1. By the present petition tinder section 30 of the Arbitration Act, 1940, the petitioner is seeking to set aside the award, dated January 25, 1995, passed by the umpire, Shri M. N. Chandurkar (retired Chief Justice).
2. The short facts concerning the arbitration award in question may be stated as follows. The petitioner is a statutory pubic sector corporation engaged in oil explosion, development and production of oil and natural gas. On April 6, 1985, the petitioner published a tender notice inviting tenders from qualified marine construction contractors. The scope of work for which the ONGC sought bids included the design engineering, procurement fabrication, inspection, testing, load out seafastening, tow-out, transportation, installation and pre-commissioning, toning of the BB and BD wellhead platform as well as optional pipelines and associated risers Pursuant to the said tender notice, the respondent submitted a bid which was accepted by the petitioner and the contract was awarded to the respondent as per the terms and conditions in the contract, dated October 15, 1986.
3. Thereafter, disputes have arisen between the petitioner and the respondent over the amounts due and payable to the respondent for the construction of two offshore well platforms at South Bassein field in the Arabina. Sea. In all, the respondent raised 13 claims, claiming US $ 2,380,473.88 described as claims A to L in the statement of claims which was referred to the arbitrators. Mr. R.P.
4. Bhat Nominated by the respondent and Mr. K.. M'. Anjeneyan nominated by the petitioner. Before the arbitrators, the petitioner filed a counter-claim against the respondent claiming reduction in post---drilling hook-up and short supply of spares claiming US $ 225,057. Oral evidence was recorded by the two arbitrators who also heard extensive arguments. There were, however, difference of opinion between the two arbitrators regarding the merits of the claim of the claimants and, thus, the matter came to be referred to the umpire, Shri M. N. Chandurkar, By the impugned award, the umpire partly granted Claims Nos. l to 7 and 9 to 11 of the respondent whilst Claims Nos.8 and 12 were not pressed by the respondent. Claim No.13 of the respondent pertaining to interest was not granted by the umpire. However, the umpire allowed interest at the rate of 12 per cent: per annum (US $) on the claims allowed by him from the dates mentioned against the amount till payment. Counter-claims made by the petitioner were rejected by the umpire in toto.
5. I have heard Mr. Dada, for the petitioner, and Mr. Madon, for the respondent. Out of several criticisms of the impugned award only one pertaining to Claim No.9 was seriously pressed before me by Mr. Dada. I may hasten to add that to respect to the remaining claims, I find no merit in any of the objections raised on behalf of the petitioner. As far as Claim No.9 is concerned, Mr. Dada submitted that the umpire has committed an error apparent on the face of the record in accepting the claim of the respondent for difference in exchange rate. Mr. Dada submitted that the conclusions reached by the umpire are totally inconsistent with the findings that were recorded by him thereby rendering the award illegal and invalid. According to Mr. Dada, the umpire has misread and misinterpreted the relevant provisions of the Income-tax Act and the award passed by him in respect of Claim No.9 is contrary to the law laid down by the apex Court in P. V. Raghava Reddi v. CIT. (1962) 44 ITR 720 and Standard Triumph Motor Co. Ltd. v. CIT (1993) 201 ITR 391.
6. The stand taken by the petitioner was that they had really retained the amount with them under section 162 of the Income Tax Act, 1961, and that this was not a deduction under section 195 of the Income Tax Act, 1961. The petitioner referred to its letter dated April 20, 1989, addressed to the respondent informing the respondent that the matter regarding returning of surtax in respect of BB/BD and IJK projects had been referred to the Deputy Commissioner of Income-tax and the petitioner had not received any final decision from the said Deputy Commissioner. The petitioner also referred to a letter received from the Income-tax Department by which the petitioner was directed not to release the surtax amount till further orders. A reference was then made to an order, dated April 4, 1990, received from the Deputy Commissioner of Income-tax (Assessment), Special Range, Dehradun, informing the petitioner that no demand had been raised against the respondent in respect of the surtax but the petitioner, was directed to deposit immediately the amount of surtax lying with them in pursuance of a notice under section 226(3) towards liability of income-tax. According to the petitioner, they had, thus, deposited Rs.88,16,484 which according to them was equivalent to US $ 689,807 in Government account on May 21, 1990. Thus, it was denied that there was any wrongful withholding of the amount.
7. The further case of the petitioner was that the accounts maintained by the petitioner are in terms of rupees and not US dollars and that the amount of US $ 689, 807 retained by them cannot be converted at the current exchange rate. The petitioner while admitting that they had deducted the sum of US $ 689,807 during the year 1987 from the invoices of BB and BD and IJK projects and gave the break up that from the amount of BB project US $ 432,500 were deducted and from IJK project account US $ 257,317 were deducted, thus, making a total of US $ 689,807, took the stand that this amount was equivalent in rupees to Rs.88,16,484 as on the date when the deduction was made.
8. According to the petitioner, the said amount was kept in their books of account under the heading "deduction of tax at source" at the exchange rate applicable during the year 1986-87.
9. Consequently, according to the petitioner, it was not liable for payment of any difference in Indian rupee value and US dollar between the date when the deduction was made and the time when the amount was deposited, i.e., May 21, 1990.
10. The umpire accepted the case of the petitioner that though an amount of US $ 432, 500 is, at one stage, considered by the petitioner as tax deducted at source, the said amount was really the amount retained by the petitioner out of the monies payable by them having regard to the provisions in section 162(2) of the Income-tax Act. It was also accepted by the umpire that the Income-tax Department treated the petitioner both for the assessment year 1985-86 and assessm ent year 1986-87 as a representative assessee. It was observed by the umpire that having regard to the fact that the quantum of deduction was not disputed by the, respondent and having regard to the fact that the Income-tax Department had treated the petitioner as a representative assessee it was not possible to hold that the petitioner had wrongfully made any deduction. In fact the umpire on careful examination of the correspondence between the parties found that the petitioner did not want to retain the amount longer than necessary and, therefore, the umpire rejected the contention of the respondent that there was wrongful deduction of the amount of US $ 432,500 by the petitioner.
11. The umpire accepted the alternative claim of the respondent towards the difference in Indian rupee value and US dollar between the date when the deduction was made and the time when the amount was deposited, i.e., May 21, 1990. It was held, inter alia, by the umpire that the contract between the petitioner and the respondent was to pay the contract price to the respondent in terms of US dollars. Merely because the amount which was immediately payable in US dollars is paid late, whatever be the reason, the nature of the liability to pay back the deducted amount in US dollars does not change into a liability to pay in rupees. The rate of exchange at which the conversion of the tax liability in rupees into US dollars would be the rate which was prevalent on May 21, 1990. As a consequence the balance due out of deduction made from the invoices would have to be refunded to the respondent in terms of dollars. Consequently, the respondent would be entitled to the refund of US $ 100,733.89 with interest thereon with effect from May 21, 1990.
12. After considering the respective contentions of the parties and submissions made by learned counsel for the parties and the award impugned, it appears to me that the award suffers from a manifest error apparent ex facie as far as Claim No.9 is concerned. It is the finding of the umpire that the Income-tax Department treated the petitioner as a representative assessee under section 162 of the Income-tax Act for the assessment year 1986-87 and the deduction was legal and not uncalled for. Thus, the assessm ent against the petitioner was in its capacity as a representative assessee. As held by the umpire the petitioner did not want to retain the monies beyond the period necessary. However, the petitioner was directed by the Income-tax Department not to refund but to retain the amount of surtax on the basis of the computation under section 44BB of the Income -- tax Act. The petitioner was directed to deposit the amount retained by it of surtax and informed that the amount was required to be paid pursuant to the notice under section 226(3) of the Income-tax Act. It is, thus, clear that the money retained in rupees in 1987 towards tax liability of the respondent was credited in the account of the respondent in the books of account of the petitioner in rupees. In law the effect is that the petitioner had paid the amount to the respondent in 1987 as the money was held by it as a depositee "Held that the amounts of commission credited to the aforesaid non- resident company's account in the books of the assessee were chargeable in the hands of the assessee-firm under section 4(1)
13. (a). The assessee-firm must be treated as a statutory agent of the Japanese company and since a business connection subsisted during the years in question, the assessee-firm could be treated as an assessee for purposes of section 42. Till the money was so credited, there might be a relation of debtor and creditor; but after the amounts were credited, the money was held by the assessee- firm as a depositee. The money then belonged to the Japanese company and was held for and on behalf of that company and was at its disposal. The character of the money changed from a debt to a deposit in much the same way as if it was credited in a bank to the account of the company.
14. Thus, the amount must be held, on the terms of the agreement to have been received by the Japanese company, and this attracts the application of section 4(1)(a). Turner Morrison & Co. Ltd. v.
15. CIT (1953) 23 ITR 152 (SC); AIR 1953 SC 140 relied on."
16. This legal position was reiterated in Standard Triumph Motor Co. Ltd. v. CIT (1993) 201 ITR 391 (SC) wherein under a collaboration agreement between the appellant, a non-resident company and an Indian company, the appellant was entitled to royalty of five percent. On all sales effected by the Indian company. The royalty less the Indian tax had to be remitted to the appellant in pounds sterling. The Indian company credited the royalty to the appellant in its account books. With respect to its Indian income, the appellant filed its returns through the Indian company. For the assessm ent years 1967-68 and 1968-69, the appellant filed its returns disclosing the royalty in which it was stated that the appellant was maintaining its accounts on the mercantile basis. For the assessm ent years 1969-70 and 1970-71, the appellant admitted the royalty but filed nil returns claiming that it was maintaining its accounts on cash basis and no part of the royalty had been received by it and that, therefore, nothing was taxable. It was argued that a mere entry in the account books of the Indian company does not amount to receipt of income by the assessee. In other words, the said royalty can be said to have been received by the assessee only when it received the same in the U. K. Rejecting the contention it was held that the credit entry into the accounts of the assessee in the books of the Indian company does amount to its receipt by the assessee and is accordingly taxable and that it is immaterial when it did actually receive it in the U.
17. K.
18. Applying the above principle, it is clear that the money credited in the account books of the petitioner herein belonged to the respondent and it was held by the petitioner as a depositee. The finding of the umpire was that the amount was paid under section 226(3) of the Income-tax Act, shows that the amount lying as credited in favour of the respondent was the respondent's money and this can be only on the basis that it belonged to the respondent from 1987. This was not the case where the deduction was wrong or retention was wrong or there was an obligation to refund.
19. In that case perhaps the petitioner would be liable to refund the sum to the respondent in U. S. Dollars but in the present case the petitioner was holding the money only as an assessee. The representative assessee cannot be asked to pay fluctuation in the value of the foreign currency between the date of deduction of payment and the date of payment inasmuch as the date of payment is. Irrelevant as liability relates to the period of assessment. In my opinion, the findings recorded by the umpire are totally ex-facie inconsistent and self-- contradictory and the award made by the umpire is clearly erroneous as regards Claim No.9. Thus, to my mind, the umpire has committed a serious error of law in awarding the alternative claim made by the respondent.
20. Mr. Madon vehemently argued that the jurisdiction of this Court is extremely limited when this Court is called upon to decide the objections raised by the parties against the arbitration award and it has no jurisdiction to sit in appeal and examine the correctness of the award on the merits. Mr. Madon argued that the Court has no jurisdiction to substitute its own evaluation of the conclusion of law or facts to come to the conclusion that the umpire had acted contrary to the bargain between the parties. Mr. Madon referred to the celebrated case of Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. AIR 1923 PC 66, wherein it is observed (headnote) "an error in law on the face of the award means that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say-- is erroneous." Mr. Madon also relied upon the decisions of the Supreme Court in (i) State of Rajasthan v. Puri Construction Co. Ltd. (1994) 6 SCC 485, (ii) Sudarasan Trading Co. v. Government of Kerala, AIR 1989 SC 890 and (iii) Hindustan Tea Co. v. K. Sashikant & Co., AIR 1987 SC 81.
21. The decision of the Privy Council in Champsey, Bhara's case AIR 1923 PC 66, was explained by the Supreme Court in Dr. S. Dutt v. University of Delhi, AIR 1958 SC 1050. It was argued before the Supreme Court that even if the decision of the arbitrator was erroneous that was not enough; before it could be set aside, it had further to be shown that the error appeared on the face of the award. Reliance was placed on the above quoted observation in Champsey Bhara's case, AIR 1923 PC 66. In paragraph 13 (page 1053) of the judgment, the Supreme Court observed: "In our view, all that is necessary for an award to disclose an error on the face of it is that it must contain, either in itself or in some paper intended to be incorporated in it, some legal proposition which on the face of it and without more, can be said to be erroneous. This was the decision of the Judicial Committee in the Champsey Bhara & Co.'s case AIR 1923 PC 66."
22. Even in the other decision of State of Rajasthan v. Puri Construction Co. Ltd. (1994) 6 SCC. 485, the Supreme Court observed at page 503 as under: "Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, in interference with the award based on erroneous finding of fact is permissible. Similarly, if an award in based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator ... . "