The High Court · 2025

THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY ARBIT TION APPLICATION No.13() ot ZO23 ORDER: This application is filed seeking appointment of sole arbitrator to adjudicate the dispute between the petitioner- it pplica nt and the respondent in furtherance of agreements dated lg.O5.ZOl4,

24.12.2016 and 02.04.2019.

2. It is claimed that the a pplica nt-society had been undertaking contract work of loading and unloading of goods from the godowns to the Railway goods sheds/railway wagons on behalf of the respondent - Central Warehousing Corporation from 1999 onwards. The a pplica nt-society was awarded contracts pursuant to the E-Tenders floated by the authorities from to time for handling and transporting of food grains from railways goods sheds (operation) to Central Warehousing Corporation godowns (operations) for loading and unloading at both points. The respondent No.1 allotted work to a pp lica nt-society at the Regional office, Hyderabad, through a contract for a period of two years and after allotment, the respondent No.1 takes security deposit from the Labour Societies, which is kept as security for undertaking the prompt completion of the work entrusted to the Hamali/Labour Contract Societies. The security deposit is a refundable deposit which needs to be 2 refunded by the respondent - corporation after completion of the contract period. It is stated that after allotment of the contract' 3. the a pplicant-society is required to execute a contract agreement with the Regional Manager wherein parties are governed by the operating tender document containing several conditions and procedures to complete the works as envisaged in document by both the contractor and the Regional Office/Branch Office of the respondent No.1. It is stated that in contlnuation of the said earliercontractsfromtheyearlggg,theapplicant-societywas awarded the contract for fertilizers handling from 19'03'2014 to lS.06.2016andinconnectionwiththesame,theapplicant-Society deposited Rs.2,10,000/- as security deposit' The a pplicant-society was also allotted contract in respect of food grains for the period from 25.O7.2014 to 24.12.2016 for which the appllcant has deposited Rs.5,00,000/- as security deposit' Thus. an amount of Rs.7,10.000/- was deposited as security deposit for the above period and the a pplica nt-society successfully completed the contract work but the security deposit was not refunded by the respondents' It is further stated that the a pplicant-society entered into 4. contract in respect of food grains for the period from 25'12'2016 to 24.O3.zOLg for which security deposit of Rs' 16,13.000/- was kept i 3 with the res pondent-corporation. the said work was successtully completed but the security deposit was not refunded. Notice dated 17.OA.2022 was issued by the a p p lica nt-society for appointment of arbitrator, but the respondents denied the same on the ground of limitation, which is an issue to be decided by the a rbitrator. The a pplica nt-society contended that the respondent No.1 had made certain unilateral recoveries to a tune of Rs.12,60.579l- as detailed out in para g of the application. The amounts were withheld from the bills payable to a pplica nt_society and such deduction is unilateral, without any notice, and without any default on their part and there is no justification for the same. The a pplica nt-society, therefore. is entitred for interest of 1go/o on the security deposit amount withheld for the years 2Ol4 to 2OI9 and the interest on unilateral recoveries/withheld amounts from the bills payable to a pplica nt-society works out to Rs.11,0O,775/_ and rn total, the respondents are liable to pay an amount of Rs.60,08,569/- to the appticant.

5. It is submitted that the respondent No.2 through its Warehouse Manager vide letter dated 06.09.2017 and 25.06.2020 confirmed that the respondent No.3 has issued no demand certificate which establishes that there was no demand from the Corporation with the a pplica nt-society for the period from 25.O7.2014 to 24.03.2019. The applica nt_society had submitted a t l l t l I I I i l 1 I I I I I I t i I I 4 representation to the respondent No.1 through proper channel vide letter dated 17.Oa.2O22 requesting them to appoint an arbitrator. The respondent No.1 replied stating that appointment of arbitrator cannot be acceded to as the invocation /requesLfor appointment is barred by limitation. Thus, the instant application is filed.

6. The respondents stated. in their counter, that the applicant- society has deposited Rs.2,50,000/- under agreement dated 1g.O5.2024 towards 50Vo of the security deposited and opted for deduction of balance security deposit at 5olo from each bill as per tender clause No.XI (a) under Security Deposit Clause. Similarly, under agreement dated 19.t2.2O26, the applicant has deposited Rs.8,06,875/-, which is 50o/o of the security deposit and opted for deduction of balance security deposit at 5olo from each bill as per tender clause No.XI (a) as aforesaid. As per tender document. the respondent-corporation is not liable to pay interest on security deposit or any depreciation thereof for the time it is held by the Corporation. Clause No.XII of the tender specifications says that the contract shall be liable for all costs, damages, demurrages etc. Clause No.XIX of the tender provides that the contractor. in case, of any dispute or difference in respect of the contract, has to make a written demand within one year of the date of termination or completion (expiry of the period) of the contract and if the provision is not complied with, the claim of the contractor shall be deemed to , 5 !1 have been waived and absolutely barred and the corporation shall be discharged and released of liabilities under the contract.

7. It is submitted that on 06.O3.2017 , the Food Corporation of India (Depositor) has intimated that it is has suffered an amount of Rs.12,53,707 / - towards punitive charges incurred by it due to mishandling, supervisory lapses and overload by the applicant. Accordingly, the respondent No.2 has recovered the same amount of Rs.12,53,707/- from the above security deposits of the applicant. At the request of the applicant, the respondent No.2 has released all the amounts even if it were not received from the National Agricultural Cooperative Marketing Federation of India (NAFED) and AP MARKFED to an amount of Rs.7,51,040 and Rs.3,69,703/_. The said amounts have been adjusted from the security deposit of the applicant and the applicant is Iiable to pay Rs.50,700/_ to the respondent No.2. The claim of the applicant is hopelessly barred by Iimitation, as the applicant has not filed the claim within one year from the date of co m pletion/term ination of the contract or expiry of the co ntra ct.

8. In the reply to the counter affidavit filed by the respondents, the applicant reiterated that the respondent _ corporation has unilaterally recovered unilaterally recovered an amount of Rs.72,53,7O7 / - from the security deposits of the applicant. As there r 6 are disputes between the parties, the matter has to be referred to an arbitrator under Clause No.XIX of the tender documents. Unilateral recovery itself is in dispute and subject matter of arbitration. Limitation is a mixed question of -law and fact and cannot be unilaterally decided by the respondents. Learned counsel for the applicant submitted that there is a

9. dispute between the parties regarding withholding the security deposit and adjustment of security deposit and withholding of bills payable to the applicant. Arbitration was invoked as per Clause No.XIX of the tender document. The dispute has to be resolved by the arbitrator. The grounds raised by the respondents are hyper- technical and cannot be decided in this arbitration application. Limitation is a mixed question of fact and law and Clause No.XIX which provides for a claim to be intlmated within one year is contrary to the provisions of the Limitation Act.

10. Learned counsel for the respondents submitted that the applicant, having agreed for the procedure under the terms of the contract, cannot resile and contend that the dispute has to be resolved by an arbitrator. Clause No.XIX clearly says that the claim has to be made within one year otherwise it is deemed to have been waived. 7 1^r

11. Learned counsel for the applicant relied upon a decision of the Delhi High Court in S. AND S. CONSTRUCITON CO, v. UNION OF INDIAT wherein it was held at paras 9 to 11as under: i "9. The question that arises for consideration before this Court is whether the period for invoking arbitration can be restricted to a period less than provided under the Limitation Act, 1963. This question need not detain this Court as this issue is no longer res integra. In Grasim Industries Limited v. State of Kerala, (2018) 14 SCC 265, dealing with a similar issue where the Respondent declined to refer the matter to arbitration on the ground that Appellant had not invoked arbitration within the time stipulated in the Arbitration Agreement. Referring to Section 28(b) of 7872 Act, the Supreme Court held that the said provision unequivocally provides that an agreement, which extinguishes the right oF a party on expiry of the specified period, would be void and therefore, even if a restricted period for raising an arbitral dispute is provided for, the same would be treated as void. To the same effect is the decision oF this Court in National Highways Authority of India v. Mecon - Gea Energy Systems India Ltd. JV, 2013 SCC Online Del lZ73 and relevant passages are as follows:_ "41. A perusal of the amended Section 2g of the Contract Act, 1957 extracted above would show that both kinds of agreements i.e. agreements which restrict the period of limitation within which claims could be referred, as also aqreements which extinguish the right oF a party to prefer a claim or discharges any party from any liability under a contract on expiry of a specified period, are void to that extent. 42. Before the amendment of Section 28 in 1997, the agreements reducing the period of limitation were distinguished from those which did not limit the time within '2025 SCC ont.ine DeL 3260 I I I. I t l I i l i t I I I I I i t 8 which a party might enforce his rights, but which provided for a release or forfeiture of rights, if no suit was brought within the period stipulated in the agreemenu and the latter class of agreements, being outside the scope of the section, were held to be binding between the parties. Thus, in National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. (AIR 1997 SC 2049). the Supreme Court drew a clear distinction between an agreement which curtails the period of limitation and an agreement which provides for forfeiture or waiver of the right itself, if no action is commenced within the period stipulated by the agreement. The first was held to be void as offending Section 28 but, the later was held not falling within the mischief of Section 28. Thus, it was held that curtailment of the period of limitation was not permissible in view of Section 28 but extinction of the right itself, unless exercised within the specified time, was permissible and can be enforced. 43. After the 1997 amendment to Section 28 of the Indian Contract Act, 1872, not only the curtailment of the period of limitation is void, but also the extinction of right, if sought to be brought by the agreement within a specific period, which period is less than the period of limitation prescribed for the suit under the Contract in question, is also rendered void' In other words. after the amendment to Section 28 of the Indian Contract Act, L87 2 by Act 1 of 1997, the distinction between curtailing of the period of limitation and extinction ot the right itself, after the specified period, no longer exists. "

10. The same view was taken by this Court in Shanti Prakash Goenka v. Mahanagar Telephone Nigam Ltd., 2016 SCC online Del 5256, while dealing with an Arbitration Clause providing for period of 90 days for invocation of the Arbitration Clause' The only objection of the Respondent was the invocation by the Petitioner beyond the stipulated period and negating this v (1 9 contention, Court allowed the petition 1996 Act and appointed the Arbitrator. follows:- under Section 11(5) of Relevant passages are as "3. The only objection raised by the respondent is that the invocation of the arbitration clause is beyond the period of limitation of 90 days. The learned counsel for the respondent has pointed out that the final bill was prepared on 15.03.2013 and the petitioner invoked the arbitration clause on 04.04.2075. She also drew the attention of the Court to the arbitration clause, which specifically provides that if the demand for arbitration in respect of any claim is not made within g0 days of receiving the intimation from the MTNL that the bill is ready for payment, the demand would be deemed [sic demand] to have been waived and barred.

4. She also submits that in view of express condition tn the arbitration clause, the petitioner is deemed to have waived his right for invoking the arbitration.

5. The learned counsel tor the petitioner has countered the aForesaid submissions and submits that the issue whether the period of rimitation for invoking the arbitration crause can be restricted is no longer res_ integra as same is covered by several decisions of this Court including Hindustan Construction company v' DDA : 1999 (1) Arb. LR 272; pandit construction Company v. Delhi Development Authority : 2007 (3) Arb LR 205 (Delhi); and Chander Kant & Co. v. The Vice Chajrman, DDA : Arb. pet. No. 246 of 2005, decided on 26.05.2009. xxxx xxxx xxxx

7. In Chander Kant & Co. (supra), a Division Bench of this Court was concerned with a j;:I::"::::';::t:":jl:;:T::; Act for appo ntmenr of ", was completed on 11.10.1990 and the final bill was released on 07.77.2OO2. The petitioner therein invoked the arbitration clause by a notice dated 17.06.2004. As in the present case, the respondent therein had urged that fairure to make demand I I l l I I i I I i I I i 10 for appointment of the arbitrator beyond the specified period of 90 days had resulted in forfeiture or waiver of the rlght to invoke the arbitration clause- The Division Bench noted the earlier decisions and concluded that the clause which restricts the period of limitation or provides for waiver of the right, if no action is commenced within the specified perioj, is violative of Section 28 of the Indian Contract Act, 1872 as amended'

8. In my view, the decision in Chander Kant & Co' (supra)' squarely covers the objection raised by the respondent in the present petition. Accordingly, the penultimate sub paragraph of the Arbitration clause which provides that "if the any contractor(s) does/do not make any demand for arbitration in respect of any claim (s) in writing within 90 days of receiving the intimation from the MTNL, that the bill is ready for payment, the claim of the contractor (s) will be demand to have been waived and absolutely barred and the MTNL shall be discharged and released of all liabilities under the contract in respect of these claims" is void.

9. In view of the above, the petition is allowed lt is directed that a sole arbitrator be appointed under the Rules of the Delhi International Arbitration Centre (DIAC) The representatives oF the parties shall appear before the co-ordinator, DIAC on 04.10.2016 at 11:00 AM. The arbitration shall be conducted under the aegis of DIAC and in accordance with its Rules "

11. In this context, I may also refer to a recent iudgment in G S' Express Pvt. Ltd., (supra), where relyinq on the aforesaid judgments, this Court appointed the Arbitrator holding that Clause 7.3.1, of the Contract to the extent it limited the period for invoking arbitration to 06 months was unconscionable and void in light of Section 28(b) of 1872 Act. In light of these judgments, this Court is unable to agree with learned counsel for the Respondent that Petitioner is precluded from invoking the Arbitration Clause only because it failed to seek invocation within a period of 30 days from the date of receipt of the decision of 11 r-i, DRC. Accordingly, I hold that the penultimate sub_paragraph of Clause 25 which reads, ,if the Dispute Redressal Committee (DRC) fails to give his decision within the aforesaid period or any par.ty is dissatisfied with the decision of Dispute Redressal Committee (DRC), then either party may within a period of 30 days from the receipt of the decision of Dispute Redressal Committee (DRC), give notice to the Chief Engineer for appointment of arbitrator on prescribed proforma as per Appendix XV, faiting which the said decision sharr be finar, binding and concrusive and not referabre to adjudication by the arbitrator,, will not extinguish the right oF the Petitioner to approach this Court under Section 11 of 1996 Act for appointment of an Arbitra tor.,,

72. Learned counsel for the applicant also relied on decision of the Supreme Court in GRASIM INDUSTRIES LIMITED v. STATE OF KERALA2 wherein it was held at paras 6 to B and 11 and 12 as under:

6. One of the reasons for which the High Court had non_suited the appellant, who had raised a claim on 8-5_2002, was that the claim raised by the appellant was beyond the period of limttation. Insofar as the instant aspect of the matter is concerned, it was concluded by the High Court, in the impugned order dated 21_11_ 2003 [Grasim Industries Ltd. v. State of Kerala, 2OO3 SCC OnLine Ker 630 : (2OO4) 1 KLT 9811 , that the claim raised by the appellant was beyond the period stipulated in Clause 9 of the supplementary agreement, dated 27_10_ 1988.

7. To determine the instant issue, Clause 9 aforementioned, is extracted hereunder: (Grasim Industries Ltd. [Grasim Industries Ltd. v. State of Kerala, 2003 SCC Online Ker 630 : (200a) 1 KLT 9811 SCC OnLine Ker para 4) '1zor a; r+ scc zos t2 r\ "4. ... '9. Subject to Clause 6, where the supply of raw materials by the Government, is less than the agreed quantity of two Iakh tonnes in any year, the company shall be entitled to claim compensation from the Government. Subject to Clause 8, where the comp-any does not extract the agreed quantity of two lakh tonnes'of raw materials supplied in any year fully, the Governmenl shall be entitled to claim compensation from the Company. The compensation mentioned above shall be determined by a Tribunal, consisting of a representative each of the Government and the comPany and an independent Chairman agreed upon by the parties' The Tribunal shall determine the compensation, if any, within a period of 30 days from the end of each contract year, and shall be payable immediately thereafter by the parties concerned. The company shall have the option to adjust the amount of compensation against the price of raw materials supplied in su bsequent Years."'

8. Based on the aforesaid clause, the High Court had recorded its conclusion as under : (Grasim Industries Ltd' IGrasim Industries Ltd. v. State of Kerala,2003 SCC OnLine Ker 630 : (2004) 1 KLT 9811 SCC OnLine Ker para 10) "10. ... In view of the sPecific Provision in the arbitration clause for raising the claim within the same year and to have it settled by the Arbitral Tribunal within the specified time, the above request for arbitration was beyond the period prescribed in the arbitration clause. When the arbitration clause itself prescribes a time-limit for raising the disputes by appointing an Arbitral Tribunal and to have it settled within 30 days, the same procedure should be followed or adopted within the time specified' The applicant did not make a demand For appointment of an Arbitral I ' i I I I I i I I i l3 (' Tribunal within the stipulated time. The notice itself was issued Iong after the time stipulated in the arbitration agreement. It appears that the company was closed down and the company wanted to dispose of the raw materials and the State did not permit as materials had been supplied to the company at a concessional rate. It was at that time the notice was issued for the arbitraiion.,,

11. Section 28(b) unequivocally provides that an agreement which extinguishes the right of a party on the expiry of a specified period, would be void. Therefore, even if a restricted period for raising an arbitral dispute had bctually been provided for (as was determined in the impugned order), the same would have to be treated as void. "

13. The proviso to Clause No.XIX, dealing with arbitration, which is relevant for the purpose of this case, is extracted hereunder: "...Provided further that any demand for arbitration in respect of any claim (s) of the contractors, under the contract shall be in writing and made within one year of the date of termination or completion (expiry of the period) of the contract and where this provision is not complied with the claim (s) of the contractors shall be deemed to have been waived and absolutely barred and the Corporation shall be discharged and released of liabilities under the contract.,,

14. The no due certificate dated 09.01.2020 was issued by the respondent No.3 to the applicant stating that there are no dues from 25.12.2OLG to 24.03.2019. In response to the representation submitted by the applicant for release of security deposit for the ; I l I ; I I I 1 ; i l4 contract petiod 25.12.2016 to 24.03.2019, the respondent No.2 addressed letter dated 25.06.2020 stating that on verification of demand particulars, it was found that there is an amount of Rs.7,51,050/- lying as outstanding. The applicant submitted representation dated 18.06.2020 requesting the respondent No.3 to release security deposit relating to HST contract for the period from

25.t2.2O16 to 24.03.2019.

15. It is the claim of the applicant that the services of the a pplica nt-society were utiIized for loading and unloading of goods by the respondent authorities continuously and there is a continuous cause of action. Further. it is contended that there is unilateral deduction of amounts without any prior notice and enquiry. Thus, it is clear that there is dispute between the parties and the matter was required to be referred to arbitration as per Clause No.XIX of the contract.

16. However, it is the contention of the respondents that within one year, the applicant was required to make a claim otherwise it will be deemed to have been waived. In any case, limitation is a mixed question of law and fact. Such contention is contrary to the law laid down by the Supreme Court in GRASIM INDUSTRIES LIMITED'S case (2 supra). 15

77. It is not permissible for this Court, in deciding an application under Section 11(6) of the Arbitration and conciriation Act, 19g6, to conduct roving enquiry with regard to the disputed claims and also limitation aspect. These are aspects to be decided by an a rbitrator.

18. In view of the above, the arbitration application is allowed. Sri N. Shankaraiah, retired District Judge, R/o. H.No.11_9_5S6, Road No.3, Street No.16, Vijayapuri Colony, Kothapet. Hyderabad _ 500035, is appointed as arbitrator to adjudicate the craims and disputes between the parties and to pass an award in accordance with law. The parties are at liberty to raise all factual and legal grounds in support of their respective claims.

19. The learned Arbitrator is entitled to fees as per the rates specified in the Fourth Schedule to the Act of 1996, inserted by Act 3 of 2016 with effect from 23.10.2015, which sha be borne by both parties in equal shares. The miscellaneous petitions pending, if any, shall stand closed. There shall be no order as to costs. SD/- C.V. MALLIKARJUNA SNRUA JOINT REGISTRAR I //TRUE COPY// j SECTION OFFICER To, CD 1 Sri N Shankaraiah, retired District Judge, R/o. H.No. 11-9-5b6, Road No.3, S-treet No. 16., Vijayapuri Cotony, Kothaipet, Hyderabad-500035. (By bpetiri Messenger) (along with a copy of affidavit ahd material paperi; ' One CC to M/s. Y. Rama Rao and Associates, Advocate tOpUCl One CC to Sri B. Harinath Rao, Advocate tOpUCl 2

4. Two CD Copies ,& HIGH COURT DATED: 11t0Bt2O2S ,, I ,J 'i' l[.i- ;i .$' s \ i\'..; l :,. ')rlr :1 ,.1 :i i.l, ii',1'.;.,. .";i:.:., ORDER ARBAPPL.No.130 ot 2023 ALLOWING THE ARBITRATION APPLICATION { o