R.K. Aneja vs Delhi Development Authority
1996 Latest Caselaw 640 Del

JUDGMENT

Manmohan Sarin, J.

(1) The petitioner tiled the present petition on 1.4-10-1993 under Section 20 of the Indian Arbitration Act, 1940 seeking inter alia a direction to the Engineer Member of the respondent, Delhi Development Authority, to appoint an arbitrator in terms of Clause 25 of the Agreement and for reference of all the claims and disputes to him. The respondent has raised a preliminary objection to the maintainability of the petition contending the same to be barred by limitation.

(2) The question that springs up for consideration is whether the starting point of limitation for a Section 20 petition should be reckoned from 28.7.1989, when the petitioner invoked Clause 25 of the agreement and called upon the Engineer Member of the respondent to appoint an arbitrator or from 15.10.1991, when the request for arbitration was declined?

(3) The facts are not in dispute and the petition can be disposed of on this pure question of law.

(4) Let me notice the undisputed facts in brief. The petitioner was awarded the contract for construction of 162 Lig dwelling units at Block 'E' Pitampura Uttari. A formal agreement containing the arbitration clause was also signed. The date of commencement of work was 4.2.1985 and the stipulated date of completion was 3.8.1986. The petitioner completed the work on 7.9.1987. The payment of the final bill was made on 12.8.1988. Payment under Clause 10CC was made on 2.5.1989.

(5) On 28.7.1989, the petitioner addressed a letter (Exhibit P/1) to the Engineer Member of the respondent, invoking Clause 25 of the Agreement and calling upon the Engineer Member to refer all the disputes between the parties to the arbitrator to be appointed by him. The letter also recorded that disputes had arisen and were still persisting. It called upon the Engineer Member to appoint the arbitrator within 21 days of the receipt of the communication, failing which the petitioner would be constrained to take the matter to Court for appointment of an independent arbitrator at the risk and cost of the respondent. The letter went on to name four Superintending Engineers, none of whom should be appointed arbitrator on the ground that they were prejudiced against the petitioner.

(6) In the event, the arbitrator was not appointed on expiry of 21 days. The petitioner, however, did not move the Court for appointment of an arbitrator. The petitioner instead sent a reminder on 25.10.1990. The respondent declined the request vide its letter of 15.10.1991 on the ground that the final payment had been made. It was claimed that the request for arbitration had been received in the office on 7.8.1989 after the expiry of the prescribed period under Clause 25 of the Agreement. It was, thus, claimed that the claims were deemed to have been waived and Delhi Development Authority stood discharged and released of liabilities. The petitioner again protested against improper consideration of its request for arbitration. The said request for arbitration was again declined by the respondents on 9.6.1992. The petitioner sent a reply to the letter of 9.6.1992 again protesting against rejection of his request and sent a final reminder on 10.10.1993. The petition, as noticed earlier, was filed on 14.10.1993.

(7) Learned counsel for the petitioner has submitted that the limitation would commence from the date on which the request for appointment of the arbitrator was finally declined. It is argued that the petitioner is expected to resort to legal action only after the machinery and procedure contemplated under the agreement for appointment of arbitrator fails. In support of her contention, learned counsel for the petitioner has relied upon the following authorities.

1.Oriental Building and Furnishing Co. Vs. Union of India (AIR 1981 Delhi 293). 2. Shah Construction Company Ltd. Vs. Mcd . 3. Chief Engineer & 2 Ors. Vs. Sagal Mal Aggarwal (1994(2) Alr 257). 4. L.K. Ahuja Vs, Union of India (1987 (1) Alr 33).

(8) Learned counsel for the petitioner further submitted that the Engineer Member of the respondent had abandoned his right to appoint the Arbitrator and the Court should, in the circumstances, appoint an independent arbitrator. Reliance was placed on the case Grc Reddy & Co. Vs. Chief Engineer Mes, Madras Zone (2) Alr 61) and State of Bengal Vs. National Builders (1994 (1) Alr 5).

(9) Learned counsel for the respondent submitted that the cause of action for a Section 20 petition arose upon payment of the final bill on 12.8.1988. Even if the last payment was to be considered under Clause 10CC it was on 2.5.1989. The stipulated period of 90 days in the Agreement to invoke Clause 25 of the Agreement expired on 2.8.1989. The three year period for a petition under Section 20 of the Arbitration Act as per Article 137 of the Limitation Act would expire on 2.5.1992. Limitation would commence from the dated 28-7-1989, when the disputes had admittedly arisen, giving the cause of action for a Section 20 petition. The petition filed on 14.10.1983 was liable to be dismissed as barred by limitation. Reliance was placed on Manager (Retd.) Inder Singh Rekhi Vs. Dda and S. Rajan Vs. State of Kerala & Ors. (1992 (3) Scc 602 and Shah Construction Co. Ltd. Vs. Mcd .

(10) Let us consider the legal position.

(11) Learned counsel for the petitioner cited the case of M/s. Oriental Building and Furnishing company Ltd., New Delhi Vs. Union of India (AIR 1981 Delhi 293) to urge that the limitation period of three years under Article 137 of the Limitation Act for a Section 20 petition under the Arbitration Act, 1940 commences when the parties could not resolve the differences and do not agree to have a common arbitrator or refuse to have arbitration. In the cited case, the Court held that the differences arose, not when the lease was entered into or expired but when subsequently an attempt to take possession was made. It was then that the cause of action arose. The petition was, therefore, held to be within limitation. Learned counsel for the defendant relied on the observations made in para 12 of the judgment, wherein it was observed that the respondents chose not to appoint the arbitrator on some ground or the other and "it is only after this that it could be said that the petitioner was compelled to come to the Court."

(12) The next decision relied on by learned counsel for the petitioner is Ved Prakash Mithal Vs. Union of India & Ors. . This authority does not touch upon the aspect of limitation. It deals with the situation, where the appointing authority does not appoint the arbitrator. The Court held that in such a situation, it was not powerless to appoint an arbitrator itself in exercise of powers under Section 20(4) of the Arbitration Act. It is in this context that the court observed that failure of arbitration machinery was essential for invocation of courts power.

(13) Two other cases cited by learned counsel for the petitioner are Chief Engineer & 2 others Vs. Sagarmull Aggarwal (1994 (2) Alr 257) and Union of India Vs. Sagarmull Aggarwal (1994 (2) Alr 259).

(14) In the first case, the Chief Engineer referred only the initial disputes reference of which had been sought and did not refer the remaining disputes to arbitrator, the reference of which had been subsequently sought. It was held that the cause of action arose only when the Chief Engineer passed his order dated 3.5.1990, appointing an arbitrator and referring only disputes initially raised and, thereby, rejecting the claim of the petitioner for referring the disputes subsequently raised. It was, therefore, held that the cause of action arose for a Section 20 petition in respect of the five claims on the refusal to refer them on 3.5.1990 and the application under Section 20 was within time.

(15) In the second case, the contractor sought appointment of arbitrator in 1980 raising disputes. He sent several reminders. The department only informed him that certain information and particulars were being gathered and action would be taken on receipt of the same. The contractor had no option having waited upto September 1991, but to move the Court under Section 20 for appointment of an Arbitrator. The Court after referring to the decision in Oriental Building and Furnishing Co. Vs. Union of India (Supra); and L.K. Ahuja Vs. Union of India (Supra) and reviewing the case law observed, "The Contractor having waited upto September 1991 need not wait indefinitely for the consideration and decision of the department and was fully competent and justified to move the Court for appointment of the arbitrator in accordance with the clause of arbitration. Since the department neither denied nor refused the request of the contractor for settling his claim or for appointment of arbitrator, to settle those claims, the period of limitation did not start. In fact, the period of limitation starts only on the date the department refuses to appoint an arbitrator and as such it cannot be said that the application under Section 20 of the Arbitration Act was barred by time." As a result, the appeal was dismissed and the reference under Section 20 upheld.

(16) Learned counsel for the petitioner also relied upon the case of L.K. Ahuja Vs. Union of India (1987 (1) Alr 33). In this case, the contract was completed on 30.5.1971. A request for appointment of arbitrator was made by the contractor on 4.6.1976 and a sum of Rs.1,91,636.00 was claimed. As the Chief Engineer, did not take any steps to appoint the arbitrator, an application under Section 20 of the Arbitration Act was filed. The respondents contested the application contending that contract had been completed in May 1971 and "No Claim Certificate" and declaration had been given and that there was no dispute. One of the issues before the Court was whether the petition was barred by limitation. The Court held that the question whether the claim which has to be referred to the arbitrator was barred by time or not was foreign to the controversy whether the application under Section 20, of the Arbitration Act was within time. The occasion to move the application under Section 20 could arise when the prayer to make the reference to the arbitrator was rejected.

(17) Learned counsel for the petitioner also relied on the cases Crompton Greaves Ltd. Vs. Toshiba Anand Lamps Ltd. (1987 (1) Alr 38) and G. Rama Chandra Reddy & Co. Vs. Chief Engineer, M.E.S. Madras Zone (1994 (2) Alr 61). Both these authorities are concerned with the failure of the appointing authority to appoint an arbitrator and the Court stepping in to fill the vacancy to appoint the arbitrator. It was held in the latter case that the appointing authority would forfeit its right to appoint the arbitrator. Similarly, the case of State of West Bengal Vs. National Builders (1994 (1) Alr 5), relied upon by learned counsel for the petitioner, is concerned with the refusal to act, by a named arbitrator. The Court held that in such a case the named person having refused to act, cannot be asked to arbitrate again. -These authorities are of no relevance to the question of limitation.

(18) The authorities laying down that the three year period for Section 20 petition under Article 137 of the Limitation Act would commence from the date the request for arbitration as declined cannot be regarded as laying down the correct legal position. The application under Section 20 of the Act has to be made within three years of the accrual of the cause of action i.e. the right to apply for Section 20 petition. The two conditions required to be fulfillled for getting an order of reference are that there should be an arbitration agreement and the differences must have arisen to which the agreement applied. This would provide the cause of action for a Section 20 petition, The cases cited by the petitioner namely Chief Engineer & 2 others Vs. Sagarmull Aggarwal (Supra) and Union of India Vs. Sagarmull Aggarwal (Supra) had followed the decision of the Single Judge of this Court in M/s. Oriental Building and Furnishing Co. Vs. Union of India (Supra) of D.K. Kapur, J. The Learned Judge had followed the decision in Bhardwaj Industries Vs, Union of India (Suit No.308A/78 decided on 2.2.1979 and in Vijay Construction Co. Vs. Union of India (1980 Rlr Note 76). This decision was the subject matter of an appeal before the Division Bench in the case titled Union of India Vs. Vijay Construction Co. (AIR 1991 Delhi 193). The Division Bench did not agree with the view of D.K. Kapur, J and observed as under:- The right to apply for arbitration is dependent on a dispute having arisen and the dispute is whether the rescission of the contract was justified or not. The learned Judge assumes that it is only if the General Manager rejects the request for arbitration that a dispute arises. We cannot agree. The dispute between the contractor and the railway arose on the rescission of the contract. Making a request for referring the matter to arbitration is a demand to refer the dispute to the forum which the parties had agreed upon. Awaiting reply from the Railways cannot save limitation which had already started running from the date of the rescission of the contract. The rescission of the contract is a clear and straight intimation to the contractor that his work has not been found satisfactory and the consequences will follow. It is no doubt true that if in pursuance of a notice given, the arbitrator had been appointed by the Railways, no necessity to file an application under Section 20 would have arisen. But the grievance of the contractor had arisen from the date of rescission of the contract. In order to get the relief from the injury done to him by the rescission of contract, the appointment of an arbitrator was one of the steps, he had to take. The right to apply and take effective steps had thus arisen from that date'.

(19) This legal position has been followed in Shah Construction Co. Vs. M.C.D. (Supra)., Moreover, the Apex Court had occasion to deal with this question in S. Rajan Vs. State of Kerala and another In this case, the appellant had entered into a contract for carrying out works within a period of 10 months. The contract was terminated in December, 1968 and the work reentered and completed by another contractor. The State of Kerala initiated proceedings for recovery under the Revenue Recovery Act and served a notice of demand in May, 1974 on the appellant. The appellant challenged the notice in Writ petition. It was dismissed in November, 1978. The appellant applied to the Government of Kerala to refer the disputes and differences to the arbitrator in the year 1983. This was refused in the year 1984. It was then that the Section 20 petition was filed. The Subordinate Judge had allowed the Section 20 petition. In an appeal, the High Court upheld the objection of the State Government holding that the period of limitation described under Article 137 commenced on 30.5.1974, when the notice demanding payment of loss suffered by the Government was served upon appellant. Learned counsel for the appellant contended that the request for reference of the disputes and differences made in 1983, was rejected only in the year 1984. Therefore, the application under Section 20 was not barred by limitation. The Apex Court held that applicability of Limitation Act to an application under Section 20 was no longer res-integra as held in the case of Maj. Inder Singh Rikhi Vs. Dda (1988 (1) Scc 338). The Court further specifically rejected the appellant's contention that the cause of action for Section 20 petition must have arisen only when the appellant applied to the reference of the disputes to the arbitration in terms of the agreement and Government refused to do so. The Court held that reading Article 137 and Sub Section 1 of Section 20 of the arbitration together, it must be said that the right to apply accrues when the difference arises or differences arise as the case may be between the parties. It is thus, a question of fact to be determined in each case having regard to the facts of that case.

(20) It would also be worthwhile to reproduce the observations made by the Apex Court in Maj. Inder Singh Rikhi Vs.DDA (Supra), the Court held that in order to be entitled for a reference under Section 20 petition there must not only be an entitlement to money but there must be a difference or dispute that had arisen. The Court went on to observe "It is true that on completion of the work, a right to get payment would normally arise but where the final bills as in this case, have not been prepared as appears from the record and when the assertion of the payment was made on 28.2.1983 and there was no payment, the cause of action arises from that date i.e. to say 28.2.1983. It is also true that a party cannot postpone the accrual of a cause of action by writing or sending reminders but where the bill had not been finally prepared, a claim made by a claimant is the accrual of the cause of action. The dispute arose where there is a claim and a denial and a repudiation."

(21) The Court held that the cause of action had arisen in 1983 and the petition was filed within three years and held to be application within time.

(22) Having noticed the legal position as laid down by the Division Bench of this Court in Union of India Vs. Vijay Construction Co.(Supra) and by the Apex Court in S .Rajan Vs. State of Kerala (Supra) and Maj. Inder Singh Rikhi Vs. Dda (Supra), let us consider the present case. As noticed earlier, admittedly the payment of the final bill was made in August, 1988. In July, 1989, the petitioner had served a notice, Ex.P1, clearly setting out its claims and invoking arbitration. Not only this, the petitioner had categorically stated that in case the arbitrator was not appointed on expiry of 21 days, the petitioner would move the Court for appointment of arbitrator. This being the position as clearly so stated and understood by the petitioner, the date of accrual of cause of action or the right to apply for a Section 20 petition, cannot be deferred on the ground that the petitioner had protested against the declining of his request for arbitration and was making representation and was following up with the authorities. The right to apply and cause of action for Section 20 petition, as noticed above arose in July, 1989 or at best upon the expiry of 21 days of the said notice. The disputes had admittedly arisen and the request for arbitration had been declined. I, therefore, hold the present petition, having been filed on 14-10-1993, as clearly barred by limitation. Petition is accordingly dismissed.