Ashi (P) Limited vs Union Of India (Uoi) (Western ...
2002 Latest Caselaw 397 Del

JUDGMENT

S.B. Sinha, C.J.

1. The petitioner herein in response to a tender floated by the respondents for manufacture and supply of 2,50,000 pre-stressed mono block concrete sleepers submitted its offer pursuant whereto the parties entered into an agreement, which contained an arbitration clause. On or about 30.03.1992, the said, the said contract was terminated whereupon the petitioner herein by a demand notice dated 05.01.1995 called upon the respondents to pay a sum of Rs. 39,24,000/- by way of damages. Again by a notice dated 18.03.1995, the petitioner called upon the respondents to appoint an Arbitrator.

2. By a letter dated 11.12.1995 the request for arbitration made by the petitioner was rejected. The petitioner thereafter filed a suit under Section 20 of the Arbitration Act, 1940 (in short, '1940 Act') on 25.05.1996, which was marked as Suit No. 1541 of 1996. However, the said suit was converted into an application under Section 11 of the Arbitration and Conciliation Act, 1996 (in short, 'the Act').

3. By reason of the impugned order dated 21.12.2000, the said application has been dismissed on the ground of being barred by limitation. This writ petition is directed against the said order.

4. Mr. Arvind Nigam, the learned counsel appearing on behalf of the petitioner, would submit that having regard to the provisions contained in Article 137 of the Limitation Act, 1963, the learned Single Judge must b e held to have erred in dismissing the said application.

5. The learned counsel would contend that a cause for filing an application under Section 11(6) of the Act would arise on the day when the request for appointment of the Arbitrator was rejected and thus the period of limitation in this case would start from 11.12.1995.

6. In support of the aforesaid contention, the learned counsel has placed reliance on Utkal Commercial Corporation v. Central Coal Fields Ltd. , Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority and Konkan Railway Corporation Ltd. and Ors. v. Mehul Construction Co. .

7. Ms. B. Sunita Rao, the learned counsel appearing on behalf of the respondent, on the other hand, would submit that having regard to the fact that the process for referring the matter to the Arbitrator was initiated prior to coming into force of the Act, thus an application under Section 11(6) thereof must be held to be not maintainable.

8. The arbitration clause as mentioned in the aforesaid agreement is as under:-

"ARBITRATION:

a) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract or in connection with this contract except as to any matters (the division of which is specially provided by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer appointed to be the Arbitrator, by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units; by any member of the Railway Board, in the case of contracts entered into by the Railway Board; and by the Head of the Organization in respect of contracts entered into by the other organizations under the Ministry of Railways. The Gazetted Railway Officer to be appointed as Arbitrator, however, will not be one of those who had an opportunity to deal with the matters to which the contract relates or who in the course of their duties as Railway servants have expressed views on all or any of the matters under dispute or difference. The award of the Arbitrator shall be final and binding on the parties to this contract."

Article 137 of the Limitation Act, 1963 reads thus:-

   137.        Any other application        Three years          When the
            for which no period of                            right to
            limitation is provided                            apply
            elsewhere in this                                 accrues."
            Division. [1905-
            Article 151] 
 
 

9. The petitioner herein by a letter dated 18.03.1995, as noticed hereinbefore, called upon the respondent to appoint Arbitrator in terms of the arbitration clause referred to hereinbefore in the following terms:-

"14. In view of the above, you are hereby requested to appoint and nominate a Gazetted Railway Officer to be an Arbitrator within 15 days from the receipt of this notice and refer the above disputes and differences mentioned in para 12 above to the said Arbitrator for adjudication."

10. The aforementioned letter was replied by the respondent by its letter dated 11.12.1995 stating as under:-

"WESTERN RAILWAYS

Head quarter office,

Churchgate, Bombay, 20.

No. W634/12/2/14

Dt. 11.12.1995

M/s. Ashi Private Ltd.,

S-66, L.G. Floor,

Greater Kailash-I

New Delhi: 110048

Sub: Manufacture and supply of MG concrete sleepers against contract No. W634/12/2/14 Dt: 25.8.89.

Ref: Shri. Sanjeev Ralli Advocate Delhi's letter No. Nil Dated: 6.1.95 and dated: 18.3.95.

Your request for arbitration received through above referred letters from Shri. Sanjeev Ralli your advocate, has been considered by Railway Administration (Western Railway) and found that it is not justified and not tenable, as such the demand for arbitration is regretted.

[Chief Engineer (G)]

for General Manager"

11. In the aforementioned situation, the said application under Section 20 of 1940 Act was filed.

Section 20 of 1940 Act reads thus:-

"Section 20. Application to file in Court arbitration agreement-

(1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.

(2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintiff and the other parties as defendants.

(3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed.

(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.

(5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable."

12. However, the said suit was converted into an application under Section 11 (6) of the Act purported to be on a wrong notion.

13. In absence of any specific provisions contained in the schedule appended to the Limitation Act indisputably Article 137 thereof would be attracted.

In Major (Retd.) Inder Singh Rekhi (Supra), the Apex Court held:-

"4. Therefore, in order to be entitled to order of reference under Section 20, it is necessary that there should be an arbitration agreement and secondly, different must arise to which this agreement applied. In this case, there is no dispute that there was an arbitration agreement. There has been an assertion of claim by the appellant and silence as well as refusal in respect of the same by respondent. Therefore, a dispute has arisen regarding non-payment of the alleged dues of the appellant. The question is for the present case when did such dispute arise. The High Court proceeded on the basis that the work was completed in 1980 and, therefore, the appellant became entitled to the payment from that date and the cause of action under Article 137 arose from that date. But in order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or a dispute must arise. 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 claim was made on 28th Feb. 1983 and there was non-payment, the cause of action arose from that date, that is to say, 28th of Feb. 1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitration under Section 8 or a reference under Section 20 of the Act. Lee Law of Arbitration by R.S. Bachawat, 1st Edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion in denying, not merely inaction to accede to a claim or a request. When in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case."

14. Yet again in Utkal Commercial Corporation (Supra), it was held by the Apex Court:-

"13. If the submission is that the claims filed before the arbitrator are barred by limitation, we cannot examine such a contention without the relevant particulars and details of the disputes between the parties being placed before us. These particulars and even the documents have not been filed before us because such a contention has not been raised in these proceedings at all. One cannot assume that the cause of action arose on the date of expiry of the contract. As pointed out by this Court in Major (Retd.) Inder Singh Rekhi case in the passage cited above, cause of action can arise later, depending on the facts of the case. Whether the claims were or were not barred by limitation before the arbitrator can be examined only on the basis of the relevant material, which material has not been produced. We, therefore, declined to examine this contention."

15. It is not in dispute that as the learned Single Judge exercised his jurisdiction under Section 11(6) of the Act, a writ petition, therefore, is maintainable.

16. In Konkan Railway Corporation Ltd. and Ors. (Supra), the Apex court held that an order under Section 11(6) of the Act being administrative in nature, a writ petition would be maintainable.

17. This aspect of the matter has been considered by a Division Bench of the Andhra Pradesh High Court in Union of India v. Vengamamaba Engineering Co. and Ors. 2001(4) ALT 45 (D.B.). The Division Bench considered the question as to when a writ petition would be maintainable and held thus:-

"17. In first Konkan Railways case (1 supra), a three-judge Bench referring to various provisions of the said Act observed that when the legislative intent is clear, it would be proper for the Chief Justice or his nominee just to appoint an arbitrator without wasting any time or without entertaining any contentious issues raised at that stage, by a party objecting to the appointment of an arbitrator inasmuch as all issues can be raised in the arbitral proceedings. But dealing with a contingency where the Chief Justice or his nominee refuses to make an appointment of arbitrator, it was held that remedy by way of writ petition would lie. It was held that if an order passed under Section 11(6) is construed to be a judicial or quasi-judicial order, the same would be amenable to judicial intervention and any reluctant party may frustrate the entire purpose of the Act by adopting dilatory tactics in approaching a Court of law even against an order of appointment of an arbitrator, which interpretation should be avoided with a view to achieve the basic objective for which the Parliament enacted the Act of 1996 adopting UNICITRAL Model. It was held:

"If on the other hand, it is held that the order passed by the Chief Justice under Section 11(6) is administrative in nature, then in such an event in a case where the learned Chief Justice or his nominee refuses erroneously to make an appointment then an intervention should be possible by a Court in the same way as an intervention is possible against an administrative order of the executive. In other words, it would be a case of non-performance of the duty by the Chief Justice or his nominee, and therefore, a mandamus would life. If such an interpretation is given with regard to the character of the order that has been passed under Section 11(6) then in the event an order of refusal is passed under Section 11(6) it could be remedied by issuance of a mandamus. We are persuaded to accept the second alternative in as much as in such an even there would not be inordinate delay in setting arbitral process in motion. But, as has been explained earlier in the earlier part of this Judgment, the duty of the Chief Justice or his nominee being to set the arbitral process in motion, it is expected that invariably the Chief Justice or his nominee would make an appointment of arbitrator or so that the arbitral proceeding would start as expeditiously as possible and the dispute itself could be resolved and the objective of the Act can be achieved.

18. However, we may notice that the correctness of the decision in Konkan Railway Corporation Ltd. and Ors. (Supra) was doubted in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. 2002 (1) SCALE 465, wherein the Constitution Bench of the Apex Court by a judgment dated 30.1.2000 held:-

"... There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a response from that other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an arbitrator within he period of thirty days. That the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties (which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function. That the word 'decision' is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated.

As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the arbitral tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial arbitrator is nominated.

It might be that though the Chief Justice or his designate might have taken all due care to nominate an independent and impartial arbitrator, a party in a given case may have justifiable doubts about that arbitrator's independence or impartiality. In that event it would be open to that party to challenge the arbitrator under Section 12, adopting the procedure under Section 13. There is no reason whatever to conclude that the grounds for challenge under Section 13 are not available only because the arbitrator has been nominated by the Chief Justice or his designate under Section 11.

It might also be that in a given case the Chief Justice or his designate may have nominated an arbitrator although the period of thirty days had not expired. If so, the arbitral tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the arbitral tribunal may rule on its own jurisdiction. That the arbitral tribunal may rule "on any objections with respect to the existence or validity of the arbitration agreement" shows that the arbitral tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the arbitral tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction.

The schemes made by the Chief Justice under Section 11 cannot govern the interpretation of Section 11. If the schemes, as drawn, go beyond the terms of Section 11 they are bad and have to be amended. To the extent that the appointment of Arbitrators by the Chief Justice of India Scheme, 1996, goes beyond Section 11 by requiring, in Clause 7, the service of a notice upon the other party to the arbitration agreement to show cause why the nomination of an arbitrator, as requested, should not be made, it is bad and must be amended. The other party needs to be given notice of the request only so that it may know of it and it may, if it so chooses, assist the Chief Justice or his designate in the nomination of an arbitrator.

In conclusion, we hold that the order of the chief Justice or his designate under Section 11 nominating an arbitrator is not an adjudicatory order and the Chief Justice or his designate is not a tribunal. Such an order cannot properly be made the subject of a petition for special leave to appeal under Article 136. The decision of the three Judge Bench in Konkan Railway Corporation Ltd. and Ors. v. Mehul Construction Co. is affirmed.

.....

In the result, the appeals are dismissed. No order as to costs."

See also Narayan Prasad Lohia v. Nijunj Kumar Lohia and Ors. 2002 (2) SCALE 232.

19. In this view of the matter, the writ petition must be held to be maintainable.

20. However, the learned counsel appearing on behalf of the respondent appears to be correct to the effect that Section 11(6) of the Act in this case would not apply.

21. In Shetty's Constructions Co. Pvt. Ltd. v. Konkan Railway Construction and Anr. , the Apex Court held as under:-

"4. A mere look at Sub-section (2)(a) of the Section 85 shows that despite the repeal of "Arbitration Act, 1940", the provisions of the said enactment shall be applicable in relation to arbitration proceedings which have commenced prior to the coming into force of the new Act. The new Act came into force on 26-1-1996. The question therefore, arises whether on that date the arbitration proceedings in the present four suits had commenced or not. For resolving this controversy we may turn to Section 21 of the new Act which lays down that unless otherwise agreed to between the parties, the arbitration suit in respect of arbitration dispute commenced on the date on which the request for referring the dispute for arbitration is received by the respondents. Therefore, it must be found out whether the request by the petitioner for referring the disputes for arbitration were moved for consideration of the respondents on and after 26-1-1996 or prior thereto. If such requests were made prior to that date, then on a conjoint reading of Section 21 and Section 85(2)(a) of the new Act, it must be held that these proceedings will be governed by the old Act. As seen from the afore-noted factual matrix, it at once becomes obvious that the demand for referring the disputes for arbitration was made by the petitioners in all these cases months before 26-1-1996, in March and April 1995 and in fact thereafter all the four arbitration suits were filed on 24.8.1995. These suits were obviously filed prior to 26-1-1996 and hence they had to be decided under the old Act of 1940. This preliminary objection, therefore, is answered by holding that these four suits will be governed by the Arbitration Act, 1940 and that is how the High Court in the impugned judgments has impliedly treated them."

22. In Asia Resorts Ltd. v. Usha Breco Ltd. , the Apex Court held that the application under Section 20 of 1940 Act should have been filed within 3 years of the receipt of the reply to notice.

23. However, we may notice that recently in Union of India v. Popular Construction Co. , the Apex Court has held that the Arbitration and Conciliation Act, 1966 is a special law in terms of Section 29(2) of the Limitation Act, 1963 providing a limitation period different from that prescribed under the Limitation Act.

24. In this view of the matter, we are of the opinion that the matter should be considered afresh by an appropriate Bench treating the application to be under Section 20 of 1940 Act for passing appropriate order(s).

25. Having regard to the fats and circumstances of this case, we would request the appropriate Bench to consider the desirability of disposing of the matter at an early date.

26. This writ petition is disposed of accordingly without any orders as to cost.