Bindra Builders vs Delhi Development Authority & Anr. on 30 July, 2012

[Cites 22, Cited by 6]

Delhi High Court

Bindra Builders vs Delhi Development Authority & Anr. on 30 July, 2012

1. The objections filed by the Plaintiff, M/s. Bindra Builders in IA No. 821 of 2002 under Sections 30 and 33 of the Arbitration Act, 1940 ('Act') to an Award dated 29th September 2000 of the sole Arbitrator are being disposed of by this judgment.

2. The background facts are that the Plaintiff, a partnership firm, was awarded various works in Group Housing Schemes for construction of 1440 MIG/LIG Dwelling Units ('DUs') at Trilokpuri, New Delhi by the Defendant No. 1, Delhi Development Authority ('DDA'). The disputes between the parties were referred to arbitration after the Plaintiff filed Suit No.2659A of 1994 in this Court under Section 20 of the Act. Although the time limit for publication of the Award was four months from 9th July 1996, the date on which the Arbitrator entered upon the reference, the time was enlarged periodically with the consent of the parties. The plaintiff filed its statement of facts/claims on 11th July 1996. DDA filed its counter statement of facts/claims and counter- claims on 3rd September 1996. DDA filed a revised counter statement of facts/claims on 2nd September 1997.

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3. A preliminary objection was raised before the learned Arbitrator that the Plaintiff's claims were barred by limitation. DDA pointed out that the entire work, even according to the Plaintiff's statement of claim, was completed by 1982 and flats were handed over till 1984. Thereafter no further work was done on the site. Serious shortcomings in the work were pointed out by the Quality Control Wing in their inspection report. According to DDA, both on account of the defects pointed out and the fact that the Plaintiff had already been paid much more than what was due by the DDA, the Plaintiff never bothered to present any claim. It is stated that the Plaintiff never raised any claim for payment in any of the letters written till June 1987. Thereafter, another request was made on 20th May 1992. The arbitration clause was invoked only in 1994 and the Plaintiff made claims for the first time in May 1996. The DDA's case was that the cause of action arose either in 1982 or at the latest in October 1984. The period of limitation for the claim expired either in 1985 or latest in 1987. The arbitration clause was invoked on 30th September 1994 when limitation had already expired.

4. The case of the Plaintiff was that when DDA filed its counter statement of facts, it did not raise any objection as to the Plaintiff's claims being barred by limitation. Consequently, DDA could not raise this objection in its written submissions. No show cause notice under Clause 14 of the contract had been served upon the Plaintiff by the DDA for rectification of the defects. Also, no deduction/reduction was made in the payments against running bills. Initially, DDA informed the Arbitrator by its letter dated 6th November 1996 that a minus bill in the sum of Rs.3,21,727.25 was recoverable. Subsequently DDA wrote to the Plaintiff's bankers on 12th February 1997 claiming Rs.1,30,524. Therefore, DDA itself was not clear about what its stand was. By a letter dated 27th December 1982, the Plaintiff had intimated completion of the work and requested issuance of a completion certificate. However, DDA failed to fulfill its reciprocal obligation and no certificate of completion or provisional certificate of completion along with the list of defects to be rectified was ever CS (OS) No.1001A of 2001 Page 2 of 12 issued to the Plaintiff by the DDA. The Plaintiff was obliged to submit a final bill only after the receipt of the completion certificate. The DDA did not finalize the bill or send an intimation regarding the bill being ready for payment. The final bill was submitted by DDA only during the course of the arbitral proceedings. Therefore, the question of Plaintiff's claims being barred by limitation did not arise.

5. By the impugned Award dated 29th September 2000, the learned Arbitrator accepted the case of the DDA that the Plaintiff had invoked the arbitration clause only on 30th September 1994 and even at that stage it had not submitted its final bill. It was held that it was the duty of the Plaintiff to submit the final bill for the work executed. The Plaintiff could not postpone the accrual of the cause of action by sending reminders. The learned Arbitrator referred to a letter dated 16th April 1986, in which the Plaintiff had requested for payment. It was held that this was the starting point for computing the period of limitation and that the invocation of the arbitration clause on 30th September 1994 was well beyond the three-year period from that date. Accordingly DDA's preliminary objection was upheld and the Plaintiff's claims were rejected as being time barred.

6. This Court has heard the submissions of Mr. Raman Kapur, learned Senior counsel for the Plaintiff and Mr. Bhupesh Narula, learned counsel for the DDA. Relying on the decision of the Supreme Court in Union of India v. L.K. Ahuja and Co. 1988 (1) Arb.LR 375 it was submitted by Mr. Kapur that the question whether there was any valid claim for the purposes of making a reference under Section 20 of the Act was different from the question whether the claim before the learned Arbitrator was itself barred by limitation. It was submitted that in the present case the final bill was prepared by the DDA during the pendency of the arbitral proceedings and no intimation regarding its preparation was conveyed to the Plaintiff. Consequently, the Plaintiff's claims could not be said to be barred by limitation.

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7. Referring to the decisions in EN Veeka Construction Co. v. Delhi Development Authority 1999 (1) Arb.LR 298 (Del), Radhey Shyam Gupta v. Municipal Corporation of Delhi 1989 (2) Arb.LR 204, it was submitted that in terms of Clause 25 of the contract, not only the preparation of the final bill but also intimation by the DDA to the Plaintiff that the bill was ready would have triggered the starting point of limitation. Since no such intimation was received by the Plaintiff, the limitation could not be said to have begun. Reliance is also placed on the decisions in State of Orissa v. Damodar Das AIR 1996 SC 942, M/s. R.P. Souza and Co. v. Chief Engineer, Public Works Department, Altinno, Panaji, Goa AIR 2000 Bom 74, Rajesh Kumar Garg v. MCD 2008 (2) Arb.LR 107 (Delhi) and Wild Life Institute of India, Dehradun v. Vijay Kumar Garg (1997) 10 SCC 528. Mr. Kapur also referred to the decision of the learned Single Judge of this Court dated 16th November 2000 in Suit No.2974-A of 1996 (M/s. Mohinder Nath & Co. v. Delhi Development Authority).

8. Appearing for the Defendant, Mr. Bhupesh Narula submitted that in terms of Section 37 of the Act, the provision of Limitation Act, 1963 ('LA 1963') was applicable. Although in the present case, the Plaintiff had asserted its claim for the final bill way back on 27th December 1982, the arbitration clause was itself invoked only on 30th September 1994 and the Plaintiff made its claim only in May 1996. The issue concerning bar of limitation could be considered by the learned sole Arbitrator even without a formal plea being raised in this behalf. Mr. Narula referred to the decisions in Puran Chand Nagia v. The Aviation Employees Co-operative House Building Society 1989 (2) Arb.LR 207, Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority (1988) 2 SCC 338, Panchu Gopal Bose v. Board of Trustees for Port of Calcutta AIR 1994 SC 1615, Steel Authority of India Ltd. v. J.C. Budharaja, Government and Mining Contractor 1999 (3) Arb.LR 335 (SC). Mr. Narula also referred to the decision in Satender Kumar v. Municipal CS (OS) No.1001A of 2001 Page 4 of 12 Corporation of Delhi 2010 (168) DLT 15.

9. In order to appreciate the above submissions, it is necessary to refer to the relevant clauses of the contract in question. Clause 6 of the Conditions of Contract states that within ten days of the completion of the work, the Contractor will give notice of such completion to the Engineer-in-Charge ('EIC'), and within ten days of the receipt of such notice, the EIC shall inspect the work. If there is no defect in the work, the EIC will issue a certificate of completion. Otherwise, he will issue a provisional certificate of completion indicting the defects to be rectified by the Contractor for which payment will be made at reduced rates. But neither the completion certificate or a provisional certificate will be issued or shall the work be considered complete till the Contractor removes the scaffolding, surplus materials etc from the work site.

10. Under Clause 7, the final bill shall be submitted by the contractor "within one month of the date fixed for completion of the work or of the date of the certificate of completion" furnished by the EIC and "payment shall be made within three months if the amount of the contract plus that of additional items is up to Rs.2 Lakhs and in 6 months if the same exceeds Rs.2 Lakhs of the submission of such bill." If there is any dispute about any items of the work then the undisputed item or items shall be paid within the said period of three months or six months or as the case may be. The Contractor "shall submit a list of the disputed items within thirty days from the disallowance thereof and if he fails to do this, his claim shall be deemed to have been fully waived and absolutely extinguished." If there is likely to be delay in recording detailed measurements for making payments in the case of residential building, advance payments without detailed measurements may be made in running account ('RA') bills by the EIC in his discretion on the basis of certificate from the Assistant Engineer to the effect that the work has been completed up to the level in question. The advance payments so allowed shall be adjusted in CS (OS) No.1001A of 2001 Page 5 of 12 the subsequent running bill by taking detailed measurements thereof. Final payment shall be made only on the basis of detailed measurements.

11. Clause 8 requires the Contractor to submit a bill "each month on or before the date fixed by the Engineer-in-Charge for all work executed in the previous month." The EIC shall take requisite measurements and the claim, as far as admissible, adjusted as far as possible before the expiry of ten days from the presentation of the bill. If the contractor does not submit the bill within the time fixed as aforesaid, the EIC may depute within seven days of the date fixed as aforesaid, a subordinate to measure up the said work in the presence of the Contractor whose counter signature to the measurement list will be sufficient warrant, and the EIC may prepare a bill from such list. Clause 8 A mandates "reasonable notice to the Contractor" before any measurement of any work. Under Clause 9, the Contractor has to submit bills on "printed forms to be had on application at the office of the EIC.

12. The above clauses have to be read along with Clause 25 which provides for arbitration and the relevant portion of which reads as follows:

"It is also a term of the contract that if the contractor (s) does/do not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the Engineer-in-Charge that the Bill is ready for payment the claim(s) of the contractor(s), will be deemed to have been waived and absolutely barred and the Delhi Development Authority shall be discharged and released of all liabilities under the contract in respect for those claims."

13. An analysis of the above clauses reveals that while RA bills are required to be raised by the Contractor as and when the work is part complete, and the payments made against these are treated as advance payments, for the purposes of the final bill, two dates are relevant. One is "the date fixed for completion of the work" or such extended date as the case may be. The other CS (OS) No.1001A of 2001 Page 6 of 12 is the "date of the certificate of completion" which has to be issued by the EIC. In both events it is clear from Clause 7 that it is the Contractor which has to prepare the final bill. Mr. Kapur urged that in practice it was the DDA which invariably prepares the final bill and no Contractor actually prepares it. Although this was disputed by Mr. Narula, the wording of Clause 7 does not envisage preparation of the final bill by the DDA but only the Contractor. The absence of the words "whichever is later" qualifying the two dates mentioned is significant. It means that the limitation for submission of final bills would begin to run from the "the date fixed for completion of the work", even where the EIC has not issued a certificate of completion. It would not be open to the Contractor to contend in such case that till such time the EIC did not issue the certificate of completion, the Contractor was not obliged to submit a final bill. Sometimes a provisional certificate could be issued and the defects required to be rectified pointed out by DDA. It might be possible to argue that in such case the limitation for submission of final bill would not arise till a final completion certificate is issued by the EIC after verifying if the defects pointed out have been rectified. However, the position that emerges is that where DDA is in default by not issuing a provisional certificate or final certificate, and the date for completion of work has expired, the limitation for the Contractor to submit his bill would begin running from the date fixed for completion.

14. It was argued by Mr. Kapur that without the Contractor knowing what the measurements were, or what defects require rectification, and what has been accepted by DDA, it might not be possible to prepare and submit a proper final bill. While this may be a difficulty faced by a Contractor, he will nevertheless have to submit an estimated final bill reserving the right to submit a further bill after the measurements and details relating to defects are made available by the EIC.

15. Clause 25 of the contract mandates that the Contractor has to make a CS (OS) No.1001A of 2001 Page 7 of 12 demand for reference in writing within 90 days of receiving the intimation from the EIC "that the Bill is ready for payment." If the Contractor fails to do so, his claims "will be deemed to have been waived and absolutely barred"

and the DDA "shall be discharged and released of all liabilities under the contract in respect for those claims." Conversely, as long as the Contractor does not receive an intimation from the EIC that his bill is ready for payment, the time limit for his making a demand for arbitration cannot be said to have begun. However, this clause is relevant only for the purpose of determining if the demand for reference of disputes to arbitration is within time. It does not determine whether the claims themselves are time barred.

16. The above distinction was brought out in the decision of the Supreme Court in Union of India v. L.K. Ahuja and Co. where it was held that in applications under Section 20 of the 1940 Act, it is wrong to mix up two aspects, whether there is a valid claim for reference, and whether the claim to be adjudicated by the arbitrator was time barred. The latter issue is a matter for the arbitrator to decide, unless on admitted facts, a claim is found to be time barred. In the same vein are the decisions of this Court in Radhey Shyam Gupta v. Municipal Corporation of Delhi, EN Veeka Construction Co. v. DDA, Avinash Sharma v. Municipal Corporation of Delhi 2007 (4) Arb.LR 147 (Del), Puran Chand Nagia v. The Aviation Employees Cooperative House Building Society and of the Bombay High Court in M/s. R.P. Souza and Co. v. Chief Engineer, Public Works Department, Altinno, Panaji, Goa.

17. In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, the Supreme Court was examining if in the facts of that case whether the application under Section 20 of the 1940 Act was within time. It was held that for seeking a reference under Section 20, it is necessary that there should be an arbitration agreement and secondly, differences must arise to which the said agreement applied. While it was true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but CS (OS) No.1001A of 2001 Page 8 of 12 where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. In State of Orissa v. Damodar Das the Supreme Court explained that Article 137 of the Schedule of the Limitation Act applies to applications under Sections 8 and 20 of the 1940 Act. The period of limitation commences when a dispute or difference arise upon unequivocal denial of claim of one party by the other. In Panchu Gopal Bose v. Board of Trustees for Port of Calcutta it was explained by the Supreme Court that limitation for commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. There the party did not take any action for ten years from the date when the cause of action arose. In the circumstances it was held that the courts were correct in granting leave to revoke the arbitration agreement.

18. The discussion on Clause 25 would not be complete without reference to the decisions in Pandit Constructions Company v. Delhi Development Authority 2007 (143) DLT 270 and M/s. Stup Consultants Pvt. Ltd. v. M/s Indian Oil Corporation Ltd. (decision dated 15th December 2009 in Arb. P. No. 208 of 2009) where it was held that clauses like Clause 25 which extinguish claims much before the prescribed period of limitation would be void under Section 28 of the Contract Act 1872 as amended with effect from 1997. In such cases, notwithstanding the clause, the party seeking reference of disputes involving a claim for money to arbitration would get a limitation period of three years.

19. However, the above decisions deal with the issue of the time within which reference has to be sought of disputes to arbitration. In the present case, that stage was crossed when the disputes were referred to arbitration. The question before the sole Arbitrator was whether the claims of the Plaintiff were themselves barred by limitation. Mr. Kapur placed considerable reliance on the decision in Mohinder Nath & Co. v. Delhi Development Authority. In the CS (OS) No.1001A of 2001 Page 9 of 12 said case there was a contract for construction containing an arbitration clause. Disputes arose and the arbitrator passed an award which was objected to by the DDA contending that all claims were time barred. The work was completed in 1982, and the arbitration clause was invoked in 1993. The final bill was submitted by DDA during arbitration. The Arbitrator held that the limitation period would be reckoned from the date of finalisation of the bill and not the completion of work and since the final bill was submitted during the arbitration, all claims were within limitation. The court held that the said reasoning of the Arbitrator was a plausible one. Referring to Clause 25 of the agreement it was held that the limitation would begin to run only after the final bill was prepared and intimation of its being ready for payment given to the contractor. However, the said decision reveals that the effect of Clauses 6, 7 and 8 of the contract on the issue of limitation was not argued, and therefore not dealt with by the Court. The occasion for that arose in Satender Kumar v. Municipal Corporation of Delhi in which the Court analysed the above clauses as well as Clause 25 and after discussing the case law, summarised the following principles in para 16:

"(i) Limitation commences when the cause of action accrues/arises.

(ii) Accrual/arising of cause of action necessarily varies as per facts and circumstances of each case and the nature of jural relationship between the parties viz contractual or otherwise and so on.

(iii) As regards contracts for execution of building work, Article 18 comes into play in that when no specific date for payment is fixed, limitation commences and the cause of action accrues for the purpose of limitation on the completion of work.

(iv) In its application, Article 18 will cause different dates for accrual of causes of action in building works when a time period is fixed for submitting of a bill by the contractor and to which there is no response of the owner. Where a final bill is submitted and liability under the same, even if, in part, is admitted or some payment is made then such actions extend limitation in terms of Section 18 of the Limitation Act.

(v) No fresh period of limitation can arise simply because letters and reminders are written time and again, attempting to keep the claim alive, CS (OS) No.1001A of 2001 Page 10 of 12 although the claim by virtue of Article 18 of the Limitation Act, has become clearly time-barred."

20. The Court further held that Article 18 of the LA 1963 would apply to cases where the date of payment is not fixed. In cases it is fixed, the limitation will be counted from the date fixed for payment. The court held that under the agreement the contractor had to submit the final bill, even if the completion certificate was not given. In Rajesh Kumar Garg v. MCD, it was found that the applicants slept over the matter for a period of 6-8 years for submitting the bills for various work orders. It was held that it was incumbent on the contractor to submit the final bill within three months of completion of the work. Ultimately, the question will have to be answered with reference to the facts of each case and in light of the clauses of the contract in question.

21. To recapitulate the relevant facts in the present case, the work was admittedly completed even according to the Plaintiff on 27th December 1982. The flats in question were handed over by 1984. The Plaintiff first sought payment of the final bill on 6th November 1984 but even at that stage he did not submit the final bill. The requirement in Clause 7 is that "the final bill shall be submitted by the contractor within one month of the date fixed for completion of the work or of the date of the certificate of completion furnished by the EIC." Since the phrase 'whichever is later' is absent in this clause, the Plaintiff could not afford to wait till the date the certificate of completion was issued by the EIC. The intention of the parties appears to be that the final bill was to any way be submitted within three months of the date fixed for completion of the work. Admittedly the final bill was not submitted by the Plaintiff in this case within three months of the date of completion of the work, even if that is taken to be the date "fixed for completion of work." As mentioned before, it was always possible for the Plaintiff to have sent an estimated final bill stating that it would be subject to further revision after receipt of the certificate of completion from the EIC. The Plaintiff kept writing letters on 15th February 1985, 16th April 1986 and 21st January 1990 CS (OS) No.1001A of 2001 Page 11 of 12 but made no attempt to invoke the arbitration clause to seek reference of the dispute to arbitration. Even if the reference to arbitration could not be said to be time barred since no intimation of the final bill being ready for payment was received by the Plaintiff from the DDA, the fact remains that for over ten years after completion of the work in 1982 the Plaintiff did not submit the final bill and failed to set in motion the legal process for recovery of the claims. The Plaintiff thus allowed the claims to become hopelessly time barred. The learned Arbitrator therefore came to the correct conclusion.

22. In the circumstances, the Court finds no ground made out for interference with the impugned Award dated 29th September 2000 of the sole Arbitrator. The objections of the Plaintiff are rejected and I.A. No. 821 of 2002 is dismissed. The Award is made rule of the Court and Suit No. 1001A of 2001 is disposed of. Decree sheet be drawn up accordingly.

S. MURALIDHAR, J.

July 30, 2012 s.pal CS (OS) No.1001A of 2001 Page 12 of 12

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