Case: M/S Sumitomo Heavy Industries Ltd Vs. Oil &amp; Natural Gas Company

e short facts leading to this appeal are as follows:22nd July, 1982 the respondent invited tenders for installation and commissioning onbasis of a Platform Complex on its Bombay High (South) Offshore Site. The closing date for the bid was 11.10.1982. On the date of closing of the bid, the fiscal limit of IndianLaws was 12 Nautical Miles in the territorial waters of India. The work to be done under the above mentioned tender was about 100 miles off the coast, and hence, the income arising therefrom was not subject toin India. The appellant had submitted its tender offer on 11th October 1982, which was accepted by the respondent and an agreement between the two came to be signed on 7th September, 1983 for executing the above work for the contract price of J.Y..1 of the General Conditions of Contract which provides for this contract price laid down that "the contract price is the firm price without escalation subject to the provisions of the contract". The contract clearly stipulated that the remuneration provided to the appellant under the contract would be tax protected and would be net of all taxes.Consequent upon signing of the contract the appellant entered into awith MII on 28th December, 1983 for execution of a part of a work under the above mentioned contract. The work was ultimately completed as per the contract and the respondent certified that the appellant had successfully completed the contract and a Certificate of Completion and Acceptance was issued on 11th April, 1984. A Discharge Certificate was also issued by the respondent on 18th May, 1984.The Government of India, Ministry of Finance, Department of Revenue issued a notification on 31st March, 1983 under Clauses 6(6) and 7(7) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, extending Income Tax Act, 1961 to the Continental Shelf of India and the Exclusive Economic Zone with effect from 1.4.1983. Hence, under the amended law, the work done under the above mentioned tender and the income arising therefrom, became subject to the Income Tax Act, 1961. By Finance Act, 1987 Clause 44BB was introduced in the Income Tax Act, 1961 with retrospective effect from 1.4.1983. This clause is a special provision for computing profits and gains in connection with the business of exploration etc. of minerals. It is obvious that all these changes in law took place after the closing date of the bid i.e. after 11th October, 1982.In July, 1987 the Foreign Tax Division of the Department of Revenue, Ministry of Finance issued a circular in respect ofprojects of foreign contractors engaged in the business of exploration of oil and natural gas in India. This circular contained guidelines for computing the tax liability under the above referred to Clause 44BB of the Income Tax Act, 1961 and instructions were given to all Commissioners of Income Tax to assess the tax liability accordingly. In the year 1988 the above referred to MII was served with incometax notices toand revise the assessments already made for the assessment years6. MII was informed that it was required to pay the tax on the income from the respondent for the work executed by them at Bombay High (South) Offshore Site. MII pointed out that it had already filed tax returns for these two years stating that it had incurred loss, and it was no more liable to payThe authorities rejected the objections of MII and a tax liability was imposed to the tune of US$ 1,12,447.84 (RupeesMII paid that amount and claimed it from the appellant. The appellant reimbursed the same, and claimed it from the respondent under17.3 of the General Conditions of Contract, which provided for situations arising out of change of law. The respondent did not accept this claim. As pointed out earlier, respondent contended that they were responsible for the tax liability of the appellant alone under23 of the General Conditions of Contract, and under13.2.7 thereof it was the responsibility of the appellant to meet all the obligations of the. On 6th March, 1991 the appellant served on the respondent a notice of arbitration under17.2 of the agreement between the parties and filed their statement of claim on 13th October, 1992. Both the parties appointed their respective arbitrators as per the agreement. The two arbitrators differed in their determination, videfor conclusions dated 4.7.1994 and 18.7.1994. Hence, the matter was referred to Sir Micheal Kerr as Umpire, who gave his award as aforesaid. The Relevant Terms of the Agreement entered into between the Parties.To understand the scope of the controversy it will be necessary to refer to the relevant clauses of the agreement dated 7.9.1983 between the parties.Clause B of the agreement specifically states that the following documents including the annexures listed thereunder shall be deemed to form, and will be read and construed as integral parts of the contract, and in case of any discrepancy, conflict or dispute, they shall be referred to in the order of priority as stated hereunder:Order of Priority:2. Annex.General Conditions of the Contract Scope of Work (as briefly outlined)C Contract Price ScheduleD Project ScheduleE Minutes of MeetingF Contract Specifications & Drawings

Reasoning: 34. In the present matter the Division Bench has observed, that the umpire exceeded his jurisdiction in awarding Appellants claim under17.3 of the agreement and that he has failed to apply his mind to the pleadings, documents and the evidence as well as particular clause of the contract to declare that the award was perverse. In fact as seen above, the umpire has entertained appellants claim only after giving a meaningful interpretation to17.3 after considering all the material on record as well as the context. Respondent had contended in their arbitration petition before the High Court that it was not permissible to refer to thenegotiations and the documents arising therein. What the umpire has however done is to look into the context with a view to understand the text. As we have noted above the umpire has looked into the evidence before him including that of the respondents officer as to how MII had participated in the bid clarification meetings. He considered the submission of the appellant as to how thewas also tax protected, which was their main plea. It is true that if there is an error apparent on the face of the award or where the umpire had exceeded his jurisdiction or travelled beyond the reference, the court can interfere. However in view of what is noted above it is not possible to say that the award suffers from any of the above defects so as to call for. The view canvassed on behalf of the respondent was that17.3 ought to be read narrowly like an indemnity clause or given a literal interpretation as in the case of an insurance policy. The umpire on the other hand has observed that this clause is couched in wide terms and it was commercially understandable and sensible, since it was designed to cover a wide and potentially unforeseeable spectrum viz. the likely impact of a possible change in Indian law in future. In the circumstances the approach adopted by the umpire being a plausible interpretation, is not open to interfere. The Division bench was clearly in error when it observed that the view of the umpire on17.3 is by no stretch of imagination a plausible or a possible view. Perhaps, it can be said to be a situation where two views are possible, out of which the umpire has legitimately taken one. As recently reiterated by this Court in Steel Authority of India LimitedGupta Brothers Steel Tubes Limited reported in (2009) 10 SCC 63  if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to interfere with the award. The High Court has erred in so interfering.In the present case, the findings and award of the umpire are rendered after considering the material on record and giving due weightage to all the terms of the contract. Calling the same to be perverse is highly unfair to the umpire.The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of17.3 but that cannot make the award in any way perverse. Nor can one substitute ones own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Manufacturing CorporationCentral Warehousing Corporation reported in (2009) 5 SCCthe court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding.However, we are not required to go into that issue since we are otherwise holding that the award was not only a plausible one but aaward. In the circumstance the interference by the High Court was not called for. In that view of the matter we allow this appeal and set aside the judgment of the learned single Judge, as well as that of the Division Bench. The award made by the Umpire is upheld and there shall be a decree in terms of the award.