Puttaswamy, J.—M/s. Citizen Watches Company Ltd., Japan (hereinafter referred to as "Citizen"), a company incorporated in the highly industrialised Japan under the laws of that country, with its registered office situated on 20th Floor, Shinjuku Mitsui Building, 1-1-2 Chome Nissi Shinjuku, Shinjuku-ku, Tokyo, a world leader in the manufacture of wrist watches, is the common petitioner in these cases.

2. Before India attained independence and thereafter wrist-watches manufacturing industry in the country was not well developed. With the avowed object of establishing wrist-watches industry on a firm footing in public sector, to sarve the ever growing demands for wrist-watches in the country, Government of India (hereinafter referred to as "Government") in the later part of 1959, through its accredited representatives negotiated with the Citizen to provide the technical know-how for establishing a modern wrist-watch manufacturing industry in the country. After protracted and delicate negotiations, a technical collaboration agreement was entered into between Government and Citizen on March 25, 1960, (Annex. A) under which the latter agreed to supply the technical know-how to the former for the establishment of a modern watch factory in India on the terms and conditions stipulated in that agreement. In terms of that agreement, Government by its letter No. L.E. Ind. II (23)/59/-ENG-PR dated 3/4-2-1961 (Annex. B) addressed to the petitioner, transferred their rights, obligations and responsibilities to one of its wholly owned company called "Hindustan Machine Tools Ltd., Bangalore" (hereinafter referred to as "HMT"). With the technical know-how provided by Citizen, a modern wrist-watch manufacturing factory as a unit of HMT has been established and is in full operation from April 1, 1963.

3. Not unnaturally, the said agreement provided for payment of various amounts to Citizen for the services or the technical know-how provided by it to Government/HMT. The clauses that regulate payments under the heading "Remuneration" which alone are material for the purpose of these cases reads thus :

"28. Government shall pay to citizen a total sum not exceeding pound 24,000 (twenty- four thousand pounds sterling) for the supply of drawings and other information referred to in articles 7, 11, 16, 12 and 24. Actual payments shall be made within 60 days from the date of receipt of relative drawings and other information and supporting bills.

29. In consideration of the technical and other assistance rendered by Citizen, government shall pay to Citizen a technical assistance fee of a total sum not exceeding pound 106,330 (one hundred and six thousand and three hundred and thirty pounds sterling). The payment shall be made in eight yearly instalments, commencing from the end of the first year following the commencement of operation. The amount of the instalment relating to each of the year following the commencement of operation shall be as specified below.

Provided that, if during any year, the production of wrist-watches fall below that specified in the programmes of production in annexure - I, the instalment relating to that year shall be reduced proportionately.

Year following the commencement of operation

Amount of installment relating to the year (pounds sterling)

First

2,500

Second

7,500

Third

12,000

Fourth

12,000

Fifth

12,000

Sixth

20,000

Seventh

20,000

Eighth

20,330

1,06,330

In case, the total payment does not reach pound 106,330 (One hundred and six thousand and three hundred and thirty pounds sterling) at the end of the period of currency of this agreement, the balance shall be paid within sixty days thereafter. The above technical assistance fee shall be free from Indian taxes.

30. Government shall pay to Citizen a royalty at the rate of two per cent. of the amount, calculated in accordance with the provisions of article 31, relating to the preceding year. The royalty shall be subject to Indian taxes.

31. For the purpose of calculating the royalty due