is a petition under Section 11(6) of the Arbitration and Conciliation Act,
1996 (for short the Act) for the appointment of an Arbitrator for
adjudication of the disputes which are stated to have arisen between the
parties.
2. The
petitioner M/s DHV Consultants BV (for short DHV) is a foreign
company registered in Netherlands, providing consultancy and engineering group
services in aviation; spatial planning in environment, transportation and water
with expertise in water management and water planning. Respondent No.1 - M/s Tahal
Consulting Engineers Limited (hereinafter referred to as Tahal) is
also a consultant foreign company based in Israel and respondent No.2 is the
Water Resources Organisation, PWD, Government of Tamil Nadu (hereinafter
referred to as TNPWD).
3. The
facts, relevant for the disposal of this petition, are as follows:
On 1st December, 1997, an agreement (hereinafter referred
to as the main contract) was signed between Tahal and TNPWD, with DHV
and two other concerns, namely, Lahmeyer International of Germany and
Consulting Engineering Services (India) Ltd., as sub- consultants, for providing management consultancy and
technical assistance services for the Tamil Nadu Water Resources Consolidation
Project. Subsequently, in March, 1998, a further sub-consultancy agreement
(hereinafter referred to as the sub-contract) was signed between Tahal
and DHV for providing services in respect of the main contract, scope whereof
was defined in the conditions of both the said agreements.
4. As
per clause 1.10 of the special conditions of the main contract, TNPWD had
agreed to bear the Income tax liabilities on payments to be made by it to the
consultant, sub-consultants and their personnel. DHV was to receive all the
payments through Tahal, being the principal consultant. The contract was duly
performed and DHV received all payments in respect of the invoices raised by
them for the services rendered. The last payment was received some time in
January, 2003 and the matter rested there.
5.
Some time in February, 2004, DHV received notices from the Income Tax
Department under Section 148 of the Income Tax Act in respect of the assessment
years 1997-98 to 2001-02, alleging non-payment of Income tax on the remittances
made by TNPWD in respect of the said contract. They were required to submit
their returns of income for the said assessment years. Seemingly, DHV objected to
the said notices but later on submitted the requisite returns of income,
including therein the receipts from TNPWD. According to DHV, on receipt of the
said notices they learnt that the respondents had defaulted in making payment
of applicable taxes on the payments made by TNPWD to Tahal, which resulted in
the creation of additional Income tax demand of Rs.30,40,149/- which they were
forced to pay to avoid penal consequences.
6.
Having paid the said additional demand on 15th March, 2005, DHV issued legal notices to Tahal
and TNPWD, asking them to settle the dispute amicably in terms of clause 8.1 of
the General Conditions of the main contract, dated 1st December, 1997. However, both the respondents denied their liability to
reimburse the said amount to DHV. On refusal of the respondents to settle the
controversy, on 21st
April, 2005, DHV
issued yet another notice to the respondents demanding reference of the
disputes to sole arbitration in terms of clause 8.2 of the main contract. Both
the respondents refused to refer the disputes to arbitration, necessitating the
filing of the present petition for the appointment of an Arbitrator.
7.
Both Tahal and TNPWD have filed counter affidavits resisting the petition. Tahals
objection is that :
(i) the
main contract under which DHV had demanded arbitration had expired almost
four-five years prior to the filing of the application and, therefore, there
was no existing arbitration agreement between the parties;
(ii) not
being a technical matter, the alleged dispute did not fall within the ambit of
clause 8 of the General Conditions of the Agreement (main contract) and
(iii) at
no point of time Tahal was under any contractual obligation relating to payment
of taxes, such obligation being solely and strictly that of TNPWD. TNPWD
opposes the petition mainly on the ground that:
(i)
DHV being a sub-consultant has no locus standi to invoke the arbitration
agreement qua them as no payment was received by DHV directly from TNPWD;
(ii) the
claim of DHV is barred by limitation inasmuch as the main contract was over on 31st March, 2002 and
(iii) there
was no cause of action to file the petition because whatever Income tax was to
be deducted on payments to Tahal - the principal consultant, was duly deposited
with the State Bank of India and requisite details were filed
with the Income tax department.
8. I
have heard learned counsel for the parties. As noted above, the objection of
the respondents to the appointment of Arbitrator is mainly two-fold viz.
(i)
after the completion of the main contract in March/April, 2002 and on final
payment on 30th
January, 2003, the
contract came to an end and, therefore, there was no valid arbitration
agreement in existence and
(ii) the
claim of the DHV is stale and barred by limitation.
9. In
support of the proposition that the entire tax obligation under the contract
has been duly discharged, learned counsel for the TNPWD invited my attention to
some correspondence with the Income tax authorities, wherein the rate at which
Income tax was to be deducted on payment under the contract has been indicated.
Learned
counsel for the respondents further submitted that in view of the decision of
this Court in SBP & Co. have to be adjudicated by me. Learned counsel for
the DHV, on the other hand, contended that the controversy regarding the tax
liability in terms of clause 1.10 cannot be said to be stale because it arose
only when DHV received notice from the Income tax department in February, 2004,
requiring them to pay Income tax on the amounts received from TNPWD. It is also
submitted that prior to the receipt of the said notices, DHV had no cause to
complain, having received full payments against the invoices raised. It is,
thus, pleaded that the cause of action to ask for settlement of their claim arose
only in the month of February, 2004. Further, the stand of learned counsel for
the DHV is that issue of limitation is not to be finally decided by me as the
same is to be conclusively decided by the Arbitrator under Section 16 of the
Act.
10.
Thus, the question for consideration before me is :
(i) whether
after the completion of the contract in March/April 2002, there is still an
enforceable arbitration agreement between the parties and (ii) whether the
claim made by DHV is stale and barred by limitation?
11.
The controversy in regard to the nature of function to be performed by the
Chief Justice or his designate under Section 11 of the Act has been set at rest
by a seven-Judge Bench decision of this Court in SBPs case (supra). It has
been held, per majority, that the function performed by the CJ or his nominee
under the said Section is a judicial function. Defining as to what the CJ or
his designate is required to determine while dealing with an application under
Section 11 of the Act, P.K. Balasubramanyan, J, speaking for the majority said:
39.
It is necessary to define what exactly the Chief Justice, approached with an
application under Section 11 of the Act, is to decide at that stage. Obviously,
he has to decide his own jurisdiction in the sense, whether the party making
the motion has approached the right High Court. He has to decide whether there
is an arbitration agreement, as defined in the Act and whether the person who
has made the request before him, is a party to such an agreement. It is
necessary to indicate that he can also decide the question whether the claim
was a dead one; or a long barred claim that was sought to be resurrected and
whether the parties have concluded the transaction by recording satisfaction of
their mutual rights and obligations or by receiving the final payment without
objection. It may not be possible at that stage, to decide whether a live claim
made, is one which comes within the purview of the arbitration clause. It will
be appropriate to leave that question to be decided by the arbitral tribunal on
taking evidence, along with the merits of the claims involved in the
arbitration. The Chief Justice has to decide whether the applicant has
satisfied the conditions for appointing an arbitrator under Section 11(6) of
the Act. For the purpose of taking a decision on these aspects, the Chief
Justice can either proceed on the basis of affidavits and the documents
produced or take such evidence or get such evidence recorded, as may be
necessary. We think that adoption of this procedure in the context of the Act
would best serve the purpose sought to be achieved by the Act of expediting the
process of arbitration, without too many approaches to the court at various
stages of the proceedings before the Arbitral Tribunal.
12. It
is clear from the above extracted paragraph that in order to set into motion
the arbitral procedure, the CJ or his designate has to decide the issues, if
raised, regarding territorial jurisdiction and existence of an arbitration
agreement between the parties. In addition thereto, he can also decide the
question whether the claim was a dead one in the sense that the parties have
already concluded the transaction by recording satisfaction of their mutual
rights and obligations or have recorded satisfaction regarding their financial
claims.
Nevertheless,
the Court made it clear that at that stage it may not be possible to decide
whether a live claim made, is one which comes within the purview of the
arbitration clause and this question should be left to be decided by the
arbitral tribunal on taking evidence. It is, therefore, plain that purely for
the purpose of deciding whether the arbitral procedure is to be set into motion
or not, the CJ or his designate has to examine and record his satisfaction that
an arbitration agreement exists between the parties and that in respect of the
agreement a live issue, to be decided between the parties, still exists. On
being so satisfied, he may allow the application and appoint an Arbitral
Tribunal or a Sole Arbitrator, as the case may be. However, if he finds and is
convinced that the claim is a dead one or is patently barred by time, he may
hold so and decline the request for appointment of an Arbitrator.
13.
Applying these principles on facts in hand, I am of the opinion that the
petition deserves to be allowed. In this context, it would be appropriate to
refer to clause 1.10 of the special conditions of the contract forming part of
the main contract, to which all the parties herein are signatories. Insofar as
it is relevant for our purpose, it reads as under:
1.10
... xxxxxx.....xxx For Foreign Consultants/Personnel The Client warrants that
the client shall pay on behalf of the Consultants and the Personnel any taxes,
duties, fees, levies and other impositions imposed, under the Applicable Law,
on the consultants and the Personnel in respect of:
(a) any
payments whatsoever made to the Consultants, Sub-Consultants and the Personnel
of either of them (other than Indian Nationals or Foreign Nationals now
permanently residing in India), in connection with the carrying
out of the Services;
(b)
any equipment, materials and supplies brought into India by the Consultants or
Sub-consultants for the purpose of carrying out the Services and which after
having been bought into such territories will be subsequently withdrawn therefrom
by them;
(c) any
equipment imported for the purpose of carrying out the Services and paid for
out of funds provided by the client and which is treated as property of the
client.
(d)
Any property brought into India by the Consultants, any sub- consultants, the
Personnel of either of them (other than Indian nationals or permanent residents
of India), or the eligible dependants of such Personnel for their personal use
and which will subsequently be withdrawn therefrom by them upon their
respective departure from India, provided that:
(1) the
consultants, sub-consultants and personnel and their eligible dependants, shall
follow the usual customs procedures of the Government in importing property into
India; and
(2) If
the consultants, sub-consultants or personnel, or their eligible dependants, do
not withdraw but dispose of any property in India country upon which customs duties and taxes have been exempted, the
consultants, sub-consultants or personnel, as the case may be,
(i) shall
bear all such customs duties and taxes in conformity with the regulations of
the Government.
(ii)
Shall reimburse them to the client if they were paid by the client at the time
the property in question was brought into the Governments country.
14.
Under the said clause, TNPWD, as a client had taken upon itself the obligation
to pay on behalf of the consultants, sub-consultants and the personnel any
taxes, dues, fees, etc. imposed under the applicable law.
At the
same time, it is significant to note that as per clause (d) thereof, not only
there is an obligation to pay taxes etc. in certain situations, reimbursement
of some of the amounts by the consultants to the client, which the client was
compelled to pay, is also postulated.
Obviously,
such a situation may arise and this clause would be enforceable even after the
expiry of the contract on completion of the services and on the payments having
been made. Therefore, it cannot be laid as an abstract proposition that
whenever the contracted work is completed, all the rights and obligations of
the parties under the contract, ipso facto, come to an end and the arbitration
agreement also perishes with the contract.
Each
case is required to be considered on its own facts.
In the
instant case, though it is true that all the payments were to be made by TNPWD
to the consultants, namely, Tahal, but the obligation to pay taxes was also in
respect of the payments which were to be received by the sub-consultants,
namely, DHV in terms of sub-clause (a).
Similarly,
DHV as well as Tahal was under an obligation to reimburse to TNPWD the amount,
if any, paid by them in terms of the aforenoted clause. Thus, it was the
performance of the contract that had come to an end, but the contract is still
in existence insofar as the dispute arising under clause 1.10 thereof is
concerned. I have, therefore, no hesitation in rejecting the plea of learned
counsel for the TNPWD that DHV had no direct contract with them insofar as the
payments of taxes were concerned, and, therefore, the dispute raised by them
could not fall within the ambit of arbitration agreement between TNPWD the
client and Tahal the consultant or that on completion of the contract, the
arbitration clause in the main contract got extinct. In my opinion, therefore,
an enforceable arbitration agreement exists between the parties.
15.
Clause 8.2 of the main contract provides for the right to arbitration and reads
as follows:
8.2
Right to Arbitration Any dispute between the parties as to matters arising
pursuant to this contract which cannot be settled amicably within thirty (30)
days after receipt by one Party of the other Partys request for such
amicable settlement, may be submitted by either Party for arbitration in
accordance with the following provisions:
xxxxxxxxx
16.
The arbitration agreement is in clear terms and brings within its ambit any
dispute between the parties as to matters arising pursuant to the main contract
which cannot be settled amicably. Admittedly, the liability to pay the taxes
flows from the contract and not otherwise. Having found that it was obligatory
upon TNPWD to discharge the tax liability in respect of the payments made to
the sub-consultants and DHV being a signatory to the main contract, I am of the
opinion that claim made by DHV in respect of the Income tax dues would fall
within the ambit of the arbitration agreement between the parties.
17. As
regards the question as to whether the said claim can be said to be stale in
the sense that after the last payment in January, 2003, none of the three
parties herein had any pending claims against each other insofar as the
payments under the main contract were concerned, I am of the view that
notwithstanding the fact that payments against all the invoices raised by DHV
stood paid, in the light of the agreement between the parties in terms of
clause 1.10, subsequent creation of an additional payment by the Income tax
department in respect of the payments made by TNPWD to DHV through Tahal, has
given rise to a live dispute requiring settlement between the parties in terms
of the arbitration agreement. For the view I have taken, it is axiomatic that
prima facie, the claim made by DHV is not barred by limitation.
18.
For the aforesaid reasons the petition is allowed and as prayed by learned
counsel for the parties, instead of constituting an Arbitral Tribunal, Justice
P.K. Balasubramanyan, a former Judge of this Court, is appointed as the Sole
Arbitrator to adjudicate upon the claims/disputes raised by DHV, subject to his
consent and such terms as he may deem fit and proper. Needless to add that the
learned Arbitrator shall deal with the matter uninfluenced by any observation
in this order on the rival stands of the parties.
19.
The Registry is directed to communicate this order to the learned Arbitrator to
enable him to enter upon the Reference and decide the matter as expeditiously
as practicable. The petition stands disposed of with no order as to costs.
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