THE HON'BLE SRI JUSTICE T. VINOD KUMAR
ARBITRATION APPLICATION No. 5 of 2021
ORDER:
1. The present Arbitration Application is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act, 1996') for appointment of an arbitrator to resolve the disputes between the parties.
2. Heard Sri. Shyam S. Agarwal, learned counsel for the Applicant and Sri. G. Vidyasagar, learned Senior Counsel appearing for Sri. M. Vijayakanth, learned counsel for Respondent.
3. The appellant and the respondent have entered into a Development Agreement-cum-General Power of Attorney, dated 23.07.2008 vide Doc.No.293 of 2010 for undertaking a construction named as 'Genten Project' over the respondent's land admeasuring Ac.7.00 gts in Sy.No. 93, situated at Annojiguda village, Ghatkesar Mandal, Ranga Reddy District. The project was to be completed within a period of 60 months i.e., 5 years from the date of obtaining building permissions. As per the agreement, the applicant was entitled to 65% share in constructed area, undivided 2 share of land and parking areas, whereas the respondent entitled to the remaining 35% share.
4. Contentions of the Applicant:
i. As per the said agreement dated 23.07.2008, the respondent was required to redeem the property from mortgage created in favour of the bank and collect back the original title deeds of the property within 30 days from the date of signing the agreement. But as the respondent had expressed his inability to arrange funds required to redeem the mortgage on the property, the applicant in addition to the refundable deposit of Rs.50,00,000/- had paid a sum of Rs.2,50,00,000/- on 29.07.2008 to the respondent. Thus, the applicant had paid a sum of Rs.3,00,00,000/- towards refundable deposit. Despite the same, the respondent had failed to redeem the property and collect the original title deed from the bank. ii. The application made to HUDA (currently HMDA) seeking sanction for the project was rejected as a result of lack of support and cooperation from the respondent.
3iii. The ex-director of the applicant one Sri. Narender Surana, who was interacting with respondent, had supported the respondent by repeatedly extending time in fulfilling his obligations. But after the present directors had taken over, they followed up the issue with the respondent persistently. Despite long persuasion and follow up, the respondent had neither redeemed the property from mortgage nor handed over the title deeds to the applicant. Instead, the respondent had expressed his inability to clear the dues and once again asked the applicant to pay more money. It is contended that the applicant had refused to make further payment. iv. Although the respondent had proposed to settle the dispute by selling the property and repaying the amount extended by the applicant, he had failed to do so.
v. Subsequently, as per the understanding between the parties, the applicant had proceeded to take up development agreement by getting the property surveyed and obtaining an elevation certificate on 03.03.2020. They had also obtained 4 NOC from the Airports Authority of India for height clearance on 06.03.2020.
vi. The respondent and his men on 14.06.2020 trespassed and interfered with the applicant's men working on the property to clear the land. Taking advantage of the inaction of the police in view of COVID-19, the respondent and his men had once again trespassed on 26.06.2020, and beat the applicant's workers, snatched their tools and threatened them. vii. In view of the above dispute, the applicant issued notice dated 23.06.2020, calling upon the respondent not to interfere with the work done by the applicant and also appointing an arbitrator from his side and inviting the respondent to appoint the 2nd Arbitrator as per the development agreement dated 23.07.2008. It is contended that the notice has neither been received back by the applicant nor the applicant received acknowledgment in service of the said notice.
viii. Thereafter, the applicant had issued another legal notice dated 14.08.2020, calling the respondent to clear the mortgage and submit the original title deeds of the property 5 within one week from the date of the notice, failing which the applicant would refer the disputes to arbitration. In the same notice the applicant had proposed to appoint Sri. Rajender Mangari, Retired District Judge, as his arbitrator. ix. As the respondent denied the existence of disputes and refused the appointment of arbitrator vide reply notice dated 10.09.2020, the present arbitration application is filed seeking appointment of an arbitrator.
5. Contentions of the Respondent:
i. While denying the contentions of the applicant, it is contended that, the development agreement would not have been received for registration had there been a mortgage on the property. Therefore, it is contended that the property was never mortgaged.
ii. At the instance of the applicant, the registration of the Development Agreement executed on 23.07.2008, was stalled for two years, before finally registering it on 22.02.2010. It is further contended that the respondent became aware that the document dated 23.07.2008 was tampered, when he received a 6 notice from the office of the Sub-Registrar informing him that the share of the applicant was 65% which was contrary to the original understanding of the parties. On approaching the applicant, he had assured that the shares would be allocated as originally agreed after construction.
iii. Despite the respondent making numerous requests, the applicant had neither obtained NOC nor building permission for the said property. Since the applicant did not commence construction even after 3 years, the respondent had issued a legal notice dated 21.09.2011 cancelling the development agreement dated 23.07.2008 as per Clause 22 therein. Despite having received the legal notice dated 21.09.2011, the applicant had neither replied to the said notice, nor contacted the respondent until 2020.
iv. It is contended that the period of limitation for an application to appoint an arbitrator or to refer disputes to arbitration, is 3 years from the date when right to sue first accrues under Article 137 of the Limitation Act, 1963. As per the pleadings of the applicant, the respondent allegedly did not cooperate 7 from July 2008, after receiving huge amounts from the applicant. Thereby the period of limitation commenced from July 2008, as the right to sue first accrued then. Further, the applicant having remained silent even after receiving the notice of cancellation dated 21.09.2011 cannot after the lapse of 12 years re-agitate the issue. In support of the above contention, reliance is placed on Panchu Gopal Bose Vs Board of Trustees for Port of Calcutta1, Geo Miller & Co. Pvt. Ltd Vs. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd2, and Bharat Sanchar Nigam Ltd. and Ors. Vs. Nortel Networks India Pvt. Ltd3.
6. Reply of the Applicant:
While denying to have received the notice dated 21.09.2011, the applicant contended that the development agreement being a registered document cannot unilaterally be cancelled by the respondent, it would have to be cancelled either by another registered instrument or by decree of the court. It is further 1 (1993) 4 SCC 338 2 (2020)14SCC643 3 (2021)5SCC738 8 contended by placing reliance on Tecpro Systems Limited Vs. Telangana State Power Generation Company Limited4, that limitation being a mixed question of fact and law cannot be gone into at the stage of reference.
7. While so memo was filed by the appellant, bringing to the notice of this Court that they had filed C.O.P.No. 21 of 2020 before the Special Judge for Trial and Disposal of Commercial Disputes, Ranga Reddy District seeking interim measures under Section 9 of the Act, The Court below vide order dated 15.09.2022 had allowed the said application while granting interim injunction as prayed for therein.
Findings of the Court:
8. The dispute resolution clause in the Development Agreement cum General Power of Attorney dated 23.07.2008 is as under:
"9. To raise, borrow funds, loan/credit facilities from Banks, bankers, financial institutions and other public by creating equitable or other mortgages on security of the Developer's entitled constructed areas and undivided share of land in the Schedule Property with built-up areas therein and Development Rights in the above Development Agreement, 4 MANU/TL/0368/2019 9 sign and execute requisite mortgage deeds and other conveyances required therefore on such terms and conditions as our attorney deem it fit and get the same registered before the jurisdictional Sub-Registrar in the manner prescribed under law, and for the said purposes sign and execute necessary forms, declarations and this Agreement is binding on the Parties hereto and to their legal heirs, principal, agents, representatives etc., subject to other terms of this deed. In case, any dispute or difference arises in respect of this Agreement or in the event of any differences or disputes arising between the parties in regard to this Agreement or any matter relating thereto, the same shall be referred to Arbitration, and both the parties shall appoint one Arbitrator each and the two arbitrators appointed by both the parties shall appoint common Arbitrator, and the said common Arbitrator is authorized to pass an award in connection with the dispute / difference referred to him, and his award shall be final and binding on the parties hereto. The Arbitration shall be conducted as per the Provisions of the Arbitration & Conciliation Act, 1996. The Arbitration shall be conducted in English Language and the place of Arbitration shall be in Hyderabad. The courts at Hyderabad alone shall have jurisdiction in all the matters relating to this Agreement."
9. From the facts of the case and contentions raised by the parties, the question before this Court is whether the claims of the applicant are barred by limitation.
10. It is to be noted that, when an agreement contains a covenant to resolve the disputes by referring to Arbitration, the powers of the High Court under Section 11(6) of the Act, 1996 are extremely 10 limited, and the court is to ordinarily relegate parties to arbitration. However, in all cases where the agreement provides for arbitration, disputes cannot be mechanically referred to the doorstep of an arbitrator. The Court while making a reference is required to apply its mind to the preliminary issues, more particularly when the opposite party raises an objection with regards to the claims being moonshine and ex-facie barred by limitation. The issue of limitation can be looked into at the referral stage, if the claims appear to be stale and ex-facie deadwood. The Supreme Court in BSNL's case (supra), has observed as under:
"36. In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation MANU/SC/0939/2020 : (2021) 2 SCC 1, on the scope of power Under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out "manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes." The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused.
...
While exercising jurisdiction Under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited 11 jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time barred and dead, or there is no subsisting dispute. Paragraph 148 of the judgment reads as follows:
148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed "no-claim certificate" or defence on the plea of novation and "accord and satisfaction". As observed in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., MANU/UKHL/0067/2007 : 2007 UKHL 40 : 2007 Bus LR 1719 (HL)], it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen.
...
37. The upshot of the judgment in Vidya Drolia is affirmation of the position of law expounded in Duro Felguera and Mayavati Trading, which continue to hold the field. It must be understood clearly that Vidya Drolia has not resurrected the pre-amendment position on the scope of power as held in SBP & Co. v. Patel Engineering (supra). It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the Rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal. 12
11. Having observed that this Court can look into the question of limitation, in order to ascertain whether the claims are ex-facie time barred, it is now necessary to see when the period of limitation commences. The Supreme Court in Geo Miller's case (supra) has observed as under:
"8...
Our finding is supported by the decision of a three-Judge Bench of this Court in Grasim Industries (supra). In Grasim Industries, similar to the present case, the arbitration agreement provided for reference to be made under the 1940 Act. However the Appellant raised their claim in 2002, attracting the application of the 1996 Act. This Court was therefore faced with the issue of whether an application for appointment of an arbitrator under the 1996 Act would be barred by limitation in respect of the Appellant's claim. This Court found that, in view of Section 28 of the Indian Contract Act, 1872, the parties in the arbitration agreement could not stipulate a restricted period for raising a claim. However, the limitation period for invocation of arbitration would be three years from the date of the cause of action Under Article 137 of the Limitation Act, 1963. However in the facts of that case, this Court found that certain claims had arisen within the three year limitation period and hence, could be allowed.
Applying the aforementioned principles to the present case, we find ourselves in agreement with the finding of the High Court that the Appellant's cause of action in respect of Arbitration Applications Nos. 25/2003 and 27/2003, relating to the work orders dated 7.10.1979 and 4.4.1980 arose on 8.2.1983, which is when the final bill handed over to the Respondent became due. Mere correspondence of the Appellant by way of writing letters/reminders to the Respondent subsequent to this date would not extend the time of limitation. Hence the maximum period during which this Court could have allowed the Appellant's application for appointment of an arbitrator is 3 years from the date on which cause of action arose i.e. 8.2.1986. Similarly, with respect to Arbitration Application Nos. 28/2003 relating to the work order dated 3.5.1985, the Respondent has stated that final bill was handed over and became due on 10.8.1989. This has not been disputed by the Appellant. Hence the limitation period ended on 10.8.1992. 13 Since the Appellant served notice for appointment of arbitrator in 2002, and requested the appointment of an arbitrator before a Court only by the end of 2003, his claim is clearly barred by limitation.
9. ...
Turning to the other decisions, it is true that in Major (Retd.) Inder Singh Rekhi (supra), this Court observed that the existence of a dispute is essential for appointment of an arbitrator. A dispute arises when a claim is asserted by one party and denied by the other. The term 'dispute' entails a positive element and mere inaction to pay does not lead to the inference that dispute exists. In that case, since the Respondent failed to finalise the bills due to the applicant, this Court held that cause of action would be treated as arising not from the date on which the payment became due, but on the date when the Applicant first wrote to the Respondent requesting finalisation of the bills. However, the Court also expressly observed that 'a party cannot postpone the accrual of cause of action by writing reminders or sending reminders.' In the present case, the Appellant has not disputed the High Court's finding that the Appellant itself had handed over the final bill to the Respondent on 8.2.1983. Hence, the holding in Major (Retd.) Inder Singh Rekhi (supra) will not apply, as in that case, the Applicant's claim was delayed on account of the Respondent's failure to finalize the bills. Therefore the right to apply in the present case accrued from the date on which the final bill was raised (See Union of India v. Momin Construction Company, MANU/SC/0370/1995 : (1997) 9 SCC 97).
10...
Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the 'breaking point' at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This 'breaking point' would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party's primary interest is in securing the payment due to them, than in family disputes where it may 14 be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim. Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the Applicant has asserted their claim and the Respondent fails to respond to such claim, such failure will be treated as a denial of the Applicant's claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the Applicant to plead that waited for an unreasonably long period to refer the dispute to arbitration merely on account of the Respondent's failure to settle their claim and because they were writing representations and reminders to the Respondent in the meanwhile.
11. We are of the considered opinion that the decisions in Hari Shankar Singhania and Shree Ram Mills Ltd. (supra) will not be applicable to the Appellant's case as in these cases the entire negotiation history of the parties had been made available to this Court. In the present case, the Appellant company vaguely stated before this Court that it was involved in 'negotiation' with the Respondents in the 14 years preceding the application dated 4.10.1997 before the Settlement Committee. However it did not place on record any evidence to show when it had first made a representation to the Respondent in respect of the outstanding amounts, and what was the history of their negotiation with the Respondents such that it was only in 1997 that they thought of approaching the Settlement Committee. Further, they have not brought anything on record to show that they were required to proceed before the Settlement Committee before requesting the appointment of an arbitrator. The arbitration Clause does not stipulate any such requirement.
We therefore find that the Appellant company's case has a certain element of mala fide in so far as it has made detailed submissions in respect of its communications with the Respondents subsequent to 4.10.1997, but has remained conspicuously silent on the specific actions taken to recover the payments due prior to that date. Under Section 114(g) of the Indian Evidence Act, 1872 this Court can presume that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it.
Hence, in the absence of specific pleadings and evidence placed on record by the Appellant with respect to the parties' negotiation history, this Court cannot accept the Appellant's contention that it was only after the Respondent's letter dated 18.12.1999 that the Appellant could have contemplated arbitration in relation to the outstanding amounts. Even if we were to include the time spent proceeding before the Settlement Committee, the limitation period, at the latest, would have started 15 running from 4.10.1997 which is when the Appellant made a representation to the Settlement Committee and the Committee failed to respond to the same.
...
We also find it pertinent to add that the Appellant's own default in sleeping over his right for 14 years will not constitute a case of 'undue hardship' justifying extension of time Under Section 43 of the 1996 Act or show 'sufficient cause' for condonation of delay Under Section 5 of the Limitation Act. The Appellant should have approached the Court for appointment of an arbitrator Under Section 8(2) of the 1940 Act within the appropriate limitation period. We agree with the High Court's observation that the entire dispute seems concocted so as to pursue a monetary claim against the Respondents, taking advantage of the provisions of the 1996 Act."
12. The position of law emerging from the above judgment of the Supreme Court is as under:
i. The period of limitation for a dispute is 3 years from the date when a right to sue arises.
ii. Mere inaction of the opposite party does not create a right to sue. A dispute arises when an assertion is made by a party and the opposite party fails to respond to the claim. iii. Mere correspondences between the parties will not extend the period of limitation.
iv. Time spent to arrive at an amicable settlement can extend the period of limitation, however in such cases the entire 16 negotiation history between the parties should be placed before the Court.
13. In the facts of the present case, the applicant had contended that as per Clause 6 of the development agreement dated 23.07.2008, the respondent was to redeem the property from mortgage and deposit the original title deeds of the property in a joint locker within 30 days from the date of the development agreement. It is also contended that the respondent had postponed to redeem the property from mortgage on several occasions. Thus, cause of action in the present case will arise when the respondent had first postponed to redeem the property from mortgage. Even assuming a clear dispute did not exist between the parties when the respondent postponed to redeem the property, the existence of a dispute is evident when the applicant had refused the respondent's demand for further payment to redeem the property. Admittedly when the applicant refused the payment, he was aware that the non- adherence of the terms of the agreement by the respondent had led to the existence of disputes by this period. Thus, the period of the limitation would begin to run from this period. However, the applicant had conveniently omitted from either mentioning the date 17 of refusal or filing records pertaining to such refusal before this Court.
14. Even otherwise, the action of the respondent issuing a legal notice dated 21.09.2011 cancelling the development agreement is a clear denial of the applicant's claim by the respondent. The acknowledgment card containing the seal of the applicant, records the date of delivery as 22.09.2011. Although the applicant sought to contend that they had not received the said legal notice, the same cannot be accepted as it was sent to the applicant's address as mentioned in the development agreement. Thus, considered from any angle the disputes between the parties have arisen as on 21.09.2011, therefore the period of limitation as per Article 137 of the Limitation Act, 1963 would commence from 21.09.2011 and expire on 20.09.2014.
15. The applicant instead of invoking the arbitration clause in light of the legal notice dated 22.09.2011, had chosen to remain silent. Thus, the action of the applicant in applying for elevation certificate on 03.03.2020 and thereafter height clearance on 06.03.2020 on its own without having any communication with the 18 Respondent, nearly after 6 years after the expiry of the period of limitation appears to be an attempt to extend the period of limitation.
16. This Court in the case of Terra Infra Development Limited Vs. NCC Limited5 has held that the period of limitation can only be extended before the expiry of limitation and only by a party against whom such claim lies. The relevant observations are as under:
"xi) Thereafter the Applicant instead of enforcing the arbitration clause kept on writing to the Respondent demanding the dues. As stated above, mere exchange of correspondences will not extend the period of imitation. The Applicant contended the reason for delay in invoking the arbitration clause was the efforts made by it to negotiate the disputes. This Court cannot accept the said contention. The claims of the Applicant were disputed by the Respondent on 18.05.2013. After that multiple letters were addressed by the Applicant to which no reply was sent by the Respondent till 2019. The silence of the Respondent amounted to denial of the Applicant's claim. The Applicant waited for nearly 6 years to initiate the arbitration proceedings. If at all negotiations were in progress, the Respondent would have participated in the same. The failure of the Respondent to reply to the Applicant's letters suggests that there were no negotiations between the parties. Therefore, the limitation started to run from 18.05.2013 and no period can be excluded as no negotiations took place between the parties.
xii) Further, the Applicant relying upon the letter dated 21.10.2019 to contend that its claim is alive as the limitation was extended by the alleged acknowledgment of 60% claim by the Respondent. The said contention even if accepted cannot extend the period of limitation.
Article 18 of the Act, 1963 provides that the period of limitation can be 5 2022 (4) ALT 286 19 extended by a party against whom a claim lies, if there is an admission and acknowledgement of such a claim by such a person. The claim acknowledged shall pertain to property or right. Further, such an acknowledgement shall be made in writing and shall be signed by the party against whom the claim exists before the expiry of period of limitation. In other words, the period of limitation can be extended only by a party against whom a claim exists. It can only be extended before the expiry of limitation."
On the matter being appealed, the Supreme Court in SLP (C) No. 13650/2022 has affirmed the order of this Court in Terra Infra (supra). It is pertinent to note that the facts of the present case are identical to that of Terra Infra. Therefore, neither the elevation certificate dated 03.03.2020, nor the height clearance obtained on 06.03.2020 or the alleged incidents of trespass on 14.06.2020 and 26.06.2020 extend the period of limitation. Thus, the notice dated 14.08.2020 invoking the arbitration clause is clearly time barred as by the said date the alleged disputes have become deadwood.
17. Further, the contention of the applicant with respect to the collusion between the applicant's ex - director Sri. Narender Surana and the respondent by extending time for fulfilling his obligations, is an attempt to transfer boardroom battles to the court room, only for the purpose of extending the period of limitation. The same in light of the above discussion cannot be allowed. 20
18. The reliance placed by the counsel for the applicant on the decision of this Court in Tecpro Systems Limited's (supra) is not applicable to the present facts, since the disputes in that case arose in 2017 and the notice invoking the arbitration clause was sent on 02.05.2018.
19. Accordingly, the present arbitration application is dismissed.
20. Pending miscellaneous petitions if any shall stand closed. No Costs.
___________________ T. VINOD KUMAR, J Date: 31.03.2023 VSV/MRKR 21 THE HON'BLE SRI JUSTICE T. VINOD KUMAR ARBITRATION APPLICATION No. 5 of 2021 March, 2023 vsv/mrkr 22