Andhra Pradesh High Court - Amravati

M/S.Brave Lions India Security ... vs The Chief Executive Of Central ... on 28 April, 2023

         IN THE HIGH COURT OF ANDHRA PRADESH: AMARAVATI

  HON'BLE Mr. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE

              ARBITRATION APPLICATION No.22 of 2022

M/s. Brave Lions India Security Services, rep. by its Proprietor, an Ex-
serviceman S.A. Naidu, S/o. Brahmademudu, aged 68 years,
R/o.D.No.7-60, Kotturu, Anakapalli, Visakhapatnam District

                                                           ... Applicant
                                Versus

The Chief Executive of Central Marketing Organisation, Steel
Authority of India Limited, Ispat Bhavan, Lodi Road, New Delhi, and
another

                                                      ... Respondents
                               ORDER

Dt.28.04.2023

In this application under Section 11 (5) & (6) of the Arbitration

and Conciliation Act, 1996 (for short, "the 1996 Act"), the applicant

prays for appointment of an arbitrator for adjudication of disputes

between the parties arising out of work order dated 06.11.2011

issued to the applicant by the respondents. The nature of work

under the said work order was to eliminate pilferage of imported

coking coal / coke during transit from stockyards at Visakhapatnam

Port Trust and Gangavaram Port Trust to Bokaro Steel Plant (BSL),

Durgapur Steel Plant (DSP), Rourkela Steel Plant (RSP), Bhilai Steel

Plant (BSP), ISP Steel Plant (ISP) and Durgapur Projects Limited

(DPL).

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                                                      Arb.Appl.No.22 of 2022

2. According to the applicant, problem started during execution

of the contract when the respondents stopped paying the bills raised

by the applicant and despite request, respondents did not make

payment, constraining it to file O.S.No.847 of 2014 on the file of the

Metropolitan Sessions Judge-cum-I Additional District Judge,

Visakhapatnam for recovery of the bill amounts, for which the

respondents raised objection as to the maintainability referring to

the arbitration clause in the work order. The District Judge passed

an order on 17.10.2016 in I.A.No.405 of 2015 referring the parties to

arbitration. However, despite representation, respondents did not

take steps for appointment of an arbitrator and lastly the

respondents addressed letter dated 15.12.2021 to the applicant

stating that payments have already been settled in terms of the

contract. The applicant, thereafter, issued a notice on 15.12.2021

invoking the arbitration clause, to which the respondents issued a

reply on 10.01.2022 informing the applicant that if he furnishes no-

objection certificate, his security amount will be released.

3. In the above backdrop, the applicant prays for appointment of

an arbitrator by this court in exercise of powers under Section 11 (5)

& (6) of the 1996 Act.

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                                                     Arb.Appl.No.22 of 2022

4. The respondents would challenge the applicant's application

and request for appointment of an arbitrator on the pleadings that

the work order was issued on 23.12.2009 and in the course of the

work order, the applicant committed breach of contract causing huge

loss to the respondents by way of transit losses of coking coal and

made attempts to cover up the lapses. The applicant raised false

claims by addressing letter dated 03.04.2011 and, again, sent a

letter on 14.05.2011 stating that he cannot continue the contract

unless the bills are cleared. The respondents would refer to series of

exchange of letters between the parties and raised a specific plea of

the application being barred by limitation. It is stated that the

applicant sent legal notice on 05.09.2011 demanding payment of

Rs.1,35,23,000/- together with damages to the tune of Rs.25 lakh, to

which the respondents sent a reply on 13.02.2012 denying the claim.

The applicant, thereafter, filed O.S.No.847 of 2014 on the file of the

V Additional District Judge, Visakhapatnam for recovery of amount

with specific averment that the cause of action arose on 14.05.2011

when the contract was terminated. When objection was raised

under Section 8 of the 1996 Act, objecting to the maintainability of

the suit, the District Court allowed the application on 17.10.2016

referring the matter to arbitration. However, the applicant did not

take any steps seeking appointment of arbitrator.

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                                                       Arb.Appl.No.22 of 2022

5. The applicant issued a notice on 15.12.2021 after six years

seeking appointment of an arbitrator and, thereafter, the present

application is filed on 30.06.2022.

6. Learned counsel for the respondent vehemently argued that

this application is not maintainable as the same has been preferred

after more than 3 years of accrual of cause of action on 14.05.2011,

when the contract was terminated. According to him, in any case,

the V Additional District Judge, Visakhapatnam, having allowed the

respondent's application under Section 8 of the 1996 Act on

17.10.2016, referring the parties to arbitration, the applicant has

still not preferred application within three years thereafter. It is the

specific contention of the respondent that as per Article 137 of the

Limitation Act, 1963 read with Section 43 of the 1996, the present

application, having been filed after 11 years from the date of

termination of contract and, in any case, after 6 years from the date

of the order passed by the trial court under Section 8 of the 1996

Act, is hopelessly barred by limitation.

7. Learned counsel for the applicant would submit that the

present is a case of recurring cause of action; therefore, when the

last notice was issued on 15.12.2021, to which the respondent

replied on 10.01.2022 denying the claim, the application has been 5 HCJ Arb.Appl.No.22 of 2022

preferred within three years thereafter; therefore, it is well within

limitation.

8. This court shall first deal with the issue as to whether the

present application has been preferred within the period of

limitation and if not whether the application deserves to be

considered.

9. Article 137 of the Limitation Act 1963, provides for the period

of three years of limitation for filing an application under Section

11(6) of the 1996 Act. The question as to when the period of

limitation for appointment of arbitrator commences, has been

settled by the Hon'ble Supreme Court in State of Orissa v. Damodar

Das - (1996) 2 SCC and Panchu Gopal Bose v. Port of Calcutta -

(1993) 4 SCC 338. Referring to these decisions, the Hon'ble

Supreme Court in Geo Miller & Co. v. Rajasthan Vidyut Utpadan

Nigam Ltd - (2020) 14 SCC 643, which, again, has been referred in

Secunderabad Cantonment Board v. B. Ramachandraiah and Sons

- (2021) 5 SCC 705, in the following words in paragraph 14:

"14. Having heard the learned counsel appearing for both parties, it is first necessary to refer to the recent judgment of this Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. [Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643] , which extracts passages from all the 6 HCJ Arb.Appl.No.22 of 2022

earlier relevant judgments, and then lays down as to when time begins to run for the purpose of filing an application under Section 11 of the Arbitration Act. This Court, after referring to the relevant statutory provisions, held: (SCC pp. 649-52, paras 15, 21, 23-24 & 29)

"15. In Damodar Das [State of Orissa v. Damodar Das, (1996) 2 SCC 216], this Court observed, relying upon Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 and an earlier decision of a two-Judge Bench in Panchu Gopal Bose v. Port of Calcutta [Panchu Gopal Bose v. Port of Calcutta, (1993) 4 SCC 338] , that the period of limitation for an application for appointment of arbitrator under Sections 8 and 20 of the 1940 Act commences on the date on which the "cause of arbitration" accrued i.e. from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned.

***

21. Applying the aforementioned principles to the present case, we find ourselves in agreement with the finding of the High Court [Geo Miller & Co. v. Rajasthan Vidyut Utpadan Nigam Ltd., 2007 SCC OnLine Raj 97 : (2008) 1 RLW 429] 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 7 HCJ Arb.Appl.No.22 of 2022

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 No. 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. 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.

***

23. Turning to the other decisions, it is true that in Inder Singh Rekhi [Inder Singh Rekhi v. DDA, (1988) 2 SCC 338] , 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'.

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                                                          Arb.Appl.No.22 of 2022

24. In the present case, the appellant has not disputed the High Court's finding [Geo Miller & Co. v. Rajasthan Vidyut Utpadan Nigam Ltd., 2007 SCC OnLine Raj 97 : (2008) 1 RLW 429] that the appellant itself had handed over the final bill to the respondent on 8-2-1983. Hence, the holding in Inder Singh Rekhi [Inder Singh Rekhi v. DDA, (1988) 2 SCC 338] will not apply, as in that case, the applicant's claim was delayed on account of the respondent's failure to finalise 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 Co. [Union of India v. Momin Construction Co., (1997) 9 SCC 97] ).

***

29. 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 it 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."

10. In BSNL v. Nortel Networks (India) (P) Ltd. - (2021) 5 SCC

738, the Hon'ble Supreme Court considered the legal question as to

whether the court may refuse to make the reference under Section 9 HCJ Arb.Appl.No.22 of 2022

11 of the 1996 Act, where the claims are ex facie barred by time. In

this case, the Hon'ble Supreme Court also considered the issue

concerning the period of limitation for filing an application under

Section 11 of the 1996 Act.

11. The Hon'ble Supreme Court in Secunderabad Cantonment

Board (supra), considered the issue at length to hold that while

exercising jurisdiction under Section 11 of the 1996 Act, as the

judicial forum the court may exercise the prime facie test to screen

and knockdown ex face meritless, frivolous and dishonest litigation;

limited jurisdiction of the courts would ensure expeditious and

efficient disposal at the referral stage and can interfere only when it

is manifest that the claims are ex facie time-barred and dead or

there is no subsisting dispute. The Hon'ble Supreme Court, then,

referred to para graph 148 of the judgment in Vidya Drolia v. Durga

Trading Corpn. - (2021) 2 SCC 1, which is reproduced hereunder:

"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 10 HCJ Arb.Appl.No.22 of 2022

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 Fili Shipping Co. Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 Bus LR 1719 : 2007 UKHL 40] , 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."

12. It is, thus, settled by the Hon'ble Supreme Court in Vidya

Drolia (supra) and Secunderabad Cantonment Board (supra) that it

is only in the very limited category of cases where there is not even a

vestige of doubt that the claim is ex face time-barred or that the

dispute has not been arbitrable, that the court may decline to make a

reference. In Secunderabad Cantonment Board (supra), the

Hon'ble Supreme Court set aside the judgment of the High Court

appointing arbitrator on the reasoning that the application under

Section 11 of the 1996 Act was barred by limitation as also the claim.

13. Applying the principle of law laid down by the Hon'ble Supreme

Court in the aforementioned cases to the facts of the present case, it

is to be seen that the contract was terminated on 14.05.2011 after