Telangana High Court

M/S. Genten Infra Projects ... vs Sri Balagoni Balraj Goud on 31 March, 2023

Bench: T.Vinod Kumar

      THE HON'BLE SRI JUSTICE T. VINOD KUMAR

        ARBITRATION APPLICATION No. 5 of 2021

ORDER:

1. The present Arbitration Application is filed under Section 11(6)

of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act,

1996') for appointment of an arbitrator to resolve the disputes

between the parties.

2. Heard Sri. Shyam S. Agarwal, learned counsel for the Applicant

and Sri. G. Vidyasagar, learned Senior Counsel appearing for Sri.

M. Vijayakanth, learned counsel for Respondent.

3. The appellant and the respondent have entered into a

Development Agreement-cum-General Power of Attorney, dated

23.07.2008 vide Doc.No.293 of 2010 for undertaking a

construction named as 'Genten Project' over the respondent's land

admeasuring Ac.7.00 gts in Sy.No. 93, situated at Annojiguda

village, Ghatkesar Mandal, Ranga Reddy District. The project was

to be completed within a period of 60 months i.e., 5 years from the

date of obtaining building permissions. As per the agreement, the

applicant was entitled to 65% share in constructed area, undivided

share of land and parking areas, whereas the respondent entitled to

the remaining 35% share.

4. Contentions of the Applicant:

i. As per the said agreement dated 23.07.2008, the respondent

was required to redeem the property from mortgage created in

favour of the bank and collect back the original title deeds of

the property within 30 days from the date of signing the

agreement. But as the respondent had expressed his inability

to arrange funds required to redeem the mortgage on the

property, the applicant in addition to the refundable deposit of

Rs.50,00,000/- had paid a sum of Rs.2,50,00,000/- on

29.07.2008 to the respondent. Thus, the applicant had paid a

sum of Rs.3,00,00,000/- towards refundable deposit. Despite

the same, the respondent had failed to redeem the property

and collect the original title deed from the bank.

ii. The application made to HUDA (currently HMDA) seeking

sanction for the project was rejected as a result of lack of

support and cooperation from the respondent.

iii. The ex-director of the applicant one Sri. Narender Surana,

who was interacting with respondent, had supported the

respondent by repeatedly extending time in fulfilling his

obligations. But after the present directors had taken over,

they followed up the issue with the respondent persistently.

Despite long persuasion and follow up, the respondent had

neither redeemed the property from mortgage nor handed over

the title deeds to the applicant. Instead, the respondent had

expressed his inability to clear the dues and once again asked

the applicant to pay more money. It is contended that the

applicant had refused to make further payment.

iv. Although the respondent had proposed to settle the dispute

by selling the property and repaying the amount extended by

the applicant, he had failed to do so.

v. Subsequently, as per the understanding between the parties,

the applicant had proceeded to take up development

agreement by getting the property surveyed and obtaining an

elevation certificate on 03.03.2020. They had also obtained

NOC from the Airports Authority of India for height clearance

on 06.03.2020.

vi. The respondent and his men on 14.06.2020 trespassed and

interfered with the applicant's men working on the property to

clear the land. Taking advantage of the inaction of the police

in view of COVID-19, the respondent and his men had once

again trespassed on 26.06.2020, and beat the applicant's

workers, snatched their tools and threatened them.

vii. In view of the above dispute, the applicant issued notice

dated 23.06.2020, calling upon the respondent not to interfere

with the work done by the applicant and also appointing an

arbitrator from his side and inviting the respondent to appoint

the 2nd Arbitrator as per the development agreement dated

23.07.2008. It is contended that the notice has neither been

received back by the applicant nor the applicant received

acknowledgment in service of the said notice.

viii. Thereafter, the applicant had issued another legal

notice dated 14.08.2020, calling the respondent to clear the

mortgage and submit the original title deeds of the property

within one week from the date of the notice, failing which the

applicant would refer the disputes to arbitration. In the same

notice the applicant had proposed to appoint Sri. Rajender

Mangari, Retired District Judge, as his arbitrator.

ix. As the respondent denied the existence of disputes and

refused the appointment of arbitrator vide reply notice dated

10.09.2020, the present arbitration application is filed seeking

appointment of an arbitrator.

5. Contentions of the Respondent:

i. While denying the contentions of the applicant, it is contended

that, the development agreement would not have been

received for registration had there been a mortgage on the

property. Therefore, it is contended that the property was

never mortgaged.

ii. At the instance of the applicant, the registration of the

Development Agreement executed on 23.07.2008, was stalled

for two years, before finally registering it on 22.02.2010. It is

further contended that the respondent became aware that the

document dated 23.07.2008 was tampered, when he received a

notice from the office of the Sub-Registrar informing him that

the share of the applicant was 65% which was contrary to the

original understanding of the parties. On approaching the

applicant, he had assured that the shares would be allocated as

originally agreed after construction.

iii. Despite the respondent making numerous requests, the

applicant had neither obtained NOC nor building permission

for the said property. Since the applicant did not commence

construction even after 3 years, the respondent had issued a

legal notice dated 21.09.2011 cancelling the development

agreement dated 23.07.2008 as per Clause 22 therein. Despite

having received the legal notice dated 21.09.2011, the

applicant had neither replied to the said notice, nor contacted

the respondent until 2020.

iv. It is contended that the period of limitation for an application

to appoint an arbitrator or to refer disputes to arbitration, is 3

years from the date when right to sue first accrues under

Article 137 of the Limitation Act, 1963. As per the pleadings

of the applicant, the respondent allegedly did not cooperate

from July 2008, after receiving huge amounts from the

applicant. Thereby the period of limitation commenced from

July 2008, as the right to sue first accrued then. Further, the

applicant having remained silent even after receiving the

notice of cancellation dated 21.09.2011 cannot after the lapse

of 12 years re-agitate the issue. In support of the above

contention, reliance is placed on Panchu Gopal Bose Vs

Board of Trustees for Port of Calcutta1, Geo Miller & Co.

Pvt. Ltd Vs. Chairman, Rajasthan Vidyut Utpadan Nigam

Ltd2, and Bharat Sanchar Nigam Ltd. and Ors. Vs. Nortel

Networks India Pvt. Ltd3.

6. Reply of the Applicant:

While denying to have received the notice dated 21.09.2011,

the applicant contended that the development agreement being a

registered document cannot unilaterally be cancelled by the

respondent, it would have to be cancelled either by another

registered instrument or by decree of the court. It is further

(1993) 4 SCC 338

(2020)14SCC643

(2021)5SCC738

contended by placing reliance on Tecpro Systems Limited Vs.

Telangana State Power Generation Company Limited4, that

limitation being a mixed question of fact and law cannot be gone

into at the stage of reference.

7. While so memo was filed by the appellant, bringing to the

notice of this Court that they had filed C.O.P.No. 21 of 2020 before

the Special Judge for Trial and Disposal of Commercial Disputes,

Ranga Reddy District seeking interim measures under Section 9 of

the Act, The Court below vide order dated 15.09.2022 had allowed

the said application while granting interim injunction as prayed for

therein.

Findings of the Court:

8. The dispute resolution clause in the Development Agreement

cum General Power of Attorney dated 23.07.2008 is as under:

"9. To raise, borrow funds, loan/credit facilities from Banks, bankers, financial institutions and other public by creating equitable or other mortgages on security of the Developer's entitled constructed areas and undivided share of land in the Schedule Property with built-up areas therein and Development Rights in the above Development Agreement,

MANU/TL/0368/2019

sign and execute requisite mortgage deeds and other conveyances required therefore on such terms and conditions as our attorney deem it fit and get the same registered before the jurisdictional Sub-Registrar in the manner prescribed under law, and for the said purposes sign and execute necessary forms, declarations and this Agreement is binding on the Parties hereto and to their legal heirs, principal, agents, representatives etc., subject to other terms of this deed. In case, any dispute or difference arises in respect of this Agreement or in the event of any differences or disputes arising between the parties in regard to this Agreement or any matter relating thereto, the same shall be referred to Arbitration, and both the parties shall appoint one Arbitrator each and the two arbitrators appointed by both the parties shall appoint common Arbitrator, and the said common Arbitrator is authorized to pass an award in connection with the dispute / difference referred to him, and his award shall be final and binding on the parties hereto. The Arbitration shall be conducted as per the Provisions of the Arbitration & Conciliation Act, 1996. The Arbitration shall be conducted in English Language and the place of Arbitration shall be in Hyderabad. The courts at Hyderabad alone shall have jurisdiction in all the matters relating to this Agreement."

9. From the facts of the case and contentions raised by the parties,

the question before this Court is whether the claims of the applicant

are barred by limitation.

10. It is to be noted that, when an agreement contains a covenant to

resolve the disputes by referring to Arbitration, the powers of the

High Court under Section 11(6) of the Act, 1996 are extremely

limited, and the court is to ordinarily relegate parties to arbitration.

However, in all cases where the agreement provides for arbitration,

disputes cannot be mechanically referred to the doorstep of an

arbitrator. The Court while making a reference is required to apply

its mind to the preliminary issues, more particularly when the

opposite party raises an objection with regards to the claims being

moonshine and ex-facie barred by limitation. The issue of

limitation can be looked into at the referral stage, if the claims

appear to be stale and ex-facie deadwood. The Supreme Court in

BSNL's case (supra), has observed as under:

"36. In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation MANU/SC/0939/2020 : (2021) 2 SCC 1, 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.

...

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. Paragraph 148 of the judgment reads as follows:

148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed "no-claim certificate" or defence on the plea of novation and "accord and satisfaction". As observed in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., MANU/UKHL/0067/2007 : 2007 UKHL 40 : 2007 Bus LR 1719 (HL)], it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen.

...

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.

11. Having observed that this Court can look into the question

of limitation, in order to ascertain whether the claims are ex-facie

time barred, it is now necessary to see when the period of

limitation commences. The Supreme Court in Geo Miller's case

(supra) has observed as under:

"8...

Our finding is supported by the decision of a three-Judge Bench of this Court in Grasim Industries (supra). In Grasim Industries, similar to the present case, the arbitration agreement provided for reference to be made under the 1940 Act. However the Appellant raised their claim in 2002, attracting the application of the 1996 Act. This Court was therefore faced with the issue of whether an application for appointment of an arbitrator under the 1996 Act would be barred by limitation in respect of the Appellant's claim. This Court found that, in view of Section 28 of the Indian Contract Act, 1872, the parties in the arbitration agreement could not stipulate a restricted period for raising a claim. However, the limitation period for invocation of arbitration would be three years from the date of the cause of action Under Article 137 of the Limitation Act, 1963. However in the facts of that case, this Court found that certain claims had arisen within the three year limitation period and hence, could be allowed.

Applying the aforementioned principles to the present case, we find ourselves in agreement with the finding of the High Court that the Appellant's cause of action in respect of Arbitration Applications Nos. 25/2003 and 27/2003, relating to the work orders dated 7.10.1979 and 4.4.1980 arose on 8.2.1983, which is when the final bill handed over to the Respondent became due. Mere correspondence of the Appellant by way of writing letters/reminders to the Respondent subsequent to this date would not extend the time of limitation. Hence the maximum period during which this Court could have allowed the Appellant's application for appointment of an arbitrator is 3 years from the date on which cause of action arose i.e. 8.2.1986. Similarly, with respect to Arbitration Application Nos. 28/2003 relating to the work order dated 3.5.1985, the Respondent has stated that final bill was handed over and became due on 10.8.1989. This has not been disputed by the Appellant. Hence the limitation period ended on 10.8.1992.

Since the Appellant served notice for appointment of arbitrator in 2002, and requested the appointment of an arbitrator before a Court only by the end of 2003, his claim is clearly barred by limitation.

9. ...

Turning to the other decisions, it is true that in Major (Retd.) Inder Singh Rekhi (supra), this Court observed that the existence of a dispute is essential for appointment of an arbitrator. A dispute arises when a claim is asserted by one party and denied by the other. The term 'dispute' entails a positive element and mere inaction to pay does not lead to the inference that dispute exists. In that case, since the Respondent failed to finalise the bills due to the applicant, this Court held that cause of action would be treated as arising not from the date on which the payment became due, but on the date when the Applicant first wrote to the Respondent requesting finalisation of the bills. However, the Court also expressly observed that 'a party cannot postpone the accrual of cause of action by writing reminders or sending reminders.'

In the present case, the Appellant has not disputed the High Court's finding that the Appellant itself had handed over the final bill to the Respondent on 8.2.1983. Hence, the holding in Major (Retd.) Inder Singh Rekhi (supra) will not apply, as in that case, the Applicant's claim was delayed on account of the Respondent's failure to finalize the bills. Therefore the right to apply in the present case accrued from the date on which the final bill was raised (See Union of India v. Momin Construction Company, MANU/SC/0370/1995 : (1997) 9 SCC 97).

10...

Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the 'breaking point' at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This 'breaking point' would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party's primary interest is in securing the payment due to them, than in family disputes where it may

be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim.

Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the Applicant has asserted their claim and the Respondent fails to respond to such claim, such failure will be treated as a denial of the Applicant's claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the Applicant to plead that waited for an unreasonably long period to refer the dispute to arbitration merely on account of the Respondent's failure to settle their claim and because they were writing representations and reminders to the Respondent in the meanwhile.

11. We are of the considered opinion that the decisions in Hari Shankar Singhania and Shree Ram Mills Ltd. (supra) will not be applicable to the Appellant's case as in these cases the entire negotiation history of the parties had been made available to this Court. In the present case, the Appellant company vaguely stated before this Court that it was involved in 'negotiation' with the Respondents in the 14 years preceding the application dated 4.10.1997 before the Settlement Committee. However it did not place on record any evidence to show when it had first made a representation to the Respondent in respect of the outstanding amounts, and what was the history of their negotiation with the Respondents such that it was only in 1997 that they thought of approaching the Settlement Committee. Further, they have not brought anything on record to show that they were required to proceed before the Settlement Committee before requesting the appointment of an arbitrator. The arbitration Clause does not stipulate any such requirement.

We therefore find that the Appellant company's case has a certain element of mala fide in so far as it has made detailed submissions in respect of its communications with the Respondents subsequent to 4.10.1997, but has remained conspicuously silent on the specific actions taken to recover the payments due prior to that date. Under Section 114(g) of the Indian Evidence Act, 1872 this Court can presume that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it.

Hence, in the absence of specific pleadings and evidence placed on record by the Appellant with respect to the parties' negotiation history, this Court cannot accept the Appellant's contention that it was only after the Respondent's letter dated 18.12.1999 that the Appellant could have contemplated arbitration in relation to the outstanding amounts. Even if we were to include the time spent proceeding before the Settlement Committee, the limitation period, at the latest, would have started

running from 4.10.1997 which is when the Appellant made a representation to the Settlement Committee and the Committee failed to respond to the same.

...

We also find it pertinent to add that the Appellant's own default in sleeping over his right for 14 years will not constitute a case of 'undue hardship' justifying extension of time Under Section 43 of the 1996 Act or show 'sufficient cause' for condonation of delay Under Section 5 of the Limitation Act. The Appellant should have approached the Court for appointment of an arbitrator Under Section 8(2) of the 1940 Act within the appropriate limitation period. We agree with the High Court's observation that the entire dispute seems concocted so as to pursue a monetary claim against the Respondents, taking advantage of the provisions of the 1996 Act."

12. The position of law emerging from the above judgment of the

Supreme Court is as under:

i. The period of limitation for a dispute is 3 years from the date

when a right to sue arises.

ii. Mere inaction of the opposite party does not create a right to

sue. A dispute arises when an assertion is made by a party

and the opposite party fails to respond to the claim.

iii. Mere correspondences between the parties will not extend

the period of limitation.

iv. Time spent to arrive at an amicable settlement can extend the

period of limitation, however in such cases the entire

negotiation history between the parties should be placed

before the Court.

13. In the facts of the present case, the applicant had contended that

as per Clause 6 of the development agreement dated 23.07.2008,

the respondent was to redeem the property from mortgage and

deposit the original title deeds of the property in a joint locker

within 30 days from the date of the development agreement. It is

also contended that the respondent had postponed to redeem the

property from mortgage on several occasions. Thus, cause of action

in the present case will arise when the respondent had first

postponed to redeem the property from mortgage. Even assuming a

clear dispute did not exist between the parties when the respondent

postponed to redeem the property, the existence of a dispute is

evident when the applicant had refused the respondent's demand

for further payment to redeem the property. Admittedly when the

applicant refused the payment, he was aware that the non-

adherence of the terms of the agreement by the respondent had led

to the existence of disputes by this period. Thus, the period of the

limitation would begin to run from this period. However, the

applicant had conveniently omitted from either mentioning the date

of refusal or filing records pertaining to such refusal before this

Court.

14. Even otherwise, the action of the respondent issuing a legal

notice dated 21.09.2011 cancelling the development agreement is a

clear denial of the applicant's claim by the respondent. The

acknowledgment card containing the seal of the applicant, records

the date of delivery as 22.09.2011. Although the applicant sought

to contend that they had not received the said legal notice, the same

cannot be accepted as it was sent to the applicant's address as

mentioned in the development agreement. Thus, considered from

any angle the disputes between the parties have arisen as on

21.09.2011, therefore the period of limitation as per Article 137 of

the Limitation Act, 1963 would commence from 21.09.2011 and

expire on 20.09.2014.

15. The applicant instead of invoking the arbitration clause in light

of the legal notice dated 22.09.2011, had chosen to remain silent.

Thus, the action of the applicant in applying for elevation

certificate on 03.03.2020 and thereafter height clearance on

06.03.2020 on its own without having any communication with the

Respondent, nearly after 6 years after the expiry of the period of

limitation appears to be an attempt to extend the period of

limitation.

16. This Court in the case of Terra Infra Development Limited Vs.

NCC Limited5 has held that the period of limitation can only be

extended before the expiry of limitation and only by a party against

whom such claim lies. The relevant observations are as under:

"xi) Thereafter the Applicant instead of enforcing the arbitration clause kept on writing to the Respondent demanding the dues. As stated above, mere exchange of correspondences will not extend the period of imitation. The Applicant contended the reason for delay in invoking the arbitration clause was the efforts made by it to negotiate the disputes. This Court cannot accept the said contention. The claims of the Applicant were disputed by the Respondent on 18.05.2013. After that multiple letters were addressed by the Applicant to which no reply was sent by the Respondent till 2019. The silence of the Respondent amounted to denial of the Applicant's claim. The Applicant waited for nearly 6 years to initiate the arbitration proceedings. If at all negotiations were in progress, the Respondent would have participated in the same. The failure of the Respondent to reply to the Applicant's letters suggests that there were no negotiations between the parties. Therefore, the limitation started to run from 18.05.2013 and no period can be excluded as no negotiations took place between the parties.

xii) Further, the Applicant relying upon the letter dated 21.10.2019 to contend that its claim is alive as the limitation was extended by the alleged acknowledgment of 60% claim by the Respondent. The said contention even if accepted cannot extend the period of limitation.

Article 18 of the Act, 1963 provides that the period of limitation can be

2022 (4) ALT 286

extended by a party against whom a claim lies, if there is an admission and acknowledgement of such a claim by such a person. The claim acknowledged shall pertain to property or right. Further, such an acknowledgement shall be made in writing and shall be signed by the party against whom the claim exists before the expiry of period of limitation. In other words, the period of limitation can be extended only by a party against whom a claim exists. It can only be extended before the expiry of limitation."

On the matter being appealed, the Supreme Court in SLP (C) No.

13650/2022 has affirmed the order of this Court in Terra Infra

(supra). It is pertinent to note that the facts of the present case are

identical to that of Terra Infra. Therefore, neither the elevation

certificate dated 03.03.2020, nor the height clearance obtained on

06.03.2020 or the alleged incidents of trespass on 14.06.2020 and

26.06.2020 extend the period of limitation. Thus, the notice dated

14.08.2020 invoking the arbitration clause is clearly time barred as

by the said date the alleged disputes have become deadwood.

17. Further, the contention of the applicant with respect to the

collusion between the applicant's ex - director Sri. Narender

Surana and the respondent by extending time for fulfilling his