Arbitration Appeal No. 06 of 2011

6th February, 2013

Petitioner Counsel: Shri Ashutosh C. Dharmadhikari,Shri Charuhas B. Dharmadhikari,Shri B.R. Survase
Respondent Counsel: Shri J.N. Singh

Cases Cited:
Major (Retd.) Inder Singh Rekhi Vs. D.D.A., AIR 1988 SC 1007 [Para 23,24]
Utkal Commercial Corporation Vs. Central Coal Fields Ltd., AIR 1999 SC 801(1) [Para 24]
B.S.N.L. & Ors. Vs. M/s. Subash Chandra Kanchan & Anr., AIR 2006 SC 3335 [Para 24]
Hari Shankar Singhania Vs. Gaur Hari Singhania, AIR 2006 SC 2488 [Para 24]
M/s. Shree Ram Mills Ltd. Vs. Utility Premises (P) Ltd., 2007 AIR SCW 2130 [Para 24]
National Aluminium Co. Ltd. & Anr. Vs. G.C. Kanungo, AIR 2009 SC 2928 [Para 24]

JUDGMENT

JUDGMENT :- This appeal challenges the judgment and order dated 24.12.2010, passed on Misc. Civil Application (Requiring Judicial Inquiry No.16/2009). This application was moved under section 34 of the Arbitration and Conciliation Act, 1996 (henceforth be referred to as 'the Act').

2. Facts leading to the appeal in short can be stated as under :

Way back in the year 1986 the appellant Corporation awarded an irrigation work contract to the respondent company (hereinafter be referred to as the Contractor). The estimated cost of the work was 34.81 lac. But the contractor succeeded in getting this contract because he submitted a tender about 11.2% below the estimated cost. The contract period was 18 calendar months. Work order was issued on 22.5.1986. The work got delayed due to apparent unforeseen situation such as hard substratum found during excavation and the quarry given to the contractor was found insufficient and so a new quarry at a distance of 14 kilometers away was required to be used.

3. Despite of these difficulties the contractor completed the work on 31.12.1988 and his final bill was paid on 31.3.1989. Before the Contractor could receive the last and final bill he was mentioning to the engineer in charge and his superior officer that the work involved excavation of hard strata and such excavation was outside the requirement of the contract. He first wrote this in his letter dated 6.1.1987 and demanded additional remuneration at certain rate. Soon thereafter, even Engineer In charge of the work supported his demand and informed in writing about it to the Superintending Engineer vide order dated 10.3.1987. The Engineer in Charge, however, informed through this letter that after completion of excavation, proposal for extra item, (additional work) outside the work would be submitted for approval etc and that payment could be made as per mutual agreed rates etc. The Engineer in charge soon thereafter informed to the Superintending Engineer vide letter dated 28.7.1987 that the Contractor was constrained to use a quarry which was about 14 kilometers away and so the Contractor would probably demand extra remuneration for additional transportation for extended distance. The Engineer in charge also informed to the Superintending Engineer that the work of excavation was required to be done in heavy percolating water etc and would possibly demand additional remuneration

In April, 1989, it seems, for the first time, the contractor made claim (of Rs.24.50 lac) for additional remuneration and vide a letter dated 19.4.1989, the Engineer in charge suggested to the Superintending Engineer that the contractor should be given about 3.36 lac more for the additional work. Apparently, he made his submission on this subject vide his letter dated 29.10.1990 to the Chief Engineer. A copy of this letter is not found on record, but it seems that he had partly supported the claim. In view of this the additional Assistant Chief Engineer vide his letter dated 26.11.1990 expressed his opinion partly in support of the contractor's claim. This letter was send to the Government. In this letter, the Assistant Chief Engineer recommended that the Contractor should get additional remuneration Rs.3.19 lac for the additional work which he did outside the requirement of the contract. But the claim of the contractor at that time was Rs.24.50 lac.

4. Nothing happened thereafter between the parties for quite sometime. It seems that the contractor vide his letter dated 13.2.1995 reiterated his claim etc. In response to this, the Engineer in Charge vide his letter dated 25.2.1995 which was addressed to the Superintending Engineer made certain suggestions. He referred to the earlier decision by the Assistant Chief Engineer dated 26.11.1990 and observed as under :-

"Since there was no possibility in getting the sanction to the said proposal of extra item from the Government, the Contractor has shown his willingness to give up his claim in respect of extra item if the claim of difference in transportation is sanctioned. The letter of M/s Pawar and Company in this respect is being enclosed herewith.

After analyzing the rates of the increased distance, a proposal in respect of the extra item is prepared and is being submitted for approval of the extra items in the work done as per the yearly works i.e. 1986-1987 and 1987-1988 at DSR Rate in respect of the difference in the distance i.e. original distance in the tender i.e. 4 kms and the distance of new stone quarry at Gadhe Pimpalgaon i.e. 13.50 kms the difference in between these two (13.50 - 4 = 9.50 kms).

As per the extra item rate the amount comes to Rs.99,234/- and if the difference in the rate is sanctioned, the final bill amount (as per the tender rates of Rs.31.10 lacs + extra item rate 0.99 lacs plus enhancement amount 0.76 lacs and price escalation Rs.1.50 lacs] comes to Rs.34.25 lac).'

5. As per the compilation of documents submitted by the Contractor, it appears that the Contractor was making demands. He made demands in 1999, 2001 and 2002, but in vain. On 29.5.2004 he sent a letter to the Engineer in Charge demanding additional payment. This letter only mentioned that he should be given additional remuneration towards the transportation costs incurred by him due to change in quarry. This letter did not mention a definite sum. Neither it referred to the earlier events that took place still 1995. He repeated his demand on 11.6.2004 as well as on 25.11.2004.

6. It appears from the letter dated 25.11.2004, the Engineer in charge apparently took cognizance of the demand dated 25.11.2004 and vide his letter dated 10.2.2005 informed the contractor as under :-

(It is better to quote the contents of this letter because the contents are quite important for deciding the points of limitation.) 10.2.2005 To,       M/s Pawar and Company,       C/o Anil Constructions,       Satyadharma Complex,       Jalna Road, Aurangabad. Subject :- Regarding transportation of the stone from more distance in respect of the work of Slab Culvert at Majalgaon Right Bank Canal for the year 1986-87 Tender No.LCB 4. Reference : Our Marathi letter No.Nil dated 25.11.2004. Sir,       With reference to the above subject, you are hereby informed that your claim has been submitted to the superior office/Government, however, decision thereon has not been received as yet. Therefore, unless and until the decision is taken by the Superior office/Government, no payment can be made to you. After the said decision, immediate action thereon would be taken. Therefore, you are requested to not to go for arbitration. Yours faithfully, sd/- (Executive Engineer) Majalgaon Canal Division No.7, Gangakhed

7. The Contractor vide his letter dated 24.3.2005 apparently for the first time after 1995 made a detail claim. This time, he sent various annexures to his letter, and for the first time since 1989, he demanded a whopping sum of Rs.85.88 lac. This according to the Contractor was his claim made under Clause 52 of the Contract.

8. In order to appreciate the submissions made in this case, one must go through the relevant article of the Contract, they read as under :-

"52. SETTLEMENT OF DISPUTES:

If the Contractor considers any work demanded of him to be outside the requirements of the contract, or considers any drawings record or ruling of the Engineer-in-charge on any matter in connection with or arising out of the contract or the carrying out of work to be unacceptable, he shall promptly ask the engineer-in-charge in writing, for written instructions or decision. Thereupon the Engineer-in-charge shall give his written instructions or decision within a period of thirty days of such request.

Upon receipt of the written instructions of decisions the Contractor shall promptly proceed without delay to comply with such instructions of decision.

If the Engineer-in-Charge fails to give his instruction or decision in writing within a period of thirty days after being requested, or if the Contractor is dissatisfied with the instructions or decision of engineer-in-Charge, the Contractor may within twenty days after receiving the instructions or decision appeal to the Superintending Engineer, who shall afford an opportunity to the Contractor to be heard and to offer evidence in support of his appeal to the requirement of Department. The Superintending Engineer shall give a decision within a period of twenty days after the Contractor has given the said evidence in support of his appeal.

If the Contractor is dissatisfied with the decision of the Superintending Engineer, the Contractor may within twenty days after receiving the decision, appeal to the Chief Engineer, who shall afford opportunity to the Contractor to be heard and to offer evidence in support of his appeal. The Chief Engineer shall give decision within a period of twenty days after the Contractor has given evidence in support of his appeal.

If Contractor is dissatisfied with this decision, the Contractor within period of twenty days from receipt of the decision shall indicate his intention to refer the dispute to Arbitration, failing which the said decision shall be final and conclusive."

9. It is the case of the Contractor that since his claim was made under clause 52 to the Engineer in charge on 24-3-2005, he ought to have given his decision on it within a period of 30 days. He did not get any decision of the Engineer in Charge and within next two months and therefore, on 11.5.2005 he filed his appeal as provided by Clause 53 to the Superintending Engineer. (Fortunately, for him the Superintending Engineer at that time was none other than Shri O.G. Mudiraj.) He responded to this appeal and vide his letter dated 21.6.2005 informed the Contractor that a meeting was arranged on 28.6.2005 in his office for giving opportunity to the contractor to adduce necessary evidence in support of his appeal. On the other hand, the Contractor apparently approached even the Chief Engineer and Chief Administrator of the Corporation vide his letter dated 6.6.2005 and this time even the Chief Engineer and Chief Administrator responded favorably and vide a letter dated 22.6.2005 noted that the appeal of the Contractor was pending before the Superintending Engineer and he should approach the Superintending Engineer Shri O.G. Mudiraj for getting the appeal decided.

10. It seems that thereafter, the Contractor and officers of the Corporation became quite active in getting the appeal decided. The Contractor demanded that officers of the Corporation who were connected to his contract work should be called for the purpose of appeal which was pending before the Superintending Engineer Shri Mudiraj.

11. However, before the appeal could be heard, the Contractor unilaterally appointed one Shri K.A. Grampurohit (Superintending Engineer) as the sole Arbitrator.

12. The Corporation challenged said action under section 11 of the Act and same was dismissed. The Corporation then approached the Supreme Court and without going into merits of the case, Supreme Court passed an order by consent of the parties and appointed Shri Mudiraj, who was then Superintending Engineer of the Corporation as Arbitrator.

Thereafter Arbitrator passed an award directing the Corporation to pay Rs.168.49 lac with future interest @ Rs.15 % p.a.

13. The Corporation opposed the Arbitration proceeding mainly on two grounds:-

(i) The claim is barred by limitation and;

(ii) Shri Mudiraj was not qualified to be the Arbitrator because he was connected to the contract work under dispute.

Both these objections were over ruled by the Arbitrator. On the point of limitation, the Arbitrator mentioned that the Contractor had been raising claim since 1987 till 2005 and since the Engineer in charge vide his letter dated 10.2.2005 assured him that he would be paid additional remuneration after obtaining the sanction and approval of the competent authorities, claim was within limitation. The Arbitrator in respect of his own alleged disqualification simply mentioned that he was not connected to the work and rejected the said ground. The Corporation then approached the learned District Judge Beed under section 34 of the Act and challenged the award.

The learned District Judge however, rejected the application. As regards the alleged bias and prejudice to the Arbitrator the learned District Judge opined that since the Arbitrator Shri Mudiraj was appointed by consent of the parties, same should be ignored. He further held that this issue would be outside the scope of Section 34 etc.

14. As regards, the limitation, the learned judge also held that since the correspondence between the parties was continuous and ultimately ended with the letter dated 10.02.2005, the claim was "alive" and not barred by limitation.

15. Learned Counsel for the Corporation raised two objections in respect of the award and the judgment of the District Judge: 1] that the claim was time barred and 2] Shri Mudiraj was not suitable person to act as Arbitrator because he was connected to the contract work in question.

16. The point of limitation is required to be decided mostly on facts that is the reason why I narrated the facts in detail earlier. These facts are admitted and are narrated by the parties; more particularly by the contractor through a compilation of documents. These documents according to him were important for deciding the issue of limitation also.

17. I initially asked the learned counsel of the contractor as to whether I should remand the case back to the Arbitrator for deciding the issue of limitation on the basis of evidence which was already produced on record. I gave this suggestion mainly because I am of the opinion that the issue of limitation was not properly discussed by the courts below. But, the learned counsel for the contractor declined to accept this suggestion and urged me to decide the question of limitation on the basis of facts.

18. Thus, main question that arose in this case is, whether the respondent-contractor made his claim within limitation?

Article 137 of the Limitation Act, 1963, applies to the petition under Section 8 of the Arbitration Act. It reads as under:-

Description of application	Period of limitation	Time from which period begins to run
137. Any other application for which no period of limitation is provided elsewhere in this division	Three years	When the right to apply accrues

In view of this provision, the time for the purposes of limitation begins to run from the date when the right to make the application accrued. In order to apply this law to any case of this nature, it is necessary that there should an arbitration agreement; and secondly, difference must arise between them as to which the agreement applies. A dispute in this case arose because of non-payment of alleged dues of the respondent.

19. The question in this case is, when did such dispute arise? The facts enumerated above and terms of the contract which are also enumerated above clearly show that way back on 26th November, 1990, the Chief Engineer gave his finding on the demand of the contractor that he was entitled to approximately Rs.3 Lac over the amount he had already received. At that time, admittedly the claim of the contractor was for Rs.24.50 Lac. This decision of the Assistant Chief Engineer apparently was last word between the parties.

20. Clause 52 of the Contract lays down the procedure for settlement of disputes. The first level of decision is of Engineer In charge, the second level is decision of the Superintending Engineer and the last level is the decision of the Chief Engineer. In this case, the Assistant Chief Engineer was the officer at the highest level in the hierarchy of dispute resolution. He gave his ruling in wring and communicated the same vide his letter dated 26th November, 1990 to the contractor. The contractor was certainly dissatisfied with the ruling and decision, and as per Clause 52 of the Contract, he was under obligation to indicate his intention to refer the dispute to the arbitration. The limitation for making application for appointment of arbitrator was 20 days. In addition, one must refer to S. 21 of the Act, which reads as under :-

21. Commencement of arbitral proceedings.- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

21. Admittedly, the contractor did not apply for appointment of arbitrator for deciding the dispute within time. Instead of taking his timely step, the contractor apparently sent reminders from time to time. It appears from the record that one line reminders were sent in 1999, 2001 and 2002. Even the letter dated 29th May, 2004 is a simple letter addressed to the Engineer In charge demanding additional payment. This letter did not mention definite amount. Similar letters were sent on 11th June, 2004 and on 25th November, 2004. As said above, the Executive Engineer (the Engineer In charge) took cognizance of his demand vide his letter dated 10th February, 2005, surprisingly took a conciliatory approach indicating that the contractor's claim was still under consideration. There is even a request in this letter made to the contractor that he should not refer the case to the arbitration. This letter is used by the contractor to indicate that his case is within limitation, because the negotiations were still going on between the parties and the stage of making application for appointment of arbitrator had not arisen then.

But, as indicated above, on facts, the stage of making the application for appointment of arbitrator had long back arisen in 1990, and the contractor failed to make such application for appointment of arbitrator within 20 days. So, whatever happened in 2004 between the contractor and the Executive Engineer will not bind the Corporation.

22. On the other hand the letter by no stretch of imagination indicates that it amounted to acknowledgment of time barred claim. The definition of promise to pay a debt barred by limitation law is mentioned in Section 25 of the Indian Contract Act, 1872, it reads as under:-

"25. Agreement without consideration, void, uncles it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.- An agreement made without consideration is void, unless-

(1) it is expressed in writing and registered under the law for the time being in force for the registration of 1*[documents], and is made on account of natural love and affection between parties standing in a, near relation to each other ; or unless

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do ; or unless

(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract."

Sub-clause (3) of this Section is relevant for the preset discussion. It is clear from this definition that a promise to pay a debt barred by limitation would become agreement in the eye of Law only if such promise is made in writing, is signed by the debtor or his agent promising to pay whole or part of a debt. The letter, referred to above, is no doubt a writing. It is signed by an officer of the debtor, but there is no promise to pay any sum to the contractor. It only indicates that the Corporation would consider his case. Promise to give consideration to the demand is not promise to pay. After considering the pros and cons and merits of the demand, the Corporation could have either agreed to pay certain amount or would have refused to pay. This possibility is not ruled out by the letter. So, this letter is not a document which gets the case of the contractor back in limitation.

After the above letter whatever happened between the officers of the Corporation and the Contractor was unfortunate. But these activities did not amount to an agreement to pay a time barred debt.

23. The Supreme Court in the case of Major (Retd.) Inder Singh Rekhi v. D.D.A. (AIR 1988 SC 1007) discussed such a question. The ratio laid down in this judgment is in my view applicable to this case and I place reliance on it to support my view. The Court said in paragraph No.4 as under:-

"The question is for the present case when did such dispute arise. The High Court proceeded on the basis that the work was completed in 1980 and, therefore, the appellant became entitled to the payment from that date and the cause of action under Article 137 arose from that date. But in order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute must arise. It is true that on completion of the work a right to get payment would normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on February 28, 1983 and there was non-payment, the cause of action arose from that date, that is to say, February 28, 1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders. But where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under Section 8 or a reference under Section 20 of the Act."

24. Learned counsel for the respondent placed reliance on various judgments of Supreme Court and High Courts to support his case that the claim was within limitation. But, the discussion above, clearly indicates that this case is decided on facts and on the basis of the judgment of Supreme Court in Major (Retd.) Inder Singh Rekhi's case (cited supra).

The judgment of Supreme Court in the case of Utkal Commercial Corporation v. Central Coal Fields Ltd. (AIR 1999 SC 801(1) gives in fact reference to the judgment in the case of Major (Retd.) Inder Singh Rekhi, supra.

The reliance on the judgment of Supreme Court in the case of B.S.N.L. and Ors. v. M/s. Subash Chandra Kanchan and Anr. (AIR 2006 SC 3335) is placed mainly for suggesting that since the appellant / Corporation did not object to appointment of arbitrator, they gave up this objection. However, the law on this subject is quite settled. After the arbitrator was appointed, all the points including that of limitation can be raised and decided on merits. Therefore, this judgment will not be applicable to the facts of the case for holding that the officers of the Corporation gave up the point of limitation.

In the case of Hari Shankar Singhania v. Gaur Hari Singhania (AIR 2006 SC 2488), the Supreme Court on facts held that the parties were negotiating settlement and during the negotiations there was no reason for raising a dispute and referring the parties to arbitrator. The Supreme Court held that during the discussion between the parties the dispute was alive, and therefore, it was not time barred etc. In this case, as said above, the dispute died in 1990 when the first serious attempt of the contractor to demand and get additional remuneration failed. The facts clearly indicated that the dispute between the parties came to an end when the contractor failed to refer the dispute to the arbitrator.

In the case between M/s. Shree Ram Mills Ltd. v. M/s. Utility Premises (P) Ltd. (2007 AIR SCW 2130) the question before the Supreme Court was similar, as to whether there was a "live" issue between the parties, and therefore, the question of limitation did not arise.

The facts of the reported case between National Aluminium Co. Ltd. And Anr. v. G.C. Kanungo (AIR 2009 SC 2928) were similar to the facts of this case. Award given under Arbitration Act, 1940, was challenged on the ground of limitation. It was pointed out by the Awardee that the principal sent a letter to him that the case was under consideration and therefore the High Court held that the claim was within limitation. The Supreme Court on facts confirmed the finding. The facts of this case are elaborately discussed above to give 'finding on fact' viz. "the claim is time barred".

25. Even though the Arbitrator was appointed in this case he was under obligation to examine this crucial aspect of the case and that was: whether the application for commencing the arbitral proceedings was within time? Since the Arbitrator Mr. O.G. Mudiraj was party to the activities of the officers of the Corporation (details of Shri Mudiraj's role is described in para No.9), one cannot expect him to accept the responsibility as Arbitrator. Besides, he admittedly acted as one of the authorities appointed by clause 52. He thus was certainly connected to the contract. Unfortunately, the learned District Judge did not examine the facts of this case and probably did not give due importance to Clause 52 of the Contract. In view of the discussion in respect of role played by Mr. O.G. Mudiraj, I have no hesitation to hold that he was not qualified to be an Arbitrator.

The appeal is therefore allowed. The impugned Award and the judgment and order of the learned District Judge confirming the same stand set aside. The claim of the respondent-Contractor stands rejected.

In view of disposal of Arbitration Appeal, Civil Application Nos. 4732 of 2011, 69 of 2012 and 6506 of 2012 stand disposed of.

Appeal allowed.