CIVIL APPEAL 70 of 2007 on 13 May 2002

1. Whether Reporters of local papers may be allowed to see thejudgment? judgment?

2. To be referred to the Reporters or not?

3. Whether the judgment should be reported in the Digest?

Present: Shri Amit Rawal, Advocate, for the petitioner.

S/Shri D.D. Gupta & R.D. Gupta, Advocates, for the respondent.

HEMANT GUPTA, J.

The petitioner has sought appointment of an Arbitrator byinvoking the jurisdiction of this Court under Section 11(6) of theArbitration and Conciliation Act, 1996 [for short `the Act' ] forresolution of the dispute arising out of the agreement dated 12.1.1999.

The petitioner has averred that it is a registered partnership firm. The respondent was desirous of constructing a double storyedSchool Building at Safyabad, Narela, in the State of Haryana. Thepetitioner was awarded a contract for construction of the said buildingand in this regard an agreement was signed between the parties on12.1.1999 at New Delhi.

The dispute between the parties arose even before thecompletion of the construction work. The petitioner issued a notice on15.11.2001 to the respondent seeking to invoke Clause 12 of thecontract agreement for appointment of an Arbitrator, as the respondentfailed to make payment of the final bill within 15 days of the aforesaidnotice. It is pointed out by the petitioner that the final bill in respect ofthe work performed was issued on 6.6.1999. The Architect of therespondent certified the said bill, but the payment has not been made.The petitioner has suggested the names of three qualified Arbitrators inits notice dated 15.11.2001. The petitioner earlier invoked thejurisdiction of the Delhi High Court on 13.05.2002 as the Arbitratorwas not appointed. The said petition was withdrawn by the petitioneron 8.2.2006 with liberty to file the same in a Court of competentjurisdiction in view of the preliminary objection taken by therespondent that the said Court has no territorial jurisdiction. It wasthereafter, the present petition was filed on 14.5.2007.

The respondent in the written statement has, inter-alia,raised an objection that the petition is hopelessly time barred and thatagreement dated 12.1.1999 was by the respondent with M/s V.K.

Aggarwal & Company, Dehradun, whereas the petition has been filedby M/s V.K.Aggarwal & Company, New Delhi. It was pointed out thatthe registration certificate of the firm has not been produced. Therefore,the petitioner-firm has no locus standi to institute the present petitionon behalf of M/s V.K. Aggarwal & Company, Dehradun, with whomthere was an agreement. It was also submitted that before Delhi HighCourt, the written statement was filed in the year 2003 in which anobjection was taken that Delhi High Court had no territorialjurisdiction, but the petitioner has withdrawn its petition forappointment of an Arbitrator from Delhi High Court only on 8.2.2006.Therefore, the prosecution of petition under Section 11(6) of the Act,before the Delhi High Court, cannot be said to be bona-fide. Thus, thetime spent in such proceedings, cannot be excluded.

The petitioner has filed replication pointing out that thecause of action arose to the petitioner on 6.6.1999, when the petitionersubmitted the bills to the respondent. It again arose to the petitioner on21.10.2000, when the petitioner received a letter from the respondent,assuring that it is considering all the disputes. The petitioner alsosought exclusion of time spent before the Delhi High Court from13.5.2002 till 8.2.2006 while computing the period of limitation forfiling the present petition before this Court.

Arguments

It was pointed out that the firm M/s V.K. Aggarwal &Company, Dehradun was originally constituted by partnership deeddated 1.4.1998. Subsequently, the partnership firm shifted its headoffice to Delhi with effect from 1.5.2001. The firm was re-constituted vide partnership deed dated 1.4.2001. A copy of the aforesaidpartnership deed has been produced as Annexure P.5, whereas theregistration certificate in Form-I and Form-II, have also been producedas Annexures P.6, P.7 and P.8. Thus, it is sought to be canvassed thatthe disputes between the parties are referable to an Arbitrator, to beappointed by this Court.

The first question between the parties whether thepetitioner, who has invoked the jurisdiction of this Court, is the firm,with whom the respondent has entered into an agreement for thepurposes of construction of the building on 12.1.1999?

The documents on record, particularly the partnership deedAnnexure P.5 dated 1.4.2001, the certificates from the Registrar of theFirms, Annexures P.6 to P.8, show the petitioner is now having itsregistered office at Delhi.

Learned counsel for the respondent has vehemently arguedthat the documents Annexures P.6 to P.8 show the name of the firm asM/s V.K. Aggarwal & Sons, Dehradun, whereas the name of thepetitioner disclosed in the petition is M/s V.K. Aggarwal & Company.Therefore, it cannot be said that M/s V.K. Aggarwal & Company, is thesame firm as M/s V.K. Aggarwal & Sons. The question whether thepetitioner is the same firm in respect of which documents AnnexuresP.6 to P.8 have been produced is a question which need not be decidedby this Court at this stage. From the documents on record, it appearsthat Vikram Aggarwal; Vikas Aggarwal and Mukul Aggarwal are thepartners of the firms M/s V.K. Aggarwal & Company and M/s V.K.Aggarwal & Sons. Whether M/s V.K. Aggarwal & Sons, is a separate firm than M/s V.K. Aggarwal & Company, is a question of fact, whichcan be determined and resolved by an Arbitrator, if so appointed inrespect of the disputes between the parties. Prima-facie, it appears thatthe partners of the petitioner are the same as in M/s V.K. Aggarwal &Sons. The partnership firm is nothing but a compendious name of allthe partners. Therefore, if the partners are same in so called new firm,the difference in name, may not be really relevant. But I leave thisquestion to be decided by an Arbitrator, if so appointed by this Court. As per the petitioner, the final bill was submitted on6.6.1999, whereas the present petition has been filed before this Courton 14.5.2007. It is pleaded by the petitioner as well that the cause ofaction arose to the petitioner on 6.6.1999. In the notice Annexure P.3dated 15.11.2001, the petitioner has communicated that it has stoppedthe work in the end of April, 1999 and the final bill was submitted on6.6.1999, with a request that the payment of the same be madeimmediately. In view of such factual position, the following threequestions arise in respect of the question of limitation in filing thepresent application for consideration of this Court:-

i)Whether the cause of action to seekadjudication by an Arbitrator arises on servingof a notice under Section 11(6) of the Act on15.11.2001 or on submission of final bill on6.6.1999?

Arbitration Case No. 70 of 2007 [6]

ii)Whether the communication dated 21.10.2000(Annexure P.2) amounts to acknowledgment ofdebt?(Annexure P.2) amounts to acknowledgment ofdebt?

Question No.1

Whether the cause of action to seek adjudication by an Arbitratorarises on serving of a notice under Section 11(6) of the Act on15.11.2001 or on submission of final bill on 6.6.1999?

The petitioner has filed the petition before the Delhi HighCourt on 13.5.2002, which was withdrawn on 8.2.2006. The presentpetition was filed before this court on 14.5.2007. The question raisedare being examined with the presumption that the time spent inprosecuting the proceedings before the Delhi High Court, is to beexcluded.

The petitioner has not completed the work in terms of thecontract agreement. However, a final bill dated 6.6.1999 was submittedclaiming specific and ascertained amount. Therefore, the cause ofaction to claim the said amount arose on the aforesaid date in terms ofArticle 18 and Article 113 of the Limitation Act, 1963. The provisionsof Limitation Act, 1963, apply to arbitration as it applies toproceedings in the Court in terms of Section 43 of the Act.

Article 18 of the Limitation Act deals with the price ofwork done by the plaintiff for the defendant at his request where notime for payment has been fixed. The period of three years asmentioned in column No.2 beings to run from the date work is done.Therefore, the cause of action to claim specific amount arose to the plaintiff in respect of the claim of the work performed on the date whenwork was performed and in any case when the final bill was submittedby the petitioner. Article 113 of the Limitation Act is residuary Articlefor filing of suit when no period of limitation is provided elsewhere inthe Schedule. The time of three years begin to run when right to sueaccrues as discussed above.

Question No.2.

Whether the communication dated 21.10.2000 (Annexure P.2)amounts to acknowledgment of debt?

The argument of learned counsel for the petitioner is thatthe communication dated 21.10.2000 (Annexure P.2) amounts toacknowledgment of debt. The respondent, in the aforesaidcommunication, has communicated to the following effect:- “Your letter dated 16[th] October, 2000, has beenreceived by Maharaj Shree. He has told us to informyou that we are considering all the points raised inyour letter which includes closure of the work also.In this matter, the moment we reached anyconclusion, we will inform you.”

Section 18 of the Limitation Act, 1963, contemplates thatfor the purposes of the said section, the acknolwedgment may besufficient though it omits to specify the exact nature of the property orright, or avers that the time for payment, delivery, performance orenjoyment has not yet come or is accompanied by a refusal to pay,deliver, perform or permit to enjoy, or is coupled with a claim to set- off, or is addressed to a person other than a person entitled to theproperty or right.

Inv. Food Corporation of India Assam State CooperativeMarketing & Consumer Federation Ltd. And others, (2004) 12Supreme Court Cases 360, the question as to what amounts toacknowledgment within the meaning of Section 18 of the LimitationAct, 1963 came up for consideration. Reference was made to ShapoorFreedom Mazdav. Durga Prosad Chamria, AIR 1961 Supreme Court1236 and Lakshmirattan Cotton Mills Co. Ltd.V. Aluminium Corpn.of India Ltd.,(1971)1 SCC 67. In the said case, letters Exhibits 8 and 9acknowledged receipt of Rs.2 crores, but also contained a disputeregarding liability of the Federation to pay the amount relating tosettlement of account. It was held that a plea of acknowledgment mustrelate to present subsisting liability though the exact nature or thespecific character of said liability may not be indicated in words. Thewords in use in acknowledgment must indicate the existence of juralrelationship between the parties, such as that of debtor and/or creditor.The intention to attend such jural relationship must be apparent.

A Division Bench in Yadvindra Industris (Drinks &v. Agencies) (P) Ltd. Ulka Advertising (P) Ltd., 1995(3) RecentRevenue Reports 555,considered the communication which reads asunder:- “This is to confirm that we have received your billsamounting to Rs.1,24,952.34 till 30.6.84. Regardingbalance of Rs.90,952.34 shown in your statement ourrepresentative will contact your office to clarifydiscrepancy if any.

As discussed with your Mr. Shamin Uddintoday we shall let you known the payment schedulein one month’s time. We regret the delay in clearingthe amount.”

The Court found that the first part of the letter acknowledges thereceipt of bills. The second part relates to the balance of Rs.90,000/--odd amount, but there is no acknowledgment or admission or the factthat the said amount is due. The third part relates to intimation of theschedule of payment in a month's time. It was held that the said letterdoes not amount to acknowledgment.

In the present case, the letter Annexure P.2 indicatesreceipts of a communication dated 16.10.2000 and that the pointsraised are being considered including closure of the work. It may benoticed that the work was not completed by the petitioner. The letterdated 16.10.2000 in the aforesaid communication has not beenproduced by the petitioner. In the notice dated 15.11.2001, AnnexureP-3, it has been averred by the petitioner that repeated requests andreminders were issued including the one on 16.10.2000. It is stated tothe following effect:- “7.That it is regretted that the payment of the saidfinal bill has not been made to my client inspite ofrepeated requests and written reminders dated29.9.2000, 16.10.2000, 11.11.2000, 20.11.2000,30.11.2000 and 8.2.2001 and your assurance dated21.10.2000. Then there was no dispute in respect ofthe said final bills, there is no reason why you shouldnot make the payment of the same.”

In my opinion, the communication dated 21.10.2000 cannot

be said to be acknowledgment of liability. It only acknowledges receiptof letter and that the issues raised shall be considered. There is noadmission of relationship of debtor or creditor. The issue of closure ofwork alone was to be examined, which cannot said to bearacknowledgment of liability sufficient to extend the period oflimitation.

Learned counsel for the petitioner has vehemently arguedthat in fact, the cause of action arose to the petitioner on the refusal ofthe respondent to appoint an Arbitrator in terms of its notice dated15.11.2001. It is argued that if the period spent before the Delhi HighCourt is excluded, then the present petition is within the period oflimitation. Reliance is placed upon Morena Mandal S.S. K. Ltd. v. NewIndia Assurance Co. Ltd., (1999) 5 Supreme Court Cases 697, andUtkal Commercial Corporationv. Central Coal Fields Ltd., (1999)2Supreme Court Cases 571.

Section 8 of the Arbitration Act, 1940 [for short referred toas `the Old Act’] dealt with the appointment of an Arbitrator withoutthe intervention of the Court, whereas the reference to an Arbitratorwas required to be made under Section 20 of the said Act.

In The Union of India v. Shri Om Parkash, (1976) 4Supreme Court Cases 32, it was found that the Old Act, provided forthree kinds of Arbitration: (i) arbitration without intervention of theCourt dealt with in Chapter-II; (ii) arbitration with the intervention ofthe Court, where there is no suit pending dealt with in Chapter-III; and(iii) arbitration in suits covered by Chapter-IV. The intervention of Court is not contemplated upto the stage of filing of the Award unlessoccasion arises, requiring the Court to remove the Arbitrator underSection 11 of the Old Act. Section 8 of the Old Act only empowers toappoint an Arbitrator, where the parties do not concur in theappointment. Referring to Section 20 of the Old Act, the Court held tothe following effect:- “This section confers power on the court to order theagreement to be filed and, further, to make an orderof reference to the arbitrator appointed by the parties,or, where the parties cannot agree upon anappointment, to an arbitrator appointed by the court.Sub section (1) of Section 20 makes it plain that theprovisions of the section can be availed of only if noproceeding under Chapter II has been initiated.Section 8 does not contain any provision empoweringthe court to make an order of reference to thearbitrator as one finds in sub-section (4) of Section20. Thus it seems clear that the court in the instantcases had no jurisdiction, after appointing anarbitrator under Section 8(2), to proceed further tomake an order referring the disputes to thearbitrator.”

It is, thus, apparent that the aforesaid provisions of the Old Act, dealt with the reference to an Arbitrator through the interventionof the Court in terms of Section 20 of the Old Act. Appointment of anArbitrator is to be made under Section 8 of the said Act, when thereference has been made to an Arbitrator by the parties withoutintervention of the Court. However, the scope of Section 11 of the Act,is materially different from the provisions of appointment of an Arbitrator under the Old Act. Now the reference to an Arbitrator aswell as appointment of an Arbitrator, both fall within the ambit ofSection 11 of the Act.

In Panchu Gopal Bosev. Board of Trustees for Port ofCalcutta,(1993)4 SCC 338, the Supreme Court held that the provisionsof Limitation Act, 1963 would apply to the arbitration and cause ofaction for such purpose shall be determined to have accrured to theparties in respect of any such matter at the time when it should haveaccrued but for the contract of arbitration.

The judgment in Morena Mandal's case [ supra],deals onlywith Section 8(2) of the old Act. A perusal of the judgments does notshow that the notice seeking appointment of an Arbitrator was issuedafter the cause of action to recover the amount arose to the appellanttherein. There is no reference to an Arbitrator as the appointment of anArbitrator was sought through the intervention of the Court, withoutseeking recourse to filing of the agreement under Section 20 of the OldAct. The aforesaid judgment relies upon an earlier judgment in Utkal''Commercials case. In Utkal Commercials case, the appellant thereinhas nominated its Arbitrator and thereafter, an application was filed bythe appellant under Section 8 of the Old Act. The learned trial Courtappointed an Arbitrator and such Arbitrator gave his award. In arevision against an order appointing an Arbitrator under Section 8 ofthe Old Act, an argument was raised that such an application is barredby limitation. The Court concluded that cause of action to seekappointment under Section 8 of the Old Act, arises when there is afailure to concur in the appointment of an Arbitrator.

Though, in the aforesaid judgment reliance is placed upon on Inder Singh Rekhi v. Delhi Development Authority,(1988) 2 SCC338, but that is a case of filing of arbitration agreement and referenceto the arbitration under Section 20 of the Old Act. It was held that forreference under Section 20 of the Old Act, there must not only be anentitlement to money, but there must be a difference or dispute. It wasfound that the final bills were not prepared, therefore, the cause ofaction will arise when assertion under Section 30 of the Old Act wasfiled within three years of assertion of the claim. The issue raised in'Utkal Commercial Corporations case (supra), was of filing of anarbitration agreement and reference to Arbitrator was not sought underSection 20 of the Old Act. The appointment of Arbitrator alone was indispute, which falls within the scope of Section 8 of the Old Act andthat there is no corresponding provision to the said provision in thenew Act.

In Asia Resorts Ltd. v. Usha Breco Ltd., (2001)8 Supreme Court Cases 710, it was found that cause of action for filing of apetition under Section 20 of the Old Act arose in response to a notice torectify the defects so controverted on 17.5.1990, therefore, the petitionfiled in 1993 was beyond the period of limitation. It was held to thefollowing effect:- “15. There is not much controversy that the residuaryArticle 137 of the Limitation Act applies so far as theperiod of limitation is concerned for an application underSection 20 of the Arbitration Act, 1940. The residuaryArticle 181 of the Limitation Act, 1908 was replaced byArticle 137 in the Limitation Act, 1963. Earlier, Article 181

was applicable only in respect of application to be filedunder the Civil Procedure Code. This article was replacedby Article 137 in the Limitation Act, 1963 in a modifiedform. By insertion of Article 137, it cast a wider net so asto include any application for which no period of limitationwas provided elsewhere in that division. The third divisionof the Limitation Act, 1963 deals with various applicationsto be filed under various special statutes. The definitions of“applicant” and “application” are also inserted in theLimitation Act, 1963. Therefore, it is clear that theintention of the legislature was to provide a residuaryarticle prescribing period of limitation for filing petitionsand applications under the various special laws. This Courtin Kerala SEB v. T.P. Kunhaliumma, (1976) 4 SCC 634,held that Article 137 would apply to any petition orapplication filed under any Act to a civil court and it cannotbe confined to applications contemplated by or under theCode of Civil Procedure. In Major (Retd.) Inder SinghRekhi v. Delhi Development Authority, (1988) 2 SCC 338, v. Union of IndiaL.K. Ahuja and Co., (1988) 3 SCC 76, v. Steel Authority of India Ltd.J.C. Budharaja, Govt. andMining Contractor, (1999) 8 SCC 122 and Union of Indiav. Vijay Construction Co., AIR 1981 Del.193, this Courtheld that the period of limitation for filing applicationunder Section 20 of the Arbitration Act, 1940, is asprescribed under Article 137 of the Limitation Act.

16. Under Section 20 of the Act, the cause of action forfiling an application may arise whenever “a difference hasarisen to which the agreement applies”. Regard must be hadto the relevant arbitration clause in the agreement. If anyspecific terms are used in the arbitration clause, that wouldgovern the parties as to when a petition for reference ofarbitration shall be filed in the court”.

In Visakhapatanam Port Trust v. Continental ConstructionCompany,2009(4) Supreme Court Cases 546, the appellant recoveredan amount of Rs.74,810.38p from the running bill on 8.8.1974. TheCourt held that the contractor ought to have given notice calling uponthe appellant to appoint an Arbitrator within three years therefrom andapply to the Court within this time. It was held to the following effect:- “17. In the backdrop of the aforesaid legal position,let us now turn to the facts. On 8.8.1974, VPTrecovered an amount of Rs.74,810.38 being the costof 500 jack rods from running Bill No. 21 tenderedby the contractor. The dispute with regard to claim ofRs.74,810.38, thus arose on that date. The contractorought to have given notice calling upon VPT toappoint an arbitrator within three years therefrom orapply to the court within this time. However, it wasafter ten years on 22.9.1984 that the contractorappointed its arbitrator and called upon VPT toappoint its arbitrator.”

In view of the above, I am of the opinion that cause ofaction to seek the appointment of Arbitrator under Section 11 of theAct does not arise with serving of notice seeking appointment of anArbitrator under section 11(5) of the Act. The cause of action to seekdispute would arise in the same manner in which the limitation is to becomputed for raising of a claim before the civil Court. Whether theclaim of the petitioner was within the period of limitation is required tobe determined on the date of filing of application under section 11(6) ofthe Act. The period of limitation is not to commence from the date of serving of notice but would run on the date when right to claim accruesto the plaintiff as is before the civil Court.

Since section 11(5) of the Act provides a notice of 30 daysbefore a petition for appointment of an Arbitrator can be filed in thecourt, therefore, such period of 30 days alone are to be excluded incomputing the period of limitation as contemplated under section 15(2)of the Limitation Act.

Therefore, the present petition for seeking appointment ofArbitrator is beyond the period of limitation. Hence, the same isdismissed.

[ HEMANT GUPTA ] JUDGE

November 12, 2009 ds