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Sec.21 and sec. 43 of Arbitration & conciliation Act – Sec. 3 of Limitation Act – counter claims – Whether limitation for counter claim starts from the date of disputes or from the date of notice or from the date of arbitration proceedings – Arbitrator dismissed the counter claim as barred by limitation – Single judge High court confirmed the same – the D.B. in appeal negative the same and held that whole counter claim is with in time – Apex court held that for the counter claim limitation starts from date of initiation of arbitration proceedings if a notice was issued after disputes arose and requested for appointment of arbitrator and further held that no court/arbitrator should be allowed to go beyond scope of notice for excess claim added in the counter claim and as such the apex court modified the order of DB and held that excess claim other than mentioned in notice – is only barred by limitation = Voltas Limited … Appellant Versus Rolta India Limited …Respondent = 2014 (Feb.Part) judis.nic.in/supremecourt/filename=41224

Sec.21 and sec. 43 of Arbitration & conciliation Act – Sec. 3 of Limitation Act – counter claims – Whether limitation for counter claim starts from the date of disputes or from the date of notice or from the date of arbitration proceedings – Arbitrator dismissed the counter claim as barred by limitation – Single judge High court confirmed the same – the D.B. in appeal negative the same and held that whole counter claim is with in time – Apex court  held that for the counter claim limitation starts from date of initiation of arbitration proceedings if  a notice was issued after disputes arose and requested for appointment of arbitrator  and further held that  no court/arbitrator should be allowed to go beyond scope of notice  for excess claim added in the counter claim and as such the apex court modified the order of DB and held that excess claim other than mentioned in notice – is only barred by limitation =

Whether the counter claim, or a  substantial  part  thereof,  is

         barred by the law of limitation?

Arbitrator interim award =

 

 “The respondent has been vigilant and assertive of  its  legal  rights

      right  from  3rd  December  2004  on  which  date  the  Contract   was

      terminated.  The assertions in the letters dated 27th April  2005  and

      29th March 2006 show unmistakable consciousness of its rights  on  the

      part of the Respondent.  The last letter dated 29th March 2006 is  the

      notice of the Advocates of  the  Respondent  asserting  its  right  to

      invoke arbitration.  The Tribunal is of the view that cause of  action

      for the Counter-claim which must be treated as an  independent  action

      to be instituted, really arose latest  by  29th  March  2008,  if  not

      earlier it is clear that the Counter  claim  is  filed  only  on  26th

      September, 2011 and as such it is beyond the period of  limitation  of

      three years.”

High court order under sec.34 of the Act =

 

 “When the notice was given by the respondent on 29th March, 2006,  the

      said notice was only in respect of the disputes having arisen  between

      the parties due to refusal of claims made by the petitioner.   On  the

      date of issuance of such notice, the petitioner had not even  asserted

      its claim.  After issuance of such notice on  29th  March,  2006,  the

      petitioner by its letter dated 17th April, 2006 had asserted its claim

      for the first time.  The dispute  in  respect  of  the  counter  claim

      raised when the petitioner did not pay the said  amount  as  demanded.

      Such disputes thus did not exist when the notice invoking  arbitration

      agreement was given by the respondent on  29th  March,  2006.   In  my

      view, the arbitral proceedings  therefore,  cannot  be  said  to  have

      commenced in respect of the counter claim when the notice was given by

      the respondent on 29th March, 2006.  The counter claim was  admittedly

      filed on 26th September, 2011 which was  made  beyond  the  period  of

      limitation.  The arbitral proceedings  commenced  in  respect  of  the

      counter claim only when the said  counter  claim  was  lodged  by  the

      petitioner on 26th September, 2011.  Even if the date  of  refusal  on

      the part of the respondent, to pay  the  amount  as  demanded  by  the

      petitioner by its notice dated  17th  April,  2006  is  considered  as

      commencement of dispute, even in such case on the date of  filing  the

      counter claim i.e. 26th September, 2011, the counter claim was  barred

      by law of limitation.  In my view, thus the tribunal was justified  in

      rejecting the counter claim filed by the petitioner as time barred.”

Division Bench in appeal 

the principles stated  in  Oil  and

   Natural Gas  Corporation  Ltd.  v.  Saw  Pipes  Ltd.[3]  as  regards  the

   jurisdiction of the Court while dealing with an application under Section

   34 of the Act, the concept of limitation as has been explained in Praveen

   Enterprises (supra), 

the demand made by the appellant therein  by  letter

   dated 17.4.2006 quantifying a sum of Rs.68.63 crores, 

exclusion of period

   between 3.5.2006 to 19.11.2010 during which period the application  under

   Section 11 of the Act was pending before  the  High  Court  and  

on  that

   foundation, in the ultimate eventuate, came  to  hold  that  the  counter

   claim filed on 26.9.2011  was  within  limitation.   

The  aforesaid  view

   obliged the Division Bench to allow the appeal, set  aside  the  judgment

   and order passed by the learned single Judge as a consequence thereof the

   rejection  of  the  counter  claim  by  the  learned   Arbitrator   stood

   overturned.  

Be it noted, rest  of  the  interim  award  of  the  learned

   Arbitrator was not disturbed.

Apex court judgement =

 

On a careful reading of the verdict in Praveen Enterprises  (supra),  we

   find that the two-Judge Bench, after referring  to,  as  we  have  stated

   hereinbefore, 

Sections 21 and  43  of  the  Act  and  Section  3  of  the

   Limitation Act has opined, regard being had to the language  employed  in

   Section 21, that an exception  has  to  be  carved  out.  

 It  saves  the

   limitation for filing a counter claim if  a  respondent  against  whom  a

   claim has been made satisfies the twin test, namely, he had made a  claim

   against the claimant and sought arbitration by serving a  notice  to  the

   claimant.  

In our considered opinion the said exception squarely  applies

   to the case at hand inasmuch as the  appellant  had  raised  the  counter

   claim and sought arbitration by expressing its  intention  on  number  of

   occasions.  

That apart, it is also perceptible  that  the  appellant  had

   assured for appointment of an arbitrator.  

Thus, the  counter  claim  was

   instituted on 17.4.2006 and hence, the irresistible conclusion is that it

   is within limitation.

In the present case, when it is absolutely clear that the counter  claim

   in respect of the enhanced sum is totally barred by limitation and is not

   saved by  exception  carved  out  by  the  principle  stated  in  Praveen

   Enterprises (supra), we are unable to agree with the view of the Division

   Bench of the High Court that the counter claim, as a whole, is not barred

   by limitation.  Thus analysed, the counter claim relating to  the  appeal

   which deals with civil contracts shall be restricted to the amount stated

   in the letter dated 17.4.2006, i.e., Rs.68,63,72,178.08, and  as  far  as

   the other appeal which pertains to air-conditioning contract, the quantum

   shall stand restricted to as specified in  the  letter  dated  21.3.2006,

   i.e., Rs.19,99,728.58.

 

Consequently, both the appeals are allowed in part, the judgment of  the

   Division Bench in Appeals Nos. 7 of 2013 and 8 of 2013  is  modified  and

   the interim award passed by learned Arbitrator as  regards  rejection  of

   the counter claims in toto  stands  nullified.  

 

 

 2014 (Feb.Part) judis.nic.in/supremecourt/filename=41224                   ANIL R. DAVE, DIPAK MISRA

 

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2073 OF 2014
(Arising out of SLP (Civil) No. 30015 of 2013)

Voltas Limited … Appellant

Versus

Rolta India Limited …Respondent

WITH

CIVIL APPEAL NO. 2076 OF 2014
(Arising out of SLP (Civil) No. 31195 of 2013)

 

 
J U D G M E N T
Dipak Misra, J.
Leave granted in both the Special Leave Petitions.

2. Regard being had to the similitude of controversy in both the appeals
they were heard together and are disposed of by a common judgment. Be it
noted, the Division Bench of the High Court of Judicature at Bombay, by
two separate judgments and orders passed on 16.8.2013 in Appeals Nos. 7
of 2013 and 8 of 2013 has set aside the judgment and order dated
1.10.2012 passed by the learned single Judge in Arbitration Petition (L)
Nos. 1239 of 2012 and 1240 of 2012 respectively as a consequence of which
two interim awards passed by the learned Arbitrator on 26.7.2012 in
respect of two contracts between the same parties rejecting the counter
claim of the respondent-herein have been annulled. For the sake of
clarity and convenience we shall state the facts from Civil Appeal
arising out of Special Leave Petition (C) No. 30015 of 2013, for the
Division Bench has observed that the Appeal No. 7 of 2013 had emanated
from the disputes which arose in respect of civil construction agreement
dated 2.2.2001 and in Appeal No. 8 of 2013 the disputes related to
agreement dated 8.1.2003 for air-conditioning of the two buildings to be
constructed for the appellant therein and no separate submissions were
advanced before it and the position was the same before the learned
single Judge.

3. The expose’ of facts are that the appellant and respondent entered into
a civil construction contract for construction of two buildings known as
Rolta Bhawan II (RB-II) and Rolta Bhawan III (RB-II) and also for
modification of building Rolta Bhawan I(RB-I) previously constructed by
the respondent. As certain disputes arose, on 3.12.2004 the respondent
terminated the contract. After certain correspondences between the
parties pertaining to the termination of the contract the appellant by
letter dated 29.3.2006 invoked the arbitration clause in respect of its
claims against the respondent. As the respondent failed to appoint an
arbitrator, it filed an application under Section 11 of the Arbitration
and Conciliation Act, 1996 (for short “the Act”) before the High Court of
Bombay for appointment of arbitrator and the designated Judge vide order
dated 19.11.2010 appointed the sole arbitrator.

4. After the controversy came in seisin before the learned Arbitrator, he
issued certain directions and, as the facts would unfurl, the appellant
filed its statement of claim on 13.4.2011 claiming a sum of
Rs.23,31,62,429.77 together with interest at the rate of 15% per annum
from the respondent. The respondent, after filing its defence on
24.8.2011, filed the counter claim of Rs.333,73,35,026/- together with
interest at the rate of 18% per annum from the date of filing till
payment/realization thereof. In the counter claim the respondent
justified the termination of the agreement and contended that it was
entitled to damages for breach of contract. In the counter claim the
notice dated 17.4.2006 sent by the respondent detailing its counter claim
to the appellant was referred to.

5. After the counter claim was lodged, the appellant-herein filed its
objections about the tenability of the counter claim stating that the
same was not maintainable and was also barred by limitation. The learned
Arbitrator on 7.1.2012 framed two issues regarding the tenability and
limitation of the counter claim as preliminary issues. They are: –

“(i) Whether the counter claim, or a substantial part thereof, is
barred by the law of limitation?

(ii) Whether the counter claim is not maintainable and beyond the
scope of reference?”

6. After adumbrating to the facts the learned Arbitrator came to hold that
the limitation for making a counter claim is required to be asserted with
reference to the date on which the cause of action arises and the date on
which the counter claim is filed. After so opining the learned
Arbitrator recorded as follows: –

“The respondent has been vigilant and assertive of its legal rights
right from 3rd December 2004 on which date the Contract was
terminated. The assertions in the letters dated 27th April 2005 and
29th March 2006 show unmistakable consciousness of its rights on the
part of the Respondent. The last letter dated 29th March 2006 is the
notice of the Advocates of the Respondent asserting its right to
invoke arbitration. The Tribunal is of the view that cause of action
for the Counter-claim which must be treated as an independent action
to be instituted, really arose latest by 29th March 2008, if not
earlier it is clear that the Counter claim is filed only on 26th
September, 2011 and as such it is beyond the period of limitation of
three years.”

It may be noted here that the learned Arbitrator, however, overruled
the objection with regard to the maintainability of the counter claim being
beyond the scope of reference.

7. After the interim award was passed by the learned Arbitrator, the
respondent filed an application under Section 34 of the Act for setting
aside the decision of the learned Arbitrator rejecting the counter claims
made by it on the ground of limitation. The learned single Judge, after
adverting to the facts in detail and the contentions raised by the
learned counsel for the parties, referred to certain authorities, namely,
Ispat Industries Limited v. Shipping Corporation of India Limited[1] and
State of Goa v. Praveen Enterprises[2], and came to hold that the
arbitral proceedings in respect of those disputes commenced on the date
on which the request for the said disputes to be referred to arbitration
was received by the respondent, and further that only such disputes which
were referred to in the notice invoking arbitration agreement with a
request to refer the same to arbitration, the arbitral proceedings
commenced and it would not apply to the counter claim. Thereafter the
learned single Judge proceeded to state as follows: –

“When the notice was given by the respondent on 29th March, 2006, the
said notice was only in respect of the disputes having arisen between
the parties due to refusal of claims made by the petitioner. On the
date of issuance of such notice, the petitioner had not even asserted
its claim. After issuance of such notice on 29th March, 2006, the
petitioner by its letter dated 17th April, 2006 had asserted its claim
for the first time. The dispute in respect of the counter claim
raised when the petitioner did not pay the said amount as demanded.
Such disputes thus did not exist when the notice invoking arbitration
agreement was given by the respondent on 29th March, 2006. In my
view, the arbitral proceedings therefore, cannot be said to have
commenced in respect of the counter claim when the notice was given by
the respondent on 29th March, 2006. The counter claim was admittedly
filed on 26th September, 2011 which was made beyond the period of
limitation. The arbitral proceedings commenced in respect of the
counter claim only when the said counter claim was lodged by the
petitioner on 26th September, 2011. Even if the date of refusal on
the part of the respondent, to pay the amount as demanded by the
petitioner by its notice dated 17th April, 2006 is considered as
commencement of dispute, even in such case on the date of filing the
counter claim i.e. 26th September, 2011, the counter claim was barred
by law of limitation. In my view, thus the tribunal was justified in
rejecting the counter claim filed by the petitioner as time barred.”

8. After so stating the learned single Judge held that the opinion
expressed by the learned Arbitrator was not perverse and based on correct
appreciation of documents and was resultant of a plausible interpretation
and accordingly rejected the application preferred under Section 34 of
the Act.

9. Being dissatisfied, the respondent-herein preferred an appeal before the
Division Bench which chronologically referred to the correspondences made
between the parties, the reasoning ascribed by the learned Arbitrator,
the submissions propounded before it, the principles stated in Oil and
Natural Gas Corporation Ltd. v. Saw Pipes Ltd.[3] as regards the
jurisdiction of the Court while dealing with an application under Section
34 of the Act, the concept of limitation as has been explained in Praveen
Enterprises (supra), the demand made by the appellant therein by letter
dated 17.4.2006 quantifying a sum of Rs.68.63 crores, exclusion of period
between 3.5.2006 to 19.11.2010 during which period the application under
Section 11 of the Act was pending before the High Court and on that
foundation, in the ultimate eventuate, came to hold that the counter
claim filed on 26.9.2011 was within limitation. The aforesaid view
obliged the Division Bench to allow the appeal, set aside the judgment
and order passed by the learned single Judge as a consequence thereof the
rejection of the counter claim by the learned Arbitrator stood
overturned. Be it noted, rest of the interim award of the learned
Arbitrator was not disturbed.

10. Assailing the legal substantiality of the view expressed by the
Division Bench, Mr. K.K. Venugopal, learned senior counsel appearing for
the appellant, has raised the following contentions: –

i) Existence of dispute is fundamentally essential for a controversy to
be arbitrated upon and in the case at hand there being no dispute
raised by the respondent as warranted in law, the counter claim put
forth before the learned Arbitrator deserved to be thrown at the
threshold and the High Court would have been well advised to do so.

ii) The limitation for a counter claim has to be strictly in accordance
with Section 43(1) of the Act read with Section 3(2)(b) of the
Limitation Act, 1963 and any deviation therefrom is required to be
authorized by any other provision of law. The only other provision of
law which can depart from Section 43(1) of the Act read with Section
3(2)(b) of the Limitation Act, is the provision contained in Section
21 of the Act, where the respondent to the claimant’s claim invokes
arbitration in regard to specific or particular disputes and further
makes a request for the said disputes to be referred to arbitration
and in that event alone, the date of filing of the counter claim would
not be the relevant date but the date of making such request for
arbitration would be the date for computing limitation. The Division
Bench has not kept itself alive to the requisite twin tests and has
erroneously ruled that the counter claim as filed by the respondent is
not barred by limitation.

(iii) The principle stated in Praveen Enterprises’s case is not applicable
to the present case because the correspondences made by the respondent,
including the letter dated 17.4.2006, show that there had neither been
any enumeration of specific claims nor invocation of the arbitration
clause but merely computation of certain claims, though for application
of the exception as carved out in Praveen Enterprises (supra), both the
conditions precedent, namely, making out a specific claim and
invocation of arbitration are to be satisfied.

(iv) The exclusion of the period during pendency of the application under
Section 11 of the Act, as has been held by the Division Bench, is
wholly contrary to the principle laid down in paragraphs 20 and 32 in
Praveen Enterprises (supra).

(v) Assuming the principle stated in Praveen Enterprises (supra) is made
applicable, the claims asserted by the respondent in its letter dated
17.4.2006 could only be saved being not hit by limitation and not the
exaggerated counter claim that has been filed before the learned
Arbitrator.

(vi) The Division Bench completely erred in interfering with the interim
award in exercise of power under Section 34 of the Act, though the
principle stated in Saw Pipes Ltd. (supra) is not attracted and further
that the recording of finding that the award passed by the learned
Arbitrator suffers from perversity of approach is not acceptable
inasmuch as a possible and plausible interpretation of the contract and
documents has been made which is within the domain of the learned
Arbitrator as has been stated in Rashtriya Ispat Nigam Limited v. Dewan
Chand Ram Saran[4].

11. Mr. R.F. Nariman, learned senior counsel appearing for the respondent,
defending the impugned judgment, has proponed the following: –

a) The documents brought on record demonstrably establish that dispute
existed between the parties as regards the counter claim and hence, the
submission raised on behalf of the appellant on that score is sans
substance.

b) The Division Bench has rightly come to hold that the counter claim filed
by the respondent-herein was within time on the basis of the law laid
down in Praveen Enterprises (supra) inasmuch as the date of filing of the
counter claim has to relate back to the date of claim made by the
respondent and the correspondences between the parties do clearly show
that the respondent had raised its claim and also sought for arbitration
in a legally accepted manner.

c) The alternative submission that the counter claim has to be confined to
the amount quantified in the letter dated 17.4.2006 is unacceptable in
law, for in Praveen Enterprises (supra) it has been held that the
statement of claim need not be restricted to the claims in the notice and
on that base it can safely be concluded that the said proposition holds
good for counter claims as well. That apart, the principle also gets
support from what has been laid down in McDermott International Inc. v.
Burn Standard Co. Ltd. and others[5].

12. First, we shall address to the submissions pertaining to existence and
raising of dispute as regards the counter claim. We are required to deal
with the same in the case at hand since Mr. Venugopal, learned senior
counsel, has urged that if no dispute was raised at any point of time, it
could not have been raised before the learned Arbitrator as it would be
clearly hit by limitation. Learned senior counsel has placed reliance on
Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority[6] and
Jammu and Kashmir State Forest Corporation v. Abdul Karim Wani and
others[7], to bolster the submission that in the case at hand the
disputes as regards the counter claim really had not arisen, for mere
assertions and denials do not constitute a dispute capable of reference
to arbitration and hence, not to be entertained when it is dead or stale.

13. In Major (Retd.) Inder Singh Rekhi (supra) the High Court had rejected
the petition preferred under Section 20 of Arbitration Act, 1940 as
barred by limitation. The two-Judge Bench referred to Section 20 of the
1940 Act and opined that in order to be entitled to order of reference
under Section 20, it is necessary that there should be an arbitration
agreement and secondly, dispute must arise to which the agreement
applied. In the said case, there had been an assertion of claim of the
appellant and silence as well as refusal in respect of the same by the
respondent. The Court observed that a dispute had arisen regarding non-
payment of the alleged dues to the appellant and, in that context,
observed thus: –

“A dispute arises where there is a claim and a denial and repudiation
of the claim. The existence of dispute is essential for appointment
of an arbitrator under Section 8 or a reference under Section 20 of
the Act. See Law of Arbitration by R.S. Bachawat, first edition, page
354. There should be dispute and there can only be a dispute when a
claim is asserted by one party and denied by the other on whatever
grounds. Mere failure or inaction to pay does not lead to the
inference of the existence of dispute. Dispute entails a positive
element and assertion of denying, not merely inaction to accede to a
claim or a request. Whether in a particular case a dispute has arisen
or not has to be found out from the facts and circumstances of the
case.”

14. In Abdul Karim Wani and others (supra) the question arose whether the
dispute mentioned in the contractor’s application could have been
referred to the arbitration at all. The majority came to hold that the
claim raised by the plaintiff in his application was not covered by the
arbitration clause and, therefore, was not permissible to be referred for
a decision to the arbitrator. Be it noted, in the said case, the work
under the contract had already been executed without any dispute. The
majority also observed that in the absence of a repudiation by the
Corporation of the respondent’s right to be considered, if and when
occasion arises, no dispute could be referred for arbitration. It
further ruled that in order that there may be a reference to arbitration,
existence of a dispute is essential and the dispute to be referred to
arbitration must arise under the arbitration agreement.

15. The principles laid down in the aforesaid cases were under the 1940 Act
at the stage of appointment of arbitrator. In the case at hand, though
we are dealing with a lis under the 1996 Act, yet we are to deal with the
said facet as the learned Arbitrator has passed an interim award as
regards the sustenance of the counter claim. In this regard, it is
necessary to refer to the correspondences entered into between the
parties and to appreciate the effect and impact of such communications.
By letter dated 1.3.2005 the appellant, while referring to the letter
dated 3.12.2004 issued by the respondent terminating the contract on the
ground of alleged delay and default in completion of the project, without
prejudice had made a request for payment of final bill in full and settle
the claim made therein at the earliest. It was also suggested therein
that if the respondent needed any additional information or material in
support of the claim put forth, the appellant would furnish the same. On
18.3.2005 the respondent communicated to the appellant through its
counsel that it would compute its losses, damages, costs, charges,
expenses, etc. after the building work was over and claim the same from
the appellant. The appellant vide letter dated 7.4.2005, through its
counsel, intimated the respondent that it was not liable to pay any
alleged losses, damages, costs, charges and expenses, allegedly suffered
by the respondent. On 27.4.2005 by another communication an assertion
was made about the losses suffered by the respondent. The respondent
asseverated that it was not liable to pay to the appellant any
compensation and damages or other amounts as claimed in the letter dated
1.3.2005 to the respondent. In fact, the respondent was compelled to
terminate the civil contractor as per the recommendation of the
Architects, M/s. Master & Associates, and the respondent had suffered
huge losses and damages and had incurred heavy costs, charges and
expenses for which the appellant was solely respondible. It was also
mentioned in the letter that the respondent reserved its right to take
appropriate steps against the appellant as per the agreement entered into
between the parties as per law. As the factual exposition would unfurl,
on 29.3.2006 the appellant, referring to its earlier communications dated
14.4.2004, 23.4.2004, 24.5.2004, 18.6.2004, 13.7.2004 and 1.3.2005,
claimed for appointment of an arbitrator. On 17.4.2006 the respondent
specified the claims under various heads and also claimed payment to be
made within seven days failing which it will invoke the arbitration
clause. To the said communication and another communication dated
21.4.2006 we shall refer to at a later stage while dealing with the other
facet of submission. It may be noted here that on 9.5.2006 the appellant,
referring to letter dated 17.4.2006 whereby the respondent had raised its
claims, stated as follows: –

“Our clients deny that the claim made against you is false and
frivolous. Our clients deny that any amount is due to you for the
alleged breach of the aforesaid contract. Our clients deny that they
have committed any breach of the aforesaid contract.

xxx xxx xxx

In view of what is stated hereinabove, our clients deny that they are
liable to pay to you a sum of Rs.68,63,72,743.08 or any other sum.”

16. Thus, the correspondences between the parties make it vivid that the
claims made by the respondent were denied by the appellant on many a
ground and, therefore, it would be inappropriate to say that there was
inaction or mere denial. Therefore, in the obtaining fact situation, the
principles stated in Major (Retd.) Inder Singh Rekhi (supra) and Abdul
Karim Wani and others (supra) are not applicable.

17. The next aspect that has been highlighted by Mr. Venugopal is that the
respondent had never, in the true sense of the term, invoked arbitration
by appropriately putting forth specified claims. In this context, we may
refer to the letter dated 29.3.2006 which would show that the appellant
had asserted that the disputes and differences had arisen between the
parties to the agreement and invoked the arbitration clause calling upon
the respondent to appoint an independent unbiased arbitrator within 30
days from the receipt of the said notice, failing which they would be
constrained to approach the designated Judge of the Chief Justice of
Bombay High Court for appointment of an arbitrator under Section 11 of
the Act. The respondent, vide letter dated 17.4.2006, sent through its
counsel while stating that it was surprised to receive the demand made by
the appellant with regard to the final R.A. bill dated 21.12.2004,
clearly stated that the earlier letter dated 1.3.2005 had already been
replied to vide letter dated 18.3.2005. In the said letter it was
mentioned by the respondent that it had crystallized its claim amounting
to Rs.68,63,72,743.08 and, be it noted, the said claim was made on
various heads by the respondent. Reproduction of part of the said letter
would be apposite: –

“The final R.A. Bill sent by you is incorrect in many respects; one of
them being that you have made claims based on works actually not done
by you Nothing is due and payable by us to you against your final R.A.
Bill. We call upon you to pay to us the aforesaid sum of
Rs.68,63,72,743.08 within seven days of the receipt of this letter,
failing which you will be liable to pay interest at the rate of 18%
p.a. on expiry of seven days after receipt of this letter by you, till
payment and/or realization. Please note that if the aforesaid payment
is not made within seven days of the receipt of this letter, we will
invoke the arbitration clause of the civil contract and refer the
disputes to arbitration.”

18. In this regard reference to letter dated 21.4.2006 written by the
appellant is seemly. The relevant part of the said letter is as follows:

“We are instructed to inform you that our client was out of India in
connection with the business tour and returned to India on 19th April,
2006. Our client thereafter has been extremely busy with the work of
the Company. He has seen your letter dated 29th March, 2006.

Please, therefore, ask your clients to note that our client will
appoint an Arbitrator within 30 days from the date of his return to
India.”

19. These two communications make it clear that the respondent had
crystallized the claims on various heads by letter dated 17.4.2006 and
the appellant had agreed to appoint an arbitrator within thirty days.
The heads that have been mentioned in the letter dated 17.4.2006
pertained to liquidated damages for delay in performance, cost of repairs
and rework which had to be done by the respondent, differential cost of
the works left over by the appellant and was completed by the respondent
through other agencies, cost of direct consequential damages to the
respondent due to defect in the work done by the appellant, cost of
consultancy fees and other expenses, loss of profit for four years based
on revenue generated per employee, etc. and outstanding mobilization
advance remaining with the appellant. The total sum as mentioned in the
letter was Rs.74,78,34,921.54. From the said amount monies retained by
the respondent and monies received by the respondent as per the contract,
i.e., Rs.6,14,62,178.46 were reduced. Needless to emphasize, the
validity of the claims had to be addressed by the learned Arbitrator but
the fact remains that the respondent had raised the claims by giving
heads. Thus, there can be no scintilla of doubt that the respondent had
particularized or specified its claims and sought arbitration for the
same.

20. Keeping in view the aforesaid factual scenario we shall now proceed to
appreciate what has been stated by this Court in Praveen Enterprises
(supra). In the said case, the respondent therein had raised certain
claims and given a notice to the appellant-therein to appoint an
arbitrator in terms of the arbitration clause. As the appellant did not
do so, the respondent filed an application under Section 11 of the Act
and an arbitrator was appointed. The respondent filed its claim
statement before the arbitrator and the learned arbitrator passed an
award. In regard to the counter claims made by the appellant, the
arbitrator awarded certain sum without any interest. An application
under Section 34 of the Act was filed by the respondent challenging the
award for rejection of its other claims and award made on a particular
item of the counter claim. The civil court disposed of the matter
upholding the award in respect of the claims of the respondent but
accepted the objection raised by it in regard to the award made on the
counter claim opining that the arbitrator could not have enlarged the
scope of the reference and entertain either fresh claims by the claimants
or counter claims from the respondent. The said judgment came to be
assailed before the High Court which dismissed the appeal by holding that
the counter claims were bad in law as they were never placed before the
court by the appellant in the proceeding under Section 11 of the Act and
they were not referred to by the court to arbitration and, therefore, the
arbitrator had no jurisdiction to entertain the matter.

21. This Court posed two questions, namely, whether the respondent in an
arbitration proceeding is precluded from making a counter claim, unless
(a) it had served a notice upon the claimant requesting that the disputes
relating to that counter claim be referred to arbitration and the
claimant had concurred in referring the counterclaim to the same
arbitrator; and/or (b) it had set out the said counterclaim in its reply
statement to the application under Section 11 of the Act and the Chief
Justice or his designate refers such counter claim also to arbitration.
Thereafter, the Court referred to the concept of “reference to
arbitration” and, analyzing the anatomy of Sections 21 and 43 of the Act
and Section 3 of the Limitation Act, 1963, opined thus: –
“Section 3 of the Limitation Act, 1963 specifies the date of
institution for suit, but does not specify the date of “institution”
for arbitration proceedings. Section 21 of the Act supplies the
omission. But for Section 21 there would be considerable confusion as
to what would be the date of “institution” in regard to the
arbitration proceedings. It will be possible for the respondent in an
arbitration to argue that the limitation has to be calculated as on
the date on which statement of claim was filed, or the date on which
the arbitrator entered upon the reference, or the date on which the
arbitrator was appointed by the court, or the date on which the
application was filed under Section 11 of the Act. In view of Section
21 of the Act providing that the arbitration proceedings shall be
deemed to commence on the date on which “a request for that dispute to
be referred to arbitration is received by the respondent” the said
confusion is cleared. Therefore, the purpose of Section 21 of the Act
is to determine the date of commencement of the arbitration
proceedings, relevant mainly for deciding whether the claims of the
claimant are barred by limitation or not.”

22. Thereafter, addressing the issue pertaining to counter claims, the
Court observed as follows: –
“20. As far as counterclaims are concerned, there is no room for
ambiguity in regard to the relevant date for determining the
limitation. Section 3(2)(b) of the Limitation Act, 1963 provides that
in regard to a counterclaim in suits, the date on which the
counterclaim is made in court shall be deemed to be the date of
institution of the counterclaim. As the Limitation Act, 1963 is made
applicable to arbitrations, in the case of a counterclaim by a
respondent in an arbitral proceeding, the date on which the
counterclaim is made before the arbitrator will be the date of
“institution” insofar as counterclaim is concerned. There is,
therefore, no need to provide a date of “commencement” as in the case
of claims of a claimant. Section 21 of the Act is therefore not
relevant for counterclaims. There is however one exception. Where the
respondent against whom a claim is made, had also made a claim against
the claimant and sought arbitration by serving a notice to the
claimant but subsequently raises that claim as a counterclaim in the
arbitration proceedings initiated by the claimant, instead of filing a
separate application under Section 11 of the Act, the limitation for
such counterclaim should be computed, as on the date of service of
notice of such claim on the claimant and not on the date of filing of
the counterclaim.”
[Italics is ours]

23. Mr. R.F. Nariman, learned senior counsel appearing for the respondent,
submitted that the case of the respondent comes within that exception
because it had raised its claims on various dates and crystallized it by
letter dated 17.4.2006 and had sought arbitration also. It is his
submission that the learned single Judge had incorrectly understood the
exception carved out in the aforesaid case and has opined that the date
of filing of the counter claims, i.e., 26.9.2011 is the pertinent date.
It is urged by him that the Division Bench has correctly determined the
date to be 17.4.2006. Mr. Venugopal, learned senior counsel, has
disputed the said position by relying upon Section 3 of the Limitation
Act which stipulates the limitation to be mandatory.

24. On a careful reading of the verdict in Praveen Enterprises (supra), we
find that the two-Judge Bench, after referring to, as we have stated
hereinbefore, Sections 21 and 43 of the Act and Section 3 of the
Limitation Act has opined, regard being had to the language employed in
Section 21, that an exception has to be carved out. It saves the
limitation for filing a counter claim if a respondent against whom a
claim has been made satisfies the twin test, namely, he had made a claim
against the claimant and sought arbitration by serving a notice to the
claimant. In our considered opinion the said exception squarely applies
to the case at hand inasmuch as the appellant had raised the counter
claim and sought arbitration by expressing its intention on number of
occasions. That apart, it is also perceptible that the appellant had
assured for appointment of an arbitrator. Thus, the counter claim was
instituted on 17.4.2006 and hence, the irresistible conclusion is that it
is within limitation.

25. Presently to the alternative submission of Mr. Venugopal, learned
senior counsel for the appellant. It basically pertains to the nature,
scope and gamut of applicability of the exception carved out in Praveen
Enterprises (supra) for the purpose of saving a counter claim being
barred by limitation. The learned senior counsel would submit that the
respondent had crystallized its claims by letter dated 17.4.2006
amounting to Rs.68,63,72,743.08 whereas in the counter claim dated
26.9.2011 filed before the learned Arbitrator amounts to
Rs.333,73,35,026/- which is impermissible. In essence, the submission of
Mr. Venugopal is that the claims which were not raised in the letter
dated 17.4.2006 have to be treated as being barred by limitation. Mr.
R.F. Nariman, learned senior counsel for the respondent, on the contrary,
has referred to paragraph 11 of the Praveen Enterprises (supra) to
buttress his submission that when all the disputes are referred to the
arbitrator, he has the jurisdiction to decide all the disputes, i.e.,
both the claims and counter claims. That apart, the respondent had
reserved its rights to quantify the claim. In this regard, he has also
drawn inspiration from McDermott International Inc. (supra) wherein this
Court has stated that while claiming damages, the amount therefor is not
required to be quantified, for quantification of a claim is merely a
matter of proof. Mr. Nariman has also commended us to the decision in
Bharat Sanchar Nigam Limited and another v. Motorola India Private
Limited[8] wherein it has been ruled that the question of holding a
person liable for liquidated damages and the question of quantifying the
amount to be paid by way of liquidated damages are entirely different.
Fixing of liability is primary while the quantification is secondary to
it.

26. In our considered opinion, the aforesaid decisions do not render any
assistance to the proposition canvassed by the learned senior counsel for
the respondent. We are inclined to think so on two counts. First, in
Praveen Enterprises (supra) the Court has carved out an exception and,
while carving out an exception, has clearly stated that the limitation
for “such counter claim” should be computed as on the “date of service of
notice” of “such claim on the claimant” and not on the date of final
counter claim. We are absolutely conscious that a judgment is not to be
read as a statute but to understand the correct ratio stated in the case
it is necessary to appreciate the repetitive use of the words. That
apart, if the counter claim filed after the prescribed period of
limitation before the arbitrator is saved in entirety solely on the
ground that a party had vaguely stated that it would be claiming
liquidated damages, it would not attract the conceptual exception carved
out in Praveen Enterprises (supra). In fact, it would be contrary to the
law laid down not only in the said case, but also to the basic principle
that a time barred claim cannot be asserted after the prescribed period
of limitation.

27. Mr. Nariman, learned senior counsel, has also contended that the
counter claims filed before the learned Arbitrator is an elaboration of
the amount stated in the notice and, in fact, it is an amendment of the
claim of the respondent which deserved to be dealt with by the learned
Arbitrator. In this context, we may refer with profit to the ruling in
K. Raheja Construcitons Ltd. and another v. Alliance Ministeries and
others[9] wherein the plaintiff had filed a suit for permanent injunction
and sought an amendment for grant of relief of specific performance. The
said prayer was rejected by the learned trial court. A contention was
canvassed that the appellant had not come forward with new plea and, in
fact, there were material allegations in the plaint to sustain the
amendment of the plaint. The Court observed that having allowed the
period of seven years to elapse from the date of filing the suit, and the
period of limitation being three years under Article 54 of the Schedule
to the Limitation Act, 1963, any amendment on the grounds set out, would
defeat the valuable right of limitation accruing to the respondent. The
said principle has been reiterated in South Konkan Distilleries and
another v. Prabhakar Gajanan Naik and others[10] and Van Vibhag
Karamchari Griha Nirman Sahkari Sanstha Maryadit (Registered) v. Ramesh
Chander and others[11].

28. In Revajeetu Builders and Developers v. Narayanaswamy and sons and
others[12], while laying down some basic principles for considering the
amendment, the Court has stated that as a general rule the court should
decline amendments if a fresh suit on the amended claims would be barred
by limitation on the date of application.

29. In the present case, when it is absolutely clear that the counter claim
in respect of the enhanced sum is totally barred by limitation and is not
saved by exception carved out by the principle stated in Praveen
Enterprises (supra), we are unable to agree with the view of the Division
Bench of the High Court that the counter claim, as a whole, is not barred
by limitation. Thus analysed, the counter claim relating to the appeal
which deals with civil contracts shall be restricted to the amount stated
in the letter dated 17.4.2006, i.e., Rs.68,63,72,178.08, and as far as
the other appeal which pertains to air-conditioning contract, the quantum
shall stand restricted to as specified in the letter dated 21.3.2006,
i.e., Rs.19,99,728.58.

30. At this juncture, we may, for the sake of completeness, deal with the
justifiability of the interference by the Division Bench in the award
passed by the learned Arbitrator. It has been urged by Mr. Venugopal,
learned senior counsel for the appellant, that the view expressed by the
learned Arbitrator being a plausible interpretation of the contract the
same did not warrant interference. We have already analyzed at length
how the interim award is indefensible as there has been incorrect and
inapposite appreciation of the proposition of law set out in Praveen
Enterprises’s case. In Rashtriya Ispat Nigam Limited (supra) this Court
has opined that the learned Arbitrator had placed a possible
interpretation on clause 9.3 of the contract involved therein and hence,
the interference was exceptionable. In the present case, the factual
matrix and the controversy that have emanated are absolutely different
and hence, the principle stated in the said authority is not applicable.
Thus, we unhesitatingly repel the submission of the learned senior
counsel for the appellant that the award passed by the learned Arbitrator
did not call for any interference.

31. Consequently, both the appeals are allowed in part, the judgment of the
Division Bench in Appeals Nos. 7 of 2013 and 8 of 2013 is modified and
the interim award passed by learned Arbitrator as regards rejection of
the counter claims in toto stands nullified. The learned Arbitrator
shall now proceed to deal with the counter claims, as has been indicated
hereinabove by us. Needless to say, we have not expressed any opinion on
the merits of the claims or the counter claims put forth by the parties
before the learned Arbitrator. The parties shall bear their respective
costs.

…………….……..…..J.
[Anil R. Dave]

 
…………………….….J.
[Dipak Misra]
New Delhi;
February 14, 2014.

———————–
[1] Arbitration Petition No. 570 of 2001 decided on 4.12.2001.
[2] (2012) 12 SCC 581
[3] (2003) 5 SCC 705
[4] (2012) 5 SCC 306
[5] (2006) 11 SCC 181
[6] (1988) 2 SCC 338
[7] (1989) 2 SCC 701
[8] (2009) 2 SCC 337
[9] 1995 Supp (3) SCC 17
[10] (2008) 14 SCC 632
[11] (2010) 14 SCC 596
[12] (2009) 10 SCC 84

 

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