Bangalore District Court
Along With Its Response To The Statement ... vs Sought To Outsource The Manufacture And ... on 6 April, 2021
1
Com.A.S.No.151/2019
IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE,AT BENGALURU (CCH.83)
THIS THE 6TH DAY OF APRIL 2021.
PRESENT:
SRI.DEVARAJA BHAT.M.,B.COM,LL.B.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.151/2019
BETWEEN:
Tata Advanced materials
Limited, A Company
incorporated under the
Companies Act Having its
Offices at: No.10, Jigani
Industrial Area,Jigani,
Bengaluru -560 105,
represented by its
authorized representative
Mr. Abhishek Sharma.
Now changed as :-
M/s Tata Advanced Systems
Ltd., having its Registered
Office address at Hardware
Park, Plot No.21, Sy.No.1/1,
Imarat Kancha Raviryala,
Village Maheshwaram,
Hyderabad, Telangana - 501
218.
: PLAINTIFF
(Represented by M/s AZB &
Partners - Advocates.)
AND
2
Com.A.S.No.151/2019
1. M/s Tooltech Global
Engineering Private Limited,
A Company incorporated
under the Companies Act,
Having its Office at: 401,
Beta 1, Giga Space, Viman
Nagar, Pune - 411 014.
: DEFENDANT
(Defendant is represented
by M/s AK Law Chambers -
Advocates)
2. Hon'ble Mr. Justice Anand
Byra Reddy (Retd), Sole
Arbitrator, residing at: 776,
1st Floor, Yogananda
Paramahamsa Road, (Double
Road), Indiranagar, 2nd
Stage, Bengaluru -560 038.
: RESPONDENT
Date of Institution of the 11.10.2019
suit
Nature of the suit (suit on
pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date of commencement of
recording of evidence - NIL -
Date of First Case - Not held -
Management Hearing
Time taken for disposal from 22 days
the date of conclusion of
Arguments
Date on which judgment
was pronounced 06.04.2021
Total Duration Year/s Month/s Day/s
3
Com.A.S.No.151/2019
01 04 26
(DEVARAJA BHAT.M.),
LXXXII Addl. City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
This is a Petition filed under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside the Arbitral Award dated 03.07.2019 passed by the Arbitral Tribunal.
2. The Defendant had invoked the Arbitration Clause and preferred certain Claims against the Plaintiff. In response to the Statement of Claim preferred by the Defendant, the Plaintiff along with its response to the Statement of Claim also preferred Counter-Claim against the Defendant.
3. The Brief facts leading to the case, as narrated in the Petition, are as follows:-
That the Plaintiff is a subsidiary of TATA Advanced Systems Ltd., and is involved in the business of providing global solutions, catering to global Aerospace, Space, Defence and Industrial markets and also involved in the business of design, manufacture and supply of composite 4 Com.A.S.No.151/2019 products for aerospace, armour, Defence, transportation and infrastructure sectors, that the Defendant is in the business of designing concepts of solid and surface 3D models, 2D detailing and drafting, product development, customized software solutions, providing engineering services for aerospace, automotive, marine and ship building, machinery, plant and process equipment etc., that in February 2006, Hindusthan Aeronautics Ltd., (HAL) engaged the Defendant to design, manufacture, supply and install interiors for 2 VIP Helicopters (HAL Project) and issued a Purchase Order dated 18.02.2006, that pursuant to the Agreement with HAL, the Defendant sought to outsource the manufacture and supply of certain panels and accordingly issued a Request for Quotation and the Plaintiff submitted its response to RFQ stipulating the terms between the parties in November 2009, which was accepted by the Defendant, that the Defendant issued various Purchase Orders for the Service, for a total sum of INR.2,82,26,407/-, that the Defendant raised dispute in respect of certain Purchase Orders, that despite acknowledging the dues owed to the Plaintiff, the Defendant failed to pay the entire balance amount to the Plaintiff, but paid Rs.25 Lakhs to the Plaintiff in April 2011 and by email dated 17.08.2011, the Defendant undertook to pay the remaining balance amount and sought for release of the tools, that the Defendant made no further efforts to pay the remaining amount and hence, the Plaintiff issued a Statutory 5 Com.A.S.No.151/2019 Notice under Section 434 of the Companies Act, 1956 on 25.01.2012 to the Defendant, that the Defendant for the first time raised the contention that under the Purchase Orders, the Plaintiff was to handover the Tools used in providing the Service to HAL through the Defendant and that the Plaintiff had failed to do so and consequently HAL is withholding payments to the Defendant, that the Plaintiff filed Company Petition No.198/2012 before the Hon'ble Bombay High Court against the Defendant which came to be dismissed on 17.10.2012, that being aggrieved by the said Order, the Plaintiff filed Appeal No.181/2013 before the Division Bench of the Hon'ble High Court of Bombay and the same was allowed by an Order dated 21.10.2013 and set aside the Order dated 17.10.2012, that the Defendant filed a Special Leave Petition bearing No.36692/2013 before the Hon'ble Supreme court challenging the said Order, which was dismissed by the Hon'ble Supreme Court on 27.01.2015, that thereafter the Defendant filed a Review Petition bearing No.2193/2015 challenging the Order dated 27.01.2015 and the said Review Petition also came to be dismissed on 12.08.2015, that thereafter the Defendant initiated arbtration proceedings against HAL, that thereafter in order to settle the disputes arising out of the winding-up proceedings against the Defendant amicably, the Plaintiff and the Defendant had a meeting in Mumbai on 13.02.2016, that pursuant to the said meeting, the Defendant filed a further Affidavit dated 6 Com.A.S.No.151/2019 15.03.2016 in the Company Petition No.198/2012, which was subsequently dismissed by the Hon'ble High Court of Bombay, that the Defendant issued a notice dated 15.12.2016 and invoked the Arbitration Clause and nominated Mr. Mikhail Behl, Advocate as the sole arbitrator to resolve the dispute, that the Petitioner denied the allegations and rejected the invocation of arbitration or to the appointment of arbitrator, that the Defendant filed CMP No.62/2017 and accordingly, the Hon'ble High Court of Karnataka appointed the Sole Arbitrator, that the Defendant filed its Statement of Claim, that the Plaintiff filed an Application dated 27.11.2018 raising the preliminary issue that the Defendant's claim was barred by limitation, but the Arbitral Tribunal opined that the said application cannot be considered in the absence of pleadings with reerence to contractual terms, that thereafter the Plaintiff filed Statement of defence/Counter-claim along with an application to condone the delay, that after hearing both sides, the Arbitral Tribunal passed an Award on 03.07.2019 and allowed all of the claims of the Defendant.
4. The Defendant has filed objection statement on 12.02.2020 and prays to dismiss the application under Section 34 of the Arbitration & Conciliation Act, 1996.
7Com.A.S.No.151/2019
5. Being Aggrieved by the said Arbitral Award, the Plaintiff has challenged the same on the following grounds:-
(i) That the Impugned Award is patently illegal, arbitrary and has been passed without application of mind to either the evidence or the law.
(ii) The Impugned Award is based on mechanical and improper appreciation of the evidence before the Arbitral Tribunal.
(iii) The learned Arbitrator failed to consider the fact that the limitation commenced from either July 29,2009 or August 17, 2011 and therefore, limitation would have expired in 2012 or 2014 and the Arbitral Tribunal has held the Claim to be within the period of limitation and thus, committed illegality which goes to the root of the matter and therefore, the award ought to be set aside.
(iv) That the learned Arbitrator has wrongly relied on the Affidavit dated 15.03.2016 as the cause of action for the dispute , which is wholly erroneous, patently illegal and in contravention to numerous precedents.8
Com.A.S.No.151/2019
(v) That the learned Arbitrator erred in holding that the contract between th ep and Defendant was in the nature of a 'back-to-back' contract.
(vi) That the learned Arbitrator erred in finding that the tools have not been handed over to the Defendant by the Plaintiff.
(vii) That the learned Arbitrator erred in awarding loss of business and cost of consequent proceedings in favour of the Defendant.
(viii) That the learned Arbitrator erred in not considering the Application dated 27.11.2018 filed by the Plaintiff and not passing any reasoned orders on the same.
(ix) That the learned Arbitrator has not applied his mind to the reliefs sought by the Defendant and granted them as prayed for by the Defendant and hence the same is liable to be set aside.
6. I have heard the arguments of the learned Senior Advocate Sri. Dhyan Chinnappa on behalf of the Plaintiff. I 9 Com.A.S.No.151/2019 have heard the arguments of the learned Senior Advocate Sri. K.G. Raghavan on behalf of the Defendant.
7. Based on the above contentions of both parties, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of the Arbitration & Conciliation Act?
2. What Order?
8. My findings on the above points are as follows:-
Point No.1 :- In the Affirmative Point No.2 :- As per the final Order for the following reasons.
REASONS
9. Point No.1:- The Arbitration and Conciliation (Amendment) Act, 2015 made major changes to Section 34. The changes were suggested by the 246th Report of the Law Commission of India on Amendments to the Arbitration and Conciliation Act, 1996 of August 2014 and the Supplementary to the 246th Report of the Law Commission of India on Amendments to the Arbitration and Conciliation Act, 1996 of February 2015. These changes were aimed at restricting Courts from interfering with arbitral awards on the ground of "public policy." Accordingly, the amendment added 10 Com.A.S.No.151/2019 "Explanation 2" to Section 34(2) as well as Section 2A. Explanation 2 of Section 34(2) states:-
"For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute."
10. Thus, this Explanation significantly curtailed the scope of interpretation made in the decision reported in 2014 (9) - S.C.C. - 263 (ONGC vs. Western GECO International Limited). Because of this amendment, Courts would no longer be able to interfere with the award passed by the Arbitrator. The Explanation makes it especially clear that in no way would a Court be entailed to review the award on merits of the dispute. Similarly, Section 2A also curtails the scope of interpretation of "patently illegal" as propounded in the decision reported in 2003 (5) - S.C.C. - 705 ( ONGC vs. Saw Pipes Limited). Section 2A states:-
"An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence."
11. Thus, Courts can no longer reappraise evidence or set aside awards merely because the Arbitral Tribunal has made 11 Com.A.S.No.151/2019 errors when dealing with the same. In the decision reported in (2017) 13 - SCALE - 91 (SC) (Venture Global Engineering LLC and Ors vs. Tech Mahindra Ltd. and Ors), the Hon'ble Supreme court has held as follows:-
"The Award of an Arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the Arbitration & Conciliation Act and on no other ground. The Court cannot act as an Appellate Court to examine the legality of Award, nor it can examine the merits of claim by entering in factual arena like an Appellate Court."
12. A similar view is also taken in the decision reported in (2017) 14 - SCALE - 240 (SC) ( Sutlej Construction vs. The Union Territory of Chandigarh).
13. The ratio of the above-mentioned decisions show that the recent trend of interpretation of "public policy" has been one where the Courts have refused to examine the Arbitral Awards on merits, thereby upholding the legislative mandate of "minimal intervention of the Courts in the arbitral process"
as reflected by the changes brought by the Arbitration and Conciliation (Amendment) Act, 2015.
14. The learned Advocate for the Defendant has relied upon a decision reported in 2019 (15) - S.C.C. - 131 (Ssangyong Engineering & Construction Co. Ltd. vs. 12 Com.A.S.No.151/2019 National Highways Authority of India Ltd.) , wherein the Hon'ble Supreme Court has once again reiterated the law related to the examination by a Court of an Award under Section 34 of the Act and has held as under:-
"34. What is clear, therefore, is that the expression public policy of India, whether contained in Section 34 or in Section 48, would now mean the fundamental policy of Indian law as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the "Renusagar" understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders(supra), would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, in so far as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)
(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).
35. It is important to notice that the ground for interference in so far as it concerns "interest of India"
has since been deleted, and therefore, no longer obtains. Equally,the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral 13 Com.A.S.No.151/2019 awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders(supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and paragraphs 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under subsection (2A), added by the Amendment Act, 2015,to Section 34.Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within the fundamental policy of Indian law, namely, the contravention of a statute not linked to public policy or public interest,cannot be brought in by the back door when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that re- appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
14Com.A.S.No.151/2019
39. To elucidate, paragraph 42.1 of Associate Builders(supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
41. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being aground for challenge under public policy of India,would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not 15 Com.A.S.No.151/2019 based on evidence led by the parties, and therefore, would also have to be characterized as perverse."
15. I wish to refer a decision reported in 2019 (16) - SCALE - 823 (Hindustan Construction Company Limited & Anr. vs. Union of India & Ors.), wherein the Hon'ble Apex Court has held as under :-
"49. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC OnLine SC 1244 at paragraph 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for - see Associated Construction v. Pawanhans Helicopters Limited. (2008)16 SCC 128 at paragraph 17.
50. Also, as has been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. vs. NHAI 2019 SCC OnLine SC 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits."
16. Therefore, in view of the ratio of the said decisions, I now propose to consider the contentions of both parties. It is to be noted here that the Plaintiff is not satisfied with the Impugned Award and he has challenged the same in this case. His main grievance is that the Arbitral Tribunal has allowed time barred claims.
16Com.A.S.No.151/2019
17. During the period 2007 to 2009, the Defendant Company placed Purchase Orders in respect of some engineering items upon the Plaintiff. The Plaintiff there upon supplied the items from time to time, raised invoices aggregating to Rs.2,16,64,437/- upon the Defendant Company. The Defendant Company made payments to the extent of Rs.1,31,44,778/- up to July 2009. On 29.07.2009, the Defendant Company executed a writing acknowledging and undertaking to pay the balance amount of Rs.81,94,426/- then due and payable to the Plaintiff. The Undertaking provided for a payment schedule within which the Defendant Company agreed and undertook to payments to the Plaintiff. As there was no compliance, the Plaintiff issued a legal notice on 06.07.2010 and 12.10.2010 calling upon the Defendant Company to pay the amount of Rs. 85,40,220/- as undertaken by the Defendant Company. Despite receipt of the notices, the Defendant Company neither furnished any response nor paid the amount as demanded. On 20.04.2011, the Defendant Company addressed an E-mail promising to pay Rs.25 Lakhs and expressing the difficulties in payment of the balance. There was no dispute raised with regard to payments of the balance amounts in the said E-mail. An amount of Rs.25 Lakhs paid by the Defendant Company to the Plaintiff in the month of April 2011. On 25.03.2010 and 07.03.2011, the Defendant Company in response to balance confirmation letter, confirmed to the Plaintiff that an amount 17 Com.A.S.No.151/2019 of Rs.85,40,219.80 was receivable by the Plaintiff as on 28.02.2010 and 28.02.2011 respectively. As no further payments were forthcoming, the Plaintiff after adjustment of Rs.25 lakhs sent Statutory Notice under Section 434 of the Companies Act, 1956 to the Defendant demanding the payment of Rs.81,94,426/- The Defendant denied and replied to them and referred the Undertaking and Bond issued by the Defendant to the Plaintiff dated 29.07.2009 and denied the liability also on the ground that they made the payment of Rs.25 Lakhs towards full and final settlement against all claims.
18. However, as per the Judgment and Order dated 17.10.2012, the Hon'ble High Court of Bombay dismissed the Company Petition No.198/2012 filed by the Plaintiff against Defendant, for winding up of Defendant Company.
19. The Plaintiff has challenged the said Order in Appeal No.181/2013 before the Hon'ble High Court of Bombay. The said Appeal was allowed as per the Judgment dated 21.10.2013.
20. In the meanwhile, the Defendant has initiated an Arbitral Proceedings against Hindustan Aeronautics Ltd. (HAL). In the said proceedings an Award was passed on 29.07.2014 and the HAL was directed to pay a sum of 18 Com.A.S.No.151/2019 Rs.48,07,878/- to the Defendant after receiving the tools belonging to the HAL from the Defendant. Further, the HAL is directed to pay a sum of Rs.15,67,101/- and Rs.15,07,007.65 to the Defendant.
21. It is to be noted that the above-mentioned Order passed in Appeal No.181/2013 dated 21.10.2013 was challenged by the Defendant before the Hon'ble Supreme court of India in SLP No.36692/2013 and the same was dismissed on 27.01.2015. The Defendant again filed a Review Petition in No.2193/2015 before the Hon'ble Supreme court of India and the same was also dismissed on 12.08.2015. On 15.03.2016 an Affidavit was filed by the Defendant in Company Petition No.198/2012 before the Hon'ble High Court of Bombay.
22. On 21.11.2016 a Notice was issued by the Defendant to the Plaintiff. 05.12.2016 Reply Notice was issued by the Plaintiff to the Defendant by denying the contentions in the notice and contending that the same is a counter-blast for the above-mentioned Company Petition.
23. Thereafter on 15.12.2016 the Defendant issued an Arbitration Notice to the Plaintiff. On 29.12.2016 the Plaintiff issued a Reply to the said Notice wherein it is very specifically 19 Com.A.S.No.151/2019 contended that the purported claim of the Defendant, if any, is barred by limitation.
24. Thereafter on 25.10.2017 the Plaintiff has filed a Rejoinder Affidavit in Company Petition No. 198/2012 before the Hon'ble High Court of Bombay.
25. On 22.06.2018 the Hon'ble High Court of Karnataka has passed an Order in CMP No.62/2017, by appointing an Arbitrator. On 09.10.2018 the Defendant has filed the Statement of Claim before the learned Arbitrator.
26. On 28.11.2018 the Plaintiff has filed an application raising the issue of limitation as a Preliminary issue before the learned Arbitrator. The learned Arbitrator has sent an E- mail on the same day intimating that the said application is kept in abeyance, even without any objection from the Defendant Company. On 06.03.2019 the learned Arbitrator has eschewed the Counter-claim, since the Plaintiff has not paid the fees in respect of the Counter-claim. The Plaintiff has not challenged the same and hence, the same has attained finality.
27. Before the Arbitral Tribunal, the Defendant has made following claims:-
(i) For refund of the amount admittedly paid by the Defendant to the Plaintiff in respect of tools for 20 Com.A.S.No.151/2019 Rs.2,97,52,297/- along with interest at the rate of 18% per annum.
The Arbitral Tribunal has granted this relief to the Defendant.
(ii) For the loss suffered (cost of Arbitration) by the Defendant in initiating Arbitration Proceedings against HAL for Rs.15,57,691/- with interest at the rate of 18% per annum.
The Arbitral Tribunal has granted this relief to the Defendant.
(iii) For loss of business and opportunities suffered by the Defendant due to non-receipt of future orders from HAL for Rs.7,08,70,423/- with interest at the rate of 18% per annum.
The Arbitral Tribunal has granted this relief to the Defendant.
(iv) For Permanent Injunction restraining the Plaintiff from selling, disposing off or creating any third party rights in respect of the tools, designs, dies, moulds etc., without any modifications thereof.
The Arbitral Tribunal has not granted this relief. This is also not challenged in this Petition and hence, reached finality.
28. It is to be noted that at Para No.39 of the Award, the learned Arbitrator has mentioned that he has framed the 21 Com.A.S.No.151/2019 Issues. However, the said issues have not been mentioned in the Award.
29. At Para No.40 of the Award it is mentioned that the Issue of limitation is at Issue No.10 & 19. According to the learned Arbitrator, there is only bald denial by the Plaintiff about the contention of the Defendant at Para No.76 of the Claim Statement that at the Meeting between the parties held on 13.02.2016, for the first time, the Plaintiff revealed that the tools in questions were non-existent and expressed its inability on the part of the Plaintiff to be able to deliver the same. In fact, as already mentioned, the Plaintiff has filed an I.A. on 28.11.2018 before the learned Arbitrator raising the Preliminary Issue of limitation, to which the Arbitrator has sent an E-mail on the very same day stating that the said I.A. was kept in abeyance. Without noting the said aspect, he has mentioned that there is only a bald denial about the said aspect.
30. According to the contentions of the Plaintiff, the entire cause of action as per the pleadings of the Defendant arose in the year 2008-09, during which period, certain tools were not received despite paying the invoices raised by the Plaintiff. According to the Plaintiff, the claim ought to have been raised within three years from 2008-09. He has also contended that in order to bring the suit within limitation, 22 Com.A.S.No.151/2019 the Defendant has pleaded that in the Meeting held on 13.02.2016, the Plaintiff for the first time stated that they were not in possession of tools. The Plaintiff has categorically contended that the said statement is contrary to facts and as on 13.02.2016, the claim had already become time barred. Therefore, it is not a bald denial as observed by the learned Arbitrator and as per the Impugned Award, based on the said allegation, he has framed Issue No.10 & 19 pertaining to the limitation. Further, it is to be noted that the Plaintiff has filed a separate application for raising preliminary issue of limitation before the learned Arbitrator on 28.11.2018 and the learned Arbitrator as per his e-mail dated 28.11.2018, intimated that the said application is kept in abeyance and when such being the case, he should have considered the contentions taken by the Plaintiff in the said Application dated 28.11.2018 and if it is considered, the said contention cannot be taken as mere bald denial as held by the learned Arbitrator. Further, he has not at all considered the said separate Application along with the main matter.
31. The learned Senior Counsel for the Defendant has argued that the Arbitral Tribunal has rendered findings of fact on the issue of limitation after considering the documents on record which findings are not perverse and thus this court cannot interfere with those findings of fact under Section 34 of the Arbitration and Conciliation Act. He submits that the 23 Com.A.S.No.151/2019 issue of limitation is mixed question of fact and law and this court cannot re-appreciate the evidence considered by the arbitral tribunal and cannot interfere with the finding of fact.
32. Admittedly, the Defendant, who was the claimant before the Arbitral Tribunal, had issued a notice invoking the arbitration agreement on 15.12.2016. The Defendant/Claimant had claimed interest from 29.04.2011, as per Annexure A (Particulars of Claim), i.e. for the period prior to three years from the arbitration notice dated 15.12.2016. A perusal of the record indicates that there was no part payment made by the Plaintiff to the Defendant/Claimant from 29.04.2011 till the notice dated 15.12.2016 was issued by the Defendant/Claimant invoking the arbitration agreement or even thereafter. There was no acknowledgment of the liability on the part of the Plaintiff in favour of the Defendant.
33. When the notice invoking arbitration agreement is received, the arbitration proceedings commence on the date of receipt of such notice and the limitation stops on such date in view of Section 21 of the Arbitration Act. A claim can be sustainable only for the period of three years prior to the said notice. If it relates to previous period, then it is barred by time.
24Com.A.S.No.151/2019
34. I shall first deal with the issue about non-return of tools. According to the Plaintiff, the Purchase Orders were dated between 2007 to 2009, that the said Purchase Orders, it is mentioned the date of delivery as 15.03.2008, and hence the said claim is barred by limitation. According to the Defendant, the said Purchase Orders comprises of two components, goods and tools, that the Plaintiff retained the tools and that the tools have not been delivered and hence the Claim is within limitation.
35. There is no dispute that the Plaintiff has raised a specific ground of limitation as far as this claim is concerned before the Learned Arbitrator. If the claims are ex-facie barred by law of limitation and both the parties addressed the arguments before this Court on the issue of limitation, this Court can set aside, if the claims are ex-facie time barred.
36. The Learned Arbitrator has held that there is no time limit prescribed for return of the tools, and that when the Defendant/Claimant requested for release the tools as per E- mail dated 17.08.2011, the Plaintiff neither refuted nor claimed that the tools were not available with it, that for the first time, on 13.12.2016, when the meeting was held, the Plaintiff revealed about non-availability of tools and hence the Claim is not barred by time.
25Com.A.S.No.151/2019
37. In support of the said finding the Learned Arbitrator has relied on the decisions reported in A.I.R. - 1941- ALL- 28 (Ujagar Singh vs. Likha Singh), 1987 (3) - S.C.C. - 578 (Ganpat Ram Shrma vs. Gayatri Devi) and 1991 (4) - S.C.C. - 1 (State of Punjab vs. Gurudev Singh), which were relied on by the Defendant/Claimant before the Learned Arbitrator.
38. The Learned Advocate for the Plaintiff has drawn my attention to the above-mentioned decision reported in A.I.R.
- 1941- ALL- 28 (Ujagar Singh vs. Likha Singh), is related to a suit for pre-emption, that 1987 (3) - S.C.C. - 578 (Ganpat Ram Shrma vs. Gayatri Devi) is related to a case of eviction under Rent Control proceedings, and that 1991 (4) - S.C.C. - 1 (State of Punjab vs. Gurudev Singh) is related to a suit for declaration that order of dismissal from service of an employee was ultra virus, unconstitutional, against the principles of natural justice and oid and that he continues to be in service, and that none of them relates to non-return of tools and hence not applicable to the facts of the present case. On a careful scrutiny of the said decisions, the said arguments cannot be brushed aside.
39. There is no dispute that as far as this claim is concerned; the Purchase Orders were issued during 2007 to 26 Com.A.S.No.151/2019 2009. Rejection of the release/return of tools, if any, was soon after the E-mail dated 17.08.2011. It is to be noted that according to the findings of the Learned Arbitrator himself, when the Defendant has requested to release/return the tools as per E-mail dated 17.08.2011, the Plaintiff has not returned the said tools. Thereafter no correspondence between the parties for release/return of tools. However, there are litigations before the Hon'ble High Court of Bombay and Hon'ble Supreme Court of India as discussed above. Just because, a meeting held on 13.12.2016, whether it saves the limitation to prefer the said claim is to be considered . Admittedly there is no acknowledgement of liability by the Plaintiff. Admittedly, the claimant had issued a notice invoking the arbitration agreement on 15.12.2016. The claimant had claimed interest for the period prior to three years from the date of said notice. A perusal of the record indicates that there was no part payment made by the Plaintiff to the Defendant/Claimant after the said Email till the notice dated 15.12.2016 was issued by the Defendant/Claimant invoking the arbitration agreement or even thereafter. There was no acknowledgment of the liability on the part of the Plaintiff in favour of the Defendant/Claimant.
40. In my view, no specific rejection was required of any claim for the purpose of commencement of cause of action.
27Com.A.S.No.151/2019 The cause of action arises when the amount became first due and payable. A mere demand does not extend the period of limitation. The period of limitation can only be extended when the parties against whom the cause of action has arisen admit the liability and seek time to make payment or makes part payment, thereby admitting liability. The Hon'ble Supreme Court in the decision reported in A.I.R. - 1999 - S.C. - 1047 (Sampuran Singh and others vs. Smt. Niranjan Kaur and others) has held that the acknowledgement of liability, if any, has to be prior to the expiration of the prescribed period for filing a suit, in other words, if the limitation has already expired, it would not revive under Section 18 of the Limitation Act. It is only during subsistence of a period of limitation, if any, such document is executed, the limitation would be revived afresh from the date of acknowledgement. Hence, just because of the said Meeting, no cause of action arose on the said Meeting for the first time, as contended by the Claimant/Defendant.
41. The Learned Advocate for the Plaintiff has relied on a decision reported in (2008) 2 - S.C.C. - 444 (J.C.Budhraja vs. Chairman, Orissa Mining Corporation Ltd. and Another), wherein Hon'ble Supreme Court has held that even if the acknowledgement is made with reference to a liability, it cannot extend limitation for a time-barred liability 28 Com.A.S.No.151/2019 or a claim that was not made at the time of acknowledgement or some other liability relating to other transactions. It is held that even if the party says without admitting liability that it would like to examine the claim or the accounts, it may not amount to acknowledgement. Supreme Court has held that what can be acknowledged is a present subsisting liability. The Hon'ble Supreme Court in the decision reported in A.I.R. - 2009 - S.C. - 2210 (State Bank of India vs. M/s. B.S. Agricultural Industries) at Paragraphs 11 to 14 has held that if there was no acknowledgement of liability, limitation is not extended.
42. The finding rendered by the arbitral tribunal in respect of the said claim on the issue of limitation is totally perverse and contrary to law laid down by the Hon'ble Supreme Court above-referred in this judgment.
43. The Division Bench of Hon'ble Bombay High Court in the decision reported in 2008(1) - Bom.C.R. - 89 (Hindustan Petroleum Corporation Limited vs. Batliboi Environmental Engineers Ltd. & Anr) has held that the arbitral tribunal shall decide the dispute in accordance with the substantive law for the timebeing in force in India and if he ignores the substantive law in force in India and passes an award, it is bound to cause injustice and is liable to be set 29 Com.A.S.No.151/2019 aside. It is held that if the award is passed on a claim, which is clearly barred by the limitation, that will be against the provisions of law and the award cannot be sustained.
44. The Hon'ble Supreme Court in the decision reported in (2011) 3 - S.C.C. - 436 (Binod Bihari Singh vs. Union of India) has held that the bar of limitation may be considered even if such plea has not been specifically raised. Limitation Act is a statute of repose and bar of a cause of action in a court of law, which is otherwise lawful and valid, because of undesirable lapse of time as contained in the Limitation Act, has been made on a well accepted principle of jurisprudence and public policy.
45. The Hon'ble Supreme Court in the decision reported in A.I.R. - 2014 - S.C. - 746 (Basawaraj & Anr. vs. The Spl. Land Acquisition Officer) has held that the statute of limitation is founded on public policy, its aim being to secure peace in the community, to suppress fraud and perjury, to quicken diligence and to prevent oppression, and that it seeks to bury all acts of the past which have not been agitated unexplainably and have from lapse of time become stale.
46. In so far as the decision reported in 1988(2) - S.C.C. - 338 (Major (Retd) Inder Singh Rekhi vs. Delhi 30 Com.A.S.No.151/2019 Development Authority) relied upon by the Learned Senior Counsel for the Defendant/Claimant in the Additional List of Authorities dated 11.08.2020 is concerned, the Hon'ble Supreme Court in the said judgment it is held that when in a particular case the dispute has arisen or not has to be found out from the facts and circumstances of the said case. In the said Additional List of Authorities dated 11.08.2020, he has also relied on a decision reported in 2006 (4) - S.C.C. - 658 (Hari Shankar Singhania and ors. vs. Gaur Hari Singhania and ors). The said matter was decided under Section 20 of the Arbitration Act, 1940. In a family dispute, the parties were negotiating for settlement. In the facts of the said case, the Hon'ble Supreme court has held that the application for filing a suit under Section 20 of the Arbitration Act, 1940 was thus not barred by law of limitation. Therefore, the ratio of the said decision is not applicable to the present facts of the case.
47. In my view, the statute of limitation is founded on public policy. The Arbitral Tribunal cannot allow any the claim which is barred by law of limitation. Such award allowing any claim which is barred by law of limitation is patently illegal and in conflict with the public policy. In my view, since every finding of the Arbitral Tribunal on the issue of limitation is ex- facie perverse, patently illegal, contrary to the provisions of the Limitation Act and is contrary to the well settled 31 Com.A.S.No.151/2019 principles of law laid down by the Hon'ble Supreme Court, this Court has power to set aside such erroneous and patently illegal award under Section 34 of the Arbitration & Conciliation Act, 1996.
48. So far as the other Claims in respect of the Arbitration Proceedings held against M/s HAL is concerned, admittedly the present Plaintiff was not a party to the said Proceedings. The learned Advocate for the Plaintiff has argued that the said Claim is also barred by limitation and that no documents produced to prove that Rs.15,57,691/- was the cost of said Arbitration Proceedings before the Arbitral Tribunal. In the entire Award, there is no reference about the same and no reasonings are given to come to the conclusion about the said finding. Therefore, there are merits in the contention of the learned Advocate for the Plaintiff.
49. The other Claim in respect of loss of business opportunities suffered by the Claimant/Defendant on account of breach of contract by the Plaintiff is wholly depending upon the above-mentioned dispute about non-return of tools, with reference to above-mentioned Purchase Order. I have already discussed that the Claim in respect of the said Purchase Order is time barred. When such being the case, I need not prolong my discussion about the said aspect.
32Com.A.S.No.151/2019
50. The learned Advocate for the Plaintiff has also argued that there is no contract between the parties to award interest at 18% per annum. The learned Advocate for the Plaintiff has vehemently argued that the award of interest is contrary to Section 3(b) of the Interest Act. However, in view of my findings that the claim itself is barred by time, I need not discuss about the interest awarded on the said claim. Hence, in view of my above-mentioned discussions, observations and findings, I am of the opinion that the Impugned Award is contrary to public policy and patently illegal and hence, liable to be set aside. Therefore, I answer this Point in the "Affirmative".
51. Point No. 2: Therefore, I proceed to pass the following Order.
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is allowed.
Consequently, the Arbitral Award dated 03.07.2019 is set-aside.
The Defendant shall pay the Costs to the Plaintiff.
The Office is directed to send copy of this Judgment to Plaintiff and Defendant to their 33 Com.A.S.No.151/2019 email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Judgment Writer, typed by her directly on the computer, verified and pronounced in the open court on 6th day of April, 2021).
(DEVARAJA BHAT.M.), LXXXII Addl. City Civil & Sessions Judge, BENGALURU.
34
Com.A.S.No.151/2019
The Judgment is pronounced in
Open Court today. The operative
portion of the said judgment is as
follows:-
ORDER
The Petition filed
under Section 34 of the
Arbitration and
Conciliation Act, 1996, is
allowed.
Consequently, the
Arbitral Award dated
03.07.2019 is set-aside.
The Defendant shall
pay the Costs to the
Plaintiff.
The Office is directed
to send copy of this
Judgment to Plaintiff and
Defendant to their email
ID as required under
Order XX Rule 1 of the
Civil Procedure Code as
amended under Section
16 of the Commercial
Courts Act.
(Vide my separate detailed
Judgment dated 06.04.2021)
(Typed as per my dictation).
XXXII Addl. City Civil &
Sessions Judge,Bengaluru.
35
Com.A.S.No.151/2019