RENUSAGAR POWER CO LIMITED GENERAL ELECTRIC CO Vs. GENERAL ELECTRIC CO :RENUSAGAR POWER COMPANY LIMITED

JUDGEMENT

(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).

(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.