Case: DHV BV Vs. Tahal Consulting Engineers Ltd. &amp; Another

The petitioner M/s DHV Consultants BV (for short DHV) is a foreign 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 No.1 - M/s Tahal Consulting Engineers Limited (hereinafter referred to as Tahal) is also a consultant foreign company based in Israel and respondent No.2 is the Water Resources Organisation, PWD, Government of Tamil Nadu (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 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 (hereinafter referred to as the 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.  4. 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, 2003 and the matter rested there.  5. 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.  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 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.  7. Both Tahal and TNPWD have filed counter affidavits resisting the petition. Tahals 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 not fall within the ambit of clause 8 of the General Conditions of the Agreement (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 the 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 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.

Reasoning:
As regards the question as to whether the said claim can be said to be stale in the sense that after the last payment in January, 2003, none of 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 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