Delhi High Court
M/S Progressive Constructions Ltd vs National Hydroelectric Power ... on 30 July, 2009
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.APPL.92/2007
% Date of decision: 30th July, 2009
M/S PROGRESSIVE CONSTRUCTIONS LTD ....Petitioner
Through: Mr. Sanjay Jain, Sr Advocate with Mr
Gyanendra Kumar, Ms Ruchi Jain and
Mr Sarfaraz Ahmed, Advocates
Versus
NATIONAL HYDROELECTRIC POWER ... Respondent
CORPORATION LTD
Through: Mr Ajit Puddessery, Advocate
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? YES
2. To be referred to the reporter or not? YES
3. Whether the judgment should be reported
in the Digest? YES
RAJIV SAHAI ENDLAW, J.
1. Application under Section 11(6) of the Arbitration Act 1996 is preferred for appointment of an arbitrator to adjudicate the disputes and differences accrued between the parties with respect to the agreement dated 31st March, 1989/12th April, 1989. The respondent had, vide the said agreement, awarded to the petitioner work for construction of Power Channel Package at Tanakpur plant of the respondent in the State of Utter Pradesh. It is not in dispute that the scheduled date of completion of the said work was 4th April, 1990 and the actual date of completion of the work was 30th April, 1993. It is also not in dispute that the defect liability period was for a term of one year only and which expired on 30th April, 1994. A.A.92/2007 Page 1 of 13
2. The present application was filed on 19th March, 2007 i.e., after nearly 14 years from the actual date of completion and 13 years from the expiration of the defect liability period. The respondent has, in its reply, opposed the application inter alia on the ground that the claims now sought to be agitated are palpably barred by time.
3. It is the case of the petitioner that it had, after entering into the agreement dated 31st March, 1989/12th April, 1989 with the respondent, assigned the works thereunder to M/s Sharma and Associates Contractors Pvt Ltd (hereinafter referred to as "Sharma Associates") vide contract dated 18th April, 1989. The petitioner claims such assignment to be with the consent of the respondent. The respondent controverts the same. It is the case of the petitioner that, as per its agreement with M/s Sharma Associates, the said M/s Sharma Associates only were to deal with the respondent; that due to non-payment of bills and clearing of dues by the respondent, M/s Sharma Associates raised certain claims against the petitioner.
4. The senior counsel for the petitioner has, during the course of hearing, informed that M/s Sharma Associates had instituted a petition under Section 20 of the Arbitration Act, 1940 against the petitioner in or about the year 1994; at the time of institution of the said petition M/s Sharma Associates had impleaded the respondent herein also as a party thereto; however the respondent herein was dropped as a party to those proceedings in or about the year 1996; that the said petition of M/s Sharma Associates under Section 20 of the 1940 Act was allowed by a Single judge of this court on 17 th February, 2005; that the petitioner herein preferred an appeal being FAO(OS)159/2005 to the Division Bench of this court against the said A.A.92/2007 Page 2 of 13 order; that the Division Bench vide order dated 12th September, 2006 dismissed the said appeal. It is thereafter that the present petition as aforesaid came to be filed on 19th March, 2007.
5. Considerable emphasis is placed in the petition as well as by the senior counsel for the petitioner on the order dated 12 th September, 2006 (supra) in FAO(OS) 159/2005. It is recorded in the said order that the stand of the petitioner herein all throughout had been that without the respondent's participation in the arbitration proceedings, no effective award could be passed in favour of the petitioner or the said M/s Sharma Associates. In that context the Division Bench observed that since there was no subsisting contract between M/s Sharma Associates and the respondent herein, the respondent could not be impleaded as a party to the proceedings between the petitioner and M/s Sharma Associates ; however, liberty was given to the petitioner to file an appropriate application against the respondent herein raising their disputes in respect of the contract and it was further observed that if and when such a petition is filed, the same could be considered and disputes raised therein could also be referred to the same arbitrator who was being appointed to adjudicate the disputes between the petitioner and M/s Sharma Associates.
6. It was put to the senior counsel for the petitioner herein during the hearing that the respondent herein was not a party to FAO(OS) 159/2005 and could not thus be bound by any observation therein. The senior counsel for the petitioner agreed with the same but nevertheless cited the said order as showing the context in which the present petition has been filed. He further contended that in fact the A.A.92/2007 Page 3 of 13 petitioner after sub-contracting the works to M/s Sharma Associates had no knowledge whatsoever of the same and the contract of the petitioner with M/s Sharma Associates was back to back with the contract of the respondent with the petitioner and the claims, if any, of M/s Sharma Associates against the petitioner were in fact against the respondent and the petitioner would in the arbitration be making the same claims against the respondent as made by M/s Sharma Associates against it. It was further contended that the records of the respondent relating to the project were necessary also for the adjudication of the disputes between the petitioner and M/s Sharma Associates and which in spite of being referred to arbitration were held up. I had during the course of hearing also put to the parties that merely because the records of the respondent were necessary for adjudication of the lis between the petitioner and M/s Sharma Associates was no ground for allowing this petition and the records of the respondent, if any, required for that lis could be summoned in accordance with law from the respondent.
7. The senior counsel for the petitioner has at the outset contended that the plea of the respondent of the claims being barred by time was a plea which was not necessarily required to be adjudicated in a proceeding under Section 11(6) of the Act. Reliance is placed on National Insurance Company Ltd Vs Boghara Polyfab Private Ltd (2009) 1 SCC 267. It was contended that this court as the designate of the Chief Justice ought to in the exercise of its discretion not enter into the controversy of whether the claims were within time or not and such questions were best left to the arbitrator.
A.A.92/2007 Page 4 of 13
8. However, in view of the observations of the Supreme Court in para 24 of SBP and Company Vs Patel Engineering Ltd AIR 2006 SC 450 that dragging a party to an arbitration when there existed no arbitrable dispute can certainly affect the right of that party and even on monetary terms, impose on him a serious liability for meeting the expenses of the arbitration, even if it be preliminary expenses and his objection is upheld by the arbitral tribunal and further considering the long lapse of time from the completion of work, after which the present application has been filed, I am not inclined to blindly refuse to exercise the discretion of referring the dispute of the claims being barred by time also to the arbitrator. In my view, if on the basis of admitted facts, the court can come to the conclusion of the claims sought to be referred to the arbitrators being barred by limitation and/or whether the claims sought to be adjudicated is a dead one that is sought to be resurrected, the Chief Justice or his designate ought not to refer the parties to arbitration. It is only when the facts from which the aforesaid questions can be determined are disputed or when evidence may have to be recorded or detailed investigation required to be done with respect thereto, that the court would be justified in instead of returning a finding itself, exercise the discretion to refer the same also to arbitration. I thus proceed to determine whether the claims in the present case can be said to be long barred and dead or not.
9. The petitioner has in the petition not given any dates whatsoever as to what happened after the signing of the contract on 31st March, 1989/12th April, 1989. The petitioner has straightway referred to the notice dated 29th December, 2006 stated to have been given by the petitioner to the respondent asking the respondent to A.A.92/2007 Page 5 of 13 appoint the arbitrator in terms of the agreement. The senior counsel for the petitioner upon being quizzed in this respect invited the attention to annexure "B" filed alongwith its rejoinder. The same is a letter dated 11th April, 2005 of the respondent to the petitioner and which is as under:-
"Under Postal Certificate To, M/s Progressive Construction Ltd 18 Kotla Lane, Rouse Avenue New Delhi-110002 Sub: Construction of Power Channel (From RD 4032m to RD 5200m) Package-III.
(FINAL BILL) Ref: 1. Our letter No.NH/TP/PCW/W-40/2000/194 dated 25.02.2000.
2. letter No. NH/TP/PCW/W-40/05/194 dated 04.01.2001.
3. letter No. NH/TP/CE/PC/23187 dated 09.01.2001
4. letter No. NH/TP/Civil/2002/1349/ dated 18.09.2002.
5. letter No. NH/TP/Civil/2002/1644 dated 18.11.2002.
6. letter No. NH/TP/Civil/2002/364 dated 24.04.2003
7. letter No. NH/TP/CC/1518 dated 01.19.2004 D/Sir, Kindly refer our above-referred letters regarding final bill for the work of "Construction of Power Channel (From RD 4032m to RD 5200m) Package-III." Which were prepared long back but the same could not be settled on account of non-acceptance by you.
You are once again requested to depute your authorized representative within 15 days from the date of issue of this letter to this Project for accepting the final bill, failing which the final adjustment shall be made in our accounts.
This may kindly be treated as final notice."
10. The senior counsel for the petitioner contended that the notice dated 29th December, 2006 for appointment of the arbitrator was issued within three years from the aforesaid letter and thus it could not be said that the claims were barred by time. It was further argued that from the aforesaid letter it was clear that the final bill had not been prepared till then. It was thus contended that allclaims of the petitioner were alive.
A.A.92/2007 Page 6 of 13
11. Per contra the counsel for the respondent has drawn attention to clause 48 of the agreement set out in his reply and as per which the petitioner was required to submit the final bill within a week of the completion and the payment thereof was required to be made within three months/six months thereof and list of disputes with respect to the final bills were required to be submitted within 30 days of disallowance thereof; it is further provided therein that if the contractor failed to submit the list of disputed items within such 30 days his claims shall be deemed to have been fully waived and absolutely extinguished. The counsel for the respondent also relied upon clause 55.5 also providing that the notice of existence of disputes or differences in connection with the contract unless served within 30 days of expiry of defects liability period, all rights and claims under the contract shall be deemed to have been waived and thus forfeited and absolutely barred. It was thus contended that it being not the case of the petitioner that any such notice was given within the time agreed, the petitioner was now not entitled to raise any dispute. On inquiry as to whether such a clause would not be governed by Section 28 of the Contract Act, the counsel for the respondent contended that amendment to the contract Act came into force w.e.f. 8th January, 1997 and was not retrospective and the work in the present case having been completed much prior thereto i.e. on 30th April, 1993, Section 28 as prior to its amendment and as then interpreted by the courts shall apply. Reliance is placed on M/s Shakti Tubes Ltd Vs State of Bihar 2009 (9) SCALE 270 laying down that an Act should always be regarded as prospective in nature unless the legislature has clearly intended it to have retrospective effect.
A.A.92/2007 Page 7 of 13
12. The senior counsel for the petitioner in response to the aforesaid submission relied upon the recent pronouncement dated 26th May, 2009 of the Division bench of this court in M/s Chander Kant & Co. Vs The Vice Chairman, DDA Arbitration Petition No. 246/2005. He also contended that the limitation for filing application for appointment of the arbitrator under Article 137 of the Limitation Act is 3 years from the date the disputes have arisen; it was further contended that mere silence is no good. Reliance in this regard was placed on Major Inder Singh Rekhi Vs DDA (1988) 2 SCC 338 and which was countered by the counsel for the respondent with Union of India Vs M/s L.K. Ahuja & Co. (1988) 3 SCC 76.
13. I will first deal with the aspect of Section 28 of the Contract Act. A Single Judge of this court in Continental Construction Ltd Vs Food Corporation of India AIR 2003 Delhi 32 has held the same to be not retrospective. This judgment was cited before the Division Bench in M/s Chander Kant (supra). The Division Bench did not differ with the view taken by the Single Judge but in the facts of that case held that though the contract had been entered into before the amendment of Section 28 but right from the preparation of the final bill everything had happened after the amended provisions came into play and thus held that the amended provisions would apply.
14. I also find that a Single Judge of the Bombay High Court in UOI Though Textile Commissioner Vs Bhagwati Cottons Ltd MANU/MH/0247/2008 and a Division Bench of Madras High Court in Oriental insurance Company Ltd Vs Karur Vysya Bank Ltd AIR A.A.92/2007 Page 8 of 13 2001 Mad 489 have also held the amendment w.e.f. 8th January, 1997 to Section 28 of the Contract Act being not retrospective.
15. The senior counsel faced with the aforesaid situation laid heavy reliance on the expression "the final bill was released only in 2002....." in para 13 of the judgment of the Division Bench of this court in M/s Chander Kant (supra). It was contended that since the final bill had not been released as yet in the present case, amended Section 28 would apply. However, in my view, the use of a particular word in a judgment cannot be cited, when that was not the subject matter of adjudication.
16. In the present case, the works were completed more than three years prior to the coming into force of the amendment and it cannot be argued that merely because the petitioner owing to reasons alleged did not approach the respondent, the petitioner could come within the ambit of the amended law. It is not in dispute and is also borne out from the judgment of the Division Bench of Chander Kant (supra) that prior to the amendment of the Section 28, the same as interpreted by the courts, extinguished the right of the petitioner to raise a dispute upon the same being not submitted within the time of 30 days etc, as prescribed in the agreement.
17. The senior counsel for the petitioner faced with this contended that it would have extinguished only the right of arbitration not the right to press the claim in a suit. Though I have in Biba Sethi Vs Dyna Securities Ltd OMP 63/2007 decided on 17.03.2009 differed with the said proposition but that is not relevant for the present A.A.92/2007 Page 9 of 13 purposes, more so, when the suit has admittedly not been instituted and long time has expired since then.
18. The senior counsel for the petitioner also contended that since the petitioner had sub-contracted the works with the consent of the respondent, the petitioner could not be expected to raise the disputes within 30 days. Without entering into the controversy whether the respondent had consented to such sub-contracting of works by the petitioner or not, in my view such risks are inherent in sub-contracting and merely because the petitioner had sub- contracted the work would not make any special law applicable for the petitioner.
19. Having held that the petitioner was at the contemporaneous time governed by Section 28 of the Contract Act as prior to its amendment, it follows that under the clauses aforesaid of the contract, the claim, if any, of the petitioner for any items to which it was entitled under the final bill and which was disallowed by the respondent stood extinguished and waived and similarly upon the failure of the petitioner to give a notice within 30 days of the expiry of the defect liability period, all rights, claims of the petitioner under the contract stood waived and forfeited and absolutely barred.
20. Coming to the letter dated 11th April, 2005 set out hereinabove and on which much emphasis was placed by the senior counsel for the petitioner, in my view, the same also does not advance the case of the petitioner. The senior counsel for the petitioner has contended that the reference of the earlier letters of the respondent from the 25th February, 2000 to 1st September, 2004 is made in the said letter. It was contended that with these periodical letters the A.A.92/2007 Page 10 of 13 limitation would be extended. Per contra, the counsel for the respondent contended that the works were completed on 30th April, 1993 and there is no reference whatsoever to any letter from that date till 25th February, 2000. It was stated that acknowledgment of liability has to be within every three years.
21. In my view, the said letter also does not come to the rescue of the petitioner. The letter clearly states that the final bill was prepared long back but could not be settled on account of non- acceptance by the petitioner. From the said letter it transpires that the dispute had arisen on non-acceptance of the final bill by the petitioner. As aforesaid, upon such non-acceptance, the petitioner was to within 30 days make its claims. There is no averment that any such claim was made. All that the aforesaid letter does is to call upon the petitioner to accept the final bill. The counsel for the respondent contended that the respondent, being a public sector undertaking, since monies as per the final bills prepared by the respondent were payable to the petitioner and were standing in the books of accounts of the respondent, repeated letters were being written. It was fairly conceded that the respondent even now was ready to release the payment due under the final bill as computed by the respondent. In my view, the limitation which would be extended by issuance of letter dated 11th April, 2005 is only for the petitioner to make a claim for the amount of the final bill due according to the respondent. The petitioner would be entitled to have an arbitrator appointed only if the said payments were being disputed by the respondent. However, as aforesaid, the respondent is not disputing the said payment and is ready to release the same to the petitioner. A.A.92/2007 Page 11 of 13
22. As far as the plea of the petitioner on the basis of Inder Singh Rekhi (supra) is concerned, Article 18 to the Schedule of the Limitation Act prescribes the Limitation of three years commencing from the date when the work is done, for the price of work done, where no time has been fixed for payment. In the present case the time of 30 days from completion of work was fixed for the petitioner to submit the final bill and the time of three months thereafter was fixed for the respondent to make the payment. The said period of four months from the date of completion i.e. 30th April, 1993 would expire in end of August, 1993 and the claims could have been made only within 3 years thereafter i.e. till the end of August, 1996. The claims have been made long thereafter. As aforesaid, the notice for appointment of arbitrator was given only on 29th December, 2006. The claims, if any, of the petitioner as on that day were not within limitation. Reliance in this regard can be placed on J.C. Budhiraja Vs Orissa Mining Corporation Ltd (2008) 2 SCC 444. Besides the claims having stood forfeited, abandoned and waived under Section 28 as prior to its amendment, the claims are even otherwise barred by time. Moreover Inder Singh Rekhi (supra) which is on an interpretation of Section 20 of the 1940 Act also makes a distinction between the Limitation for making the claims and the limitation for preferring the petition for appointment of arbitration. In the present case the Supreme Court having held that the appointment of arbitrator shall not be made when the claim is palpably barred by time, or when a dead claim is sought to be resurrected, even if it were to be held that the petition under Section 11(6) has been made within three years from failure to appoint the arbitrator, the same will still not succeed if the claim is sought to be agitated are barred by time.
A.A.92/2007 Page 12 of 13
23. The observations made by the Division Bench of this court in FAO(OS)159/2005 (supra) also do not come to the rescue of the petitioner and would not validate the claims of the petitioner against the respondent if otherwise invalid and barred by law. The respondent has also contested the petition on the ground of being not maintainable for the reason of the petitioner having illegally sub- contracted the work. However, in view of the findings above, it is not deemed appropriate to deal with this aspect which, in any case, is highly contentious. Accordingly, the petition is dismissed with costs of Rs 35,000/- on the petitioner.
RAJIV SAHAI ENDLAW (JUDGE) July 30, 2009 M A.A.92/2007 Page 13 of 13