K. Janardhan Reddy vs B.R. Basutkar and Others

G. Narendra, J.—Both the appeals- MFA 30072/2009 and 30073 of 2009 are taken up for consideration together as they involve the same parties and arise out of the same contract and the claimant has been unseated by the orders in Arbitration Case No. 6/2004 and No. 7/2004. Both the appeals have been decided on the singular issue of limitation and the award has been set aside on the sole ground of limitation i.e. the first appellate Court has been pleased to hold that the Arbitrator has misconducted himself by entertaining time barred claims and awarding compensation/damages for the alleged losses suffered by the claimant who is the appellant before this Court. The contesting respondent is the State Government represented by its Executive Engineer, Karnataka Bhagya Jala Nigam Ltd., SBC O&M Divn. Bheemarayanagudi, Shahapur Taluk.

The brief facts of the case are that the appellant is a contractor and he was awarded a contract for construction of distributory No. 2, reach No. 2 of Shahapur Branch Canal. The work was awarded under a contract of agreement Dt. 27.11.1979. It is stated that the work was scheduled to be completed within a period of 18 months but the execution was delayed by nearly 7 years.

A perusal of the application under Section 14(2) of the Arbitration Act, 1940 would reveal that the Arbitrator had been appointed by the contractor, appellant herein as the Chief Engineer failed to communicate the names in respect of the settlement of the disputes arising out of the contract agreement Dt. 27.11.1979. It is stated that the dispute was to be adjudicated and settled as per Clause 69 of the agreement. It is relevant to note here that the application does not reveal the date of appointment of the applicant as Arbitrator. It only states that he entered upon reference on 2.8.1993 and the claimant did file his claim statement on 2.9.1993 but the State did not file its counter immediately and the same was filed belatedly on 18.5.1996 and the award came to be published on 14.6.1996 and that the claimant, appellant herein, requested the applicant to file the award in the court by letter Dt. 18.12.1996. In the application it is stated that the award in original and the documents by the claimants and the respondents marked as ''C'' series and ''R'' series have been filed in Court along with the application.

Aggrieved by the award, the State has preferred the two arbitration cases before the Court of the Civil Judge (Sr. Dn.) Shorapur and the same came to be numbered as AC No. 6/2004 and AC No. 7/2004. Both the cases came to be disposed of by similar orders Dt. 27.9.2008. The appeals by the State have been allowed on the ground that the claims are time barred and there has been no acknowledgement of debt within the period of limitation and hence the Court below was pleased to hold that entertaining of time barred debt amounts to a serious misconduct on the part of the Arbitrator and the Court below exercising the power under Section 30 was pleased to allow the application filed for setting aside of the award and was also pleased to reject the application made under Section 14(2) of the Act for making the award rule of the Court.

In the above background the issues that falls for consideration before this Court are:

"i) Whether the order and judgment in appeal is sustainable in law; and

ii) Whether the Court below was right in holding that the claims were time barred and the Arbitrator had misconducted himself in entertaining time barred claims?"

This Court is of the considered view that the answers for the above issues are

"i) in the affirmative

ii) in the affirmative."

Heard the learned counsel for the appellant and the learned counsel for the respondent. The appellant counsel has advanced his submissions on the singular point of limitation alone as the Court below has non suited him on the short point of limitation.

The appellant counsel would submit that the lower Court has misdirected itself by considering the case as one for recovery of money. He would elaborate that the trial Court has construed the proceedings as one for recovery of money and has thereby failed to observe that the Article 137 of the Limitation Act is the one that applies to the present facts and circumstances. He would draw the attention of the Court to the provisions of Article 137 of the Limitation Act. Article 137 pertains to any other application for which no period of limitation is provided elsewhere in this division. The period of limitation stipulated is 3 years which is said to commence when the right to apply accrues. The counsel would further elaborate stating that the limitation had not at all commenced to run because there has been no denial of his claims. On the contrary he would state that there has been an acknowledgement of the dues in the counter statement filed by the respondent department. He would draw the attention of this Court to the said counter statement which has been filed in the year 1995. He would state that unless and until there is denial of the claim, the limitation does not commence and neither the date of commencement of the work nor the date of completion of the work are of relevance for calculating the start of limitation. He would also draw reference to the phrase "pending final settlement" at page 11 of the counter statement. He would submit that the very phrase would demonstrate that even as on the date of filing of the counter statement, negotiations were going on and there was never a refusal of his claim. In fact his claim has been partially admitted. If this argument is taken at its face value then, the very appointment of arbitrator and award is unsustainable as the role of an arbitrator is one of settling disputes and not that of an accountant for settling accounts. Consequently it will have to be held that the appointment of Arbitrator itself is bad. Be that as it may.

The appellant''s counsel would submit that the issue of limitation was never raised by the respondent before the Court and the Court itself has raised the issue and answered the same under the presumption that the claim is hit by Article 18 of the Limitation Act.

Per contra, the learned counsel for the respondent would submit that the same is incorrect and that the respondent has specifically pleaded before the lower appellate Court with regard to the claims being time barred claims. He would draw the attention of the Court to paragraph 3 of the application preferred under Section 30 of the Arbitration Act, 1940. It is pleaded as follows:

"The claims put forth by the contractor are clearly time barred. It is submitted that the contractor started work on the date of mark out itself i.e. 27.12.1979 and ought to have completed within 18 months. In this instant case contractor raised claims on 12.10.1992 vide C29. So, they are time barred. It is submitted allowing the time barred claims amounts to misconduct"

He would also draw the attention of this Court to Ex. C28 Dt. 19.3.1985. He would submit that this was the last communication between the parties before he abandoned the work. He would draw the attention of this Court to the last paragraph of the said letter.

"If all my claims and dues are not settled and payment is not arranged within 6 months after completion of work, I may please be permitted to go for arbitration".

To buttress his arguments he would draw the attention of this Court to Exs. R19 and R20 wherein the respondent has put the appellant on notice that work has been completely stopped. Thereafter he would take this Court through Ex. R21 which is a letter addressed by the appellant to the respondent wherein it is stated that he had undertaken to complete the work by the end of September, 1995 but due to ill-health he has not been able to concentrate on the work and complete the same as per the earlier programme. He further states that he undertakes to complete the work by the end of March 1986 and he further gives an undertaking that on his failing to complete the balance of work by March 1986, he is prepared to forego all claims and EMD and FSD may also be forfeited to the Government and balance works may be got done at his risks and costs. The next paragraph is relevant for the determination of the dispute before this Court.

"I request to you kindly, to withdraw termination order issued vide letter under reference and allow me to continue to the work."

The letter under reference in the above quote is letter bearing No. DEN.OFFICE.LTR. No. UKP/SBC/DN.1/GG/PB-1/85-86/12246-50 Dt. 17.12.1985. The acknowledgement seal on the said letter shows the date as 25/31.12.1985.

A reading of the above would demonstrate that the contract came to be terminated by order Dt. 17.12.1985. In effect it would be the first date of cause of action or the starting point for the limitation. The appellant is unable to demonstrate as to whether the contract was continued thereafter nor are any particulars forthcoming regarding as to whether the letter of termination was withdrawn or if the request of the contractor for extension of time has been acceded to. In the absence of such material particulars the contention of the appellant that Article 137 of the Limitation Act alone is attracted is unsustainable and is liable to be rejected.

In this regard the appellant counsel would rely on the judgment of the Hon''ble Apex court rendered in the case of State of Orissa and another etc. Vs. Sri Damodar Das, has held that cause of arbitration arises, like cause of action in a civil suit, when the claimant must acquire either right of action or a right to require that an arbitration take place upon a dispute concerned. It 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 the cause of action accrues. So in the case of arbitration 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) of the Arbitration Act 1940, 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, i.e. when the claimant acquires the right to require arbitration. An application under Section 20 of the Arbitration Act is governed by Article 137 of the Schedule of the Limitation Act, 1963 and must be made within three years from the date when the right to apply first accrues.

The Court was in fact dealing with an application under Section 20 of the Arbitration Act, 1940 which relates to an application to file in Court an arbitration agreement. In effect it is an application for appointment of Arbitrator by the Court.

In the case on hand the issue is, whether the claims are time barred or not? An application for appointment of Arbitrator may be made even after the claims have become time barred. The Hon''ble Apex Court has held that the cause of arbitration is the refusal or denial to appoint an Arbitrator and such an application seeking appointment of Arbitrator would be governed by the provisions of Article 137 of the Schedule to the Limitation Act, 1963. There can be no quarrel to the proposition and the law laid down by the Apex Court. But the appointment of arbitrator will not entitle or clothe the arbitrator with any extraordinary powers to entertain time barred claim.

Undoubtedly the claim of the appellant is two fold. One claim is in respect of certain additional works that he has been asked to execute which were outside the scope of agreement. The other head of claim is based on breach of the terms and conditions of the agreement itself. Thus, the relevant articles for consideration is Article 18 and Article 55 respectively. Under both the Articles the period of limitation is three years. In fact, as stated supra, the claimant has himself put the respondents on notice by its letter Dt. 19.3.1985 that if his dues are not settled, he would resort to arbitration. Subsequently the respondents by its letter Dt. 17.12.1985 are said to have terminated the contract. Hence, in the light of the same it can be safely construed that the limitation commenced from 17.12.1985 i.e. from the date of the letter of termination which is the cause of action. If this is taken as the earliest point of time, then the claim ought to have been filed before the appropriate forum on or before 16.12.1988. Admittedly as per the records even the communication for appointment of Arbitrator is only in year 1992 by which time the claim was woefully belated and barred by limitation. Hence, the orders under appeal do not suffer from any illegality and are in conformity with law and is accordingly upheld.

The appellant''s counsel would advance a further contention stating that the respondents have stated that the amounts are not finally settled and he would state that the said statement amounts to an admission and is an acknowledgement of debt. It is settled law that acknowledgment of debt are to be when the debt is live and not after the same has become time barred. In view of the settled law, the said contention is rejected.

In view of the above discussion, the appeals stand rejected. In the facts and circumstances of the case, there shall be no order as to costs.