Municipal Corporation of Greater Mumbai vs Adarsh Builders

S.C. Gupte, J.—The arbitration petition challenges an award passed by a Sole Arbitrator on 25 January 2012. By this award, the Arbitrator partly awarded the Respondent''s claims together with pendente lite interest. The challenge to the arbitration award is on the footing that all the claims of the Respondent contractor were time-barred.

A few dates, which are relevant in this context, may be noted as follows :

The Petitioner Corporation invited tenders in the year 1986 for execution of the work of laying of 450 mm dia water main along Ghatkopar Andheri Link Road in Mumbai. A bid was submitted by the Respondent on 4 August 1986 and accepted by the Petitioner on 18 April 1987. A work order was issued to the Respondent inter alia mentioning the date of commencement as 27 October 1987 and providing for a period of completion of the contract work of 16 months expiring on 26 February 1989. The work was substantially completed by 12 December 1988. After completion of work, there was a burst on the 450 mm dia C.I. pipe. The Petitioner accordingly requested the Respondent to repair the burst. The Respondent took a stand that the work was completed according to the tender conditions and that the responsibility of repairing leakages from the joints alone lay with the Respondent and that the Respondent was not responsible for the burst of the pipe, which was occasioned by reason of the defective pipe supplied by the Petitioner. The Respondent claimed to be paid for repairing the burst, which claim was rejected by the Petitioner. There was some correspondence between the parties in 1990 and 1991 with respect to the burst of the pipe and the various leakages from the pipe. By its letter dated 28 January 1991, the Respondent reiterated that the Respondent had completed all the contract work as per specifications and instructions and that the failure of pipe during the hydraulic test was not its responsibility. The Respondent, in the premises, requested the Petitioner to finalize all its claims and make payment towards the work executed by the Respondent. This payment, however, was not forthcoming. There was some further correspondence between the parties upto the year 1994. Nothing seems to have happened thereafter till the Respondent by its letter dated 28 August 2006 objected to recovery of a sum of Rs.1,17,401.43 from the dues owed by the Petitioner to the Respondent in respect of another contract. The Petitioner purported to have recovered this amount towards its alleged dues in respect of the contract being the subject matter of the present arbitration reference. The Respondent claimed in this letter that the final bills were yet to be settled by the Petitioner in respect of the subject contract and that therefore, it was not correct to recover any amount towards the same from another contract. It appears that further to this letter, there was certain other correspondence between the parties. Finally, by its letter dated 26 May 2008, the Respondent submitted its various claims arising under the subject contract for the consideration of the Municipal Commissioner under Clause 96 of the General Conditions of Contract forming part of the subject contract. The Petitioner Corporation by its letter dated 12 August 2008 conveyed the decision of the Municipal Commissioner that Clause 96 was invoked by the Respondent after more than 15 years and that the claims were time barred and therefore rejected. The Respondent thereupon by its letter dated 25 August 2008 invoked the arbitration clause contained in Clause 97 of the General Conditions of Contract and applied for appointment of an arbitrator. In pursuance of the request, the Arbitrator was appointed by the designated authority. Before the sole Arbitrator, the Petitioner raised an objection as to limitation. It was submitted before the Arbitrator that the claims were barred by limitation. The Arbitrator noted in his award that the dispute between the parties for the claims referred by the Respondent contractor arose on 13 March 2008 when the Petitioner refused to consider the Respondent''s claims on merits. The Arbitrator observed that the claims were thereafter referred by the Respondent contractor to the Municipal Commissioner under Clause 96 of the General Conditions of Contract and after rejection of these claims, the Respondent contractor had invoked the arbitration agreement by its notice dated 25 August 2008. The learned Arbitrator held the reference to be within time.

The claim is in respect of work done under a contract. The contractor''s right to be paid for the work done arises upon completion of the work. Even the present contract requires, under Clause 88 of the General Conditions of Contract, that the contractor shall submit a final bill within three months of physical completion of the work and provides that no further claim shall be made by the contractor after submission of the final bill. Clause 96 further provides that any dispute or difference arising between the contractor and the Municipal Corporation shall be referred to the Commissioner who shall give his decision within a period of 90 days and that if the contractor is not satisfied with the decision of the Commissioner or the Commissioner fails to give a decision within the period of 90 days, such dispute may be referred to arbitration as per Clause 97 of the General Conditions of Contract.

Referring to these contractual terms, it is submitted by the learned Counsel for the Respondent that in the particular case, there is no completion certificate as yet issued by the Chief Engineer; that since there was no completion certificate, the Respondent contractor could not raise its final bill; that accordingly, the period of 90 days as provided under Clause 88 of the General Conditions of Contract did not commence at any time before the claims were submitted by the Respondent contractor on 28 August 2006; and that after submission of these claims and rejection by the Municipal Commissioner, which was conveyed by the Petitioner Corporation to the Respondent on 12 August 2008, the Respondent contractor had duly invoked the arbitration clause contained in Clause 97 of the General Conditions of Contract and that accordingly, the claim was within time.

The correspondence on record, as noted above, clearly indicates that as of 28 January 1991, the Respondent had clearly reiterated its position that the contract was completed by the Respondent and that the Respondent was entitled to be paid its dues arising under the suit contract. That is the date of accrual of the cause of action. The Respondent cannot indefinitely postpone raising of the final bill and thereafter claim the dispute between the parties to have arisen after the Respondent raises its final bill or claim. The cause of action for payment of work done arises on completion of the work. The contract merely provides for the various steps to be taken towards claiming the dues. All these steps have to be taken within the duration of limitation provided for under the law of limitation. The invocation of the arbitration agreement, which is the terminus a quo for making of the claim in respect of the contract, must be within the period of three years of accrual of cause of action.

The judgment of our Court in the case of M/s.R.N. Ghanekar vs. Municipal Corporation of Gr.Mumbai 1 considers a similar situation in the context of the very same clauses of General Conditions of Contract, namely, Clauses 96 and 97. This Court held that the steps that are required to be taken under Clause 96, are to be taken within the period of limitation and that the period taken up for taking such steps under Clause 96 cannot be excluded whilst computing the period of limitation. The cause of action arose in 1991 when the Respondent contractor took the position that the work was completed in accordance with the contract terms and conditions and that the contractor''s dues in respect of the work done were payable by the Petitioner Corporation. The arbitration clause invoked more than 15 years after the accrual of this cause of action, is clearly beyond time.

The Arbitrator has clearly misapplied the law and held the claim to be within the law of limitation. The award in this behalf cannot be sustained within the parameters of the law of challenge to an arbitration award under Section 34 of the Act.

The arbitration petition is accordingly allowed and the impugned award is set aside. There shall be no order as to costs.

Arb.Petition No.394/2003 dated 11.4.2005