HYUNDAI CORPORATION & ANR. versus OIL AND NATURAL GAS CORPORAUON LTD.
[2017] 9 S.C.R. 490, Supreme Court of India, 2017
Outcome: Appeal(s) allowed (Granted)
Segment: Facts
A 
B 
(2017] 9 S.C.R. 490 
HYUNDAI (~ORPORATION & ANR. 
v. 
OIL AND NATURAL GAS CORPORAUON LTD. 
(Civil Appeal No. 3161 of2006) 
AUGUST 03, 2017 
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.] 
Arbitration A<.:t, 1940 - Contract between appellant 
(contractor) and respondent-Company, for off-shore oil exploration 
and drilling ".'"Appellant enlered into a sub-contract with a Panama 
C based firm - Section 44BB introduced in the Income Tax Act which 
made a non-resident assess~e engaged in the ousif!ess of providing 
services for extraction or production of mineral oil, liable to pay 
income tax - Said .ftub-contractor taxed thereunder 7 Disputes 
between the parties - Matter went to arl itration - Both the 
arbitrators though, agre.ed that tax was payable uls.44B and 
D therefore, Cl. I 7.3 of the contract was squareZv attracted on the facts 
of the case, however, differed on the applicatiJn of Cl.13.2.8 which 
interdicted the application of Cl. I 7. 3 - Matter referred to the Umpire 
- However. instead of deciding this question, the Umpire went into 
a question already decided in favour of the appellant b;v·both th(! 
E arbitrators itt respect of Cl.17.3,and a"ived a• a, contrary conclusion 
- On appeal, held: The Umpire rendered '' ~ecision on an issue 
which was never referred to him - Award of ·~ Umpire set aside -
Since the Umpire (Former Chief Justice Y. (.1Chandrachud) is no 
longer alive, with the consent of the parti.1s~ Justice A/tab Alam 
appointed as Umpire and is
requested to dci~ver the award within 
F three months. 
., 
Allowing the appeal, the Court 
:HELD: 1.1 Instead of deciding the qtiestion referred, the 
-Umpire (Former.Chief Justice Y.V. Chandrachud) went into a 
question already decided in favour of the appellant and arrived at 
G a contrary co.nclusion, namely, that tax w¥s not payable under 
.. Section 4488, Income Tax Act, 1961 at all1 but had in fact been 
paid pursuant to the Circular of the Central Government of July, 
• 
I 
1987, and that this being the case, Clause 1t7.3 itself would not 
b_e attracted, as there was no change in lawf under which such tax 
'ii 'had to be paid. (Para 4)(494-D-EJ 
,, 
' 
490 
•
HYUNDAI CORPORATION & ANR. v. OIL AND NATURAL 
491 
GAS CORPORATION LTD. 
1.2 On a perusal of the award of the Umpire, it is noticed 
A 
that a decision was .rendered on an issue which was never referred 
to him. This being the case, and the matter being·a fairly old one, 
B 
the award of the Umpire is set aside on the ground that his ~ltimate 
decision was on a matter not referred to him, but indeed on a 
matter which had been concluded in favour of the appellant. This 
being the case, it would be necessary to remit the matter to the 
Umpire. Inasmuch as the Umpire, Former Chief .Justice Y.V. 
Chandrachud is no longer alive, with the consent of the parties, 
Justice Aftab Alam. is appointed to be the Umpire in this case to 
decide the narrow issue as to whether the Clause 13.2.8 would 
apply so as to interdict the application of the Clause 17.3 which 
C · 
was held by both learned Arbitrators to apply to the parties. The 
Arbitrator is requested to take up the matter as early as possible 
and deliver his award within a period of three months from the 
date on which he receives the papers from the parties. By 
consent, it is recorded that the matter being an old one, this award 
would not be subjected to the drill of appeals before the High 
Court, but would come back directly to this Court for further 
adjudication. [Para 5)(495-C-F] 
CIVIL APPELLATE JURISDICTION: Civi I Appeal No. 3161 
of2006. 
From the Judgment and Order dated 14.02.2006 of the High Court 
of Judicature
at Bombay in Appeal No. 13 of 2006 in Arbitration No. 
136of2005 inAwardNo. 10of2004. 
Anushree Menon, Vikas Mehta, Ad vs. for the Appellants. 
D 
E 
Somiran Sharma, K. R. Sasiprabhu, Ad vs. for the Respondent. 
F 
The Judgment of the Court was delivered by 
R. F. NARIMAN, J. I. The present appeal has a somewhat 
chequered history. It arises out of the respondent's floating a tender for 
two platform facilities for off-shore oil exploration and drilling in October, 
G 
1982. The appellant before us submitted two tenders for two such 
platforms on 13th January and 22nd March of 1983 respectively. 
Immediately after the submission and acceptance of these tenders, on 
3 lst March, 1983, a Notification was issued by the Government oflndia 
extending the Income Ta'<Act, 1961 to the Continental Shelf and Exclusive 
Economic Zone oflndia with effect from I st April, 1983, in respect of H
492 
SUPREME COURT REPORTS 
[2017] 9 S.C.R. 
A income derived by every person inter alia from prospecting for, or 
extraction or production of mineral oil in tile Continental Shelf or Exclusive 
Economic Zone of India. Fomal contracts were entered into between 
the Oil and Natural Gas Corporation Ltd.["ONGC"] and the appellant 
on 16th December, 1983. For the purpose of this appeal, two clauses are 
8 
material and are set out below: 
"13.2.8 
The company shall not be responsible/obligated for making any 
payments or any other related obligations under the Contract to 
the Contractor's sub-contractor/vendors. The Contractor shall be 
c 
fully liable and responsible for meeting all such obligations and all 
payments to be made to its sub-contractors/Vendors and any other 
third party engaged by the Contractor in any way connected with 
the discharge of the Contractor's obligation under the Contract 
and in any manner whatsoever. 
D 
17.3 Change of law: 
In the event of any change or amendment of any law, rule or 
-regulation of any Government in India or public body of the 
Republic oflndia which becomes effective after the date of the 
Tender (the 25th day of March, 1983) and which results in any 
E 
increased cost to the Contractor shall be indemnified for any such 
cost by the Company and the Completion Schedule shall be 
extended as required." 
F 
2: Some time in 1984, the appellant entered into a sub-contract 
with Mis McDermott International Jncorporated. Panama,
wherein a 
part of the work to be carried out by the appellant was sub-contracted. 
This back to back contract also had a provision which was similar to 
Clause 17.3. On 12th May, 1987, Section 4488 was introduced in the 
Income Tax Act, with retrospective effect from I st April, 1983. Under 
this provision, a non-resident assessee engaged in the business of 
providing services or facilities, or supplying plant and machinery on hire 
G for the prospecting, extraction or production of mineral oil, was 
notwithstanding anything to the contrary contained in various sections of 
the Income Tax Act, liable to pay income tax on a sum equal to I 0% of 
the aggregate of the amounts specified in sub-section (2), which were 
then deemed to be profits and gains of such business chargeable to tax 
H under the head 'profits and gains of business' or profession. To complete
HYUNDAI CORPORATION & ANR. v. OIL AND NATURAL 
493 
GAS CORPORATION LTD. 
the narration of facts, the work under the two contracts was done during A 
the period 1984-85 to 1987-88. As a result of work done in this period,· 
the Income Tax Department taxed the sub-contractor Mis McDermott 
International Incorporated after reopening its assessments to tax under 
Section 148 of the Act. As a result, the sub-contractor became liable to 
pay various amounts by way of tax, both under Section 4488 and· 
J 
otherwise, inasmuch as they opted under a particular Circular of the · 8 
Government oflndia dated July, 1987, to pay tax on the basis of the said 
Circular. Given this· fact situation, disputes arose between·the appellant 
and the respondent on the application of Clause 17.3 of the agreement.-
The appellant and the respondent went to arbitration under the Arbitration 
Act, 1940, which was before two learned Arbitrators, on the question 
C 
whether the respondent was liable to reimburse the amounts paid by the 
· appellant to its sub-contractor by way of tax inasmuch as; according to 
the appeHant, a change in law had taken place after 25.3.1983 in that, 
from I st April, 1983, Section 44 BB was retrospectively brought in to tax 
various services in connection with of!-shore exploration and drilling of 
mineral oils. Several issues were raised before the two learned Arbitrators; D 
one of which was as to whether there was indeed a change of law, in 
that,' tax had to be paid
under Section 44BB for the first time with effect 
from I st April, 1983. The two learned Arbitrators were of the opinion 
. that, as the assessment orders indicated tax was indeed payable under 
Section 44BB, and that, therefore, .Clause 17.3 would be squarely · E 
attracted on the facts of the case. However, they differed on the 
application of Clause 13.2.8 of the.agreement. Whereas Shri 
D.Chandrashekhar, learned Arbitrator, by his award dated I 0th March, 
1999 stated that though Clalffle 17.3 did apply on the facts of the case, 
yet Clause 13.2.8 interdicted the payment of any am9unts on account of F 
the sub-contractor's liablity'. On the other hand, Justice D.M. Rege, 
learned Arbitrator, by his separate award dated April, 1999 .agreed with 
... , Shri-Chandrashekhar on all points except one, namely, the effect of Clause 
· 
13.2.8 on Clause 17.3.Accordingto him, Clause 13.2.8 would notcdrrte -
in the way ofONGC having t(/ pay am~mnts paid by the sub-contracto.r _ 
by way of tax because of a change in law. The learned Arbitrator.held: 
G -
"Firtly, the said Cl.13.2.8 is a part of Cl.13 dealing with 
Contract price payment/Discharge Certificate and was not 
connected with the subject covered by Cl.17.3 of the Contract on 
which the Claimants' claim is based. Further looking to the fact 
that Cl.17.3 of the Contract was inserted subsequently only at the H
494 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
. [2017) 9 S.C.R. 
request of the Claimants while Cl.13.2.8 was already there, it 
appears that Cl.17.3 was intended to cover those extra costs 
incurred by the Claimants due to the change of law which were 
outside of and not covered by Cl.13.2.8 oft he Contract. Even the 
reading of Cl.l 3 .2.8 itself would show that it does not and would 
not cover the Claimants' claim for compensation for extra costs 
under the said CJ .17 .3 of the Contract." 
3. On this limited dispute, the Umpire, Retired Chief Justice 
Y.V.Chandrachud. delivered his award dated 20th March, 2002. In 
paragraph 20 of the said award, the learned Umpire stated: 
'The main question and. indeed, the only question which was 
pressed before me by learned Counsel for the parties. arises out 
of the provisions contained in Clause 17 .3 of the SH Contract and 
the extension of the LT. Act to the Continental Shelf ofindia and 
other Exclusive Economic Zones by the Notification dated March 
31, 1983, issued by the Government ofindia, which is referred to 
.in paragraph 9 above." 
:•r ,~~'However, instead of deciding this question, the learnedUmpire 
wenti.nto a question already decided in favour of the appellant and arrived 
1 .. ;..,,, i 
at a.contrary conclusion, namely, that tax was not payable under Section 
\&~~ 
44BB .at aU but had in fact been paid pursuant to the Circular of the 
C~ntrnl Government of July, 1987, and that this being the case, Clause 
17
.3 itself would not be attracted, as there was no change in law unner 
which such tax had to be paid. The tax had to be paid in any case under 
the provisions of Sections 5 and 9 of the Income Tax Act and accordingly, 
the claim of the appellant w<ls rejected. However, before concluding the 
award the learned Umpire held: 
"35. Before concluding the discussion on the aforesaid point, 
it would be useful to refer to clause 13.2.7 of the main Contract 
between the Claimants and the Respondents, it reads thus: 
· "13.2.7. the Company shall not be responsible/obligated for 
making any payments or any other related obligations under this 
Contract to the Contractor's sub-contractors/vendors.The 
contractor shall be fully liabk and responsible for meeting all such 
obligations and all payments to be made to its sub-contractors/ 
vendors and any other third party engaged by the Contractor in 
any way connected with the discharge of the contractor's 
obligations under the contract and in.any manner whatsoever".
HYUNDAI CORPORATION & ANR. v: OIL AND NATURAL 
495 
GAS CORPORATION LTD. 
35.1 Since clause 17.3 of the Contract is not attracted and since, A 
consequently, the. Claimants are not liable to indemnify Mil in 
respect of the Income Tax for which a demand has.been made on 
Mll, Clause 13.2.7 extracted above, wo.uld squarely come into 
play. The "Company" that is to say, the Claimants, are not 
responsible or _obligated to reimburse Mll in respect of the 
aforesaid tax demand." 
B 
5. It will be noticed on a perusal of the award of the Umpire. that 
a decision has been rendered on an issue which was never referred to 
the learned Umpire. The award was ultimately only on the said issue. In 
passing. the Umpire did refer to Clause 13.2.7, which was the only bone 
of contention left between the pa1ties, but .stated that since Clause 17.3 c 
of the contract was not attracted, and since consequently the Claimants 
were not liable to indemnify the sub-contractor, Clause 13.2.7, would 
squarely come into play. From this it can be seen, that there was no 
independent reasoning or conclusion with regard to the applicability of 
Clause 13.2.7. This being the case, and the matter being a fairly old one, 
D 
we are of the view that the award of the Umpire has to be set aside on 
the ground that his ultimate decision was on a matter not referred to him, 
but indeed on a matter which had been concluded in favour of the 
appellant. This being the case, it would be necessary to remit the
matter 
to the Umpire. lnasmuch as the Former Chief Justice Y. V. Chandrachud 
is no longer alive, with the consent of the parties, we appoint Justice 
Aftab Alam to be the Umpire in this case to decide the narrow issue as 
to whether Clause 13.2.8 would apply so as to interdict the application 
of Clause I 7 .3 which has been held by both learned Arbitrators to apply 
to the parties. We request the learned Arbitrator to take up the matter as 
early as possible and deliver his award within a period of three months 
from the date on which he receives the papers from the parties. By 
consent, it is recorded that the matter being an old one, this award would 
not be subjected to the dril I of appeals before the High Court, but would 
come back directly to us for fmther adjudication. 
E 
F 
6. The appeal is accordingly allowed and the judgment of the 
G; 
High Cou1t is set aside. 
. I· 
Diyya Pandey 
Appeal allowed. 
'.·