TaxTMI 
TaxTMI 
2022 (10) TMI 1175
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....e 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 is whether the claims of Welspun, as included in the F....
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....010. 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. According to NCC, the LoI had clarified that execution of the Project under the M....
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....ntract 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 payments. To that extent the claims as raised by Welspun are premature and the cause of action for the same has not ....
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.... (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. Ramamoorthy is appended separately." 30. Although, there was no mention of a supplemental award, the record produced also includes....
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.... 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 settlement through reference of the dispute to the Chief Executives of the parties, however, in the present case the same had also resulted in a failu....
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....he 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. In support of his contention, Mr. Sethi also referred to the decisions in J.C. Budhraja v. Chairman, Orissa Mining Corpn. Ltd. (2008) 2 SCC 444; Syndicate Bank v. R. V....
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....adan 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 issued on 30.11.2010 or the Final Bill had been certified as stated on 30.10.2010 were to some extent disputed by NCC. However, the Arbitral Tribunal found that the Final/RA Bill No. 33....
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....sues. 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 parties undertake to resolve the differences by mutual negotiation. If such dispute or difference cannot be resolved within one month from the date it is arisen, the same shall be referred to the Chief Execu....
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....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 arbitration takes place upon the dispute concerned". 56. The Supreme Court also noted the following proposition as stated in the book Law of Arbitration Chapter 37 at Page 549 by Justice Bachawat: "The cause of arbitration, ther....
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....erein 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 Supreme Court relied on the decision of Hari Shankar Singhania & Ors. v. Gaur Hari Singhania & Ors. Supra to state that "till such time as the settlement talks are going on directly or by way of correspondence no issue arises and with the result the clo....
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....irmed 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. Paragraph 28 of the said decision is relevant and set out below: "28. Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be ....
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.... 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 cause of action, in the present case, would be deemed to arise on 7th September 2020, being the date on which efforts at mediation between the parties ultimately failed. That once the 'breaking point', being the date on which any reasonable party would have abandoned the efforts at settlement, is det....
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.... 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 years before it was explicitly rejected. Thereafter, the disputes were referred to arbitration. In the arbitral proceedings, an objection was raised that the claims were barred by limitation. It was contended that the period of limitation commenced from the original date when the disputes had first arisen prior to reference of ....
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....s 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 confusion in the mind of NHAI between a cause of action and cause of action accruing. Whereas the former encompasses such facts, if traversed, required to be proved to sustain a claim, the latter would mean the date on which the right to sue accrues." [emphasis added] 71. It is necessary to note that the Coordinate Bench of this Court had held that there was a clear disti....
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....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 applications under Sections 8 and 11 of the A&C Act to save their claims from being barred by limitation. 74. Ms. Priya Kumar had earnestly contended that the said decision amply clarifies that the period of limitation would neither be suspended nor its commencement deferred in the event of any mediation on account of the parties engaging in any pre-reference dispute resolution process. 75. We a....
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....pute 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 the parties preferred to settle their disputes. In that case, the owners of the vessel had let out the vessel to charterers. There was delay in loading and discharge of goods on account of fire. In that context, cross claims were filed. The owners of the vessel claimed damages for the delay caused to the vessel by fire. The charterers, on the other hand, claimed damages for extra expenses incurred by them in arranging transpor....
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..... 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. When the respondent moved the superior court, the appellant took the same ground stating that the ninety-day period or, in the alternative, the two-year limitation period provided in the limitation statute had already expired. 84. The court held that there was no agreement to conduct the arbitration within a ninety-day period and further held that the arbitration was not barred by the two-year limitation period under the limitation s....
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....ivil 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 is to promote mediation and encourage the parties to make a serious endeavor for an amicable resolution of the disputes before commencing any adversarial proceedings. Section 12A of the Commercial Courts Act, 2015 makes it mandatory for the parties to exhaust the remedy of mediation prior to institution of the suit in such manner as may be prescribed. Sub-Section (3) of Section 12A of the Commercial Courts Act, 2015 expressly provides that the pe....
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....ct 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 supposed out standings in respect of the contract executed by them and whereas through the legal notice you have claimed an amount of Rs. 16,68,89,114/- towards the supposed out standings. The figures appearing in the above referred letters of your Client and also those appearing in your notice are imaginary and have no basis. We observed from our records that subject to receiving the corresponding payment from Naftogaz an amount of Rs. 2.56 Crores appears to be pay....
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....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, Welspun could not have sought a reference to arbitration prior to referring the disputes for resolution to the respective Chief Executives. Concededly, an attempt to resolve the disputes by the Chief Executives failed on 21.12.2012. It is on the said date that the right to refer the disputes arose in favour of Welspun. Welspun could not have referred the disputes prior to exhausting the remedies of referring the disputes to the respective Chief Executives for resolution. The period of lim....