Citation Codes

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Case Number

C.R.P No. 240/2011

Attorney(S)

Sri M. Aswathanarayana Reddy, Advocate for Petitioners;
Sri Aditya Sondhi, Advocate for R-1, R-2 served.

Judges

H.G Ramesh, J.

Acts

SECTION 37 ARBITRATION AND CONCILIATION ACT 1996
Act of 1949 inserted Section 6(1-A) in the Act of 1933. The 1949 Act
Section 28 of the Indian Contract Act, 1872 by Act 1 of 1997,
SECTION 6 GENERAL CLAUSES ACT 1897
Indian Contract (Amendment) Act, 1996 (Act 1 of 1997)
SECTION 28 CONTRACT ACT
Section 28 of the Indian Contract Act, 1872,
Section 28(b) of the Contract Act, 1872.
Section 43(3) of the Arbitration Act
SECTION 37 ARBITRATION ACT
Section 28(b) of the Contract Act
Indian Parliament Act No. 30
Amending Act of 1952
Amending Act of 1949,
Amending Act, 2001.
Amending Act, 1952

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Smart Summary

Concise Analytical Summary of the Opinion

Factual and Procedural Background

This revision petition was filed by the Central Ware Housing Corporation (the petitioners) against the Judgment dated 18.04.2011 of the Appellate Court (VI Additional City Civil Judge, Bangalore City) in Arbitration Case No. 1/2005. The Appellate Court had allowed an appeal filed by respondent No. 1 under Section 37 of the Arbitration and Conciliation Act, 1996, set aside an order dated 20.10.2004 of the sole Arbitrator and remitted the matter to the Arbitrator to decide the dispute on merits.

The sole Arbitrator had earlier dismissed respondent No. 1's claim (arising from a contract for construction of a godown and ancillary buildings at the Central Warehouse, Whitefield, Bangalore) as not maintainable because respondent No. 1 did not invoke the arbitration clause (Clause 25 of the Contract) within 90 days as stipulated and because there was no extension of time granted under Section 43(3) of the Arbitration Act; consequently the Arbitrator considered the claim waived and barred by Clause 25. Respondent No. 1 appealed that arbitrator's order under Section 37. The Appellate Court held Clause 25 void as contrary to Section 28(b) of the Indian Contract Act, 1872, and exercised powers under Section 43(3) of the Arbitration Act to extend time on the ground of undue hardship, remitting the matter to the Arbitrator.

The present High Court revision petition contested that Appellate Court decision; the High Court (Ramesh, J.) heard learned counsel for both sides, considered authorities and statutory amendments and ultimately dismissed the revision petition.

Legal Issues Presented

Whether Clause 25 of the Contract — which provides that if no demand for arbitration is made in writing within 90 days of receiving intimation that the bill is ready for payment, the contractor's claim shall be deemed waived and absolutely barred — is void as being contrary to Section 28(b) of the Indian Contract Act, 1872?

Arguments of the Parties

Petitioners' Arguments (Central Ware Housing Corporation)

Learned Counsel for the petitioners relied on the decision of the Hon'ble Supreme Court in H.P. State Forest Company Ltd. v. United India Insurance Co. Ltd. and argued that the impugned judgment of the Appellate Court was contrary to the law laid down in that Supreme Court decision.
It was submitted that no extension of time under Section 43(3) of the Arbitration Act is permissible unless the application for extension was filed in Court before commencement of arbitral proceedings; the counsel referred to the Madras High Court judgment in E. Muralidharan v. Venkataraman & Co., specifically para 15, in support of this proposition.

Respondent No. 1's Arguments

Learned Counsel for respondent No. 1 supported the Appellate Court's judgment by relying on the amendment to Section 28 of the Indian Contract Act effected by Act 1 of 1997 (the 1997 amendment) and on several High Court judgments that, as represented, support the view that an agreement extinguishing rights on expiry of a specified period is void under the amended Section 28.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
H.P. State Forest Company Ltd. v. United India Insurance Co. Ltd.	The petitioners relied on this Supreme Court judgment; the opinion notes that the effect of the 1997 amendment to Section 28 was not considered in that decision.	The court observed that this decision did not consider the 1997 amendment to Section 28 and therefore could not govern the present case as to the effect of that amendment.
E. Muralidharan v. Venkataraman & Co. (Madras High Court)	Relied on by petitioners for the proposition that extension under Section 43(3) of the Arbitration Act is not permissible unless the application for extension was filed before commencement of arbitral proceedings (reference to para 15).	Recorded as authority relied upon by petitioners; the opinion does not adopt or further elaborate the proposition beyond noting the petitioners' citation.
National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co.	Establishes (pre-1997 amendment) the distinction between (a) agreements curtailing the period of limitation (void under Section 28) and (b) agreements providing for forfeiture/extinction of the right if not exercised within a stipulated period (previously held binding).	The court explained that before the 1997 amendment this distinction existed, but after the amendment the distinction no longer survives; the case was used to explain pre-amendment law contrasted with post-amendment law.
Sunil Goyal v. Haryana State Agriculture Marketing Board (Punjab & Haryana High Court)	Interpreted the effect of later Repealing & Amending Acts and held that the repealing/amending process did not annul the amendment made to Section 28 by Act 1 of 1997 (i.e., the 1997 amendment remained effective).	The court relied on and quoted Sunil Goyal to support the conclusion that Indian Parliament Act No. 30 of 2001 did not have the effect of repealing the 1997 amendment to Section 28.
Jethanand Betab v. State of Delhi (AIR 1960 SC 89)	Interpreted Section 6-A of the General Clauses Act, 1897 and the saving of amendments in relation to Repealing & Amending Acts; used for the proposition that an amending Act's changes are preserved despite later repeal of the amending Act itself by a subsequent Repealing & Amending Act.	The opinion cites this decision in support of the legal reasoning that the 1997 amendment to Section 28 is not nullified by the later Repealing & Amending Act of 2001, applying the same saving principles.
Khuda Bux v. Manager, Caledonian Press (AIR 1954 Calcutta 484)	Explains the limited and editorial purpose of Repealing & Amending Acts (statute law revision) — that they generally excise dead matter and are not intended to change substantive law.	The opinion quotes this decision to elucidate the object and scope of Repealing & Amending Acts, supporting the view that the 2001 Act did not extinguish the substantive amendment effected in 1997.
India Tobacco Co. Ltd. v. CTO ((1975) 3 SCC 512)	Described the principal object of a Repealing & Amending Act: to excise dead matter and prune superfluities; cited for the general proposition about the nature of such Acts.	The court relied on this authority to reinforce the point that a Repealing & Amending Act does not ordinarily alter substantive amendments already incorporated into principal Acts.
Mohinder Singh v. Harbhajan Kaur (AIR 1955 Punjab 141)	Cited in India Tobacco and in relation to the object of Repealing & Amending Acts (supportive authority for the same proposition).	Used in the opinion as part of the authorities establishing the general purpose and effect of Repealing & Amending Acts; supports the court's conclusion that the 1997 amendment survives the 2001 enactment process.

Court's Reasoning and Analysis

The court's reasoning proceeds in several discrete steps, strictly following the materials and authorities discussed in the opinion:

Statutory comparison — The court first set out Section 28 of the Indian Contract Act as it stood before the 1997 amendment and then quoted the amended Section 28 (as effected by Indian Contract (Amendment) Act, 1996 (Act 1 of 1997), effective 8.1.1997). The amended Section 28 expands the scope of void agreements to include not only agreements that limit the time within which a party may enforce rights but also agreements "which extinguish the rights of any party" or discharge liability on expiry of a specified period (Section 28(b)).
Legal consequence of the amendment — The court explained that prior to the 1997 amendment, courts had distinguished between (a) agreements that curtailed the limitation period (void under Section 28) and (b) agreements that imposed forfeiture/extinction of rights if not enforced within a contractual period (which were previously regarded as enforceable). The 1997 amendment, however, removed that distinction: post-amendment both curtailment and contractual extinction of rights on expiry of a specified period are rendered void to the extent they operate to restrict enforcement of rights.
Analysis of Clause 25 — Clause 25 of the Contract provides that if the contractor does not make any demand for arbitration in respect of any claim in writing within 90 days of receiving intimation that the bill is ready for payment, the claim will be deemed waived and absolutely barred and the corporation discharged of liabilities. The court held that this clause seeks to extinguish rights on expiry of a specified period.
Application of the amended Section 28 — Applying the amended Section 28(b), the court concluded that Clause 25 offends Section 28(b) because it extinguishes the contractor's rights on the expiry of the 90-day period. Consequently Clause 25 is void to that extent.
Consideration of authorities regarding repeal/amendment issues — The court addressed the petitioners' reliance on the H.P. State Forest judgment by noting that the 1997 amendment was not considered in that decision. To resolve any doubt whether the 1997 amendment survives later statutory housekeeping (the Repealing & Amending Act, 2001 — Act No. 30 of 2001), the court relied on the reasoning in Sunil Goyal (Punjab & Haryana High Court) and authorities interpreting Section 6-A of the General Clauses Act (e.g., Jethanand Betab), and other supporting authorities (India Tobacco, Khuda Bux) to hold that the 1997 amendment to Section 28 is not nullified by subsequent repeal of the amending Act itself — the amendment is treated as incorporated into the principal Act and preserved by saving provisions.
Consequential orders — Because Clause 25 is void under Section 28(b), the High Court concluded the Appellate Court was right to set aside the arbitrator's order dismissing the claim on the ground of the contractual bar. The revision petition was therefore dismissed.

The court confined its decision to the single question decided in the opinion and expressly left all other contentions of the parties open to be adjudicated by the Arbitral Tribunal.

Holding and Implications

Holding: The revision petition is dismissed. The court held that Clause 25 of the Contract, which seeks to extinguish the right to claim upon expiry of the specified 90-day period, offends Section 28(b) of the Indian Contract Act, 1872 (as amended by Act 1 of 1997) and is therefore void.

Implications:

The direct effect on the parties is that Clause 25 cannot be enforced to extinguish respondent No. 1's claim merely because no demand for arbitration was made within the 90-day contractual period; the Appellate Court's order setting aside the Arbitrator's dismissal and remitting the matter to the Arbitrator to decide on merits is sustained.
IA No. 2/2011 (filed for interim stay) is dismissed in view of the dismissal of the revision petition.
All other contentions of the parties are retained and kept open for determination by the Arbitral Tribunal, except for the specific question decided in this opinion.
The court did not purport to lay down any novel general principle beyond the statutory interpretation of Section 28(b) post-amendment; the judgment applies the amended statutory text and existing authorities on the effect of Repealing & Amending Acts to the contract clause under challenge.
No order as to costs was made.

Disposition

Revision petition dismissed.

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Central Ware Housing Corporation, Rep., By The Executive Engineer And Another v. M/S. Ravi Constructions And Another

Ramesh, J. (Oral):— This revision petition by the Central Ware Housing Corporation is directed against the Judgment dated 18.04.2011 passed by the Appellate Court namely the Court of the VI Additional City Civil Judge, Bangalore City, in Arbitration Case No. 1/2005. By the impugned judgment, the Appellate Court has allowed the appeal filed by respondent No. 1 under Section 37 of the Arbitration and Conciliation Act, 1996 (‘the Arbitration Act’ for short) by setting aside the Order dated 20.10.2004 passed by the sole Arbitrator and remitting the matter to the Arbitrator to decide the matter on merits.

2. The Arbitrator had dismissed the claim of respondent No. 1 made in connection with a contract relating to construction of a godown and ancillary buildings etc., at the Central Warehouse, Whitefield, Bangalore, as not maintainable on the ground that respondent No. 1 did not invoke the arbitration clause (clause 25 of the Contract) within 90 days from the date stipulated therein and as there was no extension of time under Section 43(3) of the Arbitration Act by the jurisdictional Court, respondent No. 1's claim was deemed to have been waived and barred as per Clause 25 of the Contract. Being aggrieved, respondent No. 1 preferred an appeal under Section 37 of the Arbitration Act. The Appellate Court, by the judgment impugned herein, has held that the clause in the Contract seeking to extinguish the right of respondent No. 1 on expiry of the specified period is void as contrary to Section 28(b) of the Contract Act, 1872. It also held that this was a fit case wherein it could extend the time to submit the dispute to arbitration in exercise of the power under Section 43(3) of the Arbitration Act on the ground of undue hardship. Accordingly, it has set-aside the order of the sole Arbitrator and has remitted the matter to the Arbitrator to consider the matter on merits.

3. I have heard Sri M. Aswathanarayana Reddy, Learned Counsel appearing for the petitioners and Sri Aditya Sondhi, Learned Counsel appearing for respondent No. 1, perused the impugned judgment and the record of the Appellate Court.

Learned Counsel for the petitioners, in support of the revision petition, relied on the judgment of the Hon'ble Supreme Court in H.P State Forest Company Ltd. v. United India Insurance Co. Ltd.,1 He submitted that the impugned judgment of the Appellate Court is contrary to the law laid down by the Hon'ble Supreme Court in H.P State Forest Company Ltd. and sought to justify the order of the Arbitrator. He also submitted that no extension of time under Section 43(3) of the Arbitration Act is permissible unless the application for extension of time was filed in Court before commencement of arbitral proceedings. In support of his submission, he referred to a judgment of the Madras High Court in E. Muralidharan v. Venkataraman & Co.,2 he specifically referred to para 15 thereof.

Learned Counsel for respondent No. 1 supported the impugned judgment by relying on the amendment to Section 28 of the Contract Act by Act 1 of 1997 and also by relying on several judgments of various High Courts.

4. The only question that requires to be determined in this revision petition is as to whether Clause 25 of the Contract is void as being contrary to Section 28(b) of the Contract Act, 1872?

It is relevant to state that Clause 25 of the Contract provides for extinguishment of the right to claim, if no demand for arbitration relating to the claim is made within 90 days from the date referred to therein. Relevant portion of Clause 25 of the Contract reads as follows:

“………………………………………………..It is also a term of the Contract that if the Contractor(s) does/do not make any demand for Arbitration in respect of any claim/s in writing within 90 days of receiving the intimation from the Corporation that the bill is ready for payment, the claim of the contractor(s) will be deemed to have been waived and absolutely barred and the corporation shall be discharged and released of all liabilites under the Contract in respect of these claims……………………………”

5. To examine the aforesaid question, it is necessary to refer to Section 28 of the Indian Contract Act, 1872 before and after the amendment. Before the amendment, the Section read as follows:

Section 28. Agreements in restraint of legal proceedings void.—

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

Exception 1. — Saving of contract to refer to arbitration dispute that may arise — This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Exception 2. — Saving of contract to refer questions that have already arisen — Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration.

Section 28 was amended by Indian Contract (Amendment) Act, 1996 (Act 1 of 1997) with effect from 8.1.1997 and the amended Section 28 reads as follows:

28. Agreements in restraint of legal proceedings, void. — Every agreement,—

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or

(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.

Exception 1. — Saving of contract to refer to arbitration dispute that may arise — This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Exception 2.- Saving of contract to refer questions that have already arisen — Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration.

(Emphasis supplied to the amendment)

A perusal of the amended Section 28 of the Contract Act extracted above would show that both kinds of agreements i.e, agreements which restrict the period of limitation within which claims could be referred, as also agreements which extinguish the right of a party to prefer a claim or discharges any party from any liability under a contract on expiry of a specified period, are void to that extent.

6. Before the amendment of Section 28 in 1997, the agreements reducing the period of limitation were distinguished from those which did not limit the time within which a party might enforce his rights, but which provided for a release or forfeiture of rights, if no suit was brought within the period stipulated in the agreement; and the latter class of agreements, being outside the scope of the section, were held to be binding between the parties. Thus, in National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co.,3 the Supreme Court drew a clear distinction between an agreement which curtails the period of limitation and an agreement which provides for forfeiture or waiver of the right itself, if no action is commenced within the period stipulated by the agreement. The first was held to be void as offending Section 28 but the later was held not falling within the mischief of Section 28. It was, thus, held that curtailment of the period of limitation was not permissible in view of Section 28 but extinction of the right itself, unless exercised within the specified time, was permissible and can be enforced.

7. After the 1997 amendment to Section 28 of the Indian Contract Act, 1872, not only the curtailment of the period of limitation is void, but also the extinction of right, if sought to be brought by the agreement within a specific period, which period is less than the period of limitation prescribed for the suit under the Contract in question, is also rendered void. In other words, after the amendment to Section 28 of the Indian Contract Act, 1872 by Act 1 of 1997, the distinction between curtailing of the period of limitation and extinction of the right itself, after the specified period, no longer exists.

8. Before concluding, let me refer to the judgment of the Supreme Court in H.P State Forest Company Ltd. v. United India Insurance Co. Ltd., (Supra) relied on by the Counsel for the petitioners. In the said judgment, the effect of amendment to Section 28 of the Contract Act is not considered. The said judgment is explained by the Punjab & Haryana High Court in Sunil Goyal v. Haryana State Agriculture Marketing Board . 2011 2 Arb. LR 251 P & H., wherein it was held that Act No. 30 of 2001 does not have the effect of repealing the amendment to Section 28 of the Contract Act by Act 1 of 1997. The following observations made in Sunil Goyal's case at paras 12 to 15 are relevant:

“12. It appears that in H.P State Forest Company Ltd. case a statement was made that the amendment has been repealed. Therefore, the provisions, as it existed prior to the amendment have to be examined. In fact, such statement made by the counsel for the appellant before the Hon'ble Supreme Court was under a mistaken belief. Indian Parliament Act No. 1 of 1997 amended Section 28 of the Act. Later by Indian Parliament Act No. 30 of 2001, the enactments specified in the first schedule were repealed to the extent mentioned in 4th column thereof. Indian Parliament Act No. 1 of 1997 has been repealed, but such repeal does not affect any other enactment in which repealed enactment has been applied, incorporated or referred to in terms of the repealing Act. In terms of Section 6-A of the General Clauses Act, 1897, the amendment in the Act incorporated by the Amending Act does not stand repealed by such Repealing and Amending Act, 2001. The periodical process of repealing is carried out to prune statutes on the statute book.

13. Section 6-A of the General Clauses Act, 1897 has been interpreted in Jethanand Betab v. State of Delhi, AIR 1960 SC 89, wherein identical provision of Repealing and Amending Act, 1952 came up for consideration. It was held to the following effect:

“…..The substance of the aforesaid provisions may be stated thus: The Act of 1949 inserted Section 6(1-A) in the Act of 1933. The 1949 Act was repealed by the 1952 Act, but the latter Act saved the operation of other enactments in which the repealed enactment has been applied, incorporated or referred to. The first question that arises for consideration is whether the amendments inserted by the 1949 Act in the 1933 Act were saved by reason of Section 4 of the 1952 Act.

The general object of a Repealing and Amending Act is stated in Halsbury's Laws of England, 2nd Edn., Vol. 31, at p. 563, thus:

‘A Statute Law Revision Act does not alter the law, but simply strikes out certain enactments which have become unnecessary. It invariably contains elaborate provisos.’

In Khuda Bux v. Manager, Caledonian Press, AIR 1954 Calcutta 484 Chakravartti, CJ neatly brings out the purpose and scope of such Acts. The learned Chief Justice says at p. 486:

‘Such Acts have no legislative effect, but are designed for editorial revision, being intended only to excise dead matter from the statute book and to reduce its volume. Mostly, they expurgate Amending Acts, because having imparted the amendments to the main Acts, those Acts have served their purpose and have no further reason for their existence. At times, inconsistencies are also removed by Repealing and Amending Acts. The only object of such Acts, which in England are called Statute Law Revision Acts, is legislative spring-cleaning and they are not intended to make any change in the law. Even so, they are guarded by saving clauses drawn with elaborate care,….’

It is, therefore, clear that the main object of the 1952 Act was only to strike out the unnecessary Acts and excise dead matter from the statute book in order to lighten the burden of ever increasing spate of legislation and to remove confusion from the public mind. The object of the Repealing and Amending Act of 1952 was only to expurgate the Amending Act of 1949, along with similar Acts, which had served its purpose.”

14. In India Tobacco Co. Ltd. v. CTO, (1975) 3 SCC 512 the Hon'ble Supreme Court held:

“17….. Broadly speaking, the principal object of a Repealing and Amending Act is to “excise dead matter, prune off superfluities and reject clearly inconsistent enactments” — See Mohinder Singh v. Harbhajan Kaur, AIR 1955 Punjab 141.”

15. In view of the above, the Indian Parliament Act No. 30 of 2001 does not have the effect of repealing the amendment carried out by Indian Parliament Act No. 1 of 1997……………….”

(Emphasis supplied)

9. In view of the amendment to Section 28 of the Contract Act by Act 1 of 1997 (w.e.f 8.1.1997) as explained above, I am of opinion that Clause 25 of the Contract which seeks to extinguish the right to claim, on expiry of the specified period, offends Section 28(b) of the Contract Act and hence is void, as rightly held by the Appellate Court. In my opinion, the revision petition is devoid of merit and it is accordingly dismissed but with no order as to costs. In view of dismissal of the Revision Petition, IA No. 2/2011 filed for interim stay also stands dismissed. However, all contentions of both the parties are kept open to be adjudicated by the Arbitral Tribunal, except the question decided herein.

Revision petition dismissed.

Central Ware Housing... v. M/S. Ravi Constructi...