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of <h1>Offshore oil contract dispute over tax provisions goes to arbitration, leading to conflicting interpretations.</h1> The dispute arose from offshore oil exploration contracts with clauses on change of law and tax implications. The introduction of a tax provision led to ... Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils u/s 44BB - Tender for two platform facilities for off-shore oil exploration and drilling - sub-contractor liability to pay various amounts by way of tax, both under Section 44BB - whether Clause 13.2.8 would not come in the way of ONGC having to pay amounts paid by the sub-contractor by way of tax because of a change in law? Held that:- 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 parties, but stated that since Clause 17.3 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, 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. Inasmuch 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 17.3 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 drill of appeals before the High Court, but would come back directly to us for further adjudication. Issues:Interpretation of contractual clauses regarding change of law and tax liability in offshore oil exploration contracts.Analysis:The judgment involves a dispute arising from a tender floated by the respondent for offshore oil exploration platforms in 1982, with the appellant submitting tenders in 1983. The contracts contained clauses relevant to change of law and tax implications. The introduction of Section 44BB in the Income Tax Act in 1987 led to tax liabilities for the subcontractor, triggering disagreements between the parties. Arbitration ensued to determine if the respondent was liable to reimburse tax amounts paid by the appellant's subcontractor due to the change in law.The two arbitrators differed on the interpretation of contractual clauses. One arbitrator held that Clause 13.2.8 prevented payment for the subcontractor's tax liability, while the other found that this clause did not affect the application of Clause 17.3 regarding increased costs due to a change in law. The umpire, in his award, focused on the tax payment under Section 44BB and concluded that Clause 17.3 was not applicable since the tax was paid based on a government circular, not due to a change in law.However, the umpire's decision was based on an issue not referred to him, leading to the judgment being set aside. The matter was remitted to a new umpire to decide if Clause 13.2.8 would interdict the application of Clause 17.3. The parties agreed to skip appeals and have the new umpire deliver a decision within three months directly to the Supreme Court for further adjudication. Ultimately, the appeal was allowed, and the High Court's judgment was set aside for further review.
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