Author: Mahima, 5th year student at School of Law, UPES, Dehradun.
Date of Judgment: March 19, 2021
Bench: Vibhu Bakhru
Original Copy: View
Issues in Question:
- Whether any binding agreement exists where the parties have agreed that the computation of compensation awarded will be at the exchange rate as prevalent on 15.09.2017? In absence of such agreement what would be the exchange rate for discharging the amounts awarded in foreign currency?
- Was NTPC entitled to deduct TDS on the awarded amount? Whether such deduction and deposition of the same to the Income Tax Authorities would entail discharge of amounts awarded?
- Whether Voith is entitled to charges for extending the Bank Guarantees, as claimed?
Background of the Case:
- Uttarakhand Government and NTPC contracted Loharinag Pala Hydro Electric Power Project for construction of a Hydro Electric Project on River Bhagirathi. The infrastructure work commenced after the Ministry of Environment and Forests approved the Project on 08.02.2005. On 30.01.2006, the status of ‘Mega Power Project’ was conferred upon the Project by the Ministry of Power. On 20.02.2008, NTPC and Voith Hydro Joint Venture entered into three different contracts.
- However, there were widespread protests against the construction of the project and subsequently, on 19.02.2009, the Ministry of Power decided to suspend the Project. NTPC and Voith for resolution of their monetary disputes commenced arbitral proceedings.
- The Tribunal accepted the claims made by the Claimants and awarded a total sum of $ 10,688,455.95, € 3,341,171.32 and ₹153,495,177.90 to them. In addition, it also awarded costs of $ 13,136.50, € 204,475.06₹30,077,425.43 to the Claimants against NTPC. Further, it also awarded a pre-award interest at the rate of 2.5% per annum on $ 10,688,455.95 and € 3,341,171.32 and an interest at the rate of 8.5% per annum on ₹ 153,495,177.90 to be compounded annually from May 8th, 2013 until the date of award.
- The Arbitral Award was challenged in Delhi High Court where it was concluded that no grounds available for setting aside of an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 was established and plainly, the impugned award cannot be concluded to be in conflict with the fundamental policy of Indian Law.
- The counsel for NTPC leaned on the Minutes of the Meeting dated 11.09.2017 and Voith’s letter dated 16.11.2018 to substantiate that the parties had agreed to the exchange rate as prevailing on 15.09.2017. The said contention was discredited as the plain reading of Minutes of the Meeting does not record any such agreement regarding the applicable exchange rate. It instead is concerned with the amounts which are required to be released in terms of the Niti Aayog Circular dated 05.09.2016.
- The said circular envisaged that 75% of the arbitral award would be absolved towards the Bank Guarantees solely with the purpose of aggrandizing stress in construction sector and therefore, the amount released in terms of Niti Aayog Circular cannot be considered as amount splurged in discharge of an arbitral award.
- In the case of Forasol v Oil and Natural Gas Commission, the Supreme Court had laid down that the exchange rate ubiquitous on the date of decree would be the pertinent exchange rate. It further elucidated that in case of an arbitral award, the exchange rate prevalent on the date on which the challenge to the arbitral award is finally refused would be suitable to such award.
- Thus, in the present case, the exchange rate prevalent on 22.09.2020, when NTPC’s Special Leave Petition was set aside by the Supreme Court will be applicable. However, since part payment was accepted by Voith on 06.11.2018, the exchange rate applicable on that day was taken into account for payment of awarded amounts and the Court decided to bind Voith with its adjustment as the value of foreign currencies on 22.09.2020 was higher than on 06.11.2018.
- The counsel for Voith cited the Supreme Court’s judgment in All India Reporter Ltd v Ramchandra D. Datar where it was established that once a demand for compensation is decreed, it acquires the character of a judgment-debt and must be effectuated as per the deductions and adjustments legitimate under the Code of Civil Procedure. He also referred to Islamic Investment Company v Union of India and Anr where the Bombay High Court reinstated the Datar Judgment and rejected the contention that the judgment-debtor should be entitled to deduct TDS on the interest payable to a non-resident. The Court, in addition, observed that no such provision under the Income Tax Act or Code of Civil Procedure prevails which authorizes deduction of an amount payable under a decree.
- NTPC contended that payments were liable to deduction as they were made in Indian Currency and the same was accepted by Voith. The Court rejected that Voith had agreed and accepted NTPC’s deduction however, it knew about such deduction since way back in 2018 and did not raise any objections but failure to voice an objection by Voith would not amount to acceptance of such deduction.
- The Supreme Court, therefore, Directed NTPC to credit to the extent of TDS amounting to ₹1,61,72.269/- against TDS deducted and deposited by NTPC. For the remaining amount of TDS, NTPC was instructed to claim to the Income Tax Authorities to rebate the same while the IT Authorities were asked to process the concerned request.
- The Supreme Court, however, refrained from entertaining Voith’s prayer for directing NTPC to pay ₹2,88,31,380/- as cost sustained due to prolongation of Bank Guarantees afforded by NTPC as NTPC’s defiance to award could not be published as insubstantial. The Court also observed that Voith had on its own accord furnished Bank Guarantees to expedite release of part of the awarded amount in terms of Niti Aayog Circular.
- NTPC had also voiced objection against calculation of shortfall attested by Voith as NTPC alleged that Voith calculated those advances which were supposed to be balanced under Arbitral Award. The Court clarified that the calculations for discharge of the amount would be in conformity with the tabular statement as set out in the Arbitral Award. It was noted that the Arbitral Tribunal had evaluated the amount payable after the advances were debited and therefore, the total amount as awarded after deduction would be considered as the awarded amount. The Court laid down that the amount paid by NTPC would be first apportioned towards interest and thereafter against the principal amount. Further, NTPC shall recompute and pay the shortfall.
- This case lays down the very fundamentals of computing compensation.
- The decision by the Tribunal was a rather balanced and computed decision regarding compensation.
- This case also relies on various cases and upheld the principles laid won in them about computing compensation.