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Gujarat Urja Vikas Nigam Limited and Others Vs. Tata Motors Limited - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberArbitration Petition No. 955 of 2011
Judge
AppellantGujarat Urja Vikas Nigam Limited and Others
RespondentTata Motors Limited
Excerpt:
arbitration and conciliation act, 1996 - section 34 - learned arbitrator passed award and allowed 30% interest per annum as per agreed terms – whether such term is against public policy – yes – the court discussed the several clauses of the contract – the award of the arbitrator allowing interest at such rate is against public policy – further court silently expressed its dissatisfaction on the costs of rs.27,00,000/- imposed by the arbitrator – court does not want to go into this issue – court held, arbitrator could have awarded interest at the rate as required to be paid under the income tax act thus allowed writ petition. (paras 2, 11, 17, 24, 25, 36, 37) cases referred: 1. mukhdeo singh and another vs. harakh narayan singh and others reported in.....by this petition filed under section 34 of the arbitration and conciliation act,1996 (for short arbitration act, 1996), the petitioners seek to challenge award dated 19th july, 2011 made by the learned arbitrator allowing claims made by the respondents. the petitioners were original respondents before the learned arbitrator. respondents herein were original claimants. 2. factual matrix:- (a) on 7th february, 1994, tata finance ltd. which stood amalgamated with the respondents herein (hereinafter referred to as the said agreement) entered into an agreement of lease with the gujarat electricity board (predecessor of the petitioners herein) whereby the respondents agreed to lease in favour of the said gujarat electricity board suit property for a period of 72 months on the terms and.....
Judgment:

By this petition filed under section 34 of the Arbitration and Conciliation Act,1996 (for short Arbitration Act, 1996), the petitioners seek to challenge award dated 19th July, 2011 made by the learned arbitrator allowing claims made by the respondents. The petitioners were original respondents before the learned arbitrator. Respondents herein were original claimants.

2. FACTUAL MATRIX:-

(a) On 7th February, 1994, Tata Finance Ltd. which stood amalgamated with the respondents herein (hereinafter referred to as the said Agreement) entered into an agreement of lease with the Gujarat Electricity Board (Predecessor of the petitioners herein) whereby the respondents agreed to lease in favour of the said Gujarat Electricity Board suit property for a period of 72 months on the terms and conditions setout therein. Under the said agreement Gujarat Electricity Board was liable to pay lease rentals every month based on an asset cost of Rs.1,000/- fixed at Rs.19.95 per month per thousand payable monthly in advance. Parties thereafter executed supplementary lease schedules in respect of the said equipments. The said Board started paying lease rentals to the respondents from April 1994 at the rate prescribed under the said agreement. Some of the relevant clauses of the said agreement which would have bearing on the subject matter of this petition are extracted as under :-

Clause 2.2 That in the event of the Lessee being in arrears of such lease rentals, such arrears of lease rentals shall carry service charges at the rate of 30% per annum on the compounding basis with monthly rests from the due dates specified in supplementary lease schedules attached / to be attached till date of actual payment.

Clause 2.4 The Lessor shall be entitled to vary the lease rental charges at any time during the continuance of this Agreement in the event of a change occurring on the basis of which the lease rentals charged hereby are computed, namely variables relating to depreciation rate, permitted as per the Indian Income Tax Regulations for the time being in force on declining balances or modifications in the cost of money to the Lessor. The Lessee irrevocably agrees and declares that the lease rental charges shall be increased in co relation to increase in taxes whether sales tax or excise, and any other related or consequential charges that may be levied on or in connection with the lease of the equipment under this Agreement. At any time hereafter or any increase in the price of the equipment between the date of the order placed on the manufacturer/supplier thereof and the date of its delivery.

Clause 3.4 The Lessees shall not be liable for fair and normal wear and tear of the Equipment and the burden and depreciation resulting from any such fair wear and tear shall fall upon the Lessor who shall be entitled to claim from the Revenue all capital allowances in respect of the Equipment.

Clause 3.5 Since the Lessee is not the owner of the Equipment, the Lessee shall not claim any relief by way of any deduction, allowance or grant, available to the Lessor as owner of the Equipment under the Income Tax Act, 1961, or under any other statute, rules, regulations or guidelines issued by the Government of India or any statutory authority and not do or omit to do any act, deed or thing whereby the Lessor is deprived wholly or partly and that the Lessee shall, at the end of each financial year of the Lessor, provide to the Lessor such information as it may require to claim relief by way of any deduction allowance or grant, as the owner of the Equipment, under the Income Tax Act 961, and the Lessee undertakes to comply with and observe, at all times, the terms and conditions to be complied with or observed in respect of the use and operation of the Equipment to entitle the Lessor to obtain such relief.

Clause 14 The Lessee shall indemnify and keep indemnified the Lessor, at all times, against any loss or seizure of the Equipment under distress, execution or other legal process or destruction or damage to the Equipment by fire, accident or other cause, from any claim or demand arising out of the storage, installation, use or operation of the Equipment or any risk of liability for death or loss of limb of any person whether employee of the Lessee or of third party and hold the Lessor harmless, against all losses, damages, claims, penalties, expenses, suits, or proceedings of whatsoever nature made, suffered or incurred consequent thereupon and for this purpose take out such workmens compensation third party insurance cover as may be necessary, customary to the practice in the business carried on by the Lessor or as may be directed by the Lessor, in that behalf.

Clause 18.1 That upon occurrence of any of the events specified in clauses 18.1 to 18.1.7 of the Lease Agreement, the Lessor will be entitled to, without prejudice to their other rights under the Agreements to terminate the Lease.

Clause 18.2 That upon termination of the Lease, the Lessor will be entitled, inter alia, to:-

(a) to remove and re-possess the said equipment:

(b) to recover the entire amount of Lease rentals for the unexpired residue of the term of six years;

(c) to recover the cost of all repairs and maintenance of the said equipment to maintain it in good working order and condition and all costs, charges and expenses that may be incurred by them in re-possessing the said equipment;

(d) to sell, release and/or dispose off the said equipment in such a manner as the Lessor shall deem fit and

(e) that upon termination of the lease by the efflux of time or otherwise, the Lessee shall at its own costs and expenses forthwith deliver or cause to be delivered to the Lessor the said equipment, at such time and place as ma be directed by the Lessor in good repair, order and condition.

Clause 20.9 Any disputes arising under this Lease the same shall be referred to an Arbitrator to be nominated by the Lessor and the Award of the Arbitrator shall be final and binding on all the Parties concerned. The venue of such Arbitration shall be in Bombay.

(b) In their income tax returns for the assessment year 1994-95, the respondents claimed 50% depreciation on the said equipments claiming to be owners thereof. By an order dated 31st March, 1997, the Deputy Commissioner of Income Tax disallowed the depreciations claimed by the respondents. On 30th April, 1997 respondents filed an appeal against the said order before the Commissioner of Income Tax (Appeals). By an order dated 28th February, 2001, the Commissioner of Income Tax (Appeals) dismissed the said appeal. On 10th May, 2001, the respondents filed an appeal against the said order dated 28th February, 2001 before the Income Tax Appellate Tribunal.

(c) In their income tax returns for the assessment year 1995-96, the respondents claimed balance 50% depreciation on the said equipments on the same basis. By an order dated 31st March, 1998, the Deputy Commissioner disallowed the depreciation claim made by the respondents. On 24th April, 1998, the respondents filed an appeal against the said order before the Commissioner of Income Tax (Appeals). By an order dated 16th February, 2001 the Commissioner of Income Tax (Appeals) dismissed the said appeal. On 10th May, 2001, the respondents filed an appeal against the said order dated 16th February, 2001 before the Income Tax Appellate Tribunal.

(d) In the month of February, 2000, the agreement dated 7th February, 1994 expired due to efflux of time.

(e) On 11th November, 2000, the respondents raised debit notes for sum of Rs.5,05,33,367/- and Rs.2,51,50,372/- upon the petitioners for payment.

(f) On 26th March, 2004, the petitioners paid to the respondents the residual value of the equipment covered by the said agreement amounting to Rs.6,49,328.75. It is case of the petitioners that by accepting the said residual value of the equipment from the petitioners by the respondents, the respondents transferred the said equipment to the petitioners.

(g) On 17th May, 2005, the respondents vide their advocate's letter called upon the petitioners to pay lump sum amount of Rs.16,29,41,781/- with interest thereon and to deliver to the respondents the said equipment given to the petitioners under the said agreement. It was stated that in case of non compliance with the said notice within the notice period of 14 days, the said letter may be treated as a notice invoking arbitration under clause 20.9 of the said agreement.

(h) On 14th July, 2005, the respondents appointed the learned sole arbitrator. By letter dated 20th July, 2005 the petitioners disputed their liability.

(i) On 9th December, 2005, the respondents filed statement of claim interalia praying for an order and direction against the petitioners to create a fund and to deposit in a designated bank account under the respondents authority and control the amount of Rs.17,44,46,521/- alleged to be due as on 17th November, 2005 with interest thereon at the rate of 30% per annum from 18th November, 2005 till such deposit was made with liberty to the respondents to utilise the said amount to reimburse to the respondents any amount that would be held to be payable to the Income Tax Authority due to final disallowing if any of the depreciation in the agreement years 1994-95 and 1995-96. Respondents in the alternative also prayed for an order and direction against the petitioners to pay the said amount. The said claim was resisted by the petitioners on various grounds by filing written statement.

(j) On 22nd December, 2005, the Income Tax Appellate Tribunal set aside the assessment orders and remanded the matter back to the Assessing Officer in appeal filed by the respondents on 10th May, 2001.

(k) Sometime in the year 2009, the petitioners filed an application before the learned arbitrator and applied for dismissal of the claim made by the respondents on the ground that the cause of action on the basis of which the claim was filed by the respondents had disappeared as the Income Tax Appellate Tribunal had by order dated 24th September, 2008 had set aside the assessment order and had remanded the matter back to the assessing officer. The said application was opposed by the respondents. By an order dated 4th February, 2009, the learned arbitrator held that the reference to the arbitration made by the respondents was not based only on the order dated 1st April, 1998 but on their rights under the lease agreement and the lease summary schedule to increased rentals on dis-allowance of depreciation. It is held that the adjudication process will be ongoing process and there may be and would be variations by virtue of subsequent orders but so long as an order disallowing depreciation remains the cause of action based on the lease agreements and the lease summary schedule would remain. By the said order, the learned arbitrator rejected the said application filed by the petitioners.

(l) The respondents examined a witness. Petitioners did not examine any witness. The learned arbitrator framed 24 points for determination. On 19th July, 2011 the learned arbitrator rendered an award directing the petitioners to pay a sum of Rs.15,76,68,108/- with simple interest at the rate of 30% per annum from 12th December, 2006 to the respondents till payment. It was declared that the liability to pay the said amount would be joint and several and the petitioners herein shall decide who amongst themselves was to pay the added sum. The learned arbitrator directed the respondents to keep that amount in a fixed deposit in a nationalized bank till such adjudication process was finally completed. It was further provided that in the event of the respondents finally succeeding and 100% depreciation is being allowed, the respondents herein shall return to the petitioners who paid the amount alongwith interest accrued thereon within two weeks from the date of final order. It was further provided in the said award that if in the final order disallowance of depreciation is upheld, the respondents herein would then be entitled to appropriate the amount with accrued interest against their claim. The learned arbitrator also awarded cost in favour of the respondents and against the petitioners herein in the sum of Rs.27 lacs.

Rival submissions on behalf of the parties:-

3. Ms.Phene, learned counsel appearing for the petitioners made following submissions:-

(a) Demand raised by the respondents relating to depreciation disallowance and arbitration agreement invoked by the respondents for adjudication in respect of such demand was premature. In view of the fact that on the date of such demand invoking arbitration agreement, appeals filed by the respondents were pending before the Income Tax Appellate Tribunal and liability if any of the respondents was not finally adjudicated upon.

(b) In view of the order dated 22nd December, 2005 passed by the Income Tax Appellate Tribunal allowing the appeal filed by the respondents setting aside the assessment order disallowing the depreciation and remanding the mater back to the assessing officer, the claims made by the respondents before the learned arbitrator did not survive and the proceedings became infructuous. The respondents had invoked arbitration agreement based on the orders dated 31st March, 1997 and 31st March, 2008 passed by the assessing officer disallowing the depreciation which orders were set aside by the Income Tax Appellate Tribunal and thus no cause of action survived on passing of such orders by the Income Tax Appellate Tribunal.

(c) There is no provision under the agreement dated 7th February, 1994 for creation of a fund or deposit of any money in any designated bank account or for payment to the respondents in default of such compliance. The impugned award is contrary to clause 14 of the contract. Petitioners never agreed to indemnify the respondents in respect of any claims arising out of disallowance of depreciation under clause 14 of the contract or otherwise. The said clause was not at all applicable to the claims made by the respondents. The learned arbitrator has applied wrong provisions of the Contract in the impugned award while allowing the claims of the respondents.

(d) Even if clause 14 was extended to the depreciation claim disallowed by the Assessing officer, such clause could not be made applicable since liability of the respondent to the income tax department was not absolute and imminent. Learned counsel placed reliance on the judgment of this court reported in AIR 1942 Bombay 302. It is submitted that in the impugned award, the learned arbitrator did not provide for payment of the amount to the respondents but asked for the deposit in the bank account with a direction that the right of respondents to receive the said amount would arise only when the final award disallowing depreciation is passed. The award thus demonstrates patent error of law on the face of it. The finding of the learned arbitrator that the cause of action and also dispute is disallowance of depreciation and on the other hand renders the finding that the claim is based on order dated 12.12.2006 is contradictory and inconsistent. If the order allowing depreciation is set aside, the cause of action based on that order comes to an end and if the final order disallowing depreciation is passed, new cause of action will arise. The award thus demonstrates patent illegality on the face of it. The respondent did not suffer any loss because of depreciation allowance having been disallowed by the Assessing Officer as the respondent was still suffering loss which would not attract any income tax liability even if such disallowance of depreciation. The finding of the learned arbitrator that even if the respondent did not pay any extra amount, by way of income tax, due to disallowance of depreciation and even if no loss is suffered by the respondent due to such disallowance, the respondent is still entitled to recover huge amount of money from the petitioners as a result of disallowance is perverse and contrary to the terms of the contract. A direction to deposit sum of Rs.15.76 Crores by the learned arbitrator without respondent making any payment of income tax would result into undue enrichment of the respondent and financial implications on the petitioners. Clause 2.4 of the contract which permits variation in lease rentals only, if any change occurs on the basis of which lease rentals charge were computed. Said clause applied to variables relating to depreciation rates if there was no change in the rate of depreciation, but the transactions were not treated as genuine lease transaction, respondent cannot recover any amount from the petitioners under clause 2.4 of the contract. The award is contrary to the terms of the contract.

(e) The learned arbitrator has allowed the claim for interest at the rate of 30% per annum right from the inception i.e. March, 1994, which was payable only in the case of delay in payment of lease rentals. No such liability can arise from the inception of lease agreement on account of disallowance of depreciation. The learned arbitrator has allowed interest on interest. The total claim of Rs.15,76,68,108/- awarded by the learned arbitrator was inclusive of the interest of Rs.12,61,79,513/-.

(f) The learned arbitrator has ordered deposit of Rs.15,76,68,108/- with interest at the rate of 30% p.a. From 12/12/2006 for securing payment of income tax which in no circumstances can be more than the expected demand from the income tax department or the income tax implication on account of disallowance of depreciation. The said amount of Rs. 15,76,68,108/- includes only Rs.3,14,88,595/- towards the notional income tax implication. The learned arbitrator thus in any event could not have directed the petitioners to secure the claim of respondent by ordering deposit of Rs.15,76,68,108/- along with further interest thereon. The award shows absurdity on the face of it.

(g) Though the petitioners had not paid residual amount to the respondent as and by way of part payment and/or acknowledge of debt, the learned arbitrator has considered such payment as part payment/acknowledgment of debt though it was payment of residual amount by which the said property stood transferred in favour of the petitioners. The learned arbitrator failed to appreciate that the respondents having accepted from the petitioners residual value of the equipment liability of Rs. 6,49,328.75 and thereby transferring the equipment to the petitioners, there was complete accord and satisfaction of the claim if any of the respondent. Thus no claim could have been made by the respondents at all against the petitioners in respect of the said amount. The agreement itself would stand terminated. The learned arbitrator had no jurisdiction to award any amount in favour of the respondent in view of such accord and satisfaction and termination of agreement. The award is without jurisdiction. The award shows patent error of law. The concept of jural relationship applies only when the debt is acknowledged but for the different amount then what is actually due. The payment of residual amount in terms of the contract was unconditionally accepted by the respondents and was not towards any part payment in respect of the claim arising out of disallowance of the depreciation and would not amount to any acknowledgment of alleged debt or liability.

(h) The principles of Contra Proferentem was applicable to the contract in question as the same was drafted by the respondents and contained various lacunaes and ambiguities.

(i) There was serious calculation mistake in the amount of claim made by the respondent which was demonstrated before the learned arbitrator by the petitioners. The rate of interest at the rate of 30% awarded by the learned arbitrator is penal in nature and in any case payable only in case of delay in payment of lease rentals. The Petitioners never committed any delay in payment of any lease rentals. No such claim thus could be awarded. The rate of interest awarded by the learned arbitrator is disproportionately high and unreasonable.

(j) Ms. Phene, the learned counsel appearing for the petitioners placed reliance upon the judgment of this court (R.D. Dhanuka,J.) in the case of AdityaBirla Chemicals (India) Ltd. Vs. Tata Motors Ltd. delivered on 9th October, 2011 in Arbitration Petition No. 1027 of 2011 on issue of limitation and in particular paragraph 20 which reads thus:

“20. In my view right to sue accrued when claim for depreciation made by Respondent was rejected on 31st March, 2004 and raising of demand by the Respondent by issuing debit note on 19th June, 2006 and refusal to pay the said demand by the Petitioner on 17th August, 2006 would not commence fresh period of limitation, which had already commenced on 31st March, 2004. In view of Section 9 of the Limitation Act, 1963, once time is begun to run, no subsequent disability or inability to institute a suit or make an application stops it. Once time starts running, it does not stop. Limitation is not extended unless there is an acknowledgment of liability or part payment. It is not the case of the Respondent that the Petitioner acknowledged its alleged liability or there was any part payment made by the Petitioner after 31st March, 2004. In my view, correspondences does not extend the period of limitation.”

(k) The learned counsel appearing for the petitioners also placed reliance on the judgment of this court delivered on 28/11/2006 in the case of Asian Electricals Vs. Tata Motors in Arbitration Petition No. 254 of 2006 and in particular paragraph 10 in support of her plea that the cause of action arose when the income tax officers disallowed the depreciation and the respondents would be entitled to claim lease rentals, if any based thereon. Paragraph 10 of the said judgment reads thus:

“10. The seventh ground on which the award is challenged is that the claim made by the Respondent was barred by the law of limitation. According to the learned Counsel reference was made after the income-tax officer made the order on 31st March, 2000 and the amount of lease rental due from 27th September 1996 onwards were claimed. I find that the learned arbitrator has correctly held that the cause of action arose when the Income-tax Officer disallowed the depreciation and the Respondent would be entitled to claim lease rental from the year 1996. Admittedly, no interest has been claimed on that amount. I, therefore, do not find any infirmity in the finding recorded by the learned arbitrator on this count.”

(l) In support of the plea that by making claim under indemnity clause, only if the indemnified has incurred liability and their liability is absolute is entitled to call upon the indemnifier to save him from that liability and to pay it off, reliance is placed on the judgment of this court in the case of GajananParelkar Vs. Moreshwar, AIR 1942 Bombay 302. The relevant paragraphs of the said judgment reads thus:

“7. It is true that under the English common law no action could be maintained until actual loss had been incurred. It was very soon realized that an indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he had satisfied the judgment that he could sue on his indemnity. It is clear that this might under certain circumstances throw an intolerable burden upon the indemnity-holder. He might not be in a position to satisfy the judgment and yet he could not avail himself of his indemnity till he had done so. Therefore the Court of equity stepped in and mitigated the rigour of the common law. The Court of equity held that if his liability had become absolute then he was entitled either to get the indemnifier to pay off the claim or to pay into Court sufficient money which would constitute a fund for paying off the claim whenever it was made. As a matter of fact, it has been conceded at the bar by Mr. Tendolkar that in England the plaintiff could have maintained a suit of the nature which he has filed here; but, as I have pointed out, Mr. Tendolkar contends that the law in this country is different. I have already held that Sections 124 and 125 of the Indian Contract Act are not exhaustive of the law of indemnity and that the Courts here would apply the same equitable principles that the Courts in England do. Therefore, if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off.

8. It is further argued by Mr. Tendolkar that in this case the liability of the plaintiff is not absolute but contingent. Mr. Tendolkar says that there is nothing to show that if the mortgagee was to sue to enforce his mortgage and the property was sold, there would be any deficit for which the plaintiff would be liable. Mr. Tendolkar overlooks the fact that under both the mortgage and the further charge there is a personal covenant by the plaintiff to pay the amount due, and it would be open to the mortgagee to sue the plaintiff on the personal covenant reserving his rights under the security. Therefore, the liability of the plaintiff under the personal covenant is absolute and unconditional, and he would have no answer to a suit filed by the mortgagee under that covenant. Mr. Tendolkar suggests that if such a suit were filed the Court would, under Section 68, Sub-section (2), of the Transfer of Property Act, exercise its discretion and stay the suit until the mortgagee had exhausted all his available remedies against the mortgaged property or the mortgagee had abandoned his security. I do not propose to speculate as to what the Court might do in the event of this suit being filed. If the plaintiff is sufficiently substantial--and I am told he is--the mortgagee may content himself with obtaining a personal decree against him and give up his security, I, therefore, hold that the plaintiff is entitled to be indemnified by the defendant against all liability under the mortgage and the deed of further charge.

9. Turning to the prayers of the plaint, the plaintiff wants a declaration that he is entitled to be indemnified by the defendant. I do not think he is so entitled as the defendant has never denied the indemnity nor challenged his right to be indemnified.

10. The order that I will make will, therefore, be that the defendant be ordered to procure from the mortgagee a release of the plaintiff from all liability under the deed of mortgage and further charge. I give him three months' time to do so. In default of his doing so, the defendant to pay into Court the amount required to pay off the whole amount due to the mortgagee under the mortgage and further charge and that the amount so brought into Court to be utilised for the purpose of paying off the said mortgage and further charge.

11. There will also be a decree for the plaintiff for the costs of the suit.

12. It is not possible to ascertain today what would be the amount which the defendant would have to pay into Court in the event of his not procuring from the mortgagee a release of the plaintiff from all liability under the deed of mortgage and further charge. I have, therefore, not indicated the amount in the order I have made about payment by the defendant into Court of the money due under the mortgage. In case there is any difficulty as to working out this part of my order, I will give the parties liberty to apply under the decree.”

4. Mr.Purohit, the learned counsel appearing on behalf of the respondent on the other hand submits as under:-

(a) Clause 14 of the contract is wide and covered all events wherein losses, damages, claims, penalties, expenses, suits or proceedings of whatsoever nature have been made, suffered or incurred. The learned arbitrator has interpreted clause 14 of the lease agreement and has held that the said clause was attracted for making a claim by the respondents arising out of disallowance of depreciation. It is submitted that the learned arbitrator has rightly held that the word “consequent thereto” are clarificatory words to indicate that they even apply in respect of the equipment even though a provision in that behalf is already made. It is submitted that interpretation of clause 14 by the learned arbitrator is possible interpretation and this court shall not substitute the view of the learned arbitrator on such possible interpretation by taking a different view. The learned counsel placed reliance upon the judgment of the Supreme Court in case of McdermottInternational Inc. vs. Burn Standard Co.Ltd. and Ors. reported in (2006) 11 SCC 181 and in particular paragraph 52 in support of his plea that intervention of the court is envisaged only in circumstances like in case of fraud or bias by the arbitrators, violation of natural justice etc. This court cannot correct errors of the arbitrators. Para 52 of the said judgment in case of McdermottInternational Inc. (supra) reads thus:-

52. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.

(b) There need not be any separate provision in the agreement for a party to make claim for creation of security and the same arose under indemnity clause recorded in clause 14 of the lease agreement. It is submitted that demand for money by the respondents and creation of fund, both arose under the same agreement and out of the same set of circumstances. Relief sought by the respondents for creation of security arose out of the dispute due to disallowance of depreciation. The claim thus made by the respondents for creation of fund was neither contrary to the provisions of lease agreement nor was beyond the scope of reference.

(c) Though respondents had not called upon the petitioners in its notice invoking arbitration agreement to create a fund in favour of the respondents, such claim though made in statement of claim was not beyond the scope of reference. Even in the notice dated 17th May, 2005 issued by the respondents, demand for recovery of amount was made from the petitioners. The respondents could seek smaller relief in statement of claim than that was claimed in the demand notice. It is submitted that arbitration clause recorded in clause 20.9 of the lease agreement is very wide and the dispute raised by the respondents squarely falls within such clause of lease agreement. It is submitted that notice invoking arbitration does not govern the scope of reference. Arbitration clause does not stipulate any condition that the demand for reference has to be preceded by notice. There is no provision in the lease agreement which provides that only such claims which were referred in the notice invoking arbitration agreement can be referred to arbitration. It is submitted that notice issued by the respondents indicated merely that dispute had arisen in respect of which arbitration clause was invoked. It is submitted that since there was no particular manner prescribed for issuing notice invoking arbitration clause, it was not necessary for the respondents to specify each and every claim in such notice. Claim thus made by the respondents for creation of fund in its statement of claim before the learned arbitrator was a claim arising out of dispute which arose due to disallowance of depreciation made by the assessing officer and was not beyond the scope of reference. There is a difference between the claim and dispute. Claim arose out of dispute which may be a claim for revision of lease rental or for indemnity for creating fund. Respondents applied for creation of fund by invoking clause 14 of the lease agreement and such claim was within the provisions of lease agreement and not de hors it. For making a claim for creation of fund under indemnity clause, respondents were not required to prove any loss suffered by the respondents. However, as a matter of fact, the respondents had suffered a negative inflow which in effect amounted the respondents to suffer a loss. It was not necessary that respondents would have suffered a loss in view of dis-allowance of depreciation of claim in so far as transaction between the petitioners and the respondents is considered individually. Due to such disallowance of depreciation of claim respondents could ask the petitioners to indemnify and/or to pay such amount as the assessing officer in the assessment order appropriated the refund due and payable to the respondents arising out of other transactions due to disallowance of depreciation. It is submitted that even if the respondents had suffered over all loss, the assessing officer had by disallowing such claim for depreciation has reduced the amount of loss claimed by the respondents which otherwise respondents could have carried forward in subsequent assessment years as per provisions of Income Tax Act, 1961. Petitioner therefore cannot raise such plea that unless actual loss was suffered by the respondent or income tax was actually paid due to disallowance of depreciation, cause of action for recovery of such claim or for creation of fund did not arise.

(d) Merely because the order passed by the assessing officer disallowing claim for depreciation had been subsequently set aside by the Income Tax Appellate Tribunal and the matters were remanded back to the assessing officer for reconsideration, cause of action which had arisen in view of such disallowance by the assessing officer did not disappear. It is submitted that it is not in dispute that even after order of Income Tax Appellate Tribunal remanding matter back to the assessing officer, by another order passed by the assessing officer claim for depreciation was once again disallowed. Based on the subsequent order passed by the assessing officer, application made for amendment of the statement of claim made by the respondents was rightly allowed by the learned arbitrator. It is submitted that once appeal had been already filed by the respondents arising out of the order passed by the assessing officer or passed by the Commissioner of Income Tax in Appeal, the order had become res-sub-judice. Respondents could make a claim either when first order was passed by the assessing officer or when appeal order came to be passed. Such order passed by the authority disallowing the claim for depreciation created substantial cause of action. Each and every order would give fresh cause of action. Learned counsel placed reliance on the judgment of this court (S.J. Vazifdar,J.) in case of Ms.VeenaNaresh Seth vs. Seth Industries Limited and in particular paragraphs 15, 17, 18, 21 and 22 which reads thus:-

15. Mr. DeVitre submitted that the first Respondents letter dated 26th July, 2000, invoking arbitration restricted the disputes and the claim to possession of the second floor. Despite the same in the statement of claim additional reliefs were sought including declarations and decrees in respect of the first floor and claims for monetary compensation as well. According to Mr. DeVitre an arbitrator is not entitled to consider any claims or reliefs other than those stated in the letter invoking arbitration. He submitted that the arbitrator having considered and awarded the same, acted in excess of his jurisdiction.

17. I do not read the judgment to hold as an absolute proposition that the claim made in arbitration must in every case be limited to the claim stated in the notice/letter invoking arbitration. Indeed in many, if not most cases, the letter/notice of invocation of the arbitration agreement does not stipulate and crystallize the claims. The judgment does not set out the arbitration agreement that applied between the parties therein. It does not indicate the nature of the arbitration agreement. If Mr. DeVitres submission is accepted, it would denude the arbitral tribunal of the power to even allow an amendment to a statement of claim.

Mr. DeVitres submission would be valid only in those cases where the arbitration agreement stipulates a demand for a reference of the disputes to the arbitral tribunal to be preceded by a notice and further provides that the claim in the arbitration shall be limited to those raised in such notice. This is not an unusual provision in arbitration agreements. Such limitations are found in several arbitration agreements. Clause 12 of the Memorandum of Understanding which contains the arbitration agreement between the parties herein, does not place any such limitation.

18. There is nothing in the Arbitration and Conciliation Act, 1996, or in principle, which requires the notice invoking the arbitration to state the claims proposed to be made in the reference. A notice merely indicating the disputes or that disputes have arisen and invoking the arbitration clause is sufficient unless the arbitration agreement itself requires the invocation to be in a particular manner. Mr. DeVitres submission is, therefore, not well founded.

21. Moreover, the original Petitioner did not, in reply to the notices both dated 26th July, 2000, contend that the claims made therein were beyond the scope of the reference and the arbitrators jurisdiction, including on the ground that the claims raised before the arbitrator in the statement of claim were outside the scope/purview of the letters dated 26th July, 2000. It is, therefore, not open to the Petitioners now to raise this contention.

22. The submission is, therefore, rejected both in law and on facts. That the above findings are in the ultimate analysis of no avail to the Respondents qua the second floor on account of the license agreement pleaded by Respondent No.1 is another matter. These findings are without taking into consideration the said license agreement which I will deal with later.

(e) Learned counsel placed reliance upon the judgment of the Supreme Court in case of Union of India vs. West Coast Paper Mills Ltd. reported in AIR 2004 SC 1596 in support of his plea that on filing of the appeal, order becomes res-judice and appeal being continuation of the original proceedings, order in original proceedings become executable only when the appeal is finally disposed of. Paragraphs 12 to 16, 20, 21, 40 to 42 of the said judgment read thus:

12. The plaintiff in this case has filed a suit for refund of the excess amount collected by the defendant-Railways for the period 24.6.1963 to 1.2.1964 and 1.2.1964 to 18.4.1966 with interest accrued thereupon. It is not in dispute that in terms of the provisions of the Indian Railways Act, as thence existing 'The Tribunal' was only entitled to make a declaration to the effect that the freight charged was unreasonable or excessive. It did not have any jurisdiction to execute its own order.

13. It may be true that by reason of Section 46A of Indian Railways Act the judgment of the Tribunal was final but by reason thereof the jurisdiction of this Court to exercise its power under Article 136 of the Constitution of India was not and could not have been excluded.

14. Article 136 of the Constitution of India confers a special power upon this Court in terms whereof an appeal shall lie against any order passed by a Court or Tribunal. Once a Special Leave is granted and the appeal is admitted the correctness or otherwise of the judgment of the Tribunal becomes wide open. In such an appeal, the court is entitled to go into both questions of fact as well as law. In such an event the correctness of the judgment is in jeopardy.

15. Even in relation to a civil dispute, an appeal is considered to be a continuation of the suit and a decree becomes executable only when the same is finally disposed of by the Court of Appeal.

16. The starting point of limitation for filing a suit for the purpose of recovery of the excess amount of freight illegally realised would, thus, begin from the date of the order passed by this Court. It is also not in dispute that the respondent herein filed a writ petition which was not entertained on the ground stated hereinbefore. The respondents were, thus, also entitled to get the period during which the writ petition pending, excluded for computing the period of limitation. In that view of the matter, the civil suit was filed within the prescribed period of limitation.

20. A distinction furthermore, which is required to be noticed is that whereas in terms of Article 58 the period of three years is to be counted from the date when 'the right to sue first accrues'; in term's of Article 113 thereof, the period of limitation would be counted from the date 'when the right to sue accrues'. The distinction between Article 58 and Article 113 is, thus, apparent inasmuch as the right to sue may accrue to a suitor in a given case at different points of time and, thus, whereas in terms of Article 58 the period of limitation would be reckoned from the date on which the case of action arose first whereas, in the latter the period of limitation would be differently computed depending upon the last day when the cause of action therefore arose.

21. The fact that the suit was not filed by plaintiff-respondent claiming existence of any legal right in Itself is not disputed. The suit for recovery of money was based on the declaration made by 'The Tribunal' to the effect that the amount of freight charged by the appellant was unreasonable. It will bear repetition to state that a plaintiff filed a suit for refund and a cause of action therefore arose only when its right was finally determined by this Court and not prior thereto. This Court not only granted special leave but also considered the decision of the Tribunal on merit.

40. Unfortunately in P.K. Kutty (supra) and Mohinder Singh Jagdev (supra) no argument was advanced as regard applicability of doctrine of merger. The ratio laid down by the Constitution Benches of this Court had also not been brought to the court's notice.

41. In the aforementioned cases, this Court failed to take into consideration that once an appeal is filed before this Court and the same is entertained, the judgment of the High Court or the Tribunal is in jeopardy. The subject matter of the lis unless determined by the last Court, cannot be said to have attained finality. Grant of stay of operation of the judgment may not be of much relevance once this Court grants special leave and decides to hear the matter on merit.

42. It has not been and could not be contended that even under the ordinary civil law the judgment of the appellate court alone can be put to execution. Having regard to the doctrine of merger as also the principle that an appeal is in continuation of suit, we are of the opinion that the decision of the Constitution Bench in S.S. Rathore (supra) was to be followed in the instant case.

(f) The learned counsel also placed reliance upon the judgment of Patna High Court in case of MukhdeoSingh and another vs. Harakh Narayan Singh and others reported in AIR 1931 Patna 285 on the issue of successive cause of action and in particular on page 291 which reads thus:-

“............... Where therefore a party has recurring or successive causes of action whether under the terms of contract or by operation of law, each cause of action will in my opinion give a fresh start to the period of limitation and the mere fact that a party has not availed himself of the earlier cause of action, will not prevent him from availing himself of a later one.

It is in this connexion that it becomes material to consider how far the mortgagee is entitled to waive his right to exercise an option given to him under the bond. Now there is a good deal of conflict in the decisions of the various High Courts in this country as to what would constitute a waiver and what would not. It has been held in several cases that mere abstaining from bringing a suit does not amount to a waiver, and some of these cases were relied on by the learned advocate for the appellant. All those cases however were decided under Article 75, Limitation Act, and it is clear that if it is held in cases falling under that article, that mere abstention from suing amounts to a waiver, that would nullify the main provision in that article which is to the effect that the time would ordinarily begin to run from the date of the first default. In cases however which are not governed by that article, if the terras of the bond themselves provide expressly or by implication that it is open to the mortgagee to sue as soon as the first default happens or to sue later, then I do not see that there would be any difficulty in holding that if the suit is not brought as soon as the first default occurs and is brought after a subsequent default or after the date by which the whole amount due is to be paid, the mere abstention from suing does not amount to a waiver. It has been remarked in certain cases that where a contract gives the power to elect it is not within the province of the law to say that such election shall not be made and it is equally clear that where the contract itself provides for waiver, no statutory authority for such waiver is needed. In this connexion I may usefully refer to the following observation made in J.P. Rego v. Phillip Tauro MANU/TN/0191/1928:

“It cannot be said of a person that on the date of the first suit he became entitled to sue for the whole amount, unless he had previously elected by some word or act to take advantage of the default clause. If he had previously done nothing, that is, had made no election, the act involved in bringing the first suit for a single instalment amounts to a waiver on his part of the benefit reserved under that clause. If again after the default has occurred he keeps the question open and does nothing but finally sues for the whole amount, the fact that he has so sued shows that he has waived the benefit reserved to him under the contract. ”

I have so far dealt with the merits of the controversy; but on two other grounds I am inclined to hold that we should adhere to the view which has prevailed so far in this Court This view has undoubtedly this advantage than it does not entitle the debtor to go behind his own stipulation giving the creditor an option in the matter of bringing the suit. I fully recognize that the Courts should have no hesitation in applying the statute of limitation where it clearly applies, but where there are two possible views under this statute, one tending to deprive a person of his just dues and the other entitling him to recover them, there is no reason I do not see why one should not lean in favour of the view which does not entail any hardships or lead to any unjust consequences. My other ground for adhering to the cursus curiae of this Court is substantially what has been pointed out recently by a Full Bench of this Court in Babu Tribeni Prasad v. Ram Asray Prasad MANU/BH/0111/1931 and what has been expressed by Mukerjee, J., in the case of Kedar Nath Hazra v. Manindra Chandra Nandy in these words:

“The Courts must always hesitate to overrule decisions which are not manifestly erroneous and mischievous, which have stood for many years unchallenged and which from their nature may reasonably be supposed to have affected the conduct of a large portion of the community in matters relating to rights of property: Young v. Robertson 4 Macqueen 314. ”

I have already said that I am unable to hold that the view which has been held in this Court so far, is manifestly erroneous and it is obvious that it is the very opposite of being unjust or mischievous.

I shall now briefly allude to one of the terms of the bond with which we are concerned in the present appeal. It is provided there that the entire money will be repayable by the mortgagor if there is default in payment of any one (koi ek) of the instalments. Now the fact that emphasis is laid on any one of the instalments, plainly means that the right to sue will accrue as much to the plaintiff on the default in respect of the first instalment as in respect of the second, or indeed the last instalment. This clearly amounts to giving an option to the creditor to make any of these various causes of action the basis of his suit. That being so, I think the case has been correctly decided by the Court below and the appeal must fail. As there is no cross-appeal on behalf of the respondent, it is unnecessary for me to decide whether the period of limitation might also have run from 30th Jeth 1329 the last date mentioned in the bond by which the entire amount of the bond was to have been paid up. The appeal therefore must be dismissed with costs.”

(g) On the issue as to whether claims made by the respondents were premature or barred by law of limitation, learned counsel submits that limitation is mixed question of law and fact. Learned arbitrator has rendered a finding of fact that claims made by the respondents were not barred by law of limitation and such findings being not perverse, this court cannot interfere with such findings of fact rendered by the learned arbitrator. It is submitted that when notice invoking arbitration agreement was issued by the respondents on 17th May, 2005, appeal filed by the respondents on 10th May, 2001 before the Income Tax Appellate Tribunal thereby impugning the order passed by the Commissioner of Income Tax (Appeal) dismissing the appeal filed by the respondents on 16th February, 2001 was pending. It is submitted that the matter was thus sub-judice before the Income Tax Appellate Tribunal. Respondents were thus entitled to invoke arbitration agreement during the pendency of the said appeal or on disposal of such appeal. It is submitted that in any event after order of Income Tax Appellate Tribunal remanding back to the assessing officer vide order dated 22nd December 2005, assessing officer passed fresh order disallowing claim for depreciation. Learned arbitrator had rightly allowed the application of the respondents for amendment of the statement of claim. It is submitted that the learned arbitrator was thus right in holding that each successive order disallowing depreciation gave a fresh cause of action and thus claim was not barred by law of limitation. During the pendency of the arbitration proceedings, the appeal filed by the respondents against the order of assessing officer disallowing claim for depreciation was pending. Learned counsel submits that judgment on this issue relied upon by the petitioners are not applicable to the facts of this case. It is submitted that the learned arbitrator was right in taking cognizance of the subsequent order passed by the Income Tax Appellate Tribunal remanding the matter back to the Assessing Officer for passing fresh order and also the order passed by the Assessing Officer on remand again disallowing the claim for depreciation. It is submitted that it was thus not necessary for the respondent to withdraw the earlier arbitration proceedings and reinvoke arbitration agreement and file fresh statement of claim. The learned counsel further submits that there is inconsistency in the plea raised by the petitioners that the claim was premature or the same was time barred. It is submitted that in the facts of this case, both these pleas raised by the petitioner were untenable and were thus rightly rejected by the learned arbitrator.

(h) On the issue raised by the petitioners that the acceptance of residual value from the petitioners by the respondent, there was complete accord and satisfaction of the claim made by the respondents and the said equipment stood transferred in favour of the petitioner and the claims made by the respondents were not arbitrable, it is submitted by Mr. Purohit that even if the respondents had accepted the residual value during the pendency of the dispute from the petitioners, the disputes and differences between the parties having arisen and were pending, the said loan transaction was not completed. The respondents were still owners of the suit equipments. There was no final invoice raised by the respondents and those equipments were not transferred in the name of the petitioners. It is submitted that the lease agreement was not terminated. The respondents disputed that the petitioners had paid any sales tax on the equipments while making payment of residual amounts to the respondents. The respondents placed reliance on the proforma invoice and miscellaneous payment voucher issued to the petitioners. It is submitted that mere tender of residual value does not determine the lease. Mere possession of the suit equipments with the petitioners does not and can not constitute transfer of ownership. It is submitted that merely because the residual amount was accepted by the respondents, existing dispute between the parties having arisen due to disallowance of depreciation would not become infructuous and continue to subsist. It is submitted that there was no accord and satisfaction of the claims made by the respondents on receipt of residual amount from the petitioner. On the contrary receipt of such payment by the respondent from the petitioner would extend the period of limitation and would acknowledge the jural relationship between the parties.

(i) On the issue as to whether the agreement entered into between the parties was finance transaction or lease is concerned, it is submitted by Mr. Purohit that the respondents had claimed to be owners of the suit equipment all through out as is clear from the lease agreement and had accordingly claimed depreciation. Petitioners never claimed ownership in respect of the said equipments and had not claimed depreciation in their income tax returns. Petitioners did not produce any documents on record before the learned arbitrator to demonstrate that the petitioner had acted contrary to the said lease agreement and had claimed ownership and depreciation allowance in its income tax returns. It is submitted that learned arbitrator was right in rejecting the claims made by the petitioner by rendering a finding that it was not contended by the petitioners till date of filing of arbitration reference that the transaction between the parties was not lease transaction. Mr. Purohit further submits that the learned arbitrator is also right in rendering a finding that the lease agreement entered into between the parties or clause 16 therein is not void as canvassed by the petitioners.

(j) On the issue of method of calculations of the amounts into two sets of debit notes issued by the respondents, it is submitted by Mr. Purohit that the respondents had presented their calculation formula for computation of revised lease rentals and if according to petitioners some other formula could have been adopted, petitioners were free to present the same for consideration of the learned arbitrator which the petitioners failed. The learned arbitrator was thus right in rejecting the said submissions made by the petitioner.

(k) On the issue of doctrine of Contra Proferentem canvassed by the petitioners, Mr. Purohit submits that there was no ambiguity in the lease agreement. Clause 16 of the agreement and other provisions under the lease agreement were absolutely clear and unambiguous. There was no question of unequal bargaining power between the parties. Both the parties and their authorized signatories had signed the documents after writing and understanding the contents thereof. Thus the principles of Contra Proferentem were not at all applicable to the facts of this case.

(l) On the issue raised by the petitioners, that under clause 16 of the lease agreement, respondents were bound to reduce the amount of lease rentals in view of the income tax rates having been decreased during the period of contract and no such credit was given by the respondents in the calculation of lease rentals arising out of such change in the tax rate is concerned, it is submitted by Mr. Purohit that mere act of indulgence cannot and does not amount to waiver. Merely because the respondents continue to accept in the meantime lease rentals at the same rate, would not constitute waiver. Failure to decrease lease rentals in view of change of income-tax rate cannot and does not amount to waiver. Mr. Purohit submits that though the respondent wanted to submit revised statement for giving benefit in change in rate of tax to the petitioners, the same was however objected by the petitioner from such statement being submitted on record. No evidence was led by the petitioners in support of its plea for change and/or reduction lease rentals. Mr. Purohit submits that though the learned arbitrator had given opportunity to both the parties to submit their calculations and the respondents had though submitted revised calculations and had shown their willingness to pass on the benefit of reduced rate of tax to the petitioners, the petitioners did not submit any calculation and thus could not make any grievance in that regard. It is submitted that even after passing of the benefits of change in income tax rate, the respondents still had to recover substantial amount from the petitioners.

(m) On the issue as to whether the respondents were entitled to make any claim against the petitioners though no loss was suffered by the respondents is concerned, Mr. Purohit the learned counsel for the respondents submits that the respondents had paid income tax on group accounting basis after taking into consideration total income, expenditure etc. and it was irrelevant for the purpose of considering whether any liability had arisen in the individual transaction of the company or whether the company as a whole had or had not paid the tax. It is submitted that merely because the respondent as a whole may not suffer any loss because of various other transactions or the reasons, that would not make the respondents disentitle to make claim against the petitioners. It is submitted that the learned arbitrator has rendered finding of fact on this issue which is not perverse and thus shall not be interfered with by this court under section 34. On the issue whether any payment of income tax was made by the respondent or not, it is submitted by Mr. Purohit that the respondent had led evidence of Mr. Kapoor who had proved the claims which statement of Mr. Kapoor had not been dislodged by the petitioners in their cross examination. The respondents had correctly maintained PNPT rate and had rightly increased the quantum of finance amount to the extent of depreciation loss to them. It is submitted by Mr. Purohit that there is no provision in the lease agreement that the claim was dependent on the orders passed by the income tax authorities.

(n) On the issue of rate of interest awarded by the learned arbitrator whether is exorbitant or not, it is submitted by Mr. Purohit that though under the provisions of the lease agreement the respondents were entitled to claim compound interest at the rate of 30% p.a. which has been awarded by the learned arbitrator with effect from 12.12.2006, the respondents have no objection if the reasonable rate of interest is awarded by this court and the impugned award is suitably modified to that extent.

5. In rejoinder Ms. Phene, the learned counsel for the petitioners submits in the proforma invoice issued by the respondents, sales tax is added while calculating the residual amount which shows that the equipment was sold to the petitioners and the respondents having received the said amount from the petitioners, ownership in respect thereof stood transferred in favour of the petitioners and claim of the respondents thus did not survive, having received the said amount in full and final settlement of their claim. The learned counsel submits that the respondents had addressed letter to the petitioners for release of residual value which was complied with by the petitioners. On the issue of invocation of alleged indemnity clause raised by the respondents, it is submitted that though clause 14 was not at all applicable and could not have been invoked by the respondents for making such claim for creation of funds or otherwise, the claim for creation of fund was not maintainable in view of the fact that the liability of the respondent, if any, to the income tax department towards the income tax arising out of the disallowance of depreciation was not absolute. The learned counsel placed reliance upon the judgment of Bombay High Court in the case of Gajanan Moreshwar (supra) which is also relied upon by Mr. Purophit in support of his submission. Ms. Phene distinguished the judgment relied upon by Mr. Purohit. It is submitted that even if the appeal filed by the respondents was pending before the Income Tax Appellate Tribunal, when notice invoking arbitration agreement was issued, fact remains that there was no stay of the order passed by the Assessing Officer disallowing depreciation claim and the said notice was admittedly issued after three years from the date of order passed by the Assessing Officer and also Commissioner of Income Tax (Appeals), claims were time barred. It is submitted that the limitation would not stop during the pendency of the appeal. In any event, the Income Tax Appellate Tribunal having set aside the assessment order disallowing depreciation allowance, claim based on the earlier assessment order became infructuous and ought to have been dismissed by the learned arbitrator. It is submitted that the entire basis of the claim made against the respondent was totally illegal and thus there was no question of the petitioners applying for clarification of the impugned award under section 33 of the Arbitration and Conciliation Act, 1996.

REASONS AND CONCLUSION

6. On the issue as to whether claim made by the respondents for creation of fund would fall under clause 14 of the lease agreement or not and whether such claim was beyond the scope of clause 14 or not, the learned arbitrator held that clause 14 was wide in its scope and could not have been given any narrow interpretation as sought by the petitioners. It is held that under clause 14 of the lease agreement, petitioners were bound to indemnify the respondents amongst other things, against all losses, damages, claim, penalties, expenses, suit or proceedings of whatsoever nature made, suffered or incurred and the words ‘consequent thereto could not govern or restrain the wide ambit of the clause. It is held that those words have been used not to restrict the losses, damages claim, penalties, expenses, suit or proceedings of whatsoever nature made, suffered or incurred only to claims or demands in respect of the equipment. The learned arbitrator held that clause 14 provides for indemnity against all losses, damages, claim, penalties, expenses, suit or proceedings of whatsoever nature made, suffered or incurred. It is held that the word ‘consequent thereto are clarificatory words to indicate that they even apply in respect of the equipment even though a provision in that behalf is already made. It is held that restricted interpretation sought to be given to clause 14 was contrary to plain reading of clause 14. The learned arbitrator held that the petitioners shall either indemnify the respondents or must pay the amount. It is held that claim for creation of fund made by the respondents in their statement of claim was covered by such indemnity clause.

7. On the issue raised by the petitioners that claim for creation of fund made in the statement of claim by the respondents was beyond the scope of reference of arbitration and that the learned arbitrator exceeded his jurisdiction by allowing such claim is concerned, the learned arbitrator held that clause 2.4 read with clauses 16 and 14 of lease agreement provided for the right to receive increased rental and/or an indemnity by the petitioners and thus the respondents had alternative rights and both such rights arose from the same cause of action i.e. disallowance of depreciation. Notice issued by the respondents refers to the right of the respondents of disallowance of the depreciation and thus even though in the notice, the respondents had only demanded money, the same was based on the factum of disallowance of depreciation. The respondents could always plead and support an alternate case. It is held that the creation of fund is a well accepted position in law which an indemnified can resort to against the indemnifier. The learned arbitrator held that the question of creation of security arises squarely out of clause 14. The learned arbitrator placed reliance upon the judgment of this court in case of GajananParelkar (supra). The learned arbitrator held that cause of action for demand for money as well as for creation of fund arose under the same agreement and out of same circumstances.

8. On perusal of the statement of claim made by the respondents, it is clear that the respondents had initially prayed for creation of fund in view of the pendency of appeal before the Income Tax Appellate Tribunal filed by the respondents. It is the case of the respondents that under clause-14 of the Lease Agreement, respondents were entitled to seek creation of fund. It is not in dispute that respondents did not invoke any other provision of the lease agreement in support of their claim for creation of fund except clause-14. Learned arbitrator has on interpretation of Clause-14 held that such clause was wide and covered all events wherein all losses, damages, claims, penalties, expenses, suits or proceedings of whatsoever have been made, suffered or incurred consequent thereto and this would even apply in respect of the suit equipment. On plain reading of Clause-14 in my view, it is clear that the petitioners had agreed to keep the respondents indemnified against any loss or seizure of the equipment under distress, execution or other legal process or destruction or damage to the equipment by fire, accident or other cause. It also refers to the risk for liability for death or loss of limb of any person whether employee of the Lessee or of third party arising out of such seizure, destruction, damage, storage, use or operation of equipments. In my view, the expression ‘all losses, damages, claims, penalties, expenses, suits or proceedings would apply only to the situation where there was any damage to the equipment by fire, accident, any risk or liability arisen due to death or loss of limb of any person whether employee of the Lessee or any third party. The first part of Clause-14 also will have to be understood considering the obligation imposed on lessee to take out workmen's compensation third party insurance cover. It is not the case of the respondents that there was any loss or seizure of equipment or there was any fire or accident or other cause which resulted in risk of liability or death or loss of any limb of any person whether employee of the Lessee or of third party. In my view, on plain reading of the entire Clause-14, it is clear that the same would not apply for creation of fund arising out of a dis-allowance of claim for depreciation made by the Assessing Officer. In my view, such indemnity could have been invoked only in respect of distress, execution or other legal process or destruction or damage to the equipment by fire, accident or other such cause. In my view, interpretation of the learned arbitrator that the word “whatsoever” has to be given wide interpretation and the words 'consequent thereto' is clarificatory in nature and thus would also include the claim arising out of dis-allowance of depreciation is neither a possible view nor a plausible view. Clause 14 has to be interpreted as a whole to ascertain the intent of parties and not few words in isolation as read by the learned arbitrator. In my view, petitioners are right in their submission that learned arbitrator has misapplied Clause-14 to the claim of the respondents for creation of fund arising out of disallowance of claim of depreciation by the assessing Officer. Applying Clause-14 to such claims made by the respondents in my view demonstrates patent illegality on the face of the award.

9. The next question that arises for consideration is whether claim made for creation of fund by the respondents in statement of claim was beyond the scope of reference in view of the respondents not having demanded any creation of such fund in notice dated 17th May 2005 invoking arbitration agreement. On perusal of the arbitration clause, it is clear that it does not stipulate any condition that only such demand which is referred under notice invoking arbitration clause can be referred to arbitration. Dispute had arisen between the parties in view of disallowance of depreciation by the assessing officer. Unless there was any such specific provision in the agreement which was required to be followed as condition precedent for referring the claim to arbitration, respondent could make such claims not notified in notice before the learned arbitrator. I do not find any such provision in the agreement in question. In my view, Mr Purohit, learned counsel appearing for the respondents is right in his submission that though respondents have demanded the payment of entire amount based on dis-allowance of depreciation in the notice issued on 17th May 2005, respondents were not precluded from claiming the smaller relief in the statement of claim for creation of fund so as to secure the liability of the respondents if any. In my view, learned arbitrator has not acted beyond the scope of reference and thus there is no merit in the submission of the petitioner that learned arbitrator had exceeded his jurisdiction by entertaining the claim for creation of fund though the same was not claimed in the notice of demand issued on 17th May 2005.

This Court in case of Ms Veena Naresh Seth (Supra) has dealt with similar issue and has held that there is nothing in the Arbitration and Conciliation Act, 1996, or in principle, which requires the notice invoking the arbitration to state the claims proposed to be made in the reference. A notice merely indicating the disputes or that disputes have arisen and invoking the arbitration clause is sufficient unless the arbitration agreement itself requires the invocation to be in a particular manner. In my view, since arbitration agreement did not require a party to state the nature of claim and a dispute which such party proposed to make in arbitration proceedings for which notice is issued invoking arbitration agreement, such party cannot be precluded from making any additional claim or claims not notified in such notice in the arbitration proceedings. I am respectfully bound by the Judgment of this Court in case of Smt. Veena Naresh Seth (supra) and the same is squarely applicable to the facts of this case on this issue.

10. The next question that arises for consideration of this Court is that even if Clause-14 of the lease agreement could have been made applicable for claim of creation of fund made by the respondents, whether such clause could have been invoked though liability arising out of dis-allowance of claim for depreciation is not absolute and more particularly when appeal filed by the respondents impugning such dis-allowance of depreciation was pending before the Income Tax Appellate Tribunal on the date of issuance of notice invoking arbitration clause and filing the statement of claim before the learned arbitrator by the respondents. In this context, reference to Section 124 of the Contract Act would be relevant which is extracted as under -

124. "Contract of indemnity" defined:

A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity".

Learned arbitrator recorded a finding that creation of fund is well accepted position in law which an indemnified can resort to against the indemnifier. On perusal of Section 124 of the Contract Act, it is clear that if promisee suffers any loss by conduct of the promisor or by conduct of any other person in respect of which indemnity is furnished by the promisee would be entitled to indemnify such loss against the promisor. In case of GajananParelkar Vs. Moreshwar (supra) this Court has construed Sections 124 and 125 of the Contract Act. It has been held that if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off. In my view, learned counsel appearing for the petitioner is right in her submission that unless the liability of the respondents was absolute respondents could not have invoked the alleged indemnity under Clause-14 of the agreement of lease against the petitioners for creation of fund. Claim for creation of fund was made before the learned arbitrator in statement of claim. Appeal was pending before the Income Tax Appellate Tribunal. Even according to the respondents, their claims were not crystallized and absolute on the date of filing of statement of claims and/or on the date when notice invoking arbitration was issued by the respondents. In any event, during the pendency of the arbitration proceedings, the Income Tax Appellate Tribunal had already set aside the assessment order by which claim for depreciation was disallowed by the Assessing Officer and the matter was remanded back. In my view, claim for creation of fund thus, in these circumstances, was not at all tenable under Section 124 of the Contract Act or under Clause-14 of the Lease Agreement. The entire award is vitiated on this ground.

11. On the issue as to whether cause of action as claimed in the statement of claim filed by the respondents survived or not in view of the order passed by Income Tax Appellate Tribunal setting aside the assessment order disallowing depreciation claim and remanding the matter back to the assessing officer during the pendency of the claim before the learned arbitrator is concerned, the learned arbitrator rejected this submissions made by the petitioners. It is held that claim in reference was not based only on order dated 1st April 1998 but on the respondents right under the lease agreement and the lease summary schedule to increase rental on disallowance of depreciation. It is held that such adjudication process may continue for a long time but so long as the order of depreciation subsists, the cause of action based on the lease agreement and lease summary schedule would remain. Until the final orders setting aside the order disallowing depreciation is passed, the right/cause of action remains the same. The learned arbitrator held that the adjudication process is an ongoing process and there would be variations in the orders passed but so long as there is an order disallowing depreciation the same cause of action remains, otherwise a party would have to file, then withdraw, then again file a claim and so on depending on the order prevailing which would lead to multiplicity of proceedings and would result in incurring unnecessary costs by both parties to defend such claims and there would be complete uncertainty. The learned arbitrator held that same claim continues, the cause of action being the same till the final decision.

12. It is not in dispute that after filing statement of claim on 9th December 2005, by an order dated 22nd December 2005, Income Tax Appellate Tribunal had set aside the dis-allowance of depreciation and it remanded the matter back to Assessing Officer for reconsideration. Learned arbitrator on this issue has rejected the contention of the petitioner that in view of the order dated 22nd December 2005, claim made before the learned arbitrator did not survive. Learned arbitrator has held that after such order of remand by the Income Tax Appellate Tribunal, Assessing Officer has passed a fresh order on 12th December 2006 disallowing the depreciation and the appeal arising out of such order was filed by the respondents before the Commissioner of Income Tax (Appeal) and the same was pending.

13. In my view, claim for depreciation which was disallowed by the Assessing Officer and on setting aside such order by the Income Tax Appellate Tribunal, there was no demand of any income tax from the Income Tax Department. Cause of action did not survive. If the respondents were entitled to invoke arbitration by virtue of Assessing Officer's disallowance of depreciation, the respondents could have done so separately. Proceedings which had become infructuous by virtue of initial order of dis-allowance of depreciation having been set aside, such proceeding could not have been continued by the respondents. In my view, learned arbitrator was not right in holding that there would be multiplicity of proceedings and in view of subsequent order passed by the Assessing Officer once again disallowing the depreciation, the original claim for creation of fund based on the earlier order disallowing depreciation would survive. In my view, award shows gross illegality by entertaining a claim which had become infructuous as the cause of action did not survive.

14. On the issue raised by the petitioners that claims made by the respondents are either premature or time barred, the learned arbitrator has held that as depreciation had been disallowed, right of the respondents had accrued and thus claim was not premature. It is held that every successive order disallowing depreciation, gives fresh cause of action and thus claim is not barred by law of limitation. Entitlement of the respondents was to claim the revision of the lease rentals arose when the depreciation had been disallowed. The learned arbitrator held that limitation is mixed question of facts and law. It is held that each and every order passed by the Income Tax Authorities gives right to a successive cause of action. The learned arbitrator in the impugned order has adopted the reasoning given in a separate order passed on 4th February, 2009 by the learned arbitrator on the application made by the petitioners to dismiss claim on the ground that no cause of action survived.

15. In the order dated 4th February, 2009, it is held by the learned arbitrator that the notice invoking arbitration was placed on the factum of disallowance of depreciation and on the terms of the lease agreement and not based only on the order of 1st April, 2004 passed by the assessing officer disallowing depreciation. It is held that claim of the respondents in the statement of claim would indicate that they had a right or entitlement to vary the lease rentals, by increasing the same, under the terms of the lease agreement and lease summary schedule by reason of disallowance of the depreciation by the Income Tax Authority. It is held that the statement of claim itself indicates that the appeal filed by the respondents was pending and that in the event of respondents succeeding in the appeal, the petitioners would not be liable to pay the increased rentals. It is held that the adjudication process would be an ongoing process and there may and would be variations by virtue of subsequent orders but so long as an order disallowing depreciation remains the cause of action based on the lease agreements and the lease summary schedule would remain. With these reasonings rendered by the learned arbitrator, plea of the limitation raised by the petitioners is rejected. The learned arbitrator held that if the claim is premature, it cant be time barred and if time barred, it cant be premature.

16. It is not in dispute that for the assessment year 1994-95, by an order dated 31st March, 1997, the Deputy Commissioner had disallowed depreciation. By an order dated 31st March, 1998 depreciation claimed for assessment year 1995 – 96 came to be disallowed. By orders dated 16th February, 2001 and 28th February, 2001 Commissioner of Income Tax (Appeal) dismissed appeals filed by the respondents against orders dated 31st March, 1998 and 31st March, 1997 respectively. Respondents had already filed an appeal on 10th May, 2001 before Income Tax Appellate Tribunal. During the pendency of the proceedings before Commissioner of Income Tax (Appeals), the respondents had issued debit note on 11th October, 2000 demanding various amounts from the petitioners arising out of disallowance of depreciation. The petitioners did not make any payment pursuant to such debit note issued by the respondents on 11th October, 2000 or thereafter. On 1st February, 2005 respondents issued another debit note. Notice invoking arbitration agreement was issued by the respondents on 17th May, 2005. Petitioners denied the said demand on various grounds. Arbitration proceedings commences when notice issued by claimant invoking arbitration agreement is received by the respondent and limitation stops in respect of such dispute on the date of receipt of such notice by respondents under section 21 of the Arbitration and Conciliation Act, 1996. It is not in dispute that debit note issued on 11th October, 2000 and 1st February, 2005 were based on disallowance of depreciation by the assessing officer. It is not in dispute that notice dated 17th May, 2005 invoking arbitration agreement has been issued after three years of the order passed by the Deputy Commissioner disallowing depreciation. It is also not in dispute that no payment was made by the petitioners pursuant to the debit note issued by the respondents on 11th October, 2000. During the pendency of appeal, respondents demanded residual amount under the sanction letter from the petitioners. On 26th March, 2004, petitioners paid residual amount as demanded by the respondents and the same was accepted by the respondents. The learned arbitrator had rejected the plea of limitation raised by the petitioners on the ground that each subsequent order gives a new cause of action and therefore payment need not have been within three years from the date of assessment order. It is held by the learned arbitrator that by paying the residual amount which was payable under the lease agreement, the petitioners have acknowledged that the jural relationship i.e. contract was still alive and so long as jural relationship was alive and claim was made during the existence of the contract and/or within three years after termination, if any, of the contract, the claim would be within time. The learned arbitrator has held that reference to the arbitration was not based only on the order dated 1st April, 1998 but on the respondents right under the lease agreement and lease summary schedule to increase rentals on a disallowance of depreciation.

17. In my view, payment of residual amount of 26th March, 2004 by the petitioners to the respondents would not extend period of limitation. Cause of action had already begun on 31st March, 1997 when the Deputy Commissioner disallowed depreciation for the assessment year 1994 – 95 and on 31st March, 1998 when the said claim was disallowed for the assessment year 1995 – 96. Merely because appeal was filed by the respondents before the Commissioner of Income Tax or before the Income Tax Appellate Tribunal, limitation would not stop. In my view, pendency of appeal would not save and/or extend limitation. Residual amount paid on 26th May, 2004 was not by way of part payment in respect of claim arising out of depreciation thus would not extend limitation. The said payment would even otherwise not extend limitation as the same was not within a period of three years from the date of accrual of cause of action which was 31st March, 1997 and 31st March, 1998 for the assessment year 1994 – 95 and 1995 – 96 respectively. Limitation does not be extend by making any part payment against a time barred claim. The learned arbitrator has held that the order disallowing depreciation have been already passed hence cause of action to increase lease rentals had already arisen. In my view, the learned arbitrator could not have rejected the plea of limitation. Award shows total inconsistency and contradiction on this issue. This court in case of AdityaBirla Chemicals (India) Ltd. (supra) has held that right to sue accrued when claim for depreciation was rejected by assessing officer and fresh period of limitation would not commence on denial of claim subsequently by the lessee in response to notice dated 17th May, 2005. In my view, cause of action for making any claim arising out of disallowance of depreciation would arise when claim of depreciation made by the respondents was disallowed by the assessing officer in 1997 and 1998. Once time is begun to run, no subsequent disability or inability to institute a suit or make an application stops it. Once time starts running, it does not stop. Limitation is not extended unless there is an acknowledgment of liability or part payment. This court in case of Asian Electricals Vs. Tata Motors (supra) has also taken a similar view that cause of action would arise on disallowance of depreciation by assessing officer. I am respectfully bound by the judgment of this court and do not find any reason to take a different view in this matter.

18. As far as judgment of Patna High Court in case of MukhdeoSingh and another (supra) relied upon by Mr.Purohit is concerned, it has been held in the said judgment that where a party has recurring or successive causes of action whether under the terms of contract or by operation of law, each cause of action will give a fresh start to the period of limitation and the mere fact that a party has not availed himself of the earlier cause of action, will not prevent him from availing himself of a later one. In this case, the notice invoking arbitration agreement claim filed before the learned arbitrator by the respondents clearly indicates that respondents had already availed of cause of action already having arisen in favour of the respondents due to disallowance of the claim of depreciation in the year 1997 – 98. Limitation would stop on receipt of such notice dated 17th May, 2005 by the petitioners herein and arbitration proceedings had already commenced in respect of such dispute. It is thus clear that on the date of receipt of notice dated 17th May, 2005, claim arising out of disallowance of depreciation on 31st March, 1997 and 31st March, 1998 has already became time barred. The respondents opposed the plea of petitioners that such claim was premature on the ground that liability of the respondents arising out of such disallowance of depreciation was not crystalised in view of pendency of appeal before the Income Tax Appellate Tribunal and cause of action had not arisen. Even the learned arbitrator has held that cause of action had already arisen when the claim for depreciation was disallowed by the assessing officer and merely because appeal was pending would not mean that cause of action has not arisen. The learned arbitrator has rejected the plea of the petitioners that claim was premature. The learned arbitrator has held that claim which is premature cannot be time barred and the time barred claim cannot be premature however has failed to appreciate that even if a claim may not be premature but it can still be time barred. In my view, the respondents once having invoked arbitration clause, proceeded on the basis that cause of action had arisen on the basis of disallowance of depreciation claim by the assessing officer in 1997 – 98, respondents could not have been permitted to take plea that on the assessing officer passing a fresh assessment order after remand of matter by the Income Tax Appellate Tribunal, it would give fresh cause of action and claims would not be barred by limitation. In my view respondents having opposed plea of the petitioners that claims were premature on the ground that cause of action had already arisen, could not have opposed plea of limitation on the ground that cause of action has not arisen or the same was continuing cause of action and thus such claim was not barred by limitation. The stand taken by the respondents was inconsistent and contradictory and the findings rendered by the learned arbitrator accepting such inconsistent plea is also inconsistent and contradictory. In my view, once plea of the petitioners that claims made in notice dated 17th May 2005 and statement of claim were premature is rejected, it pre-supposes that such claims were made on the premise that cause of action had already arisen when such notice was issued. The learned arbitrator therefore ought to have considered whether on the date of receipt of notice dated 17th May, 2005 whether claims were barred or not. In my view reliance placed by the respondents on the judgment of the Patna High Court in case of MukhdeoSingh and another (supra) is totally misplaced.

19. In so far as judgment in case of Union of India vs. West Coast Paper Mills Ltd. (supra) is concerned, it is held by the Supreme Court that once the appeal is filed before the Supreme Court and the same is entertained, judgment of the High Court or the Tribunal is in jeopardy. It is held that subject matter of the lis unless determined by the last court, cannot be said to have attained finality. It is held that grant of stay of operation of the judgment may not be of much relevance once Supreme Court granted special leave and decided to hear the matter on merits. It is held that appeal is continuation of suit. In my view, respondents having raised plea that in view of pendency of appeals firstly before the Commissioner of Income Tax (Appeals) and thereafter before Income Tax Appellate Tribunal which proceedings were in continuation of the assessment proceedings limitations had not commenced could not have opposed the plea of the petitioners that the claims were premature. In my view, the said judgment of the Supreme Court is of no assistance to the respondents.

20. In my view merely because assessing officer passed fresh order disallowing depreciation on 12th December, 2006 would not revive the time barred claim in respect of which notice invoking arbitration was already issued on 17th May, 2005 on the basis of cause of action having accrued on 31st March, 1997 and 31st March, 1998 for assessment years 1994 – 95 and 1995-96 respectively and statement of claim was already filed. In my view, if according to the learned arbitrator cause of action had not arisen in view of the pendency of appeal before the Appellate Authority, the learned arbitrator could not have rejected the plea of the petitioners that the claims were premature. In my view, the learned arbitrator was bound to reject time barred claims made by the respondents. By allowing such time barred claims, the learned arbitrator committed patent illegality and the award is in conflict with public policy. Reliance thus placed by the respondents on the judgment of the Supreme Court in case of Union of India vs. West Coast Paper Mills Ltd. (supra) is of no assistance to the respondents.

21. As far as judgment of Supreme Court in case of McdermottInternational Inc. (supra) relied upon by the respondents is concerned, it has been held by the Supreme Court that supervisory role of the court is at minimum level and intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. In my view, in the impugned award rendered by the learned arbitrator, the learned arbitrator has applied a wrong provisions of contract and has also allowed time barred claims and thus this Court is not prevented from interfering with such patently illegal award.

22. On the issue as to whether by accepting residual amount from the petitioners by the respondents during the pendency of appeal before the authority, would amount to accord and satisfaction and the claims would be beyond the jurisdiction of the learned arbitrator is concerned, it is held by the learned arbitrator that by paying the residual amount which was payable under the lease agreement, the petitioners have acknowledged that the jural relationship i.e. contract was still alive and so long as jural relationship was alive and claim was made during the existence of the contract and/or within three years after termination, if any, of the contract, the claim would be within time. The learned arbitrator rejected this submission made by the petitioners that there was any accord and satisfaction by accepting residual value. It is held that the petitioners did not lead any oral evidence to show that sales tax was paid by the petitioners and did not produce their books of account to show that they had treated the equipments as their own. It is further held that there was no transfer of equipments and therefore the contract as well as liability still subsisted.

23. The next issues arises for consideration of this court is whether there was any accord and satisfaction in view of the respondents accepting residual amount from the petitioners during the pendency of appeal before the Income Tax Appellate Tribunal. It is not in dispute that respondents


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