2024 (8) TMI 193 - HC - Indian Laws

Arbitration application granted under Section 11(6) with sole arbitrator appointed for dispute resolution

The Telangana HC allowed an arbitration application under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointing a sole arbitrator to ... Seeking appointment of a sole Arbitrator to adjudicate the claims and disputes between the applicant and the respondents - Section 11(6) of the Arbitration and Conciliation Act, 1996 - time limitation - HELD THAT:- It is well settled principle of law that considering the application filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, this Court has to see whether there is an arbitral dispute between the parties and whether the agreement entered between the parties has an arbitration clause to refer the matter to an arbitrator or not. Further, it is also well-settled law that while deciding the question of appointment of arbitrator, the Court should not touch the merits of the case as it may cause prejudice to the case of the parties. In IBI CONSULTANCY INDIA PRIVATE LIMITED VERSUS DSC LIMITED [2018 (4) TMI 781 - SUPREME COURT], the Hon'ble Supreme Court while dealing with the Arbitration Application filed under Section 11(6) read with Section 11(9) of the Arbitration and Conciliation Act, 1996 for appointment of arbitrator to adjudicate the disputes that have arisen between the parties therein in connection with the contracts in question, has held, 'It is also a well-settled law that while deciding the question of appointment of arbitrator, the court has not to touch the merits of the case as it may cause prejudice to the case of the parties. The scope under Section 11(6) read with Section 11(9) is very limited to the extent of appointment of arbitrator. This Court has to see whether there exists an arbitration agreement between the parties and if the answer is in the affirmative then whether the applicant has made out a case for the appointment of arbitrator.' It is settled law that in a commercial dispute, mere failure to pay may not give rise to a cause of action. Once the applicant has asserted his claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant's claim giving rise to a dispute, and thus it is the cause of action for reference to arbitration. In the case on hand, it is the case of applicant that having found in internal financial audit that the Respondent Nos. 1 & 2 have been deducting the GST @ 12% and labour welfare cess @ 1% from the principal bid amount instead of paying additional amounts to the tune of 13%, has addressed a letter dated 22.01.2022 to the respondent No. 3 requesting to release the amounts - the applicant soon after settlement of Final Bill, has raised a dispute that the amounts have been deducted over and above as mentioned in the statutory contract and requested the respondents to pay the amounts, otherwise treat the said communication as notice invoking the arbitration clause. Time Limitation - HELD THAT:- It is settled law that mere negotiations will not postpone the cause of action for the purpose of limitation. The limitation period of three years for filing such application would commence from the date when the cause of action arose. Since there is no provision in the Arbitration and Conciliation Act, 1996 specifying the period of limitation for filing an application under Section 11, one would have to take recourse to the Limitation Act, 1963. Section 43 of the Arbitration and Conciliation Act, 1996 provides that the Limitation Act shall apply to arbitrators, as it applies to proceedings in Court - Admittedly, in the instant case, the Final Bill of the applicant has been settled on 06.09.2022 and even before the expiry of the three years limitation period prescribed under Article 137 of the Limitation Act, 1963, the applicant has raised a dispute and sought reference to the Arbitrator. Therefore, viewing the case from any angle, the dispute sought for reference to the arbitrator is not barred by limitation. Adding further, whether the claim is barred by lapse of time is a matter which requires to be decided by the Arbitrator at the time of making an order under Section 20 of the Arbitration and Conciliation Act, 1996. This Arbitration Application is allowed. Issues Involved:1. Appointment of a sole Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.2. Dispute regarding deduction of GST and labour welfare cess.3. Validity of claims post submission of the Final Bill.4. Limitation period for filing the arbitration application.Issue-wise Detailed Analysis:1. Appointment of a Sole Arbitrator:The applicant sought the appointment of a sole Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, to adjudicate the claims and disputes with the respondents. The court noted that the existence of an arbitration agreement and the presence of disputes are prerequisites for appointing an arbitrator. As per Condition No. 70 of IAFW-2249, disputes between the parties should be referred to a sole arbitrator, an Engineer officer appointed by the authority mentioned in the tender documents. The court emphasized that while deciding on the appointment of an arbitrator, it should not delve into the merits of the case to avoid prejudicing the parties.2. Dispute Regarding Deduction of GST and Labour Welfare Cess:The applicant contended that the bid amounts were exclusive of GST (12%) and labour welfare cess (1%), and the respondents were supposed to pay these taxes over and above the bid amount. However, the respondents deducted these amounts from the principal bid amount. The applicant raised this issue during an internal financial audit and requested the respondents to release the deducted amounts. The respondents maintained that the applicable GST and labour welfare cess were credited to the public fund account as per Government of India norms. The court recognized that there were serious disputes regarding the deduction of amounts contrary to the terms of the agreement, which required determination by an arbitrator.3. Validity of Claims Post Submission of the Final Bill:The respondents argued that as per Condition No. 65 of IAFW-2249, no further claims shall be made by the contractor after submission of the Final Bill, and such claims are deemed to have been waived and extinguished. The applicant, however, relied on the decision in Inder Singh Rekhi vs Delhi Development Authority, asserting that a valid claim for reference under Section 20 of the Arbitration and Conciliation Act, 1996, survives even after the Final Bill is passed. The court noted that the applicant raised the dispute soon after the Final Bill settlement, thus invoking the arbitration clause.4. Limitation Period for Filing the Arbitration Application:The respondents contended that the application under Section 11(6) of the Act was barred by limitation. The court clarified that mere negotiations do not postpone the cause of action for limitation purposes. The limitation period of three years for filing such an application commences from the date when the cause of action arises. The court observed that the applicant raised the dispute and sought arbitration before the expiry of the three-year limitation period prescribed under Article 137 of the Limitation Act, 1963. Therefore, the dispute was not barred by limitation, and whether the claim is barred by lapse of time is a matter for the arbitrator to decide.Conclusion:The court appointed Sri Tariq Khan, Advocate, as the Arbitrator to adjudicate the disputes between the parties. The Arbitrator was requested to enter upon reference and take further steps as per the Arbitration and Conciliation Act, 1996, with a preference to complete the proceedings and pass an award within six months. The parties were directed to appear before the Arbitrator on 27.01.2024 for further proceedings. The Arbitration Application was allowed, and any pending miscellaneous applications were closed.