Zenith Erectors Private Limited v. Brahmaputra Cracker and Polymer Limited

1. This petition has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the „Act‟) seeking appointment of an Arbitrator for adjudicating the disputes that have arisen between the parties in relation to the Contract Agreement dated 03.08.2011 executed between the parties whereby the petitioner was awarded the work of “Composite Works of C2+ Recovery & Gas Sweetening Unit (GSU) of M/s Brahmaputra Cracker and Polymer Limited at Lakwa, (Assam)”.

2. The Arbitration Agreement between the parties is contained in Clause 107 of the General Conditions of Contract.

3. The petitioner invoked the Arbitration Agreement vide notice dated 28.11.2020. The petitioner thereafter filed a petition under Section 11 of the Act before the High Court of Calcutta, being A.P No.373/2021. The said petition was withdrawn on 14.12.2021, stating that as the seat of the arbitration is New Delhi, the High Court of Calcutta would not have the territorial jurisdiction to entertain the said petition. The present petition has thereafter been filed by the petitioner on 22.09.2022.

4. The learned counsel for the respondent, drawing reference to the dates and events as explained in the reply of the respondent, and specifically with respect to the claims that have been raised by the petitioner, submits that the petitioner seeks reference of claims which are ex facie barred by the law of limitation. In this regard he submits that in terms of the contract, the work was to be completed by the petitioner on or before 13.03.2013. Due to dismal performance of the petitioner, the respondent vide letter dated 03.11.2012, was constrained to off-load the contract from the petitioner with immediate effect with liberty to get the contract executed through another agency at the risk and cost of the petitioner. He submits that the petitioner vide its replies dated 06.11.2012 and 07.12.2012, admitted that it is the petitioner who was at default due to its own financial issues. Finally, the respondent awarded the off-loaded balance work to M/s North East Engineering and Construction (in short „NEECON‟) on 14.02.2013. The respondent also invoked the two bank guarantees of the petitioner on 19.02.2013. The petitioner, thereafter, claims to have written various mails/letters to the respondent, however, it is not the case of the petitioner that the respondent ever admitted to any amount being due to the petitioner from the respondent. In fact, vide letter dated 11.08.2016, the respondent denied each and every allegation of the petitioner. On 03.07.2019, the respondent raised a claim of Rs.1,25,87,991/- (Rupees One Crore Twenty-Five Lakhs Eighty-Seven Thousand Nine Hundred and Ninety-One only) on the petitioner towards the risk and cost amount. The same was reiterated by the letter dated 03.10.2019 by the respondent. It is only thereafter, that the petitioner invoked the Arbitration Agreement vide letter dated 28.11.2020, that is much beyond the period of limitation. He submits that the cause of action for filing of the claims, if any, would have arisen on 03.11.2012, the date of termination of the contract and off-loading of the same, and/or on 19.02.2013, when the bank guarantees were invoked by the respondent. The invocation of arbitration having been made only on 28.11.2020, clearly as on that date, the claims were ex facie barred by the limitation.

5. Placing reliance on the judgment of this Court in GAIL (India) Limited. v. Kesar Alloys & Metals Private Limited, Neutral Citation No.2022/DHC/001101, he submits that where the claim is ex facie barred by the law of limitation, this Court would not relegate the parties to arbitration. He submits that the unilateral letters written by the petitioner would not extend the period of limitation.

6. On the other hand, the learned counsel for the petitioner submits that upon termination of the contract, the petitioner had raised its claims before the respondent, however, the respondent informed the petitioner that these claims can be considered only after the work is completed by the third party to whom the off-loaded work had been awarded, and the final accounts on risk and cost of the petitioner are settled. The petitioner patiently waited for the same to happen and, in fact, kept pursuing with the respondent for the settlement of its accounts. In this regard, a meeting on 15.02.2017 was also held between the parties, wherein the respondent again reiterated that the accounts can be settled only once the final bill is received from M/s NEECON. This was duly recorded by the petitioner in its letters dated 10.03.2017, 24.04.2017 and 08.06.2018. It is in response to the letter dated 08.06.2018, that the respondent vide its letter dated 03.07.2018, informed the petitioner that “after due persuasion M/S NEECON has submitted their final bill and accordingly risk and cost amount calculated by M/S EIL”. He submits that in the said letter, there is no denial of the assertion of the petitioner that the petitioner was informed that it is only upon raising of the final bill by M/s NEECON that the claims of the petitioner would be settled. However, in the said letter, there was no mention of the claims of the petitioner, therefore, the petitioner addressed a letter dated 03.08.2018 to the respondent raising this grievance and seeking details of the amount settled and claimed by the respondent from the petitioner. In response, the respondent vide its letter dated 03.10.2019, admitted that the final bill of the subject contract was certified and forwarded by M/s EIL on 23.03.2015 amounting to Rs.90,87,912/- and cumulative final executed value of Rs.2,42,25,688/-. It was further stated that the balance amount payable towards risk and cost prepared and approved by M/s EIL for an amount of Rs.1,25,87,991/- was still to be recovered from the petitioner against the subject contract. He submits that it is on the receipt of the said letter that the petitioner invoked the Arbitration Agreement on 28.11.2020, that is, within the period of limitation.

7. He submits that the petitioner was made to believe that the claims of the petitioner would be settled only when the final bill is received from M/s NEECON. The petitioner believed the representation of the respondent and, therefore, awaited the same. He submits that even as per the respondent, the final bill of the petitioner was prepared only on 23.03.2015. The meeting held on 15.02.2017 is, therefore, also within the period of limitation, and for this reason the claims of the petitioner cannot be said to be barred by the law of limitation. In support, he placed reliance on the judgement of the Supreme Court in Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks India Pvt. Ltd., (2021) 5 SCC 738, wherein it has been held that a plea of extension of limitation on ground of party trying to amicably settle their disputes is to be considered on a case to case basis.

8. I have considered the submissions made by the learned counsels for the parties.

9. As held by the Supreme Court in Vidya Drolia & Ors. v. Durga Trading Corporation (2021) 2 SCC 1, the jurisdiction of the Court at the stage of Section 11 of the Act is extremely limited. This Court is not to undergo a rigorous or detailed examination of the facts of the case to determine whether the claim raised by the petitioner would be barred by the law of limitation. The limited jurisdiction with this Court is only to weed out the complete deadwood, which on the face of the record are not maintainable and where the interest of justice would require the parties not to be referred to the arbitration. I may quote herein below the relevant observation from the judgment of the Supreme Court as under: “148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed “no-claim certificate” or defence on the plea of novation and “accord and satisfaction”. As observed in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40: 2007 Bus LR 1719 (HL)], it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen. xxxx

154. Discussion under the heading “Who Decides Arbitrability?” can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.

154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of “second look” on aspects of nonarbitrability post the award in terms of subclauses (i), (ii) or (iv) of Section 34(2)(a) or subclause (i) of Section 34(2)(b) of the Arbitration Act.

154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non-arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism. Xxxx

227. However, post the 2015 Amendment, the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the court can only give prima facie opinion on the existence of a valid arbitration agreement. In line with the amended language and the statutory scheme, the examination of the subject-matter arbitrability may not be appropriate at the stage of reference under Section 8 of the Arbitration Act. It is more appropriate to be taken up by the court at the stage of enforcement under Section 34 of the Act. Having said so, in clear cases where the subjectmatter arbitrability is clearly barred, the court can cut the deadwood to preserve the efficacy of the arbitral process.”