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Vilayatiram Mital Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit Appeal No. 1065A of 1979
Judge
Reported in1980RLR312
ActsArbitration Act, 1940 - Sections 20
AppellantVilayatiram Mital
RespondentUnion of India
Advocates: P.N. Kumar and; Rekha Sharma, Advs
Cases ReferredPearl Insurance Co. v. Atma Ram
Excerpt:
.....- agreement - section 20 of arbitration act, 1940 - application under section 20 for reference of claim to arbitration - respondent contended that claims were barred by time - provisions of contract debars contractors claim if he does not apply for arbitration within 90 days - such provisions void and against public policy - in view of precedents dispute arising under term of contract has to be adjudicated upon by arbitrator and not by court - matter referred to arbitration. - - i would have struck it down immediately as being bad against public policy and based on undue influence, but i am reluctant to strike it down in this particular case as it does not appear to be very necessary to decids this case from this angle. a work of construction like a hospital cannot be deemed to be..........made to clause 8 of the contract which shows that a monthly bill has to be submitted and then a final bill. assuming, the dispute relates to the first bill or the third bill, and so on, it would indicate that a demand for arbitration has to be made within 90 days of its rejection by a bill. but surely, the dispute must relate to that bill. for instence, if the first bill is paid in january and the last bill is paid in december, this clause can also mean that the claim relating to the last bill has to be raised six months earlier than the bill is submitted. the meaning of the clause is absolutely obscure and so must be given some understandable meaning. at first sight, it would appear that the provision is void as being against public policy because it debars and totally debars the.....
Judgment:

D.K. Kapur, J.

(1) [PETITIONER Constructed a Govt. hospital which was Completed on 25.4.75. Some deductions were made from his running bill, and in last bill of 18-9-76, a sum of Rs. 5171.11 was demanded from him. By letter dt. 5-1-77, he demanded reference, to arbitation, dispute about his claims for Rs. 1,40,000.00 On failue, he applied to Court u/s 20. The defense was that claims were barred by time as these were not made within 90 days as required by clause 25 of the Contract. The Court found this clause some what obnoxious.] It observed. (6) This clause States that if contractor does not demand arbitration within 90 days of receiving information from the Government that the bill is ready for payment, the claim will stand waived. The question that is puzzling is which is the bill and when it is ready for payment. I would understand a case if the date of the bill was fixed by the contract but that is not so. Reference has been made to clause 8 of the contract which shows that a monthly bill has to be submitted and then a final bill. Assuming, the dispute relates to the first bill or the third bill, and so on, it would indicate that a demand for arbitration has to be made within 90 days of its rejection by a bill. But surely, the dispute must relate to that bill. For instence, if the first bill is paid in January and the last bill is paid in December, this clause can also mean that the claim relating to the last bill has to be raised six months earlier than the bill is submitted. The meaning of the clause is absolutely obscure and so must be given some understandable meaning. At first sight, it would appear that the provision is void as being against public policy because it debars and totally debars the contractor's claim if he does not apply for arbitration within 90 days. On the contrary, it does not seem to debar the Government from making the claim and, thereforee, seems to be a unilateral embargo. There being two parties to the contract and there being a bar only on one of them, it seems to be totally against public policy. I would have struck it down immediately as being bad against public policy and based on undue influence, but I am reluctant to strike it down in this particular case as it does not appear to be very necessary to decids this case from this angle.

(2) There is no doubt that a similar clause exists in insurance policies where if a claim is not made within one year, it is deemed to be given up as was held by a Full Bench decision of the Punjab High Court in Pearl Insurance Co. v. Atma Ram, . Such clauses are justified in insurance cases because insurance is an urgent matter. When a claim arises under an insurance policy, it has to be verified at a very early date, because if investigation is not made promptly, the evidence is likely to disappear. There isjustification for such a restriction and the matter has been analysed fully by the Punjab High Court and other judgments need not be referred to. 1 cannot see any justification for an equivalent clause existing in contract for construction works, where the works can easily be measured and at any time the amount determined. A work of construction like a hospital cannot be deemed to be a transitory work and if claims arise even after 90 days, I see no justification why the normal Limitation Act, should not apply in such cases. To my mind, the clause appears to be both against public policy and against natural justice being onesided.

(3) Turning now to why I do not give a final decision on this question, but only hint that this clause seems to be one sided and against public policy, it is sufficient to note that according to the respondents the claim of the contractor is belated because it was made on 5th January, 1977, whereas the final bill was ready on 18th September, 1976. This submission is extremely doubtful for various reasons. Firstly, the letter dated 18th September, 1976, does not say that the final bill is ready for payment. In fact, it does not say that any bill is ready for payment. It merely intimates that the final bill has been adjusted by transfer vide entry No. 18, by adjusting an amount of Rs. 23,936.56 in a miscellaneous advance. Then, it ends with the following words : deposit the amount reference within a week failing which the fixed deposit receipts lying with this office will be got encashed.'

(4) This wording, to say the least, is most obscure. It merely stales or appears to state that the sum of Rs. 23,836.56 mentioned in the letter will be deducted from the final bill and put into some other account. As to what the final result in the bill will be is not mentioned in this document. That the so called transfer to that other account is not explained. It is not known whether that amount of deduction, etc., is towards payment of some other debt on as to what it is about. I do not by any means consider this document an intimation that the bill is ready for payment which is required by clause 25 of the agreement. In fact, I would read it rather as an intimation that the bill is not going to be paid. thereforee, on this reasoning it does not appear to be any intimation regarding payment of a bill or final bill. To my mind, an intimation that a bill is ready for payment should require that the bill in question should be sent to some office and intimation given that the bill is passed to a certain extent. At the same time, if clause 25 is to operate in the manner in which the respondents contend, then it should clearly be indicated to the party concerned that this is the intimation that the bill is ready for payment. The letter in question does not read in the manner proposed. The second objection to the submission which seems to be very clear is in the date. No doubt, Annexure /R-1' is dated 18th September, 1976, and the claims are made on 5th January, 1977, but the quest;on for decision is, had 90 days expired If we calculate 90 days from 18th September, 1976, the same would expire on 17th December, 1976. This means that the demand would be 18 days late, but we cannot take the date 18th September, 1976 into consideration because of the wording of clause 25. The imperative and important words are, claim in writing within 90 days of receiving the intimation from the Govt. that the bill is ready for payment. The operative date is the date on which this letter was received by the .Contractor. There is nothing in the reply concerning the date on which this letter was delivered. In the circumstances, it is not possible to say when this letter was delivered, and thereforee, it is not easy to say that the 90 days expired on 5th January, 1977. Common experience shows that the date given on such letters are deceptive are far as the dates of their actual delivery or concerned. They may be delivered the same day or they may be sent by registered post or dispatched on quite a different date. So, it cannot be said when time expired.

(5) Then, the third point that arises is the further question that if this letter dated 18th September, 1976, was the decision regarding the final bill, then why has the sum of Rs. 5,171.11 been claimed later on by the Department. Surely, there could be no claim under the same contract which could arise after the final had been finalised. I am, thereforee, of the view that the letter, Annexure 'R-l' is nowhere near being the intimation that the final bill was ready for payment. (Some details of letter are then noted)

(6) It would be indeed difficult to read from this document (hat it is a settlement and that also a final settlement of a final bill. One aspect of the respondent's case has to be rejected, that is to say that it is difficult to hold that this is an intimation that the final bill is ready for payment, rather it is something quite different.

(7) Assuming for arguments sake that it is an intimation that the final bill is ready for payment, it still has to be seen whether it applies to the present case. As already discussed above, the contract envisages the giving of a number of bills and then those bills have to be either paid or rejected. If a bill is rejected then I can quite understand that the contractor in question has to make a demand for arbitration within 90 days of the rejection of that bill. This can be a possible meaning of the clause in the contract. If the contractor does not make that demand within 90 days, it can be said that he has gone beyond the prescribed limit and thus waived the claim. But, if the claim relates to something which is not inside that bill, then I cannot understand how the 90 days period can operate. The contract envisages a number of bills and for each bill there can be a demand for arbitration if the payment is rejected. In the present case, the arbitration is not claimed regarding the amount in the bill but rather, about some other matters altogether. There have been a number of deductions and recoveries, and also there is a claim for damagers due to delay, etc. This has nothing to do with the bill. To lake the present case, there is a claim for Rs. 22,000.00 as damage under claim No. 6. This claim is on account of lapse on the part of the Department due to prolongation of the work. Such a claim has got nothing to do with the biil. There is no part of the contract under which such a claim could be made. It is a claim rather under the Contract Act itself, a claim for breach of contract and damages for extension of the work. 1 cannot understand how the contractor can make this claim within 90 days of any bill. He can only make this when the whole work is over and then he computes the period. As this claim is not covered by any bill, it cannot be subject to a 90 days period from intimation regarding the bill. A claim for damages for breach is a different claim form a claim under the contract itself. It cannot be made in the form of bill. It has to be determined by the Court or the arbitrator, as the case may be under well established principles of law. Similarly, there is a claim for increase of rates due to to the rise in cost. This is claim No. 3. Then there is a claim on account of the increase in the rates of material. It is well understood that prices have been rising ; hence, if a contract is delayed, then a claim for increased costs can be raised. This is not a claim under the contract, but a consequential claim arising from breach of contract. This also cannot be subject to a bill. I cannot understand how the 90 days period mentioned in clause 25 can apply to such a case. Such a claim can only be computed after the contract is completed on the basis of the change in the price's. It must necessarilly be after the contrrct is over. The limitation period for such a claim is three years from the end of the contract. It cannot be calculated from the date of a bill. Thus, it is obvious that the only claim which can be covered by the clause in question is a claim under the contract ifself, a claim which could have been put in a bill and disallowed by the Department. I do not find such a claim except perhaps to the extent of Rs. 16,000.00 mentioned in claim No. 2 which 's termed as unjustified deductions. To that claim, it can be said must have been disallowed by or in a bill and hence a claim should have been made within 90 days. This question will be seen by the arbitrator as and when he acts, to see whether these claims or any of them had become non-operative.

(8) I may here say that even otherwise the objections raised and relied upon by the learned counsel for the respondents and discussed above will make no difference to the present proceedings under Section 20 of the Arbitration Act. I reach this conclusion by a different line of reasoning.

(9) I refer again to the term in question It states that if the claim or demand for arbitration is not raised within 90 days from the intimate that the bill is ready for payment, then the claim will be deemed to have been waived and absolutely barred and the Government will be discharged and released from liability. It does not say that such a claim will not be adjudicated upon by the arbitrator. It will be for the arbitrator to find out whether the Government has been discharged and released from liability or whether the claim has been waived. These are questions of fact. These are not to be determined by the Court. At this stage, we are only to see that there are disputes and those disputes are to be referred to arbitration and the arbitrator can decide those questions.

(10) It is well settled by a series of decisions based on the rule laid down in Heyan case (1942) A. C. 056, that a dispute arising under the contract or under the term of the contract has to be adjudicated upon by the arbitrator and not by the Court. The term relied upon to the effect that if the claim is not raised for arbitration within 90 days of a particular date, then it would be waived is a term in the contract. The interpretation, the contruction and the meaning of this term has to be done by the arbitrator. I refer to the opening words of clause 25' Except whhere otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings, etc....or as to any other question claim, right matter or thing whatsoever, in any way arising out of or relating to the contract, etc............shall be referred to the sole arbitrator. The present question is a question relating to the contract and, there fore, has to referred to arbitration. The Court cannot decide this question, as this will be exceeding its jurisdiction, but in deciding to refer the matter I have made an analysis of the matter which has arisen. I make it clear that whatever I have decided is not at all binding on the arbitrator, who is the person who can decide this question.

(11) In view of this, I direct the filing of the arbitration agreement and refer the matter to arbitration in accordance with the clause. The Chief Engineer has to appoint the arbitrator. The appointment may be made within 2 months. The matters to be referred to arbitration are the disputes raised by the petitioner as well as the disputes raised by the respondents.


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