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By a Contract in writing dated August 24, 1964 (bearing Ref. IGE. 9584) G.E.C. agreed' to sell to Renusagar equipment for a thermal electric generating plant to be erected at Renukoot on the terms and conditions set out therein. The work to be performed under the contract included the supply of equipment, spare-parts and services in accordance with the 'Proposed Specification's dated November 12, 1963 and contained in G.E.C.'s letter dated October 14, 1963 together with the attached Minutes of the Meeting of October 10, 1963. The total purchase price' called the 'contract Base Price, for all the work was $ 13,195,000 payable by Renusagar in lawful currency of the U.S.A. in the manner stipulated in the Contract. It appears that the parties intended that delivery of the equipment and spare-parts etc. would be completed within 15 months of the Contract Effective Date (which was December 31, 1964), i.e. up to March 30, 1966 and that the erection of the plant would be completed within 16th to 30th Month (i.e. from April 1, 1966 to June 30, 1967) and that the plant would be fully operational by the end of 30th Month from the Contract Effective Date. The parties therefore, agreed that substantial payment of the purchase price by Renusagar should commence when the plant became operational, i.e. by June 30, 1967; it was also agreed that no interest would be payable by Renusagar during the delivery period, that interest shall be paid during the erection period (i.e. 16th to 30th Month) and thereafter till payment but the interest during the erection period would be capitalised and added on to the principal. Accordingly, Art. III of the Contract stipulated that initially 10% of the total Contract Base price (the amount coming to U.S. $ 1,319,500) should be paid either in cash or by means of a Letter of Credit within 30 days of the Contract Effective Date and that the balance of 90% of the purchase price plus interest at 6-1/2% per annum from 16th to 30th Month aggregating to U.S. $ 12,776,058,75 ($ 11,875,500. for principal plus $ 900,558,75 being the capitalised interest at the aforesaid rate for the aforesaid period) should be paid in accordance with the schedule of payments set out therein. The schedule for the payment of the said balance of 90% of the purchase price provided for payment to be made in sixteen six-monthly instalments of U.S. $ 798,503.68 each, the first of such instalments being payable on 30-6-1967, the second on 31-12-1967, the third on 30-6-1968, the fourth on 31-12-1968 and so on with the last instalment falling due on 31-12-1974. The obligation to make such payment was to be evidenced by 4-series (A-B-C-D) of 16 unconditional negotiable promissory notes to be executed by Renusagar. It was further agreed that in case G.E.C. received an exemption from the Government of India from payment of Income-Tax on interest receivable by it from Renusagar then the interest for that portion of the period shall be computed at 6% instead of 6.5% per annum and that the concerned promissory notes would be replaced or substituted by fresh promissory notes for amounts reflecting the adjustment in payment of interest necessitated by the grant of tax exemption. The Contract further provided under Art. XIV-B that should G.E.C.'s application for exemption be denied Renusagar may withhold the Indian Income-tax applicable to any payments of interest but shall furnish G.E.C with tax receipts on all with held amounts paid to the Government of India. Such provision was obviously made with a view to enable G.E.C. to obtain corresponding credit for the sum in their U.S. Tax Assessment. The Contract also required Renusagar to furnish guarantee of the United Commercial Bank for payment of the full amount of pro-

As regards the former, it appears that by two orders dated September 3, 1965 and June 7, 1967 passed under s. 10(15) (iv) (c) of the Indian Income Tax Act 1961 the Government of India granted exemption to G.E.C. from payment of Indian income-tax on the interest receivable by it from Renusagar with the result that G.E.C. became entitled to receive the interest on the unpaid purchase price at the rate of 6% tax free instead at 6.5% subject to tax. However, by its subsequent order dated September 11, 1969, the Government of India purported to retrospectively cancel or revoke the said tax exemption, whereupon in or about May 1970 Renusagar filed a writ petition (Civil writ No. 179 of 1970) in the Delhi High Court challenging the said cancellation or revocation of tax exemption and further sought an injunction restraining the Government of India from implementing the said cancellation or revocation. On May 18, 1970 Renusagar obtained an order from the Delhi High Court that on its furnishing security for Rs. four lakhs the cancellation or revocation of exemption shall be stayed and the Government of India and its officers were restrained by an interim injunction from enforcing or implementing the impugned order dated September 11, 1969; in other words on furnishing security of Rs. four lakhs (which Renusagar did) the tax exemption continued with the result that there was no necessity to deduct any amount from interest payable to G.E.C. nor to deposit the same as tax with the Indian Government. Even so, Renusagar by its letter dated June 30, 1970 informed G.E.C. that it would continue to calculate interest at 6.5% and make payment to G.E.C. after withholding and keeping in reserve the tax liability out of the amount due to it. The amount so withheld came to 73% of interest payable to G.E.C. on the instalments of purchase price after 1970 and Renusagar only made payment of interest to the tune of 7% to G.E.C. Surprisingly, the interest at 73% which represented the tax deducted at source was not even made over by Renusagar to the Indian Government which resulted in depriving G.E.C. of the benefit of getting the corresponding credit in their U. S. Tax Assessments. Ultimately the Delhi High Court by its judgment and order dated November 17, 1980 allowed Renusagar's writ petition and quashed the impugned order dt. Sept. 11, 1969 revoking the tax exemption. In the correspondence that ensued Renusagar not merely acknowledged that the amount so withheld and credited to reserve was U.S. $ 24,12, 680.20 (calculated on the basis of 6.5% subject to tax) (vide letter dt. 25.3.76 together with Statement attached) but also sought from the Commissioner of Income Tax a no- objection certificate and from the Reserve Bank its approval (vide Two Letters both dt. 3-6-1981) for making the remittance to G.E.C. of U.S. $ 21,30,785.52 (calculated on 6% tax free basis to which G.E.C. became entitled as a result of Delhi High Court's decision). It is this sum of 2.1 Million Dollars (U.S) being the Unpaid Regular Interest, wrongly deducted and wrongly withheld and kept with themselves by Renusagar from 1970 onwards which is the first claim referred by G.E.C. to the arbitration of I.C.C. As regards the latter it may be stated that on account of the alleged delays in the shipment and erection schedule Renusagar requested G.E.C to grant deferment in the payment schedule and as a result of the negotiations that ensued, Renusagar and G.E.C., inter alia, purported to amend the dates of payment of the purchase price evidenced by the promissory notes and certain decisions in that be half were recorded in a Memorandum dated December 30, 1966 and letters dated January 5, 1967, October 4, 1967 and October 9, 1967; this purported re-scheduling of the dates of payment of the purchase price as arrived at by the aforesaid documents was sought to be reflected by the parties in the said Contract I.G.E. 9584 by executing a formal Amendment dated October 1, 1968 thereto. This Amendment expressly provided that all other terms and conditions of the original contract shall remain in full force and effect. Renusagar executed fresh promissory notes as per the Amendment dt. Oct. 1, 1968 as also having regard to tax exemption granted as above and sent them to the Escrow Agents. The October 1968 Amendment was, however, subject to the approval of the Reserve Bank and the Central Government. It appears that in December 1968 the parties once again attempted to re-schedule the payment of instalments of purchase price. In July 1969 Renusagar sought the Central Government's approval to the re-scheduling of the dates of payment as embodied in October 1968 Amendment as also in the Memorandum of the Meeting held in December 1968 but by letters dated August 1, 1969 and August 4, 1969 the Central Government declined to approve the re-scheduling of the dates of payment on the ground that it would result in larger out-flow of foreign exchange and advised Renusagar to effect payments as per the original schedule including instalments which had since fallen due. The result was that the original schedule of payment remained operative and there was delay on the part of the Renusagar to make payment of certain instalments on due dates. Such delays occurred in respect of four instalments, namely, instalments No.1 evidenced by promissory note No.1 was payable on 30.6.1967 but was paid (in instalments) by July 1970; instalment No.2 evidenced by promissory note No.2 was payable on 31.12.1967 but the same was paid (in instalments) by December 1972; instalment No.4 evidenced by promissory note No.4 was payable on 31.12.68 but was paid (in instalments) by December 1973; and instalment No. 5 represented by promissory note No. 5 was payable on 30.6.1969 but was, in fact, paid (in instalment) by February 1976. On account of the delays in the payment of instalments of purchase price together with interest Renusagar became liable to pay delinquent interest to G.E.C. In the correspondence on the subject Renusagar accepted the liability to pay such delinquent interest and made annual acknowledgements thereof. In its telex message dated March 25, 1976 Renusagar in terms acknowledged its liability to pay such delinquent interest amounting to U.S. $ 8,48,010 52 (calculated on the basis of 6.5% subject to tax) to G.E.C., which liability if calculated on 6% tax free basis, to which G.E.C. became entitled as a result of the Delhi High Court's decision, comes to US. $ 7,84,151.84. This liability for Delinquent Interest is the second claim referred by G.E.C to the arbitration of I.C.C. The third claim for Compensatory Damages which G.E.C. has made against Renusagar and which is sought to be referred to arbitration arises out of non-payment of the aforesaid two claims of Unpaid Regular Interest and Delinquent Interest for over 12 years, the quantum being calculated by way of interest on those two amounts at the market rate of 18% per annum amounting to U.S. $ 4,160,534.88 up to 31 3.1982 (to be extended till date of actual payment). According to G.E.C. for a long period of 12 years Renu sagar has illegally and wrongfully retained these two funds with itself and has enjoyed the use thereof for its own private advantage has correspondingly totally deprived G.E.C. of their use for which Renusagar must compensate. G.E.C. has also asserted that such compensatory damages are due to it from Renusagar because Renu sagar must be regarded as stake-holder or constructive trustee of those funds from the various dates on which they became due and payable but Renusagar has managed to retain them with itself on one pretext or the other and under the common law jurisprudence shared equally by Indian and American law, restitution is payable by a stake-holder to the party ultimately determined to be rightful beneficiary and owner of the funds.

By way of elaborating the second contention Counsel submitted that the under-lying commercial Contract (I.G.E. 9584) for supply and sale of goods and services contains no obligation to pay any interest after June 30, 1967 (i.e. after the 30th month from the Contract Effective Date) whether at 6-1/2% or 6% but that such obligation to pay interest after June 30, 1967 is only to be found in the promissory notes and G.E.C.'s first claim of 2.1 million U.S. Dollars is essentially (approx. 80%) for unpaid regular interest due after June 30, 1967 and the second claim for U.S. $ 78,151.84 is entirely for delinquent interest due after June 30, 1967 and, therefore, substantially these two claims preferred before the Arbitrators do not "arise out of" the Contract nor are they "in relation" thereto but arise under the promissory notes and hence fall outside the scope of arbitration agreement; according to counsel further the promissory notes executed by Ranusagar were in complete discharge of the obligation to pay price and interest thereon under the Contract and these notes constitute independent and separate contracts by themselves and, therefore, the liability arising thereunder cannot be regarded as any arising out of the contract or in relation thereto and what is more these claims have been described by G.E.C. in their Notice of intention to arbitrate as arising under the promissory notes; as regards the claim for compensatory damages, it being a liability arising in tort for wrongful retention of the first two funds and since it was being enforced on the basis of Renusagar's status as a stakeholder or constructive trustee the same is clearly outside the scope of the arbitration agreement. Such being the precise nature of the three claims that have been referred by G.E.C. to arbitration, counsel urged that since the issue of arbitrability of these claims is being raised in Renusagar's suit it is but proper that till the issue raised in the suit is finally decided by the Court the arbitration proceedings should be injuncted. On the other hand Counsel for G.E.C. vehemently disputed that the Commercial Contract (IGE 9584) contains no obligation to pay any interest on unpaid purchase after June 30, 1967 or that such obligation to pay interest after that date is only to be found in the promissory notes; he pointed out that such obligation is to be found in the Contract itself and could be readily inferred from Art. III(A)3(c) read with Art.XIV-B and as such the first two claims for Unpaid Regular Interest and Delinquent Interest due after June 30, 1967, preferred before the arbitrators not merely "arise out of" but really arise "under" the Contract; further the third claim for Compensatory Damages which flows by way of corollary from wrongful detention of the first two funds which ought to have been paid under the Contract is so closely connected with the contract that it is clearly "in relation to it"; all the three claims thus fall within the scope of the Arbitration Clause. Counsel seriously disputed that the promissory notes executed by Renusagar were or are in discharge of the obligation to pay the price and interest thereon under the Contract or that these notes constitute independent and separate contracts by themselves but contended that these are a part of the Contract and the two are so in severable and inextricably bound together that the obligation under the Contract can never be deemed nor intended to have been completely discharged by the mere execution of the notes and in support of this contention several aspects of and circumstances emerging from the Contract were relied upon by him. Counsel urged that real nature of the claims preferred before the Arbitrators and not the nomenclature or description thereof by any party would be relevant and decisive and in this behalf was quick to point out that Renusagar, though it now contends that such interest arises "under the promissory notes" has described it as payable "under the contract" in para 4 of its writ petition No. 179 of 1970 filed in Delhi High Court. Alternatively, Counsel contended that even assuming (a) that the promissory notes are not an in severable and inextricable part of the Contract, (b) that the obligation arising under the notes is totally different from the one arising under the Contract and (c) that the notes are in discharge of the obligation to make payment under the Contract (all of which are strongly denied), the three claims would still be covered by the Arbitration Clause which is of the widest amplitude, for according to him it would be erroneous to determine whether a claim arises out of or in relation to the Contract by looking at the cause of action on which the claim is based. That being the position Counsel submitted that the Court of Appeal was justified in coming to the conclusion that no prima facie case for injunction restraining arbitration proceedings had been made out by Renusagar and it had therefore rightly vacated the ad interim injunction and stay ed Renusagar's suit.

Article III-A 3 (c) (relevant portion) runs thus:

"The notes shall be prepared substantially in the form shown in the attached 'Exhibit B' entitled 'Promissory Note' and shall bear interest, at the rate of 6 1/2% per annum on the outstanding principal balance, commencing thirty(30 months after Contract Effective Date............."

It is no doubt true that the promissory notes executed by Renusagar recited the obligation to pay future interest after June 30, 1967 till payment but obviously the promissory notes incorporated such obligation therein because of the aforesaid provision in Art. III-A 3 (c). The aforesaid sub-clause in the Contract itself says that the notes shall bear interest at the rate specified on the outstanding principal balance after June 30, 1967; in other words it is the Contract which provides for interest being payable on the outstanding principal balance after June 30, 1967. Counsel for Renusagar, however, argued that the contract and aforesaid clause merely provide for the execution of promissory notes which, it is provided shall bear interest after June 30, 1967 and the argument proceeded further to say that if Renusagar had failed to executive promissory notes as required (i.e. bearing interest after June 30, 1967) G.E.C. would not have become entitled to receive or claim interest after June 30, 1967 but would have had only a right to call upon Renusagar to execute such pro- notes and or two claim damage for failure to fulfil contractual obligations. It is impossible to accept this argument. The question is not what rights G.E.C. would have had on Renusagar's failure to execute the promissory notes as required but the question is what the contract provides for. It cannot be disputed that the aforesaid sub-clause in the Contract provides for not merely the execution of promissory notes but that the promissory notes would also bear interest after June 30, 1967. Further the very fact that the failure of Renusagar to execute promissory notes as required,... of course as required by the Contract, would have conferred a right on G.E.C. to call upon Renusagar to execute such notes also shows that the obligation to pay interest after June 30, 1967 till payment has been provided for by the contract.