Punj Lioyd Ltd vs National Highways Authority Of ...
2009 Latest Caselaw 563 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   OMP 340/2008 & ARB.APPL.14/2008


%17.02.2009             Date of decision: 17th February, 2009


PUNJ LIOYD LTD                               .... Petitioner/Appellant
                          Through: Mr Amit S Chadha, Sr Advocate with
                                   Mr Kunal Sinha and Mr Manish Jha,
                                   Advocates

                                    Versus

NATIONAL HIGHWAYS AUTHORITY                                    ... Respondent
OF INDIA
                          Through: Ms Padma            Priya    with   Mr     Sumit
                          Gehlawt, Advocates.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may Yes
      be allowed to see the judgment?

2.    To be referred to the reporter or not?           Yes

3.    Whether the judgment should be reported
      in the Digest?                                            Yes


RAJIV SAHAI ENDLAW, J.

1. The petition as well as the appeal have arisen out of the order

dated 5th March, 2008 of the Arbitral Tribunal constituted in terms

of the agreement between the parties. On an application of the

respondent herein and who is also the respondent before the

Arbitral Tribunal, under Section 16 of the Arbitration and

Conciliation Act, 1996, the Arbitral Tribunal has held claims No. 18

to 24 out of the claims preferred by the petitioner/Appellant against

the respondent before the Arbitral Tribunal to be not arbitrable

owing to mandatory provision of clause 67 of the agreement

between the parties having not been followed by the

petitioner/appellant.

2. Clause 67 of the agreement between the parties relates to

settlement of disputes. Sub-clause (1) thereof provides that a

dispute between the parties shall in the first place be referred to the

Disputes Review Board (DRB) to be constituted in terms thereof; it

further provides that if any party is dissatisfied of any

recommendation of the DRB or the DRB fails to issue its

recommendation within 56 days of the receipt of the request for

recommendation, then that party shall within 14 days after receipt of

recommendation or within 14 days after the expiry of the said period

of 56 days, give notice to the other party of intention to commence

arbitration as to the matter in dispute; such notice was agreed to,

to establish the entitlement of the party giving the same to

commence arbitration; it further provides that no arbitration in

respect of the dispute shall be commenced unless notice is given; the

said clause further provides that if no such notice is given within 14

days after receipt of recommendation, the recommendation shall

become final and binding upon the parties. Sub-clause (3) of clause

67 provides that the disputes in respect of recommendations which

have not become final and binding pursuant to sub-Section (1) shall

be finally settled by arbitration as provided therein.

3. The admitted position in the present case is that the claims 18

to 24 were referred to the DRB on 19th November, 2005. In terms of

the agreement, the DRB was required to give its recommendation on

the said disputes within 56 days i.e., by 15th January, 2006. The DRB

however for reasons which are not relevant for the present purposes,

did not make any recommendation within the said period of 56 days

and with the consent of the parties, the tenure of the DRB was

extended from time to time, till 31st March, 2006. A meeting of the

DRB was fixed for 16th July, 2006. However, the chairman of the

DRB cancelled the said date vide letter dated 24th June, 2006 with

the stipulation that further dates would be fixed after getting

consent letter from both the parties regarding extension of the

tenure of the DRB. The respondent vide letter dated 27th June, 2006

of its General manager and Project Director and in pursuant to the

communication with the Chairman DRB gave its consent to extend

the tenure of DRB upto 31st July, 2006 with a further request to the

DRB to confirm that decision in respect of all its disputes previously

referred will be finalized by 31st July, 2006, so as to obtain the

approval of the competent authority. The Chairman DRB vide letter

dated 5th July, 2006 fixed the next hearing before the DRB on 28th to

30th July, 2006. The respondent, however, vide its letter dated 12th

July, 2006 informed the DRB with copy to the petitioner/appellant

that the proposal for extension of the tenure of DRB upto 31 st July,

2006 had not been accepted by the competent authority of the

respondent and thus requesting for postponement of the hearing

fixed on 28th to 30th July, 2006. The DRB was also requested to

communicate the recommendations of claims No. 18 to 24 for which

hearings were already completed on the earlier dates. The

Chairman DRB accordingly vide letter dated 17th July, 2006, in view

of the letter aforesaid of the respondent conveying that extension of

DRB beyond 31st March, 2006, had not been agreed to by the

respondent, cancelled the hearing fixed on 28th to 30th July, 2006.

4. The petitioner/appellant vide letter dated 11th August, 2006

gave notice to the respondent of its intention for commencing of

arbitration for the claims No. 18 to 24 aforesaid alongwith the other

claims. The petitioner/appellant, vide the same letter, also appointed

its nominee arbitrator. The respondent vide letter dated 25th August,

2006 referred all the 24 disputes to arbitration. With respect to the

claims 18 to 24 it was mentioned that the same were pending with

the DRB and the tenure of the DRB was completed.

5. The respondent thereafter moved the application under

Section 16 of the Act before the Arbitral Tribunal contending that

the Arbitral Tribunal had no jurisdiction to decide the claims 18 to 24

for the reason of the petitioner/appellant having not issued the

notice of its intention to refer the said disputes to arbitration within

14 days of the expiry of the 56 days period.

6. The respondent has contended that the notice ought to have

been given within 14 days of 15th January, 2006 i.e., on the expiry of

the first 56 days of the constitution of DRB. Alternatively, it is

contended that in any case the notice ought to have been given

within 14 days of 12th July, 2006 on which date the respondent had

communicated that the competent authority of the respondent was

not willing to extend the term of the DRB. Conversely it is argued by

the senior counsel for the petitioner/appellant that since the

respondent had agreed to extension of time of the DRB till 31st July,

2006 and from which the respondent had subsequently retracted, the

notice given on 11th August, 2006 was within the stipulated time of

14 days.

7. The Arbitral Tribunal decided the application of the respondent

under Section 16 of the Act in favour of the respondent. It was held

that there was no unequivocal consent of the respondent to extend

the term of the DRB till 31st July, 2006. The Arbitral Tribunal held

that the notice given by the petitioner/appellant was beyond the time

provided in the arbitration clause and thus held that the tribunal had

no authority to examine and adjudicate upon the said claims 18 to

24. I am informed that arbitration proceedings qua the other claims

of the petitioner against the respondent arising out of the same

agreement are pending before the Arbitral Tribunal.

8. The petitioner/appellant after the order dated 5th March, 2008

(supra) of the Arbitral Tribunal first filed the OMP under Section

43(3) of the Act for extension of time for commencement of arbitral

proceedings and thereafter filed the appeal challenging the order of

the Arbitral Tribunal aforesaid on the application under Section 16 of

the Act. The respondent has filed a reply to the OMP as well as the

appeal.

9. The senior counsel for the petitioner/appellant has argued that

in the facts and circumstances hereinabove stated, the delay, if any,

in giving the notice of intention of arbitration not only is miniscule

but attributable to the respondent and the petitioner will suffer

undue hardship if deprived of the claim without its adjudication. The

order of the tribunal was also challenged on merits for the

contentions made therein and as recorded therein and which did not

find favour with the tribunal.

10. This court had on 16th December, 2008 itself when the hearing

commenced inquired from the senior counsel for the

petitioner/appellant as to whether clause aforesaid in the agreement

requiring notice of intention to arbitrate to be given within 14 days

and forfeiture of right of arbitration upon failure to give such notice

was not in contravention of Section 28 of the Indian Contract Act as

amended w.e.f. 1997. The senior counsel for the petitioner/appellant

fairly stated that the said plea was neither taken before the Arbitral

Tribunal nor in the memorandum of appeal nor was this ground

taken in the OMP. It was urged that the petitioner on other grounds

urged, was entitled to the relief. The counsel for the respondent had

sought adjournment on that date and has also made submissions

with respect to Section 28 of the Contract Act, which being a pure

question of law, can be taken up even though not pleaded.

11. The counsel for the petitioner/appellant has also argued that

the respondent itself had referred the claims aforesaid to arbitration

and was therefore estopped from contending that the same were not

referable. The counsel for the respondent has urged that the

provisions of Section 43(3) can be availed of only before reference to

the arbitration and not after the order on an application under

Section 16. With respect to the arguments of the petitioner/appellant

that the respondent was estopped, it was urged that the respondent

of its own could not have refused to refer the disputes to arbitration

even though not arbitrable according to the respondent and the said

plea could be decided by the Arbitral Tribunal only and for which

purposes the application under Section 16 was immediately filed. It

was further contended that the period of 14 days could not be

computed from 31st July, 2006 inasmuch as prior thereto, on 12th

July, 2006 itself notice was given by the respondent of its competent

authority having not agreed to extension of time till 31st July, 2006.

12. I do not find any merit in the contention of the petitioner that

the respondent having referred the disputes to arbitration was

disentitled / estopped from taking the plea aforesaid. The decision

whether the disputes are arbitrable or not is to be taken by the

arbitrator and not by the respondent. The respondent would have,

while referring the disputes, done the same without prejudice to its

contention that claims 18-24 were not arbitrable for the delay in

giving the notice of arbitration but having not stated so cannot

deprive the respondent of taking the said plea before the Arbitral

Tribunal.

13. The claims 18 to 24 are otherwise arbitrable as per the

agreement between the parties. The Arbitral Tribunal has however

held that they are not so arbitrable because the agreement between

the parties provides that they shall not be so arbitrable (as distinct

from that they shall be barred) unless notice of intent to commence

arbitration is given within the time fixed by the agreement. The

Arbitral Tribunal held that the petitioner/appellant had not given the

notice within the time fixed by the agreement. The tribunal noticed

Section 28 of the Contract Act but held the same not coming to the

rescue of the petitioner/appellant owing to the dicta of Apex Court in

National Insurance Co Ltd Vs. Sujir Ganesh Nayak AIR 1997 SC

2049.

14. Section 28 of the Contract Act, as amended on 8th January,

1997 deals with agreements, (a) by which any party thereto is

restricted absolutely from enforcing its rights under or in respect of

any contract by the usual legal proceedings in the ordinary tribunals,

and/or (b) which limit the time within which it may thus enforce its

rights; and/or (c) which extinguish the rights of any party thereto, or

discharge any party thereto from any liability under or in respect of

any contract on the expiry of a specified period as to restrict any

party from enforcing its rights.

and declares such contracts to be void.

15. Unfortunately the tribunal did not notice the amendment w.e.f.

8th January, 1997 of Section 28 and thus relying upon National

Insurance Co. (supra) (which itself, though pronounced on 21st

March, 1997 i.e., soon after the amendment, does not deal with the

amended Section 28) held that the parties could provide for

forfeiture or waiver of rights. Prior to the amendment, the contracts

of the category in clause (c) in para 14 hereinabove were not covered

by the ambit of Section 28. That is why the courts, as in National

Insurance Co. (supra) had held that parties could agree/provide for

forfeiture of rights. The amendment was brought about to get over

such interpretations of Section 28 as existing earlier.

16. This court in Pandit Construction Company Vs. DDA 143

(2007) DLT 270 has held that National Insurance Co. and yet

another dicta of the Apex Court in Wildlife Institute of India Vs.

Vijay Kumar Garg (1997) 10 SCC 528 also pronounced soon after

the amendment on 2nd May, 1997, do not deal with the amended

Section 28 and hence not good law. Thus the arbitration clause in a

DDA contract providing that if the contractor does not make demand

for arbitration within 90 days of receiving intimation of bill being

ready for payment, the claims of the contractor will be deemed to

have been waived and absolutely barred and DDA discharged and

released from liabilities in respect of those claims was held to be in

teeth of Section 28 as amended and not barring the claim of the

contractor.

17. Though the aforesaid is enough for interfering with reasoning

given by the Tribunal with respect to Section 28, but I find that there

is a difference in clause 67 of the NHAI contract and the DDA

contract in Pandit Construction Co. (supra). It is felt necessary to

deal with the said difference also since NHAI is involved in a large

number of arbitrations.

18. It will be seen that while the DDA clause, after requiring

demand for arbitration to be made within 90 days, provided the

consequence of claim being deemed to have been waived and for

DDA to stand discharged of liability, clause 67 of NHAI contract,

after requiring for notice of intention to commence arbitration to be

given within 14 days, while in the case of recommendation having

been made by DRB provides the consequence of such

recommendation becoming final and binding, does not provide for

any consequence as of such claim being waived or extinguished or of

other party being discharged in the case of no recommendation

having been made by DRB, but only bars commencement of

arbitration without such notice.

19. We are in this concerned with the latter category of cases,

where no recommendation has been made by DRB on claims 18 to

24. The contract bars commencement of arbitration without notice

within agreed time.

20. What is to happen in such a case. Is the party who has failed

to give the notice and which under the contract is barred from

commencing arbitration, to institute a suit for adjudication of its

claims. If that were to be so, does it not vest a discretion in the party

to the contract to, if opting for arbitration, to give the notice and if

not, to avoid giving the notice. Further, what effect does such an

interpretation have on the efficacy of the arbitration agreement or

even the validity thereof.

21. In Wellington Associates Ltd Vs. Kirit Mehta AIR 2000 SC

1379, though exercising powers under Section 11 Arbitration Act, it

was said for an arbitration clause to constitute an arbitration

agreement within the meaning of Section 7, arbitration should be

agreed to be resorted to mandatorily and as a sole remedy, without

requiring any fresh consent of the parties. In the present case, in

the eventuality with which we are concerned, if the interpretation as

flowing from the impugned order is to be adopted, the party in the

case of no recommendation from DRB will have an option of

arbitration or civil suit as aforesaid. Of course if the option of

arbitration is exercised and notice within agreed time given, the

other party will mandatorily join in arbitration.

22. The Apex Court in Jagdish Chander Vs. Ramesh Chander

(2007) 5 SCC 719 also held that consensus ad idem to refer the

disputes to arbitration is required and not a mere hope to have

disputes settled by arbitration. The Division Bench of this court in

U.O.I. Vs. Bharat Engineering Corpn. ILR (1977) 2 Delhi 57 was

faced with a question, "can there be an "arbitration agreement"

which reserves the right of reference to only one party? Or, in other

words, which only one party can invoke?" Justice T.P.S. Chawla

concluded that the provisions of the 1940 Act did not visualize an

arbitration agreement which only one party can invoke and hence

that the law, neither Indian, nor English, nor American does not

contemplate an arbitration agreement which is contingent or

conditional or confers an option. There was thus held to be no

arbitration agreement where similar clause as in this case existed.

23. Another Full Bench of this court in Ved Prakash Mithal Vs.

U.O.I. AIR 1984 Delhi 325 was faced with a clause of arbitration of

administrative head of Chief Engineer of CPWD and further provided

that if for any reason that was not possible, the matter is not to be

referred to arbitration at all. The question arose whether in the face

of such agreement, the court was empowered to appoint the

arbitrator. The judgment of Division Bench in Bharat Engineering

Corp. (supra) was not cited before the Full Bench. The Full Bench

held that the purpose of Section 20 of the 1940 Act was to effectuate

the intention of the parties of arbitration of disputes and the parties

could not have agreed to exclude the power of court under Section

20.

24. I do not find any change in the 1996 Act to make the dicta of

Division Bench or Full Bench inapplicable. Read in that light, either

clause 67 which as aforesaid, read literally leaves discretion in party

to opt for either arbitration or civil suit has to be held to be not an

arbitration agreement as held by the Division Bench or has to be

given effect to. I find the latter of the two options to be more in

consonance with amended Section 28 of the Contract Act. The

requirement of giving notice of intention to arbitrate within 14 days,

else there will be no arbitration, restricts absolutely from enforcing

right under the contract by usual legal proceedings in the ordinary

tribunal, and/or limits the time within which rights may be enforced.

The words used are "ordinary tribunal" and not "ordinary courts".

So even though failure to give notice restricts right of arbitration

only and not right of approaching the court but the parties having

agreed to arbitration, the ordinary tribunal would be the arbitral

tribunal and not the court.

25. In U.O.I. Vs. M/s D.N. Revri AIR 1976 SC 2257 it was laid

down that a contract must be interpreted in such a manner as to give

efficacy to the contract rather than invalidate it.

26. In my view the intention of parties would be best served by

upholding the arbitration clause rather than derogating the same.

27. I have also wondered that if under the amended Section 28 of

the Contract Act, any clause of the contract barring arbitration

unless some step to commence arbitral proceeding is taken within a

time fixed by the agreement, is void, why Section 43(3) in the 1996

Act. Was the legislative intent to make the benefit of Section 28 of

Contract Act available in arbitration clause only on proof of hardship

and empower the court only to relieve against such forfeiture and

not allow the Arbitral Tribunal to apply Section 28.

28. In my view that could not be the legislative intent. The

proximity of dates of amendment to Section 28 of the Contract Act

notified on 8th January, 1997 and the 1996 Arbitration Act notified on

19th August, 1996 appears to be the reason. At the time of drafting

and notification of the 1996 Act the interpretation of law as under

the un-amended Section 28 of the Contract Act was in force and

Section 43(3) was intended to be a remedy therefor. However, after

the amendment of Section 28 of the Contract Act, the same has to be

given full effect by the Arbitral Tribunal also and without proof of

any hardship.

29. I may also notice the recent judgment of the Apex Court in P

Manohar Reddy Vs. Maharashtra Krishna Valley Dev. Corp

MANU/SC/8480/2008 relied upon by the counsel for the respondent.

In the said judgment, the Apex Court upheld a contractual clause

providing for limitation for the purposes of raising a claim and

further held the said clause to be not invalid. Reliance was placed

on Wild Life Institute of India (supra) which judgment as

aforesaid has been considered by this court in Pandit Construction

Company (supra) and held to be not considering the amendment to

Section 28 of the Act.

30. The counsel for the respondent also relied on Dr E

Muralidharan Vs. Venkataraman and Company 2006 (3)

Arbitration Law Reporter 477 Madras holding that the courts under

Section 43(3) can extend the time before referring the dispute to the

arbitrators or at least before the award is passed and not thereafter.

However, the senior counsel for the petitioner/appellant, in this

regard drew attention to a judgment of this court in National

Highways Authority of India Vs. PNC Construction Co Ltd 121

(2005) DLT 511 in which case the application under Section 43 (3)

was entertained during the pendency of the arbitration proceedings.

Reliance was also placed on Sterling General Insurance Company

Ltd Vs. Planters Airways Pvt Ltd AIR 1975 SC 415 and Bank of

Baroda Vs. Uttam Singh Dugal & Co. 17 (1980) DLT 265 on

undue hardship. Even though, I have held that Section 43(3) after

the amendment to Section 28 of the Contract Act is otiose but I may

mention that even otherwise in the facts of the present case, the

jurisdiction under Section 43(3) would have been exercised. The

facts set out show that the term of the DRB was being extended from

time to time beyond the first period of 56 days also. The

petitioner/appellant acted on respondent's representations that the

DRB was in session as borne out from the record and is therefore

estopped from averring that even though it had represented that the

DRB was in session but the time of 14 days for giving notice of

intention to arbitrator has expired. The respondent NHAI is

involved in large scale of activity of construction/development of the

highways in the country and is awarding a large number of

works/contracts. Clause 67 is a standard term of its contract. It

appears to have been felt and rightly so that before commencing

arbitration attempt should be made for mediation/conciliation. The

same is through constitution of DRB. Though DRB has been given a

time of 56 days to make the recommendation but the said time is

contractual and there is nothing preventing the parties from

extending the said time. Once the parties have represented to each

other that the said time has been extended, then the parties are

expected to act on the same and any other interpretation would be

negating the settlement machinery provided for in the agreement

itself. I thus find that the time of the DRB in the present case was

represented to be extended till 31st July, 2006. However, one cannot

lose sight of the notice dated 11th July, 2006 given by the respondent

communicating its decision for not agreeing to further extension of

time. The respondent is right in contending that the period of 14

days ought to have run not from 31st July, as contended by the

petitioner but upon receipt of its notice. On such calculation, the

petitioner did not give the notice within 14 days which ought to have

been given within 14 days of 11th July, 2006 i.e., by 25th July, 2006.

The notice was, however, given on 11th August, 2007. There was

thus a delay of 17 days in giving the notice. Since the parties had

been extending the time from time to time the time limit of 14 days

could not be of essence and no prejudice is shown to have been

suffered by respondent. Other claims of the petitioner/appellant are

stated to be pending adjudication before the Arbitral Tribunal and it

is just that all claims which would necessarily involve same question

of facts are decided together.

31. I, therefore, allow both the appeal and the OMP. The claims 18

to 24 of the petitioner against the respondent are held to be

arbitrable and the petitioner/appellants are entitled to have the same

adjudicated through the Arbitral Tribunal already constituted and to

whom the said claims were referred. However, in the facts and

circumstances aforesaid, the parties are left to bear their own costs.

RAJIV SAHAI ENDLAW (JUDGE) February 17, 2009 M