M/s.R.N. Ghanekar & Co. v. Municipal Corporation of Greater Mumbai

Rajasthan Vidhyut Utpadan Nigam Limited[8], the Apex Court has held that in a commercial dispute, it does not lie to the claimant to plead that it waited for an unreasonably long period to refer the dispute to arbitration merely on account of Respondent’s failure to settle their claims and because they were writing representations and reminders to the Respondent, in the meanwhile.

Hence, the learned Single Judge was absolutely correct in coming to a conclusion that the claim was barred by limitation. OUR FINDINGS:-

10 Clauses 96 and 97 of the GCC between the parties read as under: “96. Any dispute or difference to be referred as Commissioner:- If any doubt, dispute or difference arises or happens between the Engineer or any other officer on the one hand and the Contractor on the other hand, touching or concerning the said works or any of them, or relating to the quantities, qualities, description or manner of work done and executed by the Contractor, or to the quantity or quality of the materials to be employed therein, or in respect of any additions, deductions, alterations, or deviations made into or from the said works or any part of them, or touching or concerning the meaning or intention of this contract or of any part thereof or of any plans, drawings, instructions or directions referred to therein or which may be furnished, or given during the progress of the works, or touching or concerning any certificate, order, or reward which have been made or in any way whatsoever relating to the interests of the Municipal Corporation or of the Contractor in the premises every such doubt, dispute and difference shall from time to time be referred to the Commissioner who shall give his decision within a period of 90 days and if the contractor is not satisfied with the decision of the Commissioner or the Commissioner fails to give the decision within the period of 90 days, such dispute may be referred to arbitration as per condition no.97.

97. Arbitration:- All disputes or differences whatsoever which shall at any time arise between the parties hereto touching or concerning the works or the execution or maintenance thereof or this contract or the construction, execution, or maintenance thereof or this contract or the construction meaning operation or effect thereof or, to the rights or liabilities of the parties or arising out of or in relation thereto whether during or after completion of the contract or whether before or after determination, foreclosure or breach of the contract (other than those in respect of which, the decision of any person is by the contract expressed to be final and binding) shall after written notice by either party to the contract to the other of them specify the nature of such dispute or difference and call for the point or points at issue to be referred to the arbitration.”

11 A Full Bench of this Court in S.Kumar Construction Co. Limited and Another (Supra), considered the following two issues:

(i) Whether it is necessary to comply with Clause 96 (pre arbitration condition) of the General Conditions of the contract to invoke arbitration under Clause 97 in the context of the jurisdiction of the Arbitral Tribunal ?

(ii) Whether the decision of the Division Bench in the case of

"Municipal Corporation of Gr. Bombay & ors. v/s. Atlanta Infrastructure Ltd. & ors. 2006(2) Bom.C.R.596)" or in the case "M/s. M.S. Chavan Construction Company v/s. The Municipal Corporation of Greater Bombay" lays down the correct position in law? The Full Bench had made the reference in view of the divergence of views between two Division Benches of this Court in the case of Municipal Corporation of Greater Bombay and Others Vs. Atlanta Infrastructures Limited and others[9], and an unreported decision of a Division Bench in M/s. M.S. Chavan Construction Company Vs. Municipal Corporation of Greater Bombay and Others, in Arbitration Petition No.3540 of 1992. The divergence of views between the two Division Benches of this Court was as regards interpretation of 9 2005 MhLJ Online 7 Clauses 96 and 97 of the GCC, which govern the relations between the parties, i.e., the Municipal Corporation of Greater Mumbai and the contractors. In Atlanta Infrastructures Limited and others (Supra), the Division Bench held that invoking Clause 96 cannot be a precursor to invocation of Clause 97 which provides for arbitration. In M/s.Chavan Construction Company (Supra), the issue whether the invocation of Clause 96 is a pre condition for invocation of Clause 97 to proceed to arbitration was not in the strict sense in contention, but the issue was as regards whether, prior to invocation of Clause 97 a notice was required to be issued to M.C.G.M. Both Clauses 96 and 97, however, were in contention as the Arbitration was sought in terms of The Full Bench came to the conclusion that Clause 96 cannot be stated to cover every conceivable dispute either before or after the work is completed. The clause cannot be construed differently than the clauses which are worded similarly, and in which cases it has been held that determination is not by any adjudicatory process, i.e., by giving an opportunity to the parties to lead evidence etc., but is summary in nature. Hence, Clause 96 cannot be construed any more than a clause which provides for an in-house mechanism for rederessal of the disputes or differences relating to work on site. The Full Bench also held that a Municipal Commissioner was not the final authority whose decision become final and binding, but it is open for the contractor, if he is not satisfied to opt for arbitration. As regards Clause 97, the Full Bench held that Clause 97 has been worded in the widest possible manner, as it begins with the expression, “all the disputes and differences whatsoever”, and it is so structured that it can be said to be an all encompassing clause covering all disputes and differences arising at whatsoever stage and providing for arbitration. Clause 97 would cover the aspects as to the manner of appointment of arbitrator, the qualification of the arbitrator, fees that are payable to the arbitrator and the manner of their fixation etc. The Full Bench held that Clause 97 can be said to be a stand alone arbitration clause whose invocation is not contingent upon invocation of Clause 96, and the said Clause 96 cannot eclipse Clause 97, which is a stand alone arbitration clause and is all encompassing. The Full Bench also held that there is nothing in Clause 97 to suggest that it is only in respect of the dispute or differences raised under Clause 96 that the arbitration can be invoked under Clause 97, and invocation of Clause 96 is not a must for invoking Clause 97, and that a claim for the first time can be made before the arbitrator by following the procedure laid down in Clause 97. Paragraphs 12, 13, 14, 18 and 21 of the Judgment of the Full Bench in S. Kumar Construction Co., Mumbai (Supra), which read as under: “12 As indicated above the aforesaid judgments have been pressed into service by the learned Senior Counsel for the MCGM Shri Kevic Setalvad to contend that unless a recourse in the first instance is taken to Clause 96, Clause 97, invocation of which is contingent upon the decision in Clause 96 is ruled out. The learned Senior Counsel by citing the analogy of a tunnel submitted that tunnel of Clause 96 would have to be taken to reach the road lgc 47 of 55 APP-914.03 of Clause 97. The answer to the said question as indicated herein-above lies in the interpretation of Clauses 96 and 97, and whether the conspectus of judgments (supra) cited on behalf of the Respondent - MCGM support such an interpretation.

13 In so far as Clause 96 is concerned, as observed in the earlier part of this Judgment, the said Clause can be said to provide a mechanism to resolve the doubts, disputes or differences in respect of the matters mentioned in the said Clauses which may arise between the contractor or the engineer or any other officer of the Corporation. The same would result in the removal of the difficulties faced by a contractor on the site so that the work can be proceeded with. Merely because certain expressions like "touching or concerning any certificate, order or reward" "every such doubt, dispute and difference" are used in the said Clause 96, the same would not expand its expanse so as to cover every conceivable dispute either before or after the work is completed. The said Clause cannot be construed differently than the clauses which are worded similarly and in which cases it has been held that determination is not by any adjudicatory process i.e. by giving an opportunity to the parties to lead evidence etc., but is summary in nature. Hence Clause 96 cannot be construed any more than a clause which provides for an in house mechanism for redressal of the disputes or differences relating to the work on site. It is only if the contractor is not satisfied with the decision of the Municipal Commissioner, or that the Municipal Commissioner does not give his decision within the stipulated period, the parties can then be referred to arbitration under Clause 97. The Municipal Commissioner is therefore not the final authority whose decision becomes final and binding, but it is open for the contractor if he is not satisfied to opt for arbitration. Hence a window has been kept open for the contractor in the event if he is not satisfied with the decision of the Municipal Commissioner, to opt for arbitration under Clause 97………….

14 In so far as Clause 97 is concerned, it has been worded in the widest possible manner, as it begins with the expression "all disputes and differences whatsoever" covers the stages when they may arise "concerning the works or the execution or the maintenance thereof or the construction meaning operation thereof" and also covers the determination of the rights and liabilities of the parties or arising out of or in relation thereto also covers the point of time when they can arise "whether during or after completion of the contract, or whether before or after determination, foreclosure or breach of the contract." Hence the manner in which Clause 97 is structured, it can be said to be an all encompassing clause covering all disputes and differences arising at whatsoever stage and providing for arbitration. The said Clause as indicated above inter-alia covers, the aspect as to the manner of appointment of arbitrator, the qualifications of the arbitrator, fees that are payable to the arbitrator and the manner of their fixation etc. Hence a conjoint reading of Clause 96 and Clause 97 indicates that the parties have provided themselves a dual mechanism i.e. Clause 96 providing for doubts, disputes and differences arising at the time of the execution of the works, being resolved in a particular manner, and then Clause 97 which is an arbitration clause which can be said to be all encompassing. Significantly in Clause 97 there is no reference to Clause 96 which can be said to be a defining feature of the agreement, in so far as the present works contract is concerned. Hence Clause 97 can be said to be a stand alone arbitration clause whose invocation is not contingent upon invocation of Clause 96. The said Clause 96 cannot eclipse Clause 97 which as indicated above is a stand alone arbitration clause and is all encompassing. It is therefore not possible to subscribe to the proposition as enunciated by the learned Senior Counsel Shri Setalvad that having regard to the law applicable to the interpretation of deeds, if every word is to be given meaning to in Clause 96 then all the disputes would be covered by Clause 96 and therefore invocation of Clause 96 is a pre-cursor to invocation of Clause 97. The acceptance of such a proposition would in fact render Clause 97 otiose. The acceptance of such a proposition would also militate against the object behind Clause 97 which is to provide a remedy by way of arbitration to the parties. Such an interpretation also cannot be accepted in view of the fact that it was also the submission of Shri Setalvad that in so far as the MCGM is concerned, it can directly invoke Clause 97. The same would give rise to an anomalous situation namely that the MCGM can invoke Clause 97 directly whereas the Contractor has to go through the route of Clause 96. The parties obviously cannot be meted out a different treatment under the same contract. The interpretation therefore would have to be one which results in a uniform treatment to the parties and furthers the object behind which the parties agreed to Clause 97. It would be one thing to say that Clause 96 is worded in the widest possible terms, but another thing to deny the efficacy of Clause 97 in so far as reference to arbitration de-hors Clause 96 is concerned. 15 …… 16 …… 17 …...

18 In our view, in the instant case since Clause 96 and Clause 97 are worded differently and though it is mentioned in Clause 96 that if the contractor is not satisfied with the decision of the Commissioner or the Commissioner fails to give his decision within the period of 90 days, then the dispute may be referred to arbitration as per Clause 97, in the instant case, there is nothing in Clause 97 to suggest that it is only in respect of the disputes or differences raised under Clause 96, that the arbitration can be invoked under Clause 97. In our view, Clause 97 being widely worded, the disputes which have arisen under Clause 96 and their reference to arbitration can only be one of the facets of Clause 97, but not the only facet. In our view, therefore invocation of Clause 96 is not a must for invoking Clause 97 and that a claim for the first time can be made before the arbitrator by following the procedure laid down in Clause 97. 19...… 20......

21 In the light of the discussion as above, the view that we have taken can be crystallized by concluding that it is not necessary to invoke Clause 96 and await the completion of the procedure contemplated therein to invoke Clause 97. The corollary to the same would be that the arbitration under Clause 97 can also be in respect of claims which were not raised under Clause 96 and which are raised for the first time under Clause 97. For the view that we have taken we affirm the view taken by the Division Bench in Atlanta Infrastructure Ltd.'s case (supra) as laying the correct proposition of law. We accordingly answer both the questions framed by us.” (Emphasis supplied)

12 Therefore, considering the law laid down in the judgment of the Full Bench in S. Kumar Construction Co., Mumbai (Supra), where it says that Clause 97 is a stand alone arbitration clause whose invocation is not contingent upon invocation of Clause 96, is a clear indication that Appellant’s claim is barred by limitation. As noted by the Full Bench, Clause 96 was only an in-house mechanism for redressal of the disputes or differences relating to work on site and the Municipal Commissioner was not a final authority whose decision becomes final and binding. Nothing prevented Appellant from commencing the arbitral proceedings or referring its claim to arbitration soon after the cause of action arose on 11th January 1997. This is the date upto which Appellant has claimed overhead expenses in the statement of claim though Appellant had claimed only upto 31st March, 1996 in its letter dated 3rd February, 1998. Appellant’s claim that only on 3rd February 1998 it made the claim or 90 days to be excluded or only on 28th December 2000 when Respondent accepted part of the claim the cause of action arose cannot be accepted. In our view, if Appellant's claim was upto 11th January 1997, the cause of action would have arisen on 12th January 1997. Even if we decide to give the benefit to Appellant, that in view of Clause 96 it had to first make a claim under Clause 96 to the Commissioner, Appellant cannot state that they would lodge such a claim under Clause 96 of GCC at their own sweet will on 3rd February 1998. Appellant could have lodged the claim on 12th January 1997 and 90 days from that date could be excluded. Appellant cannot come and state that upto the period when Respondent replied, i.e., 28th December 2000 the time has to be excluded.

13 Welspun Enterprises Ltd. (Supra), relied upon by Mr.Shah would not help Appellant's case because that was a case where the arbitration clause contemplated the pre–arbitration dispute resolution mechanism by referring the disputes to the Chief Executives of the parties. Major (Retd.) Inder Singh Rekhi (Supra) would also not help Appellant because there also the Apex Court has held that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders. As regards M.K. Shah Engineers and Contractors (Supra) relied upon by Mr. Shah, the facts won't apply to the case at hand because there also the arbitration clause contemplated a pre– arbitration dispute resolution mechanism, which is not the case in the matter at hand. As regards Oriental Insurance Company Limited (Supra) relied upon by Mr.Shah, there can be no dispute on the preposition submitted by Mr.Shah that an arbitration clause is required to be strictly construed. When we follow the lead given by the Full Bench in S.Kumar Construction Co. Mumbai (Supra), both, Clauses 96 and 97, have to be read as stand alone clauses, and as noted earlier, the claim will be barred by limitation.

14 The period of limitation for commencing an arbitration runs from the date on which the cause of action of arbitration accrued, that is to say from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned. The period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Paragraphs 25, 27, 28 and 29 of Steel Authority of India Ltd. (Supra) read as under: “25For deciding this controversy, we would first refer to the decision of this Court in the State of Orissa & Ors. Vs. Damodar Das [1996(2) SCC 216] wherein this Court held that Section 3 of the Limitation Act, 1963, enjoys the Court to consider the question of limitation whether it is pleaded or not. The Court in paragraph 5 held as under: -

27 Applying the aforesaid ratio in the present case, right to refer the dispute to the arbitrator arose in 1979 when Contractor gave a notice demanding the amount and there was no response from the appellant and the amount was not paid. The cause of action for recovery of the said amount arose from the date of the notice. Contractor cannot wait indefinitely and is required to take action within the period of limitation. In the present case, there was supplementary agreement between the parties. Supplementary agreement nowhere provides that so-called right of the contractor to recover damages was in any manner saved. On the contrary, it specifically mentions that contractor was yet to execute a considerable portion of the work more particularly described in the schedule to the agreement. And that the contractor has agreed to complete the said balance work on the terms and conditions enumerated in the agreement. Now, in this set of circumstances, contractor cannot wait and approach the authority or the court for referring the dispute to the arbitrator beyond the period of limitation. Section 37 of the Arbitration Act specifically provides that provisions of the Indian Limitation Act shall apply to the arbitrations as they apply to proceedings in the Court.

28 Learned counsel for the respondent relied upon the decision of this Court in Major (Retd.) Inder Singh Rekhi Vs.Delhi Development Authority [(1988) 2 SCC 338] for contending that cause of action for referring the claim arises only when the appellant disputed the right of the respondent to recover the damages claimed by him. In the said case, the Court has observed that on completion of the work, the right to get payment would clearly arise, but wherein the final bills have not been prepared and when the assertion of the claim was made on 28th February, 1983 and there was non-payment, the cause of action arose from that date. In that case, application under Section 20 was filed in January 1986. The Court also observed that: (SCC p. 340, para[4]) “it is true that the party cannot postpone the accrual of cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under Section 8 or a reference under Section 20 of the Act. See Law of Arbitration by R.S. Bachawat, first edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case.”

29 In the present case, as stated above, on 29th August, 1979, the contractor wrote letter making certain claims. Thereafter, the supplementary agreement was executed on 20th December, 1980. In that agreement it is nowhere stated that contractors alleged right of getting damages or losses suffered by him was kept alive. On the contrary, he has agreed to complete the work within the time stipulated in the second agreement by charging some higher rate. Contractor has not sought any reference within three years from the date when cause of action arose, i.e., from 29th August, 1979. Only in 1985 when dispute arose with regard to the second agreement, respondent gave notice on 2nd December, 1985 to appoint sole arbitrator. The sole arbitrator was appointed with a specific reservation regarding the tenability, maintainability and validity of reference as also on the ground that claim was barred by the period of limitation and it pertained to excepted matters in terms of general conditions of the contract. From these facts, it is apparent that claim before the arbitrator in November December 1985 was apparently barred by period of limitation. Letter dated 3rd September, 1983 written by the appellant repudiating the respondents claim on account of damages or losses sustained by him would not give fresh cause of action. On that date cause of action for recovering the said amount was barred by the period of three years prescribed under Article 137 of the Limitation Act, 1963. Under Section 3 of the Limitation Act, it was the duty of the arbitrator to reject the claim as it was on the face of it, barred by the period of limitation.”

15 As held by Apex Court in Secunderabad Cantonment Board (Supra), once time has started running any final rejection by a party would not give any fresh start to a limitation period, which has already begun running. As noted earlier in this case, the time at the very latest, began to run on 12th January 1997 (as the claim was till 11th January 1997) and the lodging of claim under Clause 96 on 3rd February 1998 or rejection on 27th December 2000, would not give any fresh start to the limitation period. Paragraph 19 Secunderabad Cantonment Board (Supra) reads under: “19 Applying the aforesaid judgments to the facts of this case, so far as the applicability of Article 137 of the Limitation Act to the applications under Section 11 of the Arbitration Act is concerned, it is clear that the demand for arbitration in the present case was made by the letter dated 07.11.2006. This demand was reiterated by a letter dated 13.01.2007, which letter itself informed the Appellant that appointment of an arbitrator would have to be made within 30 days. At the very latest, therefore, on the facts of this case, time began to run on and from 12.02.2007. The Appellant’s laconic letter dated 23.01.2007, which stated that the matter was under consideration, was within the 30-day period. On and from 12.02.2007, when no arbitrator was appointed, the cause of action for appointment of an arbitrator accrued to the Respondent and time began running from that day. Obviously, once time has started running, any final rejection by the Appellant by its letter dated 10.11.2010 would not give any fresh start to a limitation period which has already begun running, following the mandate of Section 9 of the Limitation Act. This being the case, the High Court was clearly in error in stating that since the applications under Section 11 of the Arbitration Act were filed on 06.11.2013, they were within the limitation period of three years starting from 10.11.2020. On this count, the applications under Section 11 of the Arbitration Act, themselves being hopelessly time barred, no arbitrator could have been appointed by the High Court.”

16 Appellant cannot plead that it waited for unreasonably long period to refer to arbitration merely on account of Respondent's failure to respond promptly to its claim. It will be useful to reproduce paragraphs 28 and 29 of Geo Miller and Company Private Limited (Supra): “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 excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the ‘breaking point’ at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This ‘breaking point’ would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party’s primary interest is in securing the payment due to them, than in family disputes where it may be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim.

29 Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant’s claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the applicant to plead that waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent’s failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile.” (Emphasis Supplied)

18 Both Appeals dismissed with costs. Total cost of Rs.1,00,000/- to be paid by Appellant within four weeks from today, by way of cheque to the Mumbai Municipal Corporation under advice to the Chief Law Officer. (RAJESH S. PATIL, J.) (K. R. SHRIRAM, J.)