1999 Supreme(Bom) 888

IN THE HIGH COURT OF BOMBAY
D.K. Deshmukh, J.
Oil and Natural Gas Corporation Limited..... Petitioner.
Versus
Sumitomo Heavy Industries Ltd...... Respondent.
Arbitration Petition No. 104 of 1998 in Award No. 11 of 1998, decided on 29-11-1999.
Advocates appeared :
Milon K. Banerji Sr.A. with Dara R. Zaiwala, Sr.A. with Gourav K. Banerji with Divya M. Shah with Virendra J. Pereira i/b. Desai Diwanji, for petitioner.
Virendra Tulzapurkar with Virag Tulzapurkar with Kirti Munshi with Hitesh Jain i/b. Udwadia, Udeshi Berjis, for respondent.

Headnote:Section 30-Award setting aside-Finding of arbitrator-Power of Court to set aside-Construction by Arbitrator of agreement-Ignorance of language of agreement-Construction absurd-Court entitled to interfere with finding.- The construction put by the learned Umpire on the terms of Clause 17.3 of the agreement between the parties clearly ignores the plain language of Clause 17.3. The learned Umpire while holding the petitioner liable for the income-tax, which was required to be paid by the subcontractor has ignored the specific terms used in the clause which shows that the petitioner is liable to pay extra costs which are caused by the change. In my opinion, looking to the plain and clear language of Clause 17.3 the construction put on by the learned Umpire was clearly impossible and therefore this Court would be entitled to interfere with the finding recorded by the Umpire.

       Section 30-Award-Setting aside of-Misconduct-Bias-Belonging to shame chamber and sharing of shame clerk-No likelihood of bearing bias by umpire. Petition allowed - Award by Umpire set aside.

       Section 30-Award-Setting asides of-Powers of Court-Question of law-Interpretation of clauses of agreement-Question of construction to be put on a particular clause in an agreement-Courts jurisdiction into correctness or otherwise of decision-Not barred.- There has to be a specific reference made to the arbitrator for a decision by the arbitrator and construction of clause in the agreement also amounts to a question of law. However, for that purpose, it must be shown that the question of construction to be put on a particular clause in an agreement was specifically referred to the arbitrator. With the ever widening expansion of international trade and commerce, complex questions of private international Law, effect of local laws on contracts between the parties belonging to different nations are certainly bound to crop up. Arbitration has been considered a civilised way of resolving such disputes avoiding Court proceedings. There is no reason why the parties should be precluded from referring a specific question of law to an arbitrator for his decision and agree to be bound by the same. This approach manifests faith of parties in the capacity of the tribunal of their choice to decide even a pure question of law. If they do so, with eyes wide open, and there is nothing to preclude the parties from doing so, then there is no reason why the Court should try to impose its views of law superseding the view of the Tribunal whose decision the parties agreed to abide by. Therefore, on principle it appears distinctly clear that when a specific question of law is referred to an arbitrator for his decision including the one touching upon the jurisdiction of the arbitrator, the decision of the arbitrator would be binding on both the parties and it would not be open to any of the two parties to wriggle out of it by contending that the arbitrator cannot clutch at or confer jurisdiction upon himself by misconstruing the arbitration agreement.

       If a question of law incidentally arises for consideration before an arbitrator and an arbitrator decides that question, the jurisdiction of the Court to look into the correctness or otherwise of the finding recorded by an arbitrator on that question is not ousted. In the present case, for examining the claim of the Respondent, it became necessary for the arbitrator to construe various clauses in the agreement. In my opinion, therefore, in the present case, it cannot be said that the question of interpretation of clauses in the agreement was specifically referred to the arbitrator and therefore, this Court would be entitled to examine the correctness or otherwise of the decision of the arbitrator on construction of Clause 17.3 of the agreement between the parties.

       The jurisdiction of the Court to interfere with a finding recorded by the arbitrator is restricted to three broad categories of cases where the Court finds (i) there exist a total perversity in the award; (ii) the judgment is based on wrong proposition of law and (iii) where the view taken by the arbitrator is impossible to take.

       Section 30-Income Tax Act (1961), Section 44-BB-Award-Finding of Arbitrator-Court to interfere - Arbitrators conclusion-Applicability of Section 44-BB of I.T. Act not right-Conclusion not impossible Court can not interfere.

       Section 30-Income Tax Act, 1961, Section 44-BB-Award-Setting aside of-Petition for-Contract for Turn-Key Project-Agreement between the parties-Petitioner to bear any extra cost-Respondent incur for change of law-Under contract Respondent not to pay tax liability of sub-contractor-A separate contract Respondent agreeing to reimburse tax of sub- contractor-Out of provisions of I.T. Act-Petitioner not liable to pay respondent-Payment of tax incurred by sub-contractor.- The reasoning shows total non-application of mind by the learned Umpire to the terms of Clause 17.3. Clause 17.3 deals with an obligation between the petitioner and the Respondent, who are parties to the agreement and it makes the petitioner liable for any extra costs that the Respondent has to incur because of any change of law. Therefore, in my opinion, change of law must have direct nexus with incurring of extra costs. In the present case, incurring of extra costs by the Respondent was not direct result of change in law. No doubt payment of income-tax by the sub-contractor was direct result of change in law. However, that liability was transferred from the sub-contractor to the Respondent not because of the provisions of the Income-tax Act, which were introduced by amendment, but because of a contract entered

       into between the Respondent and the sub-contractor. There is nothing in the agreement between the parties, which made it obligatory on the part of the Respondent to take on liability of the sub-contractor in this regard. Therefore, it is obvious that the Respondent was free not to take on this liability of the sub-contractor while entering into the contract with the sub-contractor. The liability of payment of income-tax, which is required to be paid as a result of change in law by the sub-contractor was a voluntary act on the part of the Respondent. Thus, the Respondent was required to incur extra costs of payment of income-tax, which the subcontractor was required to pay, because of the term of the agreement between the Respondent and its sub-contractor and therefore, in my opinion, the Umpire was not all justified in holding that the petitioner is liable for reimbursement of the amount paid by the Respondent to its sub-contractor, as income-tax.

       Section 44-BB.-5ee Arbitration Act, 1940, Section 30.