Nyaneshwar Bhiku Dhargalkar v. Executive Engineer, P.W.D Works Division Ii, Panaji .

1. This is an application for appointment of arbitrator in terms of provisions contained in Section 11 of the Arbitration and Conciliation Act, 1996, hereinafter called as “the new Act”.

2. The respondent invited tenders for the work of improvement and black-topping of the road to Bhutkuwada and Josewada in the village of Socorro. The tender of the petitioner in that regard was accepted by the respondent and the work order was issued on 16-11-1989, and simultaneously the formal agreement between the parties was executed. The date of commencement of the work was 30th November, 1989 and the date stipulated for completion of the work was 22nd February, 1991. However, on account of certain extra work which was to be carried out, the work could be completed only on 10th April, 1991. Moreover, it is the contention of the applicant that the accounts between the parties were not finally settled for a long time and, therefore, the petitioner by notice dated 6th June, 1995 formulated his claims for payment of amount due to the petitioner from the respondent on account of the work carried out by the petitioner and called upon the respondent to pay the said dues within 15 days from the receipt of the said letter. Since the respondent neither replied the said letter nor paid the dues, it is the contention of the petitioner that the disputes and differences arose between the parties and, therefore, in terms of Clause 25 of the said agreement between the parties, the petitioner issued notice dated 31st January, 1996 calling upon the respondent to adjudicate and settle the dispute that had arisen between the parties as a result of non-settlement of the claim listed by the petitioner in his letter dated 6th June, 1995 and, therefore, called upon the respondent to appoint an arbitrator in the matter and to refer the dispute for the adjudication. In spite of the said letter, the respondent did not comply with the request of the petitioner and, therefore, the petitioner filed an application under Section 20 of the Arbitration Act, 1940, hereinafter called as “the old Act” before the Civil Court at Panaji. The same was registered as Special Civil Suit No. 11/96.A. By Order dated 19th April, 1997, the Civil Court, Panaji dismissed the said application on two grounds, firstly the applicability of the provisions of the new Act to the matter in question and secondly, the claim being barred by the law of limitation. The petitioner preferred the appeal against the said order and the same was registered as the Appeal from Order No. 12/97 and it was disposed of by this Court by its Order dated 17th August, 1998. By the said Order, this Court confirmed the order of the trial Court that the provisions of the new Act are applicable to the matter in question. Thereafter on 30-9-1998, the petitioner filed the present application in this Court.

3. The respondent by its affidavit-in-reply has objected to the said application on two grounds, namely, that the application is grossly barred by law of limitation and secondly, that it is barred by the principle of res judicata inasmuch as the petitioner's earlier application before the Civil Court was dismissed with the finding that the claim of the petitioner was barred by the law of limitation and the said finding was not disturbed by this Court in the judgment dated 17th August, 1998 passed in Appeal from Order No. 12 of 1987 (1997).

4. Upon hearing the learned Advocate for the parties and on perusal of the record, the points for determination which arise before the application can be considered on merit are: (1) whether the application filed by the applicant is barred by the principle of res judicata on account of dismissal of the application by the Civil Court by its Order dated 19-4-1997 holding that the claim of the applicant is barred by the law of limitation and the said finding having not been disturbed by this Court in its judgment dated 17-8-1998 in Appeal under Arbitration Act No. 12/97;

(2) whether the application for appointment of arbitrator is barred by the law of limitation.

5. Perusal of Order dated 19-4-1997 passed by the Civil Court, Panaji in Special Civil Suit No. 111/96.B discloses that the Civil Court had held that the said application was not maintainable being expressly barred by limitation on the applicant's own showing that the work was completed on 10-4-1991 and the application was moved for recovery of dues only sometimes in June 1996, i.e beyond the period of 3 years. Moreover, the said Order also discloses that the said finding was arrived at after the Civil Court had held that the application itself was not maintainable before the Civil Court in view of the applicability of the provisions of the new Act to the matter in issue. In other words, the application filed by the applicant under section 20 of the old act before the Civil Court was rejected mainly on the ground that the Civil Court had no jurisdiction to entertain such application since the same was required to be filed in terms of the provisions of the new Act and before this Court. It is thus clear that the Civil Court refused to entertain the application filed by the applicant on the ground that the Civil Court had no jurisdiction to entertain the same. Once the Court holds that the Court has no jurisdiction to entertain an application, it is not permissible for the Court to go into the merits of the case and to pronounce any judgment or to give any findings regarding the merits of the case. Indeed, the Apex Court in the matter of Syed Mohd. Salie Labbai (Dead) by L. Rs. v. Mohd. Hanifa (Dead) by L. Rs., reported in (1976) 4 SCC 780 : AIR 1976 SC 1569, has clearly held that before the principle of res judicata can be given effect to, four conditions are to be established and one of them is that the earlier suit must be decided by a Court of competent jurisdiction. The decision of the Apex Court clearly discloses that in order to enable a party to raise the plea of res judicata in any suit or proceedings, it is necessary to establish that the point which is sought to be raised in the said suit or proceedings has already attained finality on account of a decision in that regard by a Court of competent jurisdiction to decide such issue. The Apex Court in the said decision has observed thus:—

“……It may be necessary to mention that before a plea of res judicata can be given effect to, the following conditions must be proved—

(1) that the litigating parties must be the same;

(2) that the subject-matter of the suit also must be identical;

(3) that the matter must be finally decided between the parties; and

(4) that the suit must be decided by a Court of competent jurisdiction.”

6. Once it is not disputed that the Civil Court had no jurisdiction to entertain the application under section 20 of the old act in relation to the matter in question, it was not permissible for the Civil Court to give any finding in relation to the merits of the case or even including pertaining to the fact as to whether the right to claim money under the agreement between the parties still subsists in favour of the applicant or not. Being so, the finding of the Civil Court in Order dated 19-4-1997 in relation to the bar of limitation cannot be said to be a decision by a Court of competent jurisdiction in the matter and, therefore, the plea of res judicata is not available to the respondent and does not arise for consideration in the present proceedings and the objection in that regard sought to be raised by the respondent is to be rejected.

7. As regards the point of limitation it is seen that Section 43 of the new Act provides that the provisions of the Limitation Act, 1963 shall apply to the arbitration as it applies to the proceedings in the Court. Article 137 of the Limitation Act, 1963 provides that any application to vindicate the rights of the parties to which no specific Act is provided in the Limitation Act can be filed within 3 years from the date when the right to apply accrues. On this aspect, before analszing the facts of the case it would be worthwhile to peruse the decisions of the Apex Court in the matter of (1) Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, reported in (1988) 2 SCC 338 : AIR 1988 SC 1007 and (2) State of Orissa v. Damodar Das, reported in (1996) 2 SCC 216 : ((1996) 2 SCC 216 : AIR 1996 SC 942). In the matter of Major (Rtd.) Inder Singh Rekhi (supra), the Apex Court while referring to section 20 of the old act, has held that in order to be entitled to ask for reference under Section 20 there must be not only entitlement of money but there must be a difference or a dispute arisen between the parties and that though on completion of work a right to get payment would arise where final bills have not been prepared, the cause of action cannot be said to have arisen unless there is assertion of claim. The observation in that regard by the Apex Court in the said decision reads thus:—

“It is true that on completion of the work a right to get payment would normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on 28th Feb., 1983 and there was non-payment, the cause of action arose from that date, that is to say, 28th of Feb., 1983. It is also true that a party cannot postpone the accrual of Cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. 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, 1st 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 in denying, not merely inaction to accede to a claim or a request.”

In State of Orissa v. Damodar Das ((1996) 2 SCC 216 : AIR 1996 SC 942) (supra), the Apex Court while dealing with the point sought to be raised regarding claim of bar of limitation has held thus:—

“4. The diverse contentions give rise to the question whether the claims are barred by limitation and whether the clause in the contract gives rise to an arbitration. Section 37(1) of the Arbitration Act, 1940 (for short “the Act”) provides that all the provisions of the Indian Limitation Act, 1908 (since repealed and adopted by Limitation Act, 1963) shall apply to the proceedings in Court. Sub-section (2) with a non obstante clause provides that “a cause of action shall, for the purpose of limitation, be deemed to have accrued in respect of any such matter at the time when it would have accrued but for that term in the agreement.” An arbitration shall be deemed to have commenced under sub-section (3) when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement requiring that the difference be submitted to the person so named or designated. Section 3 of the Limitation Act, 1963 enjoins the Court to consider the question of limitation whether it is pleaded or not.

5. Russel on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 states that the period of limitation for commencing an arbitration runs from the date on which the “cause of arbitration” accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned. The period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued.”

The Apex Court has further held that:—

“Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date when the cause of action accrues, so in the case of arbitrations the claim is not to be put forward after the expiration of a specified number of years from the date when the claim accrues. For the purpose of Section 37(1) ‘action’ and “cause of arbitration” should be construed as arbitration and cause of arbitration. The cause of arbitration arises when the claimant becomes entitled to raise the question, that is, when the claimant acquires the right to require arbitration.

It must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of cause of action arisen in a civil action.”

8. Referring to an earlier decision in the matter of Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, reported in (1993) 4 SCC 338 : ((1993) 4 SCC 338 : AIR 1994 SC 1615), the Apex Court has held that the “cause of arbitration” shall be deemed to have arisen when one party serves the notice on the other party requiring the appointment of an arbitrator. The Apex Court therein has observed thus:—

“The question is when the cause of arbitration arises in the absence of issuance of a notice or omission to issue notice for a long time after the contract was executed? Arbitration implies to charter out timeous commencement of arbitration availing of the arbitral agreement, as soon as difference or dispute has arisen. Delay defeats justice and equity aids promptitude and resultant consequences. Defaulting party should bear the hardships and should not transmit the hardship to the other party, after the claim in the cause of arbitration was allowed to be barred.”

9. Considering the pronouncements above referred to by the Apex Court in the matter of period of limitation applicable to the matters pertaining to applications required to be filed under section 20 of the old act, it is clear that such application could have been filed within a period of 3 years from the date the cause for arbitration has arisen and that the cause for arbitration can be said to have arisen from the date the party serves a notice upon the other party requiring the appointment of an arbitrator for settlement of disputes between the parties. Bearing in mind this proposition of law as pronounced by the Apex Court and referring to the facts of the present case it is the case of the applicant himself that pursuant to failure on the part of the respondent to pay the amount demanded by the applicant under letter dated 6th June 1995, disputes and differences had arisen between the parties and, therefore, the applicant served the notice dated 31st January, 1996 calling upon the respondent to refer the matter for arbitration, requiring the arbitrator to settle the disputes between the parties. Therefore, in terms of the decision of the Apex Court, for all purposes, the cause for arbitration arose in favour of the applicant on service of the notice dated 31st January, 1996 upon the respondent. Considering this date as the cause for arbitration for the applicant, the application for appointment of arbitrator in terms of Section 11(6) of the new Act could have been filed within 3 years from the date, i.e on or before 31st January, 1999. Undisputedly, the applicant had filed this application on 30th Sept, 1998. Hence, it cannot be said that the application was barred by the law of limitation.

10. The contention of the respondent that on own showing of the applicant, the work was completed on 10th April, 1991 and that therefore, the claim of the applicant in the year 1996 itself was barred by the law of limitation cannot be accepted in view of decision of the Apex Court in the matter of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority ((1988) 2 SCC 338 : AIR 1988 SC 1007) (supra). Considering the ruling of the Apex Court in the said decision, it must be held that though on completion of the work the right to get payment would normally arise, but where final bill is not prepared, such a right cannot be said to have been barred by law of limitation unless the party fails to take necessary recourse to Section 11 of the new Act within 3 years from the date of ascertion of the claim prior to the issuance of the final bill. In the case in hand, it is not in dispute that the final bill has not been prepared. It is also undisputed fact that the applicant sought to assert the claim firstly by letter dated 6-6-1995 and then by letter dated 31-1-1996 and till then the final bill was not issued. Being so, it cannot be said that the application under Section 11 is barred by the law of limitation. Hence the contention in this regard by the respondent is also to be rejected.

11. It is needless to say that the findings herein regarding the law of limitation are in relation to the application under Section 11 of the new Act and not in relation to the claim of the applicant on merits and these observations shall not come an the way of the arbitrator in deciding whether the claim of the applicant is barred or not on merits.

12. Upon perusal of the records, it is seen that the disputes had arisen between the parties as specified by the applicant in his notice dated 31-1-1996 and the same are:—

Sr. No. Brief Particulars Amount due Rs. 1. Claim No. 1 Settlement of final Bill against work done including escalation due (as per annexures ‘A’ B and C appended) 141324.00 2. Claim No. 2 Release of security deposit 53417.00 3. Claim No. 3 Compensation towards increased expenditure on overheads in prolonged period 4982.00 4. Claim No. 4 Interest of 21\per annum on amounts under claim Nos. 1 & 2 w.e.f 10-10-91 both till actual payment or realisation as per the Interest Act, 1978. 5. Claim No. 5 Costs of arbitration proceedings (estimated at) 25000.00

13. Upon being satisfied about existence of dispute referable for settlement by way of arbitration, it is necessary to refer the said dispute for settlement in terms of provisions contained in Section 11(6) and (8) of the new Act. The learned counsel for the parties are agreed that the disputes in this case may be referred to for arbitration to Shri G.D Kamat, retired Chief Justice of Gujarat High Court. Accordingly, Shri G.D Kamat, retired Chief Justice of Gujarat High Court is appointed as sole Abritrator.

14. Needless to say that it is open for the parties to raise all contentions factual and legal available under the provisions of the Act.

15. The Addl. Registrar to communicate this Order to the learned Arbitrator.

In the circumstances, the parties are left to bear their costs.

Order accordingly.