Bombay High Court Adjudicated Arbitration Petition Under Section 34 of the Arbitration and Conciliation Act, 1996 Challenging Arbitral Award in Lease Finance Dispute. The Award Held Lessee Liable for Tax Demands Arising from Disallowance of Depreciation Under Income Tax Act, 1961.

Arbitration petition challenging arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.

Petitioner (Gujarat State Fertilizers Co. Ltd.) sought to set aside the arbitral award dated 26.6.2012 and additional award dated 3.9.2012.

The petitioner was aggrieved by the award allowing the respondent's claim for tax liability and rejecting its counter claim.

Arbitral award dated 26.6.2012 awarded Rs.28,07,44,041 with 15% interest from award date and Rs.15 lakh costs; Additional award dated 3.9.2012 awarded simple interest @30% p.a. on principal from 7.1.2004 to 26.6.2012.

By this petition filed u/s 34 of the Arbitration and Conciliation Act, 1996 (for short “the said Arbitration Act”), the petitioner has impugned the arbitral award dated 26.6.2012 and additional award dated 3.9.2012 allowing the claim made by the respondent. On 26.6.2012, the learned arbitrator made an award in favour of the respondent and against the petitioner in the sum of Rs.28,07,44,041/- with interest @15% p.a. thereon from the date of award until payment or realisation thereof and awarded a sum of Rs.15,00,000/- to the respondent towards cost of arbitration. The learned arbitrator rejected the counter claim made by the petitioner.

On 30.4.1987, the petitioner placed an order on BHEL for a Turbine Unit, commissioned in 1989. On 1.4.1990, the written down value was zero. On 27.9.1994, the petitioner sought lease finance from Tata Finance Ltd., which sanctioned finance on 28.9.1994; an invoice for Rs.16,85,25,000 was raised and payment made after deductions. A lease agreement was executed with lease rental fixed. Supplemental schedules were issued. On 30.3.1995, a working condition certificate was issued. Lease tax was reduced from 5% to 4% on 25.7.1997. For AY 1995-96, the Income Tax Department disallowed depreciation on 31.3.1998, issuing a demand notice under Section 156. Tata Finance appealed on 24.4.1998. In April 2000, lease tax increased to 4.4%. On 11.10.2000, Tata Finance raised a debit note of Rs.24,60,83,090 for tax liability. The CIT(Appeals) partly allowed the appeal on 16.2.2001. The petitioner sought details on 22.3.2001; Tata Finance replied on 29.3.2001. On 10.5.2001, an appeal was filed before ITAT. On 1.6.2001, a statement of accounts was made. On 23.10.2001, income tax was reduced to Rs.19,88,61,416. The petitioner forwarded a lease rental installment on 15.12.2001, and issued a debit note for excess rent recovery on 22.12.2001. On 24.12.2001, the petitioner disputed the 11.10.2000 debit note. On 29.1.2002, another debit note was issued. On 2.2.2002, the petitioner demanded an outstanding amount after adjustments. On 31.8.2002, Tata Finance issued a credit note for Rs.2,40,61,846 due to income tax reduction. On 6.1.2003, a debit note for Rs.22,20,21,244 was raised. The petitioner claimed a balance amount on 16.1.2003 after adjustments. On 10.10.2003, Tata Finance through advocate invoked arbitration and demanded Rs.25,06,60,030 and return of plant. The petitioner replied on 3.11.2003, denying the claim and citing relief undertaking status. On 17.11.2003, Tata Finance sought appointment of a retired Chief Justice as arbitrator. The petitioner objected on 18.11.2003, citing the Bombay Relief Undertaking Act. Tata Finance disputed this on 21.11.2003. On 24.11.2003, the arbitrator declined to entertain the objection. On 27.1.2004, Tata Finance filed a claim for Rs.28,99,46,267 with interest. The petitioner filed a reply and counter claim for Rs.7,39,05,720 on 13.5.2004. On 22.11.2005, ITAT remanded the assessment back. On 12.12.2006, the AO again disallowed depreciation. Tata Finance appealed in 2007. On 2.6.2007, Tata Finance applied to amend the claim and filed an affidavit of evidence. In July 2007, the petitioner sought to have limitation decided as a preliminary issue; the arbitrator deferred it on 24.7.2007 after allowing the amendment. The petitioner examined a witness on 9.6.2010. On 26.6.2012, the arbitrator passed an award in favour of Tata Finance (now Tata Motors) for Rs.28,07,44,041 with 15% interest from award date and costs, rejecting the counter claim. On 23.7.2012, the respondent applied under Section 33 for additional interest from filing date to award date. On 3.9.2012, the arbitrator directed simple interest at 30% p.a. on the principal from 7.1.2004 to 26.6.2012. The present petition under Section 34 was filed in 2013; it was reserved for judgment on 18.12.2014 and pronounced on 9.1.2015.

• Arbitration and Conciliation Act, 1996: Section 34, Section 33
• Companies Act, 1956:
• Bombay Relief Undertaking (Special Provision) Act, 1958:
• Income Tax Act, 1961: Section 156