National Research And ... vs Chrome International
2007 Latest Caselaw 447 Del

JUDGMENT

Sanjay Kishan Kaul, J.

IA No. 3629/1998 (Under Sections 30 and 33 of the Arbitration Act, 1940)

1. A license deed was executed on 23.02.1976 between the petitioner-Corporation and the respondent and certain other persons carrying on business under the name and style of M/s Chrome International. In terms of the license deed, the petitioner-Corporation had developed a know-how for the manufacture of Potassium Ethyl Xenthate (PEX) and Potassium Amyl Xenthate (PAX) and had full rights in the invention which was sought to be licensed to the respondent in consideration of payment of Rs 4,000/- for a period of fourteen years commencing from 01.12.1975. This invention was to be used for the manufacture of PEX and PAX at the factory of the respondent. The respondent was also liable in terms of Clause 3(i) of the said agreement to pay to the petitioner-Corporation royalty at the rate of one and a half per cent on the net ex factory sale price of the material manufactured by the respondent in accordance with the invention and marketed by them. The royalty was to become due on the first of April and on the first of October of every year in respect of the articles manufactured and marketed and was to be paid on the first day of May and first day of November of that year. In default of payment of such royalty, the respondent was also liable to pay interest at the rate of fifteen per cent per annum. The relevant clause is as under:

CLAUSE 3

The Grantees will, during the continuance of the license observe and perform the covenants and provisions, that is to say:

i) During the period of the said term the Grantees will pay to the Corporation for 14 years a royalty at the rate of one and a half per cent on the net ex factory sale price of the material manufactured by them in accordance with the said invention and marketed by them. Such royalties shall become due on the First of April and on the First of October in every year in respect of the articles manufactured and marketed or used by the Grantees during the preceding half year and shall be paid by the First day of May and First day of November of that year. In default of payment of such royalties on the due dates, the Grantees shall pay interest on the amount in default at the rate of fifteen per cent per annum:

It will not be open to the Grantees to claim any exemption from or reduction in the payment of royalty accruing under this clause on the plea of having used their own know-how or having effected any improvement upon the said invention or on the plea that the articles to be manufactured under the said invention have been manufactured by using a different process and the Grantees shall be liable for the payment of the royalties for all the articles manufactured by them and covered by this agreement irrespective of any plea whether the same have been manufactured by the said invention or otherwise;

2. Clause 5 of the agreement provided for determination of the license by the petitioner. There were five possibilities under which the agreement could be determined which are as under:

1. Respondent does not commence manufacture;

2. Suspension or Discontinuation of manufacture;

3. Dues or royalty remaining unpaid;

4. Breach of contract; and

5. Respondent is dissolved.

3. The admitted factual position is that the agreement was never determined during its currency for any of the aforesaid reasons. It is also not in dispute that the respondent never paid a penny of the royalty.

4. The license agreement also contained an arbitration Clause 11 which is as under:

If any dispute or difference arises between the parties hereto or their representatives or assigns with respect to their rights or liabilities or in regard to any other matter under these presents, save as to any matters the decision whereof is hereinbefore expressly provided for, the same shall be referred to the sole arbitration of the Chairman, National Research Development Corporation of India, and if he is unable or unwilling to act, to the sole arbitration of some other person appointed by him and willing to act as such arbitrator. Subject to the consent of the parties, the arbitrator shall have the power to enlarge the time for making of the award. The reference to the arbitration shall be deemed to be a submission within the meaning of the Arbitration Act, 1940 or any statutory modifications or re-enactment thereof and the rules made there under for the time being in force shall apply to such reference and this deed shall be deemed to be a submission to such arbitration. It is the condition of this Clause that all hearings of the arbitration will take place at Delhi.

5. The license agreement was to come to an end on 30.11.1989. It is only on 01.06.1989 that the arbitration clause was invoked by the petitioner. The petitioner claimed damages from 1976 to 1989 on account of non payment of the dues plus interest. A petition under Section 20 of the Indian Arbitration Act, 1940 ('said Act' for short) was filed on 20.07.1989 which was allowed on 09.07.1996 by this Court appointing an arbitrator. It may be noticed that in terms of the said order, the claim against other individuals who were running the business were given up and were confined to the respondent who by then had become a sole proprietor.

6. Mr. S.K. Kohli, Advocate was appointed as the arbitrator to enter upon reference. The arbitrator made and published the award dated 29.03.1997. The respondent aggrieved by the same has filed these objections under Section 30 and 33 of the said Act.

7. Learned Counsel for the respondent makes a two-fold submission:

1. The award made more than three years prior to the invocation of the reference was barred by time and could not have been granted by the arbitrator.

2. The contract did not provide for any interest on the royalty.

8. Insofar as the second aspect is concerned, Clause 3(i) itself provides for payment of royalty and in default payment of interest. In my considered view this clause cannot be read in any other manner than that the interest of 15 per cent per annum would be payable on the royalties remaining unpaid. Thus there is no merit in this objection on the face of the clause in the contract.

9. The real controversy is in respect of the first objection raised by learned Counsel for the respondent. Learned Counsel has forcefully contended that in terms of Clause 3(i), the phraseology used is 'shall become due'. Learned Counsel submits that thus the amount became due on the first of April and first of October and was payable on the first of May and first of November of each year. Learned Counsel thus submits that the cause of action arose on that date and if the petitioner has failed to claim the amount, the claim has become time barred. Learned Counsel has relied upon Article 113 of the Limitation Act, 1963 to contend that the period of such limitation is only three years. The said Article reads as under:

PART X - Suits for which there is no prescribed period

113. Any suit for which no period of limitation is provided elsewhere in this Schedule Three years

10. Learned Counsel relied upon the judgment of the Division Bench of the Kerala High Court in M. Ramiah v. P.A. Sankaranarayana . It was held that when a date was clearly specified by implication on account of the terms of the bond, that was the date of payment and the period of limitation would be three years from that date. Learned Counsel also referred to the Division Bench judgment of the learned Single Judge of this Court in Savitri Devi v. Fashion Linkers and Ors. 2002 III AD (DELHI) 980 where while dealing with the objection about filing a suit, it was held that the period of recovery is three years from the date when the cause of action arose. Learned Counsel further referred to the judgment of the Division Bench of the Madras High Court in M. Gopal and Anr. v. Sri Vetrivel Chit Funds Pvt. Ltd. 1997 (II) MLJ 239 to advance the proposition that commencing of limitation under Article 37 does not depend upon accrual of right to sue for the whole amount and when the Installment becomes payable on the default committed, the limitation so commences.

11. Learned Counsel for the petitioner on the other hand submits that under the Limitation Act, the only articles dealing with such a claim for accounts are contained in Part I. The same reads as under:

 

THE SCHEDULE 
 
(PERIOD OF LIMITATION) 
 
(SEE SECTIONS 2(j) and 3) 
 
FIRST DIVISION - SUITS
 
  Description of Limit                 Period of Limitation       Time from which period
                                                                  begins to run
PART I - SUITS RELATING TO ACCOUTS

1. For the balance due on                  Three years         The close of the year in
a mutual, open and current                                     which the last item admi-
account, where there have                                      tted or proved is entered
been reciprocal demands                                        in the account; such year
between the parties.                                           to be computed as in the
                                                               account.

2. Against a factor for an                    -do-             When the account is, during
account.                                                       the continuance of the  
                                                               agency, demanded and refused
                                                               or, where no such demand is
                                                               made, when the agency
                                                               terminates.
3. By a principal against                     -do-             When the account is, during
his agent for movable pro-                                     the continuance of the
perty received by the latter                                   agency, demanded and refused
and not accounted for                                          or, where no such demand is
                                                               made, when the agency
                                                               terminates

4. Other suits by principals                  -do-             When the neglect or misconduct
against agents for neglect or                                  becomes known to the plaintiff.
misconduct.

5. For an account and a share                 -do-               The date of the dissolution.
of the profits of a dissolved 
partnership.

 

12. A reading of the aforesaid shows that the relevant provision as pleaded by the learned Counsel for the petitioner would be Clause (5) since the plea advanced is that the present arrangement is akin to a partnership and it is only from the date of dissolution that the royalty would accrue. The sum and substance of the plea of the learned Counsel is that if the petitioner would have determined the agreement under Clause (5), the right to sue would arise on that date. But since the petitioner has not determined the agreement, it is only on the expiry of the period of license agreement, that the right to sue arises and thus it is within three years of the expiry of the agreement that the claim can be made for the amounts due over the period of the agreement.

13. On consideration of the pleas of the learned Counsel for the parties, I am of the considered view that under the present agreement, the award cannot be set aside on the basis of the plea raised by learned Counsel for the respondent. There is no doubt that the amounts under the agreement became payable on certain dates. Those dates were twice a year and the amounts were towards royalty of one and a half per cent to be calculated on the turnover of the respondent. The respondent never rendered accounts or specified the turnover. There was undoubtedly an option with the petitioner to determine the agreement under Clause (5) for non payment of royalty. In case of termination, the cause of action would have arisen at that time itself. The petitioner in his wisdom, however, permitted the agreement to continue. In such a case under the Limitation Act, it would not be the residuary clause which would apply but Part I dealing with the position analogous to a suit for accounts. It is only on the agreement coming to an end, that the petitioner would be entitled to claim accounts and such accounts could be claimed for the whole period of agreement. A contrary view would imply that on each default, the petitioner would be required to file a petition for reference of all disputes to arbitration which in my considered view cannot be accepted.

14. In view of the aforesaid, it cannot be said that the award of the arbitrator suffers from any patent error on the face of it or there is a legal infirmity in construing the aspect of limitation. It may be noticed that the award has been made by the arbitrator for royalty as also for the amount of interest which is a consequence of non payment of royalty. The pendente lite and future interest have also been granted at 15 per cent per annum but only on the principal amount of the royalty. Thus no compound interest has been granted.

15. In view of the aforesaid, I find no merit in the objections and the same are dismissed.

CS(OS) 931A/1997

In view of the objections having been dismissed, the award dated 29.03.1997 of the sole arbitrator Mr. S.K. Kohli is made rule of the Court leaving the parties to bear their own costs. Decree sheet be drawn up accordingly.