Bombay High Court
Garwha Road vs A Company Under The Companies Act on 9 October, 2012
Bench: R.D. Dhanuka
kvm
1
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
kvm
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
kvm
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
kvm
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
kvm
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
kvm
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.
kvm
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
kvm
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.
kvm
ARBP1027.11
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
kvm
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.
kvm
ARBP1027.11
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
kvm
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
kvm
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.)
