HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Reserved Court No. - 3 Case :- FIRST APPEAL FROM ORDER No. - 602 of 2014 Appellant :- Kanpur Jal Sansthan,Kanpur Thru' Its G.M. And Another Respondent :- M/S Bapu Constructions Thru' Ram Chandra Counsel for Appellant :- R.M. Saggi,Anil Sharma,Ravi Kant Counsel for Respondent :- Anil Kumar Yadav Hon'ble Krishna Murari,J.
Hon'ble Pratyush Kumar,J.
( Delivered by Hon'ble Pratyush Kumar, J.) The instant appeal is directed against the order dated 30.3.2013 passed by the District Judge, Kanpur Nagar in Misc. Case No.40/70 of 2009 (Kanpur Jal Sansthan Vs. M/s Bapu Constructions) and Award dated 20.1.2009 passed by Shri Sunil Bhatnagar, Arbitrator in Arbitration Petition No.32 of 2003.
Heard Shri Ravi Kant, learned Senior Advocate assisted by Shri R.M. Saggi, learned counsel for the appellants and Shri Anil Kumar Yadav, learned counsel for the respondent.
The brief facts involved in the matter are that Shri Sunil Bhatnagar was nominated as Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 ( hereinafter referred to as ' the 1996 Act') by order dated 23.09.2005 by the Chief Justice to decide the dispute between the parties. According to the claimant/ respondent (hereinafter referred to as ' the respondent'), he had entered into an agreement with the opposite party/ appellant ( hereinafter referred to as ' the appellant') to carry out the works of supply and filling of 0.3 to 0.4 mm sand (Morang) for slow and filters. Work Order No.Jal/Civil/Work/3/87 dated 24.2.1987 of Rs.21,43,200/- was issued. The work was to be commenced from 23.05.1987 and was to be completed within one year.
According to the respondent, he had completed the work within the time and there was no complaint against his work. Even then following amounts were illegally detained and not paid by the appellants.
1.Balance amount toward final bill: Rs.491,492.68
2.Earnest money and security money deducted from the running bill : Rs.1,65,800.00 Resultantly according to the respondent, he was entitled for payment of Rs.22,89,536.00 as interest on the claimed amount @ 15% with usual costs. Claim and counter-claim were filed. Affidavits were exchanged and the following award was passed;
" In view of above discussion, the claimant is, therefore, entitled to get Rs.4,91,482.68 paise towards the final bill, Rs.1,65,800/-towards earnest money and security money and interest thereon at the rate of 18% per annum with effect from 30.5.1988 till the date of award i.e. 18.01.2009. However, the claimant is not entitled to claim the loss of profits of Rs.17,17,152/-. The claimant is certainly legitimately entitled to claim compensation for the deprivation of the use of money which may be called interest, compensation or damages and which is valid for the period of dispute pending before the arbitration tribunal.
The claimant is also entitled to get Rs.33,000/- as fees paid to his counsel and Rs.1,00,000/- as arbitration fees and other expenses.
Accordingly for the reasons stated above, the claim is partly allowed. The amount of Rs.32,62,415.30 paise, the details of which are being given below shall be paid by the opposite party to the claimant with one month from the date of the award. If the amount is not paid within the period fixed, the claimant shall be entitled for 18% per annum as interest on the whole amount till the amount is actually paid.
1.Balance amount toward final bill: Rs.4,91,492.68
2.Earnest money and security money deducted from the running bill: .......Rs.1,65,800.00
3.Interest @ 18% per annum w.e.f.
30.5.1988 till 18.01.2009 on the
balance amount plus earnest money
and security money Rs.24,41,147.70
4.Counsel fee paid by the claimant: Rs.33,000.00
5.Arbitration fees and expenses Rs.1,00,000.00
6.stamp duty Rs. 30,985.00
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Total amount: Rs.32,62,415.30
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On behalf of the appellants challenge was made to the appointment of Arbitrator, which was repelled by the Arbitrator, work was held to be completed as claimed by the respondent. Objection against limitation was also rejected.
Feeling aggrieved with the same on behalf of appellants, application under section 34 of the 1996 Act was moved before the District Judge, Kanpur Nagar on the grounds inter-alia that there was no arbitration agreement between the parties, Arbitrator had not acted fairly and did not treat the parties equally. Arbitration proceedings were not conducted in accordance with sections 18 to 24. Appellants were never heard. The objection regarding limitation was ignored. The award was in conflict with the Public Policy of India.
On behalf of the respondent, reply was filed that the application in its present form, was not maintainable. On behalf of appellants, forged documents were produced. The appellants did not pay the fee of the Arbitrator. The appellants continued to present and prosecute of their defence before the Arbitrator which amounts to waiver of their objection regarding appointment of Arbitrator in absence of arbitration agreement. Arbitrator had treated both parties equally. Provisions of sections 18 to 24 were scrupulously followed. Claim of the respondent was not time barred. Application of the appellants is devoid of any merit and is liable to be rejected.
In rejoinder on behalf of appellants, the averments made earlier in the application, were reiterated.
The District Judge, Kanpur Nagar vide order dated 30.3.2013 had rejected the application of the appellants. According to the District Judge, the order of Hon'ble the Chief Justice dated 10.1.2008 was in reference to some other matter. Objection regarding validity of the appointment of arbitrator was also found without substance. Argument regarding fairness of the Arbitrator was also rejected on account of being vague. Objection regarding non- observance of statutory provisions containing in Section 18 to 24, due to vagueness, was rejected. Other grounds were also rejected. Rate of interest was found to be in conformity with the law.
Feeling aggrieved with this order, the present F.A.F.O has been filed on the ground inter- alia. There was no arbitration agreement between the parties, claim of the respondent was time barred but the Arbitrator did not decide this question and erroneously allowed the claim of the respondent. The dispute cannot be referred to the Arbitrator in absence of arbitration clause. Claim was illegally allowed and excessive amount of interest has been awarded.
The learned counsel for the parties have argued extensively, during arguments, the first point which is preliminary in nature, has been canvassed before us that whether the claim of the respondent was time barred or not. This point was to be decided by the Arbitrator in accordance with law, i.e., Limitation Act and the Arbitration and Conciliation Act, 1996.
Learned counsel for the appellants has drawn attention of the Court to the agreement deed dated 13.7.1987, whereby terms and conditions of the tender were accepted and work was to be completed within a period of one year. The Arbitrator has also noted this fact that on behalf of the appellants, objections were raised objections that claim petition was barred by time (at page 110 of the paper book).
Perusal of the award reveals that the Arbitrator has concluded that objection, that the work was not completed within time, cannot be accepted. On the basis of this findings, he treated the claim petition was within time.
There were two grounds: that in accordance with the terms of the agreement, work was not completed within stipulated time of one year and the other ground was that claim was time barred, this ground was mentioned in para 11 of the application, under section 34 of the 1996 Act.
In reference to averments in paragraph no.11, in the reply filed by the respondent only it was stated that arbitrator had rendered award on all issues, claim of the respondent was not time barred. The learned District Judge had not addressed this point whether claim presented by the respondent was barred by time or not. If for the argument sake, it is taken to be correct that finding of Arbitrator recorded in the reference for completion of work within one year is correct even then the question remains to be seen whether claim preferred by the respondent was within the limitation prescribed, under the Limitation Act, 1963 or not.
According to the learned counsel for the appellant, the limitation is three years. The work was to be completed within one year, i.e. May, 1988 at the best the respondent could have preferred the claim up to May, 1991. However, he had moved arbitration petition before this Court in the year 1999, he submits that Limitation Act prescribed 3 years limitation for preferring the claim vide Item No.14 Part II of the Schedule annexed with the Limitation Act. In support of his argument, he has referred the following cases;
1.M/s Rudnap Export-Import Vs. Eastern Association Co. and others, AIR 1984 Delhi 20. In para nos.31 and 32 of the judgment, the Delhi High Court held that claim for price of tractors, filed after expiry of three years, to be barred by limitation.
2.Nagesh Sales Corporation and another Vs. M/s Kerala Soaps and Oils Limited , AIR 1994 Kerala 150. In para no.14 of the judgment limitation for price of goods sold was held to be three years.
Item 18 Part II of the Schedule annexed with the Limitation Act prescribes limitation of three years for the price of work done and limitation is to commence when the work is done. According to the respondent work was completed on Schedule, he could have sought remedy for non payment within three years. According to the respondent, he was not communicated rejection of final bill for this reason, he could not have filed his claim earlier. Item No.18 specifically prescribes commencement of limitation from the date of work done. Under Order 7 Rule 6 C.P.C ground of exemption from limitation law have to be stated. Rule 6 of Order VII C.P.C is quoted herein below;
" Grounds of exemption from limitation law.- Where the suit is instituted after the expiration of the period prescribed by the law of limitation, the plaint shall show the ground upon which exemption from such law is claimed:
[ Provided that the Court may permit the plaint to claim exemption from the law of limitation on any ground not set out in the plaint, if such ground is not inconsistent with the grounds set out in the plaint.] Limitation Act in Part 3 contains certain provision when time can be excluded for filing suit. None of the provision included therein admits the ground taken by the respondent for exclusion of time for brining his claim.
According to the learned counsel for the respondent, the claim was preferred in the year 1999. On behalf of the respondent, it has been stated that claim is not time barred because rejection of the final bill submitted by the respondent was never communicated to the respondent. According to him for long time proceedings were remained pending before the Chief Engineer, Kanpur Development Authority. In his application under section 34 of the 1996 Act, the appellants have specifically mentioned that according to the respondent in the year 1999, they had filed arbitration application no.22 of 1999 before this Court and on 6.9.1999, appointment of Arbitrator was made by Hon'ble the Chief Justice. Correctness of these, has not been controverted by the respondent.
It transpires from the perusal of the award that objections raised by the appellants in respect of time barred claim though a separate issue no.7 was framed but the Arbitrator neither noticed the pleadings of the parties on this point nor recorded any finding. Claim for recovery of money can be made within three years, thereafter it becomes time barred, the Arbitrator was required to deal with this issue, though here we are not concerned with the correctness of the finding recorded by the Arbitrator but we have to see whether the arbitration proceedings have been conducted in accordance with the provisions contained in the 1996 Act. Section 31(3) of 1996 Act specifically enjoins the duty on the Arbitrator that the arbitral award shall state the reasons upon which, it is based, unless, such obligation has been waived by the parties. Without dealing with this issue time barred claim was allowed by the Arbitrator. Such omission is certainly against the statutory provision contained in section 31(3) of the 1996 Act, which is quoted as below;
"31. Form and contents of arbitral award (1).........
(3)The arbitral award shall state the reasons upon which it is based, unless-
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under section 30."
The indicated lapse of the Arbitrator contravenes both the Limitation Act and the Arbitration and Conciliation Act,1996, which makes the award to be in conflict with the Public Policy of India.
In the impugned order, the learned District Judge while dealing with the matter of limitation has rejected the arguments advanced on behalf of the appellants on the basis of law laid down by the Hon'ble Apex Court in Major ( Retd.) Inder Singh Rekhi Vs. Delhi Development Authority, (1988)2 SCC 338. The learned District Judge has not taken into account that in that case the Hon'ble Apex Court was dealing with the matter under the provision of Old Arbitration Act, 1940. Under the Old Act sub- section 1 of section 20 provided as follows;
"Application to file in Court arbitration agreement: Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court."
In the light of the provision contained in the afore quoted section, the Hon'ble Apex Court has held that for making reference there should be an arbitration agreement and difference must arise there from. The Hon'ble Apex Court has further observed that when there is an assertion of claim and silence as well as refusal in respect of the same by the other party only then dispute will arise. In that case work was completed in 1980. Under Article 137 of the Limitation Act, 1963, the period of limitation,i.e. 3 years was to be completed on 28.2.1983. The Hon'ble Apex Court has observed that on the expiry of the period of limitation cause of action had arisen in that case. The application under section 20 of 1940 Act, was filed in January, 1986, therefore, it is treated within time.
Facts of the present case are different, the old Act has been repealed. Under the new Act, the limitation is to be counted in accordance with the relevant Articles of the Limitation Act vide section 43 of the 1996 Act. Item No.18 Part I of the Schedule annexed with the Limitation Act prescribes limitation, for making claim for the price of work done of three years and according to the third column, limitation is to commence " when the work is done."
In the present case, date of submission of final bill, i.e., 30.5.1988 is not disputed. If for the sake of argument, principle laid down in the case of Major ( Retd.) Inder Singh Rekhi is (supra) is applied, even then, on 30.5.1991, the claim of the respondent would be deemed to be refused and the respondent would be required to file his claim before 30.5.1994, under Article 137 of the Limitation Act, 1963. In either case, the claim of the respondent was barred by time and the learned District Judge has erroneously rejected the argument of the appellants in this regard.
In the present matter appointment of Arbitrator was made by Hon'ble the Chief Justice, under section 11(5) of the 1996 Act, challenge to his appointment and reason for its rejection take us to work contract. Before dealing with this point we would like to examine the fist finding recorded by the arbitrator. Thereafter in juxtaposition with the arbitration clause, challenge to his appointment would be dealt with.
Findings recorded on issue no.1, are finding of facts, of which the arbitrator is the sole judge, we do not propose to encroach his jurisdiction, grounds raised in respect of findings recorded on this issue do not warrant any interference by us nor any occasion arises.
Next ground is that there is no arbitrable dispute between the parties. During the arguments, according to the learned counsel for the appellants this ground is two folds, one there was no arbitration clause in the agreement deed and second, the dispute pertaining to the present matter was excepted matter, prima facie, these two points appear to be contradictory. In absence of arbitration clause, there can be no distinction between arbitrable matters and excepted matters. While elaborating on this ground, the learned counsel for the appellant has referred Clause 24 of the agreement which reads as under:
" Clause 24. Except where otherwise specified in the contract the decision of the General Manager for the time being shall be final, conclusive & binding on all parties to the contract upon all question relating to the meaning of the specification designs, drawings & instructions hereinbefore mention and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designee, drawings specifications, estimates instructions. ........conditions, otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment there of the work or after the completion or abandonment there of the contract by the contractor, shall be final, conclusive and binding on the contractor.
In the present matter, though this clause has separate and distinct implication, but here, absence of arbitration clause does not appear to be of significance because the matter was referred for arbitration by Hon'ble the Chief Justice under section 11(5) of the 1996 Act, therefore, challenge to the appointment of Arbitrator fails.
However, the afore quoted clause is very material on this point that whenever dispute relates to excepted matters, pre-condition for arbitration, i.e. mutuality is excluded, which is the moral authority of the arbitral award.
The Hon'ble Apex Court has observed that claim falling within a clause providing in house remedy and attaching finality to the decision, that would be an excepted matter vide Vishwanath Sood Vs. Union of India and another, 1989 (1) SCC 657. The Hon'ble Apex Court in the case of Executive Engineer, R.E.O Vs. Suresh Chandra Panda, AIR (1999)9 SCC 92 has held that in such matter, question of assumption of jurisdiction of any arbitrator would not arise.
In view of above, the objection of the appellants for the dispute was not subject to arbitration, is also well substantiated and the award given by the Arbitrator is in conflict with the Public Policy of India.
The last question raised is award of excessive amount of interest, section 31(7) of the 1996 Act authorizes the Arbitrator to award interest. However, only from the date of the award till the payment interest @ 18% per annum can be awarded but for pre reference and pendentelite interest clause (a) sub section 7 of section 31 of the 1996 Act provides that interest may be awarded at the reasonable rate. This clause confers discretion to the Arbitrator to fix the rate of interest for such period which also imposes rider that same should be reasonable.
From the perusal of the award, we find that the Arbitrator has awarded interest @ 18% per annum. This rate cannot be said to be unreasonable, therefore, this ground has no substance.
As discussed hereinabove, the dispute was not arbitrable by the Arbitrator, it was within the category of excepted matter and outside his jurisdiction. The Arbitrator had passed an award on time barred claim in violation of period of limitation prescribed by the Limitation Act. In addition to these Arbitrator had failed to assign any reason in support of doing so, therefore, the award is clearly in violation of the provisions of the 1996 Act and is in conflict of the Public Policy of India.
In the impugned order, the learned District Judge has failed to apply her mind on these grounds. The impugned order on these grounds is against the law and deserves to be set aside.
Resultantly, appeal succeeds. First Appeal From Order is allowed. The impugned order dated 30.3.2013 and award dated 20.1.2009 are set aside. Both party will bear their own costs.
Order Date :- 29/5/2015 SFH