M/S. SUMITOMO HEAVY INDUSTRIES LIMITED versus OIL & NATURAL GAS COMPANY

Citation: [2010] 9 S.C.R. 176 · Decided: 28-07-2010 · Supreme Court of India · Bench: R.V. RAVEENDRAN · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
[2010] 9 S.C.R. 176 
M/S. SUMITOMO HEAVY INDUSTRIES LIMITED 
v. 
OIL & NATURAL GAS COMPANY 
(Civil Appeal No. 3185 of 2002) 
JULY 28, 2010 
[R.V. RAvEENDRAN AND H.L. GOKHALE, JJ.] 
Arbitration: International commercial contract - Works 
contract between respondent and contractor - Respondent 
C agreed to compensate contractor for all necessary and 
reasonable extra cost caused by a change in law affecting the 
contractor economically -
Contractor entered into a sub-
contract with a sub-contractor for a part of a contract - Under 
the existing law, the income arising out of the work done was 
D not subject to income tax in India - Change in law after closing 
of bid - Under the amended law, the work done under the 
tender and the income arising therefrom became subject to 
Income Tax Act, 1961 under s.4488 with retrospective effect 
-
Tax liability imposed on sub-contractor - He paid and 
E received reimbursement from contractor - Contractor claimed 
it from respondent company - Respondent rejected the claim 
- Reference to arbitration - Umpire passed award holding the 
respondent liable to indemnify contractor for sum paid to sub-
contractor on account of assessment of income tax due to 
F change in law - High Court set aside the award - Held: 
Respondent was liable to indemnify contractor for sum paid 
to sub-contractor - Sub-contractor played pivotal role in the 
execution of entire contract - Contractor reimbursed the tax 
amount to sub-contractor in view of commitment made - The 
G reimbursement was not voluntary act and arose out of change 
in law - There was nexus between payment to sub-contractor 
and the responsibility of the respondent -
View taken by 
umpire on the construction of arbitration clause was plausible 
one and High Court erred in interfering with same - Income 
H 
176 
SUMITOMO HEAVY INDUSTRIES LIMITED v. OIL & 177 
NATURAL GAS COMPANY 
Tax Act, 1961 - s. 4488 - Territorial Waters, Continental Shelf, 
Exclusive Economic Zone and other Maritime Zones Act, 
1976 - Clauses 6(6), 7(7) - Contract. 
Deeds and documents: International commercial contract 
- Interpretation of 
Words and phrases: 'perverse finding' - Meaning of 
A 
B 
The respondent invited tenders for installation of a 
platform complex. The closing date for the bid was 
11.10.1982. The work was to be done beyond the fiscal c 
limit of Indian Income Tax laws as it then existed, and 
therefore, the income arising therefrom under the existing 
law was not subject to income tax in India. The appellant 
was a successful bidder. An agreement was entered into 
between the appellant and the respondent. Clause 17.3 
D 
of the agreement provided that the respondent company 
would compensate the contractor for all necessary and, 
reasonable extra cost caused by any change in law, 
affecting the contractor economically. The appellant 
entered into a sub-contract with Mii for execution of a 
part of a work under the contract. The work was 
completed in 1984. Meanwhile, a notification dated 
31.3.1983 was issued by Government of India under 
clauses 6(6) and 7(7) of the Territorial Waters, Continental 
shE;!lf, Exclusive Economic Zone and other Maritine 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. Under the amended law, 
E 
F 
the work done under the tender and the income arising 
therefrom, became subject to the Income Tax Act, 1961. 
By Finance Act, 1987, Clause 4488 was introduced in the 
G 
Income Tax Act, 1961 with retrospective effect from 
1.4.1983. In 1988, Mii was served notices for re-opening 
and revising the assessments already made for the AY 
1984-85 and 1985-86. The authorities rejected the 
H 
178 
SUPREME COURT REPORTS 
[20101 9 S.C.R. 
A objections of Mii and imposed tax on Mii. Mii paid that 
amount and claimed it from the appellant. The appellant 
re-imbursed the same and claimed it from the respondent 
under Clause 17.3. The respondent rejected the claim. 
The appellant served on the respondent a notice of 
B arbitration and filed their statement of claim. Both the 
parties appointed their respective arbitrators. The two 
arbitrators differed in their determination, and the matter 
was referred to an umpire, who gave his award. He 
declared that in the event of appellant becoming liable to 
c pay further sums to Mii, due to any assessment of income 
tax on Mii or under the sub-contract pursuant to Section 
44BB of Income Tax 

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