TaxTMI 
TaxTMI 
2022 (10) TMI 1175
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.... of Welspun, as included in the Final Bill, were barred by limitation, one of the members of the Arbitral Tribunal (minority) expressed a contrary view. 3. The learned Single Judge concurred with the view that the claims, as contained in the Final Bill, were barred by limitation for the reason that the arbitration had not commenced within a period of three years from the due date for payment of the Final Bill, as claimed. 4. The Arbitration Clause contemplated a pre-arbitration dispute resolution mechanism by referring the disputes to the Chief Executives of the parties. The dispute resolution process failed on 21.12.2012 and the notice for arbitration was issued on 27.01.2014. According to Welspun, the right to seek reference to arbitration would arise on failure of the amicable dispute resolution procedure and thus, invocation of the arbitration was within the period of limitation. However, the learned Single Judge rejected the said contention, inter alia, on the ground that Welspun had failed to explain the delay in invoking the arbitration after the dispute resolution process had failed on 21.12.2012. 5. The principal controversy to be addressed in the present appeal i....
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.... 14. Accordingly, the Completion Certificate was issued by NCC on 30.11.2010. The said certificate recorded the actual date of completion of works as on 19.03.2010 and the executed contract value of the Project as "Rs. 5216.97 lakhs (excluding service tax) and final bill for Rs. 2.64 crore for extra item under certification" 15. Welspun claims that it had sent various emails to NCC seeking the payments due to it. Further, various meetings were also held between the parties, wherein NCC denied its liability to pay the due amounts at that stage. 16. In view of the disputes between the parties, Welspun issued a legal notice dated 21.08.2012 and called upon NCC to pay an amount of Rs. 16,68,89,114/- along with interest at the rate of 18% per annum from 19.03.2010 (the date of completion of the works), within a period of twenty-one days of the receipt of the notice, failing which it would invoke the dispute resolution mechanism. 17. NCC responded to the said notice by a letter dated 10.09.2012. It claimed that it had awarded the works relating to the contract to MSK on "back-to-back basis". It referred to the LoI and claimed that the MoA was executed on the basis of the LoI. ....
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....aised by Welspun were premature as its contract with MSK/Welspun was on "back-to-back basis" with its contract with Nafto Gaz. It claimed that payments to Welspun could be considered only upon certification and release of the amounts from Nafto Gaz (IOCL to NCC). Since NCC had neither received the certification nor payments, the claims to that extent were pre-mature and the cause of action for making such claims had not arisen. However, without prejudice to the said contention, NCC also claimed that Welspun's claims were barred by limitation and were liable to be rejected on the principle analogous to Order VII Rule 11 of the Code of Civil Procedure, 1908 (hereafter 'the CPC'). The relevant extract of the Statement of Defence articulating the said preliminary objection, is set out below: "9. The contention of NCC has always been that the contract with MSK now Welspun was on a back to back basis with the contract of NCC and NaftoGaz. Therefore, any claims or payments that Welspun may consider itself entitled to can be considered only upon certification and release of such amounts from NaftoGaz/IOCL to NCC. NCC has neither received the certification nor the payme....
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.... claims were barred by limitation. 27. Welspun's claim for reimbursement of payments made to suppliers on behalf of NCC (Claim no. IV) was also rejected as being barred by limitation. The Arbitral Tribunal held that Welspun had neither pleaded nor proved the date on which such payments were made to vendors and therefore, the dates of the invoices would be relevant for considering the question of limitation. The earliest of the invoices was dated 26.05.2007 and the last invoice was dated 30.06.2008. Since the invoices were dated more than three years prior to the date of invoking the arbitration, the claim for reimbursement of the said amount was also held to be barred by limitation. 28. However, insofar as the claim for refund of the retention money is concerned, the Arbitral Tribunal noted that NCC had promised to pay the same on receipt from Nafto Gaz and therefore, Welspun would be entitled to receive the same as and when the said amount was received from Nafto Gaz. 29. The majority award was signed by all the three Arbitrators. However, it was specifically mentioned that "As there is a cleavage of opinion, the Majority Award shall prevail. The Award of Justice K. R....
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.... to Section 21 of the A&C Act and the decision of the Supreme Court in State of Goa v. M/s. Praveen Enterprises (2012) 12 SCC 581, wherein it was held that that the date of invoking arbitration was a determinative factor for the purpose of limitation. 34. The learned Single Judge accepted that the parties were required to explore the possibility of settlement through reference of disputes to their respective Chief Executives, however, concluded that Welspun had not considered the reference to Chief Executive as a pre-condition to invocation of the arbitration but an attempt to amicably resolve the disputes. It is apparent that the learned Single Judge did not accept that the period of limitation would commence from the failure of the dispute resolution process on 21.12.2012. The learned Single Judge concurred with the Arbitral Tribunal that the letter dated 26.11.2012 invoking the dispute resolution mechanism did not stop the period of limitation. Paragraphs 11 and 12 of the impugned order are relevant and are set out below: "11. It may be true that before invoking the Arbitration Agreement between the parties the petitioner was required to explore the possibility of a ....
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.... a period of two years from the date of the Completion Certificate and therefore, the invocation could not be held as barred by time. He relied on the decisions of the Supreme Court in State of Orissa & Anr. v. Damodar Das (1996) 2 SCC 216, S. Rajan v. State of Kerala (1992) 3 SCC 608 and Asia Resorts Ltd. v. Usha Berco Ltd. 2001 (8) SCC 710. 38. Third, he submitted that the assumption that there was only a singular cause of action, was erroneous. He submitted that the cause of action could arise on multiple dates and could also continue. He submitted that the cause of action had also arisen on multiple occasions, when NCC had accepted its liability to pay. It had simply made it contingent upon its receipt from Nafto Gaz. It had also arisen on 10.09.2012, when NCC had accepted that the amount was payable, albeit, on a back-to-back basis. He contended that the jural relationship was acknowledged and the same was sufficient for the purpose of extending the period of limitation. He contended that the learned Single Judge erred in not accepting that the said letter dated 10.09.2012 was an acknowledgment of debt although a plain reading of the said letter clearly indicated the same. ....
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....w claim that the said period ought to be excluded. 42. She referred to the decision of the Supreme Court in Geo Miller & Company Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. (2020) 14 SCC 643 and contended that the observations made in the said decision would not be relevant as Welspun had not pleaded any case of extension of limitation on the ground of negotiations. Thus, there were no averments as to the "breaking point" of negotiations and therefore, Welspun is precluded from raising any such plea. 43. Finally, she submitted that Welspun was attempting to set up a new case, which was not pleaded and it was impermissible for it to do so. She referred to the decision of the Supreme Court in Union of India v. Ibrahim Uddin 2012 (8) SC 148, to support her contention. REASONS & CONCLUSIONS 44. At the outset, it is relevant to note that the controversy involved in the present case is in a narrow compass. The limited question to be addressed is whether the claims raised by Welspun, in respect of the work done and as included in the Final Bill, are barred by limitation. 45. It is necessary to note that the facts whether the Completion Certificate had been is....
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....- are impermissible. 48. Notwithstanding the above, the Arbitral Tribunal held that it was required to independently adjudicate the question as the controversy involved jurisdictional issues. The decision of the Arbitral Tribunal, in this regard, cannot be faulted. Section 3 of the Limitation Act, 1963 (hereafter 'the Limitation Act') expressly requires the court to reject an action instituted beyond the prescribed period notwithstanding that no such defence has been set up. By virtue of Section 43 of the A&C Act, the Limitation Act is also applicable to arbitration. 49. In view of the above, we are unable to fault the Arbitral Tribunal's decision to determine the question of limitation on merits notwithstanding the inconsistent pleas raised by NCC. 50. The principal question to be addressed in the present case is the import of the provision of the pre-arbitration dispute resolution process on the question of limitation. The Dispute Resolution Clause, as contained in the MoA, reads as under: "Disputes and Settlement In the event of any dispute, arising between the parties relating to the various terms and conditions set forth hereinabove, the ....
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.... Manufacturing Co. Ltd. v. State of Bombay & Ors. AIR 1958 SC 328). Thus, the question whether a party forfeits its recourse to arbitration on account of time spent in otherwise trying to resolve the disputes, is required to be viewed in the aforesaid perspective. 55. In Panchu Gopal Bose v. Board of Trustee for Port of Calcutta (1993) 4 SCC 338, the Supreme Court referred to the decision of the Queen's Bench in West Riding of Yorkshire Country Council v. Huddersfield Corporation (1957) 1 All ER 669 and held that the rule of limitation would be applicable to arbitration proceedings in the same manner as it applies to litigation before courts. In that case, the party had invoked the arbitration process under the Arbitration Act, 1940 after a period of ten years from the date it had first put forward its claims. In the facts of the said case, the Supreme Court found that recourse to arbitration was not available. The Supreme Court also referred to the text, Russel on Arbitration, 19th Edn, to posit that the limitation period to commence arbitration, would start to run "from the date when the claimant first acquired either a right of action or a right to require that an arbitra....
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....m the date of the last communication between the parties" 59. In this regard, the Supreme Court also referred to the findings of the High Court of Delhi in Oriental Building and Furnishing Co. Ltd. v. Union of India AIR 1981 Del 293, wherein the High Court had, inter alia, held that "[n]either party can move the Court without the existence of a difference between them [...] there can be negotiations between the parties and all sorts of correspondence. But it is only when they come to the conclusion that they cannot resolve the dispute between them, it can be said that a difference arises:" 60. It is also important to note that: (i) this judgment was rendered in the context of the Arbitration Act, 1940; (ii) the controversy in the case involved a family dispute; (iii) the correspondences exchanged between the parties were not merely in the nature of reminders but various letters to amicably negotiate and resolve the matter; and, (iv) the correspondences revealed an inclination to implementing the deed of dissolution in that case and amicably settling the family dispute. 61. Subsequently, in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. (2007) 4 SCC 599, the Sup....
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....ing the amounts due to them. (iv) Whilst the scheme evolved under the A&C Act was different from the erstwhile Arbitration Act, 1940, the principles applicable in relation to the law of limitation under both the statues would be the same. Therefore, the Supreme Court affirmed that the three-year limitation period stipulated under Article 137 of the Limitation Act, applicable to arbitration proceedings, commenced under the Arbitration Act, 1940 would equally be applicable under the A&C Act in the context of appointment of an arbitrator under Section 11 of the A&C Act. 63. As stated above, a party cannot be expected to commence arbitration without exhausting the pre-reference procedure. One of the principal questions that arises in this context is whether the time spent for complying with the pre-reference procedure is required to be excluded while calculating the period of limitation for referring the disputes to arbitration or whether the period of limitation would commence after the said procedure has been exhausted. In this context, the decision of the Supreme Court in Geo Miller & Company Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. Supra is instructive....
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....ral Tribunal could only have excluded the period during which the petitioner and the respondent were negotiating. The learned Arbitral Tribunal could not, submits Mr. Sethi, have postponed the cause of action to 27th September 2020, when the efforts at mediation failed. 22. If one were to read the first sentence in para 28 of Geo Miller divorced from the rest of the paragraph, perhaps this submission might have merited consideration. It is, however, trite that the judgments of Court are not to be read like statutes. Equally, words used by the Supreme Court, in its judgments, are all to be accorded due importance. A paragraph in a judgment is to be read as a whole, and not in a vivisected fashion, relying on one sentence and overlooking others. Para 28 of Geo Miller clearly goes on to hold that, once the 'breaking point', being the date on which any reasonable party would have abandoned the efforts at settlement, is determined, the cause of action would be deemed to arise from that date, for referring the dispute to arbitration. These words are clear, unambiguous and unequivocal. They entirely support the view, expressed by the learned Arbitral Tribunal, that the ca....
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....k, the petitioner has to file the present petition for appointment of an Arbitrator for resolving the dispute that have arisen between the parties under the contract. In the opinion of this Court the cause of action for appointment of Arbitrator has arisen in favor of the petitioner when the mediation did not work out as a result of withdrawal by the respondent on 30.6.2006. In case the limitation for filing of the present petition is reckoned from the said date of 30.6.2006, the present petition filed by the petitioner on 13.11.2006 cannot be said to be beyond limitation prescribed in Article 137 of the Limitation Act." [emphasis added] 69. In National Highways Authority v. Progressive Construction Ltd., a Single Bench of this Court considered a case whether the disputes had been pending resolution before a committee constituted by the petitioner (National Highways Authority). The reference of the disputes to a committee was not a part of the dispute resolution clause; the committee had been set up in an ad hoc fashion after the disputes had arisen during the performance of the contract in question. The process for amicable resolution of disputes continued for almost six yea....
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.... noted in paragraph 19 of the impugned decision. 27. Pithily stated that the learned Single Judge has brought out that after the variation order, notifying change of quantities, was issued on March 26, 2003, parties discussed the vexed question of in what manner the same had to translate into price payable to the contractor. The learned Single Judge has noted that the Arbitral Tribunal had succinctly brought out that the variation order issued on March 26, 2003 was not for an entire increased quantity. The learned Single Judge has noted that the Arbitral Tribunal has brought out the impact of the issue of revision of rates being discussed. The learned Single Judge has noted that on April 27, 2009, NHAI itself had formed a committee to resolve the impasse. To put it pithily, the dispute was not on the increased quantity as per price variation; the dispute concerned the revision of rates. It is not the case of NHAI that on a particular date it unequivocally closed the chapter on the revision of the rates leaving no further scope for any discussion and further with respect to said date cause of action would accrue. 28. The objections filed by NHAI show a total confus....
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....s an inordinate delay on the part of any party to implement the dispute resolution mechanism, the party seeking redressal of the disputes would require to take appropriate action within a period of three years. In the present case, the respondent (its JV partner) had taken pro-active steps for implementing the dispute resolution mechanism by approaching this Court by filing a writ petition." [emphasis added] 73. Ms. Priya Kumar, who appeared on behalf of NCC, relied upon the decision of a learned Single Judge of this Court in Ravinder Kumar Verma v. M/S. BPTP Ltd. & Anr.2. In that case, the Court had held that the pendency of the conciliation proceedings would not be a bar for enforcing rights to refer the disputes to arbitration by filing an application under Section 11 of the A&C Act or seeking dismissal of the suit under Section 8 of the A&C Act. The Court had reasoned that such proceedings would be necessary to preserve the rights and to ensure that the claims are not barred by limitation. The Court had held that since Section 77 of the A&C Act permits the parties to institute proceedings, which are necessary for preserving their rights, it is open for the parties to move....
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....ppears to be similar. In Singapore, however, the mediation process does not generally postpone or pause the period expended in settlements efforts before invoking arbitration. 78. Article 8(1) of the European Directive of Mediation provides as under: "Effect of mediation on limitation and prescription periods 1. Member States shall ensure that parties who choose mediation in an attempt to settle a dispute are not subsequently prevented from initiating judicial proceedings or arbitration in relation to that dispute by the expiry of limitation or prescription periods during the mediation process." 79. In the United Kingdom, Section 27 of the Arbitration Act, 1950 as well as Section 12 of the Arbitration Act, 1996 empower the courts to extend the time for commencement of arbitration. Such power has been exercised by the courts to extend limitation where delay was caused due to parties attempting to settle the disputes amicably. 80. In the decision of Liberian Shipping Corporation v. A. King & Sons [1967] 2 WLR 856, the Court of Appeal considered the question of extending the period of limitation for commencing arbitration where the delay was caused because t....
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....tor in time. The majority, therefore, observed that not allowing an extension of limitation would cause undue hardship to the owners. Therefore, the appeal was allowed. 82. The Canadian courts have also taken a view that the period of limitation would commence on break down of the pre-arbitral resolution process. In the recent decision of Jean Maisonneuve and 3721094 Canada Inc. v. Christopher Clark and Lanciter Consulting Inc. 2022 ONCA 113, the parties had referred their business disputes to arbitration. In the year 2016, they settled all disputes except one (referred to as the 'Excluded Issue'). The mutual release signed by the parties, inter alia, contemplated for the reference of the Excluded Issue to arbitration in case the parties were unable to resolve the same amicably. 83. In the year 2017, the parties got involved in litigation over the validity of the said settlement agreement as a whole. In the year 2018, the appellant took the position that there would be no negotiation regarding the Excluded Issue. In 2019, the respondent wrote to the appellant seeking to initiate arbitration. The appellant refused this request on the ground that it was time-barred. Whe....
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....e was not time-barred as the agreement contemplated mediation as a pre-condition to the arbitration and therefore, the arbitration was not 'appropriate' for commencement until after the mediation requirement was complied with. 90. The Appeal Judge agreed with the arbitrator and specifically observed that "[i]f the claim is the kind of claim that can be remedied by another and more effective method provided for in the statute, then a civil action will not be appropriate until that other method has been used." It was held that the interpretation of the word 'appropriate' to initiate arbitration depended on "the parties' choice to have their disputes resolved by arbitration if mediation as a precondition [was] unsuccessful." The Court of Appeal for Ontario agreed with the findings of the Appeal Judge below and held that as per the interpretation of the word 'appropriate' and the given factual matrix, "the parties would only know that arbitration was appropriate when the mediation requirement had been exhausted." The Court of Appeal, therefore, dismissed the appeal. 91. It is also apposite to bear in mind that the legislative as well as judicial policy....
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.....2011. There were also certain other e-mails that were sent by Welspun. Finally, on 21.08.2012, Welspun issued a notice through its counsel. 95. It is material to note that NCC responded to the said notice by a letter dated 10.09.2012. In its response, NCC reiterated its stand that the contract between the parties was on back-to-back basis and the payments to Welspun were subject to NCC receiving corresponding payments from Nafto Gaz. The relevant extract of the said letter is set out below: ".......Your client is well aware that the payments to be made to your client are subject to receiving the corresponding payment from Naftogaz. Your Client is well aware that huge amounts due and payable by Naftogaz not only pertaining to the flyover project executed by your Client but also in respect of the other projects executed by NCC have been withheld by Naftogaz/IOCL. Your client knowing fully well that the LOI which was issued on back to back basis is the foundation for the contract awarded to your Client willfully concealed the same. We also observe that your client vide letters dated 17.05.2011, 30.08.2011 and 09.09.2011 demanded payment of Rs. 13.17 Crores towards the sup....
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....z India Pvt. Ltd., releases the pending payments to us, we are not liable to clear the amounts as claimed by your Client and the same are disputed for the reasons stated above." [emphasis supplied] 96. Welspun was not expected to immediately institute the dispute resolution mechanism on the Completion Certification being issued on 30.11.2010. The letter dated 10.09.2012 indicates that the controversy between the parties had crystallized after 30.11.2010. However, it is also clear from the letter dated 10.09.2012 that the disputes had arisen between the parties and the parties had failed to resolve the same. Within a period of three months after receipt of the letter dated 10.09.2012, Welspun invoked the dispute resolution mechanism and by a letter dated 26.11.2012, made a request for their respective Chief Executives to meet to resolve the disputes. 97. It is not clear as and when the negotiations between the parties to amicably resolve the disputes commenced and failed. However, it is clear that Welspun had escalated resolution of the disputes to the second tier by seeking a reference to the respective Chief Executives well within the period of limitation. Clearly, Welspu....
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.... to escalate any dispute in regard to this claim within a reasonable period of time. The last of the invoices was dated 30.06.2008 and the same was not reimbursed. Welspun/MSK was required to take steps for escalating the disputes within the period of limitation. It is apparent that no such dispute was escalated to the Chief Executives of the parties within a period of three years from the date when the cause of action for claiming such reimbursement had arisen. The impugned award warrants no interference to the extent it rejects the said claim. 102. In view of the above, the impugned award to the extent it holds that Welspun's Claim nos. I, II and III, as included in the Final Bill, are barred by limitation, is set aside. Accordingly, denial of other claims, which are premised on the said findings including claim for interest and costs, cannot be sustained as well. The impugned award to the extent it denies the said claims is set aside. The impugned order is also set aside. 103. It is clarified that the claimant is entitled to take steps for reference of the disputes to arbitration afresh. 104. The appeal is, accordingly, allowed in the aforesaid terms. Pending applic....