Ashi P. Ltd. vs Union Of India (Uoi) (Western ...
2005 Latest Caselaw 1371 Del

JUDGMENT

R.C. Jain, J.

Page 1602

1. This is a petition under Section 20 of the Arbitration Act, 1940 (in short 'The Act') praying for a direction on respondent no.1 to file the arbitration agreement contained in Agreement No.W-634/12/2/14 dated 25.8.1989 and for making a reference of the disputes and differences between the parties to arbitration and for a direction on respondent no.2 to appoint the arbitrator in accordance with the arbitration clause.

2. The petitioner was awarded work contract for manufacture and supply of 2,50,000 Prestressed Monoblock Concrete Sleepers at a total cost of Rs.2,12,10,000/- only. It appears that the manufacture of the sleepers was not undertaken by the petitioner all agedly owning to the non-availability of suitable site for carrying out the work of manufacturing the sleepers. The contract of the petitioner was short closed vide a communication dated 27/30.3.1992. According to the petitioner, the short closure of the contract was illegal and invalid, which has entitled the petitioner to certain claims in relation to the said contract. The petitioner vide notices dated 5.1.1995 and 18.3.1995 invoked the arbitration and called upon respondents no.1 and 2 to appoint the arbitrator. The respondents having declined to appoint the arbitrator, the petitioner has approached this Court with the present petition.

3. The petition is contested by the respondents, inter alia, on the ground that the petition is barred by limitation. On merits it is denied that the short closure of the contract was illegal or there was any default or non-performance of its obligations by the respondents entitling the petitioner to raise any claims against the respondent.

4. In the replication the petitioner has controverter the objections and pleas raised in the written statement and reiterated the averments. This petition was disposed of by C.K. Mahajan, J. vide an order dated 21.12.2000 holding thereby that the starting point of limitation would be the date on which the contract was short closed as it was on that date, that the petitioner's right was infringed and consequently, the limitation would run from the date of short closing of the contract. Accordingly, the petition was dismissed. It may be noticed that the said petition was answered deeming it to be a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996. The petitioner challenged the said order by way of CWP 773/2001 which was disposed of by a Division Bench of this Court vide order dated 16.3.2002 thereby holding that the petition so filed by the petitioner under Section 20 of the Act could not be deemed to be or converted into a petition under Section 11 of the New Act. The petition was remitted to this Court for fresh consideration and disposal.

Page 1603

5. On the pleadings of the parties, following issues were framed:

1. Whether the disputes between the parties are liable to be referred to Arbitrator as prayed? (OPP)

2. Relief

6. I have heard learned counsel for the parties and have bestowed my thoughtful consideration to their respective submissions. Although no specific issue touching the point of limitation was cast, but in view of the nature of the objection raised by the respondent, this Court must consider the said objection before considering the merits of the petition.

7. Learned counsel representing the respondent/Railway Administration has vehemently urged that the present petition, which is deemed to be a suit, is barred by limitation because it has been filed much after the expiry of three years period of the date of closure of the contract by the respondent on 27/30.3.1992. According to her, the cause of action for filing the present petition or right to apply for arbitration had accrued to the petitioner soon after the contract was short closed and limitation is not extended by issuing a notice either in January or March, 1995 invoking the arbitration and calling upon the respondents to appoint the arbitrator. In support of her contention learned counsel has heavily relied on two decisions of the Supreme Court; one in the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, , and the other in the case of S. Rajan v. State of Kerala and Another, . In the former case the Supreme Court on the facts of that case held as under in para-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, difference 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 arise 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 dispute must arise. It is true that on completion of the work a right to et 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 February 28, 1983 and there was non-payment, the cause of action arose from that date, that is to say, February 28, 1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders Page 1604 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 arbitrator under Section 8 or a reference under Section 20 of the Act. 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 of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case.''

In the latter case in para 11, the Supreme Court has held as under:

''Reading Article 137 and sub-section (1) of Section 20 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. The question in the present case is when should be difference between the parties be said to have arisen. According to the High Court the date on which notice of demand under the Revenue Recovery Act was served upon the appellant namely May 30, 1974 is the date on which difference must be held to have arisen between the parties, if not earlier. Sri Poti, however, says that it is not so and that it must be held to have arisen only when the appellant applied to the Government to refer the disputes between them to the arbitrator in terms of the agreement and the Government refused to do so. We find it difficult to agree with the learned counsel. The agreement was entered into in 1966. It was terminted on December 19, 1968. The work was retendered and it was completed through another contractor. The State then worked out the loss suffered by it on account of the appellant's failure to carry out the work in accordance with the agreement and called upon the appellant to pay the same through the demand notice dated May 30, 1974. It is relevant to notice that this demand notice was questioned by the appellant by way of writ petition in the High Court of Kerala which was dismissed on November 25, 1978 Thus, the dispute had arisen in 1974 with the service of the demand notice. Only in the year 1983, did the appellant choose to request the Government to refer the dispute to the arbitrator in terms of the agreement which was rejected in the following ear. Neither the arbitration clause nor a copy of the agreement is placed before us. Therefore, we cannot say whether the arbitration clause contemplates that a reference to arbitration can be made only by the Government and not by the appellant. Assuming that such was the requirement of the arbitration clause, even so it must be held that the very request in 1983 was very much belated and cannot, in any event, be treated as the date on which the right to apply accrued. The difference had already arisen between the parties following the service of the demand notice. The challenge to the said demand notice made by the appellant by filing a writ petition in the Kerala High Court is the demonstrable proof of the dispute. Accordingly, we agree with the High Court that May 30, 1974 is the date on Page 1605 which the right to apply accrued in terms of Article 137 read with Section 29(1) and that therefore the application filed in the year 1985 was clearly barred by limitation.''

8.A reading of the above findings and observations would show that a petition under Section 20 of the Act is governed by the provisions of Article 137 of the Limitation Act. However, for the purpose of computation of period of limitation it is the date on which right to apply for arbitration accrues and right to apply accrues when the differences arise between the parties. In the case in hand though the contract was short closed on 27/30.3.1992, the petitioner much before the expiry of three years from the said date, had issued a notice dated 5.1.1995 demanding from the Railway Administration to pay damages of Rs.39,24,000/- to which he was entitled on account of illegal and arbitrary short closure of the contract. This notice can be considered to be the demand notice which was not answered by the respondents. The petitioner, therefore, by a second notice dated 19.3.1995 reiterated its demand for the amount of Rs.39,24,000/- and at the same time requested the respondents to act in terms of clause 2 00 of IRS Conditions of Contract governing the contract in question and to appoint arbitrator within 15 days from the receipt of the said notice. Both these letters were replied to by the respondents vide a communication dated 11.12.1995 only thereby tuning down the request of the petitioner for appointment of the Arbitrator on the ground that it was found not justified and not tenable. Within few months, the petitioner filed the present petition. Therefore, this could be said to be the date on which difference arose between the parties.

9. Section 37(3) of the Act provides that for the purpose of that Section and of 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 notice for appointment of an arbitrator or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement requiring that the difference to be submitted to the person so named or designated. Thus, by virtue of this provision the limitation for filing as petition under Section 20 is to be computed from the date of accrual of the right to apply when disputes/differences arose between the parties. In the case in hand the demand was based on the alleged illegal short closure of the contract. The petitioner stacked its claim and made a demand vide notice dated 5.1.1995 which was declined only in December, 1995 and, therefore, it is this point of time when the disputes/differences can be said to have arisen between the parties. The present petition was filed much before the expiry of three years from that date and, therefore, is well within time.

10. So far as the merits of the petition are concerned, the existence of arbitration agreement between the parties contained in Clause 2900 of the IRS governing the contract is not disputed. This Court has already found that disputes/differences exist and subsist between the parties and, therefore, there is no escape from the conclusion that the disputes raised by the petitioner are liable to be referred to arbitration.

Page 1606

11. In the result, the petition is allowed and the disputes raised by the petitioner are referred to arbitration. In view of the provisions contained in clause 2900 of IRS and no application having been made by the petitioner under Section 8 of the Act for appointment of an independent arbitrator, respondent no.2/General Manager (Western Railways), is hereby called upon to act in terms of the said arbitration agreement and appoint an arbitrator within a period of eight weeks from the date of this order or settlement of the disputes raised by the petitioner, fully detailed in para-12 of the petition. The petition and pending application(s), if any, stand disposed of accordingly.