M/S. EMM ENN ASSOCIATES Vs. COMMANDER WORKS ENGINEER & ORS.- Arbitration
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 7184 of 2008, Judgment Date: Jun 29, 2016
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLATE JURISDICTION
CIVIL APPEAL NO. 7184 OF 2008
M/S. EMM ENN ASSOCIATES … APPELLANT(S)
VERSUS
COMMANDER WORKS ENGINEER … RESPONDENT(S)
& ORS
WITH
CIVIL APPEAL NO. 7185 OF 2008
J U D G M E N T
ASHOK BHUSHAN, J.
These two appeals raising identical questions of law have been heard
together and are being decided by this common judgment. For deciding both
the appeals, it shall be sufficient to refer to facts and pleadings in
Civil Appeal No. 7184 of 2008. Appeal No. 7184 of 2008 has been filed
against judgment of Chief Justice of Punjab & Haryana High Court in
Arbitration Case No. 184 of 2006 by which judgment learned Chief Justice
has dismissed the application, filed by appellant for referring the dispute
to an arbitrator in exercise of power under Section 11 of the Arbitration
and Conciliation Act 1996 (hereinafter referred to as ‘Act’).
2. Civil Appeal No. 7185 of 2008 has also been filed against the
identical judgment of learned Chief Justice in Arbitration Case No. 89 of
2006 by which the application filed by the appellant for appointing an
arbitrator has been dismissed.
3. Brief facts giving rise to Appeal No. 7184 of 2008 now need to be
noted.
The appellant a partnership firm was allotted a contract on
10.11.1998 for providing additional security fencing at Mullanpur. The
work was completed on 10.7.2000. Work completion certificate was issued.
Final bill was prepared on 20.2.2001 and the payment of final bill was made
to the petitioner on 10.04.2001. Payment of the undisputed part of the
final bill was made by cheque dated 10.04.2001.
4. Although Clause 67 of general conditions of contract contemplated for
recovery from contractor in several contingencies one of which as referred
in sub-Clause (f) was that if as a result of any audit and technical
examination, any over payment is discovered in respect of work done under
this contract, the contractor shall on demand make payment of a sum equal
to the amount of over-payment. Sub-Clause (g) further provided that the
Government shall not be entitled to recover any over-payment beyond a
period of two years from the date of payment of the undisputed portion of
the final bill.
5. Even though, two years period expired after payment of final bill, no
demand for any recovery was issued by the Government. Contractor by letter
dated 23.02.2005 served a notice stating that final bill amount as paid
during April, 2001 did not include the payments due to contractor against
several items which were claimed as per appendix A annexed to the notice.
6. It was further stated that the decision be communicated within thirty
days failing which it shall be assumed that the claim is disputed and
contractor shall be left with no remedy except to seek adjudication by an
arbitrator appointed in terms of the contract.
7. The Garrison Engineer issued a letter dated 22.03.2005 informing that
contractor had signed the final bill without any protest and had given ‘No
Further Claim’ certificate. Hence no arbitrable dispute exists. The claim
now intimated after the lapse of a period of approx four years is baseless
and hence denied.
8. A letter dated 24.03.2005 was written by the contractor to the chief
engineer in reference to notice dated 23.02.2005 with a prayer that
arbitrator under condition 70 of the Contract may kindly be appointed to
adjudicate the dispute. The appellant thereafter filed an application
under Section 11 of the Arbitration Act before District Judge, Ropar. The
application was ultimately taken by Chief Justice of the High Court and by
an order dated 12.03.2007, the application was rejected taking the view
that appellant’s claim is not a live claim. Aggrieved against the above
judgment dated 12.03.2007 in Arbitration Case No. 184 of 2006, Appeal No.
7184 of 2008 has been filed.
9. Arbitration Case No. 89 of 2006 has also been filed by the appellant
seeking appointment of an arbitrator under Section 11 of the Act in the
said case and also the work was completed on 23.09.2000 and the final bill
was paid on 10.04.2001. Notice along with list of claim was sent by the
appellant on 23.02.2005 i.e. on the same day when notice in Arbitration
Case No. 184 of 2006 has been sent.
10. Hon’ble Chief Justice giving the same reasons rejected the
application in Arbitration Case No. 89 of 2006 holding that the claim made
by the appellant is not a live claim. Hon’ble Chief Justice by order dated
12.03.2007 took the view that final bill has been paid on 10.04.2001, the
notice having been given only on 23.02.2005 the period of limitation was
over. With regard to the Clause 67 of the contract, it was observed by the
Chief Justice that Embargo of two years as per sub-Clause (f) and (g) is
with regard to the right of the Government for effecting recovery from the
contractor which clause does not extend the period of limitation in favour
of the contractor.
11. Shri O. P. Gupta, the partner of the appellant firm has appeared in-
person and made his submission. We have also heard the learned counsel
appearing for the respondents.
12. The appellant’s case is that the claim raised by contractor by notice
dated 23.02.2005, was not barred by time and was a live claim which ought
not to have been rejected by the Chief Justice in exercise of his power
under Section 11 of the Act. It is contended that the issues as to whether
the claim is barred by time are the issues which ought to have been left
for decision of arbitrator. It is contended that payment in respect to the
final bill made on 10.04.2001, was payment with regard to undisputed
amount. Apart from undisputed amount there were other claims of the
contractor and the ‘No Liability’ certificate given by the appellant was
only with regard to undisputed claim. Payment made on 10.04.2001 was the
payment only in reference to undisputed claim and that in no manner
precluded the appellant from raising claim.
13. As per Clause 67 of the contract, there was two years period for
effecting any recovery from the contractor and when no claim against the
contractor was raised during the aforesaid period, the appellant raised
the claim for disputed amount which was not paid. The period of two years
is defect liability period and it was clearly open for the appellant to
raise the claim for disputed amount after expiry of the aforesaid period of
two years.
14. The respondents never adjudicated the disputed part of the final bill
and after serving notice the appellant had rightly sought for adjudication
by an arbitrator which application has been rejected by Hon’ble Chief
Justice not on valid considerations.
15. Learned counsel appearing for the respondents supported the judgment
of the Chief Justice and contends that for filing any application
limitation is three years as per Article 137 of the Limitation Act, 1963.
Final bill had been paid on 10.04.2001, any application for any claim in
respect to final bill ought to have been raised within three years. It is
contended that the respondents have raised the preliminary objections in
reply objecting the application for arbitration filed by the appellant,
which has rightly been rejected by the Chief Justice.
16. We have considered the submissions of both the parties and have
perused the record, what is the nature of jurisdiction of the Chief
Justice while deciding an application under Section 11 of the Act has
elaborately been considered by Seven Judge Bench of this court in SBP & CO.
versus Patel Engineering Ltd and another (2005) 8 SCC 618. In para 47 of
the judgment, conclusions were recorded by the larger Bench. Conclusion IV
is relevant for the present case which is quoted as below:
“47. We, therefore, sum up our conclusions as follows:
(iv) The Chief Justice or the designated Judge will have the right to
decide the preliminary aspects as indicated in the earlier part of this
judgment. These will be his own jurisdiction to entertain the request, the
existence of a valid arbitration agreement, the existence or otherwise of a
live claim, the existence of the condition for the exercise of his power
and on the qualifications of the arbitrator or arbitrators. The Chief
Justice or the designated Judge would be entitled to seek the opinion of an
institution in the matter of nominating an arbitrator qualified in terms of
Section 11(8) of the Act if the need arises but the order appointing the
arbitrator could only be that of the Chief Justice or the designated
Judge.”
17. The Chief Justice exercises the judicial power while passing an order
under Section 11 of the Act thus can examine the question as to whether the
claim which has been raised before him survives and needs to be
adjudicated. It goes without saying that if Chief Justice finds that claim
is a dead claim, he can exercise jurisdiction in rejecting the application.
18. A two Judge Bench of this court had occasion to consider what is a
‘live claim’ within the meaning of Section 11 of the Act. Elaborating the
jurisdiction of the Chief Justice, under Section 11 of the Act following
was laid down by this court in para 14 of the judgment:
“14. Normally, when a power is conferred on the highest judicial authority
who normally performs judicial functions and is the head of the judiciary
of the State or of the country, it is difficult to assume that the power is
conferred on the Chief Justice as persona designata. Under Section 11(6),
the Chief Justice is given a power to designate another to perform the
functions under that provision. That power has generally been designated to
a Judge of the High Court or of the Supreme Court respectively. Persona
designata, according to Black’s Law Dictionary, means “a person considered
as an individual rather than as a member of a class”. When the power is
conferred on the Chief Justices of the High Courts, the power is conferred
on a class and not considering that person as an individual. In Central
Talkies Ltd. v. Dwarka Prasad while considering the status in which the
power was to be exercised by the District Magistrate under the United
Provinces (Temporary) Control of Rent and Eviction Act, 1947 this Court
held: (SCR pp. 500-01)
“A persona designata is ‘a person who is pointed out or described as an
individual, as opposed to a person ascertained as a member of a class, or
as filling a particular character’. (See Osborne’s Concise Law Dictionary,
4th Edn., p. 253.) In the words of Schwabe, C.J., in Kokku Parthasaradhi
Naidu Garu v. Chintlachervu Koteswara Rao Garu4, personae designatae are,
‘persons selected to act in their private capacity and not in their
capacity as Judges’. The same consideration applies also to a well-known
officer like the District Magistrate named by virtue of his office, and
whose powers the Additional District Magistrate can also exercise and who
can create other officers equal to himself for the purposes of the Eviction
Act.”
In Mukri Gopalan v. Cheppilat Puthanpurayil Aboobacker this Court after
quoting the above passage from Central Talkies Ltd. v. Dwarka Prasad3
applied the test to come to the conclusion that when Section 18 of the
Kerala Buildings (Lease and Rent Control) Act, 1965 constituted the
District Judge as an Appellate Authority under that Act, it was a case
where the authority was being conferred on the District Judges who
constituted a class and, therefore, the Appellate Authority could not be
considered to be persona designata. What can be gathered from P. Ramanatha
Aiyar’s Advanced Law Lexicon, 3rd Edn., 2005, is that “persona designata”
is a person selected to act in his private capacity and not in his capacity
as a judge. He is a person pointed out or described as an individual as
opposed to a person ascertained as a member of a class or as filling a
particular character. It is also seen that one of the tests to be applied
is to see whether the person concerned could exercise the power only so
long as he holds office or could exercise the power even subsequently.
Obviously, on ceasing to be a Chief Justice, the person referred to in
Section 11(6) of the Act could not exercise the power. Thus, it is clear
that the power is conferred on the Chief Justice under Section 11(6) of the
Act not as persona designata.”
19. Further this court has observed that an application under Section 11
of the Act is expected to contain pleading about the existence of a dispute
and the applicant is not expected to justify the claim or plead extensively
in regard to limitation or production of document to demonstrate that claim
is within time in proceeding under Section 11 and that issue should
normally be left to the Arbitral Tribunal. Following was observed in para
15:
15. Normally a persona designata cannot delegate his power to another.
Here, the Chief Justice of the High Court or the Chief Justice of India is
given the power to designate another to exercise the power conferred on him
under Section 11(6) of the Act. If the power is a judicial power, it is
obvious that the power could be conferred only on a judicial authority and
in this case, logically on another Judge of the High Court or on a Judge of
the Supreme Court. It is logical to consider the conferment of the power on
the Chief Justice of the High Court and on the Chief Justice of India as
Presiding Judges of the High Court and the Supreme Court and the exercise
of the power so conferred, is exercise of judicial power/authority as
Presiding Judges of the respective courts. Replacing of the word “court” in
the Model Law with the expression “Chief Justice” in the Act, appears to be
more for excluding the exercise of power by the District Court and by the
court as an entity leading to obvious consequences in the matter of the
procedure to be followed and the rights of appeal governing the matter. The
departure from Article 11 of the Model Law and the use of the expression
“Chief Justice” cannot be taken to exclude the theory of its being an
adjudication under Section 11 of the Act by a judicial authority.
20. From the above, it is clear that Chief Justice may chose to hold a
claim as a dead claim only when the claim is evidently and patently long
time barred claim and there is no need for any detailed consideration of
evidence. An illustration have been given in para 14 as extracted above.
The above illustration becomes relevant for the facts of the present case.
In the present case also, the appellant has raised the claim beyond the
three years of completing of the work but within five years of completion
of the work.
21. In the present case, the appellant has also contended that there is a
defect liability period of two years during which any recovery can be made
from the contractor. Further the categorical case of the appellant was
that final payment made at 10.04.2001 was the final payment of the
undisputed claim and there were other claims of the appellant which were
disputed and the payment received on 10.4.2001 was with regard to
undisputed claim. There being no adjudication with regard to disputed claim
the claim raised by notice dated 23.02.2005 cannot be said to be barred by
time or a dead claim.
22. In the present appeal by IA No. 03 of 2012, the appellant has brought
certain additional materials for consideration of the Court. By annexure
16 certain certificates which were given by the contractor on 20.02.2001
that is when the final bill was prepared, has been brought on record. The
payment was made by cheque dated 10.04.2001 and para 3/4 of the certificate
filed at the 2nd page of the annexure 16 states as follows:
“3. Printed Certificate signed by the petitioner at the time of receiving
payment of the undisputed part of the Final Bill.
Received Rs. 57532/-. This payment is in full and final settlement of all
money due under C WE/AF CHD / CHD-5/98-99 and I have no further claim in
respect of the ………………..
Sd/- Contractor”
“4. Payment by Cheque of the undisputed part of the Final Bill made by
the dispersing officer, mentioned-herein-below:-
Cheque No. H – 916930 dated 10.4.2001 for Rs. 57532/- issued in favour of
M/s Emm Enn Associates on SBI AF Chandigarh Treasury.
Sd/-
Signature of Dispersing Office ”
23. Para 04 of the above certificate as quoted above clearly mentions
payment by cheque of the undisputed part of the final bill and above
certificate also clearly indicates that payment on 10.04.2001 was made of
the undisputed part of the final bill which presupposes that there are
certain other claims which are disputed. Clause 67 of the contract entered
between the parties also uses expressions “undisputed portion of the Final
Bill”
24. Appellant had relied on Clause 67 which contains a heading “Recovery
From Contractor” under sub-Clause (f) and (g) which is to the following
effect:
(f) If, as a result of such audit and technical examination, any over-
payment is discovered in respect of the work done under this Contract, the
contractor shall on demand make payment of a sum equal to the amount of
over-payment or agree for effecting necessary adjustment from any amounts
due to him by Government. If however, he refuses or neglects to make the
payment on demand or does not agree for effecting adjustment from any
amounts due to him, Government shall be entitled to take action as in sub-
para (a) hereinbefore. If as a result of such audit and technical
examination any under payment is discovered, the amount of under payment
shall be duly paid to the Contractor by Government.
(g) Provided, that, nothing hereinbefore contained shall entitled the
Government to recover any over-payment in respect of any price agreed
between the C.W.E or the G.E. and the Contractor under the circumstances
specifically prescribed for such method of assessment and that the said
right of the Government to adjust over-payment from any sum due or from any
sum which may become due to the Contractor or from Security Deposit or
Security Bond amount and adjust under payment, shall not extend beyond a
period of two years from the date of payment of the undisputed portion of
the Final Bill or in the case of minus Bill, from the date, the net amount
of the final bill is communicated to the Contractor. “
25. In sub-Clause (g) the period of two years under which the Government
is entitled to make recovery is “from the date of payment of the undisputed
portion of the final bill”. The examination of the additional materials
brought on this appeal, does indicate that the case required consideration
of relevant bills and certificates and determination on the question as to
whether the claim laid by appellant was a dead claim and was not a live
claim depended upon scrutiny of relevant documents. The pleadings in the
proceeding under Section 11 by the appellant were clearly to the effect
that on 10.04.2001, he was paid only undisputed part and the appellant has
reserved his right to raise claim to the disputed part.
26. In view of the Division Bench judgment in Indian Oil Corporation Ltd.
supra para 14 as extracted above, the present was the case which ought to
have been left for the decision by the Tribunal. We, however, have
proceeded further to examine the claim raised by the appellant in his
notice dated 23.02.2005. The pleadings of the appellant are categorical to
the effect that the final payment made on 10.04.2001 was only with regard
to undisputed portion and he has reserved his right to raise claim with
regard to other disputed claims.
27. The disputed claims having never been adjudicated, we are of the view
that there was a dispute which needed an adjudication after looking into
all relevant documents, bills and certificates which could have been
appropriately examined by Arbitral Tribunal and the observation of the
Chief Justice “As the appellant has failed to prima facie show this court
that there was a live claim of the appellant” does not commend us.
28. The claim raised by petitioner in the facts of the case could not
have been said to be a dead claim. Especially in view of the additional
documents which have been placed before us by IA No. 03 of 2012. We are
thus of the view that the order dated 12.03.2007 passed in Arbitration Case
No. 184 of 2006 and 89 of 2006 deserves to be set-aside.
29. As a consequence thereof, the application made by the appellant under
Section 11 of the Act is allowed. We, however, consider it apposite to
remit the case to the High Court (designated Judge) to pass consequential
orders for appointment of the arbitrator for deciding the disputes which
have arisen between the parties. The appointment of the arbitrator may be
made in the first instance with the consent of the parties and if, for any
reason, it is not possible to do so then the Court will appoint the
arbitrator in its discretion. It be done within one month from the date of
the parties appearance.
30. Parties to appear before the designated Judge in the High Court on
25.07.2016 to enable the Court to pass appropriate consequential order as
directed above. Both the appeals are accordingly allowed.
………………….…...........................J.
(ABHAY MANOHAR SAPRE)
………………..…...........................J.
(ASHOK BHUSHAN)
NEW DELHI,
JUNE 29, 2016.
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