Union Of India & Anr. v. Pawan Aggarwal .

A.K Sikri, J.— Union of India has come up in this writ petition challenging the judgment and order dated 24th March, 2001 passed by learned Additional District Judge, Delhi. By said order, the learned Additional District Judge, Delhi allowed the application of the respondent herein filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 and directed the General Manager, Northern Railway, Baroda House to appoint Arbitrator in terms of arbitration clause contained in the General terms of the contract entered into between the parties within 90 days from the date of the said order. Since pure legal issue is involved which is to be decided in this writ petition, facts in brief and relevant to the context only are noted.

2. On 27th September, 1985 the petitioners had awarded the contract for extension of IRCA building at Chelmsford Road, New Delhi to the respondent. This contract was completed in all respect in the year 1986 and the final bill was prepared in the year 1987. However, vide letter dated 21st August, 1989 the respondent informed the petitioners that the final bill did not include the genuine payments of the respondent and called upon the petitioners to make the payment failing which the petitioners were asked to appoint an Arbitrator to adjudicate the matter in dispute. The petitioners did not appoint an Arbitrator even after this notice. However, the respondents also did not take any steps in the matter thereafter. According to the respondent, he kept on representing the petitioners for the appointment of an Arbitrator. The petitioners even wrote letter dated 9th March, 1998 directing the respondent to submit the claim-petition again. However, thereafter vide letter dated 1st November, 2000 the petitioners declined to appoint an Arbitrator. The respondent filed application under Section 11(6) of the Arbitration Act for appointment of Arbitrator in December, 2000.

3. The petitioners herein apart from taking other objections, submitted that the petition was barred by limitation in the following manner:

“Para 7(xii) of the petition is wrong and denied. It is submitted that the petitioner after a period of two years after recording of measurements submitted his letter dated 21.8.1989 asking for the arbitration as the matters were excepted matters, therefore, his request could not be considered. It is further submitted that the petitioner vide his letter dated 3.11.1997 requested for Appointing Arbitrator which was turned down as the matter was barred by time. It is denied that there was any dispute or difference between the petitioner and the respondent. It is admitted that under Clause 64 of General Conditions of Contract, the Arbitrator is to be appointed for adjudication of the dispute and difference between the parties. But, in the present case, no claim is referable to Arbitrator for adjudication as the acts of the respondents are justified and lawful and have been done under the provisions of the contract.”

4. As already noted above, learned Additional District Judge has allowed the application of the petitioner by the impugned order. The contention regarding application of the respondent being time-barred is rejected by the learned Additional District Judge in the impugned order in the following terms:

“Undisputably under the said contract both the parties were to be governed by Clause 64 of the General Conditions of Contract that provided for arbitration. In para 7(xii) of the application in hand, it has been specifically averred that the applicant-petitioner had asked for the arbitration within time. There is no specific denial of such an averment in the reply filed by the respondent in the corresponding paragraph of the reply. It has, therefore, to be taken that the applicant-petitioner did invoke the such arbitration clause and sought appointment of the Arbitrator within time. In the pleadings of the respondent there is also no specific denial to the averments made in para 7(xii) of the application that the respondent vide their letter dated 1.11.2000 wrote to the petitioner that they will not appoint the Arbitrator as, such claims are barred by time. It is, therefore, to be taken that vide dated 1.11.2000 the respondent declined to appoint the Arbitrator, as according to them the claims were barred by time. In para 7(xii) of the reply filed by the respondent though the respondent has re-iterated that the matter was barred by time and has also alleged that no claim was referable to Arbitrator for adjudication as the acts of the respondents are justified and lawful and have been done under the provisions of the contract, it is simultaneously, however admitted to by the respondents in the same para 7(xii) of the reply that Arbitrator is to be appointed for adjudication of the dispute and difference between the parties. The relevant portion of para 7 (xii) of the reply to the respondent is as under:

“It is admitted that under Clause 64 of General Conditions of Contract, the Arbitrator is to be appointed for adjudication of the dispute and difference between the parties.

Once it is so admitted that an Arbitrator is to be appointed for adjudication of the disputes and differences amongst the parties, in my considered view it shall be for the Arbitrator to consider the respective contentions of the parties and arrived at its conclusions including the question of limitation in accordance with law.”

5. From the aforesaid reasoning given by learned Additional District Judge it is clear that he was persuaded by the fact that request for appointment of Arbitrator made on 21st August, 1989 was within time. He also observed that by letter dated 1st November, 2000 the petitioner declined to appoint an Arbitrator as according to them the claims were barred by time. Learned Additional District Judge has also noted the contention of the petitioners herein to the effect that petition for appointment of Arbitrator was time-barred but going by the averments made in para 7(xii) of the reply wherein it was allegedly admitted that under Clause 64 of the General Conditions of Contract Arbitrator is to be appointed, learned Additional District Judge concluded that petitioners herein were themselves admitting that an Arbitrator is to be appointed and therefore he referred the matter for arbitration including the question of limitation in accordance with law. Thus the essence of the aforesaid discussion is that the learned Additional District Judge did not decide the question of limitation but going by the averments made in para 7(xii) of the reply filed by the petitioners herein and admission on the part of the petitioners herein for appointment of the Arbitrator, the direction has been given to appoint an Arbitrator.

6. Para 7(xii) has already been reproduced above. The said para read in entirety would clearly show that the stand of the petitioners was that the application for appointment of Arbitrator preferred by the respondent herein was time-barred. Clause 64 of the General Conditions of Contract was referred to only to state what this clause provides. Immediately thereafter the petitioners had stated in the instant case no claim was referable to the Arbitrator for adjudication. Reliance on few lines from para 7(xii) of the reply by the learned Additional District Judge is clearly out of context. When this para is read in entirety it clearly discloses the stand of the petitioners herein that the Arbitrator could not be appointed as the application was time-barred. In the process if it was admitted that Clause 64 of the General Conditions of Contract was an arbitration clause as per which Arbitrator is to be appointed that does not mean that the petitioners were accepting the position that Arbitrator was required to be appointed in this case as well, the petitioners, obviously could not deny that Clause 64 of General Conditions of Contract is an arbitration clause as per which Arbitrator is to be appointed. That is a statement made qua Clause 64. However, one cannot conclude that by picking this line from the entire para that the petition herein had accepted the position that Arbitrator was required to be appointed in the instant case as well. This approach of the learned Additional District Judge is clearly erroneous.

7. The respondent herein also cannot take advantage of the petitioner's letter dated 1st November, 2000 refusing to appoint an Arbitrator. By this letter the petitioners have refused to appoint the Arbitrator by specifically mentioning that claims were time-barred. It is not that the petitioners had rejected the claims of the respondent as bogus or refused to appoint the Arbitrator on that ground. As already noted above, the respondent had invoked the arbitration clause vide letter dated 21st August, 1989. Relevant part of the said letter reads as under:

“Now as per terms of the contract conditions, we hereby give you 90 days notice to be kind enough to consider our following items and make the payment failing which after the expiry of 90 days' period from the date of the receipt of this letter, the arbitration be constituted within further period of 30 days and if no response is received in either ways, we shall be constrained to take the matters to the Court of law at the risk and cost of the department and once the matter is taken to the Court of Law, we shall not accept the appointment of Arbitrators to decide the items.”

8. However, the petitioners did not respond to the above letter of the respondent as according to the petitioners they had made all the payments to the respondent.

9. The respondent also did not take any steps for appointment of Arbitrator and as such his claims/application for appointment of Arbitrator became time-barred after expiry of a period of three years after the notice period.

10. Thereafter the respondent after a period of almost 7/8 years again sought to revive the issue. However, the petitioners vide their letter dated 1.11.2000 refused to appoint the Arbitrator as the claims of the respondent were barred by time.

11. Thus, reading letter dated 1st November, 2000 in the aforesaid background would clearly show that this letter cannot be of any avail to the respondent herein who was supposed to file appropriate application for appointment of Arbitrator within the stipulated period of three year from his letter dated 21st August, 1989 under the provisions of Indian Arbitration Act which governed the field at that time.

12. There is another very important aspect which needs to be noted. In the year 1989 when disputes arose and the respondent invoked the arbitration clause, it is Indian Arbitration Act, 1940 (hereinafter referred to as the Old Act, for short) which was holding the field. Much before coming into force the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the New Act, for short) the claims of the respondent herein had become time-barred in view of the provisions of Article 147 of the Limitation Act, 1963 which provides for three years limitation (Refer: R.K Aneja v. DDA, 1996 (IV) AD Delhi 185; Pandit Munshi Ram and Associate v. DDA, 2001 (1) Arb.L.R 113 (Delhi); The Kerala State Electricity Board v. T.P Kunhaliumma, (1976) 4 SCC 634 : AIR 1977 SC 282). It is not a case where cause of action accrued when the Old Act was in force and continued till the New Act was brought on the anvil. Thus a cause which became time-barred much before coming into force of the New Act, no such application under the provisions of the new act for appointment of Arbitrator could be filed.

13. Learned Counsel for the respondent however questioned the maintainability of the present writ petition submitting that order passed under Section 11(6) of the New Act is an order passed in exercise of purely administrative power and does not include any process of judicial function or adjudication. He relied upon the judgment of the Supreme Court in the case of Konkan Railway Corporation Ltd. v. Mehul Construction Company, (2000) 7 SCC 201, and particularly the following observations contained therein:

“If it is held that an order under Section 11(6) is a judicial or quasi-judicial order then the said order would be amenable to judicial intervention and any reluctant party may frustrate the entire purpose of the Act by adopting dilatory tactics in approaching a Court of law even against an order of appointment of an Arbitrator.”

14. He also referred to another judgment of the Supreme Court in Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., JT (2002) 1 SC 587, and contended that it was settled law that no adjudication of any controversy of whatsoever nature either preliminary or final nature was envisaged or permitted. In such an application the role of the other party was limited only assisting the designate of the Hon'ble Chief Justice in selecting an Arbitrator in compliance with Section 12 of the New Act. It was observed:

“There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a response from other party. It does not contemplate a decision by the chief justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an Arbitrator within the period of thirty days.”

15. He further submitted, relying upon the following observations from the same judgment Rani Construction (supra), that the petitioners were at liberty to raise all such contentions including limitation before the Arbitrator:

“….the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two Arbitrators appointed by the parties to nominate an Arbitrator. This is to enable the Arbitral Tribunal to be expeditiously constituted and the arbitration proceedings to commence.”

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“The Arbitral Tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned Counsel for the appellants, but goes to the very root of its jurisdiction”. X x x “The contention that the claims made by the petitioner are barred by limitation and that an Arbitrator cannot therefore be appointed cannot be countenanced at the stage. Whether a particular claim is barred by limitation or not is a matter which cannot be decided by this Court at the stage of appointment of an Arbitrator and that such question can be decided only by the Arbitrator before whom the respondents will be entitled to raise such a plea.”

16. However, in the facts of this case the aforesaid arguments may not be any help to the respondent herein. There cannot be any quarrel about the ambit and scope of Section 11 of the New Act and its interpretation by the Supreme Court in the aforesaid judgments. However, the question which has arisen in the present case is as to whether application under Section 11 of the New Act was at all maintainable inasmuch as at the time when the cause of action had arisen it was the Old Act which was applicable and during the time when the said Act was still operative cause to file the application had become time-barred. Therefore, application under Section 11 was not even maintainable. In such a situation the impugned order passed by the learned Additional District Judge is without jurisdiction and such an order can be challenged in proceedings under Article 226 of the Constitution of India particularly when no appeal is provided.

17. No doubt normally when a plea of limitation is taken, in reply to an application under Section 11 of the New Act, it is to be considered by the Arbitrator to be appointed. However, that does not mean that those claims which are obviously state, on the face of it, and became time-barred much before coming into force of the New Act, could be raised. If such an interpretation, as contended by learned Counsel for the respondent, is to be given then every party shall become entitled to dig out such old claims from graves and get the Arbitrator appointed with directions that this Arbitrator is to decide the question of limitation. Whenever there may be genuine disputes as to whether a particular claim preferred in an application under Section 11 under the New Act is time-barred, normally it is to be left to the Arbitrator to decide such questions. But such a proposition cannot be treated as absolute proposition of law compelling the Court to appoint an Arbitrator and direct the Arbitrator to decide the issue of limitation even when claims are patently time-barred on the basis of admitted facts and when the Court is of the opinion that application under Section 11 of the Act was ex facie not maintainable. Such an interpretation to provisions of an Act cannot be given which instead of advancing the cause of justice, encourages frivolous and untenable litigation.

18. This writ petition is accordingly allowed. Impugned order dated 24th March, 2001 passed by learned Additional District Judge is hereby set aside holding that application under Section 11 was not maintainable and the said application filed by the respondent herein is hereby dismissed.

19. No costs.

Writ Petition allowed.