2007 Supreme(SC) 1166

2007(6) Supreme 188
Supreme Court of india
D.K. JAIN, J.
DHV BV — Petitioner
versus
Tahal Consulting Engineers Ltd. & Ors. — Respondents
Arbitration Petition 17 of 2006
Decide on : 12-09-2007

Important point
In view of the arbitration clause postulating reimbursement of some of the amounts by the consultants to the client, which the client was compelled to pay, the arbitration clause would be enforceable even after the expiry of the contract.

Headnote:(a)Arbitration and Conciliation Act, 1996 – Section 11 – The function performed by the CJ or his nominee is a judicial function – 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. (Paras 11 and 12)

       SBP & Co. v. Patel Engineering Ltd. & Anr – Relied upon.

       (b)Arbitration and Conciliation Act, 1996 – Section 11 – 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 reimbursement of some of the amounts by the consultants to the client, which the client was compelled to pay, is also postulated – Obviously, the arbitration clause would be enforceable even after the expiry of the contract and on completion of the services and on the payments having been made. (Para 14)

       (c)Arbitration and Conciliation Act, 1996 – Section 11 – The arbitration agreement clearly brings within its ambit any dispute between the parties as to matters arising pursuant to the main contract which cannot be settled amicably – As 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, the claim made by DHV in respect of the Income tax dues would fall within the ambit of the arbitration agreement between the parties. (Para 16)

       (d)Arbitration and Conciliation Act, 1996 – Section 11 – Notwithstanding all the payments having been made, 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 – Therefore, it is axiomatic that prima facie, the claim made by DHV is not barred by limitation. (Para 17)

       Facts of the case :

       On 1st December, 1997, an agreement (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 (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.

       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.

       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.

       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.

       Findings of the case:

       The situation in the case is covered by the arbitration agreement between the parties under main and subcontracts.

       Result : Sole Arbitrator appointed.