Delhi District Court
Mahanagar Telephone Nigam Limited vs Rukma Decor And Constrution Co on 6 August, 2024
IN THE COURT OF SH. NIKHIL CHOPRA, DISTRICT
JUDGE (COMMERCIAL COURT)-06, CENTRAL DISTRICT,
TIS HAZARI COURT, DELHI
ARB. A (Comm) No.20-2019
CNR No.- DLCT01-002707-2019
Mahanagar Telephone Nigam Ltd.,
Through Executive Engineer (P) C-I,
Now designated as Executive Engineer (C) PVR
GH-17, Paschim Vihar,
New Delhi-110087.
......Petitioner
Versus
M/s Rukma Decor & Construction Co.,
Through its Proprietor Mr. Shanti Prakash Goenka,
2/6453-54, Block-8,
Dev Nagar, Karol Bagh,
New Delhi-110005.
....Respondent
Date of Institution : 27.02.2019
Final arguments : 03.08.2024
Date of decision : 06.08.2024
ORDER
1. Order disposes off the petition under Section 34 of The Arbitration & Conciliation Act, 1996 challenging the Award dated 27.11.2018 passed by the Ld. Sole Arbitrator in DAC Case ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 1 of 30 No.1306/09-16.
2. The petitioner invited tender for the balance/left out work in relation with the construction of 240 numbers of Type III Quarters at GH 17, Paschim Vihar, New Delhi, in the year 2010, for an amount of Rs.19,82,392/-. The respondent herein had participated in the bid and was awarded the tender. The work was to be completed within four months commencing from 25.11.2010 i.e. by 24.03.2011. It was only on 03.05.2012 that the work could be completed. The petitioner had granted provisional extension of time till 15.05.2012. The work, as per the petitioner's claim' has been completed with an unexplained delay of 406 days. As per the petitioner, the respondent was called upon to submit the 'Extension of Time' format in July, 2012, November, 2012 and finally in January, 2013, informing the respondent that in case the 'Extension of Time' format is not submitted, the final bill would be sent for payment and 'Extension of Time' case would be settled ex-parte. It is the case of the petitioner that in November, 2012, itself, the respondent was called upon to sign and accept the final bill. The respondent, however, is stated to have submitted the 'Extension of Time' format only on 05.03.2013 and to have signed the final bill without any protest on 15.03.2013.
3. On 30.05.2013, the payment as per the final bill was made to the respondent, which was accepted by the respondent without any protest as to their being any arbitrary deductions, short of ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 2 of 30 part payment etc.
4. In June 2013, the petitioner issued a show cause notice under clause 15 of the General Conditions of the Contract for delay in completion of the work beyond the stipulated time. Since the same was not replied, another show cause notice was issued on 11.03.2015. Even in reply thereto, the respondent did not raise any issue of arbitrary deduction or short payments, and it was only on 04.04.2015 that the respondent raised certain claims with Executive Engineer. The petitioner denied all the claims. The respondent invoked the Arbitration clause 53 vide its letter dated 26.09.2015 requesting the Chief Engineer, MTNL, New Delhi to appoint an Arbitrator in terms of clause 53 of the Agreement. As the claims were treated as barred by clause 53, the petitioner denied any appointment by means of its communication dated 29.10.2015.
5. On 05.11.2015, the petitioner imposed compensation amount of Rs.92,942/- towards delay, in terms of the clause 15 of the GCC. The respondent, however, preferred an petition under Section 11 of the Arbitration and Conciliation Act, 1996 before the Hon'ble High Court of Delhi for appointment of an Arbitrator. The Hon'ble High Court of Delhi appointed a sole Arbitrator vide its order dated 20.09.2016, to be conducted under the rules of Delhi International Arbitration Centre.
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 3 of 306. The petitioner is found to have raised various objections against the claims filed before the Ld. Arbitrator, including the objection relating to barring of claims and resultant loss of right and limitation, on the basis of clause 53 of the GCC. It has been categorically asserted by the petitioner that the Contractor's claims are deemed to have been waived and barred, the Contractor having failed to request for arbitration within 90 days of receiving intimation from petitioner as to the bill being ready for payment.
7. Ld. Arbitrator rejected the objection holding the stipulation being void and held that the claims are within time. He proceeded to deal with the claims on merit and held the petitioner to be responsible for the entire delay. In terms of Award dated 27.11.2018, Ld. Arbitrator further held the levy of compensation of Rs.92,942/- as wrongful and illegal, and while relying upon the Local Commissioner's report as to the measurements, held the Contractor to be entitled to compensation.
8. Ld. Arbitrator proceeded to partly allow claim no.1 and awarded different amounts under the claims no.2, 4, 6, 8, 9, 10, 11, 12 and 13, thereby granting a total sum of Rs.25,23,225/- to the Contractor.
9. The petitioner seeks setting aside of the Award by means of the present petition while challenging findings to the claim ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 4 of 30 nos.2, 3, 4, 9, 10, 11 and 12 on the following grounds:-
i. The Ld. Arbitrator has wrongfully attributed the entire delay to the petitioner ignoring that there had been a delay of 406 days on the part of the respondent despite the fact that the petitioner had discounted the delay of 174 days out of the total 406 days, in view of the reasons recorded in the hindrance register.
ii. The Award is in violation of terms of Agreement as well as is beyond the terms of reference.
iii. Non arbitrable aspects and excepted matters have been adjudicated by the tribunal inasmuch as, the progress/extent of target/degree of achievement is purely a matter of decision making by the Engineer in Charge, which according to the terms of contract was final and binding upon the contractor.
iv. The Arbitrator ignored that the work could be only completed on 03.05.2012 after delay of 406 days and the delay is proved from the fact that the provisional extensions were granted.
v. The respondent was extremely slow paced and lacked timeliness despite being reminded from time to time.
vi. The final bill was prepared in November, 2012, but it was on account of non submission of the 'Extension of Time' proforma that the payments could not be made and since there was a delay on the part of the respondent to submit the 'Extension of Time' proforma, the delay was solely attributable to the respondent, which fact has not been ignored by the Ld. Arbitrator.
vii. The compensation for delay, which was assessed at Rs.92,942/- on account of delay of 232 days in completion of work after adjustment of 174 days delay on account of genuine hindrances, was purely a matter within the competence of the Chief Engineer (CEBW), MTNL, whose decision in writing is final and binding in terms of the contract, but the Ld. Arbitrator had proceeded to deal with the same and records a finding contrary to the facts.
viii. The Ld. Arbitrator did not look into the records including the show cause notice issued by the petitioner in respect of the levy of compensation and wrongfully held that the levy of compensation is wrong and illegal.
ix. In respect of the claim relating to the insurance charges, the Ld. Arbitrator wrongfully recorded that there is nothing on record while ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 5 of 30 ignoring the letters placed on record in this respect.
x. The Ld. Arbitrator failed to appreciate clauses 17, 21, 52(2) and 52(1)(I) of GCC, which prohibited any claim for compensation by the contractor in the event of delay on the party of the contractor and further that the petitioner is entitled to all such amount from the security deposit or personal guarantee of the Contractor as may be found due from the Contractor.
xi. The Arbitrator not only ignored that there is no provision for escalation of cost, ignored the fact that the no case of 'Escalation cost' is made out in favour of the contractor as the delay is caused on the part of the Contractor. For similar reasons, no other heads could have been claimed or even granted by the Ld. Arbitrator.
xii. There is no evidence qua the loss of profits/damages and no such claim could have been entertained or granted merely on the basis of Hudson's formula.
xiii. The Award of amounts under the claim 10, 11, 12 and 13 are also bad in law considering the Arbitrator acted arbitrarily, ignoring the terms of the contract and also being unjust and unfounded.
xiv. The claims raised by the respondent are barred as the same have been raised after the stipulated period of 90 days as mentioned in clause 53 of the Agreement and hence, the Award itself is unfair, deserves to be set aside.
10. The petitioner, accordingly, has claimed the Award to be against public policy/fundamental policy of India and vitiated by gross perversity besides being in conflict with basic notions of morality and justice. It is also claimed that the Ld. Arbitrator has committed grave errors and has ignored the available evidence.
11. The respondent appeared and filed the reply primarily denying the averments and contentions raised in the petition, seeking dismissal of the petition.
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 6 of 3012. Petitioner has initially challenged all the claims so allowed by the Ld. Arbitrator, inter alia, on the grounds mentioned hereinabove, however during the arguments, the petitioner has restricted the scope of its challenge to the Award to the grounds and contentions recorded in the written submissions dated 31.10.2023 and judgments filed alongwith the said submissions
13. I have heard the learned counsel for the parties and have also gone through the written submissions filed by the parties.
14. Main contentions of the learned counsel for the petitioner are:-
(i) The Arbitral Tribunal has committed an error in excess of jurisdiction, as he has not only travelled beyond the contract, but also has ignored the law.
(ii) Ld. Arbitrator has, while exceeding his jurisdiction, proceeded to entertain the claims of the Respondent, though the same were already barred as well as deemed to be waived, consequent upon his not opting for Arbitration for any claim that could have raised, within 90 days from the intimation as to bill being ready. Having failed to raise any claim at that time and/or to request for Arbitration, the claims are visited by obvious consequences, as are unambiguously mentioned in clause 53 of the GCC.
(iii) Clause 53 is decisive as to limitation and remedy, and if at all, the Respondent wished to proceed with claims, at best its remedy lied with Civil Court. Respondent could not have approached or requested for Arbitration, nor could have pressed any of the claim before Ld. Arbitrator.
(iv) Ld. Arbitrator has ignored clause 53 and wrongfully proceeded to deal with claims on merits, even though the said clause is a material condition of contract having a direct ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 7 of 30 bearing over the right of the parties to arbitrate. The cut off date of 90 days, being a material condition could not have been ignored, nor could have the Ld. Arbitrator entertain the claims, once the clause specifically provides for 'waiver' and 'barring of the claims'.
(v) Ld. Arbitrator has ignored the date of intimation to Respondent as to final bill being ready and ought have calculated the period of limitation of 90 days from the said date, and not the date of actual payment. Such an interpretation is unlawful, and clearly a 'patent illegality', as well as error of jurisdiction within the scope of Section 34 of the Arbitration and Conciliation Act.
(vi) Ld. Arbitrator has failed to appreciate the fact that the Respondent even failed to approach the proper forum of extension of time, as provided under Section 43 of the Arbitration and Conciliation Act. The language of the said provision not only strengthens and validates the concept of restriction of time limit for the initiation of Arbitration under a given contract, but also the fact that extension of time limit prescribed by the agreement can only be extended in case of undue hardship. The said provision has not been dealt with by the Ld. Arbitrator at all.
(vii) Ld. Arbitrator has not only exceeded his jurisdiction by ignoring clause 53 and Section 43 of the Arbitration Act, but also ignored well settled principles of law that a clause providing a limitation so as to enable a party to lodge a claim, is not invalid.
(viii) Ld. Arbitrator derives his authority from the Contract and can neither traverse beyond its terms, nor can re-write the terms.
(ix) All the claims of the Respondent-Contractor were barred, and deemed waive off, as on 04.04.2015, when the Respondent-Contractor served petitioner with first ever request for appointment of Arbitrator, being much beyond 90 day's period.
(x) Ld. Arbitrator has failed to examine the effect of Section 43(3) of Arbitration and Conciliation Act, and has proceeded in a manner that nullifies the said provision.
15. Ld. Counsel for the petitioner has also relied upon ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 8 of 30 following judgments in support of his contentions:-
a. M/s. P. Manohar Reddy & Bros Vs Maharashtra Krishna Valley Dev. Corp. & Ors, of Hon'ble Supreme Court of India. [Civil Appeal Nos. 7408-7409 of 2008, decided on 18.12.2008] b. Sterling General Insurance Co. Ltd. Vs. Planters Airways Pvt. Ltd.
of Hon;ble Supreme Court of India [Civil Appeal no.535(N) of 1974 decided on 19.12.1974] c. PSA Sical Terminals Pvt. Ltd. Vs. The Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Others [Civil Appeal No. 3699-3700 of 2018 of Hon'ble Supreme Court of India]
16. Main contentions of learned counsel for the respondent are:-
(i) The reasonableness of the reasons cannot be examined by this Court under Section 34 of the Arbitration and Conciliation Act, 1996 and the view taken by the Ld. Arbitrator cannot be stated to be not a plausible view.
(ii) The Award contains adequate reasonings for all decisions taken by the Ld. Arbitrator including as to the question of limitation.
(iii) The Ld. Arbitrator has rightly observed that the claims are within limiation i.e. within three years from the date of cause of action i.e. payment of the final bill.
(iv) The petitioner cannot rely upon clause 53, as such a clause is void under the law, as has been clearly discussed by the Ld. Arbitrator.
17. Learned counsel for the defendant has also relied upon Bharat Sanchar Nigam Limited Vs. M/s Nortel Networks India Limited [Civil Appeal nos.843 and 844 of 2021 decided by the Hon'ble Supreme Court on 10.03.2021] while contending that the period of limitation has to be in accordance with Article 137 of the Schedule of Limitation Act, 1963, and the claims cannot be ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 9 of 30 treated as barred by limitation if the request for appointment of the Arbitrator is made within three years.
18. Before proceeding further, a reference to the observations made by the Ld. Arbitrator in this respect seems to be desirable. In para no.12 of the Award, the Ld. Arbitrator has dealt with the objections raised by MTNL including the objections as to the limitation, premised upon clause 53 of the Agreement. The relevant portion of the impugned Award is as under:-
"12. Preliminary objections:-
12.1 Respondent has contended that the claims are time barred for reasons as under:
a) As per clause 53 of the agreement, if the contractor does not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the NTNL that the bill is ready for payment, the claim of the contractor will be deemed to have been waived and absolutely barred and the MTNL shall be discharged and released of all liabilities under the contract in respect of these claims
b) The claimant did not invoke arbitration within 90 days from the date it received intimation regarding final bill from the respondent which was 21.11.2012 not even within 90 days from the date the final bill was paid which was 30.05.2013, The claimant invoked arbitration only on 26.09.2015, after a considerably long unexplained delay of more than two years. Consequently, all the claims raised by the claimant in its statement of claim are time barred in accordance with clause 53 of the agreement and are liable to be dismissed by this tribunal.
12.2 It is also the contention of the respondent that for the reasons as mentioned in the preliminary submissions and preliminary objections of its SOD (RD-1), which, inter alia, includes that the claimant accepted all the bills including final bill without protest, the claimant is not entitled to award of any claims.
12.3 The claimant has rebutted the entire contention of the respondent and has stated that the stipulation of limit of 90 days in clause 53 is to be held as void in terms of section 28 of the Indian Contract ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 10 of 30 Act 1872 as amended on 08.01.1997. The claimant in support of-ts contention has also relied, inter alia, on the judgment in the case of Hindustan Construction Corporation Vs DDA [1991 (I) ARB.LR.272] and Union O: India Vs Simplex Concrete Pvt. Ltd. [2004 (II) AD-Delhi-305]. It is also the contention of the claimant that the so called final bill paid on 30 05.2013 cannot be treated as final bill as certain amounts were either withheld or not paid in this bill, Merely using the word 'final' and at the same time withholding the legitimate dues spoils the finality of any action as held in the case of Ram Nath Mehra & Sons VS Union of India[ IALR (1983) page-24 Para 7, 8 and 9.
Claimant has further contended that since final payment has not been received by the claimant, the stage of its acceptance has not been" reached. It IS also the contention of the claimant that merely signing does not' mean that the entire things which are not on the paper are accepted and hence the same cannot be taken as full and final settlement. However, even if the limitation is reckoned from 30.05.2013, the arbitration was invoked on 29.06.2015 which was within the limitation period of three years My Findings
a) The stipulation of limit of 90 days in clause 53 1s held as void in terms of section 28 of the Indian Contract Act, 1872 as amended on 08.01.1997 as the limitation period as per article 137 of the Limitation Act is three years, which, as per settled legal position is to be reckoned from the date of receipt of intimation that final bill is ready which date in this case can at best, according to the respondent, be taken as 21,11.2012. Admittedly. the_claimant Invoked arbitration on 26.09.2015 which was well within three years of 21,11.2012, Hence, the arbitration is not time barred
b) Given the fact that certain amounts as withheld in running bills remained withheld even after the so called final bill was paid on 30.05.2013 and some more amounts were withheld in the so called final bill, this cannot be treated as final bill. Further, unless the contractor (claimant) signs an unqualified certificate that it accepts the final bill as full and final settlement and that it will not raise any claim hereafter, it cannot be debarred from raising its genuine claims, No such certificate has been placed on record
c) As regards other objections of the respondent, the same are neither worth mention nor merit any consideration or decision as they are just of routine nature.
Decision:
In the view of my findings above, all the preliminary objections of the respondent are rejected and it is held that all the claims of the claimant qualify for adjudication on merits."ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 11 of 30
19. It is the assertion of the learned counsel for the petitioner that the Ld. Arbitrator has clearly violated the terms of the contract inasmuch as, he has entertained the claims which have become barred and deemed to be waived off on the part of the Contractor, and has accordingly committed an error in jurisdiction. It is his submission that the Arbitrator, being a creature of the Agreement, cannot traverse beyond the terms of the Agreement and as he derives his power and authority under the Agreement itself, he can neither act against or beyond the terms, nor can he interpret the same in a manner, which nullifies the effect of a clause duly agreed upon by the parties.
20. It has been impressed upon the Court that such an Act is clearly a transgression beyond the confines of jurisdiction of the Ld. Arbitrator. In this respect, he has referred the judgment of the Hon'ble Supreme Court in PSA Sical Terminals Pvt. Ltd. Vs. The Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Others [Civil Appeal No. 3699-3700 of 2018], wherein the Hon'ble Supreme Court held as under:-
"85. It has been held that the role of the Arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction.
86. It will also be apposite to refer to the following observations of this Court in the case of Md. Army Welfare Housing Organization v. Sumangal Services (P) Ltd.
"43. An Arbitral Tribunal is not a court of law. Its orders are not judicial orders. Its ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 12 of 30 functions are not judicial functions. It cannot exercise its power ex debito justitiae. The jurisdiction of the arbitrator being confined to the four corners of the agreement, he can only pass such an order which may be the subject matter of reference."
87. It has been held that an Arbitral Tribunal is not a Court of law. Its orders are not judicial orders. Its functions are not judicial functions. It cannot exercise its powers ex debito justitiae. It has been held that the jurisdiction of the arbitrator being confined to the four corners of the agreement, he can only pass such an order which may be the subject matter of reference."
21. The above aspect is integrally linked with contentions relating to Clause 53 of the GCC and Section 43 of the Arbitration and Conciliation Act with regard to the limitation for seeking appointment of the Arbitrator. The relevant portion of clause 53 is as under:-
"53.0 Arbitration Settlement of Disputes 53.1 For Contract other than the Public Sector Undertakings.
......... 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 MTNL that the bill is ready for payment, the claim of the contractor (s) will be deemed to have been waived and absolutely barred and the MTNL shall be discharged and released of all liabilities under the contract in respect of these claims......"
22. While submitting that the said clause is binding and that the circumscribing of limitation period for the purposes of Arbitration is a concept duly recognized, and also upheld by Courts, learned counsel for the petitioner has pressed reliance on ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 13 of 30 the judgment of Hon'ble Supreme Court of India in M/s. P. Manohar Reddy & Bros Vs Maharashtra Krishna Valley Dev. Corp. & Ors [Civil Appeal Nos. 7408-7409 of 2008, decided on 18.12.2008]. In the said judgment, Hon'ble Supreme Court of India observed as under :
"22. The contractual clause provides for a limitation for the purpose of raising a claim having regard to the provisions of Section 28 of the Indian Contract Act. It is no doubt true that the period of limitation as prescribed under Article 137 of the Limitation Act would be applicable, but it is well settled that a clause providing for limitation so as to enable a party to lodge his claim with the other side is not invalid.
..... ........
23. It is not a case where an application under Section 8 could not be filed within a period of 3 years. It is a case where a determination was necessary as regards invocation of the disputes settlement processes. For resolution of the dispute, a claim must be made in terms of the provisions of the contract for the purpose of giving effect to the arbitration clause; the application thereof being limited in nature.
..................
28. We, however, as noticed hereinbefore, are concerned with a different fact situation. As arbitration clause could not be invoked having regard to the limited application of clauses 37, 54 and 55 of the General Conditions of the Contract, we are of the opinion that the trial court was not orrect in directing appointment of an arbitrator.
29. We may notice that in Wild Life Institute of India, Dehradun vs. Vijay Kumar Garg [(1997) 10 SCC 528], a Division Bench of this Court held as under:
"It is also necessary to refer to the arbitration clause under the contract which clearly provides that if the contractor does not make any demand for arbitration in respect of any claim in writing within 90 days of receiving the intimation from the appellants that the bill ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 14 of 30 is ready for payment, the claim of the contractor will be deemed to have been waived and absolutely barred and the appellants shall be discharged and released of all liabilities under the contract in respect of these claims. The liability, therefore, of the appellants cease if no claim of the contractor is received within 90 days of receipt by the contractor of an intimation that the bill is ready for payment. This clause operates to discharge the liability of the appellants on expiry of 90 days as set out therein and is not merely a clause providing a period of limitation. In the present case, the contractor has not made any claim within 90 days of even receipt of the amount under the final bill. The dispute has been raised for the first time by the contractor 10 months after the receipt of the amount under the final bill."
..................
31. It is also not a case where sub-section (4) of Section 37 of the Act could be invoked. Appellant did not invoke Section 37(4) of the Act. No reason has been assigned as to why the said discretion of the court should be invoked particularly when the claim has been raised only after completion of the work."
23. It has been further impressed upon the Court that since Section 43(3) of the Arbitration and Conciliation Act, 1996, itself carves out an exception to the general limitation in case of Agreement to the said effect, there cannot be any doubt as to the legality and validity of Clause 53. Section 43(3) of the Arbitration and Conciliation Act, 1996 is reproduced as under:-
"43(3):- Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement,and: dispute arises to which the agreement applies, the court, if it is ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 15 of 30 of opinion that in the. circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper."
24. There cannot be any doubt as to the fact that an Arbitrator's jurisdiction is hedged by the terms of the contract, as it is the contract itself that an Arbitrator owes its existence to.
25. The well settled principles of law relating to Arbitrator's jurisdiction are that an Arbitrator can neither act independently, nor route around or traverse beyond the terms of the contract, and cannot operate beyond confines of his authority. The law relating to the jurisdiction of the Arbitrator, vis a vis the terms of the contract, is fairly settled since considerable time.
26. In M/s. Alopi Parshad Vs. Union of India (1960) 2 SCR 703, the Hon'ble Supreme Court of India has observed that:
"18...... It is, thus, well settled that the arbitrator is creature of the contract between the parties and, therefore, if he ignores the specific terms of the contract, it would be a question of jurisdictional error, which could be corrected by the Court and for that limited purpose the agreement is required to be looked into. Reference to the points of contract is, therefore, must for arriving at a conclusion with regard to whether the arbitrator has exceeded his jurisdiction or not."
27. In Bharat Coking Coal Ltd. vs. Annapurna Construction AIR 2003 SUPREME COURT 3660, Hon'ble Supreme Court of India has observed that:
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 16 of 30"14. The question is as to whether the claim of the contractor is de hors the rules or not was a matter which fell for consideration before the arbitrator. He was bound to consider the same. The jurisdiction of the arbitrator in such a matter must be held to be confined to the four-corners of the contract. He could not have ignored an important clause in the agreement; although it may be open to the arbitrator to arrive at a finding on the materials on records that the claimant's claim for additional work was otherwise justified. ..................
22. There lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. Thus, the role of the arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameters of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record"
28. Similar observations have been made in Associate Engineering Company v. Govt. of Andhra Pradesh and others, (1991) 4 SCC 93, wherein the Hon'ble Supreme Court of India observed as under:
"24. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract; his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it.
25. An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 17 of 30 Arbitration Act which embodies principles derived from a specialized branch of the law of agency (see Mustill & Boyd's Commercial Arbitration, Second Edition, p. 641). He commits misconduct if by his award he decides matters excluded by the agreement (see Halsbury's Laws of England, Volume II, Fourth Edition, Para 622). A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award."
29. The above principles of law finds their reiteration in the judgments of Hon'ble Supreme Court of India in Rajasthan State Mines and Minerals Limited v. Eastern Engineering Enterprises and another, (1999) 9 SCC 283; West Bengal State Warehousing Corporation and another V. Sushil Kumar Kayan and others, (2002) 5 SCC 679, and State Of Chhattisgarh vs M/S Sal Udyog (P) Ltd. In [Civil Appeal No. 4353 of 2010 decided on 08.11.2021.
30. The interpretation of terms/clauses of the Agreement by the Arbitration is also not immune to challenge under Section 34 of the Arbitration and Conciliation Act, 1996. Recently, in Union Of India & Anr. vs M/S Jindal Rail Infrastructure Limited [O.M.P. (COMM) 227/2019], Hon'ble High Court of Delhi has observed that:
65. As stated above, the said award is based on interpretation of Clause 2.4 of the Agreement (renumbered as Clause 2.8 of the Agreement), as according to the Arbitral Tribunal, the said clause did not entitle the Railways to place an order for additional ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 18 of 30 quantities at the price quoted by tenderer, if there was a substantial increase in the market value or the cost of manufacturing of wagons. This was not a case set up by JRIL in its Statement of Claims.
68. A commercial contract between the parties cannot be avoided on the ground that one of the parties subsequently finds it commercially unviable to perform the same. The Arbitral Tribunal has, essentially, re-
worked the bargain between the parties and re- written the contract. This is, clearly, impermissible.
70. There is no dispute that the interpretation of a contract falls within the jurisdiction of an arbitral tribunal and an arbitral award based on a plausible interpretation of a contract cannot be interfered with under the provisions of Section 34 of the A&C Act.
75. In cases where it is found that the terms of the contract do not clearly express the intentions of the parties, it is open to seek recourse to various tools of interpretation. This would include interpreting a contract in a manner that would make commercial sense as it is assumed that men of commerce would have intended it so. However, it is not open to re-work a bargain that was struck between the parties on the ground that it is commercially difficult for one party to perform the same.
76. The decision of the Arbitral Tribunal to award the difference between the price quoted by the tenderers and the price quoted by JRIL, is unsustainable. It amounts to re-writing the contract between the parties. The impugned award is in conflict with the fundamental policy of Indian law and is vitiated by patent illegality."
31. Turing back to the findings of the Ld. Arbitrator. The petitioner side has contended that the said interpretation not only nullifies the clause 53 of the GCC, same runs foul with Section ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 19 of 30 43(3) of the Arbitration and Conciliation Act, 1996. The contentions of the learned counsel for the petitioner to this effect seems to carry weight. It is undoubtedly true that clause that restrict limit of time have been upheld by the Hon'ble Supreme Court of India in P Manohar Reddy's case, referring to its earlier judgment in the case of Wild Life Institute of India, Dehradun vs. Vijay Kumar Garg [(1997) 10 SCC 528].
32. Similar principles are found to be articulated in the judgments of Hon'ble Supreme Court of India in State of Goa Vs. M/s Western Builders, [CA Nos. 1458 to 1465/2004, decided on 05.07.2006] and Panchu Gopal Bose vs Board Of Trustees For Port Of Calcutta [(1993) 2 SCJ 677 Decided on 23.04.1993.]
33. The above dispensation may prompt an inference that the Ld. Arbitrator's decision as to invalidity of Clause 53 is vitiated by an erroneous interpretation going to the root of the matter. This aspect, however, needs to be dwelled upon in detail.
34. There is one fundamental aspect which is more decisive and has a stronger overreach in this context. The amendment of the year 1997 in Section 28 of the Indian Contract Act renders any agreement restricting the limit of time within which a party may enforce his rights, as void. With the amendment in Section 28 of the Indian Contract Act in the year 1997, the superior Courts have revisited these principles and are found to have clarified the position in view of the said amendment.
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 20 of 3035. In Punj Llyod Ltd vs National Highways Authority Of India. [OMP 340/2008 & ARB. APPL.14/2008 dated 17.02.2009], the Hon'ble High Court of Delhi was dealing with a contract containing a similar clause pertaining to limitation and has also referred to the Hon'ble Supreme Court of India's decision in Wild Life Institute of India, Dehradun vs. Vijay Kumar Garg [(1997) 10 SCC 528]. The Court observed as under:-
"16. This court in Pandit Construction Company Vs. DDA 143 (2007) DLT 270 has held that National Insurance Co. and yet another dicta of the Apex Court in Wildlife Institute of India Vs. Vijay Kumar Garg (1997) 10 SCC 528 also pronounced soon after the amendment on 2nd May, 1997, do not deal with the amended Section 28 and hence not good law. Thus the arbitration clause in a DDA contract providing that if the contractor does not make demand for arbitration within 90 days of receiving intimation of bill being ready for payment, the claims of the contractor will be deemed to have been waived and absolutely barred and DDA discharged and released from liabilities in respect of those claims was held to be in teeth of Section 28 as amended and not barring the claim of the contractor.
.....................
27. I have also wondered that if under the amended Section 28 of the Contract Act, any clause of the contract barring arbitration unless some step to commence arbitral proceeding is taken within a time fixed by the agreement, is void, why Section 43(3) in the 1996 Act. Was the legislative intent to make the benefit of Section 28 of Contract Act available in arbitration clause only on proof of hardship and empower the court only to relieve against such forfeiture and not allow the Arbitral Tribunal to apply Section 28.
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 21 of 3029. I may also notice the recent judgment of the Apex Court in P Manohar Reddy Vs. Maharashtra Krishna Valley Dev. Corp MANU/SC/8480/2008 relied upon by the counsel for the respondent. In the said judgment, the Apex Court upheld a contractual clause providing for limitation for the purposes of raising a claim and further held the said clause to be not invalid. Reliance was placed on Wild Life Institute of India (supra) which judgment as aforesaid has been considered by this court in Pandit Construction Company (supra) and held to be not considering the amendment to Section 28 of the Act."
36. In M/s Chander Kant & Co. Vs. The Vice Chairman, DDA & Ors, [Arbitration petition No.246 of 2005, dated 26.05.2009], the Hon'ble High Court of Delhi dealt with the impact of the amendment, vis a vis, restrictions in the clause and also distinguished the judgment of the Hon'ble Supreme Court of India in P Manohar Reddy's case. The Court observed:-
"8. The 1997 Amendment to the Section now also prohibits clauses which seek to extinguish the rights of any party thereto, or discharge any party from any liability under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights. The amendment gave effect to the 97th report of the Law Commission of India. The effect of the amended Section 28 was considered by the learned single judges of this Court in Hindustan Construction Company Vs. DDA; Kalyan Chand Goyal Vs. Delhi Development Authority (supra); J.K. Anand Vs. DDA & Anr.; 2001 (59) DRJ 380 and Union of India Vs. Simplex Concrete Piles India (P) Ltd.; 2003 (3) Arb. LR 536 (Delhi) in which similar causes were held to be not valid in view of the amended provisions of Section 28 (b) of the Contract Act. In Explore Computers Pvt. Ltd. Vs. Cals Ltd. & Anr. (supra), Sanjay Kishan Kaul, J considered the decision of Supreme Court in National Insurance Co.
Ltd. Vs. Sujir Ganesh Nayak & Co. (supra) and other decisions and held as follows :-
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 22 of 30"48. The effect of the amendment of Section 28 thus made it clear that any clause extinguishing the right of a party or discharging any party from the liability in respect of any contract on expiry of specific period so as to restrict the time period would be void.
53. On a conspectus of the aforesaid judgments, two aspects have to be noted. The first is that it is the terms of the bank guarantee which have to be given due weight and the second is the distinction which is sought to be carved out in National Insurance Company Ltd. Case between a clause curtailing the period of limitation being void under Section 28 of the Contract Act and a clause which provides for forfeiture or waiver of a right if no action is commenced within the period stipulated by the agreement. Insofar as the second aspect is concerned, it cannot be lost sight of that the judgment in National Insurance Company Ltd. Case was delivered on 23.3.1997 and thus related to the provisions of Section 28 as it stood prior to the amendment because that was the substantive law in force at the time when the cause of action had arisen. The amendment to Section 28 was made with effect from 8.1.1997 and it is not disputed that the cause of action in respect of the subject matter in the present suit arose after the amendment. Sub- clause (b) of the amended Section 28 deals with the clauses which extinguish the rights of any party thereto or discharge any party from any liability being void under the said section. Thus, the scope of Section 28 has been widened whereby clause (a) deals with the position prior to the amendment alone and clause (b) is in addition.
54. In view of the amended section coming into force, the distinction sought to be carved out earlier by the legal pronouncements would not hold good.
55. In my considered view it is not open for defendant no.2 to contend that if any suit or ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 23 of 30 claim is not filed within one month of the expiry of the bank guarantee, the right of the plaintiff to institute any legal proceedings itself is extinguished. Such a plea would fly in the face of the amended Section 28 as defendant no.2 cannot be discharged from the liability nor can the rights of the plaintiff be extinguished by inclusion of the clause providing so. I am thus of the considered view that to the extent there is restriction on any suit or claim being filed by the plaintiff beyond a period of one month from the expiry of the bank guarantee, the said clause would not prohibit the plaintiff from instituting the suit as it would be barred by the provisions of the amended Section 28 of the Contract Act."
9......
10. The contention of the DDA's counsel that the decisions of this Court no longer hold good in view of the decision in P.Manohar Reddy's case is misconceived. That decision is clearly distinguishable on facts.........
11. In P.Manohar Reddy's case the Supreme Court had no occasion to consider the effect of the insertion of Clause (b) in Section 28 by Amending Act 1 of 1997. The Court did refer to the judgments in Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Wild Life Institute of India, Dehradun Vs. Vijay Kumar Garg but it was obvious that the observations were made in the context of unamended Section 28 of the Contract Act. It is also seen from the judgment that the cause of action had arisen in that case on 29.10.1991 on which date the appellant's claim was rejected. It is thus clear that the Court considered the case in the light of the unamended provisions of Section 28 of the Contract Act."
37. In Union of India Vs. Pt. Munshi Ram & Associates Pvt. Ltd. [OMP No.432 of 2011 dated 21.12.2012], the Hon'ble High ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 24 of 30 Court of Delhi had occasion to deal with the similar question of law in light of the amendment. The Court referred to the earlier decisions of the High Court as well as the judgments of the Hon'ble Supreme Court of India and observed as under:-
"10. The change brought about by the above amendment is that it also treats as void clauses of a contract which seek to extinguish right of any party or discharge any party from liability on the expiry of specified period so as to prevent an aggrieved party from enforcing its rights. After the enactment of the above amendment, a series of judgments were passed by the learned Single Judges of this Court holding that the distinction sought to be carved out by the earlier decisions in The Vulcan Insurance Co. Ltd. v. Maharaj Singh, National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. and Wild Life Institute of India, Dehradun v. Vijay Kumar Garg did not survive. These decisions included Hindustan Construction Company Limited v. Delhi Development Authority 1999 (1) ArbLR 272, Kalyan Chand Goyal v. Delhi Development Authority 1998 (47) DRJ 772, Explore Computers Pvt. Ltd. v. Cals Ltd. and Pandit Construction Company v. Delhi Development Authority.
11. It may be noted that the decision of the learned Single Judge of this Court in Pandit Construction Company v. Delhi Development Authority (supra) also dealt with the issue whether the amendment would apply even where the contract was entered into prior to the date of the amendment. This was answered by holding that "though the contract may have been entered into before the amendment to the provision, starting from the preparation of the final bill everything has happened after the amended provision came into play and the amendment changing the substantive law, it would certainly apply to the contract at hand." The decision of the learned Single Judge has been upheld by the DB of this Court in D.D.A. v. Pandit Construction Co. [decision dated 19th April 2012 in FAO(OS) No.382 of 2007]. It has been held that "the position post January 08, 1997 ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 25 of 30 would be that Clause 25 of the General Conditions of Contract would be void." On the facts of that case, it was noted that even though the agreement was dated 30th November 1990, i.e., prior to the amendment to Section 28 of the CA, "the work lingered on till April 28, 1998. The final bill was prepared on July 05, 1999 and intimation of it be finalized sent to the respondent on March 20, 2001." Reference was made to the decision of the DB of this Court in M/s. Chander Kant and Co. v. The Vice Chairman, DDA (supra), which held that the law as in force when a dispute arises has to be considered and not that in force when a contract is entered into.
....
13. For the aforementioned reasons, this Court upholds the view taken by the learned Arbitrator in the order dated 1st May 2010 that Clause 25 to the extent that it extinguishes the rights of the Respondent to make any claims whatsoever if not made in the prescribed period would be hit by Section 28 CA and, therefore, the claims were not barred by limitation."
38. In Silicon Graphics Systems (India) P. Ltd. Vs. Sterling and Wilson Electrical P. Ltd. [OMP No.196/2004 dated 24.03.2015], the Hon'ble High Court of Delhi rejected a contention that the reference to Arbitration was beyond limitation observing that as long as the claims were made in the three years of the final certificate, the same cannot be barred by limitation. The Court observed as under:-
"15. The dissenting Arbitrator has referred to Clause 98.1 which requires the contractor to have given a written notice within 28 days of receiving the decision of the Architect to give a written notice of arbitration. A stipulation in a contract of 28 days' limitation for disputes to be referred to arbitration has ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 26 of 30 been held by this Court in a number of decisions to be hit by Section 28 of the Contract Act. [See Union of India v. Pt. Munshi Ram & Associates 2013 I AD (Delhi) 801, DDA v. Pandit Construction Co., FAO(OS) 382/2007 decided on 19th April 2012, Manohar Singh v. Raksha Karamchari Coop. Gr. H. Soc. (2010) 114 DRJ 665, Explore Computers Pvt Ltd v. Cals Ltd. 131 (2006) DLT 477, Hindustan Construction Corporation v. DDA 77 (1999) DLT 165]. The dissenting Arbitrator failed to notice the above settled position in law. As long as the claims were made within three years of the final certificate appended to the bills by the Architect, it cannot be said that the claims were barred by limitation.
Without the certification of Architect on 12th May 1999 it cannot be said that a dispute could be said to have arisen which required reference to arbitration. The deduction of LD from the bill stood confirmed only on that date as far as the Respondents are concerned. Consequently, this Court is unable to accept the submission of learned counsel for the Petitioner that the reference to arbitration was barred by limitation or that the notice of invocation of arbitration was beyond the period of three years and therefore barred by limitation."
39. More recently, in B.L Kashyap AP & Sons Ltd. Vs. Airport Authority of India [ARB.P 360/2016 dated 06.10.2016], the Hon'ble High Court of Delhi has examined the question of claim not having been filed within 90 days of the settlement of the final bill and provision as to the barring of claim as per Section 25 of the Contract. The Court observed as under:-
"5. In Union of India v. Pt. Munshi Ram (supra) the Court was dealing with a clause similar to Clause 25 of the contract in the present case which stated that if no claim was made within 90 days of settlement of the final bill, then the contractor would be precluded from raising any claim. The Court explained the legal position that existed prior to the amendment of ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 27 of 30 Section 28 of the Contract Act, 1872 (CA) which was governed by the decision in The Vulcan Insurance Co. Ltd. v. Maharaj Singh (1976) 1 SCC 943. It was held that the agreement that did not limit the period within which the party might enforce its right but provided for the forfeiture or waiver of the right if no suit was brought within the period stipulated in the agreement was outside the scope of Section 28 of the Contract Act and was binding on the parties. This was reiterated in National Insurance Co. Ltd. v. Sujir Ganesh Nayar (1997) 4 SCC 366. It was this legal position that was reiterated in Wild Life Institute of India, Dehradun v. Vijay Kumar Garg (supra). However, with effect from 8th January 1997, Section 28 of the CA was amended and read as under:"
7. Accordingly, in Pt. Munshi Ram (supra), this Court concurred with the view expressed by the Arbitrator that Clause 25 to the extent that it extinguishes the rights of the contractor to make any claims if not made within the prescribed period would be hit by Section 28 of the CA.
8. ........
9. In that view of the matter, the Court is satisfied that in the present case, Clause 25 of the contract is contrary to Section 28 of the CA and cannot be sought to be enforced by the Respondent to defeat the right of the contractor to maintain the claim arising out of the contract."
40. The effect of amendment in Section 28 of the Indian Contract Act in the context of limitation as for claims before the Arbitrator have been reiterated by the Hon'ble High Court of Delhi in the cases recounted above.
41. Coming now to the next limb of argument i.e. effect of Section 43(3) of the Arbitration and Conciliation Act, 1996. When collated with amended Section 28 of the Contract Act, provision seem to be effectively positioned against each other.
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 28 of 30One may feel tempted to assume stronger overreach and primacy of the said provision, over Section 28 of the Contract Act, it being a special law. It has been, with great erudition, impressed by petitioner side that there could be no other reasons, except for carving out an exception to general law of limitation, and validating an agreement, restricting the extent of limitation, and laying down a procedure for exercise of any right, that Section 43(3) had found its way to Arbitration & Conciliation Act, 1996. It is also contended that the said provision continues to remain effective, and a similar provision also existed in previous Act of 1940. These nuances, however, have already been addressed by the Hon'ble High Court of Delhi in Punj Llyod Ltd vs National Highways Authority Of India. [OMP 340/2008 & ARB. APPL.14/2008 dated 17.02.2009].
42. In the ultimate analysis, it is found that the amendment in Section 28 of the Contract Act is deeply consequential in this respect. With the observations made by the Hon'ble High Court of Delhi in Punj Llyod's case, it can fairly be concluded that in dealing with clause 53 of GCC, Ld. Arbitrator has not committed any error of jurisdiction, nor can be claimed to be patent illegality.
43. With the above position of law being clear, the Court cannot subscribe to the submissions of the petitioner. The Courts, as is clear from the above precedents, the Hon'ble High Court of Delhi has also taken into consideration the Section 43(3) of the ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 29 of 30 Arbitration and Conciliation Act, 1996, while clearing holding that amendment in Section 28 would clearly invalidate any agreement restricting the time limit within which a party seeks adjudication. Having said that nothing else remains to be dealt with.
44. The petition is accordingly dismissed.
45. Parties are made to bear their own costs.
46. File be consigned to record room after due compliance.
Dictated and Announced today Digitally signed
i.e. on 06.08.2024 NIKHIL
by NIKHIL
CHOPRA
in the open Court CHOPRA Date:
2024.08.06
15:27:01 +0530
(NIKHIL CHOPRA)
District Judge (Commercial Court 06)
Central District, Tis Hazari Courts,
ARA.A.(Comm) 20/2019 Mahangar Telephone Nigam Ltd. Vs. M/s Rukma Decor & Co. Page 30 of 30