Holding

An arbitration agreement continues to exist after contract performance where the contract contains clauses creating ongoing obligations, and the claim is not barred by limitation, warranting the appointment of an arbitrator.

Summary

The Supreme Court considered an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator to resolve a tax‑related dispute arising from a consultancy contract that had been completed. DHV BV, a foreign sub‑consultant, claimed that the client (TNPWD) had failed to pay income tax on amounts remitted to it, creating a fresh liability after the contract’s performance had ended. The respondents argued that the main contract – and thus the arbitration clause – had expired and that DHV’s claim was barred by limitation. The Court held that the arbitration agreement remained enforceable because the contract’s tax‑payment clause created a continuing obligation, and the subsequent tax demand gave rise to a live dispute not extinguished by the contract’s completion. Consequently, the Court found the claim was not stale, satisfied the existence of an arbitration agreement, and appointed Justice P.K. Balasubramanyan as sole arbitrator. The petition was allowed and the arbitration proceeding was set in motion.

Issues considered

Whether an arbitration agreement survives the completion of the underlying contract and remains enforceable for disputes arising thereafter.
Whether the claim by DHV BV for reimbursement of income‑tax liability is barred by limitation or is a dead claim.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6), s. 16
Income Tax Act, 1961s. 148

Subjects

Arbitration agreementSection 11(6) Arbitration ActLimitation periodDead claimTax liabilitySub‑consultantPost‑contract dispute

Judgment

DINBV A
v.
TAHAL CONSULTING ENGG. LTD. & ORS.

SEPTEMBER 12, 2007

(D.K.JAIN,J.) B

Arbitration and Conciliation Act, 1996:

s. I I-Appointment of arbitrator-Powers of appointing authority-
Nature and scope of-Held: For the purpo~e of deciding whether arbitral C
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 parties and that in respect of the agreement a live issue, to be
decided between parties, still exists-On being so satisfied, he may allow the
application and appoint an arbitral tribunal or a sole arbitrator, as the case D
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.

s.11 (6)-Application for appointment of arbitrator after completion of
contract-Consultancy contract-Agreement between parties stipulating E
income tax liability to be borne by employer on payments to be made by it
to consultant-After completion ofcontract and payments received for services
rendered, consultant received notice from Income Tax Department u/s 148 of
Income Tax Act-Claim regarding payment of Income Tax on remittance
made by employer to consultant in respect of the contract-On the questions:
(i) Whether after completion ofcontract there is still an enforceable arbitration F
.agreement between the parties and (ii) whether claim of consultant was stale
and barred by limitation-Held: ft was performance of contract that had
come to an end, b.ut contract is still in existence insofar as the dispute arising
under clause I.JO thereof, i.e., liability to pay income tax on payments made
to consultant, is concerned-An enforceable arbitration agreement exists G
between the parties-Claim made by consultant in respect of income tax dues
would fall within the ambit of arbitration agreement between parties-
Subsequent creation of an additional payment by Income Tax Department in
respect ofpayment by employer to consultant has given rise to a live dispute

921 H
922 SUPREME COURT REPORTS [2007] 9 S.C.R.

A requiring settlement between parties in terms of arbitration agreement-
Thus, prima facie, claim made by consultant is not barred by limitation-
Therefore, application al/owed-Arbitrator appointed.

SBP & Co. v. Patel Engineering Ltd. & Anr., [2005) 4 SCR Supp. 688,
[2005) 8 sec 618, relied on.
B
CIVIL ORIGINAL JURISDICTION: Arbitration Petition No. 17 of2006

(Under Section 11(6) of the Arbitration and Conciliation Act, 1996)

Sanjay Bansal, H.S. Bhatti, G.K. Bansal and Reepak Kansai for the
C Petitioner.

Pramod Dayal and R. Nedumaran for the Respondents.

The Order of the Court was delivered by

D.K. JAIN, J. I. This is a petition under Section 11 (6) of the Arbitration
D
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 BY (for short 'DHV') is a foreign
E 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
"Ko. I - Mis Taha! Consulting Engineers Limited (hereinafter referred to as
'Taha!') is also a consultant foreign company based in Israel and respondent
No.2 is the Water Resources Organisation, PWD, Government of Tamil Nadu
F (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 Taha! and TNPWD, with DHV and two
G 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
H signed between Tahal and DHV for providing services in respect of the main
DHV BV v. TAHAL CONSULTING ENGG. [D.K. JAIN, J.] 923

contract, scope whereof was defined in the conditions of both the said A
agreements.

4. As per clause I. I 0 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 B
contract was duly performed and DHV received all payments in respect of~he
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 I 48 of the Income Tax Act in respect of the C
assessment years 1997-98 to 200 l-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. D
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 Taha!, 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.
E
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 lst 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 2 lst April, 2005, DHV issued yet another notice to the
F
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.
G
7. Both Tahal and TNPWD have filed counter affidavits resisting the
petition. Tahal's 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
H
,
\
924 SUPREME COURT REPORTS [2007] 9 S.C.R.

A not fall within the ambit of clause 8 of the General Conditions of the Agreement J.
(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 t~ 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
B 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.
c
8. I have heard learned counsel for the parties. As noted above, the
objection of the responden~s 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,
D 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 obligatipn under the
contract has been duly discharged, learned counsel for the TNPWD invited
my attention to some correspondence with the Income tax authorities, wherein
E 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. v. Patel
Engineering Ltd. & Anr. 1, the issues raised have to be adjudicated by me.
Learned counsel for the DHV, on the other hand, contended that the
controversy regarding the tax Iiabi lity in terms of clause 1.10 cannot be said
F
to be stale because it arose only when DHV received notice from the Income
tax department ir. 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
G 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.

H 1. [2oos1 s sec 618.
DHV BVv. TAHALCONSULTING ENGG. [D.K. JAIN, J.] 925

I 0. Thus, the question for consideration before me is : (i) whether after A
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 I I of the Act has been B
set at rest by a seven-Judge Bench decision of this Court in SBP's 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 C
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 Hlgh D
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 E
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, p
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 I 1(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 G
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."
H
926 SUPREME COURT REPORTS (2007] 9 S.C.R.

A 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
B 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
C 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 exarriine 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
D 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
E to refer to clause I . I 0 of the special cenditions 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:

"l.10 ... xxx......xxx .....xxx

For Foreign Consultants/Personnel
F
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:

G (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
H the Consultants or Sub-consultants for the purpose of carrying
DHV BV v. TAHAL CONSULTING ENGG. [D.K. JAIN, J.] 927

out the Services and which after having been bought into such A
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 B
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: C
(I) 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 D
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. E
(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
Government's country."

14. Under the said ciause, TNPWD, as a client had taken upon itself the F
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 G
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 H
928 SUPREME COURT REPORTS [2007] 9 S.C.R.

A 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, Taha!, 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 Taha! was under <1n obligation to reimburse to TNPWD the amount, if any,
B 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
C were concerned, and, therefore, the dispute raised by them could not fall
within the ambit of arbitration agreement between TNPWD - the client and
Taha! - 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.

D 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
E contract which cannot be settled amicably within thirty (30) days after
receipt by one Party of the other Party's request for such amicable
settlement, may be submitted by either Party for arbitration in
accordance with the following provisions:

xxx...xxx...xxx"
F
I 6. 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
G 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
H
DHV BV v. TAHAL CONSULTING ENGG. [D.K. JAIN, J.] 929

to be stale in the sense that after the last payment in January, 2003, none of A
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 B
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 C
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 D
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. E

RP. Arbitration petition disposed of.