Allahabad High Court
U.P.State Food & Essential Commodities ... vs M/S Astha Coal Trading (Private) Ltd. ... on 12 July, 2019
Author: Jaspreet Singh
Bench: Jaspreet Singh
HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH AFR Reserved Court No. - 6 Case :- FIRST APPEAL FROM ORDER No. - 867 of 2005 Appellant :- U.P.State Food & Essential Commodities Corporation Ltd. Respondent :- M/S Astha Coal Trading (Private) Ltd. Thru M.D. & 2 Ors. Counsel for Appellant :- Sanjay Bhasin,Girish Chandra Sinha Counsel for Respondent :- Agendra Sinha,S.P.Tripathi Hon'ble Jaspreet Singh,J.
The instant first appeal from order has been preferred under Section 37 of the Arbitration & Conciliation Act, 1996 challenging the judgment dated 6th of September, 2005 passed by the District Judge, Lucknow in Regular Suit No.24 of 2003 whereby the petition under Section 34 of the Arbitration & Conciliation Act 1996 has been dismissed as a consequence the award passed by the Sole Arbitrator dated 03.05.2003 has been affirmed.
Briefly, the facts giving rise to the present appeal are that on 25.04.1991 an agreement was executed between the appellant U.P. State Food & Essential Commodities Corporation Ltd. (hereinafter referred to as a Corporation) and M/s. Astha Coal Trading (Private) Ltd. (hereinafter referred to as a Company).
The agreement in between the Corporation and the Company was for the purposes of the distribution and import of slack coal among the eligible consumers as per the direction of the Government of India/State Government. The Corporation was nominated by the State of U.P. for the import and distribution of slack coal for Uttar Pradesh and in accordance with the agreement, the Company was appointed as the handling agent.
In terms of the aforesaid agreement, the Company was required to insure the import and distribution of slack coal among the eligible consumer and all expenses in connection with the aforesaid import and distribution was to be borne by the Company. The Corporation was entitled to obtain commission/royalty @ 5% of the purchase price of the slack coal. The Company was required to provide a bank guarantee by way of security in favour of the Corporation for an amount equivalent to 5% of the purchase price of the coal to be imported in Uttar Pradesh at the time of obtaining the letter of allotment. For the purposes of facilitating the distribution of slack coal to the consumers the Company was required to make available the services of three centre dumps at Varanasi, Kanpur and Ghaziabad free of cost and without any financial responsibility for expenses connected with the running of the dumps/centres for the consumers of the Eastern,Central and Western part of the Uttar Pradesh.
The aforesaid agreement was to remain inforce initially for a period of four years and if the working of the agreement was to the satisfaction of the parties, then the same could be extended for subsequent years after increasing the commission/royalty from 5% to 6% as mutually agreed. This agreement also had an arbitration clause which is in the eye of the storm and as such for ready reference, the same is being reproduced herein after "15. In the event of any dispute or differences arising out of interpretation regarding any clause of this agreement, the matter will be referred for arbitration to the Managing Director of U.P. State Food &Essential Commodities Corporation whose decision in the matter be final and binding on both the parties."
The controversy in between the parties commenced when in the year 1993 there were some changes in the policy enunciated by the Central Government. The result of which the import and distribution of slack coal through the Company was not feasible and there were various question marks which were raised on the State Government giving rise to opening of avenues for exploitation of consumers. The State Government thereafter took a decision not to avail the services of the handling agent as a result this decision was conveyed to the Corporation. In view thereof, the Corporation issued a letter dated 11.03.1993 terminating the contract between the parties.
The Company assailed the cancellation order dated 11.03.1993 before a Division Bench of this Court in Writ Petition No.NIL of 1993. The High Court by means of the order dated 19.04.1993 while allowing the writ petition of the Company set aside the order of cancellation dated 11.03.1993 as a result the termination of the contract was set aside and the legal position obtained in law, would be, that the agreement revived in between the parties.
After the issuance of the termination letter and despite the termination having been set aside by the High Court, the fact not in dispute is that no additional sponsoring letter was issued by the Corporation to the Company.
Be that as it may, the agreement though subsisted in letter but it was never carried forward in spirit. In the meantime, the agreement came to an end at the expiry of four years i.e. in April 1995. In the meantime, the Corporation in its wisdom found that a sum of Rs.1,30,000 and odd was found outstanding against the Company for which it issued notices. However, all the such notices were denied by the Company stating that the amount was not payable. The fact remains that the Company did not raise any claim of its own rather the demand letters issued by the Corporation were disputed and moreover each time the letter was sent by the Corporation there was a deviation in the amount claimed and this was the basic ground of the Company to state that no amount was outstanding against the Company.
Later, on 30.06.1998, the Corporation issued a recovery citation and sent the same to the Collector of Kanpur City for recovery against the Company, as the arrears of land revenue. In furtherance of the aforesaid recovery citation issued, the managing director of the Company was arrested and later upon deposit of Rs.2,02,000/-, he was released and this prompted the Company to challenge the recovery certificate before a Division Bench of the High Court by means of the Writ Petition No.10079 (M/B) of 1999. The Division Bench while passing the order dated 22.03.1999, finding clause 15 in the agreement and provided that the Company should approach the managing director of the Corporation with a suitable application for arbitration and the same was to be decided within a period of three months in accordance with law. It was further provided that if the aforesaid application was made within three weeks from the date of the order, the recovery shall remain stayed till disposal of the arbitration proceedings.
It is in this light that the Company preferred a claim of 50 lakhs before the Corporation. Thereafter the Company challenged the appointment of the managing director of the Corporation to act as an arbitrator on the ground that since he was a party interested in the contract and he had himself issued the notice for recovery, therefore, some independent person must be appointed as the arbitrator. This challenge was made in a petition under Sections 11 and 14 of the Arbitration & Conciliation Act by filing an arbitration application bearing C.M.C. Case No.53 of 1999 and the High Court by means of order dated 20.05.2000 appointed a retired judge of this Court Hon'ble Mr. Justice K.L.Sharma, as the Sole Arbitrator.
The Company again submitted almost identical statement of claim before the Sole Arbitrator Hon'ble Mr. Justice K. L. Sharma (Retd.). In response thereto, the Corporation also submitted its counter claim before the Sole Arbitrator. The Corporation apart from the factual dispute raised two grounds for consideration of the Sole Arbitrator; (i) that the dispute was not arbitrible and was beyond the scope of the jurisdiction of the arbitrator; (ii) that the claim made by the claimant was barred by limitation.
The Sole Arbitrator in light of the pleadings between the parties framed 10 issues. Amongst the issues so framed, issue no.1 was specifically framed as to whether the claim made by the claimant was time barred and issue no.2 was framed to the effect whether the claim submitted by the claimant before the arbitrator is beyond the scope of adjudication by the arbitrator. After considering the respective case of the parties, the arbitrator returned the finding holding that the claims were well within the limitation and it turned down the contention of the Corporation that since the agreement came to its natural death in the year 1995, therefore, the statement of claim filed beyond a period of three years in the year 1999 was barred by limitation and specifically held that the limitation for the claim started when the recovery certificate was issued by the Corporation in the year 1998 and since the statement of claim was filed on 16.04.1999 thus it was within limitation.
As far as issue no.2 was concerned, it found that the aforesaid plea was an after thought and the claim petition filed before the Sole Arbitrator was almost identical to the one which was submitted before the Managing Director of the Corporation and it was nothing but a continuation of the same proceedings, thus the plea regarding the scope of the arbitrator to adjudicate the dispute did not find favour with the Sole Arbitrator and the same was also tuned down. Thereafter considering the other issues the Sole Arbitrator considered the claim of the claimant which for ready reference is being reproduced hereinafter :-
(a) Damages for two years as loss of commission due to disallowing the claimant to handle the business in 42 districts of U.P. 20 lakhs
(b) Loss of goodwill and reputation suffered by the claimant on making arrangements in Calcutta, colliery and 42 districts of U.P. for handling and distribution of coal.
15 lakhs
(c) Loss of reputation and defamation as well as loss of individual reputation and mental stress of the Managing Director on issuance of the Recovery Certificate.
15 lakhs
(d) Refund of the amount illegally recovered by the Collector Kanpur City under Recovery Certificate.
(Covered under issue no.7) 2 lakhs 2 hundred
(e) Interest at the rate of 24 per cent per annum with effect from 31.03.1995 till date of payment on claims (a), (b) and (c); from the date of deposit till the date of refund of claim (d) (Covered under issue no.8)
(f) Cost of the arbitration proceedings (Covered under Issue no.9) Upon concluding and making the award, the arbitrator held as under:-
"In view of the aforesaid discussions and conclusions, the claimant is entitled to get from the respondent damages to the extent of 5 lakhs only and the refund of Rs.2 lakhs and two hundreds only and the amount of Rs. One lakh 35 thousands and sixty towards the cost of arbitration. In addition, the claimant shall also be entitled to get the amount of interest on the amount of damages of Rs.5 lakhs at the rate of 18 per cent per annum with effect from 01.04.1995 till the date of actual payment by the respondent. The claimant shall further be entitled to get from the respondent an amount of interest at the rate of 10 per cent per annum on the amount of refund of Two lakhs and two hundreds with effect from the date of its deposit by the claimant till the date of actual payment by the respondent. If the respondent fails to pay the amount of Rs.135060/- towards the cost of arbitration within period of 30 days from the date of this award the claimant shall further be entitled to get interest on the amount of costs also at the rate of 18 per cent per annum from the date of expiry of 30 days from the date of the making of this award till the date of actual payment by the respondent to the claimant.
Directions The respondent is hereby directed to pay within 30 days from the date of this award to the claimant:-
(I) A sum of Rs.Five Lakhs with interest thereon at the rate of 18 per cent per annum with effect from 1.4.1995 till the date of actual payment to the claimant;
(2) A sum of Rs.Two Lakhs Two Hundred alongwith interest thereon at the rate of 18 per cent per annum with effect from 10.02.1999 till the date of actual payment to the claimant; and (3) A sum of Rs. One Lakh Thirty Five Thousands and Sixty only towards the cost of arbitration alongwith interest thereon at the rate of 18 per cent per annum with effect from the date of expiry of 30 days from the date of this Award till the date of actual payment to the claimant."
Thus, the Sole Arbitrator directed the Corporation to pay (i) a sum of Rs.50,000/- with interest @ 18% per annum with effect from 01.04.1995 till the date of the actual payment. (ii) A sum of Rs. Two lakhs two hundred alongwith interest @ 18% per annum with effect from10.02.1999 till the actual payment; (iii) a sum of Rs. One lakh thirty five thousands and sixty towards the cost of arbitration proceedings alongwith 18% per annum with effect from the date of expiry of 30 days from the date of the award i.e. 03.05.2003.
The arbitrator also found that since the Corporation did not pay the fee for the counter claim, accordingly the counter claim was not adjudicated upon and thus the Corporation being aggrieved by award dated 03.05.2003 preferred two petitions under Section 34 of the Arbitration & Conciliation Act, 1996, one which was registered as Regular Suit No.24 of 2003 which was against allowing the claims of the Company and the other bearing Regular Suit No.25 of 2003 was again that part of the award by which the arbitrator did not adjudicate the counter claim of the Corporation.
It is in this fashion that both the petitions under Section 34 of the Arbitration & Conciliation Act were connected by the District Judge, Lucknow and by means of its judgment dated 06.09.2005 it dismissed both the petitions.
The Corporation being aggrieved against the same preferred only one appeal under Section 37 of the Arbitration & Conciliation Act 1996 against the dismissal of the petition under Section 34 as far as it related to the allowing the claims of the Company. However, no appeal was preferred against the dismissal of Regular Suit No.25 of 2003 by which the counter claims of the Corporation were not adjudicated and thus that part of the award dated 03.05.2003 passed by the Sole Arbitrator has attained finality.
It is in this factual backdrop, the instant appeal was preferred before this Court and initially by means of order dated 08.12.2005, the execution of the award passed by the Sole Arbitrator and the order passed by the District Judge was stayed. Subsequently, the aforesaid interim order was modified by this Court by means of the order dated 18.08.2007 and in pursuance thereof the Corporation was directed to deposit a sum of Rs. 5 lakhs in the court within four weeks and as soon as the money was to be deposited, a sum of Rs.3 lakhs was directed to be released in favour of the Company.
Heard Sri G.C.Sinha, learned counsel for the appellant Corporation and Sri Agendra Sinha learned counsel for the respondent Company and also perused the record.
Learned counsel for the Corporation has raised two folds submission. It has been urged that in light of the undisputed facts between the parties to the effect that the agreement executed by the parties by which the respondent was appointed as the handling agent dated 25.04.1991 was initially for a period of four years. Even though the agreement was terminated on 11.03.1993 and that termination order was set aside by the High Court on 19.04.1993 yet the fact remained that from 11.03.1993 onwards no transaction took place between the parties and this fact is not disputed by the respondent.
Since the agreement came to an end by efflux of time on 31.03.1995, thus any claim of the Company ought to have been filed within three years which expired in April 1998. Since the statement of claim was filed before the arbitrator on 16.04.1999, therefore, the claims were prima facie barred by limitation. It has also been urged that even though the respondent was aware of the fact that the agreement was terminated on 11.03.1993 and thereafter no transaction took place between the parties, therefore, in any case all claims regarding any breach in between the parties would actually commence from 19.04.1993 when the High Court quashed the termination order since the claim raised by the claimant- respondent were in respect of the breaches, thus as far as the limitation is concerned, it would commence on 19.04.1993 and in any case it not beyond 31.03.1995 i.e. on the date when the agreement expired by efflux of time. Thus in any case since the claims were filed in April, 1999, therefore, the same was prima facie barred by limitation and the finding returned by the arbitrator that the limitation would commence when the Corporation issue the recovery citation on 30.06.1998 is apparently erroneous since the issuance of the recovery citation was a different cause of action and the claims which have been raised by the respondent were relating to the breach of the agreement which was a separate cause of action and those specific breaches as mentioned above would either commence on the date when the termination order was set aside by the High Court on 19.04.1993 or latest by 31.03.1995 when the agreement expired by efflux of time.
The second limb of submission is that in any case the dispute in between the parties was not arbitrable since the arbitration clause contained in the agreement was limited and it did not give any power or jurisdiction to the arbitrator to adjudicate on any issue relating to breaches committed between the parties.
It has been strenuously urged that the arbitration agreement contained in clause 15 of the agreement was a restrictive covenant; inasmuch as it specifically restricted the scope by use of the words incorporated in the said clause stating that in the event ''of any dispute or difference arising out of interpretation regarding any clause of this agreement' [emphasis supplied] the matter will be referred for arbitration whose decision shall be final and binding on both the parties.
Thus, the submission is that only if there was any dispute or difference between the parties regarding interpretation of any clause of the agreement only then such a matter would be referred for arbitration. However, in the present case, since there is no involvement of any interpretation of any clause rather it is a simplicitor, money claim arising out of breach of contract between the parties, thus such claims were beyond the scope of the arbitration clause and accordingly the arbitrator could not have adjudicated upon the same.
It has also been urged that the Sole Arbitrator has not considered the pleading as well as the contention raised by the Corporation in the correct prespective and rather it moved in a different direction holding that the plea was on after thought and merely because the counter claim was submitted by the Corporation against the claims of the respondent coupled with the fact that the High Court had appointed the arbitrator, therefore, the dispute arising in between the parties was arbitrable and within the scope of the jurisdiction of the arbitrator.
Learned counsel for the Corporation has referred to a decision of the Bombay High Court reported in 2017 (6) ABR 59, Ramdeobaba Padmavati Developers and Builders, A Partnership Firm, Nagpur and others Vs. Ganesh Vitthaldas Chandak and others, 2014 (6) ALJ 212 (Lucknow Bnech), Union of India & others Vs. District Judge, Lucknow & others and AIR 2016 Supreme Court 1925, A.P. Power Coordination Committee & others Vs. Lanco Kondapalli Power Limited & others.
Per contra Sri Agendra Sinha learned counsel appearing for the respondent Company has repelled the submissions of the learned counsel for the appellant and stated that the scope of the appeal under Section 37 of the Arbitration & Conciliation Act, 1996 is narrow. Sri Agendra Sinha has urged that since the Sole Arbitrator as well as the District Judge concurrently held that the disputes actually rose between the parties when the Corporation issued the recovery certificate dated 30.06.1998 and the claim petition has been filed within a period of three years, therefore, the claims were within the limitation and once these findings have been affirmed by the District Judge in petition under Section 34, the same was not open to challenge before this Court.
It has further been urged that since the agreement expired on 31.03.1995 and there was no transaction between the parties between 1993 and 1995, it was actually the Corporation who started raising illegal demands which were denied by the Company. It has been stated that since repeated letters of demand were sent by the Corporation, thus it constituted a cumulative and continuing cause of action which led to the issuance of recovery certificate against the Company which further led to the arrest of the managing direction and thus this would be the point of commencement of limitation and since this occurred in the year 1998 and the claim petition was filed in the year 1999, thus the claim was well within limitation. It has further been urged that since there was exchange of letter between the Corporation and the Company which established that a dialogue was going on and the issuance of recovery certificate is indicative of the fact that the dialogue came to an end and thus from this angle also the limitation would start from the date when the recovery certificate was issued in June 1998 and from this date the claims were within limitation since the statement of claim was filed in the month of April, 1999.
Sri Agendra Sinha has also urged that the second limb of argument raised by the learned counsel for the Corporation was frivolous since the matter regarding arbitration was in pursuance of the order passed by the High Court dated 22.03.1999 by which it left open for the Company to approach the managing director for arbitration in terms of Clause-15 and further till the decision of the arbitration proceedings, the recovery of the citation was stayed. Thus, the arbitration had commenced at the instance of the High Court and even later it was the High Court who by means of order dated 22.05.2000 had changed the arbitrator and appointed a retired judge of this Court as the Sole Arbitrator in place of the Managing Director of the Corporation, hence the proceedings for arbitration was in pursuance of the orders passed by the High Court and since all the disputes related to the agreement, hence, they were will within the scope of the arbitrator and the award made is based on the material and evidence led by the respective parties.
Once the award was delivered by the Arbitrator, the District Judge, in exercise of powers under Section 34 of the Arbitration & Conciliation Act, 1996 does not act as an Appellate Authority and once the petition under Section 34 has been dismissed this Court in exercise of power under Section 37 of the Arbitration & Conciliation Act, 1996 has a restrictive jurisdiction and can only exercise the power to see if no manifest injustice is done and the orders are not grossly erroneous which pricks the conscience of the Court and thus since the award as well as the judgment passed by the District Judge does not suffer from any manifest error. Consequently, the appeal deserves to be dismissed.
Sri Agendra Sinha in support of his contention has relied upon the following decisions (i) Delhi High Court 2014 (1) Arbitration Law Reporter 41, National Highways Authority of India Vs. Italian Thai Development Public Company Ltd.; (ii) Delhi High Court 2014 (1) Arbitration Law Reporter 532, National Highways Authority of India Vs. Lanco Infratech Ltd.; (iii) 2009 (10) SCC page 63, Steel Authority of India Limited Vs. Gupta Brother Steel Tubes Limited and; (iv) AIR 1989 Supreme Court page 777, Puri Construction Pvt. Ltd. Vs. Union of India.
The Court has heard the learned counsel for the parties at length and also perused the record and also had the benefit of the written submissions filed by the respective.
In view of the facts which have been detailed above, the question for adjudication involved in the appeal is two fold:- (i) whether the claims preferred by the claimant are barred by limitation; (ii) whether the arbitration clause does confer jurisdiction to the arbitrator to adjudicate the disputes which have been raised in light of the claims raised which have already been reproduced herein above.
Before proceeding further, this Court deems necessary to briefly revisit the existing position of law in respect of the scope of interfere with an Arbitral award in India. Such interference may be undertaken in terms of Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996. The Hon'ble Supreme Court in the case reported in (2019) 4 SCC page 163, MMTC Limited Vs. Vedanta Limited. The relevant paras are as under:-
11. As far as Section 34 is concerned, the position is well- settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii), i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b) (ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA, (2015) 3 SCC 49). Also see ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705; Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445; and McDermott International v. Burn Standard Co. Ltd., (2006) 11 SCC 181).
13. It is relevant to note that after the 2015 amendments to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, subsection (2A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the Court under Section 34 and by the Court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.
Thus it would be seen that any contravention of the fundamental policy of Indian Law which includes compliance with statutes and judicial precedents and violation of any substantive law of India can be examined under Section 37 of the Arbitration & Conciliation Act, 1996.
Thus the question of limitation and whether the dispute fall within the scope of Arbitration are both covered by the substantive law and fundamental policy and can be examined by this Court in terms of powers vested under Section 37 of the Arbitration and Conciliation Act, 1996. Hence, the Court embarks upon the twin issues hereinafter.
Issue Regarding Limitation As far as the limitation is concerned, it is well established that for the purposes of claim before the arbitrator the Limitation Act applies as it does to suits filed before the civil court. The agreement between the parties dated 25.04.1991 was undisputedly for a period of four years and it is not disputed that the same came to an end by efflux of time on 31.03.1995. It is also not disputed that there was no transaction or issuance of any sponsoring letter between 11.03.1993, when the agreement was terminated and till 31.03.1995, when the agreement expired by efflux of time. It is also to be noted that though by means of order dated 19.04.1993 the termination order passed by the Corporation was set aside by the High Court yet there was no issuance of any sponsoring letter nor any transaction. Since the restoration of the agreement by the orders passed by the High Court dated 19.04.1993 put back the parties on track but despite the same no sponsoring letter was issued by the Corporation. Significantly, the Company did not make any claim or raise any dispute regarding the wrongful termination or breach as the case may be, at the relevant time.
Moreover, once the agreement expired by efflux of time on 31.03.1995 it was absolutely clear and certain to the parties that the said agreement was not being extended under any circumstance. Nor there was any effort by any of the parties seeking extension of the agreement, thus this is clear indicative of the fact that neither of the parties wanted or even attempted to get the agreement extended. All losses or damages suffered by the Company on account of the alleged breach committed by the Corporation was very well in the knowledge of the Company when the agreement was unlawfully terminated. Though the same was restored by the order of the High Court yet since there was no transaction or issuance of any sponsoring letter, thus this issue was also not raised at the said relevant time and the fact remains that once the agreement expired by efflux of time then any case, it would be the starting point of limitation for raising all disputes as far as the Company was concerned against the unlawful termination, breaches for non-issue of sponsoring letters or non-compliance or any matter which related to the workability of the agreement.
There is no material on record which indicates that the claimant i.e. the Company raised any issue on the strength of its own claim against the Corporation. The material on record is only indicative of the fact that it is the Corporation who from time to time has raised its own demand against the Company for non-compliance as well as for breaches which in view of the Corporation was committed by the Company.
Thus in any case merely by denying demands raised by the Corporation from time to time it will not be treated as a cause of action for the Company to stake its claim against the Corporation. The law for limitation regarding the claim and counter claim is different. None of the letters referred to by the learned counsel for the Company indicated that the Company had raised any dispute or claim against the Corporation. In one of the letters the only ground taken by the Company was that in case if the Corporation continues to harass the Company by sending such frivolous notice/demand then the Company would raise its claim against the Corporation. Even in this letter, there was no mention regarding the amount or the ground upon which it had any claim against the Corporation.
It is only subsequently when the Corporation issued the recovery citation and that too was in respect of those claims which in view of the Corporation was recoverable against the Company and this recovery was assailed before the High Court who directed that the matter may be referred in terms of Clause 15 of the agreement before the managing director and till disposal of the arbitration proceedings, the recovery would remain stayed. It is only after the order was passed by the High Court dated 22.03.1999 that the claimant for the first time preferred a statement of claim before the managing director on 16.04.1999.
From the perusal of the statement of the claim preferred before the Managing Director that the claimant sought:- (i) damages for a period of two years for commission of the breach of contract amounting to Rs.20 lakhs. Apparently this claim was for the breach committed on account of the illegal termination and the two years period related to the time when initially the contract was cancelled in 1993 and till the year 1995 when the agreement lapsed by efflux of time; (ii) the claimant also made a claim for loss of good will and reputation relating to Rs.15 lakhs; (iii) a sum of Rs.15 lakhs was sought for the loss of reputation and defamation caused to the Company on account of the issuance of recovery certificate. Thus, from the above, it would be evident that as far as the first two claims are concerned, they related to the agreement and as far as the third is concerned, the same related to the illegal issuance of the recovery certificate.
What stares from the record is the fact that the limitation for the claims no. 1 and 2 would be different in terms of time and the limitation for the third claim would be different. At no point of time, the notice as contemplated under Section 21 of the Arbitration & Conciliation Act, 1996 was ever issued by the claimant nor there was any letter by which the claimant had raised any demand for the damages for the loss of commission for two years and or loss of good will and reputation.
The first two are directly related to the agreement in question which initially was terminated in 1993 and in any case expired on 31.03.1995. Thus, for all practical purposes, the limitation for the same would commence 1st April, 1995.
Admittedly for the aforesaid two claims the statement of claim was filed in the month of April, 1999 i.e. beyond a period of three years, thus it was apparently barred by limitation. In this context, Article 55 of the Limitation Act is relevant and is being reproduced herein after for ready reference :-
Description of suit Period of limitation Time from which period begins to run
55. For compensation for the breach of any contract, express or implied, not herein specially provided for.
- do -
When the contract is broken or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases.
Thus, neither the arbitrator nor the District Judge looked into this aspect of the matter that the claims relating to the breach of contract and for the loss of good will and reputation was arising and emanating as a consequence of the breach of the agreement which in any case was squarely covered by Article 55 of the Limitation Act and since it was in the knowledge of the Company that the contract had been breached and all such breaches though continued between the period 1993 to 1995 but in any case upon the expiration of the agreement on 31.03.1995 such breaches ceased and thus the starting point of limitation for the aforesaid two claims could not be beyond 01.04.1995.
This Court is forfeited in its views in light of the decision of the Apex Court in the case of State of Gujarat Vs. Kothari and Associates reported in 2016 (14) SCC 761. The relevant paras of the aforesaid judgment are being reproduced herein after:-
"8. Section 3 of the Limitation Act explicitly states that:
"3 Bar of limitation:- every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence."
It is thus incumbent upon the Court to satisfy itself that the suit is not barred by limitation, regardless of whether such a plea has been raised by the parties. In Union of India vs. British India Corporation Ltd (2003) 9 SCC 505, it has been opined that: (SCC p.508, para-7) "7. ...the question of limitation is a mandate to the forum and, irrespective of the fact whether it was raised or not, the forum must consider and apply it, if there is no dispute on facts."
It is thus irrelevant that the Appellant State had not raised the issue of limitation before the Trial Court. A duty was cast on the Court to consider this aspect of law, even on its own initiative, and since it failed to do so, the Appellant State was competent to raise this legal question in appeal or indeed even in any successive appeal. Close to a century ago, in Lachhmi Sewak Sahu vs. Ram Rup Sahu AIR 1944 Privy Council 24, it has been held that the point of limitation is available to be urged even in the Court of last resort. Furthermore, we are not confronted with a situation where the plea of limitation is a mixed question of fact and law, or where additional evidence needs to be adduced. The submissions of Learned Counsel for the Respondent to the effect that the Appellant is foreclosed and precluded from urging the plea of the bar of limitation are meretricious and are rejected. We shall now proceed to consider whether the suit was in fact barred by limitation.
9. The period of limitation would be computed under either Article 55 or Article 113, both of which are laid out below of the facility of reference:
"Description of suit Period of limitation Time from which period begins to run
55. For compensation for the breach of any contract, express or implied, not herein specially provided for.
Three years When the contract is broken or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases.
113. Any suit for which no period of limitation is provided elsewhere in this Schedule.
Three years When the right to sue accrues."
10. It would be pertinent, at this point, to recall the decision of this Court in Gannon Dunkerley and Co. Ltd. vs. Union of India (1969) 3 SCC 607, though that matter dealt with the provisions of the Indian Limitation Act, 1908. The Appellants/Plaintiff therein filed a suit seeking an enhanced rate of compensation in light of the deviation in the nature of the work being rendered more complex, the increase in costs due to undue prolongation of the period of work, the increase in the quantity of work, and the grant of contracts to other competing parties at substantially higher rates. This Court held that: (SCC pp.610-11, para 10) "10----the "suit filed by the appellant Company is not a suit for compensation for breach of contract express or implied: it is a suit for enhanced rates because of change of circumstances, and in respect of work not covered by the contract."
The claim for enhanced rates was found to arise outside the contract and for this reason was not in the genre of an action for compensation for breach of contract. It was therefore held that the claim was not covered under Article 115 of the 1908 Act (which is in pari materia to Article 55 of the Limitation Act), and would have to fall within the ambit of Article 120 of the 1908 Act (which is akin to Article 113 of the Limitation Act). The facts at hand are dissimilar to those in Gannon Dunkerley in that the damages sought by the present Respondent are for work covered by the contract, and the change in circumstances was directly caused by breaches ascribable to the Appellant State in not handing-over the site on time. Facially, the suit claims are damages incurred due to the extension of the contract period and the resultant damages are incurred by the Respondent. The suit would therefore fall within the ambit of Article 55. Article 113, which is a residuary provision, cannot be resorted to.
11. In our opinion, the suit was required to be filed within three years of the happening of each breach, which would constitute a distinct cause of action. Article 55 specifically states that in respect of successive breaches, the period begins to run when the breach in respect of which the suit is instituted, occurs. In this vein, Rohtas Industries Ltd vs. Maharaja of Kasimbazar China Clay Mines ILR (1951) 1 Cal 420 is apposite as it has held that when a party agrees to deliver certain goods every month for a duration spanning certain years, the cause of action for breach for failure to deliver in a particular month arises at the end of that month and not at the end of the period of the contract. The situation before us is similar in that the cause of action had arisen on each occasion when the Appellant State failed to hand over the site at the contractually stipulated time. Specifically, the limitation periods arose on 15.11.1976, 15.11.1977, 15.11.1978 and 15.11.1979, i.e. on the first day of each season, when the Respondent State committed a breach by failing to hand over the site. Thus the period of limitation did not commence at the termination of the contract period or the date of final payment. The High Court's conclusion that the last date of breach and last date of payment were relevant, not each cause of action, was thus patently erroneous. For each breach, a corresponding amount of damages for additional costs could have been sought. The suit, however, was filed on 25.1.1985, well after the limitation period of three years for even the final breach, as the various causes of action became time barred on 15.11.1979, 15.11.1980, 15.11.1981 and 15.11.1982 respectively.
12. There is another perspective on the method or manner in which limitation is to be computed. We have already narrated that the Respondent, on every occasion when the extension was sought by it, had requested to be compensated for delay. The Appellant State had granted the extensions but had repudiated and rejected the Respondent's claims for damages. The effect of these events would be that the cause of action for making the claim for damages indubitably arose on each of those occasions. It is certainly arguable that the Appellant State may have also been aggrieved by the delay, although the facts of the case appear to be unfavourable to this prediction, since delay can reasonably be laid at the door of the Appellant. The Respondent, however, could prima facie be presumed to have accepted a renewal or extension in the period of performance but with the rider that the claim for damages had been abandoned by it. If this assumption was not to be made against the Respondent, it would reasonably be expected that the Respondent should have filed a suit for damages on each of these occasions. In a sense, a fresh contract would be deemed to have been entered into between the parties on the grant of each of the extensions. It is therefore not legally possible for the Respondent to contend that there was a continuous breach which could have been litigated upon when the contract was finally concluded. In other words, contemporaneous with the extensions granted, it was essential for the Respondent to have initiated legal action. Since this was not done, there would be a reasonable presumption that the claim for damages had been abandoned and given a go-by by the Respondent."
The finding and reasoning given by the arbitrator regarding this issue is erroneous for another reason. The arbitrator while considering the claims regarding loss of good will and reputation is concerned, specifically held that the same was not admissible as the loss of good will and reputation is not within the domain of the Arbitrator since it was a loss occurring for which the claimant Company may have a right under the civil or criminal law or under the law of tort for which it may approach the appropriate court but the same did not arise directly from the agreement dated 25.04.9191, thus accordingly the same was refused. This finding on claim no.B was not assailed by the claimant Company either by filing petition under Section 34 or by filing cross objection in the petition under Section 34 filed by the Corporation. For the same and said reason, the arbitrator while dealing with the claim-C, for loss of reputation and defamation, also held that the same was a tortious liability and was not arising from the agreement, accordingly it did not grant any sum on that count including for the arrest of the managing director.
Once the aforesaid two claims were not granted and was specifically held by the Arbitrator that it was not within the domain of the arbitration then the same could not have been taken as a fact to include in the cause of action to grant the benefit of the limitation to the Company in respect of its other claims.
The Arbitrator only granted compensation for damages for wrongful breach and awarded for a sum of Rs.5 lakhs. This sum was directly attributable to the agreement and since the same came to an end on 31.03.1995. Thus, the limitation for any claim in respect thereto would commence latest by 01.04.1995 and would expire in the year 1998 and no claim in respect thereto could be granted by the Arbitrator from the point of view of limitation specially when considered that the claim regarding loss of reputation as well as for arrest and the harassment on account of issuance of recovery certificate was not relatable to arbitration, accordingly the time or the date of issuance of recovery could not have been taken as the starting point of limitation.
Since for each of the claims the limitation ought to have been assessed separately which has not been done. Thus, this Court is of the considered opinion that the Sole Arbitrator as well as the District Judge completely misdirected itself on the point of limitation and consequently this Court holds that the claims of the Company as mentioned at A and B were clearly barred by limitation. Not to mention that the claims B and C have not been granted by the arbitrator for different reasons but nevertheless since the issue of limitation has been raised accordingly it is addressed by this Court and is found that the claim was barred by limitation.
This Court further finds that once the arbitrator found that the issue regarding issuance of recovery certificate and any loss arising there from could not be arbitrated and thus the grant and refund of Rs.2,02,000/-alongwith interest by the Arbitrator and the directions given at serial no.2 is also in excess of jurisdiction. Either the arbitrator ought to have considered that the issuance of recovery certificate and all its consequences arising there form could be looked into by the arbitrator only then it could have arrived at a finding that a sum of Rs.2,02,000/- which was deposited by the Company to get its Managing Director released in pursuance of the recovery proceedings only then the aforesaid amount could have been refunded. For the said reason, the grant and refund of Rs.2,02,000/- alongwith interest is also bad in the eyes of law.
Issue of claims not covered by Arbitration Clause The issue regarding scope of the arbitration relates and emanates from Clause-15 of the agreement which is already quoted herein above before and which is confined to any dispute arising between the parties relating to the interpretation of any clause, was referable for arbitration. It has been urged by the learned counsel for the Corporation that the money claims which arise from the breach of the terms and conditions of the agreement was not referable as it was not a dispute as contemplated in terms of Clause 15 of the agreement.
Learned counsel for the respondent has submitted that once this matter was referred for arbitration by the High Court and subsequently a substitute arbitrator was also appointed by the High Court, therefore, the aforesaid controversy pales into insignificance; inasmuch as the arbitration commenced at the behest of the order passed by the High Court, consequently the Corporation also participated in the proceedings by filing its counter claim and therefore it should be deemed that the Corporation had known of its right and therefore it is estopped from raising the aforesaid plea.
The Court has considered the submissions in respect of the aforesaid issue as well and it will be apposite to refer to Section 16 of the Arbitration & Conciliation Act, 1996 which confers the power on the Arbitral Tribunal to rule on its own jurisdiction. For ready reference Section 16 is being reproduced herein after:-
"16. Competence of arbitral tribunal to rule on its jurisdiction.--(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34."
In light of the aforesaid Section, it will be relevant to mention that where any party raises a dispute or calls in question the existence or validity of the arbitration agreement, it shall be open for the arbitral tribunal to rule on its own jurisdiction and deal with the aforesaid objection with respect to the existence or validity of the arbitration agreement. Clauses (a) and (b) of sub-section (1) provide that for the aforesaid purpose the arbitration clause which forms part of the agreement shall be treated as an independent clause and that the decision by the tribunal that the contract is null and void shall not on its own render the arbitration clause as null and void.
Since the plea regarding the validity of the arbitration agreement/clause was raised, it was incumbent upon the Sole Arbitrator to have adjudicated upon the same. In the present case, though it has been decided by the arbitrator and also considered by the District Judge in exercise of powers under Section 34 of the Arbitration & Conciliation Act, 1996 but from the perusal of the award of the Arbitrator and the judgment of the District Judge, it is clear that it has not been considered in the correct prespective and in context in which it has been raised by the Corporation. It appears that in order to skirt the main issue the findings returned by the arbitrator and the District Judge on the said point are evasive.
From the bare perusal and the reading of the Clause 15 of the agreement it is clear that it is a very restrictive clause; inasmuch as it does not give the liberty to the parties to raise all or any dispute which arise from the agreement to be referred for the arbitration. If only provides that if any dispute or difference which arises on account of interpretation of any clause of the agreement only then such dispute or difference shall be referred for arbitration.
Learned counsel for the respondent Company could not indicate as to how the dispute raised by the claimant respondent related to any interpretation of any clause of the agreement. Even while the arbitrator allowed some part of the claims of the Company, it did not consider whether it related or was dependent on any interpretation of any clause. In absence of any such interpretation involved, the claims were clearly referable to the breach of contract from the agreement which did not require any interpretation of clause rather it only referred to the rights and obligation of the parties which arose from the agreement.
Thus the restrictive clause in the agreement did not permit the party to raise money claims for arbitration. Even sub-section (2) of Section 16 of the Arbitration & Conciliation Act, 1996 clearly provides that the plea that the arbitral tribunal does not have the jurisdiction shall be raised by a party not later than the submission of the statement of the defence and a party shall not be prevented from raising such a plea merely because he has appointed or participated in the appointment of any arbitrator.
Thus, it would indicate that merely because the initial Arbitrator, the Managing Director was appointed or that the Corporation participated in the change of the Arbitrator before the High Court in itself will not prevent the Corporation from raising the plea. The provisions of the Arbitration & Conciliation Act, 1996 are a clearl departure from the scheme of the Arbitration Act of 1940. Thus, the provision of Section 16 which is a new inCorporation under the 1996 Act and no similar provision existed in the Arbitrator Act 1940.
Accordingly, it was open the Corporation to have raised the plea regarding the scope, validity as well as the existence of the arbitration clause before the Arbitrator and the plea of the respondent that it was initiated at the behest of the High Court and that the Corporation had participated in the proceedings and were prevented from raising the plea is not in consonance with the law and the aforesaid plea is turned down.
The Apex Court had the occasion to consider the scope of an arbitration clause and whether a restrictive clause which bars the reference of dispute to arbitration has been considered in the case of Oriental Insurance Company Ltd. Vs. Narbheram Power and Steel Private Limited Reported in 2018 (6) SCC page 534. This aspect of the matter has also been considered in another decision of the Apex Court in the case reported in 2018 on Line SCC 1045, United India Insurance Co. Ltd. Vs. Hyundai Engineering and Construction Co. Ltd. The relevant paras are as under:-
10. The clause similar to the subject clause 7 of the Insurance Policy came up for consideration before a three- Judge Bench of this Court in Oriental Insurance Company Limited (supra). After analysing the legal principle expounded in a host of decisions, including the decision in Jumbo Bags Ltd. (supra), the Court opined as follows:
"23. It does not need special emphasis that an arbitration clause is required to be strictly construed. Any expression in the clause must unequivocally express the intent of arbitration. It can also lay the postulate in which situations the arbitration clause cannot be given effect to. If a clause stipulates that under certain circumstances there can be no arbitration, and they are demonstrably clear then the controversy pertaining to the appointment of arbitrator has to be put to rest.
24. In the instant case, Clause 13 categorically lays the postulate that if the insurer has disputed or not accepted the liability, no difference or dispute shall be referred to arbitration....." (emphasis supplied)
11. While adverting to the observation in paragraphs 28 and 32 of the Jumbo Bags Ltd. (supra), the Court observed thus:
"19. We may presently refer to the decision of the Madras High Court in Jumbo Bags Ltd. In the said case, the learned Chief Justice was interpreting clause 13 of the policy conditions. Referring to Vulcan Insurance Co. Ltd., he has held thus: (Jumbo Bags Ltd. case, SCC OnLine Mad para 28)
28. ...The dispute which is not referable to arbitration, being not covered by the clause cannot be over the subject-matter of arbitration, and the remedy of the insured in this case is only to institute a suit.‟ And again : (SCC OnLine Mad para 32)
32. I am of the view that the remedy of arbitration is not available to the petitioner herein in view of the arbitration clause specifically excluding the mode of adjudication of disputes by arbitration, where a claim is repudiated in toto. The remedy would thus only be of a civil suit in accordance with law.‟ We concur with the said view." (emphasis supplied)
12. The other decision heavily relied upon by the High Court and also by the respondents in Duro Felguera (supra), will be of no avail. Firstly, because it is a two-Judge Bench decision and also because the Court was not called upon to consider the question which arises in the present case, in reference to clause 7 of the subject Insurance Policy. The exposition in this decision is a general observation about the effect of the amended provision and not specific to the issue under consideration. The issue under consideration has been directly dealt with by a three-Judge Bench of this Court in Oriental Insurance Company Limited (supra), following the exposition in Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Anr.4, which, again, is a three-Judge Bench decision having construed clause similar to the subject clause 7 of the Insurance Policy. In paragraphs 11 & 12 of Vulcan Insurance Co. Ltd. (supra), the Court answered the issue thus:
"11. Although the surveyors in their letter dated April 26, 1963 had raised a dispute as to the amount of any loss or damage alleged to have been suffered by Respondent 1, the appellant at no point of time raised any such dispute. The appellant Company in its letter dated July 5 and 29, 1963 repudiated the claim altogether. Under clause 13 the Company was not required to mention any reason of rejection of the claim nor did it mention any. But the repudiation of the claim could not amount to the raising of a dispute as to the amount of any loss or damage alleged to have been suffered by Respondent 1. If the rejection of the claim made by the insured be on the ground that he had suffered no loss as a result of the fire or the amount of loss was not to the extent claimed by him, then and then only, a difference could have arisen as to the amount of any loss or damage within the meaning of clause 18. In this case, however, the Company repudiated its liability to pay any amount of loss or damage as claimed by Respondent 1. In other words, the dispute raised by the Company appertained to its liability to pay any amount of damage whatsoever. In our opinion, therefore, the dispute raised by the appellant Company was not covered by the arbitration clause.
12. As per clause 13 on rejection of the claim by the Company an action or suit, meaning thereby a legal proceeding which almost invariably in India will be in the nature of a suit, has got to be commenced within three months from the date of such rejection; otherwise, all benefits under the policy stand forfeited. The rejection of the claim may be for the reasons indicated in the first part of clause 13, such as, false declaration, fraud or wilful neglect of the claimant or on any other ground disclosed or undisclosed. But as soon as there is a rejection of the claim and not the raising of a dispute as to the amount of any loss or damage, the only remedy open to the claimant is to commence a legal proceeding, namely, a suit, for establishment of the Company‟s liability. It may well be that after the liability of the Company is established in such a suit, for determination of the quantum of the loss or damage reference to arbitration will have to be resorted to in accordance with clause 18. But the arbitration clause, restricted as it is by the use of the words ''if any difference arises as to the amount of any loss or damage', cannot take within its sweep a dispute as to the liability of the Company when it refuses to pay any damage at all." (emphasis supplied)
13. Again in paragraph 22, after analysing the relevant judicial precedents, the Court concluded as follows:
"22. The two lines of cases clearly bear out the two distinct situations in law. A clause like the one in Scott v. Avery bars any action or suit if commenced for determination of a dispute covered by the arbitration clause. But if on the other hand a dispute cropped up at the very outset which cannot be referred to arbitration as being not covered by the clause, then Scott v. Avery clause is rendered inoperative and cannot be pleaded as a bar to the maintainability of the legal action or suit for determination of the dispute which was outside the arbitration clause." (Emphasis supplied)
14. From the line of authorities, it is clear that the arbitration clause has to be interpreted strictly. The subject clause 7 which is in pari materia to clause 13 of the policy considered by a three-Judge Bench in Oriental Insurance Company Limited (supra), is a conditional expression of intent. Such an arbitration clause will get activated or kindled only if the dispute between the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer. That is the pre- condition and sine qua non for triggering the arbitration clause. To put it differently, an arbitration clause would enliven or invigorate only if the insurer admits or accepts its liability under or in respect of the concerned policy. That has been expressly predicated in the opening part of clause 7 as well as the second paragraph of the same clause. In the opening part, it is stated that the "(liability being otherwise admitted)". This is reinforced and re-stated in the second paragraph in the following words:
"It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as herein before provided, if the Company has disputed or not accepted liability under or in respect of this Policy."
15.Thus understood, there can be no arbitration in cases where the insurance Company disputes or does not accept the liability under or in respect of the policy.
16. The core issue is whether the communication sent on 21st April, 2011 falls in the excepted category of repudiation and denial of liability in toto or has the effect of acceptance of liability by the insurer under or in respect of the policy and limited to disputation of quantum. The High Court has made no effort to examine this aspect at all. It only reproduced clause 7 of the policy and in reference to the dictum in Duro Felguera (supra) held that no other enquiry can be made by the Court in that regard. This is misreading of the said decision and the amended provision and, in particular, mis- application of the three-Judge Bench decisions of this Court in Vulcan Insurance Co. Ltd. (supra) and in Oriental Insurance Company Ltd. (supra).
Thus, in light of the principles extracted above and for the reason that the arbitration clause was a restrictive clause and did not give the liberty to the parties to refer all and every type of disputes for arbitration coupled with the fact that sub-Section (2) of Section 16 of the Arbitration & Conciliation Act, 1996 clearly gave the right to the Corporation to raise the dispute but unfortunately the same has not been considered and decided by the Arbitrator as well as the District Judge in the prespective and in context in which it was raised by the Corporation. Rather the Sole Arbitrator and the District Judge has considered the issue from a different angle and held that since the Corporation appointed the Arbitrator and all this was in continuity with the issuance of the recovery certificate and the statement of claim which was filed before the Managing Director was the one which had been filed before the Sole Arbitrator, therefore, it was within the scope of the arbitration and the fact that since the appointment of Managing Director was in accordance with the agreement and since he himself had issued the recovery certificate, therefore, he was rightly substituted by the High Court by appointing a retired judge of this Court as the arbitrator and therefore the constitution of the arbitrator was in accordance with agreement.
However, what the tribunal as well as the District Judge failed to notice was that it was not the constitution of the Arbitral ribunal in question and in issue but it was regarding whether the tribunal so constituted had the jurisdiction to arbitrate the dispute which were raised before it.
The pith and substance of the submission of the learned counsel for the Corporation has been that the disputes which were referred to the arbitration was not arbitral; inasmuch as it was not a dispute contemplated in terms of Clause 15 of the agreement which restricted only disputes relating to interpretation of any clause and not disputes emanating from the breach of any right of obligation of any clause of the agreement.
The question whether the Arbitration could have decided the issue which was not arbitrable as it did not fall within the four corners of the arbitration agreement, was considered by the Apex Court in the case of Harsha Construction Vs. Union of India and others reported in (2014) 4 SCC 246 and held as under:-
18. Arbitration arises from a contract and unless there is a specific written contract, a contract with regard to arbitration cannot be presumed. Section 7(3) of the Act clearly specifies that the contract with regard to arbitration must be in writing. Thus, so far as the disputes which have been referred to in Clause 39 of the contract are concerned, it was not open to the Arbitrator to arbitrate upon the said disputes as there was a specific clause whereby the said disputes had been "excepted". Moreover, when the law specifically makes a provision with regard to formation of a contract in a particular manner, there cannot be any presumption with regard to a contract if the contract is not entered into by the mode prescribed under the Act.
19. If a non-arbitrable dispute is referred to an Arbitrator and even if an issue is framed by the Arbitrator in relation to such a dispute, in our opinion, there cannot be a presumption or a conclusion to the effect that the parties had agreed to refer the issue to the Arbitrator. In the instant case, the respondent authorities had raised an objection relating to the arbitrability of the aforestated issue before the Arbitrator and yet the Arbitrator had rendered his decision on the said "excepted" dispute. In our opinion, the Arbitrator could not have decided the said "excepted" dispute. We, therefore, hold that it was not open to the arbitrator to decide the issues which were not arbitrable and the award, so far as it relates to disputes regarding non-arbitrable disputes is concerned, is bad in law and is hereby quashed.
In light of the above discussions, this Court is of view that the learned counsel for the Corporation is right in submitting that the nature of the dispute raised by the Company was not within the scope of the arbitrator since the clause 15 was restrictive and did not permit all disputes to be referred, consequently the second issue is also decided, accordingly and it is held that the dispute so referred were beyond scope of arbitration.
In light of the detailed discussions, this Court has no hesitation in holding that both the award dated 03.05.2003 passed by the Sole Arbitrator and the judgment dated 06.09.2005 passed by the District Judge are liable to be set aside.
At this juncture, it will be relevant to point out that in view of the fact that in terms of the interim order modified by this Court vide order dated 08.12.2005, the Corporation was directed to deposit a sum of Rs.5 lakhs, out of which Rs.3 lakhs has already been released in favour of the Company, therefore, this Court provides that the amount remaining in deposit before this Court, shall be released in favour of the Corporation. However in respect of Rs. 3 lakhs already released in favour of the respondent Company it is provided that the sum of Rs.3 lakhs would cover the cost paid to the Sole Arbitrator by the respondent Company and was recoverable from Corporation alongwith the amount of Rs.2,02,000/- which the Corporation had no right to hold once its counter claims raised before the Arbitrator was not adjudicated and was also not further assailed and attained finality after dismissal of its petition under Section 34 of the Arbitration and Conciliation Act, 1996 thus it ought to have returned the said sum which was part of the claim raised by the Corporation which it could not peruse successfully thus upon failure to have an entitlement to the said sum and a sum of Rs.3 lakhs has been released in favour of the respondent Company in terms of the interim order which shall bind the parties and the said sum of Rs.3 lakhs shall also cover the cost of the share of the Corporation paid to the Arbitration and the amount of Rs.2,02,000/- and shall remain with the respondent Company.
Thus, in the fitness of thing and in order to do complete justice between the parties, this Court provides that the appellant-Corporation shall not seek the return/recover a sum of Rs.3 lakhs which has been released in favour of the respondent in terms of the interim order. However, the remaining balance sum lying in deposit before this Court shall be released in favour of the appellant Corporation.
With the aforesaid, this first appeal from order stands partially allowed. There shall be no order as to costs.
The record of the District Judge concerned shall be remitted to the court concerned within a period of four weeks.
July 12, 2019/ank/