SECUNDERABAD CANTONMENT BOARD vs. M/S B. RAMACHANDRAIAH AND SONS

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 900-902 OF 2021 (@ SLP (CIVIL) Nos.27960-62 of 2019) SECUNDERABAD CANTONMENT BOARD …APPELLANT VERSUS M/S B. RAMACHANDRAIAH & SONS …RESPONDENT J U D G M E N T R.F. Nariman, J. 1. Leave granted. 2. These appeals arise out of applications under Section 11 of the Arbitration and Conciliation Act, 1996 [“ Arbitration Act ”]. On 02.09.2000, the appellant before us, Secunderabad Cantonment Board [“ Appellant ”], floated a notice inviting tender [“ N.I.T. ”] for an annual term contract for: Signature Not Verified

Digitally signed by Jayant Kumar Arora Date: 2021.03.15 15:48:16 IST Reason: Hot Mix Plant and Paver); 1

Hot Mix Plant and Paver);

and Plant). 3. Pursuant to the aforesaid N.I.T., three agreements were entered into with the respondent, M/s Ramachandraiah and Sons [“ Respondent ”], the first one dated 23.09.2000 and the other two dated 17.09.2001. Clause 5 of each of the aforesaid agreements, which is in identical terms, is important and reads as follows :

4. The arbitration clause contained in Clause 17 of each of the aforesaid agreements reads as follows:

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5. Work orders were issued with respect to the aforesaid works. The Appellant argued that the Respondent had failed to complete the work within the stipulated period, but vide its meeting dated 05.10.2002, it resolved to grant an extension of time upto 31.12.2002 on an undertaking from the Respondent that the Appellant would be at liberty to impose penalty as provided in the contracts and as decided by the Appellant in case balance works were not completed by 31.12.2002. On 30.10.2002, the Respondent submitted the required undertaking. 6. It is not disputed that vide the final contract certificates issued by the Appellant on 18.02.2003 and 26.03.2003, final payment was received by the Respondent in respect of the works in question. After a hiatus of about six months, the Respondent then started making demands towards reimbursement on account of variation in prices of material, labour and fuel. These demands were made vide letters dated 08.09.2003, 24.07.2004 and 12.10.2004. 7. After a silence of over two years, the Respondent then issued a letter dated 07.11.2006 by which the Respondent requested for the 3 appointment of an arbitrator in respect of the claim of reimbursement on account of price variation in all the three contracts. It was specifically stated that necessary steps should be taken by the Appellant within 15 days of receipt of the letter. Receiving no reply from the Appellant, the Respondent issued yet another letter dated 13.01.2007, in which it spoke of a fundamental breach of contractual obligations and then stated that it had no option but to rescind the contracts and have an arbitrator appointed within 30 days, in conformity with the arbitration clause provided in the contracts. 8. To this letter, a laconic reply was received from the Appellant on 23.01.2007, stating that the matter referred to in their letter was under consideration. It is not disputed that the 30-day period, spoken of in the letter dated 13.01.2007, was over by 12.02.2007. Despite this being the position, the Respondent kept on writing letters at long intervals between the years 2007-2009, reiterating its claim. Finally, by a legal notice dated 30.01.2010, the Respondent specifically stated: “In order to reiterate the brief details of the Contracts, all the three works have been completed way back in 31.03.2002 and final bill was received under protest.

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9. To this legal notice dated 30.01.2010, the Appellant replied on 16.02.2010, stating:

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10. By way of rejoinder to the aforesaid reply notice, the Respondent issued what it called a “clarification notice” on 20.03.2010, followed by three letters dated 30.09.2010, reiterating the earlier requests for the appointment of an arbitrator. This was rejected by the Appellant vide a letter dated 10.11.2010, which letter informed the Respondent that the President of the Secunderabad Cantonment Board had rejected the application for appointment of an arbitrator as all payments were made and nothing remained pending. 11. After a three-year long hiatus, the Respondent then filed applications under Section 11 of the Arbitration Act on 06.11.2013. Vide the impugned judgment dated 20.08.2019, a learned Single Judge of the High Court for the State of Telangana held that the Section 11 applications were within time as they were filed within three years from the letter dated 10.11.2010 rejecting the request to appoint an arbitrator. The learned Single Judge also went on to record:

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12. As a result, the Section 11 applications were allowed and Shri Y.V. Ramakrishna (Retired District Judge) was appointed as arbitrator to adjudicate the disputes between the parties arising out of the three agreements. The question of the bar of limitation of the claims made was left open to be considered and decided by the arbitrator. 13. Shri P.S. Narasimha, learned Senior Advocate appearing on behalf of the Appellant, submitted that the date on which the request made for the appointment of an arbitrator was received by the President of the Secunderabad Cantonment Board was 23.01.2007, as a result of which, this is the date on which the limitation period starts running under Article 137 of the Limitation Act, 1963 [“ Limitation Act ”] insofar as an application under Section 11(6) of the Arbitration Act is concerned. For this purpose he relied upon a judgment of the High Court of Bombay in Deepdharshan Builders Pvt. Ltd. v. Saroj, (2019) 1 AIR Bom R 249 , as well as a recent judgment of this Court in 8 Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643 . He then argued that even so far as the cause of action on merits is concerned, it arose way back on 08.09.2003, when the Respondent raised the claim with regard to the dispute for the first time. Once time begins to run, limitation cannot be extended by writing any number of subsequent letters. He also relied upon the recent judgment of this Court in Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 , stating that this case falls under paragraph 148 of the judgment, in that the claim was ex facie time barred and dead and that there was no subsisting dispute. 14. In reply, Shri Nithin Chowdary Pavuluri, learned counsel appearing for the Respondent, argued that the request for appointment of an arbitrator was rejected by the Appellant for the first time on 10.11.2010, and thus, 10.11.2010 would be the date on which the cause of action would arise. He pressed the point that the rejection of the request to appoint an arbitrator constituted a failure to perform the function entrusted to the President of the Secunderabad Cantonment Board under Clause 2.2.52 of the General Conditions of Contract [“ GCC ”], and thus the cause of action under Section 11(6)(c) of the Arbitration Act first arose on 10.11.2010. Till such rejection, the claim would have to be deemed to have been pending and thus, the 9 Respondent’s claim was alive at the time of filing the applications under Section 11 of the Arbitration Act. Further, though he pressed the point that the final bill was received under protest since the price variation bill submitted with the final bill had not been cleared by the Appellant, he produced no such document evidencing the same. In addition, he sought to distinguish, on facts, the judgments of this Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643 and Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 from the appeals before us, by arguing that the GCC between the Appellant and the Respondent specifically provided for a procedure to appoint an arbitrator and that the Appellant was responsible for delaying and sitting on the Respondent’s request. Thus, he supported the impugned judgment of the High Court by which the Section 11 applications were allowed. 15. Having heard learned counsel appearing for both parties, it is first necessary to refer to the recent judgment of this Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643 , which extracts passages from all the earlier relevant judgments, and then lays down as to when time begins to run for the purpose of filing an application under Section 11 of the Arbitration Act. This Court, after referring to the relevant statutory provisions, held: 10 “ 15. In Damodar Das [ State of Orissa v. Damodar Das , (1996) 2 SCC 216] , this Court observed, relying upon Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 and an earlier decision of a two-Judge Bench in Panchu Gopal Bose v. Port of Calcutta [ Panchu Gopal Bose v. Port of Calcutta , (1993) 4 SCC 338] , that the period of limitation for an application for appointment of arbitrator under Sections 8 and 20 of the 1940 Act commences on the date on which the “cause of arbitration” accrued i.e. from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned. xxx xxx xxx “ 21. Applying the aforementioned principles to the present case, we find ourselves in agreement with the finding of the High Court that the appellant's cause of action in respect of Arbitration Applications Nos. 25/2003 and 27/2003, relating to the work orders dated 7-10-1979 and 4-4-1980 arose on 8-2-1983, which is when the final bill handed over to the respondent became due. Mere correspondence of the appellant by way of writing letters/reminders to the respondent subsequent to this date would not extend the time of limitation. Hence the maximum period during which this Court could have allowed the appellant's application for appointment of an arbitrator is 3 years from the date on which cause of action arose i.e. 8-2-1986. Similarly, with respect to Arbitration Application No. 28/2003 relating to the work order dated 3-5-1985, the respondent has stated that final bill was handed over and became due on 10-8- 1989. This has not been disputed by the appellant. Hence the limitation period ended on 10-8-1992. Since the appellant served notice for appointment of arbitrator in 2002, and requested the appointment of an arbitrator before a court only by the end of 2003, his claim is clearly barred by limitation. xxx xxx xxx 11 23. Turning to the other decisions, it is true that in Inder Singh Rekhi [ Inder Singh Rekhi v. DDA , (1988) 2 SCC 338], this Court observed that the existence of a dispute is essential for appointment of an arbitrator. A dispute arises when a claim is asserted by one party and denied by the other. The term “dispute” entails a positive element and mere inaction to pay does not lead to the inference that dispute exists. In that case, since the respondent failed to finalise the bills due to the applicant, this Court held that cause of action would be treated as arising not from the date on which the payment became due, but on the date when the applicant first wrote to the respondent requesting finalisation of the bills. However, the Court also expressly observed that “ a party cannot postpone the accrual of cause of action by writing reminders or sending reminders ”. 24. In the present case, the appellant has not disputed the High Court's finding that the appellant itself had handed over the final bill to the respondent on 8-2-1983. Hence, the holding in Inder Singh Rekhi [ Inder Singh Rekhi v. DDA , (1988) 2 SCC 338] will not apply, as in that case, the applicant's claim was delayed on account of the respondent's failure to finalise the bills. Therefore the right to apply in the present case accrued from the date on which the final bill was raised (see Union of India v. Momin Construction Co. [ Union of India v. Momin Construction Co. , (1997) 9 SCC 97] ). xxx xxx xxx 29. Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant's claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the applicant to plead that it waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent's failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile.” 12 16. The recent judgment of this Court in Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks India Pvt. Ltd., delivered on 10.03.2021 in Civil Appeal Nos. 843-844 of 2021 has also considered the entire law on the subject. The first paragraph of the said judgment reads as follows: “ 1. The present Appeals raise two important issues for our consideration : (i) the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”); and (ii) whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred?” 17. Insofar as the first issue is concerned, after examining Article 137 of the Limitation Act, this Court held: “ 11. It is now fairly well-settled that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days’ from issuance of the notice invoking arbitration. In other words, an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s) / dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment. 12. The period of limitation for filing a petition seeking appointment of an arbitrator/s cannot be confused or conflated with the period of limitation applicable to the substantive claims made in the underlying commercial contract. The period of limitation for such claims is prescribed under various Articles of the Limitation Act, 1963. The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an 13 application for appointment of an arbitrator. This position was recognized even under Section 20 of the Arbitration Act 1940. Reference may be made to the judgment of this Court in C. Budhraja v. Chairman, Orissa Mining Corporation Ltd . [ (2008) 2 SCC 444 ] wherein it was held that Section 37(3) of the 1940 Act provides that for the purpose of the Limitation Act, an arbitration is deemed to have commenced when one party to the arbitration agreement serves on the other party, a notice requiring the appointment of an arbitrator. Paragraph 26 of this judgment reads as follows :

18. Insofar as the second issue is concerned, this Court went into the 14 position prior to the Arbitration and Conciliation (Amendment) Act, 2015 [“ 2015 Amendment ”] together with the change made by the introduction of Section 11(6A) by the 2015 Amendment, stating: “ 24. Sub-section (6A) came up for consideration in the case of Duro Felguera SA v. Gangavaram Port Ltd . [(2017) 9 SCC 729] , wherein this Court held that the legislative policy was to minimize judicial intervention at the appointment stage. In an application under Section 11, the Court should only look into the existence of the arbitration agreement, before making the reference. Post the 2015 amendments, all that the courts are required to examine is whether an arbitration agreement is in existence —nothing more, nothing less.

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25. In Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman [(2019) 8 SCC 714 ], a three-judge bench held that the scope of power of the Court under Section 11 (6A) had to be construed in the narrow sense. In paragraph 10, it was opined as under :

16 26. In Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited [( 2020) 2 SCC 455] this Court took note of the recommendations of the Law Commission in its 246th Report, the relevant extract of which reads as :

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19. This Court went on to hold that limitation is not a jurisdictional issue but is an admissibility issue. It then referred to a recent judgment of this Court in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 , and stated as follows: “ 36. In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1 ], on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out “manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes.” The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused. In paragraph 144, the Court observed that the judgment in Mayavati Trading had rightly held that the judgment in Patel Engineering had been legislatively overruled. 18 Paragraph 144 reads as :

(emphasis supplied)

Paragraph 148 of the judgment reads as follows :

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In paragraph 154.4, it has been concluded that:

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In paragraph 244.4 it was concluded that:

(emphasis in original) 20. Applying the aforesaid judgments to the facts of this case, so far as the applicability of Article 137 of the Limitation Act to the applications 21 under Section 11 of the Arbitration Act is concerned, it is clear that the demand for arbitration in the present case was made by the letter dated 07.11.2006. This demand was reiterated by a letter dated 13.01.2007, which letter itself informed the Appellant that appointment of an arbitrator would have to be made within 30 days. At the very latest, therefore, on the facts of this case, time began to run on and from 12.02.2007. The Appellant’s laconic letter dated 23.01.2007, which stated that the matter was under consideration, was within the 30-day period. On and from 12.02.2007, when no arbitrator was appointed, the cause of action for appointment of an arbitrator accrued to the Respondent and time began running from that day. Obviously, once time has started running, any final rejection by the Appellant by its letter dated 10.11.2010 would not give any fresh start to a limitation period which has already begun running, following the mandate of Section 9 of the Limitation Act. This being the case, the High Court was clearly in error in stating that since the applications under Section 11 of the Arbitration Act were filed on 06.11.2013, they were within the limitation period of three years starting from 10.11.2020. On this count, the applications under Section 11 of the Arbitration Act, themselves being hopelessly time barred, no arbitrator could have been appointed by the High Court. 22 21. Even otherwise, the claim made by the Respondent was also ex facie time barred. It is undisputed that final payments were received latest by the end of March 2003 by the Respondent. That apart, even assuming that a demand could have been made on account of price variation, such demand was made on 08.09.2003. Repeated letters were written thereafter by the Respondent, culminating in a legal notice dated 30.01.2010. Vide the reply notice dated 16.02.2010, it was made clear that such demands had been rejected. Even taking 16.02.2010 as the starting point for limitation on merits, a period of three years having elapsed by February 2013, the claim made on merits is also hopelessly time barred. 22. For all these reasons, the appeals are allowed and the impugned judgment of the High Court dated 20.08.2019 is set aside. …………………................J. [ R.F. NARIMAN ] ………………....................J. [ B.R. GAVAI ] New Delhi; March 15, 2021. 23