Delhi High Court
Natwarlal Shamaldas & Co. vs Minerals & Metals Trading Corporation ... on 10 May, 2002
Equivalent citations: 2002VAD(DELHI)229, 2002(64)DRJ354
Author: Vikramajit Sen
Bench: Dalveer Bhandari, Vikramajit Sen
JUDGMENT Vikramajit Sen, J.
1. Common questions of facts and law arise in these five appeals. Hence we shall dispose them off by this judgment. The parties had entered into five separate 'Manganese Ore Purchase Contracts' between 15.2.1966 and 3.4.1967, for an aggregate of 1,25,000 metric tonnes. The supply by the respondent/Claimants was on F.O.B. Indian port basis. The appellant/Minerals & Metals Trading Corporation of India Limited (hereinafter referred to as 'the MMTC') was obliged to nominate the vessel for shipment to the actual purchaser after each consignment had been brought to the port by the Claimant/M/s. Natwarlal Shamaldas & Co. A Declaration of load readiness was to be granted by the MMTC for each consignment once it was so brought for export. The Claimants allegation is that due to the defaults and delay of the MMTC, the Claimants incurred damages on account of financial borrowings and interest thereon; and on account of expenses towards custody, watch and ward, and storage of these goods at the port of shipment; and on account of 'Loss of Profits'. The financial arrangement was that MMTC would make advance 'on account' payments to the extent of 95 per cent of the 'ex plot' value of the goods; Some of the relevant Clauses of the said agreement read thus-
"4. DELIVERY SCHEDULE:
a) All lots spread over from February 1966 to March, 1967 Lot-I in two to three parcels: Lot II & III in one or more parcels and Lot-IV in two parcels of 10,000 tons each as per Buyers' shipping schedule which will be communicated to the Sellers' well in advance.
b) The Buyers have the option to extend the delivery period for any reason whatsoever without any liability on that account.
c) The loading rate guaranteed by the Sellers at Bombay is 700 tons; at Vizag 1000 tons; at Goa 1500 tons during fair weather and 1000 tons in monsoon and at Madras 800 tons per WWDGMEX. dispatch/Demurrage based on this loading rate and in accordance with the Buyers, charter party terms with their foreign Buyers shall be to Sellers account.
.....
8. PAYMENT:
By cheque or by a local L/C for 95% of the FOBT/FOBL value of the Ore calculated on the basis of the price stipulated in Clause 3 of the contract and on weight, sampling, analysis and moisture determined at the time of shipment against presentation of the following documents:
1. Full set of clean on board Bills of lading made out to order of MMTC as shippers.
2. Provisional commercial invoice, in triplicate, based on provisional sampling assay results and on dry weight.
3. Certificate, in triplicate, of sampling, assaying and moisture determined at the port of shipment showing the material to conform to the contracted quantity.
4. Port Trust Weight Certificate, in triplicate, issued by the Port Authorities at the port of shipment; in case of shipments from Goa and Coondapur the Certificate of draft survey in triplicate will be furnished.
5. Certificate of origin.
Balance, if any, will be paid and adjusted on the basis of outturn weight, sampling, analysis and moisture determined at the port of discharge.
In case Sellers desire payment by local L/C the charges for opening, operating and extending the local L/C will be to the Sellers' account. The L/C opening charges will be reimbursed by the Sellers to the Buyers' Bank at the time of handing over the L/C to them.
In case any sum of money is due from and payable by the Sellers to the Buyers in respect of this or any other contract with the Buyers the same may be recovered by the Buyers, from monies that may be due to the Sellers or which may at any time become due to the Sellers, under this or any other contract with the Buyers.
.....
CLAUSE (9) EXECUTION OF CONTRACT
a) Sellers shall perform the contract satisfactorily in all respects.
b) If the Sellers fail to deliver Maganese Ore in terms of delivery period stipulated in Clause 4 above and such failure is not consequential to any lack of performance on part of the Buyers, the Sellers shall pay to the Buyers a penalty of 2% (two per cent) on the basis of the price stipulated in Clause 3 above calculated on the defaulted tonnage under the contract; such penalty payable by the Sellers to the Buyers in principal within one month of the expiry of the stipulated delivery period. In case of failure on the part of the Sellers to pay the penalty within the stipulated period of one month interest at the rate of 9% (nine percent) per annum will be payable by them for any period of default beyond the above referred one month.
c) If the Sellers complete delivery of the Ore in terms of this contract to the satisfaction of the Buyers, the Buyers agree to pay a bonus of 2% (two percent) of the price stipulated in Clause (3) above.
d) If the delivery of the Ore is not completed in terms of Clause (4) above and the delivery period is extended at the request of the Sellers without prejudice to the rights of the Buyers, the quantities delivered during such extended period shall not be taken into account for entitlement of 2% (two percent) bonus stipulated in Sub-clause (c) above. In case of any dispute in regard to the imposition of the penalty and/or payment of bonus in terms of Clause (b) and (c) above, the decision of the Chairman, MMTC shall be final and binding.
e) The Sellers' duty will be accepted as performed only when the goods have been delivered on the ship. No property or risk will be deemed to have passed to the Buyers at any earlier stage before, such delivery.
f) In the event of any consignment or consignments under this contract falling below the contractual specifications, the Buyers may (i) reject the consignment and cancel the contract for the balance quantity outstanding for delivery including the subject consignment(s) without prejudice to their right under the contract or (ii) accept such consignment(s) at a reduced negotiated price without prejudice to their right under Sub-clause (i) above, or (iii) accept such consignment(s) at such reduced negotiated price and deem the contract to have been performed to such extent, or (iv) cover such consignment(s) by a separate purchase contract at a negotiated price without prejudice to their right under the contract.
.....
CLAUSE (11) ARBITRATION CLAUSE All matters, questions, disputes, differences and/or claims arising out of and/or concerning and/or touching and/or in connection with and/or in consequences of and/or relating to this agreement whether or not the obligation of either or both parties under this agreement be subsisting at the time of such dispute and whether or not this Agreement has been terminated or purported to be terminated or completed, except specifically provided under this contract, shall be decided under the provisions of the Indian Arbitration Act, 1940 with all statutory amendments. Cost of arbitration be borne by the losing party".
2. The following Table contains some of the relevant details of all five contracts; the Arbitrator has maintained the same No. as the Section 20 petition for the Awards passed by him.
---------------- --------------- --------------- ---------------
No. of Contract No. of Section No. of Petition Appeal No.
20 petition Decreeing Award
---------------- --------------- --------------- ---------------
Contract No. 6/66 S. No. 629-A/75 S. No. 814-A/78 FAO(OS) 114/81
Contract No. 25/67 S. No. 632-A/75 S. No. 812-A/78 FAO(OS) 115/81
Contract No. 58/67 S. No. 630-A/75 S. No. 813-A/78 FAO(OS) 117/81
Contract No. 59/67 S. No. 631-A/75 S. No. 811-A/78 FAO(OS) 93/81
Contract No. 63/97 S. No. 633-A/75 S. No. 810-A/78 FAO(OS) 116/81
3. Contract No. 6/66 had been fully performed when the last shipment was made in June 1971; Contract No. 25/67 had been fully performed when the last shipment was made in August 1968; Contract No. 58/67 had been fully performed when the last shipment was made in October 1970; Contract No. 59/67 had been fully performed when the last shipment was made in July 1970; and Contract No. 63/67 had been fully performed when the last shipment was made in July 1970. These dates have been culled out from the Annexures of the Claimants letter dated 11.5.1972 addressed to the MMTC and cannot therefore be disputed by the former. There also appears to be no dispute on the question of the payment by MMTC of the consignment cost to the extent of 95%. Since delays in export had been occasioned due to a world recession, MMTC had rightly waived its claims for payment of interest.
4. It has been pointed out by Mr. C.M. Oberoi, learned counsel for the Appellant/MMTC that the claim for alleged 'Loss of Profits was for the first time raised in Suit No. 629-A/1975 (pertaining to Contract No. 6/1966), S. No. 630-A/1975 (pertaining to Contract No. 58/67) and S. No. 633-A/1975 (pertaining to Contract No. 63/67). This claim for 'Loss of Profit' was raised for the first time before the Arbitrator in S. No. 631-A/1975 (pertaining to Contract No. 59/67) No claim for 'Loss of Profits was raised in S. No. 632-A/1975 or before the Arbitrator (pertaining to Contract No. 25/67. It is also evident that the Claimants had raised claims on account of 'Watch & Ward' and 'Interest' for the first time in its letter dated May 11, 1972, aggregating to Rs. 12,64,020.19. Annexures 'A' and 'B' thereto are tell-tale against the Claimants. Perusal of these Annexures discloses that the claims for Rs. 6,59,024 under the head of 'Watch & Ward and Plot Charges' and Rs. 6,04,996.19 on account of 'Interest' were lodged for the periods ending on 5.6.1971, 26.6.1968, 20.10.1970, 12.7.1970 and 12.7.1970 for each of the five contracts respectively although their performance had been completed earlier, viz. June 1971, August 1968, October 1970, July 1970 and July 1970. The delay in raising these demands clearly indicates that these Claims were afterthoughts, and thus is poignantly evident in the cases of the Claims for 'Loss of Profits'. These Claims (excluding 'Loss of Profits') were further revised and increased to Rs. 17,17,599.05 by the Claimants letter dated 23.10.1972. Thereafter, apart from sending several reminders, all of which had no effect and failed to elicit any response from the MMTC, a Legal Notice was issued as late as on 17.5.1975 seeking the appointment of an Arbitrator.
5. As indicated above already, in respect of each of the five 'Manganese Ore Purchase Contracts' petitions under Section 20 of the Arbitration Act, 1940 were filed in August, 1975 and were registered as Suits Nos. 629-A/1975 to Suit Nos. 633-A/1975. In its Reply, the MMTC denied that there was any delay as alleged and that they were not liable to pay the amounts as claimed. These petitions were disposed off by Hon'ble Mr. Justice Pritam Singh Safeer in the following terms:
"The applications have been made for appointment of Arbitrator who may settle the disputes which are the subject matter of controversy between the parties. The learned Arbitrator will have the authority to decide whether disputes raised are covered by the concerned contract or not. Shri G.R. Chopra, Advocate of this Court is hereby appointed as an Arbitrator in all these cases".
6. It was in these circumstances that the Arbitrator made and published five separate Award which are essentially similar in working and effect. A total of Rs. 24,84,790.61 against these five claims was granted in respect of Claims that started at Rs. 112,64,020.19 and finally rested before the Arbitrator at Rs. 33,10,676.45. Reproduced below is one such Award:
"In the matter of Arbitration Proceedings Between M/s. Natwar Lal Shamal Dass & Co.
Versus The Minerals and the Metals Trading Corporation of India.
And In the matter of Suit No. 629A/75 pending in the Hon'ble High Court.
AWARD That the Hon'ble Delhi High Court, Delhi appointed the undersigned as the Arbitrator vide the order of Hon'ble Mr. Justice Pritam Singh Safeer dated 12.8.1977 communicated to the undersigned by the Registrar of the Delhi High Court, Delhi in his letter No. 11545-II dated 22.8.1977 along with the copy of the order. The parties with their learned counsel appeared before the undersigned on the 3rd of September, 1977, at C-82, Neeti Bagh, New Delhi, in terms of the order of Hon'ble Mr. Justice Pritam Singh Safeer.
2. That the arbitration proceedings could not be concluded and the parties applied to the Hon'ble High Court for the extension of another four months and the Hon'ble High Court vide the order of Hon'ble Mr. Justice M.S. Joshi dated 30th of March, 1978, was pleased to extend the time for the making of the award by four months with effect from 30th of March, 1978. Both the orders communicated to the undersigned are filed along with the pleadings, depositions and documents for the reference of the Hon'ble High Court. The claimant-Company, M/s. Natwar Lal Shamal Dass & Co., filed their Statement of Claim along with the copies of the pleadings in Suit No. 629A of 1975. The respondent, The Minerals & Metals Trading Corporation of India through Mr. C.M. Oberoi, Advocate, filed the reply to the claim-statement. The Claimant-Company further filed the replication to the reply filed by M/s. Minerals & Metals Trading Corporation of India. Thus, the exchange of pleadings was complete before me on the 3rd December. On the same date, the learned counsels for the parties made the statement before me that the arbitration proceedings should be continued and that the necessary steps may be taken for the enlargement of time from the Hon'ble Court for the making of the award. The evidence commenced on 31.3.1978 and was concluded on 15.5.1978. The learned counsel for the Minerals & Metal Trading Corporation of India made a statement on 15.5.1978 that he does not wish to produce any oral evidence and that the documentary evidence filed on the record be read as the evidence. The case was argued on the 18th, 19th, 20th and 21st of May, 1978, for about three hours each day.
3. That the Claimant-Company has claimed Rs. 8,13,973.74 np. I have carefully considered the various items of the claim, written statements and the rejoinder and the evidence led by the Claimant-Company. The Respondent has not produced any oral evidence. They have relied on the documentary evidence filed by them as well as the evidence filed by the Claimant-Company. I have heard the arguments from both the sides on the questions of law as well as the tenability of the claim. I am clearly of the opinion that the claimant-Company is entitled to Rs. 6,66,926.13 np and I award the same in favor of the claimant-Company. The parties will bear their own costs.
Announced.
Sd/-
Delhi. ARBITRAtor Dated: 15th June, 1978."
7. Even a quick perusal of the Awards will make it manifestly clear that they contain detailed annals of the disputes till the pronouncement of the Awards. This history could have been avoided and instead the Arbitrator could have atleast recorded the issues and arguments that had been raised before him. The Arbitrator should have indicated his thought process on them, even if merely in outline and precis. He has given a lumpsum award, instead of mentioning the amounts against each category. In effect, there are no indications whatsoever as to how and why he arrived at his conclusions. It renders it virtually impossible for the Court to sustain his findings; keeping in perspective the settled legal position that the Court must adjure an appellate investigation into the Award. While an Arbitrator is not expected to write a legal judgment, he cannot emasculate judicial conscience by drafting an Award which is devoid of all detail. It is therefore a welcome change that the Arbitration and Conciliation Act, 1996, now proscribes 'non-reasoned' Awards.
8. As is to be expected, all the five Awards came up for the consideration, if not scrutiny, of this Court. The MMTC filed objections against each of the Awards and vigourously opposed their receiving the Court's imprimatur by the passing of a decree in their terms. The Objections were disposed of by a common judgment passed by Hon'ble Avadh Behari, . All of them, except for one, were made Rule of the Court. The parties have assailed this Judgment before us.
FAO(OS) 93 of 1981 (Arising out of S.No. 631-A/75 and S.No. 811-A/78)
9. FAO (OS) 93/81 has been filed by the Claimant. This is for the reason that the Learned Single Judge had set aside the Award dated 15.6.1678 made by the Arbitrator for the sum of Rs. 7,75,046.15. The objections filed by the MMTC had been accepted. In the opinion of the Learned Single Judge the Arbitrator had traversed beyond the parameters of the Reference in allowing the claim for 'Loss of Profit' since the subject matter of the arbitral adjudication was the two items of claim mentioned in the application under Section 20 of the Arbitration Act. As has been observed by the Learned Single Judge, in the Section 20 petition the Claimants had made a claim for a sum of Rs.3,73,367.30. However, in their Statement of Claim before the Arbitrator they had claimed a sum of Rs.10,70,587.30 and the Arbitrator had awarded Rs.7,75,046.15. The Learned Single Judge had correctly observed that the sum of Rs.3.50 lakhs on account of 'Loss of Profit' had been raised before the Arbitrator for the first time and he had no power to entertain this additional claim. As in the other four cases, earlier the claim was restricted to (i) watch and ward and (ii) interest. The Learned Single Judge relied on the decision of the Hon'ble Supreme Court in Orissa Mining Corporation Ltd. v. P.V. Rawlley, , in arriving at the conclusion that the Arbitrator had exceeded his jurisdiction. He found the existence of an error apparent on the face of the Award inasmuch as the Arbitrator had no jurisdiction to go beyond the scope of the Reference. The Learned Single Judge also perceived no merit in the argument put forward on behalf of the Claimants that even if this objection had not been raised before the Arbitrator it should not be entertained by the Learned Single Judge. He opined that there cannot be any acquiescence in arbitral proceedings. In his opinion since the disputes had been referred by the Court pursuant to petitions under Section 20 of the Arbitration Act, 1940 the Arbitrator was not empowered to travel beyond the Reference. The Award was set aside. FAO (OS) 93/81 has been filed by the Claimant against this part of the judgment.
10. We are entirely in agreement with the conclusions of the Learned Single Judge. The Arbitrator has exceeded the jurisdiction enjoyed by him having travelled beyond the terms of the Reference forwarded to him by the Hon'ble P.S. Safeer, J. We are unable to agree with the interpretation given to the Arbitration Clause by learned counsel for the Claimant as including any claim which may have been raised before the Arbitrator even though it has not been mentioned in the petition under Section 20 of the Arbitration Act. This is all the more so since there is no uniformity in the claims raised on account of 'Loss of Profits' and that these were not included initially. It is not uncommon for the Court to grant leave to either party to raise additional claims before the Arbitrator. If this liberty is not reserved it will preclude the raising of any claims which have not been mentioned in the petition itself or in the Court's order of Reference. This is in addition to the grounds on which we have found the other four Awards to be unsustainable, inter alia, that the claims were barred on the principles of limitation and were contrary to the terms of the contract between the parties. FAO (OS) 93/81 is dismissed with costs quantified at Rs. 5000/-.
FAO(OS) 115 of 1981 (Arising out of Contract No. 25/67 in S.No. 632A/75 & S.No. 812-A/78)
11. In this case also no claim has been made under the head of 'Loss of Profit'. The following Table will illustrate the claims and the Award passed on them:
--------------------------------------------------------------------------------
Head of Claims Claim under Claim before
Section 20 Arbitrator
--------------------------------------------------------------------------------
a) Interest 81,989.00 81,989.00
b) Watch & Ward & Plot Charges 64,390.00 64,390.00
c) Sharing Scheme 16,600.28 16,600.28
--------------
1,62,979.28
Addl. claim of
Interest on the
foregoing amounts 91,680.00
------------- --------------
1,62,979.28 2,54,669.28
------------- --------------
Awarded Amount 1,19,460.68
--------------
--------------
12. The Learned Single Judge had observed that there was "no dispute between the parties because the claim in that case in Section 20 petition was for Rs.1,62,979.28. Before the Arbitrator the claim was for Rs. 2,54,659.28. But the Award of the Arbitrator was only for Rs.1,19,406.68. This shows that he awarded much less than what the Claimant had claimed in his petition under Section 20 of the Arbitration Act". the Learned Single Judge, therefore, upheld the Award. From a perusal of the foregoing Table it will be at once clear that the difference between the sums claimed in the Section 20 petition and those preferred before the Arbitrator was only in respect of interest on the claimed amount. It has now been clarified by the Hon'ble Supreme Court that the Arbitrator could have awarded interest on the amounts claimed. Hence there was no error apparent on the face of the Award and the Learned Single Judge may have been correct in upholding the Award. However, since there is no discussion whatsoever on the vital question of whether the claim under Section 20, as well as before the Arbitrator was not barred/excluded by the terms of the contract, and also because the claims were beyond the period of prescription, the Award cannot be sustained. These points have been dealt by us later. We accordingly set aside the Award and allow this appeal.
FAO(OS) 114/1981, 116/1981 & 117/1981 (Arising out of S.No. 629A/75 & S.No. 814-A/78, S.No.633-A/75 & S.No. 810-A/78, S.No. 630-A/75 & S.No. 813-A078 respectively)
13. A perusal of the Table given below will adumbrate the three remaining claims:
Claims in FAO 114/1981--------------------------------------------------------------------------------
Head of Claims Claim under Claim before
Section 20 Arbitrator
--------------------------------------------------------------------------------
a) Interest 1,49,307.46 1,49,307.46
b) Watch & Ward & Plot Charges 2,35,203.00 2,35,203.00
c) Deposit Refund 15,000.00 15,000.00
d) Performance bonus 2,727.00 2,727.00
e) Refund of amt. of 13,404.00 13,404.00
sharing formula
f) dispatch money earned 8,332.28 8,332.28
g) Loss of Profit 1,26,000.00 1,26,000.00
---------------
5,49,973.74
Int. on the above amt. 2,64,000.00
-------------- ---------------
Total 5,49,973.74 8,13,973.74
-------------- ---------------
Amount Awarded 6,66,926.13
---------------
---------------
Claims in FAO 116/1981
a) Interest 88,349.18 88,349.18
b) Watch & Ward & Plot Charges 1,16,751.00 1,16,751.00
c) Loss of profit 2,08.000.00 2,08.000.00
---------------
4,13,100.18
Int. on above amount 1,97,893.00
-------------- ---------------
4,13,100.18 6,10,993.18
-------------- ---------------
Amount Awarded 4,79,000.75
---------------
---------------
Claims in FAO 117/1981
a) Interest 87,438.25 87,438.25
b) Watch & Ward & Plot Charges 67,225.00 67,225.00
c) Loss of profit 2,32,000.00 2,32,000.00
---------------
Int. on the above amt. 1,83,600.00
-------------- ---------------
3,86,663.25 5,70,263.25
-------------- ---------------
Amount Awarded 4,41,356.90
---------------
---------------
14. In the Reply/Counter Statement on behalf of the MMTC before the Arbitrator, the very first preliminary submission was to the effect that the Claims preferred by the Claimant are ex facie barred by time and as such are liable to be rejected. At the threshold, Mr. Oberoi has reiterated that the disputes had become time-barred and ought to have been rejected on this short ground. It is his contention that the disputes are bound to be rejected regardless of whether any objection to this effect had been raised. It should be kept in perspective that Section 3(1) of the Limitation Act, 1963 enunciates that every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defense. The contention on behalf of MMTC is that the last date on which the performance of each of the five contracts had been completed was June 1971, August 1968, October 1970, July 1970, and July, 1970, as would be evident from a study of the Claimants Letter dated 11.5.1972. The claims would stand extinguished on the expiry of three years from these dates.
15. It has been contended by Mr. Sharma, learned counsel appearing for the Claimants, that since the Legal Notice for appointment of the Arbitrator was issued on 17.5.1975, the cause of action in filing the petition had arisen on that date. It is his submission that the petitions under Section 20 having been filed in August 1975, that is within three years from May, 1975, were clearly within time. Reliance has been placed on the decision of a Single Judge of this Court in M/s. Oriental Building & Furnishing Co. Ltd., New Delhi v. Union of India, AIR 1981 DELHI 293. A reading of this judgment would disclose that the Learned Judge had decided the conundrum largely on first principles. He was correct in stating that "the starting point of limitation for filing an application under Section 20 is the date on which a difference arises to which the arbitration agreement applies". Applying this observation to the facts of the present case, the cause of action would have arisen when each of the contracts had been performed, i.e. on the export of the consignment. If the genesis of the claim was relatable to the performance of the contract, quite obviously the cause of action would relate back to that date. It is legally impermissible to peg the cause of action to either the letter dated 11.5.1972 or the Legal Notice dated 17.5.1975. In the present case the grievance of the Claimant was that the consignments were lifted/cleared after inordinate delay on the part of MMTC. Therefore, the cause of action necessarily would last arise on the date on which each of the consignment was finally cleared. While deciding Oriental Building case (supra) D.K. Kapur, J. had lost sight of the proposition which he himself had expounded, earlier. The decision of the Division Bench of this Court in Union of India and Anr. v. Vijay Construction Co., AIR 1981 Delhi 193, had not been cited before D.K. Kapur, J. and his view in the Oriental Building case (supra) was clearly per incuriam. He was bound to follow the opinion of the Division Bench and could not have decided the question on first principles. It should also be underscored that the Division Bench had disapproved the view of D.K. Kapur, J. in the previously decided Suit No. 308-A/78 entitled Bhardwaj Industries v. Union of India. His view, reiterated in Oriental Building case (supra) was held not to be correct. The Division Bench observed in Vijay Construction's case (supra) as follows:
"The right to apply for arbitration is dependent on a dispute having arisen and the dispute is whether the rescission of the contract was justified or not. The learned Judge assumes that it is only if the General Manager rejects the request of arbitration that a dispute arises. We cannot agree. The dispute between the contractor and the railway arose on the rescission of the contract. Making a request for referring the matter to arbitration is a demand to refer the dispute to the forum which the parties had agreed upon. Awaiting reply from the Railways cannot save limitation which had already started running from the date or the rescission of the contract. The rescission of the contract is a clear and straight intimation to the contractor that his work has not been found satisfactory an the consequences will follow. It is no doubt true that if in pursuance of a notice given, the arbitrator had been appointed by the Railways, no necessity to file an application under Section 20 would have arisen. But the grievance of the contractor had arisen from the date of rescission of the contract. In order to get the relief from the injury done to him by the rescission of contract, the appointment of an arbitrator was one of the steps, he had to take. The right to apply and take effective steps had thus arisen from the date."
16. From the above extract it will be palpably clear that the decision in Oriental Building case (supra) was clearly per incuriam. It needs to be clarified that even if there may be a distinction between the arising of the cause of action of a dispute, and that of a petition under Section 20, the letter does not inject any elasticity to the adjudication of the former, and would not resurrect a time-barred claim. It is an absurdity to contended that if a dispute has arisen, say in January 1995, and a legal notice has been issued in January 1997, it would be possible to initiate Recovery proceedings beyond January 1998. Even a categoric admission/acknowledgment of liability has to be made during the currency of the limitation period for such acknowledgment to extend limitation for another period. If a petition under Section 20 is brought before it, the Court may still refer the dispute to adjudication since it is the domain of the Arbitrator to rule on the question of whether the claim stands time-barred or not. This is so also in relation to a claim being excluded by the terms of the contract or barred for the reason that accord and satisfaction had occurred between the parties, inter alia, on the receipt of full and final payment. Thus even if the cause of action for filing the Section 20 petition had arisen in May 1975 (although it had arisen atleast as early as May 1972) the Arbitrator was bound to pronounce upon the question of the Claims having become time-barred or not.
17. Reliance has also been placed by Mr. Sharma on a decision of a Single Judge of the Calcutta High Court in the case of Shankar Construction Co. Pvt. Ltd., v. Union of India, . The learned Judge had considered the precedents available till that date and had found a divergence in the opinion of the Calcutta High Court on the one hand, and the Delhi High Court and Allahabad High Court on the other. The Learned Judge, therefore, expressed her opinion, (in conformity with the decision of the Calcutta High Court), to the effect that unless differences had arisen between the parties, Section 20 of the Arbitration Act would not be applicable. However,we are in agreement with the views expressed by the learned Division Bench in Vijay Construction Co. case (supra).
18. This very question had arisen before the Hon'ble Supreme Court in some other cases also. In S. Rajan v. State of Kerala and Anr. , , the Apex Court had observed that the period of limitation for the filing of an application under Section 20 of the Arbitration Act is governed by Article 137 of the Limitation Act. In that case the Contractor had entered into an agreement with the State for carrying out certain works. The Contractor could not, however, execute the work as per the terms of the agreement and this work was retendered. The State computed the loss suffered by it on account of retendering and served a demand notice on the Contractor. The demand notice was unsuccessfully challensed by the Contractor by way of a writ petition. Subsequently, the Contractor applied to the State to refer the dispute to arbitrator. This application was rejected by the State. The Contractor's application under Section 20, filed 9 years after the initial service of the demand notice was held to be barred by limitation. The Hon'ble Supreme Court opined that the differences between the Contractor and the State, or in other words the right to apply under Section 20,arose on the date of service of demand notice on the Contractor and not on the date his application to the State to refer the dispute to arbitration was rejected. In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, , the Apex Court again observed that the three year period must be computed from the accrual of the cause of action. The Hon'ble Supreme Court was of the view that "in order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute. It is true that on completion of the work a right to get payment would normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on 28th February, 1983 and there was non-payment, the cause of action arose from that date, that is to say, 28th of February, 1983". What is essential, therefore, is to trace back the earliest date on which differences had arisen. Law would not give succour to a lazy, slothful and negligent, who sleeps over his rights and agitates them only after limitation has run out. No doubt differences may still remain unresolved, but those would be of no avail in commencing limitation. In the present case, had the Claimants raised their claims under Section 20 on account of (i) Interest (ii) Watch & Ward & Plot Charges and (iii) Loss of Profit etc. within three years of their having arisen, the position would be appreciably different. These claims, of necessity, had arisen when each of the consignments was finally exported. The Limitation Act intends to eradicate the possibility of claims remaining open-ended for all times to come.
19. If any doubt still remained, it has now been finally set to rest by the Hon'ble Supreme Court in Steel Authority of India Limited v. J.C. Budharaja, Government and Mining Contractor, 1999 (3) Arb. LR 335 (S.C.). In Budharaja's case (supra) the Hon'ble Apex Court has discussed the controversy threadbare. It first reiterated its earlier view expressed in State of Orissa v. Damodar Das, the effect that Section 3 of the Limitation Act, 1963 enjoins the Court to consider the question of limitation, regardless of whether it is pleaded or not. It then reproduced the following extract from that judgment:
"5. Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 states that the period of limitation for commencing an arbitration run from the date on which the 'cause of arbitration' accrued, that is to say, from the date when the claimant first acquired either a right that an arbitration take place upon the dispute concerned. The period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued: 'Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued.' Even if the arbitration clause contains a provision that no cause of action shall accrue in respect not any matter agreed to be reffered to untill an award is made, time still runs from the normal date when the cause of action would have accrued if there had been no arbitration clause."
The Hon'ble Supreme Court also referred to its earlier decision in Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, in which it spoke thus:
"The period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned.
Therefore, the period of limitation for the commencement of an arbitration runs from the date on which had there been no arbitration clause, the cause of action would have accrued. Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued."
The facts in Budharaja's case (supra) were that the Contractor had raised claims in terms of his letter dated 29.8.1979. Thereafter the parties had entered into a supplementary agreement on 20.12.1980. Keeping in perspective that the Contractor had not sought any reference within three from the date when the cause of action had arisen i.e. 29.8.1979, and had done so only in 1985 when the dispute arose with regard to the second agreement, the Apex Court declined to permit a Reference of the claims of 1979. More recently, in Asia Resorts Limited v. Usha Breco Limited, , a similar question had arisen and the Hon'ble Supreme Court took note of its decisions in the foregoing cases. The dispute between the parties was in respect of the contract for the construction of a ropeway which was completed and handed over on 27.4.1988. The appellant issued a notice on 17.4.1990 threatening legal action. On 16.6.1993 the appellant issued a notice proposing the filing of petition under Section 20 and this was eventually filed on 30.11.1993. The Hon'ble Supreme Court affirmed the view of the Division Bench that the petition was barred by time.
20. In this analysis, therefore, the objection of the Appellant/MMTC that the petition under Section 20 was itself barred by time, and hence none of the claims could be arbitrated upon as they stood extinguished, is well founde. In our view the cause of action for the Claimants had arisen on the performance of the contract, i.e. on the lifting of each of the consignment. Had some disputes pertaining to payment lingered on in negotiations between the parties, that may have postponed the commencement of the period of limitation. In the present appeals this is not the case since the Claimant's demands repeatedly fell on deaf ears. As has already been mentioned the legal notice for appointment of an Arbitrator was issued on 17.5.1975, by which time the sundry claims had become stale and barred by limitation. We are firmly of the view that the petition under Section 20 ought to have been filed within the period in which a suit for recovery/damages could have been filed, had there been no arbitration clause between the parties. The objection of the MMTC must, therefore, be accepted. All five claims are accordingly barred by limitation. All the Awadrs must be set aside on this ground alone.
21. The next contention of Mr. Oberoi is that no evidence whatsoever exists on the claim of 'Loss of Profits'. He has relied heavily on the proceedings before the Arbitrator held on 28.9.1977 and on the following observations contained therein - "from the statement of claim filled by M/s. Natwarlal Shamaldas & Co., it appears that the Claimant is claiming loss suffered by M/s. Natwarlal Shamaldas & Co. Losses is a question of fact. I, therefore, direct that evidence of the actual loss suffered by the claimant firm be produced before me to enable me to adjudicate the claim in all the five cases. I also direct that the Claimant-company should produce documents, showing the actual interest paid and the receipts for paying plot rent and watch and ward charges. The Claimant company should also place before me the original agreement under which MMTC was required to fix the shipment for the carriage of goods". Mr. Oberai painstaking took us through the evidence that had been recorded before the Arbitrator. It has come in evidence that the MMTC had paid 95% against the shipping documents and the balance against destination results, which means weight, sample, analysis etc. It is also not contested that, as per agreement, if shipments were not effected within sixty days, MMTC would pay 85% of the value of the export on account. This was done in order to minimize the Claimant's losses which would follow in the event of delayed shipments. It has also been highlighted by Mr. Oberai that despite the Arbitrator's Orders dated 28.9.1977 rent receipts were not produced by the Claimants. It was also put to the Claimant's witness that during the period from the beginning of the contract to the last shipment, the Claimants had not communicated to the MMTC about any rent being paid in respect of any plot. The Claimants admitted this to be correct and also that no claim for rent had been made to the MMTC during that period. It is not controverter that no evidence whatsoever had been led on the question of whether any loss of profits had actually occured, and if so to what extent. It is an accepted principles of arbitral jurisprudence that judicial interference would be misplaced where some evidence had been produced before the Arbitrator in respect of a claim. The sufficiency of the evidence and its appreciation is exclusively within the province of the Arbitrator. However, judicial review would be justified, and in fact imperative, where there is a total absence of evidence. If an Award is passed in respect of a claim for which no evidence is available, and which is hotly contested, that would place the Award in the category of being perverse. It would also amount to judicial misconduct if the Arbitrator nonetheless grants damsages. The Court would, therefore, intervene and set aside the Award. In the present case this is exactly the position. No explanation is forthcoming as to why the Arbitrator subsequently ignored the specific directions passed by him on 28.9.1977 viz a viz production of evidence to prove the sundry Claims. Mindful of the restraints which have been imposed by the Court on itself, we are satisfied that the present Award call for interference. On its reading it is not possible to sift through the sums granted and place them under the various Heads. The Court must endeavor to uphold the amounts awarded against the claims severable from others, if the Court is of the view that those severable portions of the Award are beyond contest. This is not possible in the present instance and, therefore, the Award needs to be set aside for this reason also.
22. It has further been contended on behalf of MMTC that the claim for 'Loss of Profits' overlapped with the other claims, and that this objection had been reduced to writing and has been argued before the Arbitrator. The Learned Single Judge has observed that since the amount claimed before the Arbitrator was larger than that awarded, judicial interference was not called for. It is necessary to reiterate that where recording of reasons was not mandatory, and where reasons have not been disclosed, and a lumpsum amount has been granted, the Court would generally not interfere with the Award. The exception is where certain objections have been raised; in such cases the objections must be dealt with, even if in the most laconic and brief manner. Had the Arbitrator addressed this issue, the court would restain itself from setting aside the findings even if it favored a different conclusion, he has been observed by the Hon'ble Supreme Court in Hind Builders v. Union of India, . However, when the Arbitrator fails to deal with all the Objections raised before him, he commits an illegality amounting to misconduct. In Continental Construction v. State of Madhya Pradesh, , the Apex Court found it irregular that the Arbitrator had granted extra costs on account of delay despite a Clause which appeared to bar such a claim being raised. Since the Arbitrator had not discussed this objection, the Hon'ble Supreme Court supported the District Judge looking into the terms of the Contract. In all the five Awards the Arbitrator has not even perfunctorily dealt with this Objection. It should not be ignored that, keeping the experience of arbitration awards in mind, Parliament has now, in terms of the Arbitration and Conciliation Act, 1996, made it incumbent on the Arbitrator to disclose reasons. Hopefully the non-speaking or non-reasoned Award will fast become a ghost of the past.
23. In the recent judgment of the Hon'ble Supreme Court in the case of Sikkim Subba Associates v. State of Sikkim, (2001) 5 SCC 629 the Apex Court observed as under: "14. It is also, by now, well settled that an arbitrator is not a conciliator and his duty is to decide the disputes submitted to him according to the legal rights of the parties and not according to what he may consider to be fair and reasonable. An arbitrator was held not entitled to ignore the law or misapply it and he cannot also act arbitrarily, irrationally, capriciously or independently of the contract (see Rajasthan State Mines and Minerals Ltd. v. Eastern Engg. Enterprises). If there are two equally possible or plausible views or interpretations, it was considered to be legitimate for the arbitrator to accept one or the other of the available interpretations. It would be difficult for the courts to either exhaustively define the word "misconduct" or likewise enumerate the line of cases in which alone interference either could or could not be made. Courts of law have a duty and obligation in order to maintain purity of standards and preserve full faith and credit as well as to inspire confidence in alternate dispute redressal method of arbitration, when on the face of the award it is shown to be based upon a proposition of law which is unsound or findings recorded which are absurd or so unreasonable and irrational that no reasonable or right-thinking person or authority could have reasonably come to such a conclusion on the basis of the materials on record or the governing position of law to interfere".
The Hon'ble Supreme Court had found that the Award under challenge before it stood vitiated on account of several errors of law, apparent on the face of it, and that these infirmities were indicative of the Arbitrator having acted arbitrarily and irrationally on a perverse understanding or misreading of the materials. The Court also found that the Arbitrator, who was obliged to apply law and adjudicate claims according to law, had thrown to the winds all basic and fundamental legal principles and had chosen to award astronomical sum as damages without any basis or concrete proof of such damages. We find these observations to be pithy to the facts of the present case.
24. Apart from the observations made in Sikkim Subba's case (supra) a similar question had earlier arisen Apex Court in the case of Union of India v. Jain Associates and Anr., 1994 (2) SCALE 604. In that case the objections were accepted as would be evident from the following passage: "6. The crucial question is whether the umpire committed misconduct by non-application of mind to the claims and counterclaims and of its consequences. Claim No. 11 is founded upon the allegations of delay, laches, negligence and default on the part of the appellant, said to have resulted in loss of profits to the contractor in a sum of Rs. 4,93,696/- and the umpire awarded Rs. 4,11,400/- Claim No. 12 again founded upon the self same alleged laches and negligence of the appellant for the damages suffered by the contractor in a sum of Rs. 12,00,000/- and the umpire awarded Rs. 6,00,000/-. The High Court found in its judgment that "there is much substance in the submission of the learned counsel for the petitioner that the umpire has given damages twice over against the same claim though shown as two claims, namely, claim Nos. 11 & 12 and the claimant is not entitled to both the claims due to damages". "There is an error of law as well as fact" but "in the interest of justice and fair play the lesser amount of Rs. 4,11,400/- against claim No. 11 is omitted and Rs. 6,00,000/- towards claim No. 12 is retained." Section 73 of the Contract Act provides that when a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damages caused to him thereby which naturally arose in the usual course of things from such breach. A perusal of both the claims would show that claim No. 11 is founded on loss of profits and claim No. 11 is founded for damages, based upon delay, laches and negligence alleged against the appellant, resulting in breach of the contract. In other words the contractor claimed compensation for breach of contract arising under Section 73 of the Contract Act. The respondent, it is held by the Division Bench, is given same type of damages twice over and that holding is not challenged by Respondent. Yet the question is whether the umpire had applied his mind in a judicious manner so as to bind the parties by his award made on various claims. In Law of Arbitration, by Justice Bachawat, a former Judge of this Court at page 316, it is stated that "an arbitrator is not a conciliator. His duty is to decide the question submitted to him according to the legal rights of the parties and not according to what he may consider fair and reasonable." Russel on Arbitration, 20th Edition at page 318 also lays the same principles".
25. Our attention has also been drawn to Clause 4(b) of the Contract, already extracted above. The contention of Mr. Oberoi is that this Clause explicitly barred claims for interest and/or loss of profits on account of delay. Again, this objection has not even been addressed by the Arbitrator. The law laid down by the Apex Court is that the interpretation given by the Arbitrator to any particular clause of the contract or any other document must be upheld unless, on the face of it, it is wholly implausible. The reason is that the Court does not exercise Appellate Jurisdiction over the Award and, therefore, would not substitute its own preferred interpretation for that which has found favor with the Arbitrator. The Award, however, does not tackle this question at all. This was a pivotal exercise and unless the Arbitrator had disclosed his conclusion that Clause 4(b) of the Contract did not preclude a claim for damages on account of delay, an Award under these Heads would not be possible. On this ground also the Award deserves to be set aside.
26. For all these manifold reasons we are satisfied that the four Appeals filed by the MMTC have considerable merit. We accordingly set aside the Awards and allow the four appeals. It is clarified that inasmuch as the Learned Single Judge had set aside the Award in FAO 93/1981, his findings are upheld, and the Appeal on behalf of M/s. Natwarlal Shamaldas & Co. is rejected. The MMTC shall be entitled to costs throughout.