Rajasthan High Court - Jodhpur

Sampat Lal Tak vs Union Of India on 20 September, 2023

Bench: Pushpendra Singh Bhati

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HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR S.B. Arbitration Application No. 39/2022

Sampat Lal Tak S/o Shri Ramchandra, Aged About 63 Years, By Caste Mali, R/o Village Tausar, Bas Atusar, Tehsil And District Nagaur. (Raj.)

----Petitioner Versus

1. Union Of India, Through The General Manager (Engineering), North West Railway Headquarter, Jawahar Circle, Malviya Nagar, Jaipur (Raj.)

2. The Divisional Railway Manager, North West Railway, Jodhpur. (Raj.)

3. The Senior Divisional Engineer/east North West Railway, Jodhpur (Raj.)

----Respondents

For Petitioner(s) : Mr. Gulab Singh For Respondent(s) : Mr. Prateek Gattani with Mr. Gopalkrishan Chhangani

HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI

Judgment

Reserved on 15/09/2023

Pronounced on 20/09/2023

1. The instant arbitration application has been filed by the

applicant under Section 11 (6) of the Arbitration and Conciliation

Act, 1996 (hereinafter referred to as 'Act of 1996') claiming the

following reliefs:-

"a. The dispute concerning contract/work order claim of the applicant between 31.12.2014 to 31.05.2015 for due amount of Rs.11,41,000/- with interest as mentioned above, may kindly be referred to the independent sole Arbitrator as the Hon'ble court deems it proper.

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b. The cost of this application may kindly be awarded. d. Any other appropriate relief to which this application is found eligible may kindly be awarded to the applicant."

2. Brief facts of the case, as placed before this Court by

learned counsel for the applicant, are that an agreement was

executed between the respondent no.3 and the applicant, for the

year 2014-15, pertaining to Zone Contract (Water Supply) Zone-5,

Supply of Potable Sweat Drinking Water to P-way, gangs, staff

quarters, station, L-Xing etc. of MTD Section under ADFEN/MTD.

The date of commencement of work under the agreement was

09.10.2014, and the date of completion of the work in question

was 30.06.2016.

2.1. Thereafter, a dispute arose between the parties regarding

the payment towards the works performed by the applicant under

the agreement in question. In regard to the same, the applicant

sent a letter dated 12.07.2016 to the respondent, whereby a

demand was raised for payment of due amount to the tune of Rs.

11,41,000/-.

2.2. Subsequently, the applicant sent various letters to the

respondent raising the demand of the aforementioned amount.

The applicant, through his Advocate, sent a notice dated

30.08.2022 to the respondent stating therein that for resolution of

the dispute between the parties, the matter be referred to a Sole

Arbitrator, as per the Clause 72 of the agreement in question.

3. Learned counsel for the applicant submitted that the

agreement in question was executed between the applicant and

respondent, Clause 72 whereof contained the provision for

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appointment of an Arbitrator; the said Clause 72 is reproduced as

hereunder:-

"72. The contractor shall not be entitled to ask for reference to arbitration before the completion of the work assigned to him under the contract. The contractor shall seek reference to arbitration to settle the disputes only once within the ambit of condition above."

3.1. Learned counsel further submitted that the applicant, vide

various letters, demanded payment of the aforementioned amount

towards the works performed by him, but when nothing was done,

the applicant, through his Advocate, sent a notice dated

30.08.2022 to the respondent stating therein that for settlement

of the dispute between the parties, the matter deserves to be

referred for arbitration, as per the arbitration clause.

3.2. It was also submitted that when neither the necessary

payment was made by the respondent, nor the Arbitrator was

appointed for resolution of the dispute between the parties, the

present application has been preferred before this Hon'ble Court

on 21.12.2022. Therefore, as per learned counsel, the present

application is not time barred, as, in the present case, no issue

pertaining to the limitation arises at all.

3.3. Learned counsel further submitted that since the arbitration

clause is very much existing in the agreement in question, the

matter deserves to be referred for arbitration to the Arbitrator to

be appointed by this Court, in exercise of the power under Section

11 of the Act of 1996.

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4. On the other hand, learned counsel appearing on behalf of

the respondents, while opposing the aforesaid submissions made

on behalf of the applicant, submitted that the present application

is not maintainable, being time barred by more than 6 years.

4.1. It was further submitted that after completion of work in

question i.e. on 30.06.2016, the applicant, for the first time, sent

the notice allegedly making a demand for payment of the amount

in question on 12.07.2016; however, the notice for appointment of

arbitrator was sent only on 30.08.2022, which clearly shows that

the same was done with a huge delay, thereby rendering the

present application non-worthy of acceptance.

4.2. It was also submitted that the dates of commencement and

completion of the work under the agreement in question, were

09.10.2014 and 30.06.2016, respectively. It was further submitted

that the work order nos.7, 8, 9, 10, 11, 12, 13, 14 & 15 were

issued in favour of the applicant by the respondent for supplying

1,03,3000 liters of drinking water per day, from 09.10.2014 to

30.06.2016, and the payment towards the same was duly paid by

the respondent, and therefore, no amount remains to be paid by

the respondent to the applicant.

5. Heard learned counsel for the parties as well as perused the

record of the case.

6. This Court observes that the aforementioned agreement was

executed between applicant and respondent, and the various work

orders were issued for the works from 09.10.2014 to 30.06.2016;

thereafter, as per the applicant, the respondent did not pay the

due amount towards the works in question, so completed by the

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applicant. The applicant, for the first time, sent the notice making

a demand for payment of the amount in question on 12.07.2016,

while the notice for appointment of Arbitrator was sent by the

applicant to the respondent only on 30.08.2022 i.e. after an

inordinate delay of more than 6 years.

7. At this juncture, this Court considers it appropriate to

reproduce the relevant portions of the judgment rendered in the

case of M/s Kailash Chand Vs Union of India (S.B.

Arbitration Application No. 35/2018, decided by this Court on

16.08.2023), as hereunder:

"4.5. In support of such submissions, learned counsel relied upon the judgments rendered by the Hon'ble Apex Court in the cases of Bharat Sanchar Nigam Ltd. & Ors. Vs. Nortel Networks India Pvt Ltd. (Civil Appeal Nos. 843-844 of 2021, decided on 10.03.2021) and B and T AG Vs. Ministry of Defence (Arbitration Pertition (C) No.13 of 2023, decided on 18.05.2023); and order passed by a Coordinate Bench of this Hon'ble Court in the case of M/s Kamla Construction Company Vs Rajasthan Rajya, (S.B. Arbitration Application No. 21/2020, decided on 10.02.2023).

.......

7. At this juncture, this Court considers it appropriate to reproduce the relevant portions of the judgments rendered in the cases of Bharat Sanchar Nigam Ltd. (supra) and B and T AG (Supra), as hereunder:

Bharat Sanchar Nigam Ltd. & Ors. (Supra):

"1. The present Appeals raise two important issues for our consideration: (i) the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 ("the 1996 Act"); and (ii) whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time barred?

9.......In Consolidated Engineering v. Principal Secretary, Irrigation, this Court held that:

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"45......Section 43 of the AC Act, apart from making the provisions of the Limitation Act, 1963 applicable to arbitrations, reiterates that the Limitation Act applies to proceedings in court. Therefore, the provisions of the Limitation Act, 1963 apply to all proceedings under the AC Act, both in court and in arbitration, except to the extent expressly excluded by the provisions of the AC Act." ....

13. Various High Courts have taken the view that Article 137 of the Limitation Act would be applicable to an application under Section 11 of the Arbitration Act.

15. The reasoning in all these judgments seems to be that since an application under Section 11 is to be filed in a court of law, and since no specific Article of the Limitation Act, 1963 applies, the residual Article would become applicable. The effect being that the period of limitation to file an application under Section 11 is 3 years' from the date of refusal to appoint the arbitrator, or on expiry of 30 days', whichever is earlier.

17. Given the vacuum in the law to provide a period of limitation under Section 11 of the Arbitration and Conciliation 1996, the Courts have taken recourse to the position that the limitation period would be governed by Article 137, which provides a period of 3 years from the date when the right to apply accrues. However, this is an unduly long period for filing an application u/S. 11, since it would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes within a time bound period. The 1996 Act has been amended twice over in 2015 and 2019, to provide for further time limits to ensure that the arbitration proceedings are conducted and concluded expeditiously. Section 29A mandates that the arbitral tribunal will conclude the proceedings within a period of 18 months. In view of the legislative intent, the period of 3 years for filing an application under Section 11 would run contrary to the scheme of the Act. It would be necessary for Parliament to effect an amendment to Section 11, prescribing a specific period of limitation within which a party may move the court for making an

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application for appointment of the arbitration under Section 11 of the 1996 Act.

18. Applying the aforesaid law to the facts of the present case, we find that the application under Section 11 was filed within the limitation period prescribed under Article 137 of the Limitation Act. Nortel issued the notice of arbitration vide letter dated 29.04.2020, which was rejected by BSNL vide its reply dated 09.06.2020. The application under Section 11 was filed before the High Court on 24.07.2020 i.e. within the period of 3 years of rejection of the request for appointment of the arbitrator. Discussion on Second issue

19. We will now discuss the second issue which has arisen for consideration i.e. whether the Court while exercising jurisdiction under Section 11 is obligated to appoint an arbitrator even in a case where the claims are ex facie time-barred. Limitation is normally a mixed question of fact and law, and would lie within the domain of the arbitral tribunal. There is, however, a distinction between jurisdictional and admissibility issues. An issue of 'jurisdiction' pertains to the power and authority of the arbitrators to hear and decide a case. Jurisdictional issues include objections to the competence of the arbitrator or tribunal to hear a dispute, such as lack of consent, or a dispute falling outside the scope of the arbitration agreement. Issues with respect to the existence, scope and validity of the arbitration agreement are invariably regarded as jurisdictional issues, since these issues pertain to the jurisdiction of the tribunal.

31. Admissibility issues however relate to procedural requirements, such as a breach of pre-arbitration requirements, for instance, a mandatory requirement for mediation before the commencement of arbitration, or a challenge to a claim or a part of the claim being either time barred, or prohibited, until some pre-condition has been fulfilled. Admissibility relates to the nature of the claim or the circumstances connected therewith. An admissibility issue is not a challenge to the jurisdiction of the arbitrator to decide the claim. 32. The issue of limitation, in essence,

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goes to the maintainability or admissibility of the claim, which is to be decided by the arbitral tribunal. For instance, a challenge that a claim is time-barred, or prohibited until some precondition is fulfilled, is a challenge to the admissibility of that claim, and not a challenge to the jurisdiction of the arbitrator to decide the claim itself.

36. In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation, on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out "manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes." The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused. In paragraph 144, the Court observed that the judgment in Mayavati Trading had rightly held that the judgment in Patel Engineering had been legislatively overruled. While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time barred and dead, or there is no subsisting dispute.

37. The upshot of the judgment in Vidya Drolia is affirmation of the position of law expounded in Duro Felguera and Mayavati Trading, which continue to hold the field. It must be understood clearly that Vidya Drolia has not resurrected the pre-amendment position on the scope of power as held in SBP & Co. v. Patel Engineering (supra). It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time barred, or that the dispute is non-arbitrable, that the court may decline to make the reference.

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However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.

38. Applying the law to the facts of the present case, it is clear that this is a case where the claims are ex facie time barred by over 5 ½ years, since Nortel did not take any action whatsoever after the rejection of its claim by BSNL on 04.08.2014. The notice of arbitration was invoked on 29.04.2020. There is not even an averment either in the notice of arbitration, or the petition filed under Section 11, or before this Court, of any intervening facts which may have occurred, which would extend the period of limitation falling within Sections 5 to 20 of the Limitation Act. Unless, there is a pleaded case specifically adverting to the applicable Section, and how it extends the limitation from the date on which the cause of action originally arose, there can be no basis to save the time of limitation.

40.Conclusion Accordingly, we hold that: (i) The period of limitation for filing an application under Section 11 would be governed by Article 137 of the First Schedule of the Limitation Act, 1963. The period of limitation will begin to run from the date when there is failure to appoint the arbitrator; It has been suggested that the Parliament may consider amending Section 11 of the 1996 Act to provide a period of limitation for filing an application under this provision, which is in consonance with the object of expeditious disposal of arbitration proceedings;

(ii) In rare and exceptional cases, where the claims are ex facie time barred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference".

B and T A G (Supra):-

"63. Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the "cause of action" for the purpose of limitation. The Legislature has

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prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating.

64. In Panchu Gopal Bose v. Board of Trustees for Port of Calcutta reported in (1993) 4 SCC 338, this Court had held that the provisions of the Act 1963 would apply to arbitrations and notwithstanding any term in the contract to the contrary, cause of arbitration for the purpose of limitation shall be deemed to have accrued to the party, in respect of any such matter at the time when it should have accrued but for the contract. Cause of arbitration shall be deemed to have commenced when one party serves the notice on the other party requiring the appointment of an arbitrator. The question was when the cause of arbitration arises in the absence of issuance of a notice or omission to issue notice for a long time after the contract was executed? Arbitration implies to charter out timeous commencement of arbitration availing of the arbitral agreement, as soon as difference or dispute has arisen. Delay defeats justice and equity aids promptitude and resultant consequences. Defaulting party should bear the hardship and should not transmit the hardship to the other party, after the claim in the cause of arbitration was allowed to be barred. It was further held that where the arbitration agreement does not really exist or ceased to exist or where the dispute applies outside the scope of arbitration agreement allowing the claim, after a considerable lapse of time, would be a harassment to the opposite party. It was accordingly held in that case that since the petitioner slept over his rights for more than 10 years, by his conduct he allowed the arbitration to be barred by limitation and the Court would be justified in relieving the party from arbitration agreement under Sections 5 and 12(2)(b) of the Act. [See: State of Orissa v. Damodar Das, (1996) 2 SCC 216]

66. The case on hand is clearly and undoubtedly, one of a hopelessly barred claim, as the petitioner by its conduct slept over its right for more than five years. Statutory

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arbitrations stand apart. 67. In view of the aforesaid, this petition fails and is hereby rejected."

10. This Court also observes that Article 137 of the Limitation Act would be applicable to an application under Section 11 of the Arbitration and Conciliation Act, 1996 and the period of limitation provided under the said Article is 3 years. In the present case, even if the period during which the aforementioned writ petition remained pending, is excluded, then also for the period from 2004 to 2011 (7 years), the application did not make any attempt to avail the appropriate legal remedy.

12. This Court further observes that the Hon'ble Apex in the aforementioned precedent law, that, "In rare and exceptional cases where the claims are ex facie time barred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference". The present case clearly falls under the said category, being barred by limitation, and therefore, the prayer for referring the dispute for arbitration and appointment of the Arbitrator, deserves refusal.

13. Thus, in light of the aforesaid observations and in view of the aforementioned precedent laws as well as looking into the factual matrix of the present case, this Court does not find it a fit case so as to grant any relief to the applicant in the present application".

8. This Court further observes that the date of completion of

the work under the agreement was 30.06.2016, and the after

preparation of the final bill, the applicant sent various letters to

the respondent demanding payment of the due amount; the first

letter in this series was dated 12.07.2016.

9. This Court also observes that the applicant sent the notice

for appointment of Arbitrator on 30.08.2022, after an inordinate

delay of more than 6 years from the date of completion of the

work.

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10. This Court further observes that the present application was

filed after an inordinate delay of more than 6 years, while Article