Authority of India Limited Vs. J.C. Budharaja,
Government and Mining Contractor  INSC 315 (1 September 1999)
M.B.Shah Shah, J.
appeal is filed against the judgment and order dated 11th September, 1991
passed by the Patna High Court, Ranchi Bench in Miscellaneous Appeal No.621 of
1987 under Section 39(1)(vi) of the Arbitration Act, 1940 (hereinafter referred
to as the Act). The High Court dismissed the appeal filed by the appellant and
confirmed the order dated 2nd April, 1990 passed by the Subordinate Judge, Ist
Court, Chas in Arbitration Suit No. 28 of 1988 by which award is made rule of
Court with 8% per annum interest from the date of the decree.
undisputed that the National Mineral Development Corporation, predecessor of
the Steel Authority of India Limited on 1.8.1977 executed a contract with the
respondent for construction of tailing-cum-storage reservoir at Kundi for Megha
Taburu Iron Ore Project. As per the terms of the contract, the work was to be
completed within a period of two years. During this period, Public Sector Iron
and Steel Companies (Re-structuring and Miscellaneous Provisions) Act, 1978 was
passed and Steel Authority of India Limited became the employer in place of
National Mineral Development Corporation. Further, the contractor, N.C. Budharaja
also died and was succeeded by the present respondent.
two years of contract period, on 29th August, 1979, respondent raised the claim of about 18 lakhs as damages
for delay in handing over work sites and allied reasons. On 20th December, 1980, a supplementary agreement was
executed between the appellant and the respondent for the same work at an
increased rate. The relevant part of the said agreement is as under: - The
Supplementary agreement made this twentieth day of December, 1980 between Steel
Authority of India Limited having its registered office at Hindustan Times
House, 18/20, Kasturba Gandhi Marg, New Delhi 110 001 and having one of fits
units at Bokaro Steel Plant at Bokaro Steel City (hereinafter referred to as
the (Employer) which expression shall include its successors and assigns) of
the one part and M/s N.C. Budhraja Govt. and Mining Contractor, at Jharpada,
P.O. Budheswari Colony, Bhubaneswar (hereinafter referred to as the Contractor)
which expression shall include its successors and assigns of the other part.
the contractor entered into an agreement dt. 1st August 1977 with M/s National
Mineral Development Corporation Limited in regard to the work of Constructions
of Tailing-cum-Storage Reservoir at Meghahatuburu Iron Ore Project relating to
their Meghahatuburu Iron Ore Project.
WHEREAS the said unit of the National Mineral Development Corporation Limited
after the coming into force of the Public Sector Iron and Steel Companies (Restructuring
and Miscellaneous Provisions) Act, 1978 was transferred to Steel Authority of
India Limited and declared as a captive unit for the Bokaro Steel Plant of
Steel Authority of India Limited.
WHEREAS pursuant to the provisions of Section 23 of the Restructuring Act
aforesaid, the agreement entered into by and between M/s National Mineral
Development Corporation Ltd. in respect of Meghahatuburu unit of M/s National
Mineral Development Authority Ltd. became fully enforceable and effective
against or in favour of Steel Authority of India of India Limited.
WHEREAS the Contractor is yet to execute a considerable portion of the work
more particularly described in the schedule to this agreement.
WHEREAS the contractor has agreed to complete the said balance work as on
12.3.80 the estimated quantity of which is set out in document specified at
2(d) on the terms and conditions hereinafter enumerated.
clauses 3 and 4 of the said agreement read as under: -
consideration of the payments to be made by the employer to the Contractor as
hereinafter mentioned the contractor hereby covenants with the employer to
construct, complete and maintain the works in conformity with the provisions of
contract in all respect.
employer hereby covenants to pay to the contractor in consideration of the
construction completion and maintenance of the works the contract price at the
time and in the manner prescribed by the contract.
the aforesaid fact that the supplementary agreement was executed for the same
work at an increased rate, it is stated that the appellant wrote letter dated
3.9.1983 repudiating claim of 18 lakhs on account of damages for any loss
sustained by the contractor as claimed by him by his letter dated 29th August, 1979.
dispute arose, in the year 1985 for the work with regard to second agreement
dated 20th December,
1980 and the matter
was referred to arbitration. In that Reference, respondent raised certain
claims relating to the work done under the first agreement. On 2nd December, 1985, the appellant raised an objection
that the claim could not be decided by the Arbitrators as the same was
pertaining to previous agreement. Thereafter respondent gave notice dated 2nd December, 1985 to the appellant to appoint sole
arbitrator as provided for under the first agreement. On 10th December, 1985, the appellant appointed sole
arbitrator with reservation regarding the tenability, maintainability and
validity of the Reference as also on further grounds that the claim was barred
by the period of limitation and that it pertained to excepted matters of
general conditions of the contract.
On 11th July, 1986, the arbitrators gave an award
pertaining to the dispute under the agreement dated 20.12.1980. Against the
claim of Item No.1 of Rs.17 lakhs and odd pertaining to first agreement, the
arbitrators awarded Nil; this award has been made rule of the Court by the High
Court of Delhi.
the appellant challenged the jurisdiction of the sole arbitrator by filing
Miscellaneous Case No. 22 of 1987. Finally, the High Court dismissed the
Revision Application on 22nd
Thereafter on 18th November, 1988, the sole arbitrator made an award granting
damages to the tune of Rs.11,26,296/- as principal sum (unliquidated damages)
and a further sum of Rs.12,06,000/- as interest on the above principal amount
from 29th August, 1979 till the date of the Reference, i.e. 15th December,
1985. The arbitrator also awarded future interest at the rate of 17 per cent
from the date of the award to the date of payment or the date or decree
whichever is earlier. By order dated 2nd April, 1990, the learned Sub-Judge made the
award rule of the court with a modification for the payment of interest from
the date of the decree at the rate of 8 per cent on the principal amount or
unpaid part till the date of actual payment. The appeal filed before the High
Court against the said judgment and decree was also dismissed.
time of hearing, the learned counsel for the appellant submitted that the award
passed by the arbitrator is (a) without jurisdiction, (b) The claim made by the
respondent was on the face of it barred by the period of limitation, and (c)
Award of interest is wholly unjustified and illegal. The learned counsel for the
respondent supported the order passed by the High Court. He submitted that (1) The
award is non-speaking. Hence, courts below rightly refused to interfere with.
(2) The question, whether claim made by the contractor was within period of
limitation or not, was required to be decided by the arbitrator, and (3) There
is no prohibition for awarding interest from the date of the claim till the
date of reference and thereafter.
deciding the controversy, it would be necessary to refer to the material part of
the award dated 18th November, 1988 which is as under: - The claimant has put
forth a claim amounting to Rs.18,10,014.48 plus interest on the same amount at
30% per annum from 29.8.79 till date of payment.
amount of interest at the above rate on the claim amount from 29.8.79 till
18.11.88, i.e. date of AWARD worked out to Rs.33,39,351.00 (Rupees Thirty three
lakhs thirty nine thousand three hundred fifty one only).
the total amount of claims including interest up to the date of AWARD works out
to Rs.51,49,365.48 (Rupees fifty one lakhs forty nine thousand three hundred
sixty five and paise forty eight only).
perusal of all documents filed by both parties and relied upon by the parties
and keeping in view oral and written submissions and chain of arguments of both
parties relating to factual and legal. I am convinced that the claimant
sustained losses on account of the following reasons:- (a) The work site is
located in the wild-life sanctuary of Saranda Reserve forest. The project
authorities issued work order without completing the departmental formalities
in obtaining permission of the Forest Department for executing the work inside
The project authorities could not obtain permission of Forest Department to
take men and machinery to the work site as and when necessary for executing the
The project authorities could not obtain permission of Forest Department in
time for making hutments at work site and could not hand over the site in time.
The project authority could not remove forest growths from the working area
before issue or work order.
The project authorities could not obtain permission of Forest Department for
transporting the required machinery and materials for blasting operation and
executing drilling and blasting work inside the wild-life sanctuary till March
Delay in payment of legitimate dues of the claimant for more than nine years.
recording the aforesaid reasons, the arbitrator held that in consideration of
the documents, submissions and arguments of both the parties, contractor was
entitled to be paid by the Steel Authority of India Limited a sum of Rs.11,26,296/-
as principal amount and a sum of Rs.12,06,000/- as interest from 29th August,
1979 till 15th August, 1985, in all Rs.23,32,296/-. The Arbitrator also awarded
future interest at the rate of 17% on the principal sum of Rs.11,26,296 from
the date of award till the date of payment or the date of decree whichever is
counsel for the appellant submitted that the award is a speaking one and the
Arbitrator has awarded the damages for the reasons that department failed to
obtain various permissions from the forest department. The reasons which are
specifically mentioned in the award for granting damages clearly reveal that
the arbitrator has passed a speaking award. He pointed out the terms of the
contract and submitted that it is apparent that arbitrator has awarded the
amount for the items for which there is prohibition in the contract and thereby
he has traveled beyond his jurisdiction. For this purpose, learned counsel for
the appellant referred to conditions which are referred to by the learned
Single Judge and the trial court. They are as under: - Clause 25: No claim if
work is abandoned or postponed- The successful tenderer shall have no claim
whatsoever against the Corporation if the work or any part thereof covered by
these tender documents if postponed to any later date or abandoned in the
overall interest of the Corporation or for any other reason. The Corporations
decision in the matter shall be final and binding on the contractor.
32: Site for execution of work:
for execution of work will be available as soon as the work is awarded. In case
it is not possible for the Corporation to make the entire site available on the
award of work the contractor will have to arrange his working programme
accordingly. No claim whatsoever for not giving the entire site on award of
work and for giving the site gradually will be tenable.
39: (Force majeruo):- No failure or omission to carry out the provisions of the
contract shall give rise to any claim by the Corporation and the contractor,
one against the order, if such failure ommission arises from an act of God,
which shall include natural calamities such as fire, flood, earthquake,
hurricane or any postilence, or from civil strike, compliance with any statute
or regulation of Government, lockouts and strikes, or from any political or
other reasons beyond the control or either the Corporation or the Contractor,
including war whether declared or not, Civil war or state of insurrection.
5 (iv): General Conditions of Contract (Time for Completion of work covered by
the Contract: - Failure or delay by the Corporation to hand over to the
contractor possession of the lands necessary for the execution of the work, or
to give the necessary drawings instructions or any other delay by the
Corporation which due to any other cause whatsoever shall in no way affect or
vitiate the contract or alter the character thereof or entitle the contractor
to damage or compensation therefor provided that the Corporation may extend the
time for completion of the work by such period as it may consider necessary and
the learned Sub-Judge and the High Court, it was submitted that in view of the
aforesaid conditions which are laid down in the contract which prohibited award
of damages or compensation, it was not open to the arbitrator to award damages
for the alleged losses sustained on account of not obtaining or delay in
obtaining various permissions required to be taken under the law or rules from
the Forest Department.
Lack of Jurisdiction of the Arbitrator From the Award quoted above, it is
apparent that damages are granted by the arbitrator for delay in obtain
permission from the Forest Department: (a) for executing the work inside the
wildlife sanctuary; (b) to take man and machinery to the worksite in the
forest; (c) for making hutments at the work site and failure to hand over site
in time; (d) failure to remove Forests growths from working area before issue
of work order; and (e) for transporting the required machinery and materials
for blasting operation and executing the drilling and blasting work inside the
wild-life sanctuary till March, 1979.
32 of the agreement specifically stipulates that no claim whatsoever for not
giving the entire site on award of work and for giving the site gradually will
be tenable and the contractor is required to arrange his working programme
accordingly. Clause 39 further stipulates that no failure or omission to carry
out the provisions of the contract shall give rise to any claim by the
Corporation and the contractor, one against the other, if such failure or
omission arises from compliance with any statute or regulation of Government or
other reasons beyond the control of either the Corporation or the Contractor.
Obtaining permission from Forest Department to carry out the work in wild life
sanctuary depends on statutory regulations.
(vi) of General condition of the contract also provides that failure or delay
by the Corporation to hand over to the Contractor possession of the lands
necessary for the execution of the work or any other delay by the Corporation
which due to any other cause whatsoever would not entitle the contractor to
damage or compensation thereof ; in such cases, the only duty of the
Corporation was to extend the time for completion of the work by such period as
it may think necessary and proper. These conditions specifically prohibit granting
claim for damages for the breaches mentioned therein. It was not open to the
arbitrator to ignore the said conditions which are binding on the contracting
parties. By ignoring the same, he has acted beyond the jurisdiction conferred
upon him. It is settled law that arbitrator derives the authority from the
contract and if he acts in manifest disregard of the contract, the award given
by him would be arbitrary one.
deliberate departure from the contract amounts not only to manifest disregard
of the authority or misconduct on his part, but it may tantamount to mala fide
action. In the present case, it is apparent that awarding of damages of Rs.
and more for the alleged lapses or delay in handing over work site is, on the
face of it, against the terms of the contract.
the Arbitration Act does not give any power to the arbitrator to act
arbitrarily or capriciously. His existence depends upon the agreement and his
function is to act within the limits of the said agreement. In Continental
Construction Co. Ltd. vs. State of Madhya Pradesh [(1988) 3 SCC 82], this Court
considered the clauses of the contract which stipulated that contractor had to
complete the work in spite of rise in the prices of materials and also rise in labour
charges at the rates stipulated in the contract.
this, the arbitrator partly allowed contractors claim. That was set aside by
the court and the appeal filed against that was dismissed by this Court by
holding that it was not open to the contractor to claim extra costs towards
rise in prices of material and labour and that arbitrator misconducted himself
in not deciding the specific objection regarding the legality of extra claim.
In that case, the Court referred to the various decisions and succinctly observed:
- If no specific question of law is referred, the decision of the arbitrator on
that question is not final however much it may be within his jurisdiction and
indeed essential for him to decide the question incidentally. The arbitrator is
not a conciliator and cannot ignore the law or misapply it in order to do what
he thinks is just and reasonable. The arbitrator is a tribunal selected by the
parties to decide their disputes according to law and so is bound to follow and
apply the law, and if he does not he can be set right by the court provided his
error appears on the face of the award.
to be reiterated that to find out whether the arbitrator has travelled beyond
his jurisdiction and acted beyond the terms of the agreement between the
parties, agreement is required to be looked into. It is true that
interpretation of a particular condition in the agreement would be within the
jurisdiction of the arbitrator.
in cases where there is no question of interpretation of any term of the
contract, but of solely reading the same as it is and still the arbitrator
ignores it and awards the amount despite the prohibition in the agreement, the
award would be arbitrary, capricious and without jurisdiction. Whether the
arbitrator has acted beyond the terms of the contract or has travelled beyond
his jurisdiction would depend upon facts, which however would be jurisdictional
facts, and are required to be gone into by the court. Arbitrator may have
jurisdiction to entertain claim and yet he may not have jurisdiction to pass
award for particular items in view of the prohibition contained in the contract
and, in such cases, it would be a jurisdictional error. For this limited
purpose reference to the terms of the contract is a must. Dealing with similar
question this Natural Gas Corporation [(1997) 11 SCC 75] held thus: It is exiomatic
that the arbitrator being a creature of the agreement, must operate within the
four corners of the agreement and cannot travel beyond it. More particularly,
he cannot award any amount which is ruled out or prohibited by the terms of the
agreement. In this case, the agreement between the parties clearly says that in
measuring the built-up area, the balcony areas should be excluded. The
arbitrators could not have acted contrary to the said stipulation and awarded
any amount to the appellant on that account.
the learned Counsel for the Respondent submitted that the award being
non-speaking one, the learned Sub-Judge and the High Court have rightly refused
to go behind the award or interfere with. In our view, this submission is
without any substance. It is apparent that the Arbitrator has awarded Rs. 11,26,296/-
for the losses sustained for the reasons stated therein which we have
incorporated in the previous paragraph. These reasons only pertained to
non-obtaining or delay in obtaining permission from the Forest Department as
the work site was located in the wild-life sanctuary of Saranda reserve forest.
The Arbitrator in his award in terms mentioned I am convinced that the claimant
sustained losses on account of following reasons and thereafter reasons are
recorded. Therefore, it cannot be said that the award is a non-speaking one.
even if such reasons are not recorded, the claim itself for such prohibited
items was not entertainable by the Arbitrator. In the agreement between the
parties, there is specific bar to raising of such claims. Hence the decision of
the arbitrator is without jurisdiction. This aspect is also dealt with by this
Court in H.P. State 214]. In paragraph 26, the Court held as under:
order to determine whether the arbitrator has acted in excess of jurisdiction
what has to be seen is whether the claimant could raise a particular dispute or
claim before the arbitrator. If the answer is in affirmative, then it is clear
that arbitrator would have the jurisdiction to deal with such a claim. On the
other hand if the arbitration clause or a specific term in the contract or the
law does not permit or give the arbitrator the power to decide or to adjudicate
on a dispute raised by the claimant or there is a specific bar to the raising
of a particular dispute or claim, then any decision given by the Arbitrator in
respect thereof would clearly be in excess of jurisdiction.
Court further held that in order to find out whether the Arbitrator has acted
in excess of the jurisdiction, the Court may have to look into some documents
including the contract as well as the reference of the dispute made to the
Arbitrator limited for the purpose of seeing whether the Arbitrator has the
jurisdiction to decide the claim made in the arbitration proceedings.
dealing with the similar condition in the contract, such as no claim for price
escalation other than those provided therein shall be entertained and the
Contractor will not be entitled for any extra rate due to change in selection
of querries, this Court in Associated Another [(1991) 4 SCC 93], observed that
four claims mentioned therein were not payable under the contract, in fact, it
prohibited such payment and for this purpose. The Court held this conclusion is
reached not by construction of the contract but by merely looking at the
contract. The Court further observed that the Arbitrator could not act
arbitrarily, irrationally, capriciously or independently of the contract; his
sole function is to arbitrate in terms of the contract. The Court further held
thus: - An arbitrator who acts in manifest disregard of the contract acts
without jurisdiction. His authority is derived from the contract and is
governed by the Arbitration Act which embodies principles derived from a specialised
branch of the law of agency (see Mustill and Boyds Commercial Arbitration, 2nd edn.,
p. 641). He commits misconduct if by his award he decides matters excluded by
the agreement (see Halsburys Laws of England, Volume II, 4th edn., para 622). A
deliberate departure from contract amounts to not only manifest disregard of
his authority or a misconduct on his part, but it may tantamount to a mala fide
action. A conscious disregard of the law or the provisions of the contract from
which he has derived his authority vitiates the award.
view of the aforesaid settled law, the award passed by the arbitrator is
against the conditions agreed by the contracting parties and is in conscious
disregard of stipulations of the contract from which the arbitrator derives his
authority. His appointment as a sole arbitrator itself was conditional one and
he was informed that the same was with reservation regarding the tenability,
maintainability and validity of the Reference as also on further grounds that
the claim was barred by the period of limitation and that it pertained to
excepted matters of general conditions of the contract. Despite this he has
ignored the stipulations and conditions between parties.
the said award is, on the face of it, illegal.
LIMITATION Our next question is of limitation. The period of limitation is
required to be considered on the basis of the arbitration clause between the
parties which is as under: - All disputes or differences whatsoever which shall
at any time arise between the parties hereto touching or concerning the works
or the execution meaning operation or effect thereof or to the rights or
liabilities of 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 that 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
and to the M.D./Chairman of the Corporation (who will be the appointing
Authority) be referred for adjudication to be sole Arbitrator to be appointed
as hereafter provided.
Appointing Authority will send within thirty days of the receipt of notice a
penal of three names of persons not directly connected with the work of the
contractor who will select any one of the persons named to be appointed as a
sole Arbitrator within thirty days of receipt of the names. If the Contractor
fails to select the name from the panel and communicate within 30 days, the
appointing authority shall appoint one out of the panel sole as Arbitrator.
Appointing Authority fails to send to the contractor the panel of three names,
as aforesaid, within the period specified, the Contractor shall send to the
Appointing Authority a panel of three names of persons who shall all be
unconnected with the organisation by which the work is executed. The Appointing
Authority shall on receipt of the names as aforesaid select any one of the
persons named and appoint him as the Sole Arbitrator, if the appointing
authority fails to select the person and appoint him as the Sole Arbitrator
within 30 days of receipt of the panel and inform the contractor accordingly,
the Contractor shall be entitled to invoke the provisions of the Indian
Arbitration Act, 1940 and any statutory modification thereof.
view of the aforesaid arbitration clause, even though the claim made by the contractor
was time barred, the dispute was required to be referred to the arbitrator.
the reference was subject to the contention that it was barred by the period of
limitation. In that context, the learned counsel for the appellant submitted
that it is settled law that application under Section 20 or notice for
appointment of arbitrator is to be filed within three years from the date when
cause of action arises as provided in Article 137 of the Limitation Act,
1963. The application filed by the contractor in December 1985 was, on the
face of it, time barred because the cause of action to recover the amount
arose, according to the contractor, in August 1979 when he demanded the alleged
damages for loss suffered by him because of the delay in handing over the
worksites. He further submitted that, in the present case, in year 1980 for the
same work, the Contractor has executed a supplementary agreement for the
completion of the work within the stipulated time and at a higher rate. This
would also show that Contractor waived his alleged right of asking for
appointment of Arbitrator as provided in arbitration clause. He referred to the
arbitration clause and pointed out that within 30 days of the receipt of the
notice, arbitrator is required to be appointed by the Managing Director. If
arbitrator is not appointed then Contractor has option to send the penal of
three names from which arbitrator is required to be appointed. He contended that
after the supplementary agreement, there was no question of adjudicating the
so- called demand made by the contractor in the year 1979. In any case, he
submitted that the Contractor ought to have approached the Court under Section
20 or ought to have demanded arbitration within three years from the date of
the notice demanding the amount for loss suffered by him. As against this,
learned Counsel for the respondent submitted that the cause of action to refer
the matter to the arbitrator arose only in 1983 when respondent denied
deciding this controversy, we would first refer to the decision of this Court
in the State of Orissa & Ors.
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: - Russell on Arbitration by Anthony Walton (19th Edn.) at pp.
4-5 states that the period of limitation for commencing an arbitration runs
from the date on which the cause 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 than 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
as in the case of actions the claim is not to be brought after the expiration
of a specified number of years from the date on which the cause of action
accrued, so in the case of arbitrations, the claim is not to be put forward
after the expiration of the specified number of years from the date when the
if the arbitration clause contains a provision that no cause of action shall
accrue in respect of any matter agreed to be referred to until an award is
made, time still runs from the normal date when the cause of action would have
accrued if there had been no arbitration clause.
Court also referred to the earlier decision in Calcutta [1993(4) SCC 338],
where the Court observed as under: - The Period of limitation for commencing an
arbitration runs from the date on which the cause 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 takes place upon the dispute
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. Just as in the case of actions the claim is not to be brought
after the expiration of a specified number of years from the date on which the
cause of action accrued, so in the case of arbitrations, the claim is not to be
put forward after the expiration of the specified number of years from the date
when the claim accrued.
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
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
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: 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.
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.
present case, as stated above, on 29th August, 1979, the contractor wrote
letter making certain claims.
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.
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
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
present case, in view of the aforesaid findings, it is not necessary to discuss
the contention with regard to the award of interest prior to coming into force
of the Interest Act, 1978 or that no interest could be awarded on the unliquidated
damages. It is also not necessary to discuss whether arbitration agreement
provided in first agreement executed in 1977 would survive after execution of
the second agreement in December, 1980.
result, the appeal is allowed with costs. The impugned order passed by the Patna
High Court, Ranchi Bench in Miscellaneous Appeal No. 621 of 1987 and the order
dated 2nd April, 1990 passed by the Subordinate Judge, Ist Court, Chas in
Arbitration Suit No. 28 of 1988 are quashed and set aside.