M/s Ranjit Singh and Company v. H.P.State Electricity Board

set-up in the petition. On the pleadings of the parties, the following issues were framed:-

1. Whether the award of the Arbitral Tribunal is against the public policy of India? OPO.

2. Relief. The parties led their evidence by way of affidavits.

13. I have heard the learned counsel for the parties and have also gone through the record. Mr. Bhogal, Senior Advocate has made submissions mainly on the issue of limitation decided by the learned Arbitrator with consequential relief in case the said issue is decided in favour of the petitioner. He has submitted that learned Arbitrator has erred in returning the findings that almost all main claims of the petitioner are time barred. He has submitted that works were executed and completed in the year 1989 and the final bill was submitted in December, 1989. The respondent made payment of Rs.4,92,468/- to petitioner on 22.6.2004 against the bill submitted in December 1989, therefore, by no stretch, the claims of the petitioner which are based upon final bill submitted in December 1989 are time barred. The learned counsel for the respondent has submitted that reference of dispute to Arbitrator and limitation regarding claims are two separate, distinct aspects of the case. The existence of dispute is material for referring the dispute to Arbitrator but the claims can be allowed by Arbitrator only if those are within limitation. He has submitted that the existence of dispute and limitation regarding claims cannot be mixed up. He has submitted that learned Arbitrator has rightly held the claims to be time barred. 8 ISSUE NO.1:

14. Mr. Bhogal, has submitted that all payments made to the petitioner on the basis of bills are to be considered advances which are subject to final bill. The final bill was submitted in December 1989. The respondent did not release the payment of final bill to the petitioner on one pretext or the other but started correspondence with the petitioner to accept an amount of Rs. 5,06,608.55 after deduction of recoveries in full and final settlement of the claim and a letter dated 13.6.2003 to this effect was written to petitioner. The respondent thereafter had written letters

20.8.2003,

10.9.2003 offering release Rs.5,06,608.55 to the petitioner in full and final settlement of claim. The petitioner vide letter dated 18.9.2003 had shown its inability to accept the amount of Rs.5,06,608.55 in full and final settlement of the claim but requested the respondent to release Rs.5,06,608.55 to the petitioner and a pre-receipted receipt was also given on

18.9.2003 to the respondent. The petitioner was informed vide letters dated 30.9.2003 and 20.10.2003 by the respondent that since petitioner has not given the required certificate for releasing the payment, therefore, the payment could not be released to the petitioner. The petitioner vide letter dated 12.2.2004 requested the Chairman of respondent to appoint Arbitrator to adjudicate the dispute between the parties on the ground that as against the claim of Rs. 23,80,102/- the respondent is offering only Rs. 5,06,608.55 to the petitioner. The petitioner had also claimed interest in the letter dated 12.2.2004. The respondent vide letter dated 5.5.2004 informed the petitioner that the competent authority has directed to 9 convey to the petitioner that the payment of admitted claim of Rs. 5,06,608.55 be released to the firm, necessary order in regard to request of firm to nominate the Arbitrator as provided in the contract to decide regarding the balance payment of the case will be issued separately. In the meantime, the petitioner was paid Rs.4,92,468/- vide cheque dated 22.6.2004.

15. There is no dispute between the parties that Chief Engineer(Arbitration), HPSEB was appointed as the sole arbitrator to adjudicate the disputes between the parties vide Chief Engineer (P&M) order dated 5.5.2004 which was superseded by the appointment made by Chairman, HPSEB vide Secretary, HPSEB endorsement dated 20.6.2005. In supersession of endorsement dated 20.6.2005 the Chairman, HPSEB nominated and appointed Chief Engineer (SP), HPSEB as Arbitrator in accordance with Secretary, HPSEB endorsement dated 21.10.2005 to adjudicate upon the claims and counter-claims of the parties in accordance with the Act.

16. Mr. Bhogal, has relied Major (Retd.) Inder Singh Rekhi Vs. Delhi Development Authority (1988) 2 SCC 338, in support of his submission that dispute between the parties had arisen on

13.6.2003 when the respondent had decided to pay only Rs. 5,06,608.55 after deduction of recoveries to the petitioner against outstanding claim of Rs. 23,28,102/-. The petitioner even after

13.6.2003 had some correspondence with the respondent but ultimately petitioner on 12.2.2004 made a request for appointment of Arbitrator as per the agreement, therefore, the claims of the petitioner are within limitation. In Major (Retd.) Inder Singh Rekhi, 10 the question before the Supreme Court was the period of limitation for filing application under Section 20 of the Arbitration Act, 1940. The learned Single Judge and Division Bench of the High Court held that the application under Section 20 was barred by time. In that context, the question before the Supreme Court was when dispute had arisen for filing application under Section 20. The Supreme Court has held that 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 Arbitrator under Section 8 or a reference under Section 20 of the Arbitration Act, 1940. On facts, the Supreme Court held that the application under Section 20 was filed within the period of three years and, therefore, the application was within time.

17. The expression ‘final bill’ has not been used in the agreement. The terms of the payment are provided in clause 1 of Article VII of the agreement which is as follows:- “CLAUSE -1 TERMS OF PAYMENT:- Subject to any deductions which the purchaser may be authorized to make under the contract the company shall be entitled to payment of the work as under: (i) (a) 100% percent of the monthly erection bills & PVC through the Engineer-in-charge against 5% Bank Guarantee”. The learned Arbitrator has held that Article 18 of Limitation Act controls the period of limitation in the present case. Article 18 of the Limitation Act, 1963 is as follows :- Description of suit Period of Limitation Three years For the price of work done by the plaintiff for the defendant at his request, where no time has been payment. Time from which period begins to run When the work is done. 11

18. The claim No.1 is against recovery of Rs. 1,62,800/- and recovery against TDS Rs. 1188/-. In claim No. 2 an amount of Rs. 6,72,913/- was rejected by the learned Arbitrator being time barred and the remaining amount on the ground that it does not form a part of the contract. In claim No.3, an amount of Rs. 25,727/- was held payable by the respondent but again this claim was held time barred. The claim No.4 was rejected. The claim No.5 of interest was held to be time barred. The claim No.6 was rejected following the rejection of claims No. 1 to 4 except an amount of Rs. 1188/- which was held to be payable to the Income Tax Department in the shape of penalty or otherwise as per the rules. The claim No. 7 of damages / loss on account of delay in payment was rejected on the grounds on which claim No. 6 was rejected, under claim No.8, the parties were directed to bear their own costs.

19. The learned Arbitrator in the impugned award has held that claims No.1 (a), 2 do not form a part of the contract. The claim No.6 was rejected in view of the rejection of claims No.1 to 4. It means, learned Arbitrator rejected claim No.6 partly on the ground that it does not form a part of the contract inasmuch as while rejecting claim No.6, the learned Arbitrator has relied his decision for rejecting the claim No.1(a) and claim No.2 which were rejected on the ground that those claims do not form part of the contract. The claim No.7 has been rejected by following reasoning of claim No.6. In other words, while rejecting claim No.7, the learned Arbitrator has again relied partly his reasoning given for rejection of claim No.1(a) and claim No.2. 12

20. In Gannon Dunkerley and Co. Ltd. vs. The Union of India, AIR 1970 S C 1433, the appellant had filed a suit for recovery against Union of India above contract rate. The appellant had claimed three alternative amounts on three alternative rates. The Union of India contended that the claim was barred by law of limitation. But suit was decreed and decree of Rs. 1,36,222/- was passed in favour of the appellant and against Union of India. In appeal, the High Court took the view that the claim was covered by either Article 56 or Article 115 of the First Schedule of the Limitation Act, 1908 and the suit not having been filed within three years of the date on which the work was done and in any event of the date on which the claim was rejected was barred. The Supreme Court held that a suit is governed by Article 56 if it arises out of a contract to pay the price of work done at the request of the defendant. The Supreme Court has held further as follows :- “9. Article 56 of the First Schedule to the Indian Limitation Act, 1908, prescribes a period of three years for a suit for the price of work done by the plaintiff for the defendant at his request, where no time has been fixed for payment, and the period of limitation commences to run from the date when the work is done. A suit is governed by Art. 56 if it arises out of a contract to pay the price of work done at the request of the defendant. The claim in the present case is for payment at an additional rate over the stipulated rate in view of change in circumstances, and not for price of work done by the appellant Company. It is true that additional work was done at the request of the Engineer-in-charge, but the claim in suit was not for the price of work done but for enhanced rates in view of altered circumstances.

10. Article 115 of the First Schedule to the Limitation Act is a residuary article dealing with the claim for compensation for the breach of any contract, express or implied, not in writing registered and not specially provided for, in the First 13 Schedule. The period of limitation in such cases is three years and it commences to run when the contract is broken, or where there are successive breaches when the breach in respect of which the suit is instituted occurs, or where the breach is continuing when it ceases. The suit filed by the appellant Company is not a suit for compensation for breach of contract express or implied: it is a suit for enhanced rate because of change of circumstances, and in respect of work not covered by the contract. The additional work directed by the Engineer-in-charge when carried out may be deemed to be done under the terms of the contract; but the claim for enhanced rates does not arise out of the contract; it is in any case not a claim for compensation for breach of contract.

11. The claim is therefore not covered by any specific article under the First Schedule, and must fall within the terms of Article 120. The Solicitor-General appearing on behalf of the Union of India contended that even if the claim falls within the terms of Article 120 of the Limitation Act, it was barred, for the appellant Company had in the suit made a claim for work done more than six years before the institution of the suit. Counsel submitted that under Article 120 the period of limitation commences to run from the date on which the defendant obtains the benefit of the work done by the plaintiff. But under Article 120 of the Limitation Act the period of six years for suits for which no period of limitation is provided elsewhere in the Schedule commences to run when the right to sue accrues. In our judgment, there is no right to sue until there is an accrual of the right asserted in the suit, and its infringement, or at least a clear and unequivocal threat to infringe that right by the defendant against whom the suit is instituted: Bolo v. Koklan, 57 Ind App 325 at p.331 = (AIR 1930 PC 270 at p.272). The Supreme Court allowed the appeals and the decree passed by the trial Court was restored alongwith 6% interest per annum from the suit till payment.

21. The Articles 18 and 113 of the Limitation Act, 1963 are equivalent to Articles 56, 120 respectively of the Indian Limitation 14 Act, 1908. In the impugned award many claims of the petitioner were not found within contract as per the findings recorded by the learned Arbitrator. On the face of this finding, it cannot be said that all claims raised by the petitioner before the learned Arbitrator were governed by Article 18. It cannot be said with certainty when predominant claims are not governed by Article 18 then which specific Article will govern the limitation for the claims raised before the Arbitrator. In these circumstances, the petitioner is entitled to the benefit of ambiguity and it can be safely held that residuary Article 113 will govern the limitation in the present case which is to the following effect:- Description of suit Period of Limitation Any suit for which no period of limitation is provided elsewhere in this Schedule. Three years Time from which period begins to run When the right to sue accrues.

22. The limitation under Article 113 starts when the right to sue accrues and the period of limitation is three years. The ‘final bill’ was submitted by the petitioner to the respondent in December

1989. This bill remained limbo and except for some correspondence nothing tangible crystallized. The respondent on

13.6.2003 finally woke up from the slumber and decided to release a sum of Rs. 5,06,608.55 after recoveries in full and final settlement of the claim of the petitioner. According to petitioner as per its letter dated 12.2.2004, the claim of the petitioner was Rs. 23,80,102/-. Thus, respondent first time on 13.6.2003 admitted the claim of the petitioner only to the extent of Rs. 5,06,608.55 minus recoveries and denied the rest of the claim of the petitioner. Thus, 13.6.2003 is 15 all important date when respondent denied the claim of the petitioner. On 13.6.2003, the petitioner came to know that its raised claim has been denied by the respondent and, therefore, 13.6.2003 can be safely taken the date on which cause of action accrued to the petitioner under Article 113 of the Limitation Act, 1963. The payment of an amount of Rs. 4,92,468/- by respondent to petitioner on 22.6.2004 is only ministerial act after the decision taken on

13.6.2003 refuting the rest of the claim of the petitioner.

23. It has come on record in the arbitration proceedings that after 13.6.2003 again some correspondence was exchanged between the petitioner and the respondent. The petitioner ultimately on 12.2.2004 made a request for appointment of Arbitrator for adjudicating the dispute between the parties wherein the petitioner has indicated its claim of Rs. 23,80,102/-. In the letter of request dated 12.2.2004, the petitioner has also claimed interest. The Arbitrator was initially appointed on 5.5.2004 but the appointment was superseded by endorsement dated 20.6.2005 and another endorsement dated 21.10.2005. Thus, taken from any angle, on the start of cause of action on 13.6.2003 the application filed by the petitioner on 12.2.2004 for adjudicating its dispute which resulted into the appointment of the Arbitrator is within limitation under Article 113 from the date of cause of action i.e. 13.6.2003. The learned Arbitrator has erred in applying Article 18 of the Limitation Act and returning the finding that almost all claims of the petitioner are time barred, such findings are not sustainable. The issue No.1 is decided in favour of petitioner and against respondent. 16

24. After having come to the conclusion that findings recorded by the learned Arbitrator on the issue of limitation are wrong and not sustainable, the next question is what ultimate order this Court can pass in view of the fact that the learned Arbitrator has allowed some claims of the petitioner on merits but rejected them on limitation. The relief prayed in the petition is for setting aside the impugned award, no other specific relief has been prayed in the petition. At the time of hearing of the petition nothing has been relied from the Act or otherwise on behalf of petitioner that this Court while setting aside the award can also award the amount over and above what has been awarded by learned Arbitrator and pass appropriate order.

25. In Mcdermott International INC vs. Burn Standard Co. Ltd. and others (2006) 11 SCC 181, in paragraph 52 the Supreme Court has held that 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. In view of the law laid down by the Supreme Court, it is clear that this Court can only quash the award leaving the parties free to begin the arbitration again if it is desired. The power of setting aside in certain circumstances may include the power of reducing of the amount awarded by the Arbitrator but it is difficult to hold that power to set aside award also includes the power to award some amount to the 17 petitioner over and above the amount awarded by the Arbitrator on the basis of decision of the Court.

26. In view of the above, the petition is allowed. The impugned award is accordingly set-aside with liberty to the petitioner to go for fresh arbitration in view of law laid down by the Supreme Court in Mcdermott International INC (supra). February 22, 2010. (GR) ( Kuldip Singh ), Judge.