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Ram Nath Mehra and Sons Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit No. 323A of 1980
Judge
Reported inAIR1982Delhi164; 21(1982)DLT38b; 1982RLR12
ActsArbitration Act, 1940 - Sections 20
AppellantRam Nath Mehra and Sons
RespondentUnion of India
Advocates: B.K. Dewan and; Vijaya Rao, Advs
Cases ReferredSterling General Insurance Co. Ltd. v. Planters Airways Pvt. Ltd.
Excerpt:
in a contract for constructing a building, certain amount was withheld - in this lieu, an application filed under sections 20 and 37 of the arbitration act, 1940, for the appointment of the arbitrator was rejected on the ground of being time-barred - hence, it would be for the court to decide whether the demand for arbitration was barred or was made beyond the stipulated time - .....(the act)(6) the sole defense of the government is that the contractor's demand for arbitration is time barred. they rely on the following terms of the contract : 'it is also a term of the contract that if the contractor (s) do/does not make any demand for arbitration in respect of any claim (s) in writing within 90 days of receiving the intimation from the govt. that the bill is ready for payment, the claim of the contractor (s) will be deemed to have been waived and absolutely barred and the govt. shall be discharged and released of all liabilities under the contract in respect of those claims.'(7) counsel for the govt. says that the period of 90 days should be computed from the date of intimation of the final bill to the contractor. this was done on 21.4.77, as have said. the period.....
Judgment:

Avadh Behari, J.

(1) Petitioner is a contractor. He entered into a contract with the Union of India for work of contruction of M.S.O. Building. A formal agreement was executed between the parties. The value of the contract was Rs. 7,82,206.00. The work was completed on 28.6.76. Final bill of Rs. 8,06,163.00 was prepared on 30.3.77. Govt. effected certain recoveries from contractor's bill. On 21 4.77, Govt. wrote to the contractor that :

'The final bill of the above work in your favor is ready in this office for payment.'

(2) On 11.5.77, Govt. wrote another letter to the contractor in which it was said that the Govt. had a right to recover liquidated damages in accordance with clause 2 of the agreement as the work was not completed in time. It was said : 'Under clause 2 of the agreement, you have rendered yourself liable to pay Rs. 12,040.00 as compensation. The amount of compensation is hereby levied on you'. It is admited case of the parties that the Govt. had withheld in the final bill a sum of Rs. 16,141.00 on account of their claim for damages for delay in the completion of the work. On 11.5.77, Govt. assessed damages at Rs. 12,040.00 on account of delay & refunded Rs. 4,101.00 to the contractor on 28.5.77.

(3) The Govt. had withheld certain other amounts also. Three amounts are admitted by Govt. to have been so with-held. These were Rs. 3,000.00, Rs. 5,000.00 & Rs. 1,000.00. Total Rs. 9,000.00. Out of the amounts withheld a sum of Rs. 8001.47 was refunded to the contractor on 17.8.77, 21. 10.78 and 7.6.79. The balance of Rs, 998.53 was adjusted for sub-standard work executed by the contractor.

(4) After 7.6.79 the contractor thought of demanding arbitration for settlement of his claims. Because he was aggrieved by the action of the government in withholding various amounts in the final bill and effecting recoveries from him. There was an arbitration clause in the contract. This was clause 25. It provided for arbitration in the event of disputes arising between the parties. On 23.6. 79 the contractor addressed a letter to the Chief Engineer requiring him to appoint an arbitrator in terms of clause 25 of the contract. A list of disputes was annexed to this letter.

(5) On 6.7.79 the Chief Engineer wrote to the contractor that the letter was receiving his attention. On 1.5.80 he turned down the request on the ground that 'your claims are barred by time. As such your request for appointment of arbitrator cannot be agreed to'. The contractor in his letter dt. 22.5.80 protested. He said that claims were not barred by time and that he was entitled to demand arbitration. On 6.6.1980 the Chief Engineer wrote to the contractor that the decision already communicated to him in letter dated 1.5.80 could not be changed. On 7.7.80 the contractor made the present application u/s 20 of the Arbitration Act. (the Act)

(6) The sole defense of the government is that the contractor's demand for arbitration is time barred. They rely on the following terms of the contract :

'It is also a term of the contract that if the contractor (s) do/does not make any demand for arbitration in respect of any claim (s) in writing within 90 days of receiving the intimation from the Govt. that the bill is ready for payment, the claim of the contractor (s) will be deemed to have been waived and absolutely barred and the Govt. shall be discharged and released of all liabilities under the contract in respect of those claims.'

(7) Counsel for the Govt. says that the period of 90 days should be computed from the date of intimation of the final bill to the contractor. This was done on 21.4.77, as have said. The period of 90 days expired on 21.7.77. The demand for arbitration was mads, as we have seen, on 23.6.79. The question for decision is whether the demand for arbitration was made out of time. In my opinion it was made within time. A clause such as the one we have here which restricts the lights of a person to demand arbitration to a limited time, say 90 days as here, must be strictly constructed against the employer. Such time limit clauses sometimes operate most unjustly The contractor is absolutely barred for ever from making claims. The question is whether the arbitrator should be appointed in this case or the contractor is barred absolutely from demanding arbitration. Will the period of 90 days commence from the intimation given by the government on 21.4.77 that the final bill was ready for payment, or it would commence from the last payment which the government made, namely, 7.6 79. In my opinion it ought to commence from the last payment which admittedly the government made on 7.6.79.

(8) What is the object of this clause The object is to give finality to the final bill if not; disputed within 90 days by demanding arbitration. If a bill has been prepared for payment it means the government has taken its decision on the claims of the contractor, and it will now be for the contractor to demand arbitration if he is dissatisfied with. that decision. But if no decision has been; taken on certain issues and certain matters are left outstanding, it cannot be said that final bill in the strict sense of the word has been. prepared. The government even after 21.4.77 took several decisions. The first decision taken by them was on 11.5.77. They levied a, a penalty of Rs. 12,040.00 and communicated. their decision to the contractor by letter of 11.5.77 and refunded the balance Rs. 4,101.00. on 28.5.77. Then the Government took three other decisions when they refunded to the contractor a sum of Rs. 8001.47 on three different dates, namely, 17.8.77, 21.10.78, and and 7.6.79. This shows that nothing was final in the true sense of the word. It may be called a 'final' bill by the Government. But what we have to see is the substance of the matter Everything was not finalised when the final bill was prepared. Decisions after decisions were taken even after the prepration of the final bill. The words 'hereby levied' in the letter of 11.5.77 show that the Government's claim of damages had not been finalised till then. On 7.6.79 Rs. 998.53 were adjusted for sub-standard work executed by the contractor. This was another vital decision. It is said on the one hand that the bill is final, on the other claims are decided de novo. I would say that the contractor was misled by the Government. He thought that the bill was not final. If there has been delay in demanding arbitration the Government have to think themselves. Why were they taking fresh decisions on vital matters when they had finalised the bill for payment For delay the Government is to be blamed. They contributed to the delay no less by adopting a dilatory procedure. The case has a resemblance to Hughes v. Metropolitan Railway Co. (1877) 2 AC 439 where there were negotiation for a settlement and it was held pending those negotiations, the strict rights of the parties did not apply.

(9) The contractor, in my opinion, was within time when he demanded arbitration by his letter dt. 23.6 79. He is not barred by the clause. Suppose I am wrong. On the facts of this case I would even be prepared to exercise my discretion u/s 37(4) of the Act and extend the time. If even there was a case of 'undue hardship' as contemplated by sub-section (4) it is indeed this. The Government by reason of their inconsistent conduct are estopped from pleading the bar of 90 days. It is pretty plain that their conduct has not been entirely blameless. This is the only issue which was framed in this case, namely : whether the petition is barred by time by reason of (a) clause 25 of the contract and (b) Article 137 of the Limitation Act This issue is decided in favor of the contractor and against the government.

(10) My attention was drawn to a decision of Dalip Kapur J. in Vilayatiram Mital v. Union of India, 1980 RLR 313. The learned Judge was of the view that it will be for the arbitrator to find whether the government has been discharged and released from liability and whether the claim has been waived. Whether the claims were barred or not, he said, should be determined by the arbitrator and not by the Court. He said :

'The Court cannot decide this question as this will be exceeding its jurisdiction'.

With very great respect, I profoundly disagree with this view. In my opinion it is for the court to decide whether the demand for arbitration is barred and has been made beyond the time limit of 90 days, fixed by the contract. The learned Judge also doubted the validity of the clause fixing 90 days as the time limit for making a demand for arbitration. Such a clause in the contract, 1 venture to think, is valid. Where the contract provides that a claim shall be barred unless it is referred to arbitration within a certain time the court is empowered u/s 37(4) of the Act to interfere if it is of opinion that in the circumstances of the case 'undue hardship' would otherwise be caused to a party. The court may extend the time and make the order subject to terms as it thinks proper. This sub-section (4) of S. 37 came up for consideration before the Supreme Court in Sterling General Insurance Co. Ltd. v. Planters Airways Pvt. Ltd., 1955 (1) Scc 603.

(11) The term of the contract says that the 'demand for arbitration' has to be made within 90 days from the intimation of the final bill. If the demand is not made within this time limit the claims will be 'deemed to have been waived and absolutely barred'. That such a clause is valid would appear from S. 37(4) because the jural hypothesis of that section is that such a clause though valid can cause 'undue hardship' otherwise and to relieve that hardship court is given the power to extend time. So the clause has the sanction of the statute. But in each case the juristic basis of waiver must be examined. The essence of a waiver is the abandonmant of a right. It is necessary thereforee to analyze each case in which it is relied upon to determine the precise basis for the plea of waiver. On the facts of this case I have come to the conclusion that there was no waiver because the 'demand fir arbitration' was made within time. If it is held that it was made out of time I would extend the time. This is a case pre-eminently fit for the exercise of discretion u/s 37(4). I am not prepared to hold that all claims of the contractor are barred. No pre- judice will be caused to the government if arbitrator is appointed.

(12) It has, thereforee, to be noted that the court only can extend the time u/s 37(4). The statute invests the court with this power. It cannot do away with the time limit altogether. It can enlarge the time. If the court is given the power to extend the time under sub-section (4) of section 37 it follows that it will be for the court and not for the arbitrator to decide whether the 'demand for arbitration' has been made within time or not. At the very threshold the objection is raised in a petition u/s 20 that the demand for arbitration is out of time because it was not made within 90 days. It will be the duty of the court to decide the objection. Because the court alone has been given the power to extend the time and not the arbitrator. If it is held that it is for the arbitrator to decide whether the contractor's claims are barred then he will have no power to extend the time even if he comes to the conclusion that undue hardship will be caused to the contractor. I am thereforee of the view that the question of time limit has to be decided by the court and cannot be left to the arbitrator.

(13) To my mind to take the view that it will be for the arbitrator to decide whether the claims of the contractor are barred or not is begging the question. The arbitrator will decide this after he is appointed by the Chief Engineer. But the question at the outset is : Should the arbitrator at all be appointed The other party says that the arbitrator cannot be appointed because the demand was made out of time. So the court is called upon to decide the issue whether the contractor can demand arbitration. The clause says that all his claims will be barred if the contractor does not pursue the remedy of arbitration in time. The court has to decide whether the arbitrator should be appointed or the contractor is barred absolutely for ever from going to arbitration for making his claims.

(14) For these reasons I hold that the demand for arbitration is within time. The Chief Engineer is ordered to appoint an arbitrator in terms of clause 25 of the contract within two months from today. The parties are left to be their own costs.


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