Philips India Limited vs Dr. S.N. Medical College ...
2023 Latest Caselaw 7741 Raj

[2023:RJ-JD:30127]

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR S.B. Arbitration Application No. 38/2020

Philips India Limited, 8Th Floor , Dlf Cyber City , Dlf Phase , Iii , Sector 25, Gurugram -122002 And Registered Office At 3Rd Floor , Tower A, Dlf It Park , 08 Block Af , Major Arterial Road , New Town (Rajarhat) , Kolkata - 700156, Through Its Authorised Signatory Mr. Rishi Raj Gupta S/o J P Gupta Aged About 44 Years

----Petitioner Versus

1. Dr. S.n. Medical College Residency Road, Near Sriram Excellency Hotel , Opposite Petrol Pump, Sector -D, Shastri Nagar , Jodhpur , Rajasthan - 342003.

2. Secretary, Medical Education Department , Government Of Rajasthan Room No 2024, Main Building Secretariat , Jaipur - 302005.

3. Commissioner, Medical Education Department , Directorate Of Medical Education Chikitsa Shiksha Bhawan , Govind Marg , Jaipur - 302004.

----Respondents

For Petitioner(s) : Mr. Vikas Balia, Senior Advocate assisted by Mr. Abhishek Mehta.

For Respondent(s) : Mr. Pankaj Sharma, AAG.

HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI

Judgment

Reserved on 15/09/2023 Pronounced on 29/09/2023

1. The instant arbitration application has been filed by the

applicant-Company under Section 11 of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as 'Act of 1996')

claiming the following reliefs:-

"In view of the submissions made above, it is most respectfully prayed that this Hon'ble Court may kindly be pleased to:

a. Appoint a Sole Arbitrator to adjudicate the claims of the Petitioner under the Tender dated 29 March 2013 and Supply Orders dated 02 November 2013; and b. Pass such other order or further orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case in favour of the Petitioner."

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

Mr.Vikas Balia, learned Senior Counsel assisted by Mr. Abhishek

Mehta, appearing on behalf of the applicant-Company, are that the

respondent no. 1 floated an online notice dated 29.03.2013

inviting tender for procurement of medical equipment bearing no.

F.6 () S/MC/JU/2013-14. The equipments sought vide the tender

in question were 1 magnetic resonance imaging system (MRI) and

2 CT scanners.

2.1. The applicant submitted its bid, whereafter the applicant was

declared as L-1 on 02.11.2013 and the supply order was also

issued to the applicant; thereafter, on count of site being not

ready for the necessary installation, the applicant successfully

completed the supply under the tender in question on 12.06.2015.

2.2. The applicant sent an e-mail dated 18.05.2016 to the

respondent no.1 making a request for clearing the outstanding

payment. In response, the respondent no.1 sent a letter dated

01.07.2016 intimating deductions towards 10% of liquidated

damages and charges of letter of credit amounting to Rs.

1,42,41,593/- on the supply orders.

2.3. The applicant thereafter sent a letter dated 28.08.2016 for

clarification of the deductions; the respondent no.1, in response,

sent letters dated 19.09.2016 & 18.10.2016 and stated that the

amount in question was deducted as per the decision taken by the

Departmental Committee. Subsequently, the applicant preferred

an appeal on 21.07.2017 before the respondent no.2. The

applicant also served legal notices dated 31.10.2017, 17.01.2018,

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17.07.2018, 07.05.2019 and 09.08.2019 seeking recovery of the

amount in question.

2.4. Thereafter, the applicant issued a notice on 15.11.2019 for

invocation of the arbitration clause 40 of the tender in question

and requested the respondent no.1 to appoint an arbitrator for

resolving the dispute in question, which however remained

unresponded; hence, the applicant again sent a notice dated

27.01.2020 making the same request.

3. Learned Senior Counsel for the applicant submitted that

there is an existing arbitration clause in the tender in question,

and thus, this Hon'ble Court has power to appoint the arbitrator as

per the clause 40 of the tender in question.

Clause 40 of the tender in question is reproduced as

hereunder:-

"40. If any dispute arise out of contract with regards to the interpretation, meaning and breach of the terms of the contract, the matter shall be referred to by the parties to the Head of the Department (Principal & Controller, Dr. S.N. Medical College, Jodhpur, Rajasthan) who will appoint his senior most officer as the Sole Arbitrator of the dispute who will be related to this contract and whose decision shall be final."

3.1. Learned Senior Counsel further submitted that the limitation

for filing the application under Section 11 of the Act of 1996 is 3

years as per the Article 137 of the Limitation Act, 1963. In the

present case, the first notice for appointment of the arbitrator was

sent on 15.11.2019, and the present application for appointment

of the arbitrator was filed on 31.10.2020, and therefore, the

present application was filed within the period of limitation.

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3.2. Learned Senior Counsel also submitted that after completion

of the work, the applicant was demanded the outstanding amount

on 18.05.2016 and the respondent no.1 sent the letter to the

applicant on 01.07.2016, intimating deductions in question,

without any reasonable justification.

3.3. Learned Senior Counsel further submitted that the

application under Section 11 of the Act of 1996 is not the stage for

the Court to enter into mini trial or elaborated review, and more

particularly, when the arbitration clause is existing, the Court

should refer the dispute to the arbitrator.

3.4. Learned Senior Counsel also submitted that the applicant

sent legal notices dated 31.10.2017, 17.01.2018, 17.07.2018,

07.05.2019, and 09.08.2019 to the respondent for clearing the

outstanding dues, but the respondent is bent upon not to make

the necessary payments.

3.5. In support of such submissions, learned Senior Counsel

relied upon the following judgments:-

(a) Duro Felgura SA Vs Gangavaram Port Limited (2017) 9 SCC

729;

(b) Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1;

(c) Mayavati Trading Company Private Ltd. Vs Pradyut Dev

Burman (2019) 8 SCC 714; and

(d) Garware Wall Ropes Limited Vs Coastal Marine Construction

and Engineer Limited (2019) 9 SCC 209.

4. On the other hand, Mr. Pankaj Sharma, learned Additional

Advocate General (AAG) appearing on behalf of the respondents,

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while opposing the aforesaid submissions made on behalf of the

applicant, submitted that the present application is not

maintainable on the ground of inordinate delay of more than 4

years.

4.1. It was further submitted that the applicant has supplied the

orders as per the tender in question and one CT Scanner and one

MRI was delivered and installed on 12.04.2015; one MRI was

delivered and installed on 05.05.2015 and CT Scanner on

12.06.2015 at Mathura Das Mathur Hospital, and all due payments

were made to the applicant through cheque on 02.02.2016.

4.2. It was also submitted that the respondent vide notice dated

01.07.2016 (Annexure-9) to the applicant has specifically stated

that now no payment is due and all bills were cleared; even then,

the applicant has preferred the present application in October,

2020, which is clearly time barred, and thus, not maintainable.

4.3. It was further submitted that the actual amount has already

been paid to the applicant, after the deduction of 10% liquidated

damages and charges as per pre-decided conditions of the tender

in question and in accordance with the decision taken by the High

Level Committee on 28.01.2016, and therefore, on that count

alone, the present application deserves dismissal.

4.4. In support of such submissions, learned AAG relied upon the

judgments rendered by the Hon'ble Apex Court in the case of B &

T AG Vs Ministry of Defence (Arbitration Petition (c) No. 13

of 2023, decided on 18.05.2023); and Bharat Sanchar Nigam

Ltd. & Anr. Vs M/s Nortal Networks India Pvt Ltd. (2021) 5

SCC 738.

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4.5. Learned AAG further relied upon the judgment rendered by

this Hon'ble Court in the case of M/s Kailash Chand Vs Union

of India (S.B. Arbitration Application No. 35/2018, decided

on 16.08.2023) and the 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).

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

record of the case, alongwith the judgments cited at the Bar.

6. This Court observes that the applicant was declared as

successful bidder in the tender in question, whereafter, the work in

question was completed. Subsequently, the applicant sent a letter

making a request before the respondent to clear the outstanding

payment. In response, the respondent no.1 sent the letter dated

01.07.2016 to the applicant, intimating deductions of 10 of

liquidated damages and charges of letter of credit amounting to

Rs. 1,42,41,593/- on the supply orders. Thereafter, the applicant

sent various letters, including the letter dated 15.11.2019 for

appointment of the arbitrator in the matter.

7. At this juncture, this Court deems it appropriate to reproduce

the relevant portion of the judgment rendered in the case of M/s.

Kailash Chand (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?

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

"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 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

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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, 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

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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. 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

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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 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

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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 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.. . . . .

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.

14. Consequently, the present application is dismissed."

8. This Court observes that the work in question i.e. supply of

MRI was done, and the same had been installed on 12.04.2015;

one MRI was delivered and installed on 05.05.2015 and CT

Scanner on 12.06.2015 at Mathura Das Mathur Hospital and all

due payments were made to the applicant through cheque on

02.02.2016, and therefore, the entire payment has been made to

the applicant.

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

dated 18.05.2016 to the respondent no.1 for clearing the

outstanding payment, whereupon, the respondent vide letter

dated 01.07.2016 intimated to the applicant the deductions

towards 10% of liquidated damages and charges of letter of credit

amounting to Rs. 1,42,41,593/- on the supply orders. Thereafter,

the petitioner sent again certain other notices making a demand of

the amount in question.

10. This Court also observes that the notice seeking appointment

of arbitrator was sent by the applicant on 15.11.2019 to the

respondent as per clause 40 of the tender in question. This Court

further observes that all the necessary payments were made to

the applicant and nothing remained to be paid thereafter, as was

clearly stated by the respondent no.1 in its letter dated

01.07.2016; Subsequently, the applicant gave the aforesaid notice

for arbitration, and after a delay of 3 years 3 months, filed the

present application, which is clearly barred by the limitation.

11. This Court also observes that Article 137 of the Limitation

Act, 1963 prescribed the period of limitation of 3 years and the

same was applicable to the application under Section 11 of the Act

of 1996. This Court further observes that once the specific statute

prescribed the period of limitation for filing the application,

thereafter, the said provision did not required any further

interpretation. The period provided for filing the application under

Section 11 of the Act of 1996 cannot be breached, in any manner

whatsoever.

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12. This Court also observes that the judgment rendered by the

Hon'ble Apex Court in the case of B and T AG (Supra) clearly

held that "The Legislature has 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."

13. This Court further observes that as per the aforementioned

precedent law, the present applicant is time barred, and therefore,

the prayer for referring the dispute for arbitration and

appointment of the Arbitrator, deserves refusal.

14. The judgments cited at the Bar on behalf of the applicant

have already been dealt with by the Hon'ble Apex Court in the

cases of Bharat Sanchar Nigam Ltd. & Ors. (Supra) as well as

B and T A G (Supra).

15. Thus, in light of the aforesaid observations and in view of the

aforementioned precedent law 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.

16. Consequently, the present application is dismissed.

(DR.PUSHPENDRA SINGH BHATI), J.

SKant/-

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