Municipal Corporation of Delhi vs Natraj Construction Company

Citation codes: 2012 SCC OnLine Del 2501 ; (2012) 189 DLT 276 ; (2012) 2 Arb LR 369 (DB) ; PLR (2012) 167 Del 3

Date of Judgement: 22 March 2023

Court: Delhi High Court

Coram : Justice Manoj Kumar Ohri

Link to Judgement

Factual Background

In 2004, a tender was floated by the Municipal Corporation of Delhi (hereinafter “Appellant”) for supplying and fixing signboards. This tender was awarded to Natraj Construction Company (hereinafter “Respondent”). The work was completed within time on 22 May 2004. The Respondent submitted a bill, which was cleared by the Appellant on 30 November 2004. However, payment was not made by the Appellant due to an FIR being registered by the CBI on allegations of sub-standard quality of signboards.

The agreement contained a clause stipulating that any challenge must be raised within 120 days of clearing of the bill. Subsequently, Respondent invoked the arbitration clause in the year 2007 and an Award was passed in favour of the Respondent on 06 November 2009. The Appellant proceeded against the award under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter “A&C Act”), which was dismissed by the district court. Challenging the judgement of the district court, the Appellant filed this present appeal in the Delhi High Court.  

Issues involved in the case

Whether a clause requiring any objections to be raised within a specific time is valid.

Whether the pendency of criminal proceedings precluded the arbitration of the subject matter.

Appellant’s Position

Appellant argued that according to Clause 25 of the Contract Agreement, any objections from the Respondent should have been raised within 120 days of 30 November 2004. Since the arbitration proceedings were initiated after this period, the claim should be considered time barred. Reliance was placed on the Supreme Court’s decision of National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co., wherein it was held that an agreement curtailing the period of limitation is not permissible in view of Section 28 of the Indian Contract Act but extinction of the right itself unless exercised within a specified time is permissible and can be enforced.

Furthermore, it was contended that the District Court should have intervened with the award, given that the matter was under investigation by the CBI. This rendered the subject matter of dispute non-arbitrable and the award in conflict with the public policy under Section 34(2)(a)(v)(b) of the A&C Act.

Respondent’s Position  

Respondents argued that the grounds raised in the appeal were beyond the scope of Section 37 of the A&C Act. They also contended that the Work Order in question was never under CBI investigation and a charge sheet was filed in relation to some other work order.

Moreover, reliance was placed on the Supreme Court’s Decision in Swiss Timing Limited vs Commonwealth Games 2010 Organizing Committee, wherein the court rejected the argument of Respondent that due to the pendency of criminal proceedings, the application for reference to arbitration should not be entertained.  

Judgement and Reasoning

The Court underscored that the scope of jurisdiction under Section 37 of the A&C Act is limited and re-examining of the merits is not allowed, given that the award has been upheld by the First Appellate Court.

Regarding the Appellant’s contention that the arbitration proceedings should have been initiated within 120 days. The Court held that the contention is meritless in view of amended Section 28 of the Indian Contract Act, which voids any agreement that extinguishes the right of a party or discharges a party from liability on expiry of the specific time period. The Court relied on its earlier decision of Pandit Construction Company v. DDA, wherein the court observed that amended Section 28 nullified the distinction arrived by the Supreme Court in the  National Insurance Case. Thus, the said distinction does not hold good after coming into force of amended Section 28.

Regarding Appellant’s contention that the ongoing investigation by CBI precludes the arbitration of the subject matter and renders the arbitral award in conflict with the public policy. The court concurred with the Respondent’s submissions that the present work order in question did not form part of the investigation relied on by the Appellant. The court also reiterated the decision of Swiss Timing Limited observing that shutting out arbitration because of a parallel pending criminal proceeding would destroy the very purpose of arbitration.

In view of the above, the appeal was dismissed.

Author(s)