Full Judgment Text
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PETITIONER:
STEEL AUTHORITY OF INDIA LIMITED
Vs.
RESPONDENT:
J.C. BUDHARAJA, GOVERNMENT AND MINING CONTRACTOR
DATE OF JUDGMENT: 01/09/1999
BENCH:
D.P.Wadhwa, M.B.Shah
JUDGMENT:
Shah, J.
This appeal is filed against the judgment and order
dated 11th September, 1991 passed by the Patna High Court,
Ranchi Bench in Miscellaneous Appeal No.621 of 1987 under
Section 39(1)(vi) of the Arbitration Act, 1940 (hereinafter
referred to as the Act). The High Court dismissed the
appeal filed by the appellant and confirmed the order dated
2nd April, 1990 passed by the Subordinate Judge, Ist Court,
Chas in Arbitration Suit No. 28 of 1988 by which award is
made rule of Court with 8% per annum interest from the date
of the decree.
It is undisputed that the National Mineral Development
Corporation, predecessor of the Steel Authority of India
Limited on 1.8.1977 executed a contract with the respondent
for construction of tailing-cum-storage reservoir at Kundi
for Megha Taburu Iron Ore Project. As per the terms of the
contract, the work was to be completed within a period of
two years. During this period, Public Sector Iron and Steel
Companies (Re-structuring and Miscellaneous Provisions) Act,
1978 was passed and Steel Authority of India Limited became
the employer in place of National Mineral Development
Corporation. Further, the contractor, N.C. Budharaja also
died and was succeeded by the present respondent.
After two years of contract period, on 29th August,
1979, respondent raised the claim of about 18 lakhs as
damages for delay in handing over work sites and allied
reasons. On 20th December, 1980, a supplementary agreement
was executed between the appellant and the respondent for
the same work at an increased rate. The relevant part of
the said agreement is as under: -
The Supplementary agreement made this twentieth day
of December, 1980 between Steel Authority of India Limited
having its registered office at Hindustan Times House,
18/20, Kasturba Gandhi Marg, New Delhi 110 001 and having
one of fits units at Bokaro Steel Plant at Bokaro Steel City
(hereinafter referred to as the (Employer) which expression
shall include its successors and assigns) of the one part
and M/s N.C. Budhraja Govt. and Mining Contractor, at
Jharpada, P.O. Budheswari Colony, Bhubaneswar (hereinafter
referred to as the Contractor) which expression shall
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include its successors and assigns of the other part.
WHEREAS the contractor entered into an agreement dt.
1st August 1977 with M/s National Mineral Development
Corporation Limited in regard to the work of Constructions
of Tailing-cum-Storage Reservoir at Meghahatuburu Iron Ore
Project relating to their Meghahatuburu Iron Ore Project.
AND WHEREAS the said unit of the National Mineral
Development Corporation Limited after the coming into force
of the Public Sector Iron and Steel Companies (Restructuring
and Miscellaneous Provisions) Act, 1978 was transferred to
Steel Authority of India Limited and declared as a captive
unit for the Bokaro Steel Plant of Steel Authority of India
Limited.
AND WHEREAS pursuant to the provisions of Section 23
of the Restructuring Act aforesaid, the agreement entered
into by and between M/s National Mineral Development
Corporation Ltd. in respect of Meghahatuburu unit of M/s
National Mineral Development Authority Ltd. became fully
enforceable and effective against or in favour of Steel
Authority of India of India Limited.
AND WHEREAS the Contractor is yet to execute a
considerable portion of the work more particularly described
in the schedule to this agreement.
AND WHEREAS the contractor has agreed to complete the
said balance work as on 12.3.80 the estimated quantity of
which is set out in document specified at 2(d) on the terms
and conditions hereinafter enumerated.
Further clauses 3 and 4 of the said agreement read as
under: -
3. In consideration of the payments to be made by
the employer to the Contractor as hereinafter mentioned the
contractor hereby covenants with the employer to construct,
complete and maintain the works in conformity with the
provisions of contract in all respect.
4. The employer hereby covenants to pay to the
contractor in consideration of the construction completion
and maintenance of the works the contract price at the time
and in the manner prescribed by the contract.
Despite the aforesaid fact that the supplementary
agreement was executed for the same work at an increased
rate, it is stated that the appellant wrote letter dated
3.9.1983 repudiating claim of 18 lakhs on account of damages
for any loss sustained by the contractor as claimed by him
by his letter dated 29th August, 1979.
Thereafter, dispute arose, in the year 1985 for the
work with regard to second agreement dated 20th December,
1980 and the matter was referred to arbitration. In that
Reference, respondent raised certain claims relating to the
work done under the first agreement. On 2nd December, 1985,
the appellant raised an objection that the claim could not
be decided by the Arbitrators as the same was pertaining to
previous agreement. Thereafter respondent gave notice dated
2nd December, 1985 to the appellant to appoint sole
arbitrator as provided for under the first agreement. On
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10th December, 1985, the appellant appointed sole arbitrator
with reservation regarding the tenability, maintainability
and validity of the Reference as also on further grounds
that the claim was barred by the period of limitation and
that it pertained to excepted matters of general conditions
of the contract.
On 11th July, 1986, the arbitrators gave an award
pertaining to the dispute under the agreement dated
20.12.1980. Against the claim of Item No.1 of Rs.17 lakhs
and odd pertaining to first agreement, the arbitrators
awarded Nil; this award has been made rule of the Court
by the High Court of Delhi.
Meanwhile, the appellant challenged the jurisdiction
of the sole arbitrator by filing Miscellaneous Case No. 22
of 1987. Finally, the High Court dismissed the Revision
Application on 22nd August, 1988. Thereafter on 18th
November, 1988, the sole arbitrator made an award granting
damages to the tune of Rs.11,26,296/- as principal sum
(unliquidated damages) and a further sum of Rs.12,06,000/-
as interest on the above principal amount from 29th August,
1979 till the date of the Reference, i.e. 15th December,
1985. The arbitrator also awarded future interest at the
rate of 17 per cent from the date of the award to the date
of payment or the date or decree whichever is earlier. By
order dated 2nd April, 1990, the learned Sub-Judge made the
award rule of the court with a modification for the payment
of interest from the date of the decree at the rate of 8 per
cent on the principal amount or unpaid part till the date of
actual payment. The appeal filed before the High Court
against the said judgment and decree was also dismissed.
Hence this appeal.
At the time of hearing, the learned counsel for the
appellant submitted that the award passed by the arbitrator
is (a) without jurisdiction, (b) The claim made by the
respondent was on the face of it barred by the period of
limitation, and (c) Award of interest is wholly unjustified
and illegal. The learned counsel for the respondent
supported the order passed by the High Court. He submitted
that (1) The award is non-speaking. Hence, courts below
rightly refused to interfere with. (2) The question,
whether claim made by the contractor was within period of
limitation or not, was required to be decided by the
arbitrator, and (3) There is no prohibition for awarding
interest from the date of the claim till the date of
reference and thereafter.
For deciding the controversy, it would be necessary to
refer to the material part of the award dated 18th November,
1988 which is as under: - The claimant has put forth a
claim amounting to Rs.18,10,014.48 plus interest on the same
amount at 30% per annum from 29.8.79 till date of payment.
The amount of interest at the above rate on the claim
amount from 29.8.79 till 18.11.88, i.e. date of AWARD
worked out to Rs.33,39,351.00 (Rupees Thirty three lakhs
thirty nine thousand three hundred fifty one only).
Thus the total amount of claims including interest up
to the date of AWARD works out to Rs.51,49,365.48 (Rupees
fifty one lakhs forty nine thousand three hundred sixty five
and paise forty eight only).
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On perusal of all documents filed by both parties and
relied upon by the parties and keeping in view oral and
written submissions and chain of arguments of both parties
relating to factual and legal. I am convinced that the
claimant sustained losses on account of the following
reasons:-
(a) The work site is located in the wild-life
sanctuary of Saranda Reserve forest. The project
authorities issued work order without completing the
departmental formalities in obtaining permission of the
Forest Department for executing the work inside wild-life
sanctuary.
(b) The project authorities could not obtain
permission of Forest Department to take men and machinery to
the work site as and when necessary for executing the work.
(c) The project authorities could not obtain
permission of Forest Department in time for making hutments
at work site and could not hand over the site in time.
(d) The project authority could not remove forest
growths from the working area before issue or work order.
(e) The project authorities could not obtain
permission of Forest Department for transporting the
required machinery and materials for blasting operation and
executing drilling and blasting work inside the wild-life
sanctuary till March 1979.
(f) Delay in payment of legitimate dues of the
claimant for more than nine years.
After recording the aforesaid reasons, the arbitrator
held that in consideration of the documents, submissions and
arguments of both the parties, contractor was entitled to be
paid by the Steel Authority of India Limited a sum of
Rs.11,26,296/- as principal amount and a sum of
Rs.12,06,000/- as interest from 29th August, 1979 till 15th
August, 1985, in all Rs.23,32,296/-. The Arbitrator also
awarded future interest at the rate of 17% on the principal
sum of Rs.11,26,296 from the date of award till the date of
payment or the date of decree whichever is earlier.
Learned counsel for the appellant submitted that the
award is a speaking one and the Arbitrator has awarded the
damages for the reasons that department failed to obtain
various permissions from the forest department. The reasons
which are specifically mentioned in the award for granting
damages clearly reveal that the arbitrator has passed a
speaking award. He pointed out the terms of the contract
and submitted that it is apparent that arbitrator has
awarded the amount for the items for which there is
prohibition in the contract and thereby he has traveled
beyond his jurisdiction. For this purpose, learned counsel
for the appellant referred to conditions which are referred
to by the learned Single Judge and the trial court. They
are as under: -
Clause 25: No claim if work is abandoned or
postponed-
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The successful tenderer shall have no claim whatsoever
against the Corporation if the work or any part thereof
covered by these tender documents if postponed to any later
date or abandoned in the overall interest of the Corporation
or for any other reason. The Corporations decision in the
matter shall be final and binding on the contractor.
Clause 32: Site for execution of work:
Site for execution of work will be available as soon
as the work is awarded. In case it is not possible for the
Corporation to make the entire site available on the award
of work the contractor will have to arrange his working
programme accordingly. No claim whatsoever for not giving
the entire site on award of work and for giving the site
gradually will be tenable.
Clause 39: (Force majeruo):-
No failure or omission to carry out the provisions of
the contract shall give rise to any claim by the Corporation
and the contractor, one against the order, if such failure
ommission arises from an act of God, which shall include
natural calamities such as fire, flood, earthquake,
hurricane or any postilence, or from civil strike,
compliance with any statute or regulation of Government,
lockouts and strikes, or from any political or other reasons
beyond the control or either the Corporation or the
Contractor, including war whether declared or not, Civil war
or state of insurrection.
Clause 5 (iv): General Conditions of Contract (Time
for Completion of work covered by the Contract: -
Failure or delay by the Corporation to hand over to
the contractor possession of the lands necessary for the
execution of the work, or to give the necessary drawings
instructions or any other delay by the Corporation which due
to any other cause whatsoever shall in no way affect or
vitiate the contract or alter the character thereof or
entitle the contractor to damage or compensation therefor
provided that the Corporation may extend the time for
completion of the work by such period as it may consider
necessary and proper.
Before the learned Sub-Judge and the High Court, it
was submitted that in view of the aforesaid conditions which
are laid down in the contract which prohibited award of
damages or compensation, it was not open to the arbitrator
to award damages for the alleged losses sustained on account
of not obtaining or delay in obtaining various permissions
required to be taken under the law or rules from the Forest
Department.
Re: Lack of Jurisdiction of the Arbitrator
From the Award quoted above, it is apparent that
damages are granted by the arbitrator for delay in obtain
permission from the Forest Department: (a) for executing
the work inside the wildlife sanctuary; (b) to take man and
machinery to the worksite in the forest; (c) for making
hutments at the work site and failure to hand over site in
time; (d) failure to remove Forests growths from working
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area before issue of work order; and (e) for transporting
the required machinery and materials for blasting operation
and executing the drilling and blasting work inside the
wild-life sanctuary till March, 1979.
Clause 32 of the agreement specifically stipulates
that no claim whatsoever for not giving the entire site on
award of work and for giving the site gradually will be
tenable and the contractor is required to arrange his
working programme accordingly. Clause 39 further stipulates
that no failure or omission to carry out the provisions of
the contract shall give rise to any claim by the Corporation
and the contractor, one against the other, if such failure
or omission arises from compliance with any statute or
regulation of Government or other reasons beyond the control
of either the Corporation or the Contractor. Obtaining
permission from Forest Department to carry out the work in
wild life sanctuary depends on statutory regulations.
Clause (vi) of General condition of the contract also
provides that failure or delay by the Corporation to hand
over to the Contractor possession of the lands necessary for
the execution of the work or any other delay by the
Corporation which due to any other cause whatsoever would
not entitle the contractor to damage or compensation thereof
; in such cases, the only duty of the Corporation was to
extend the time for completion of the work by such period as
it may think necessary and proper. These conditions
specifically prohibit granting claim for damages for the
breaches mentioned therein. It was not open to the
arbitrator to ignore the said conditions which are binding
on the contracting parties. By ignoring the same, he has
acted beyond the jurisdiction conferred upon him. It is
settled law that arbitrator derives the authority from the
contract and if he acts in manifest disregard of the
contract, the award given by him would be arbitrary one.
This deliberate departure from the contract amounts not only
to manifest disregard of the authority or misconduct on his
part, but it may tantamount to mala fide action. In the
present case, it is apparent that awarding of damages of Rs.
11 lakhs and more for the alleged lapses or delay in handing
over work site is, on the face of it, against the terms of
the contract.
Further, the Arbitration Act does not give any power
to the arbitrator to act arbitrarily or capriciously. His
existence depends upon the agreement and his function is to
act within the limits of the said agreement. In Continental
Construction Co. Ltd. vs. State of Madhya Pradesh [(1988)
3 SCC 82], this Court considered the clauses of the contract
which stipulated that contractor had to complete the work in
spite of rise in the prices of materials and also rise in
labour charges at the rates stipulated in the contract.
Despite this, the arbitrator partly allowed contractors
claim. That was set aside by the court and the appeal filed
against that was dismissed by this Court by holding that it
was not open to the contractor to claim extra costs towards
rise in prices of material and labour and that arbitrator
misconducted himself in not deciding the specific objection
regarding the legality of extra claim. In that case, the
Court referred to the various decisions and succinctly
observed: -
If no specific question of law is referred, the
decision of the arbitrator on that question is not final
however much it may be within his jurisdiction and indeed
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essential for him to decide the question incidentally. The
arbitrator is not a conciliator and cannot ignore the law or
misapply it in order to do what he thinks is just and
reasonable. The arbitrator is a tribunal selected by the
parties to decide their disputes according to law and so is
bound to follow and apply the law, and if he does not he can
be set right by the court provided his error appears on the
face of the award.
It is to be reiterated that to find out whether the
arbitrator has travelled beyond his jurisdiction and acted
beyond the terms of the agreement between the parties,
agreement is required to be looked into. It is true that
interpretation of a particular condition in the agreement
would be within the jurisdiction of the arbitrator.
However, in cases where there is no question of
interpretation of any term of the contract, but of solely
reading the same as it is and still the arbitrator ignores
it and awards the amount despite the prohibition in the
agreement, the award would be arbitrary, capricious and
without jurisdiction. Whether the arbitrator has acted
beyond the terms of the contract or has travelled beyond his
jurisdiction would depend upon facts, which however would be
jurisdictional facts, and are required to be gone into by
the court. Arbitrator may have jurisdiction to entertain
claim and yet he may not have jurisdiction to pass award for
particular items in view of the prohibition contained in the
contract and, in such cases, it would be a jurisdictional
error. For this limited purpose reference to the terms of
the contract is a must. Dealing with similar question this
Court in New India Civil Erectors (P) Ltd. Vs. Oil and
Natural Gas Corporation [(1997) 11 SCC 75] held thus: It
is exiomatic that the arbitrator being a creature of the
agreement, must operate within the four corners of the
agreement and cannot travel beyond it. More particularly,
he cannot award any amount which is ruled out or prohibited
by the terms of the agreement. In this case, the agreement
between the parties clearly says that in measuring the
built-up area, the balcony areas should be excluded. The
arbitrators could not have acted contrary to the said
stipulation and awarded any amount to the appellant on that
account.
However, the learned Counsel for the Respondent
submitted that the award being non-speaking one, the learned
Sub-Judge and the High Court have rightly refused to go
behind the award or interfere with. In our view, this
submission is without any substance. It is apparent that
the Arbitrator has awarded Rs. 11,26,296/- for the losses
sustained for the reasons stated therein which we have
incorporated in the previous paragraph. These reasons only
pertained to non-obtaining or delay in obtaining permission
from the Forest Department as the work site was located in
the wild-life sanctuary of Saranda reserve forest. The
Arbitrator in his award in terms mentioned I am convinced
that the claimant sustained losses on account of following
reasons and thereafter reasons are recorded. Therefore, it
cannot be said that the award is a non-speaking one.
Further even if such reasons are not recorded, the
claim itself for such prohibited items was not entertainable
by the Arbitrator. In the agreement between the parties,
there is specific bar to raising of such claims. Hence the
decision of the arbitrator is without jurisdiction. This
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aspect is also dealt with by this Court in H.P. State
Electricity Board Vs. R.J. Shah and Company [1999(4) SCC
214]. In paragraph 26, the Court held as under:
In order to determine whether the arbitrator has
acted in excess of jurisdiction what has to be seen is
whether the claimant could raise a particular dispute or
claim before the arbitrator. If the answer is in
affirmative, then it is clear that arbitrator would have the
jurisdiction to deal with such a claim. On the other hand
if the arbitration clause or a specific term in the contract
or the law does not permit or give the arbitrator the power
to decide or to adjudicate on a dispute raised by the
claimant or there is a specific bar to the raising of a
particular dispute or claim, then any decision given by the
Arbitrator in respect thereof would clearly be in excess of
jurisdiction.
The Court further held that in order to find out
whether the Arbitrator has acted in excess of the
jurisdiction, the Court may have to look into some documents
including the contract as well as the reference of the
dispute made to the Arbitrator limited for the purpose of
seeing whether the Arbitrator has the jurisdiction to decide
the claim made in the arbitration proceedings.
Further dealing with the similar condition in the
contract, such as no claim for price escalation other than
those provided therein shall be entertained and the
Contractor will not be entitled for any extra rate due to
change in selection of querries, this Court in Associated
Engineering Co. Vs. Government of Andhra Pradesh and
Another [(1991) 4 SCC 93], observed that four claims
mentioned therein were not payable under the contract, in
fact, it prohibited such payment and for this purpose. The
Court held this conclusion is reached not by construction
of the contract but by merely looking at the contract. The
Court further observed that the Arbitrator could not act
arbitrarily, irrationally, capriciously or independently of
the contract; his sole function is to arbitrate in terms of
the contract. The Court further held thus: -
An arbitrator who acts in manifest disregard of the
contract acts without jurisdiction. His authority is
derived from the contract and is governed by the Arbitration
Act which embodies principles derived from a specialised
branch of the law of agency (see Mustill and Boyds
Commercial Arbitration, 2nd edn., p. 641). He commits
misconduct if by his award he decides matters excluded by
the agreement (see Halsburys Laws of England, Volume II,
4th edn., para 622). A deliberate departure from contract
amounts to not only manifest disregard of his authority or a
misconduct on his part, but it may tantamount to a mala fide
action. A conscious disregard of the law or the provisions
of the contract from which he has derived his authority
vitiates the award.
In view of the aforesaid settled law, the award passed
by the arbitrator is against the conditions agreed by the
contracting parties and is in conscious disregard of
stipulations of the contract from which the arbitrator
derives his authority. His appointment as a sole arbitrator
itself was conditional one and he was informed that the same
was with reservation regarding the tenability,
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maintainability and validity of the Reference as also on
further grounds that the claim was barred by the period of
limitation and that it pertained to excepted matters of
general conditions of the contract. Despite this he has
ignored the stipulations and conditions between parties.
Hence, the said award is, on the face of it, illegal.
Re: LIMITATION
Our next question is of limitation. The period of
limitation is required to be considered on the basis of the
arbitration clause between the parties which is as under: -
All disputes or differences whatsoever which shall at
any time arise between the parties hereto touching or
concerning the works or the execution meaning operation or
effect thereof or to the rights or liabilities of parties or
arising out of or in relation thereto, whether during or
after completion of the contract, or whether before or after
determination, foreclosure or breach of the contract (other
that those in respect of which the decision of any person is
by the contract expressed to be final and binding) shall
after written notice by either party to the contract to the
other of them and to the M.D./Chairman of the Corporation
(who will be the appointing Authority) be referred for
adjudication to be sole Arbitrator to be appointed as
hereafter provided.
The Appointing Authority will send within thirty days
of the receipt of notice a penal of three names of persons
not directly connected with the work of the contractor who
will select any one of the persons named to be appointed as
a sole Arbitrator within thirty days of receipt of the
names. If the Contractor fails to select the name from the
panel and communicate within 30 days, the appointing
authority shall appoint one out of the panel sole as
Arbitrator.
If the Appointing Authority fails to send to the
contractor the panel of three names, as aforesaid, within
the period specified, the Contractor shall send to the
Appointing Authority a panel of three names of persons who
shall all be unconnected with the organisation by which the
work is executed. The Appointing Authority shall on receipt
of the names as aforesaid select any one of the persons
named and appoint him as the Sole Arbitrator, if the
appointing authority fails to select the person and appoint
him as the Sole Arbitrator within 30 days of receipt of the
panel and inform the contractor accordingly, the Contractor
shall be entitled to invoke the provisions of the Indian
Arbitration Act, 1940 and any statutory modification
thereof.
In view of the aforesaid arbitration clause, even
though the claim made by the contractor was time barred, the
dispute was required to be referred to the arbitrator.
However, the reference was subject to the contention that it
was barred by the period of limitation. In that context,
the learned counsel for the appellant submitted that it is
settled law that application under Section 20 or notice for
appointment of arbitrator is to be filed within three years
from the date when cause of action arises as provided in
Article 137 of the Limitation Act, 1963. The application
filed by the contractor in December 1985 was, on the face of
it, time barred because the cause of action to recover the
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amount arose, according to the contractor, in August 1979
when he demanded the alleged damages for loss suffered by
him because of the delay in handing over the worksites. He
further submitted that, in the present case, in year 1980
for the same work, the Contractor has executed a
supplementary agreement for the completion of the work
within the stipulated time and at a higher rate. This would
also show that Contractor waived his alleged right of asking
for appointment of Arbitrator as provided in arbitration
clause. He referred to the arbitration clause and pointed
out that within 30 days of the receipt of the notice,
arbitrator is required to be appointed by the Managing
Director. If arbitrator is not appointed then Contractor
has option to send the penal of three names from which
arbitrator is required to be appointed. He contended that
after the supplementary agreement, there was no question of
adjudicating the so- called demand made by the contractor in
the year 1979. In any case, he submitted that the
Contractor ought to have approached the Court under Section
20 or ought to have demanded arbitration within three years
from the date of the notice demanding the amount for loss
suffered by him. As against this, learned Counsel for the
respondent submitted that the cause of action to refer the
matter to the arbitrator arose only in 1983 when respondent
denied contractors claim.
For deciding this controversy, we would first refer to
the decision of this Court in the State of Orissa & Ors.
Vs. Damodar Das [1996(2) SCC 216] wherein this Court held
that Section 3 of the Limitation Act, 1963, enjoys the Court
to consider the question of limitation whether it is pleaded
or not. The Court in paragraph 5 held as under: -
Russell on Arbitration by Anthony Walton (19th Edn.)
at pp. 4-5 states that the period of limitation for
commencing an arbitration runs from the date on which the
cause of arbitration accrued, that is to say, from the
date when the claimant first acquired either a right of
action or a right to require than an arbitration take place
upon the dispute concerned. The period of limitation for
the commencement of an arbitration runs from the date on
which, had there been no arbitration clause, the cause of
action would have accrued:
Just as in the case of actions the claim is not to be
brought after the expiration of a specified number of years
from the date on which the cause of action accrued, so in
the case of arbitrations, the claim is not to be put forward
after the expiration of the specified number of years from
the date when the claim accrued.
Even if the arbitration clause contains a provision
that no cause of action shall accrue in respect of any
matter agreed to be referred to until an award is made, time
still runs from the normal date when the cause of action
would have accrued if there had been no arbitration clause.
The Court also referred to the earlier decision in
Panchu Gopal Bose Vs. Board of Trustees for Port of
Calcutta [1993(4) SCC 338], where the Court observed as
under: -
The Period of limitation for commencing an
arbitration runs from the date on which the cause of
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arbitration accrued, that is to say, from the date when the
claimant first acquired either a right of action or a right
to require that an arbitration takes place upon the dispute
concerned.
Therefore, the period of limitation for the
commencement of an arbitration runs from the date on which,
had there been no arbitration clause, the cause of action
would have accrued. Just as in the case of actions the
claim is not to be brought after the expiration of a
specified number of years from the date on which the cause
of action accrued, so in the case of arbitrations, the claim
is not to be put forward after the expiration of the
specified number of years from the date when the claim
accrued.
Applying the aforesaid ratio in the present case,
right to refer the dispute to the arbitrator arose in 1979
when Contractor gave a notice demanding the amount and there
was no response from the appellant and the amount was not
paid. The cause of action for recovery of the said amount
arose from the date of the notice. Contractor cannot wait
indefinitely and is required to take action within the
period of limitation. In the present case, there was
supplementary agreement between the parties. Supplementary
agreement nowhere provides that so-called right of the
contractor to recover damages was in any manner saved. On
the contrary, it specifically mentions that contractor was
yet to execute a considerable portion of the work more
particularly described in the schedule to the agreement.
And that the contractor has agreed to complete the said
balance work on the terms and conditions enumerated in the
agreement. Now, in this set of circumstances, contractor
cannot wait and approach the authority or the court for
referring the dispute to the arbitrator beyond the period of
limitation. Section 37 of the Arbitration Act specifically
provides that provisions of the Indian Limitation Act shall
apply to the arbitrations as they apply to proceedings in
the Court.
Learned counsel for the respondent relied upon the
decision of this Court in Major (Retd.) Inder Singh Rekhi
vs. Delhi Development Authority [(1988) 2 SCC 338] for
contending that cause of action for referring the claim
arises only when the appellant disputed the right of the
respondent to recover the damages claimed by him. In the
said case, the Court has observed that on completion of the
work, the right to get payment would clearly arise, but
wherein the final bills have not been prepared and when the
assertion of the claim was made on 28th February, 1983 and
there was non-payment, the cause of action arose from that
date. In that case, application under Section 20 was filed
in January 1986. The Court also observed that: it is true
that the 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. See Law of Arbitration by R.S.
Bachawat, first edition, page 354. There should be dispute
and there can only be a dispute when a claim is asserted by
one party and denied by the other on whatever grounds. Mere
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failure or inaction to pay does not lead to the inference of
the existence of dispute. Dispute entails a positive
element and assertion of denying, not merely inaction to
accede to a claim or a request. Whether in a particular
case a dispute has arisen or not has to be found out from
the facts and circumstances of the case.
In the present case, as stated above, on 29th August,
1979, the contractor wrote letter making certain claims.
Thereafter, the supplementary agreement was executed on 20th
December, 1980. In that agreement it is nowhere stated that
contractors alleged right of getting damages or losses
suffered by him was kept alive. On the contrary, he has
agreed to complete the work within the time stipulated in
the second agreement by charging some higher rate.
Contractor has not sought any reference within three years
from the date when cause of action arose, i.e., from 29th
August, 1979. Only in 1985 when dispute arose with regard
to the second agreement, respondent gave notice on 2nd
December, 1985 to appoint sole arbitrator. The sole
arbitrator was appointed with a specific reservation
regarding the tenability, maintainability and validity of
reference as also on the ground that claim was barred by the
period of limitation and it pertained to excepted matters in
terms of general conditions of the contract. From these
facts, it is apparent that claim before the arbitrator in
November December 1985 was apparently barred by period of
limitation. Letter dated 3rd September, 1983 written by the
appellant repudiating the respondents claim on account of
damages or losses sustained by him would not give fresh
cause of action. On that date cause of action for
recovering the said amount was barred by the period of three
years prescribed under Article 137 of the Limitation Act,
1963. Under Section 3 of the Limitation Act, it was the
duty of the arbitrator to reject the claim as it was on the
face of it, barred by the period of limitation.
In the present case, in view of the aforesaid
findings, it is not necessary to discuss the contention with
regard to the award of interest prior to coming into force
of the Interest Act, 1978 or that no interest could be
awarded on the unliquidated damages. It is also not
necessary to discuss whether arbitration agreement provided
in first agreement executed in 1977 would survive after
execution of the second agreement in December, 1980.
In the result, the appeal is allowed with costs. The
impugned order passed by the Patna High Court, Ranchi Bench
in Miscellaneous Appeal No. 621 of 1987 and the order dated
2nd April, 1990 passed by the Subordinate Judge, Ist Court,
Chas in Arbitration Suit No. 28 of 1988 are quashed and set
aside.