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ARBP1027.11
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 1027 OF 2011
Aditya Birla Chemicals (India) Ltd. )
(Earlier know as Bihar Caustic & )
Chemicals Limited) )
Garwha Road, P.O.Rehla - 822124 )
Palamau District, Jarkhand ) ..... Petitioner
Versus
Tata Motors Ltd. )
A Company under the Companies Act )
1956, having its registered office at
ig )
Bombay House, Homi Mody Street, )
Fort, Mumbai 400 023 ) ..... Respondent
Dr.Virendra Tulzapurkar, Senior Advocate, a/w. Dr.Birendra Saraf, Mr.Sachin
Chandarana and Mr.Virendra Purohit, i/b. Manilal Kher Ambalal & Co. for the
Petitioner.
Mr.F.Pooniwala, a/w. Mr.Yatin Shah for the Respondent.
CORAM : R.D. DHANUKA, J.
RESERVED ON :27th SEPTEMBER, 2012
PRONOUNCED ON : 9th OCTOBER, 2012
JUDGMENT :
By this Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (in short 'Arbitration Act, 1996') the Petitioner (Original Respondent) seeks to challenge the award dated 9th August, 2011 made by the Learned Arbitrator by which claims made by the Respondent is allowed. Though both the parties have argued at length, all the issues raised in the petition, in view of the fact that I have decided to set aside the impugned award on the plea of limitation raised by the Petitioner decided by ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 2 ARBP1027.11 the Learned Arbitrator, I am not dealing with all other submissions advanced by the parties except submissions on issue of limitation.
2. Some of the relevant facts relating to the issue of limitation are as under :-
3. By a Sanction Letter dated 5th May, 2000, the Respondent granted in principle permission to extend the lease finance assistance to the Petitioner for plant and machinery for an amount not exceeding Rs.80,00,000/- on the terms and conditions mentioned therein.
4. By an Agreement of Lease dated 8th May, 2000 parties agreed that the Respondent would lease the equipment sanctioned therein to the Petitioner upon the terms and conditions agreed upon. Clause 19 of the schedule to the agreement reads as under :-
Clause 19 If the depreciation rate on the said assets is deceased/increased or if the Lessor is disallowed its claim of depreciation, whether wholly or partly, in any year during the currency of the lease or if the Lessor is required to pay the income tax on a higher / lower rate than 38.50% the installments lease payable to the Respondent shall stand increased / decreased in order to maintain the same post tax returns to the Lessor. The Lessor's confirmation to the lessee of such change will be binding on the lessee.
It is not in dispute that the Petitioner paid all the instalments to the Respondent as per schedule.
5. The Respondent filed income tax returns for the Assessment Year 2001-02. By an Order dated 31st March, 2004, the Assessing Officer however disallowed the ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 3 ARBP1027.11 depreciation claim of the Respondent. Appeal filed by the Respondent against the said order before the Commissioner of Income Tax (Appeals) on 29th April, 2004 is pending.
6. On 19th June, 2006, the Respondent issued a debit note demanding a sum of Rs.
39,61,764/- towards the amount alleged to be due arising out of the disallowance of depreciation claim of the Respondent for the Assessment Year 2001-02 (Financial Year 2000-01). By the said debit note, the Respondent revised the rental amount and raised a demand for a sum of Rs.39,61,764/- towards alleged short fall in rentals.
7. By letter dated 17th August, 2006, the Petitioner protested the said debit note raised by the Respondent. The Petitioner contended that the Petitioner was in no way liable to pay anything on that account. It is contended that as the Respondents being the owners of the equipments, were entitled to claim depreciation on the equipments.
The Petitioner had not claimed any depreciation in its tax computation nor is claimable by it. The Respondent by their advocate's notice dated 16th March, 2007 called upon the Petitioner to pay a sum of Rs.39,61,764/- within seven days from the receipt of the said notice or to treat the said notice under Clause 20.9 of the Lease Agreement invoking the arbitration Clause and the nominated Mr.Ashwin Ankhad as an arbitrator.
By letter dated 9th April, 2007, the predecessor of the Petitioner invited the attention of the Respondent to its letter dated 17th August, 2006 which was self explanatory according to the Petitioner.
8. Respondent thereafter filed a statement of claim on 17th August, 2007 before the Learned Arbitrator praying for an award in the sum of Rs. 50,63,677/- alongwith ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 4 ARBP1027.11 further interest thereon at the rate of 24% per annum. The Petitioner filed written statement before the Learned Arbitrator and raised various issues including issue of limitation in respect of the claims made by the Respondents. The Petitioner also filed a counter claim before the Arbitrator. Both the parties filed their written submissions.
In so far as the issue of limitation raised by the Petitioner is concerned, the Respondent contended that it was seeking specific performance of the Petitioner's obligation under Clause 19 of the Lease Summary Schedule and as per Article 54 to the Schedule of the Limitation Act, 1963, the period of limitation was three years from the date when the Plaintiff had notice that the performance was refused by the Petitioner. It is submitted that in the present case, Clause 19 does not fix the date of performance. At this juncture, it is necessary to record that no such plea of specific performance was raised by the Respondent in the statement of claim or in rejoinder filed before the Learned Arbitrator.
9. On 9th August, 2011, the learned arbitrator made an award directing the Petitioner to pay the sum of Rs.39,61,764/- alongwith interest at the rate of 12% per annum from the date of debit note i.e. from 19th June, 2006 till payment within four weeks of receiving the award. It was directed that in case the Respondent herein succeed in availing 100% depreciation in respect of Assessment Year 2001-02 for the equipment and obtaining the appropriate refund from the income tax authorities, the Respondent shall forthwith refund to the Petitioner, the amount paid by the Petitioner in accordance with the direction given by the Learned Arbitrator with interest at the rate of 12%. The learned arbitrator also directed the Petitioner to pay residual value at the rate of 1% of original cost of equipment as offered by the Petitioner in their counter ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 5 ARBP1027.11 claim.
10. Dr.Virendra Tulzapurkar, the Learned Senior Counsel appearing on behalf of the Petitioner made the following submissions on the issue of limitation :-
(a) Claims made by the Respondent for increased amount of lease rentals were pre-mature in view of the pendency of appeal filed by the Respondent challenging the disallowance of the depreciation by the assessing officer. Without prejudice to the aforesaid submissions, claims are time barred for the following reasons :-
(b) Cause of action for increased lease rent arose when the assessing officer disallowed the depreciation claim of the Respondent on 31st March, 2004. Notice invoking arbitration agreement was issued on 16th March, 2007. By the said notice Respondent has provided seven days time to comply with the notice of demand stating that in case of failure of the Petitioner to pay, the said notice would be treated as notice invoking arbitration clause. The Petitioner received the said notice on 4th April, 2007. It is submitted that in view of Section 43 read with Section 21 of the Arbitration Act, 1996 arbitral proceedings in respect of the claims made by the Respondent commenced on 11th April, 2007 when ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 6 ARBP1027.11 the said notice invoking arbitration was received by the Petitioner and seven days time given by the Respondent had expired thereafter. It is submitted that limitation stopped on 11th April, 2007. The cause of action commenced on 31st March, 2004 when the assessing officer of the Respondent disallowed the depreciation claim.
(c) The demand raised by the Respondent by issuing debit note on 19th June, 2006 or refusal of the Petitioner to pay such amount claimed under debit note does not extend limitation.
(d) The claim for recovery of increased lease rent due to rejection of depreciation claim by the assessing officer was not for specific performance of the obligation of the Petitioner under lease agreement but was a claim for recovery of additional lease rental and thus Article 54 of the Schedule to the Limitation Act was totally inapplicable. It is submitted that the finding of the learned arbitrator that the claim made by the Respondent was governed by Article 54, the claim being the claim for specific performance is totally perverse and contrary to law.
::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 7 ARBP1027.11 (e) The Respondent has not even pleaded in the
statement of claim or in rejoinder that it was seeking specific performance of the contract against the Petitioner. Issue of limitation is a mixed question of fact and law and if there was no such pleading in the statement of claim or rejoinder, the Learned Arbitrator could not have allowed the Respondent to raise such plea in the written submission for the first time and then to consider it in the impugned award.
The Learned Counsel placed reliance on the Judgment of Allahabad High Court in case of Dhapai vs. Dalla & Others1 .
11. Mr.F.Pooniwala, the Learned Counsel appearing for the Respondent on the other hand submits as under :-
(a) The Petitioner has made payment of all the instalments as per the Schedule under the lease agreement. The dispute arose between the parties due to the rejection of claim of depreciation allowance made by the Respondent in its income tax return by an Order dated 31st March, 2004. Clause 19 of the lease agreement, obligates the lessee to pay increased lease rent if the depreciation rate on the leased asset was 1 AIR 1970 Allahabad 206 ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 8 ARBP1027.11 decreased. It is provided that lessor's confirmation to the lessee of such change would be binding on the lessee.
(b) Since the Petitioner failed to perform its obligation to pay the increased lease rent, the claim made by the Respondent was for seeking specific performance of the obligation on the part of the Petitioner and thus the claim was governed by Article 54 of the Schedule to the Limitation Act and thus award of the arbitrator cannot be faulted with.
(c) In view of Article 54 of the Schedule to the
Limitation Act, when the demand made by the
Respondent on 19th June, 2006 was denied by the
Petitioner on 17th August, 2006, the cause of action for seeking specific performance arose and thus the notice under Section 21 of the Arbitration Act, 1996 issued on 16th March, 2007 and received by the Petitioner on 4th April, 2007 was within the period of three years from the date of refusal of specific performance by the Petitioner and thus the claim was within time and not barred by law of limitation.
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12. In rejoinder, Dr.Tulzapurkar submitted that even if Article 113 of the Schedule to the Limitation Act applies, it is clear that cause of action under Article 113 would accrue when the rights to sue is accrued. It is submitted that since cause of action to demand increase of lease rent arose on 31st March, 2004 and was not paid by the Petitioner, right to sue accrued on 31st March, 2004 and thus the notice invoking arbitration was having issued after three years claim was barred by law of limitation.
13. I, first consider the plead of the Petitioner that the claims made by the Respondent for additional lease rental was premature on the ground that the Respondent has already challenged the Order passed by the Assessing Officer rejecting the claim of the depreciation and the Appeal filed by the Respondent is pending. The claim for depreciation is thus subjudice before the Commissioner of Income Tax (Appeals). The Learned Counsel appearing on behalf of the Respondent placed reliance on the Judgment of this Court in Asian Electronics Ltd. vs. Tata Motors Limited dated 28th November, 2006 in Arbitration Petition No. 254 of 2006 between the parties. Clause 17 of the agreement between the parties in that case provided that if it was found that the lessor was not entitled to claim depreciation on the lease equipment then, in any event during the term of the deed the lessor is required to pay income tax at a higher or a lower rate than 43%, the rental will stand increased/decreased. The Assessing Officer has disallowed the depreciation on the ground that the agreement between the parties did not reflect the true nature of transaction between the parties. The Appeal filed by Tata Motors Limited challenging the rejection of depreciation claim by the Assessing Officer was pending before the Commissioner of Income Tax (Appeals). Considering those facts, this Court in the ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 10 ARBP1027.11 case of Asian Electronis (supra) on this issue has held as under :-
As the challenge to that order is pending, the arbitrator has provided for that eventuality in paragraph B of the operative part of the award. In my opinion, therefore, it cannot be said that any prejudice is caused to the interest of the Petitioner because of invocation of Clause 17 by the Respondent after the order was made by the income-tax authorities.
14. In para (10) of the said Judgment, it has been held that cause of action arose when the income tax office disallowed the depreciation. Considering the claim for increase rent made by the Respondent, it is clear that the claim was made by the Respondent on the basis of cause of action having been arisen due to rejection of claim for depreciation made by the Assessing Officer on 31st March, 2004. Even in this matter also, the Learned Arbitrator has directed that in case the Respondent succeeds 100% depreciation in respect of Assessment Year 2001-02 for the equipment and obtaining the appropriate refund from the income tax authorities, the Respondent shall forthwith refund to the Petitioner, the amount paid by the Petitioner in accordance with the direction given by the Learned Arbitrator with interest at the rate of 12% per annum. In my view thus the claim made by the Respondent could not be considered as premature on the date of making claim. This Court has already held in the case of Asian Electronis (supra) that cause of action arose when the claim for depreciation was disallowed by the Assessing Officer.
15. I will now consider the alternative plea raised by the Petitioner through the Learned Senior Counsel Dr.Tulzapurkar that the claims made by the Respondent were barred by law of limitation.
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16. Section 2(j) defines period of limitation and reads as under :-
2(j) "period of limitation" means the period of limitation prescribed for any suit, appeal or application by the Schedule, and "prescribed period" means the period of limitation computed in accordance with the provisions of this Act.17. Articles 54 and 113 of the Schedule to Limitation Act, 1963 reads as under :-
Description of suit Period of limitation Time from which period
begins to run
54. For specific Three years
ig The date fixed for the
performance of a contract. performance, or, if no such
date is fixed, when the
plaintiff has notice that
performance is refused.
Description of application Period of limitation Time from which period
begins to run
113. Any suit for which no Three years When the right to sue
period of limitation is accrues.
provided elsewhere in this
Schedule.
18. In my view, the statement of claim, the rejoinder and the documents annexed to the pleadings by the Respondent indicates that it was not the case of the Respondent at any point of time in the correspondence or in the statement of claim or in rejoinder that the claim made by the Respondent was for seeking specific performance of the obligation of the Petitioner under Clause (19) of the lease agreement. In my view, plea of limitation is a mixed question of fact and law. If the Respondent had not pleaded that its claim was for specific performance of the obligation under the agreement, the Petitioner had no opportunity to meet such plea not having been raised. In absence of ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 12 ARBP1027.11 such specific plea, arbitrator could not have dealt with such submission raised for the first time in the written submission.
19. In my view claim made by the Respondent was a claim simplicitor for recovery of additional lease rent by virtue of disallowance of depreciation by assessing officer.
In my view, Article 54 of the Schedule to Limitation Act does not apply to a money claim. In my view, the reliance placed by the Learned Arbitrator on Article 54 while rejecting the plea of limitation is totally perverse and without application of mind. The Learned Arbitrator has misdirected by applying wrong article of Schedule to limitation.
In my view the Learned Arbitrator has decided contrary to substantiate law in force in India. Award is contrary to Section 28(a) of the Arbitration and Conciliation Act, 1996 and is thus in conflict with public policy. In my view, since the claim made by the Respondent was barred by the law of limitation as on the date of the receipt of notice of invoking arbitration clause, it was duty of the Learned Arbitrator to reject such time barred claim.
20. In my view right to sue accrued when claim for depreciation made by Respondent was rejected on 31st March, 2004 and raising of demand by the Respondent by issuing debit note on 19th June, 2006 and refusal to pay the said demand by the Petitioner on 17th August, 2006 would not commence fresh period of limitation, which had already commenced on 31st March, 2004. In view of Section 9 of the Limitation Act, 1963, once time is begun to run, no subsequent disability or inability to institute a suit or make an application stops it. Once time starts running, it does not stop. Limitation is not extended unless there is an acknowledgment of liability or part payment. It is not the case of the Respondent that the Petitioner acknowledged its ::: Downloaded on - 09/06/2013 19:15:34 ::: kvm 13 ARBP1027.11 alleged liability or there was any part payment made by the Petitioner after 31st March, 2004. In my view, correspondences does not extend the period of limitation.
21. In case of Dhapai vs. Dalla & Others (supra) relied upon by the Learned Senior Counsel appearing for the Petitioner, the Allahabad High Court was considering a case where the Plaintiff had given fishery rights in the tank to the Defendant on the condition that they would pay him half the theka money. It was alleged in the plaint that the Defendant had already worked out the theka in respect of their share of it and all that remained to be done was to pay the proportionate theka money to the plaintiff.
Considering these facts, the Allahabad High Court held that no suit for specific performance of contract could be filed and only a suit to enforce the agreement so far as it related to the payment of the proportionate theka money could be filed.
22. Considering the facts of this case it is common ground that the Petitioner had already paid all the instalments as per schedule agreed upon, only claim remained was in respect of additional lease rent under Clause (19) in view of disallowance of depreciation claim by the assessing officer, claim being the money claim simplicitor, Article 54 of the Schedule to the Limitation Act could in no circumstances be attracted to the facts of this case.
23. Resultantly, the Petition succeeds. Impugned Award dated 9th August, 2011 is set aside. There shall be no order as to costs.
(R.D. DHANUKA, J.) ::: Downloaded on - 09/06/2013 19:15:34 :::