M/S Progressive Constructions ... vs National Hydroelectric Power ...
2009 Latest Caselaw 2930 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 ARB.APPL.92/2007

%                            Date of decision: 30th July, 2009


M/S PROGRESSIVE CONSTRUCTIONS LTD ....Petitioner

                        Through: Mr. Sanjay Jain, Sr Advocate with Mr
                                 Gyanendra Kumar, Ms Ruchi Jain and
                                 Mr Sarfaraz Ahmed, Advocates


                                Versus

NATIONAL HYDROELECTRIC POWER                           ... Respondent
CORPORATION LTD

                        Through: Mr Ajit Puddessery, Advocate


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

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

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. Application under Section 11(6) of the Arbitration Act 1996 is

preferred for appointment of an arbitrator to adjudicate the disputes

and differences accrued between the parties with respect to the

agreement dated 31st March, 1989/12th April, 1989. The respondent

had, vide the said agreement, awarded to the petitioner work for

construction of Power Channel Package at Tanakpur plant of the

respondent in the State of Utter Pradesh. It is not in dispute that the

scheduled date of completion of the said work was 4th April, 1990

and the actual date of completion of the work was 30th April, 1993. It

is also not in dispute that the defect liability period was for a term of

one year only and which expired on 30th April, 1994.

2. The present application was filed on 19th March, 2007 i.e., after

nearly 14 years from the actual date of completion and 13 years from

the expiration of the defect liability period. The respondent has, in

its reply, opposed the application inter alia on the ground that the

claims now sought to be agitated are palpably barred by time.

3. It is the case of the petitioner that it had, after entering into

the agreement dated 31st March, 1989/12th April, 1989 with the

respondent, assigned the works thereunder to M/s Sharma and

Associates Contractors Pvt Ltd (hereinafter referred to as "Sharma

Associates") vide contract dated 18th April, 1989. The petitioner

claims such assignment to be with the consent of the respondent.

The respondent controverts the same. It is the case of the petitioner

that, as per its agreement with M/s Sharma Associates, the said M/s

Sharma Associates only were to deal with the respondent; that due

to non-payment of bills and clearing of dues by the respondent, M/s

Sharma Associates raised certain claims against the petitioner.

4. The senior counsel for the petitioner has, during the course of

hearing, informed that M/s Sharma Associates had instituted a

petition under Section 20 of the Arbitration Act, 1940 against the

petitioner in or about the year 1994; at the time of institution of the

said petition M/s Sharma Associates had impleaded the respondent

herein also as a party thereto; however the respondent herein was

dropped as a party to those proceedings in or about the year 1996;

that the said petition of M/s Sharma Associates under Section 20 of

the 1940 Act was allowed by a Single judge of this court on 17 th

February, 2005; that the petitioner herein preferred an appeal being

FAO(OS)159/2005 to the Division Bench of this court against the said

order; that the Division Bench vide order dated 12th September, 2006

dismissed the said appeal. It is thereafter that the present petition

as aforesaid came to be filed on 19th March, 2007.

5. Considerable emphasis is placed in the petition as well as by

the senior counsel for the petitioner on the order dated 12 th

September, 2006 (supra) in FAO(OS) 159/2005. It is recorded in the

said order that the stand of the petitioner herein all throughout had

been that without the respondent's participation in the arbitration

proceedings, no effective award could be passed in favour of the

petitioner or the said M/s Sharma Associates. In that context the

Division Bench observed that since there was no subsisting contract

between M/s Sharma Associates and the respondent herein, the

respondent could not be impleaded as a party to the proceedings

between the petitioner and M/s Sharma Associates ; however, liberty

was given to the petitioner to file an appropriate application against

the respondent herein raising their disputes in respect of the

contract and it was further observed that if and when such a petition

is filed, the same could be considered and disputes raised therein

could also be referred to the same arbitrator who was being

appointed to adjudicate the disputes between the petitioner and M/s

Sharma Associates.

6. It was put to the senior counsel for the petitioner herein during

the hearing that the respondent herein was not a party to FAO(OS)

159/2005 and could not thus be bound by any observation therein.

The senior counsel for the petitioner agreed with the same but

nevertheless cited the said order as showing the context in which the

present petition has been filed. He further contended that in fact the

petitioner after sub-contracting the works to M/s Sharma Associates

had no knowledge whatsoever of the same and the contract of the

petitioner with M/s Sharma Associates was back to back with the

contract of the respondent with the petitioner and the claims, if any,

of M/s Sharma Associates against the petitioner were in fact against

the respondent and the petitioner would in the arbitration be making

the same claims against the respondent as made by M/s Sharma

Associates against it. It was further contended that the records of

the respondent relating to the project were necessary also for the

adjudication of the disputes between the petitioner and M/s Sharma

Associates and which in spite of being referred to arbitration were

held up. I had during the course of hearing also put to the parties

that merely because the records of the respondent were necessary

for adjudication of the lis between the petitioner and M/s Sharma

Associates was no ground for allowing this petition and the records

of the respondent, if any, required for that lis could be summoned in

accordance with law from the respondent.

7. The senior counsel for the petitioner has at the outset

contended that the plea of the respondent of the claims being barred

by time was a plea which was not necessarily required to be

adjudicated in a proceeding under Section 11(6) of the Act. Reliance

is placed on National Insurance Company Ltd Vs Boghara

Polyfab Private Ltd (2009) 1 SCC 267. It was contended that this

court as the designate of the Chief Justice ought to in the exercise of

its discretion not enter into the controversy of whether the claims

were within time or not and such questions were best left to the

arbitrator.

8. However, in view of the observations of the Supreme Court in

para 24 of SBP and Company Vs Patel Engineering Ltd AIR 2006

SC 450 that dragging a party to an arbitration when there existed

no arbitrable dispute can certainly affect the right of that party and

even on monetary terms, impose on him a serious liability for

meeting the expenses of the arbitration, even if it be preliminary

expenses and his objection is upheld by the arbitral tribunal and

further considering the long lapse of time from the completion of

work, after which the present application has been filed, I am not

inclined to blindly refuse to exercise the discretion of referring the

dispute of the claims being barred by time also to the arbitrator. In

my view, if on the basis of admitted facts, the court can come to the

conclusion of the claims sought to be referred to the arbitrators

being barred by limitation and/or whether the claims sought to be

adjudicated is a dead one that is sought to be resurrected, the Chief

Justice or his designate ought not to refer the parties to arbitration.

It is only when the facts from which the aforesaid questions can be

determined are disputed or when evidence may have to be recorded

or detailed investigation required to be done with respect thereto,

that the court would be justified in instead of returning a finding

itself, exercise the discretion to refer the same also to arbitration. I

thus proceed to determine whether the claims in the present case

can be said to be long barred and dead or not.

9. The petitioner has in the petition not given any dates

whatsoever as to what happened after the signing of the contract on

31st March, 1989/12th April, 1989. The petitioner has straightway

referred to the notice dated 29th December, 2006 stated to have been

given by the petitioner to the respondent asking the respondent to

appoint the arbitrator in terms of the agreement. The senior counsel

for the petitioner upon being quizzed in this respect invited the

attention to annexure "B" filed alongwith its rejoinder. The same is a

letter dated 11th April, 2005 of the respondent to the petitioner and

which is as under:-

"Under Postal Certificate To, M/s Progressive Construction Ltd 18 Kotla Lane, Rouse Avenue New Delhi-110002

Sub: Construction of Power Channel (From RD 4032m to RD 5200m) Package-III.

(FINAL BILL) Ref: 1. Our letter No.NH/TP/PCW/W-40/2000/194 dated 25.02.2000.

2. letter No. NH/TP/PCW/W-40/05/194 dated 04.01.2001.

3. letter No. NH/TP/CE/PC/23187 dated 09.01.2001

4. letter No. NH/TP/Civil/2002/1349/ dated 18.09.2002.

5. letter No. NH/TP/Civil/2002/1644 dated 18.11.2002.

6. letter No. NH/TP/Civil/2002/364 dated 24.04.2003

7. letter No. NH/TP/CC/1518 dated 01.19.2004 D/Sir, Kindly refer our above-referred letters regarding final bill for the work of "Construction of Power Channel (From RD 4032m to RD 5200m) Package-III." Which were prepared long back but the same could not be settled on account of non-acceptance by you.

You are once again requested to depute your authorized representative within 15 days from the date of issue of this letter to this Project for accepting the final bill, failing which the final adjustment shall be made in our accounts.

This may kindly be treated as final notice."

10. The senior counsel for the petitioner contended that the notice

dated 29th December, 2006 for appointment of the arbitrator was

issued within three years from the aforesaid letter and thus it could

not be said that the claims were barred by time. It was further

argued that from the aforesaid letter it was clear that the final bill

had not been prepared till then. It was thus contended that allclaims

of the petitioner were alive.

11. Per contra the counsel for the respondent has drawn attention

to clause 48 of the agreement set out in his reply and as per which

the petitioner was required to submit the final bill within a week of

the completion and the payment thereof was required to be made

within three months/six months thereof and list of disputes with

respect to the final bills were required to be submitted within 30

days of disallowance thereof; it is further provided therein that if the

contractor failed to submit the list of disputed items within such 30

days his claims shall be deemed to have been fully waived and

absolutely extinguished. The counsel for the respondent also relied

upon clause 55.5 also providing that the notice of existence of

disputes or differences in connection with the contract unless served

within 30 days of expiry of defects liability period, all rights and

claims under the contract shall be deemed to have been waived and

thus forfeited and absolutely barred. It was thus contended that it

being not the case of the petitioner that any such notice was given

within the time agreed, the petitioner was now not entitled to raise

any dispute. On inquiry as to whether such a clause would not be

governed by Section 28 of the Contract Act, the counsel for the

respondent contended that amendment to the contract Act came into

force w.e.f. 8th January, 1997 and was not retrospective and the work

in the present case having been completed much prior thereto i.e. on

30th April, 1993, Section 28 as prior to its amendment and as then

interpreted by the courts shall apply. Reliance is placed on M/s

Shakti Tubes Ltd Vs State of Bihar 2009 (9) SCALE 270 laying

down that an Act should always be regarded as prospective in nature

unless the legislature has clearly intended it to have retrospective

effect.

12. The senior counsel for the petitioner in response to the

aforesaid submission relied upon the recent pronouncement dated

26th May, 2009 of the Division bench of this court in M/s Chander

Kant & Co. Vs The Vice Chairman, DDA Arbitration Petition No.

246/2005. He also contended that the limitation for filing application

for appointment of the arbitrator under Article 137 of the Limitation

Act is 3 years from the date the disputes have arisen; it was further

contended that mere silence is no good. Reliance in this regard was

placed on Major Inder Singh Rekhi Vs DDA (1988) 2 SCC 338 and

which was countered by the counsel for the respondent with Union

of India Vs M/s L.K. Ahuja & Co. (1988) 3 SCC 76.

13. I will first deal with the aspect of Section 28 of the Contract

Act. A Single Judge of this court in Continental Construction Ltd

Vs Food Corporation of India AIR 2003 Delhi 32 has held the

same to be not retrospective. This judgment was cited before the

Division Bench in M/s Chander Kant (supra). The Division Bench

did not differ with the view taken by the Single Judge but in the facts

of that case held that though the contract had been entered into

before the amendment of Section 28 but right from the preparation

of the final bill everything had happened after the amended

provisions came into play and thus held that the amended provisions

would apply.

14. I also find that a Single Judge of the Bombay High Court in

UOI Though Textile Commissioner Vs Bhagwati Cottons Ltd

MANU/MH/0247/2008 and a Division Bench of Madras High Court in

Oriental insurance Company Ltd Vs Karur Vysya Bank Ltd AIR

2001 Mad 489 have also held the amendment w.e.f. 8th January, 1997

to Section 28 of the Contract Act being not retrospective.

15. The senior counsel faced with the aforesaid situation laid heavy

reliance on the expression "the final bill was released only in

2002....." in para 13 of the judgment of the Division Bench of this

court in M/s Chander Kant (supra). It was contended that since

the final bill had not been released as yet in the present case,

amended Section 28 would apply. However, in my view, the use of a

particular word in a judgment cannot be cited, when that was not the

subject matter of adjudication.

16. In the present case, the works were completed more than

three years prior to the coming into force of the amendment and it

cannot be argued that merely because the petitioner owing to

reasons alleged did not approach the respondent, the petitioner

could come within the ambit of the amended law. It is not in dispute

and is also borne out from the judgment of the Division Bench of

Chander Kant (supra) that prior to the amendment of the Section

28, the same as interpreted by the courts, extinguished the right of

the petitioner to raise a dispute upon the same being not submitted

within the time of 30 days etc, as prescribed in the agreement.

17. The senior counsel for the petitioner faced with this contended

that it would have extinguished only the right of arbitration not the

right to press the claim in a suit. Though I have in Biba Sethi Vs

Dyna Securities Ltd OMP 63/2007 decided on 17.03.2009 differed

with the said proposition but that is not relevant for the present

purposes, more so, when the suit has admittedly not been instituted

and long time has expired since then.

18. The senior counsel for the petitioner also contended that since

the petitioner had sub-contracted the works with the consent of the

respondent, the petitioner could not be expected to raise the

disputes within 30 days. Without entering into the controversy

whether the respondent had consented to such sub-contracting of

works by the petitioner or not, in my view such risks are inherent in

sub-contracting and merely because the petitioner had sub-

contracted the work would not make any special law applicable for

the petitioner.

19. Having held that the petitioner was at the contemporaneous

time governed by Section 28 of the Contract Act as prior to its

amendment, it follows that under the clauses aforesaid of the

contract, the claim, if any, of the petitioner for any items to which it

was entitled under the final bill and which was disallowed by the

respondent stood extinguished and waived and similarly upon the

failure of the petitioner to give a notice within 30 days of the expiry

of the defect liability period, all rights, claims of the petitioner under

the contract stood waived and forfeited and absolutely barred.

20. Coming to the letter dated 11th April, 2005 set out hereinabove

and on which much emphasis was placed by the senior counsel for

the petitioner, in my view, the same also does not advance the case

of the petitioner. The senior counsel for the petitioner has

contended that the reference of the earlier letters of the respondent

from the 25th February, 2000 to 1st September, 2004 is made in the

said letter. It was contended that with these periodical letters the

limitation would be extended. Per contra, the counsel for the

respondent contended that the works were completed on 30th April,

1993 and there is no reference whatsoever to any letter from that

date till 25th February, 2000. It was stated that acknowledgment of

liability has to be within every three years.

21. In my view, the said letter also does not come to the rescue of

the petitioner. The letter clearly states that the final bill was

prepared long back but could not be settled on account of non-

acceptance by the petitioner. From the said letter it transpires that

the dispute had arisen on non-acceptance of the final bill by the

petitioner. As aforesaid, upon such non-acceptance, the petitioner

was to within 30 days make its claims. There is no averment that

any such claim was made. All that the aforesaid letter does is to call

upon the petitioner to accept the final bill. The counsel for the

respondent contended that the respondent, being a public sector

undertaking, since monies as per the final bills prepared by the

respondent were payable to the petitioner and were standing in the

books of accounts of the respondent, repeated letters were being

written. It was fairly conceded that the respondent even now was

ready to release the payment due under the final bill as computed by

the respondent. In my view, the limitation which would be extended

by issuance of letter dated 11th April, 2005 is only for the petitioner

to make a claim for the amount of the final bill due according to the

respondent. The petitioner would be entitled to have an arbitrator

appointed only if the said payments were being disputed by the

respondent. However, as aforesaid, the respondent is not disputing

the said payment and is ready to release the same to the petitioner.

22. As far as the plea of the petitioner on the basis of Inder Singh

Rekhi (supra) is concerned, Article 18 to the Schedule of the

Limitation Act prescribes the Limitation of three years commencing

from the date when the work is done, for the price of work done,

where no time has been fixed for payment. In the present case the

time of 30 days from completion of work was fixed for the petitioner

to submit the final bill and the time of three months thereafter was

fixed for the respondent to make the payment. The said period of

four months from the date of completion i.e. 30th April, 1993 would

expire in end of August, 1993 and the claims could have been made

only within 3 years thereafter i.e. till the end of August, 1996. The

claims have been made long thereafter. As aforesaid, the notice for

appointment of arbitrator was given only on 29th December, 2006.

The claims, if any, of the petitioner as on that day were not within

limitation. Reliance in this regard can be placed on J.C. Budhiraja

Vs Orissa Mining Corporation Ltd (2008) 2 SCC 444. Besides the

claims having stood forfeited, abandoned and waived under Section

28 as prior to its amendment, the claims are even otherwise barred

by time. Moreover Inder Singh Rekhi (supra) which is on an

interpretation of Section 20 of the 1940 Act also makes a distinction

between the Limitation for making the claims and the limitation for

preferring the petition for appointment of arbitration. In the present

case the Supreme Court having held that the appointment of

arbitrator shall not be made when the claim is palpably barred by

time, or when a dead claim is sought to be resurrected, even if it

were to be held that the petition under Section 11(6) has been made

within three years from failure to appoint the arbitrator, the same

will still not succeed if the claim is sought to be agitated are barred

by time.

23. The observations made by the Division Bench of this court in

FAO(OS)159/2005 (supra) also do not come to the rescue of the

petitioner and would not validate the claims of the petitioner against

the respondent if otherwise invalid and barred by law. The

respondent has also contested the petition on the ground of being

not maintainable for the reason of the petitioner having illegally sub-

contracted the work. However, in view of the findings above, it is

not deemed appropriate to deal with this aspect which, in any case,

is highly contentious. Accordingly, the petition is dismissed with

costs of Rs 35,000/- on the petitioner.

RAJIV SAHAI ENDLAW (JUDGE) July 30, 2009 M