Citation Codes : 2009 SCC OnLine Del 4172; 2009:DHC:5596
Date of Judgement: 22 December 2009
Court: Delhi High Court
Coram : Justice Manmohan
Factual Background
M/s Raksha Karamachari Coop. Gr. H. Soc (hereinafter “Respondent”) awarded a tender for constructing 150 flats at Paschim Vihar, New Delhi, to M/s Manohar Singh and Sons (hereinafter “Petitioner”). An agreement was entered on 8 February 1984. This agreement stipulated an arbitration clause providing that any arbitration proceeding had to be initiated within 28 days of the certification of the bill by the Architect.
On 14 December 1987, the Architect certified the Petitioner’s final bill for an amount of INR 9,47,043 along with a sum of INR 13,50,600. However, the Respondent refused to pay the amount of INR 13,50,600 alleging defects. On 24 December 1987, the Petitioner raised grievances and requested an amicable resolution.
On 1 January 1988, possession of the flats was handed over to the members of the Respondent, against the payment of INR 9,00,000 on 30 January 1988. Subsequently, on 16 January 1989, the Architect issued another certificate confirming that the defects have been corrected and directed to release the pending payment while retaining INR 50,000 for a period of three months for the maintenance of the building. However, the Respondent failed to make the payment.
On 12 May 1989, the Petitioner sent a legal notice demanding that the Respondent clear the outstanding accounts within thirty days. Due to the inadequate reply by the Respondent, the Petitioner invoked the arbitration clause in the agreement. An arbitrator came to be appointed by the court.
The Arbitrator opined that the Petitioner waived its right to invoke arbitration due to the failure of the party to serve the notice invoking arbitration within 28 days from the receipt of the Architect’s decision. Assuming the decision on preliminary issue was incorrect, the Arbitrator proceeded to decide the matter on a claim-by-claim wise.
The Petitioner and the Respondent, thereby, filed applications under Section 30 and Section 33 of the Arbitration Act, 1940, challenging the Award passed by the sole Arbitrator.
Extract of Relevant Clause
6. Settlement of Disputes, Arbitration
….But if either the Employer or the Contractor be dissatisfied with the decision of the Architect on any matter question or the dispute of any kind (except any of the accepted matters) or as to the with-holding by the Architect of any certificate of which the Contractors may within 28 days after receiving notice to such decision give a written notice to the other party through the Architects requiring that such matters in dispute be arbitrated upon…..
Relevant Provision
Before Amendment
28. Agreements in restraint of legal proceedings void.- [Every agreement,
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights.
After Amendment [Addition]
b) which extinguishes the rights of any party thereto, or any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict party from enforcing his rights, is void to that extent.
Issue
Whether the arbitration clause providing for shorter limitation period for invoking arbitration violative of Section 28 of the Indian Contract Act?
Petitioner’s Position
The Petitioner submitted that a shorter period of limitation was prescribed in the Agreement to invoke the arbitration clause than the three years stipulated in Article 137 of the Limitation Act, 1963. The Petitioner argued that the clause was void and violative of amended Section 28 of the Indian Contract Act, as it extinguished the right of the Petitioner and discharged the liability of the Respondent on the expiry of a specific time period.
To support the submission, reliance was placed on the decision of Delhi High Court in Explore Computers Pvt. Ltd. vs. Cals Ltd. & Anr , wherein the court held that any clause extinguishing the right of a party or discharging any party from the liability in respect of any contract on expiry of specific period so as to restrict the time period would be void [¶48].
Respondent’s Position
The Respondent contended that the arbitration clause was not violative or void of Section 28 of the Indian Contract Act. To support the submission, reliance was placed on the decision of Supreme Court in National Insurance Co. Ltd vs Sujjir Ganesh Nayak & Co. wherein the court held that curtailment of period of limitation is not permissible under Section 28, however, extinction of rights unless exercised within a specific period is permissible [¶17].
It was also submitted that the Petitioner cannot place reliance on amended Section 28 of the Indian Contract Act, as the amendment was made in the year 1997, after the invocation of the arbitration clause.
Alternatively, the Respondent argued that claims were barred by limitation. If the Petitioner had grievances regarding the Architect’s decisions during the contract’s execution, these should have been raised at that time, rather than waiting until the final bill.
Decision & Reasoning
The Delhi High Court held that the Arbitrator’s finding was based on a wrong proposition of law. The court observed that in the decision of National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co, the clause specifically provided that insurance company will not be liable beyond the expiry of twelve month. However, in the instant case, the clause does not negate the liability of the Respondent post 28 days and allows the Petitioner to seek remedy. Thus, relying on the unamended Section 28 of the Indian Contract Act, the court held the clause to be void to the extent that it provides a 28-day time period.
The court further stated that the claims of the Petitioner were not barred by limitation since the claims were raised within a period of three years from the date of receipt of the Architect’s certificate. The bills and payments made during the course of execution of the contract, the court observed by placing reliance on clause, were interim in nature, and an arbitration claim on this matter would be premature.
The court allowed the application by the Petitioner, while the application by the Respondent was dismissed.
Author(s)
Doyna Panja
Student at NUJS, West Bengal