S.C.AGRAWAL - (1.) . The decision in these appeals would, we hope, mark the culmination of the protracted litigation arising out of a contract entered into by the parties on 24/08/1964 for the supply and erection of a thermal power plant at Renukoot in District Mirzapur, U.P.
(2.) . Renusagar Power Co. Ltd. (for short 'Renusagar'), the appellant in C.A. Nos. 71 and 71-A of 1990 and the respondent in C.A. No. 370 of 1992, is a company incorporated under the Indian Companies Act, 1956 engaged in the production and sale of electric power. General Electric Company (for short 'General Electric'), respondent in C.A. Nos. 71 and 71-A and appellant in C.A. No. 370 of 1992, is a company incorporated under the laws of the State of New York in United States of America and is engaged in the business of manufacturing, selling and servicing electrical products and various ancillary activities. After negotiations, the parties arrived at an arrangement whereunder General Electric was to supply to Renusagar the equipment and power services for setting up a thermal power plant to be known as 'Renusagar Power Station' at Renukoot and, on 27/11/1963, Renusagar moved the government of 654 India for its approval. By its letter dated 2/01/1964, the government of India gave its approval to the proposals and thereafter a formal contract was executed by the parties on 24/08/1964. Under the said contract, General Electric undertook to supply equipment and services for a plant having a capacity of 135,800 K.W. The total price for the electrical and mechanical equipment, spare parts, freight forwarding services, plant design and consulting services was US $ 13,195,000.00 . The contract price for all electrical and mechanical equipment and spare parts was FAS vessel, U.S.A. port so selected by seller (Article II). All items of the equipment were to be delivered along with vessel at New York not later than 15 months from the contract effective date (which was 31/12/1964 and the erection of the plant was to be completed within 30 months from the contract effective date (Article IV-A 1. 10 per cent of the total contract basic price (US $ 1,319,500 was to be paid either in cash or by Letter of Credit. The balance 90 per cent of the price (US $ 11,875,500 plus interest at the rate of 6 1/2 per cent per annum from the 16th to the 30th month of the contract effective date (US $ 900,558.75 totalling US $ 12,776,058.75 was to be paid in 16 equal six monthly instalments commencing from the date of the expiry of 30 months from the contract effective date, and the last instalment was payable on the date of expiry of 120 months from the contract effective date (Article III). Since the contract effective date was 31/12/1964 the first instalment was payable on 30/06/1967 and the last, i.e., 16th instalment was payable on 31/12/1974. In the contract, it was also provided that Renusagar would execute unconditional negotiable promissory notes in four series (A-B-C-D) in respect of the 16 instalments [Article III-A 3(a)] and that the notes shall be prepared substantially in the form shown in the attached Ext. 'B' entitled "Promissory Note" and shall bear interest, at the rate of 6 1/2 per cent per annum on the outstanding principal balance commencing from 30 months after contract effective date [Article III-A 3(c)]. A provision was also made that the payment of the full amount of each note shall be unconditionally guaranteed by the United Commercial Bank or other mutually acceptable bank. [Article III-A 3(e)]. The contract contained an arbitration clause which provides that any disagreement arising out of or related to the contract which the parties are unable to resolve by sincere negotiation shall be finally settled in accordance with the Arbitration Rules of the International Chamber of Commerce (for short 'ICC'). Each party would appoint one arbitrator and the court of Arbitration of the icc would appoint a third arbitrator (Article XVII). It was also agreed that the rights and obligations of the parties under the Contract shall be governed in all respects by the laws of the State of New York, USA (Article XIX-A). . It was, also, provided that if General Electric received an exemption from the government of India from the payment of income tax levied by the government of India on interest payments made by Renusagar then the interest rate on that series of promissory notes as exempted shall be reduced from 6 1/2 per cent to 6 per cent per annum commencing on the date such exemption is made effective and the notes so affected shall be replaced by new notes [Article III-A 3(b)]. In the contract it was stated that General Electric intended to apply to the central government of India for exemption from income tax on the interest (including capitalised interest and interest thereon) and Renusagar undertook to assist General Electric in expediting the application of General 655 Electric for exemption. It was also agreed that should the application of General Electric be denied Renusagar may withhold the Indian income tax applicable to any payments of interest, but Renusagar was to furnish General Electric with receipts on all withheld amounts paid to the government of India. [Article XIV- B]. . By its orders dated 3/09/1965 and 7/06/1967 the government of India gave their approval under Section 10(15(iv)(c) of the Income Tax Act, 1961 to the loan obtained by Renusagar from General Electric and thereby exempted the interest paid on the said loan from payment of income tax. The said exemption was, however, withdrawn by the order of the government of India dated 11/09/1969 whereby the orders granting exemption were cancelled retrospectively and General Electric was held liable to pay Indian income tax on the interest payable 6.5 per cent per annum.
(3.) . Renusagar filed a writ petition (C.W. No. 179 of 1970 before Delhi High court on 24/02/1970 wherein it challenged the above order of the government of India dated 11/09/1969 relating to cancellation or revocation of the tax exemption. In the said writ petition, the Delhi High court on 24/02/1970 passed an ad interim order restraining the government of India and its officers from enforcing or implementing the said order dated 11/09/1969. The said order was continued by order dated 18/05/1970 subject to Renusagar furnishing security for Rs. 4 lakhs to the satisfaction of Commissioner of Income Tax, Lucknow. Renusagar furnished the necessary security and as a result, the operation of the order dated 11/09/1969 was suspended. Renusagar, however, did not remit the amount of interest calculated per cent per annum payable to General Electric in terms of the contract. Renusagar only remitted 27 per cent of the amount of interest calculated 1/2 per cent per annum and it did not deposit the balance amount of 73 per cent by way of tax with the government but retained the same with themselves. It, however, sent letters to General Electric to the effect that they had deducted the said amount towards tax and had retained the same with itself. Originally General Electric was not impleaded as a party in the writ petition before the Delhi High court and it got itself impleaded as a respondent in the writ petition by moving an application dated 28/10/1977. The writ petition was decided by the Delhi High court by its judgment dated 17/11/1980 whereby the writ petition was allowed and the order dated 11/09/1969 was set aside. As a result the exemption from the payment of income tax on the interest payable by Renusagar was restored and the liability of Renusagar for interest was reduced from 6 1/2 per cent to 6 per cent. On 3/06/1981, Renusagar moved the Reserve Bank of India for permission to remit the balance amount of regular interest calculated per cent per annum to General Electric and on 3/02/1982, the Income Tax Officer, Bombay issued "No Objection Certificate" for repatriating the balance regular interest amount of US $ 2.130 million. The said amount was, however, not remitted by Renusagar to General Electric. . It appears that there was some delay on the part of the General Electric in adhering to the time schedule for the supply of equipment and keeping the same in view General Electric by their letter dated 5/01/1967 agreed to defer the payment of the first instalment payable on 30/06/1967 by six months and suggested that the promissory notes shall be recast into 15 notes instead of 16 656 which would commence on the 36th month from the contract effective date and capitalised interest shall be calculated for 20 months instead of 14 months and the said interest would then be reduced by a sum of 132,500 US $. By another letter dated 4/10/1967, General Electric agreed to recast the note structure to provide for 14 notes with the first note becoming due on 30/06/1968 instead of 31/12/1967 and the capitalised interest was to be calculated for 20 months instead of 14 months and it would be reduced to 132,500 US $. It appears that during the course of supply of equipment and erection of the plant, some disputes arose between the parties and Renusagar made certain claims against General Electric some of which were accepted by General Electric and a settlement was arrived at on 10/12/1968 whereunder General Electric agreed that the payment of the instalments due on 30/12/1968 and 30/06/1969 with accrued interest would be deferred for payment with the result that there would be no payment on 31/12/1968 and 30/06/1969 both of interest and principal and that the interest accrued up to 31/12/1968 and to accrue up to 30/06/1969 on the outstanding balance due would be calculated at the rate provided for in the contract and capitalised and that the entire sum, namely, the principal and interest to be so capitalised would be recast in 13 notes, the first of which would be payable on 31/12/1969 and the last on 31/12/1975. As a result of these discussions and settlement, instalments Nos. 1, 2, 4 and 5 were not paid by Renusagar on the due dates. Renusagar moved the government of India for approval of the revised schedules regarding the payments of the instalments to General Electric. The said request of Renusagar was, however, not accepted by the government of India and by their letter dated 1/08/1969, the government of India expressed their inability to agree to the revised proposals for repayment in view of the larger outgo of foreign exchange (by way of interest) which was not contemplated when the loan was approved originally. Renusagar were, therefore, asked to take necessary action to effect payments of the past instalments immediately. The request for review of the said decision was rejected by the government of India by their letter dated 4/08/1969. The first instalment which was payable on 30/06/1967 under the original contract was paid by Renusagar in instalments by July 1970, the second instalment which was payable on 31/12/1967 was paid in instalments by December 1971, the fourth instalment which was payable on 31/12/1968 was paid in instalments by December 1973 and the fifth instalment which was payable on 30/06/1969 was paid in instalments by February 1976.;