HYUNDAI CORPORATION & ANR.versusOIL AND NATURAL GAS CORPORAUON LTD.

                               (2017] 9 S.C.R. 490


A                    HYUNDAI (~ORPORATION & ANR.
                                 v.
               OIL AND NATURAL GAS CORPORAUON LTD.
                           (Civil Appeal No. 3161 of2006)
                                  AUGUST 03, 2017
B
           [R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.]
             Arbitration A<.:t, 1940 - Contract between appellant
      (contractor) and respondent-Company, for off-shore oil exploration
      and drilling ".'"Appellant enlered into a sub-contract with a Panama
C     based firm - Section 44BB introduced in the Income Tax Act which
      made a non-resident assess~e engaged in the ousif!ess of providing
      services for extraction or production of mineral oil, liable to pay
      income tax - Said .ftub-contractor taxed thereunder 7 Disputes
      between the parties - Matter went to arl itration - Both the
      arbitrators though, agre.ed that tax was payable uls.44B and
D     therefore, Cl. I 7.3 of the contract was squareZv attracted on the facts
      of the case, however, differed on the applicatiJn of Cl.13.2.8 which
      interdicted the application of Cl. I 7. 3 - Matter referred to the Umpire
      - However. instead of deciding this question, the Umpire went into
      a question already decided in favour of the appellant b;v·both th(!
E     arbitrators itt respect of Cl.17.3,and a"ived a• a, contrary conclusion
      - On appeal, held: The Umpire rendered '' ~ecision on an issue
      which was never referred to him - Award of ·~ Umpire set aside -
      Since the Umpire (Former Chief Justice Y. (. 1Chandrachud) is no
      longer alive, with the consent of the parti.1s~ Justice A/tab Alam
      appointed as Umpire and is requested to dci~ver the award within
F     three months.                                      .,
            Allowing the appeal, the Court
           :HELD: 1.1 Instead of deciding the qtiestion referred, the
  -Umpire (Former.Chief Justice Y.V. Chandrachud) went into a
    question already decided in favour of the appellant and arrived at
G a contrary co.nclusion, namely, that tax w¥s not payable under
 .. Section 4488, Income Tax Act, 1961 at all1 but had in fact been
    paid pursuant to the Circular of the Central Government of July,
                                          •           I

    1987, and that this being the case, Clause 1t7.3 itself would not
    b_e attracted, as there was no change in lawf under which such tax
'ii'had to be paid. (Para 4)(494-D-EJ
                      '           490
                                                ,,
                                                •
  HYUNDAI CORPORATION & ANR. v. OIL AND NATURAL                              491
             GAS CORPORATION LTD.

       1.2 On a perusal of the award of the Umpire, it is noticed A
that a decision was .rendered on an issue which was never referred
to him. This being the case, and the matter being·a fairly old one,
the award of the Umpire is set aside on the ground that his ~ltimate
decision was on a matter not referred to him, but indeed on a
matter which had been concluded in favour of the appellant. This
                                                                     B
being the case, it would be necessary to remit the matter to the
Umpire. Inasmuch as the Umpire, Former Chief .Justice Y.V.
Chandrachud is no longer alive, with the consent of the parties,
Justice Aftab Alam. is appointed to be the Umpire in this case to
decide the narrow issue as to whether the Clause 13.2.8 would
apply so as to interdict the application of the Clause 17.3 which C ·
was held by both learned Arbitrators to apply to the parties. The
Arbitrator is requested to take up the matter as early as possible
and deliver his award within a period of three months from the
date on which he receives the papers from the parties. By
consent, it is recorded that the matter being an old one, this award
                                                                     D
would not be subjected to the drill of appeals before the High
Court, but would come back directly to this Court for further
adjudication. [Para 5)(495-C-F]
     CIVIL APPELLATE JURISDICTION: Civi I Appeal No. 3161
of2006.
                                                                              E
      From the Judgment and Order dated 14.02.2006 of the High Court
of Judicature at Bombay in Appeal No. 13 of 2006 in Arbitration No.
136of2005 inAwardNo. 10of2004.
      Anushree Menon, Vikas Mehta, Ad vs. for the Appellants.
      Somiran Sharma, K. R. Sasiprabhu, Ad vs. for the Respondent.            F
      The Judgment of the Court was delivered by
       R. F. NARIMAN, J. I. The present appeal has a somewhat
chequered history. It arises out of the respondent's floating a tender for
two platform facilities for off-shore oil exploration and drilling in October, G
1982. The appellant before us submitted two tenders for two such
platforms on 13th January and 22nd March of 1983 respectively.
Immediately after the submission and acceptance of these tenders, on
3 lst March, 1983, a Notification was issued by the Government oflndia
extending the Income Ta'<Act, 1961 to the Continental Shelf and Exclusive
Economic Zone oflndia with effect from Ist April, 1983, in respect of H
492           SUPREME COURT REPORTS                           [2017] 9 S.C.R.


A income derived by every person inter alia from prospecting for, or
  extraction or production of mineral oil in tile Continental Shelf or Exclusive
  Economic Zone of India. Fomal contracts were entered into between
  the Oil and Natural Gas Corporation Ltd.["ONGC"] and the appellant
  on 16th December, 1983. For the purpose of this appeal, two clauses are
  material and are set out below:
8
  "13.2.8
           The company shall not be responsible/obligated for making any
           payments or any other related obligations under the Contract to
           the Contractor's sub-contractor/vendors. The Contractor shall be
c          fully liable and responsible for meeting all such obligations and all
           payments to be made to its sub-contractors/Vendors and any other
           third party engaged by the Contractor in any way connected with
           the discharge of the Contractor's obligation under the Contract
           and in any manner whatsoever.
D     17.3 Change of law:
            In the event of any change or amendment of any law, rule or
           -regulation of any Government in India or public body of the
            Republic oflndia which becomes effective after the date of the
            Tender (the 25th day of March, 1983) and which results in any
E           increased cost to the Contractor shall be indemnified for any such
            cost by the Company and the Completion Schedule shall be
            extended as required."
         2: Some time in 1984, the appellant entered into a sub-contract
  with Mis McDermott International Jncorporated. Panama, wherein a
F part of the work to be carried out by the appellant was sub-contracted.
  This back to back contract also had a provision which was similar to
  Clause 17.3. On 12th May, 1987, Section 4488 was introduced in the
  Income Tax Act, with retrospective effect from Ist April, 1983. Under
  this provision, a non-resident assessee engaged in the business of
  providing services or facilities, or supplying plant and machinery on hire
G for the prospecting, extraction or production of mineral oil, was
  notwithstanding anything to the contrary contained in various sections of
  the Income Tax Act, liable to pay income tax on a sum equal to I0% of
  the aggregate of the amounts specified in sub-section (2), which were
  then deemed to be profits and gains of such business chargeable to tax
H under the head 'profits and gains of business' or profession. To complete
     HYUNDAI CORPORATION & ANR. v. OIL AND NATURAL                             493
                GAS CORPORATION LTD.

     the narration of facts, the work under the two contracts was done during A
     the period 1984-85 to 1987-88. As a result of work done in this period,·
     the Income Tax Department taxed the sub-contractor Mis McDermott
     International Incorporated after reopening its assessments to tax under
     Section 148 of the Act. As a result, the sub-contractor became liable to
     pay various amounts by way of tax, both under Section 4488 and·
                                                                                   8
J    otherwise, inasmuch as they opted under a particular Circular of the ·
     Government oflndia dated July, 1987, to pay tax on the basis of the said
     Circular. Given this· fact situation, disputes arose between·the appellant
     and the respondent on the application of Clause 17.3 of the agreement.-
      The appellant and the respondent went to arbitration under the Arbitration
      Act, 1940, which was before two learned Arbitrators, on the question C
     whether the respondent was liable to reimburse the amounts paid by the
   · appellant to its sub-contractor by way of tax inasmuch as; according to
      the appeHant, a change in law had taken place after 25.3.1983 in that,
      from Ist April, 1983, Section 44 BB was retrospectively brought in to tax
     various services in connection with of!-shore exploration and drilling of
      mineral oils. Several issues were raised before the two learned Arbitrators; D
      one of which was as to whether there was indeed a change of law, in
      that,' tax had to be paid under Section 44BB for the first time with effect
      from I st April, 1983. The two learned Arbitrators were of the opinion
    . that, as the assessment orders indicated tax was indeed payable under
      Section 44BB, and that, therefore, .Clause 17.3 would be squarely · E
      attracted on the facts of the case. However, they differed on the
      application of Clause 13.2.8 of the.agreement. Whereas Shri
      D.Chandrashekhar, learned Arbitrator, by his award dated I 0th March,
       1999 stated that though Clalffle 17.3 did apply on the facts of the case,
      yet Clause 13.2.8 interdicted the payment of any am9unts on account of F
      the sub-contractor's liablity'. On the other hand, Justice D.M. Rege,
       learned Arbitrator, by his separate award dated April, 1999 .agreed with
..., Shri-Chandrashekhar on all points except one, namely, the effect of Clause
· 13.2.8 on Clause 17.3.Accordingto him, Clause 13.2.8 would notcdrrte -
       in the way ofONGC having t(/ pay am~mnts paid by the sub-contracto.r _
      by way of tax because of a change in law. The learned Arbitrator.held: G -
                "Firtly, the said Cl.13.2.8 is a part of Cl.13 dealing with
          Contract price payment/Discharge Certificate and was not
          connected with the subject covered by Cl.17.3 of the Contract on
          which the Claimants' claim is based. Further looking to the fact
          that Cl.17.3 of the Contract was inserted subsequently only at the    H
494                SUPREME COURT REPORTS                         . [2017) 9 S.C.R.


A            request of the Claimants while Cl.13.2.8 was already there, it
             appears that Cl.17.3 was intended to cover those extra costs
             incurred by the Claimants due to the change of law which were
             outside of and not covered by Cl.13.2.8 oft he Contract. Even the
             reading of Cl.l 3.2.8 itself would show that it does not and would
             not cover the Claimants' claim for compensation for extra costs
B
             under the said CJ .17 .3 of the Contract."
             3. On this limited dispute, the Umpire, Retired Chief Justice
      Y.V.Chandrachud. delivered his award dated 20th March, 2002. In
      paragraph 20 of the said award, the learned Umpire stated:
                 'The main question and. indeed, the only question which was
c           pressed before me by learned Counsel for the parties. arises out
            of the provisions contained in Clause 17 .3 of the SH Contract and
            the extension of the LT. Act to the Continental Shelf ofindia and
            other Exclusive Economic Zones by the Notification dated March
            31, 1983, issued by the Government ofindia, which is referred to
D           .in paragraph 9 above."
        :•r   ,~~'However, instead of deciding this question, the learnedUmpire
  wenti.nto
     1..;..,,, i
                  a question already decided in favour of the appellant and arrived
  at a.contrary conclusion, namely, that tax was not payable under Section
        \&~~

  44BB .at aU but had in fact been paid pursuant to the Circular of the
E C~ntrnl Government of July, 1987, and that this being the case, Clause
   17 .3 itself would not be attracted, as there was no change in law unner
  which such tax had to be paid. The tax had to be paid in any case under
  the provisions of Sections 5 and 9 of the Income Tax Act and accordingly,
  the claim of the appellant w<ls rejected. However, before concluding the
  award the learned Umpire held:
F
                   "35. Before concluding the discussion on the aforesaid point,
               it would be useful to refer to clause 13.2.7 of the main Contract
               between the Claimants and the Respondents, it reads thus:
               · "13.2.7. the Company shall not be responsible/obligated for
               making any payments or any other related obligations under this
G
               Contract to the Contractor's sub-contractors/vendors.The
               contractor shall be fully liabk and responsible for meeting all such
               obligations and all payments to be made to its sub-contractors/
               vendors and any other third party engaged by the Contractor in
               any way connected with the discharge of the contractor's
H              obligations under the contract and in.any manner whatsoever".
  HYUNDAI CORPORATION & ANR. v: OIL AND NATURAL                              495
             GAS CORPORATION LTD.

      35.1 Since clause 17.3 of the Contract is not attracted and since, A
      consequently, the. Claimants are not liable to indemnify Mil in
      respect of the Income Tax for which a demand has.been made on
      Mll, Clause 13.2.7 extracted above, wo.uld squarely come into
      play. The "Company" that is to say, the Claimants, are not
      responsible or _obligated to reimburse Mll in respect of the
                                                                         B
      aforesaid tax demand."
       5. It will be noticed on a perusal of the award of the Umpire. that
a decision has been rendered on an issue which was never referred to
the learned Umpire. The award was ultimately only on the said issue. In
passing. the Umpire did refer to Clause 13.2.7, which was the only bone
of contention left between the pa1ties, but .stated that since Clause 17.3 c
of the contract was not attracted, and since consequently the Claimants
were not liable to indemnify the sub-contractor, Clause 13.2.7, would
squarely come into play. From this it can be seen, that there was no
independent reasoning or conclusion with regard to the applicability of
Clause 13.2.7. This being the case, and the matter being a fairly old one, D
 we are of the view that the award of the Umpire has to be set aside on
the ground that his ultimate decision was on a matter not referred to him,
 but indeed on a matter which had been concluded in favour of the
appellant. This being the case, it would be necessary to remit the matter
to the Umpire. lnasmuch as the Former Chief Justice Y. V. Chandrachud
 is no longer alive, with the consent of the parties, we appoint Justice E
 Aftab Alam to be the Umpire in this case to decide the narrow issue as
 to whether Clause 13.2.8 would apply so as to interdict the application
of Clause I7.3 which has been held by both learned Arbitrators to apply
to the parties. We request the learned Arbitrator to take up the matter as
 early as possible and deliver his award within a period of three months F
 from the date on which he receives the papers from the parties. By
 consent, it is recorded that the matter being an old one, this award would
 not be subjected to the dril I of appeals before the High Court, but would
 come back directly to us for fmther adjudication.
      6. The appeal is accordingly allowed and the judgment of the           G;
High Cou1t is set aside.

                                                    . I·
Diyya Pandey                                               Appeal allowed.
                      '.·