Resorts Limited Vs. Usha Breco Limited  Insc 571 (30 October 2001)
Mohapatra & K.G. Balakrishnan Balakrishnan, J.
appellant constructed a hotel resort by name Timber Trail Heights at Bansaar in Himachal Pradesh. This place is at a high
altitude of 5000 feet from sea level and in order to ensure a quick access for
the visiting tourists to this resort, the appellant wanted to have a passenger
ropeway system and for that purpose, the appellant entered into a contract with
the respondent, by name, Usha Breco Limited. The respondent completed the work
relating to ropeway system and handed over the same to the appellant on
27.4.1988. Initially, the ropeway system was being operated and maintained by
the employees of the respondent, but later on the appellant absorbed those
workers as its own employees. According to the appellant, right from the
beginning, the ropeway system was not functioning well and it did not meet the
specification required by the appellant. The appellant had been making a
request to the respondent to rectify the defects but the latter failed to
rectify the same. The appellant also alleged that the respondent did not
cooperate with the appellant for getting clearance from the Himachal Pradesh
Ropeway Inspector. The Inspector did not approve the ropeway system for the
installed capacity. The appellant alleged that the works undertaken by the
respondent were defined in the annexure to the agreement and as per the
agreement, the ropeway system must have a capacity for carrying on 150
passengers per hour and it was further stipulated that within 8 hours of
operation per day, the total capacity of passengers must be 1200 per day and
according to the appellant, based on such representation, assurance and
agreement, the appellant invested huge amount for the ropeway system. The
appellant later realized that only 800 passengers would be able to reach the
destination through the ropeway system per day and this, according to the
appellant, caused heavy financial loss. The appellant issued a notice to the
respondent but the latter did not accede to their request. Ultimately, on
16.6.1993, the appellant issued a notice to the respondent intimating that it
would be constrained to file a petition under Section 20 of the Arbitration
Act, 1940 (for short the Act).
15 of the agreement provided for arbitration and the appellant filed a petition
under Section 20 of the Act on 30.11.1993.
respondent filed a reply contending that the petition filed by the appellant
was barred by limitation. The respondent contended that the appellant had
issued notice on 17.4.1990 through its advocate intimating the respondent that
they would take legal action against them. It was contended by the respondent
that the petition filed under Section 20 of the Act on 30.11.1993 was more than
3 years after the issuance of notice. The respondent alleged that the
subsequent notice on 16.6.1993 was issued beyond the period of 3 years from the
earlier notice. The respondent also contended that there was no subsisting
agreement between the parties and all matters relating to the contract were
concluded and the minutes also were recorded on 12.4.1988.
learned Single Judge before whom the application under Section 20 was filed
rejected the contention urged by the respondent herein and held that the
petition under Section 20 was filed in time. The learned Single Judge was of
the view that parties had made correspondence regarding the disputes till 1993
and therefore, the petition under Section 20 of the Act was within limitation.
The learned Single Judge also observed that a letter written on 6.4.1993 by the
respondent to the appellant would amount to acknowledgment under Section 18 of
the Limitation Act and on that basis also, the petition for arbitration was
held to have been filed within time.
order was challenged before the Division Bench. After an elaborate
consideration of the whole matter, the Division Bench came to the conclusion
that the petition filed by the appellant under Section 20 of the Act was barred
by limitation and there was no acknowledgment on the part of the respondent to
extend the period of limitation. This judgment of the Division Bench is
challenged before us.
heard Mr. R.F. Nariman, learned senior Counsel for the appellant and Dr. A.M. Singhvi,
learned senior Counsel for the respondent.
Counsel for the appellant submitted that the appellant gave notice on 17.4.1990
to the respondent informing them of the difficulties encountered by the ropeway
system and making a request to rectify the same. The disputes and differences
between the parties arose after 17.4.1990. Thereafter, there was mutual
consultation, which lasted up to 1993 until it ultimately failed and then alone
the cause of action arose for filing petition under Section 20 of the Act. It
was also argued that the notice sent on 17.4.1990 was not sent with the
intention of initiating arbitration proceedings, rather the appellant wanted to
intimate that they would initiate criminal action against the respondent.
for the respondent, on the other hand, contended that the appellant issued
notice on 17.4.1990 for which a definite reply was given on 17.5.1990 and,
therefore, the cause of action, if any, had arisen and the petition filed after
a period of 3 years from that date was barred by limitation.
counsel for the appellant argued that in view of the arbitration clause
contained in the agreement, the petition under section 20 of the Act could be
filed only after making a bona fide attempt to resolve the differences by
mutual consultations and according to the appellant, these mutual consultations
continued even after the notice dated 17.4.1990 and by the notice sent on
16.6.1993 the agreement between the parties was terminated and the cause of
action arose for filing of a petition under Section 20 of the Act.
arbitration clause contained in the agreement is as follows :
any time any question, dispute and difference whatsoever shall arise between
ARL and UBL in relation to or in connection with this Agreement, both parties
agree to resolve such differences by mutual consultation failing which either
party may give to the other notice in writing of the existence of such
question, dispute or difference and the same shall be referred for the final determination
of a single arbitrator, if agreed upon or to two arbitrators one to be
appointed by ARL and another by UBL; or in case of disagreement between the
said two arbitrators to the final arbitration of an Umpire to be appointed by
the said two arbitrators and that the award of the sole arbitrator or the said
Umpire as the case may be shall be final and binding on both the parties and
the said arbitration proceedings shall be governed by the provisions of the
Indian Arbitration Act, 1940 and the rules thereunder, to be read together with
all statutory amendments or modifications of the said Act.
true that from the above arbitration clause it is clear that parties should
have made an effort to settle the differences by mutual consultations and only
on failure of such attempt steps could have been taken by the parties for
making a reference to the arbitrator, but the notices issued between the
parties hardly give any indication that these mutual consultations for
resolution of differences continued upto 1993. A perusal of the notice sent by
the appellant on 17.4.1990 to the respondent and the reply received from the
latter would show that the cause of action had arisen for filing of a petition
under section 20 of the Act as early as on 17.5.1990. The material portion of
the notice sent by the appellant has been extracted in the impugned judgment.
Suffice it to say that in the notice dated 17.4.1990, it is made out in
unmistakable terms that the appellant was of the view that the respondent had
committed a serious breach of the agreement and therefore the respondent was
called upon to do the needful within 30 days from the date of that notice,
failing which the appellant would take legal action against the respondent in
court of law. In the notice, it was stated that the performance of the
passenger ropeway was not to the satisfaction of the appellant and the
respondent had supplied the equipment which was capable of working up to sixty
per cent capacity and that the respondent had charged hundred per cent money.
It was also stated that the appellant had spent Rs.70 lakhs and due to the
delay in delivery of the equipment, the appellant had suffered liquidated
damage to the tune of Rs.3.50 lakhs. The appellant further stated that the
project costing Rs.206 lakhs should have been completed in the month of March,
1987, but it was not ready even in April, 1988 and on that account the
appellant had suffered damage to the extent of Rs.37 lakhs at the construction
stage. In the notice, it was mentioned that the respondent committed the
offence of cheating punishable under section 420 IPC as there was dishonest
intention on the part of the respondent from the very inception of the contract
and that the respondent committed extortion by putting the appellant in fear of
not completing the project. It is, however, pertinent to note that the
appellant did not specifically state in the notice that it would initiate
criminal prosecution against the respondent. The contention of the appellants
counsel that the notice sent by the appellant was not as a prelude to filing of
a petition under section 20 of the Arbitration Act but only to initiate
criminal action, is belied by the absence of such a warning in that notice.
tenor of the notice dated 17.4.1990 is that the appellant wanted the respondent
to give a final reply in the matter and to settle all claims of the appellant.
respondent sent a detailed reply to the notice sent by the appellant wherein
all the allegations were denied. The respondent denied the claim made by the
appellant in its entirety and it was stated that the appellant issued the
notice with a view to delay the payment of about Rs.6 lakhs which was due to
the respondent. The appellant was told in clear terms that the respondent was
not prepared to accede to the claim made by the appellant.
crucial question is whether any mutual consultation between the parties to
resolve the differences as envisaged under the arbitration clause had taken
place even after the reply sent by the respondent on 17.5.1990.
appellant would contend that there was further correspondence between the
parties during this interregnum. To substantiate this contention, the appellant
relies on the letter written by the appellant on 24.3.1993 to Usha Martin
Industries Ltd. and also a letter written by the respondent to the appellant on
6.4.1993. In the letter dated 24.3.1993, it is stated that We are looking
forward for the implementation of your decision to increase the capacity of our
passenger ropeway system and we assure you that we will release the payment in
your favour as agreed immediately. This letter was, in fact, not sent to the
respondent, but probably to a sister concern of the respondent. We would assume
that it was sent to the respondent as we see a reply by the respondent on
6.4.1993 on record. In the letter dated 6.4.1993, the respondent makes a
complaint that the minutes of the discussion held on 19th and 20th March, 1993 with the Executive Director of M/s Usha
Martin Industries Ltd. were not properly recorded.
absence of any other material, it is difficult to discern whether this
correspondence would amount to any effective mutual consultations between the
parties. The Division Bench has rightly held that these letters hardly make any
acknowledgement under Section 18 of the Limitation Act.
is not much controversy that the residuary article 137 of the Limitation Act
applies so far as the period of limitation is concerned for an application
under Section 20 of the Arbitration Act, 1940. The residuary article 181 of the
Limitation Act, 1908 was replaced by Article 137 in the Limitation Act, 1963.
Earlier, Article 181 was applicable only in respect of application to be filed
under the Civil Procedure Code. This Article was replaced by Article 137 in the
Limitation Act, 1963 in a modified form. By insertion of Article 137, it cast a
wider net so as to include any application for which no period of limitation
was provided elsewhere in that division.
third division of the Limitation Act, 1963 deals with various applications to
be filed under various special statutes. The definitions of applicant and
application are also inserted in the Limitation Act, 1963.
it is clear that the intention of the legislature was to provide a residuary
article prescribing period of limitation for filing petitions and applications
under the various special laws. This Court in Kerala State Electricity Board
vs. T.P. Kunhaliumma AIR 1997 SC 282 held that Article 137 would apply to any
petition or application filed under any Act to a civil court and it cannot be
confined to applications contemplated by or under the Code of Civil Procedure. In
Major (Retd.) Inder Singh Rekhi vs. Delhi Development Authority 1998(2) SCC
338; Union of India and Another vs. M/s. L.K. Ahuja and Co. 1988(3) SCC 76;
Steel Authority of India Ltd. vs. J.C. Budharaja, Government and Mining
Contractor 1999(8) SCC 122; and Union of India and another vs. M/s. Vijay
Construction Co. AIR 1983 Delhi 193, this Court held that the period of
limitation for filing application under Section 20 of the Arbitration Act,
1940, is as prescribed under Article 137 of the Limitation Act.
Section 20 of the Act, the cause of action for filing an application may arise
whenever a difference has arisen to which the agreement applies. Regard must be
had to the relevant arbitration clause in the agreement. If any specific terms
are used in the arbitration clause, that would govern the parties as to when a
petition for reference of arbitration shall be filed in Court.
instant case, the arbitration clause states that all parties would resolve such
differences by mutual consultation failing which either party must give to the
other notice in writing of the existence of such question, dispute or
difference and the same shall be referred for the final determination. The
appellant issued notice to the respondent and a definite reply was received by
the appellant. It is clear that cause of action for filing had arisen, the
moment the appellant received the reply notice denying the claims made by the
appellant. Therefore, the Division Bench has rightly held that the application
was barred by time.
appellant herein has filed an application under Section 5 of the Limitation Act
praying that the delay in filing the application under Section 20 of the Act be
condoned. Section 5 of the Limitation Act says any appeal or any application,
other than application under any of the provisions of Order XXI of the Code of
Civil Procedure, 1908, may be admitted after the prescribed period, if the
appellant or the applicant satisfies the court that he had sufficient cause for
not preferring the appeal or making the application within such period. The
applicant can show sufficient cause for not filing the application in time. It
appears that this Court had no occasion to consider whether Section 5 of the
Limitation Act, 1963 could be applied in the case of an application to be filed
under Section 20 of the Arbitration Act, 1940. The Division Bench of the High
Court of Delhi in Union of India and another vs. M/s. Vijay Construction Co.
AIR 1981 Delhi 193 held that the benefit of Section 5 of the Limitation can be
availed by the applicant for an application under Section 20 of the Arbitration
Act. Going by the provision contained in Section 5 of the Act, we are also of
the view that in an appropriate case the court can extend the benefit of the
counsel for the appellant contended that a prayer was made before the High
Court for condoning the delay, if any, but the same was rejected. As per the
Arbitration clause, the disputes between the parties could be referred to a
single arbitrator if agreed to by both the parties but in case of disagreement
both the parties can appoint one arbitrator each and in case of disagreement
between the said two arbitrators there is a provision that an umpire also could
be appointed by the two arbitrators. In the instant case, the learned Single
Judge straightaway appointed the arbitrator.
there was a cause of action for the appellant to initiate proceedings under the
Arbitration Act for appointment of an arbitrator, the appellant failed to do
so. The letter written by the respondent on 6.4.1993 indicates that the
respondent had some proposal for consideration.
regard to the nature of disputes between the parties, we are of the view that
the delay caused in filing the application by the appellant was not willful and
hence is liable to be condoned. However, in the facts and circumstances of the
case we are also of the view that the delay shall be liable to be condoned only
upon payment of costs. Accordingly, the delay in filing the application under
Section 20 of the Arbitration Act is condoned on condition that the appellant
pays a sum of Rs.20,000/- to the respondent within a period of one month. The
said sum of Rs.20,000/- shall be deposited with the Registrar General of this
Court on or before 1st December, 2001 and on such deposit the respondent would
be at liberty to withdraw the same. For payment of cost as stated above, the
appeal would stand allowed and the matter would be remitted to the High Court
to be proceeded with in accordance with the provisions of the Arbitration Act,
1940, read with relevant arbitration clause in the agreement between the
parties. In case the appellant fails to deposit the said amount of Rs.20,000/-
within the stipulated period, the appeal would be deemed to have been dismissed
without further reference to the Court.
Nos. 1 to 4 would stand allowed.
appeal is disposed of in the aforesaid terms.
D.P. Mohapatra ] J [ K.G. Balakrishnan ] October 30, 2001.