Voltas Ltd V. Rolta India Ltd

Voltas Ltd V. Rolta India Ltd [2014] Insc 97 (14 February 2014)

Court Judgment Information

• Year: 2014
• Date: 14 February 2014
• Court: Supreme Court of India
• INSC: [2014] INSC 97

Text of the Court Opinion

IN THE SUPREME COURT OF INDIA

Civil Appelate Jurisdiction

CIVIL APPEAL No. 2073 OF 2014 (Arising out of SLP (Civil) No. 30015 of 2013) Voltas Limited . Appellant Versus Rolta India Limited (Respondent) WITH

CIVIL APPEAL No. 2076 OF 2014 (Arising out of SLP (Civil) No. 31195 of 2013)

Dipak Misra, J.

Leave granted in both the Special Leave Petitions.

2. Regard being had to the similitude of controversy in both the appeals they were heard together and are disposed of by a common judgment. Be it noted, the Division Bench of the High Court of Judicature at Bombay, by two separate judgments and orders passed on 16.8.2013 in Appeals Nos. 7 of 2013 and 8 of 2013 has set aside the judgment and order dated 1.10.2012 passed by the learned single Judge in Arbitration Petition (L) Nos. 1239 of 2012 and 1240 of 2012 respectively as a consequence of which two interim awards passed by the learned Arbitrator on 26.7.2012 in respect of two contracts between the same parties rejecting the counter claim of the respondent-herein have been annulled. For the sake of clarity and convenience we shall state the facts from Civil Appeal arising out of Special Leave Petition (C) No. 30015 of 2013, for the Division Bench has observed that the Appeal No. 7 of 2013 had emanated from the disputes which arose in respect of civil construction agreement dated 2.2.2001 and in Appeal No. 8 of 2013 the disputes related to agreement dated 8.1.2003 for air-conditioning of the two buildings to be constructed for the appellant therein and no separate submissions were advanced before it and the position was the same before the learned single Judge.

3. The expose’ of facts are that the appellant and respondent entered into a civil construction contract for construction of two buildings known as Rolta Bhawan II (RB-II) and Rolta Bhawan III (RB-II) and also for modification of building Rolta Bhawan I(RB-I) previously constructed by the respondent. As certain disputes arose, on 3.12.2004 the respondent terminated the contract. After certain correspondences between the parties pertaining to the termination of the contract the appellant by letter dated 29.3.2006 invoked the arbitration clause in respect of its claims against the respondent. As the respondent failed to appoint an arbitrator, it filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) before the High Court of Bombay for appointment of arbitrator and the designated Judge vide order dated 19.11.2010 appointed the sole arbitrator.

4. After the controversy came in seisin before the learned Arbitrator, he issued certain directions and, as the facts would unfurl, the appellant filed its statement of claim on 13.4.2011 claiming a sum of Rs.23,31,62,429.77 together with interest at the rate of 15% per annum from the respondent. The respondent, after filing its defence on 24.8.2011, filed the counter claim of Rs.333,73,35,026/- together with interest at the rate of 18% per annum from the date of filing till payment/realization thereof. In the counter claim the respondent justified the termination of the agreement and contended that it was entitled to damages for breach of contract. In the counter claim the notice dated 17.4.2006 sent by the respondent detailing its counter claim to the appellant was referred to.

5. After the counter claim was lodged, the appellant-herein filed its objections about the tenability of the counter claim stating that the same was not maintainable and was also barred by limitation. The learned Arbitrator on 7.1.2012 framed two issues regarding the tenability and limitation of the counter claim as preliminary issues. They are: “(i) Whether the counter claim, or a substantial part thereof, is barred by the law of limitation? (ii) Whether the counter claim is not maintainable and beyond the scope of reference?”

6. After adumbrating to the facts the learned Arbitrator came to hold that the limitation for making a counter claim is required to be asserted with reference to the date on which the cause of action arises and the date on which the counter claim is filed. After so opining the learned Arbitrator recorded as follows: “The respondent has been vigilant and assertive of its legal rights right from 3rd December 2004 on which date the Contract was terminated. The assertions in the letters dated 27th April 2005 and 29th March 2006 show unmistakable consciousness of its rights on the part of the Respondent. The last letter dated 29th March 2006 is the notice of the Advocates of the Respondent asserting its right to invoke arbitration. The Tribunal is of the view that cause of action for the Counter-claim which must be treated as an independent action to be instituted, really arose latest by 29th March 2008, if not earlier it is clear that the Counter claim is filed only on 26th September, 2011 and as such it is beyond the period of limitation of three years.” It may be noted here that the learned Arbitrator, however, overruled the objection with regard to the maintainability of the counter claim being beyond the scope of reference.

7. After the interim award was passed by the learned Arbitrator, the respondent filed an application under Section 34 of the Act for setting aside the decision of the learned Arbitrator rejecting the counter claims made by it on the ground of limitation. The learned single Judge, after adverting to the facts in detail and the contentions raised by the learned counsel for the parties, referred to certain authorities, namely, Ispat Industries Limited v. Shipping Corporation of India Limited[1] and State of Goa v. Praveen Enterprises[2], and came to hold that the arbitral proceedings in respect of those disputes commenced on the date on which the request for the said disputes to be referred to arbitration was received by the respondent, and further that only such disputes which were referred to in the notice invoking arbitration agreement with a request to refer the same to arbitration, the arbitral proceedings commenced and it would not apply to the counter claim. Thereafter the learned single Judge proceeded to state as follows: “When the notice was given by the respondent on 29th March, 2006, the said notice was only in respect of the disputes having arisen between the parties due to refusal of claims made by the petitioner. On the date of issuance of such notice, the petitioner had not even asserted its claim. After issuance of such notice on 29th March, 2006, the petitioner by its letter dated 17th April, 2006 had asserted its claim for the first time. The dispute in respect of the counter claim raised when the petitioner did not pay the said amount as demanded.

Such disputes thus did not exist when the notice invoking arbitration agreement was given by the respondent on 29th March, 2006. In my view, the arbitral proceedings therefore, cannot be said to have commenced in respect of the counter claim when the notice was given by the respondent on 29th March, 2006. The counter claim was admittedly filed on 26th September, 2011 which was made beyond the period of limitation. The arbitral proceedings commenced in respect of the counter claim only when the said counter claim was lodged by the petitioner on 26th September, 2011. Even if the date of refusal on the part of the respondent, to pay the amount as demanded by the petitioner by its notice dated 17th April, 2006 is considered as commencement of dispute, even in such case on the date of filing the counter claim i.e. 26th September, 2011, the counter claim was barred by law of limitation. In my view, thus the tribunal was justified in rejecting the counter claim filed by the petitioner as time barred.”

8. After so stating the learned single Judge held that the opinion expressed by the learned Arbitrator was not perverse and based on correct appreciation of documents and was resultant of a plausible interpretation and accordingly rejected the application preferred under Section 34 of the Act.

9. Being dissatisfied, the respondent-herein preferred an appeal before the Division Bench which chronologically referred to the correspondences made between the parties, the reasoning ascribed by the learned Arbitrator, the submissions propounded before it, the principles stated in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.[3] as regards the jurisdiction of the Court while dealing with an application under Section 34 of the Act, the concept of limitation as has been explained in Praveen Enterprises (supra), the demand made by the appellant therein by letter dated 17.4.2006 quantifying a sum of Rs.68.63 crores, exclusion of period between 3.5.2006 to 19.11.2010 during which period the application under Section 11 of the Act was pending before the High Court and on that foundation, in the ultimate eventuate, came to hold that the counter claim filed on 26.9.2011 was within limitation. The aforesaid view obliged the Division Bench to allow the appeal, set aside the judgment and order passed by the learned single Judge as a consequence thereof the rejection of the counter claim by the learned Arbitrator stood overturned. Be it noted, rest of the interim award of the learned Arbitrator was not disturbed.

10. Assailing the legal substantiality of the view expressed by the Division Bench, Mr. K.K. Venugopal, learned senior counsel appearing for the appellant, has raised the following contentions: i) Existence of dispute is fundamentally essential for a controversy to be arbitrated upon and in the case at hand there being no dispute raised by the respondent as warranted in law, the counter claim put forth before the learned Arbitrator deserved to be thrown at the threshold and the High Court would have been well advised to do so.

ii) The limitation for a counter claim has to be strictly in accordance with Section 43(1) of the Act read with Section 3(2)(b) of the Limitation Act, 1963 and any deviation therefrom is required to be authorized by any other provision of law. The only other provision of law which can depart from Section 43(1) of the Act read with Section 3(2)(b) of the Limitation Act, is the provision contained in Section 21 of the Act, where the respondent to the claimant’s claim invokes arbitration in regard to specific or particular disputes and further makes a request for the said disputes to be referred to arbitration and in that event alone, the date of filing of the counter claim would not be the relevant date but the date of making such request for arbitration would be the date for computing limitation. The Division Bench has not kept itself alive to the requisite twin tests and has erroneously ruled that the counter claim as filed by the respondent is not barred by limitation.

(iii) The principle stated in Praveen Enterprises’s case is not applicable to the present case because the correspondences made by the respondent, including the letter dated 17.4.2006, show that there had neither been any enumeration of specific claims nor invocation of the arbitration clause but merely computation of certain claims, though for application of the exception as carved out in Praveen Enterprises (supra), both the conditions precedent, namely, making out a specific claim and invocation of arbitration are to be satisfied.

(iv) The exclusion of the period during pendency of the application under Section 11 of the Act, as has been held by the Division Bench, is wholly contrary to the principle laid down in paragraphs 20 and 32 in Praveen Enterprises (supra).

(v) Assuming the principle stated in Praveen Enterprises (supra) is made applicable, the claims asserted by the respondent in its letter dated 17.4.2006 could only be saved being not hit by limitation and not the exaggerated counter claim that has been filed before the learned Arbitrator.

(vi) The Division Bench completely erred in interfering with the interim award in exercise of power under Section 34 of the Act, though the principle stated in Saw Pipes Ltd. (supra) is not attracted and further that the recording of finding that the award passed by the learned Arbitrator suffers from perversity of approach is not acceptable inasmuch as a possible and plausible interpretation of the contract and documents has been made which is within the domain of the learned Arbitrator as has been stated in Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran[4].

11. Mr. R.F. Nariman, learned senior counsel appearing for the respondent, defending the impugned judgment, has proponed the following: a) The documents brought on record demonstrably establish that dispute existed between the parties as regards the counter claim and hence, the submission raised on behalf of the appellant on that score is sans substance.

b) The Division Bench has rightly come to hold that the counter claim filed by the respondent-herein was within time on the basis of the law laid down in Praveen Enterprises (supra) inasmuch as the date of filing of the counter claim has to relate back to the date of claim made by the respondent and the correspondences between the parties do clearly show that the respondent had raised its claim and also sought for arbitration in a legally accepted manner.

c) The alternative submission that the counter claim has to be confined to the amount quantified in the letter dated 17.4.2006 is unacceptable in law, for in Praveen Enterprises (supra) it has been held that the statement of claim need not be restricted to the claims in the notice and on that base it can safely be concluded that the said proposition holds good for counter claims as well. That apart, the principle also gets support from what has been laid down in McDermott International Inc. v. Burn Standard Co. Ltd. and others[5].

12. First, we shall address to the submissions pertaining to existence and raising of dispute as regards the counter claim. We are required to deal with the same in the case at hand since Mr. Venugopal, learned senior counsel, has urged that if no dispute was raised at any point of time, it could not have been raised before the learned Arbitrator as it would be clearly hit by limitation. Learned senior counsel has placed reliance on Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority[6] and Jammu and Kashmir State Forest Corporation v. Abdul Karim Wani and others[7], to bolster the submission that in the case at hand the disputes as regards the counter claim really had not arisen, for mere assertions and denials do not constitute a dispute capable of reference to arbitration and hence, not to be entertained when it is dead or stale.

13. In Major (Retd.) Inder Singh Rekhi (supra) the High Court had rejected the petition preferred under Section 20 of Arbitration Act, 1940 as barred by limitation. The two-Judge Bench referred to Section 20 of the 1940 Act and opined that in order to be entitled to order of reference under Section 20, it is necessary that there should be an arbitration agreement and secondly, dispute must arise to which the agreement applied. In the said case, there had been an assertion of claim of the appellant and silence as well as refusal in respect of the same by the respondent. The Court observed that a dispute had arisen regarding non payment of the alleged dues to the appellant and, in that context, observed thus: “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.”

14. In Abdul Karim Wani and others (supra) the question arose whether the dispute mentioned in the contractor’s application could have been referred to the arbitration at all. The majority came to hold that the claim raised by the plaintiff in his application was not covered by the arbitration clause and, therefore, was not permissible to be referred for a decision to the arbitrator. Be it noted, in the said case, the work under the contract had already been executed without any dispute. The majority also observed that in the absence of a repudiation by the Corporation of the respondent’s right to be considered, if and when occasion arises, no dispute could be referred for arbitration. It further ruled that in order that there may be a reference to arbitration, existence of a dispute is essential and the dispute to be referred to arbitration must arise under the arbitration agreement.

15. The principles laid down in the aforesaid cases were under the 1940 Act at the stage of appointment of arbitrator. In the case at hand, though we are dealing with a lis under the 1996 Act, yet we are to deal with the said facet as the learned Arbitrator has passed an interim award as regards the sustenance of the counter claim. In this regard, it is necessary to refer to the correspondences entered into between the parties and to appreciate the effect and impact of such communications.

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