Union Of India vs M/S. Swadeshi Karyalaya And ...
1989 Latest Caselaw 431 Del

ORDER

1. On filing of the award, which had earlier been remitted under Section 16 of the Arbitration Act, 1940, objections have been filed by the Union of India stating that the claim of the respondent-contractor was barred by limitation.

2. On pleas of the parties following issues, as usual, were framed:--

1. Whether the award is liable to be set aside on the objections of petitioner-UOI?

2. Relief.

Parties were allowed to lead evidence by means of affidavits.

3. The disputes pertain to the year 1963. Between 14th January 1963 to 4th October, 1963, the Union of India (UOI) placed orders with the respondent-contractor for supply of hosiery goods. Respondent is in fact a manufacturer. The basic material used for manufacture of hosiery is worsted yarn. At the relevant time it was a contract item. the price of the yarn was increased by the Textile Commissioner on 25th October, 1963 and the 20th November 1963. Supplies could also not be effected within time as there was delay in supply of worsted yarn. It is stated that last supply of worsted yearn was made some time in August, 1965 and it was thereafter that supplies to the UOI were completed. Since the price quoted for hosiery was dependent upon the price of the worsted yarn and on increase by the Textile Commissioner, the respondent made claim for increase of price of the goods, i.e., hosiery supplies. The claim for increase in price was outside the contract between the parties. Negotiations were held between the parties and UOI agreed in principle to pay at the increased price and for that purpose even asked for the details of the supplies made. These negotiations were, however, being carried on through the Hosiery Industries Federation (Eastern) Ludhiana and apart from the respondent various other manufacturers who had also similarly supplied hosiery items were involved. Then, ultimately by letter dated 17th January, 1968 UOI stated that the request of increase of orders placed between October, 1963 to December, 1963. The respondent, therefore, raised disputes and claimed Rs. 32,744/ - being the increase in the price of the goods supplied. The disputes were referred for arbitration. The Arbitration gave his award on 21st June, 1977. He upheld the claim of the respondent but disallowed the same on the ground that it was barred by limitation. The exact wordings used by the Arbitrator are as under:--

"That the claim of Rs. 32,744/- is justified but being time barred is rejected."

4. When this award was filed in this Court, on the objections of the respondent it was again remitted back to the Arbitrator to consider the question of limitation afresh after giving opportunity to the parties. The respondent had stated that no opportunity was given to it by the Arbitrator on his finding that the claim was barred by limitation. This Court held as under : -

"The question of limitation can be separated without affecting the determination on merits. Union of India has not filed any objections assailing the finding of the arbitrator on merits. In such circumstances it is a fit case for remitting the award to the arbitrator for re-deciding the question of limitation after affording the parties reasonable opportunity of presenting their case on the question of limitation, including opportunity of leading evidence, if necessary. The issue is decided accordingly.

In conclusion, I remit the award to the arbitrator for deciding afresh the question of limitation after affording the parties an opportunity of hearing, including opportunity of leading evidence. The arbitrator would be paid Rs. 300/- as his fee. The parties are left to bear their own costs."

This order was made on 26th February, 1982 in Suit No. 779-A/ 1977.

5. Thereafter, for reason which are not necessary to state, the authority of the arbitrator was revoked and the matter was referred to Justice M. S. Joshi, a retired Judge of this Court as Arbitrator. He gave the present award. He held that the claim of the respondent was within limitation. Now, as noted above, UOI filed the objections. The principal contention raised is that the claim was barred by limitation and the award, therefore, has to be set aside. Mr. J. P. Gupta, learned counsel for the respondent, submitted that a specific question of law had been referred to the arbitrator and even if his decision was wrong, the award could not be set aside. In support he referred to a decision of the Supreme Court in Union of India v. A. L. Rallia Ram, and to M/s. Sudarsan Trading Co. v. The Government of Kerala, . In the latter judgment the Supreme Court observed that if the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of the evidence and the arbitrator was the sole Judge of the quality as well as the quantity of evidence and it would not be for the Court to take upon itself the task of being a Judge on the evidence before the arbitrator. I do not know how this observation is helpful in the present case. In UOI v. Rallia Ram the Supreme Court did hold that where a question of law was specifically referred to the arbitrator for his decision, the award on that question would be binding upon the parties, for by referring the specific questions the parties desire to have a decision from the arbitrator on that question rather than from the Court, and the Court would not unless it is satisfied that the arbitrator had proceeded illegally, interfere with the decision. I do not think Mr. Gupta is correct in his submission on this point. When a reference was made to the arbitrator on disputes raised by the respondent, no specific question of law had been referred and it was a general reference. From the pleas of the parties the arbitrator had framed issues and one of the issues was if the claim was time barred. This does not mean that the parties agreed to refer specifically any question of law incorporated in the issues framed by the arbitrator which may be framed even on agreement between the parties. The award was remitted in the present case under S. 16 of the Arbitration Act, 1940 for the arbitrator to determine afresh on the question if the claim of the respondent was barred by limitation after affording opportunity to the parties of being heard. When Court exercise jurisdiction under S. 16 of the Act, it does not refer any dispute to the arbitrator as envisaged under Ss. 8, 9, 20 or 21 of the Act. The disputes had already been referred to the arbitrator. The Court under S. 16 merely remits the award or any matter referred to arbitration to the arbitrator or umpire for reconsideration, on either of the three contingencies mentioned in sub-sec.(l) of S. 16 of the Act. The ground on which the award was remitted in the present case was that there was an objection to the legality of the award which was apparent on the face of it inasmuch as the claimant was not heard on the question of his claim being barred by limitation. I will not, therefore, agree with Mr. Gupta when he says that if the award was remitted for reconsideration, the Court had referred a specific question of law to be determined by the arbitrator. It was on 22nd September, 1969 that the respondent through his counsel called upon the UOI to refer the disputes for settlement to arbitration under the terms of arbitration agreement between the parties. The disputes were referred to arbitration on 31st October, 1970. The award was given on 21st June, 1977 when claim of the respondent, though held to be justified, was rejected being time barred.

6. The contention of UOI is that when the supplies were lastly made in August, 1965, the claim had already become barred by limitation when notice for referring the disputes for arbitration was given. Reference in this connection may be made to sub-sec. (3) of S. 37 of the Act which says that for the purposes of S. 37 and of the Indian Limitation Act, an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto, a notice requiring the appointment of an arbitrator. The respondent, however, contends that cause of action would arise only on 17th January 1968 when UOI finally rejected the claim for increase in price. Mr. Gupta said his claim was outside the contract for supply of hosiery goods. If that be so, how could the disputes be subject matter of arbitration, is not clear to me. But, then this is not the objection by the UOI. Mr. Gupta strongly relied on a decision of the Supreme Court in Gannon Dunkerley v. The Union of India, . In this case a contract was executed on 26th November, 1948 for construction of certain works at Sindri Fertilizer Factory to be completed by 26th February, 1950. The appellant company made certain demands by letter dated 20-9-1950 which were, however, rejected by the Additional Chief Engineer by his letter dated 13th September, 1950. (There appears to be certainly a mistake in the dates in the report and in any case the date of rejection could not be earlier then 13-9-50). In September 1954, certain disputes were referred to arbitration under the contract. The company, however, instituted a suit against the Union of India on 9th August, 1956 for enhanced rate in respect of work not covered by the contract but which though carried out under the institutions of the Engineer-in-charge did not arise out of the contract. It was not disputed that the claim in the suit was not covered under the arbitration clause and could not be the subject-matter of the reference. It was contended on behalf of the Union of India that the suit was barred by limitation under Cls. (56) and (115) of the First Schedule to the Limitation Act, 1908. The Supreme Court held that the suit was covered under Art. 120 and the period of limitation was 6 years. It was then contended that even if the claim fell within the terms of Art. 120, it was barred, for the appellant company had in the suit made a claim for the work done more than 6 years before the institution of the suit and that the period of limitation commenced to run from the date on which the defendant (Union of India) obtained the benefit of the work done by the appellant company. The Supreme Court negatived the contention and observed as under (at page 1436):

"But under Art. 120 of the Limitation Act the period of six years for suits for which no period of limitation is provided elsewhere in the Schedule commences to run when the right to sue accrues. In our judgment, there is no right asserted in the suit, and its infringement, or at least a clear and unequivocal threat to infringe that right by the defendant against whom the suit is instituted ......."

Thus, according to the Supreme Court, the cause of action arose when the rejection was communicated to the party, and on this date the right to sue accrued.

7. Mr. Rajinder Dutt, appearing for the Union of India, however, referred to another decision of the Supreme Court in Sita Ram Goel v. The Municipal Board, Kanpur, . It was his argument that once right to claim the excess price accrued on the supply of hosiery goods, the cause of action will arise in favor of the respondent from that date and there could be no stopping of the cause of action. Thus, according to him, last supply was made in August, 1965. The day on which reference to arbitration was made, i.e., 22nd September, 1969, the claim towards excess prices of the goods had become barred by limitation. Mr. Dutt also got support from other decision of the Supreme Court in Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, . This was, however, a case under S. 20 of the Act. The Court held that in order to be entitled to ask for a reference under S. 20, there must not only be an entitlement to money but there must be a difference or dispute arising out between the parties. It observed that it was true that on completion of the work a right to get payment would normally arise and that a party could not postpone the accrual of cause of action by writing reminders or sending reminders. Mere failure or inaction to pay did not lead to the inference of the existence of dispute. In this case the Court had taken the view that for applicability of S. 20, there must be a claim and a denial or repudiation of the claim for the dispute to arise and that the existence of dispute was essential for appointment of an arbitrator under S. 8 or a reference under S. 20 of the Act. The controversy, therefore, is if the arbitrator took correct view of the law in holding that the claim was within limitation. I think, however, that answer to this controversy can be found in another decision of the Supreme Court in Food Corporation of India v. Joginderpal Mohiderpal, . The Court observed that the jurisdiction to interfere by a Court of Law of an award made by the arbitrator chosen by the parties was circumscribed and it further observed as under (at page 1266 and 1267 of AIR):

"But in proceedings of arbitration there must be adherence to justice, equity, law and fair play in actions. However, the proceedings of arbitration must adhere to the principles of natural justice and must be in consonance with such practice and procedure which will lead to a proper resolution of the dispute and create confidence of the people for whose benefit these processes are resorted to. It is, therefore, the function of courts of law to oversee that the Arbitrators Act within the norms of justice. Once they do so and the award is clear, just and fair, the courts should, as far as possible, give effect to the award of the parties and make the parties compel to adhere to and obey the decision of their chosen adjudicator. It is in this perspective that one should view the scope and limit of correction by the Court of an award made by the arbitrator. We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situation, but must be responsive to the cannons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating a sense that justice appears to have been done."

8. Then, referring to the law on the subject discussed in Halsbury's Law of England (Vol. 24th Edn.) and also to the observation of Russell on Arbitration (20th Edn.) the Court held that it was not misconduct on the part of an arbitrator to come to an erroneous decision, whether his error was one of fact or law, and whether or not his findings of fact were supported by evidence. In that case the Court was of the opinion that the arbitrator had taken a view which was a plausible view.

9. In the present case the learned arbitrator after considering the rival contentions of parties and referring to various decisions and particularly that of the Supreme Court in Gannon Dunkerley and Co. (supra) came to the conclusion that the claim of the respondent was not barred by limitation. It was also pointed out to me during the course of argument that Justice V. S. Deshpande, a retired Chief Justice of this Court took a similar view as an arbitrator when disputes regarding other manufacturers of hosiery goods were referred to him; the disputes being the same, i.e., the claim for increase in the price of goods supplied. The arbitrator, thus, in the present case, has taken the view that the cause of action arose on 17th January, 1968 and thus the claim was within limitation. I do not find any fault in that reasoning of the arbitrator and there is no ground to interfere. The objections by the UOI are dismissed. The award is, therefore, to be made rule of the Court and a decree passed in terms thereof.

10. Then, the question arises about the payment of interest. Under S. 29 of the Act where the award is for payment of money the Court may in the decree order interest from the date of the decree at such rate as the Court deems reasonable. There is authority for the proposition that this section impliedly bars the jurisdiction of the courts to award interest pendente lite, i.e., for the period the proceedings for making award rule of the Court or pending meaning thereby that S. 34 of the code of Civil procedure is inapplicable in such proceedings. I do not think that this is a correct proposition. The Interest Act, 1978 which empowers the Court (the term also includes a Tribunal and an arbitrator) to allow interest in certain circumstances for the period up to the date of institution of the proceedings by virtue of S. 5 leaves the provisions of S. 34 of the Code of Civil Procedure unaffected. This S. 5 is as under:--

"Section 34 of the Code of Civil Procedure, 1908 to apply -- Nothing in this Act shall affect the provisions of S. 34 of the Code of Civil Procedure, 1908."

This, therefore, fortifies the argument that the power of the Court under S. 34 of the Code to grant interest pendente lite remains untouched and S. 29 of the Act is no bar. To my mind S. 34 of the Code shall apply by virtue of Cl. (1) of S. 41 of the Act which makes the provisions of the Code applicable to all proceedings before the Court under the Act. Rather I would say that by virtue of definition of "Court" under the Interest Act, 1978 which now includes an arbitrator as well, provisions of S. 34 of the Code would also apply to proceedings before an arbitrator by virtue of S. 5 of the Interest Act, 1978. Law as it stands today is quite intricate regarding award of interest pendente lite and future by the arbitrator it is not that arbitration proceedings are concluded within four months as one would have wished with reference to the Schedule to the Act. Rather, it takes years and more years to make award rule of the Court. Injustice will be caused to the claimant if he is not, allowed interest, particularly when Supreme Court has held in recent judgments that arbitrator has no power to grant interest pendente lite or future interest even after coming into force of Interest Act, 1978 in the arbitration proceedings before him. In M/s. H. M. Kamaluddin Ansari and Co. v. Union of India, , the Supreme Court has said that Cl. (a) of S. 41 of the Act made only the procedural rules of the Code applicable to proceedings in Court under the Act. This view has been reasserted in J. & K. State Forest Corporation v. Abdul Karim Wani, . But I may add that in both these cases the Supreme Court was considering the scope of Cl. (b) of S. 41 of the Act.

11. In Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujarat) (P) Ltd., , the Supreme Court considered the question of grant of interest pendente lite by the arbitrator. The interest awarded in that case covered three periods-- (i) prior to the commencement of the arbitration proceedings; (ii) pendente lite; and (iii) date of award to the date of decree. The Court held that having regard to the position of law emerging from the decision of the Court in Executive Engineer (Irrigation) Galimela v. Abhaduta Jena and S. 29 of the Act and S. 34 of the Code, the Court could modify the grant of interest in the case. The Court, therefore, deleted the interest pendante lite awarded by the arbitrator and upheld the award of interest for the period prior to the commencement of the arbitration proceedings and then in the exercise of powers under S. 3 of the Interest Act, 1978 and S. 29 of the Act, directed that interest be paid from the date of the award till the date of actual payment.

12. Thus, the position that now emerges is that, though arbitrator can award interest for the period prior to the commencement of the arbitration proceedings; he cannot award interest pendente lite, i.e., for the period when the arbitration proceedings were pending which culminated in the award. The interest for the future period from the date of the award till payment can be granted by the Court.

13. The original award is dated 21st June, 1977 and was filed in Court on 7th November, 1977 for making it rule of the Court. Thereafter, as noted above, the award was remitted under S. 16 of the Act for re-consideration limited to the question of limitation. Thereafter, the arbitrator submitted his decision on 25th May, 1984. This was within the time as fixed earlier at the time of remitting the award and as extended by subsequent orders of the Court. When the award was first filed UOI did not file any objections to the claim which had been upheld by the arbitrator. Interest from the date of the award would, therefore, be calculated from 21st June, 1977 and not the date when the arbitrator submitted his decision after reconsideration under S. 16 of the Act as, to my mind, when the award is remitted for re-consideration on any point, the arbitrator has to give his decision within the time fixed by the Court otherwise the award which is remitted becomes void. In a case like this Court remains seized of the matter till the award is re-submitted by the arbitrator after re-consideration.

14. Accordingly, the award dated 21st June, 1977 as modified after re-consideration by award dated 25th May, 1984, is made rule of the Court. The respondent will be entitled to interest at the rate of 6% p.a. on the amount of Rs.32,744/- from 21st June 1977 till payment. Respondent will also be entitled to costs. Counsel's fee Rs. 500/-.

15. Order accordingly.