Technofab Engg. Ltd. vs Bharat Petroleum
1998 Latest Caselaw 760 Del

ORDER

Case Note:

Arbitration Act, 1940 - Section 20--Limitation--Application not moved within three years from the date when right to apply accrued--The claim not made within three years from the date of clear and unequivocal denial of right--Application is barred by limitation.

Dr. M.K. Sharma, J.

1. Work of installation of fire fighting equipment at the Bharat Petroleum Corporation Limited installation at Bijwasan was awarded to the petitioner. The contract period was eight months and the scheduled completion was 16.9.1985. The work, however, could be completed by the petitioner only beyond the scheduled period and after extension was granted for completion of the same. The value of the contract was Rs.26,89,202.90 and the respondent deducted a sum of Rs.1,34,460/- from the amount due and payable to the petitioner by way of penalty in terms of Clause 4 of the agreement and Clause 25 of the General Condition of Tender.

2. Disputes arose between the parties in respect of the aforesaid deduction made from the final bill of the petitioner in pursuance of which, the parties appointed their arbitrators and the retired Chief Engineer of C.P.W.D. was appointed as an Umpire. The two arbitrators received claims and counter claims filed by the parties and also the documents placed on record by the parties. After hearing the parties, the two arbitrators made and published the award on 30.12.1990. Being aggrieved by the aforesaid award passed by the arbitrators and in pursuance of filing of the award in this Court, the respondent has preferred an objection under Sections 30 and 33 of the Arbitration Act which is registered as I.A. No. 6400/1991.

3. The respondent/Objector was represented by Mr.P.Banerjee who had vehemently supported the objection filed by the respondent whereas, none appeared for the petitioner. Two issues were framed in the proceedings:

1. Is the award liable to be set aside for the grounds stated in the objection petition?

2. Relief.

4. One of the main objections against the award passed by the arbitrators is that the claim of the petitioner was barred by limitation and, therefore, the arbitrators could not have passed an award in respect of the aforesaid claim.

5. The next submission of the learned counsel appearing for the respondent/objector was that the award of the arbitrators awarding a sum of Rs.1,34,460/- along with interest accruing thereon at the rate of 15% per annum is bad in law. According to the learned counsel, the aforesaid claim being Claim No.1 for refund of Rs.1,34,460/- which was recovered by the respondent on account of penalty for delay in completion of the project was an excepted matter under the Contract and, therefore, the arbitrators could not have adjudicated upon and decide the said matter.

In view of the aforesaid submissions of the learned counsel appearing for the respondent, I have carefully looked into the award passed by the arbitrators as also the record of the arbitration proceedings. With regard to the plea of the respondent that the claim of the petitioner is barred by limitation, I find that such a plea was also raised before the arbitrators. However, on the reasons recorded by the arbitrators in the award, they rejected the said objection of the respondent holding that the work under the Contract was recorded to be actually completed on 30.5.1986 and the accounts in relation to the Contract were finalised on 23.6.1986 when payment was made by the respondent to the claimant and, thereafter, another payment was released by the respondent to the claimant on 15.10.1987 and thus, the claimant having invoked the arbitration agreement on 17.6.1989, the claim is within the period of limitation of three years as provided under Section 137 of the Limitation Act.

Counsel for the respondent states that the aforesaid appreciation by the arbitrators is perverse and that there is an error apparent on the face of the records in coming to the aforesaid conclusion.

In order to appreciate the contention of the learned counsel appearing for the respondent, I have looked into the records of the proceedings as well. The records disclose that the contractor/petitioner completed the work on 30.5.1986. Thus, there is no error of the arbitrators in recording that the work under the Contract was completed on 30.5.1986. However, a look into the contents of Ex.'A' discloses that the final bill of the petitioner was passed on 11.6.1986 and deduction of the aforesaid penalty amount of Rs.1,34,460/- was recorded on that date. The petitioner in its letter dated 4.7.1986 recorded their objection to the aforesaid deduction. The aforesaid facts appearing from the records, therefore, disclose that the final bill of the petitioner was passed on 11.6.1986 and the deduction was recorded by the respondent on that day itself for which claim came to be raised by the petitioner. The petitioner was also aware of the aforesaid final deduction made by the respondent on 11.6.1986 from the final bill of the petitioner and accordingly they also protested against the aforesaid deduction by their letter dated 4.7.1986. The petitioner invoked the arbitration agreement on 17.6.1989.

6. A claim for an amount deducted by the respondent under the law was to be made within three years from the date when the right to apply accrues. The Supreme Court in the decision of State of Orissa Vs. Damodar Das; reported in 1 (1996) Civil Law Times 294 has held that for the purpose of Section 37(1) 'action' and 'cause of arbitration' should be construed as arbitration and cause of arbitration. It was further held that the cause of arbitration arises when the claimants become entitled to raise the question, that is, when the claimant acquires the right to require arbitration. The Supreme Court held that an application under Section 20 is governed by Article 137 of the Schedule to the Limitation Act, 1963 and must be made within three years from the date when the right to apply first accrues and that there is no right to apply until there is a clear and unequivocal denial of that right by the respondent. It was conclusively held by the Supreme Court in that decision that it must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of the cause of action arises in a civil action.

In my considered opinion, as held in the decision of State of Orrisa (supra), the right to apply could not be said to be extended merely because some payments in respect of the contract came to be made subsequently in view of the fact that there was a clear and unequivocal denial of right on the part of the respondent against the petitioner and deductions were made on 11.6.1986.

7. From the facts of the case delineated hereinabove it is disclosed that there was a clear and unequivocal denial of the right of the claimant by the respondent on 11.6.1986 when the final bill of the petitioner was passed and the deduction of the penalty amount was recorded. An application under Section 20 is governed by Article 137 of the Schedule to the Limitation Act which provides that the claim must be made within three years from the date when the right to apply first accrues.

8. In the present case, the right to apply for arbitration first accrued on 11.6.1986 and, therefore, the period of limitation of three years would be counted from the date. Computing the limitation from that date and in the light of the decision of the Supreme CourSt, the claim of the respondent raised on 17.6.1989 was barred by limitation. In that view of the matter, there is an error apparent on the face of the records in the findings and conclusions recorded by the arbitrators and the same is, therefore, required to be set aside, which I hereby do. Since the claim of the petitioner was barred by limitation, therefore, the arbitrators could not have allowed the claim of the petitioner and thus, the award passed by the arbitrators in respect of Claim No.1 as also Claim No.2 are liable to be set aside.

In that view of the matter, the objection stands allowed. The award of the arbitrators stands set aside. There shall be no order as to costs.