2018 (2) TMI 846 - HC - Indian Laws

Whether the petitioner was justified in holding the amount payable to the respondent after clearing its dues in apprehension of any tax liability that may have any reason against the company? Held that - the witness of the respondent had admitted that the tax liability had arisen because of a typographical error of the staff of the respondent in documents relating to the transaction and hence for fault of the respondent, the petitioners have to write various letters to release such amount which was not released and hence the interest on late payment of such dues cannot be denied. Thus there is no infirmity in the award of the learned arbitral tribunal in granting an interest on ₹ 1,88,08,233/- to the respondent herein. The award is fully justified - petition dismissed.

Summary

Issues involved:
Petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside an arbitral award. Justification of holding payment due to tax liability apprehension.

Analysis:

Issue 1: Background and Agreements
The case involved agreements between the petitioner and respondent for trading/sale of seeds, with subsequent amendments. Tax liability issues arose leading to the withholding of payment by the petitioner. Legal notices and appeals were exchanged between the parties and tax authorities.

Issue 2: Justification for Holding Payment
The core issue was whether the petitioner was justified in withholding payment to the respondent due to apprehension of tax liability. The relevant clauses of the agreement highlighted the indemnification obligations of the respondent. The arbitral tribunal found that the petitioner invoked a bank guarantee and withheld a specific amount, prompting requests for refund by the respondent.

Issue 3: Legal Findings
The High Court's judgment in a related tax matter supported the petitioner's position, emphasizing typographical errors leading to tax demands. The respondent's witness admitted to errors causing the tax liability, justifying the petitioner's actions. The absence of contractual provisions allowing the respondent to retain payment in anticipation of liabilities further supported the petitioner's stance.

Conclusion:
The arbitral tribunal's award granting interest on the withheld amount was deemed justified, as per the legal findings and contractual obligations. The petition to set aside the award was rejected for lacking merit, affirming the tribunal's decision.