CR No.2940 of 1989 -1- In the High Court of Punjab and Haryana at Chandigarh. (1) CR No.2940 of 1989 Date of decision: 21.01.2008. M/s.Aggarwal Rice and General Trading Company through its partner Shri Avtar Krishan …….Petitioner Versus Food Corporation of India through its Senior Regional Manager. ……….Respondent (2) CR No.2941 of 1989 Date of decision: 21.01.2008. M/s.Aggarwal Rice and General Trading Company through its partner Shri Avtar Krishan …….Petitioner Versus Food Corporation of India through its Senior Regional Manager. ……….Respondent CORAM: HON’BE MR. JUSTICE PERMOD KOHLI PRESENT: Mr. Arun Nehra, Advocate, for the petitioner(s). None for the respondent(s). CR No.2940 of 1989 -2- PERMOD KOHLI, J. This judgment will dispose of CR Nos.2940 and 2941 of 1989 as both these revision petitions have been filed on common grounds and similar factual background. Orders dated 02.06.1989 passed by the learned Additional District Judge, Kapurthala, in Civil Appeal Nos.22 and 23 of 14.06.1988 are the subject matter of challenge in the present revision petitions. It is necessary to briefly refer the facts of the case:- The parties to the present revision petitions entered into two separate agreements dated 23.05.1980 whereunder the petitioner was given paddy for shelling by respondent No.1, Food Corporation of India (hereinafter referred to as the “FCI ”). Under the agreement, lifting of paddy was required to be completed by 10.08.1980 and after the shelling of the rice the resultant rice was to be redelivered to the respondent-FCI. The petitioner has also furnished a bank guarantee to the tune of Rs.5 lacs, apparently as a security for due performance of the contract. The agreement contained an arbitration clause whereunder the disputes between the parties were required to be referred to the Arbitrator. The petitioner filed applications under Section 20 of the Arbitration Act, 1940, seeking reference of disputes to the Arbitrator in accordance with the arbitration clause contained in the agreement/contract. It was alleged in the arbitration application No.2 of 1984 that the petitioner supplied the requisite quantity of rice to the respondent-FCI upto 22.12.1980. The further allegation made in the application is to the effect that the respondent-FCI vide its letter CR No.2940 of 1989 -3- No.19370 dated 01.10.1980, asked the Manager,State Bank of India, Kapurthala, for encashment of the bank guarantee, on the ground that on reconciliation of the accounts, 469 quintals of resultant rice was found to be short having been supplied by the petitioner to the respondent-FCI. The petitioner further claims that with a view to save the bank guarantee, additional quantity of 328 quintals and 30 Kgs of rice was supplied to the respondent-FCI on 22.10.1980 and despite that an amount of Rs.12103.20 P. was deducted from the final bill of the petitioner in March, 1984. It was further alleged that the FCI has refused to make payment of the excess quantity of rice supplied subsequently and made illegal deductions which resulted in the dispute between the parties which was sought to be referred to the Arbitrator. This application was opposed by the respondent-FCI, primarily on the following grounds:- (i) that the application under Section 20 of the Arbitration Act, 1940, is barred by time; and (ii) that the attorney of the petitioner had given No Objection Certificate at the time of the final bills and, thus, there exists no dispute between the parties. The learned trial Court on 23.05.1985 framed the following issues:- 1. Whether there is any dispute in between the parties as alleged in the application? OPS CR No.2940 of 1989 -4- 2. Whether the application is not within limitation? OPA 3. Relief. While deciding issue No.1, the learned trial Court observed that the limitation for filing application under Section 20 of the Arbitration Act is governed by Article 137 of the Limitation Act whereunder a period of three years is prescribed for filing such application. It is also observed that the respondent-FCI received 328 quintals and 30 Kgs of rice on 22.10.1982 and the limitation under Article 137 of the Limitation Act, 1963, will commence from the said date. Accordingly, it was held that the application under Section 20 of the Arbitration Act, which was filed on 30.07.1984, is within limitation, having been filed within three years from the date the right accrues. It also held that it has not been proved that the person who signed the No Objection Certificate was holding a proper Power of Attorney on behalf of the petitioner. The trial Court also observed that No Objection Certificate is usually obtained by the department before releasing the final payment of the bills and, thus, such certificate is not binding and the petitioner was held entitled to seek legal remedy available under the law. Under the above circumstances, vide its judgment and order dated 03.05.1988, the learned trial Court referred the disputes to the Arbitrator under Section 20 of the Arbitration Act. Dis-satisfied with the judgment, the respondent-FCI filed Civil Appeal No.23 dated 14.06.1988 before the learned Additional District Judge, Kapurthala, which has been decided by the impugned judgment dated 02.06.1989. The learned Lower Appellate Court reversed the findings of the learned trial Court on both the issues. CR No.2940 of 1989 -5- Regarding question of limitation, the learned Lower Appellate Court held that last delivery of rice was given to the respondent-FCI on 22.12.1980 in full and final settlement of the paddy and according to the Arbitration Clause, arbitration can be demanded within a year of the date of completion or date of termination of the agreement. Since the last delivery of rise was given on 22.12.1980 in full and final settlement of the paddy supplied, limitation would commence from the said date and, thus, the application is barred by time. On the other issue relating to No Objection Certificate, it held that the petitioner M/s. Aggarwal Rice and General Trading Corporation had appointed M/s.Radha Traders, Kapurthala, as attorney vide Power of Attorney dated 20.09.1982 and one Surender Kumar of M/s.Radha Traders, Kapurthala, has issued No Demand Certificate and, thus, on issuance of such a certificate the contract between the parties came to an end. It accordingly, held that since the contract has been completed, no dispute remains to be settled by reference to the Arbitrator. I have heard the learned counsel for the parties at length and gone through the file carefully. It is not in dispute that petition under Section 20 of the Arbitration Act is governed by Article 137 of the Limitation Act in so far as the question of limitation is concerned. It is also admitted factual position that the agreement was executed on 23.05.1980. A total of 103400 q uintals of paddy was supplied to the petitioner for shelling purposes. After shelling of the paddy, rice was supplied to the respondent-FCI from time to time. According to the petitioner, the last supply was made on 22.12.1980. However, final accounts were not settled. It is also admitted case of the respondent-FCI that on reconciliation of the accounts, it was found that 469 CR No.2940 of 1989 -6- quintals of resultant rice fell short of the supply. Based upon this reconciliation, letter dated 01.10.1982 was issued from the office of the respondent-FCI to the State Bank of India for encashment of the Bank Guarantee. Consequent upon this, another quantity of rice i.e. 328 quintls and 30 Kgs of rice was supplied on 22.10.1982 and, thereafter, No Objection Certificate was issued by one Surender Kumar, alleged attorney of the petitioner, on 20.09.1982. Therefore, on the basis of these facts pleaded by the respondent-FCI, transactions between the parties continued uptill 22.10.1982 or till the grant of No Objection Certificate on 20.09.1982. The accounts were not finalized before the date of issuance of No Objection Certificate. It is also the common case of the parties that supply of the resultant rice continued to be made till 22.10.1982. This supply was pursuant to the agreement dated 03.05.1980. Even the communication dated 01.10.1982 for encashment of the Bank Guarantee was a consequence of the alleged non performance or breach of the agreement dated 03.05.1980. Under Article 137 of the Limitation Act, period for commencement of the limitation is three years when the right to apply accrues. Right to apply for reference of dispute accrues only on finalization of the accounts/transactions between the parties. It is not a case where limitation starts from the date of completion of contract but from the date right to apply accrues-meaning thereby that the dispute arises between the parties. The dispute is raised on alleged final reconciliation of the accounts when the letter dated 01.10.1982 came to be issued by the respondent-FCI to the State Bank of India for encashment of the bank guarantee. Therefore, looking from any angle, limitation is to commence when the dispute is raised or at least on final settlement of the accounts CR No.2940 of 1989 -7- which was on 20.09.1982. Thus, arbitration petition under Section 20 was preferred on 30.07.1984 i.e. within three years from the date dispute is raised or at least No Objection Certificate is signed. The learned Lower Appellate Court, thus, seems to have totally ignored the factual aspect of the case as also the time for commencement of the limitation as prescribed under Article 137 of the Limitation Act. The findings of the learned Lower Appellate Court are erroneous, both on facts and law. I have no hesitation in setting aside the same. Accordingly, the application under Section 20 of the Arbitration Act filed by the petitioner was/is within period of limitation i.e. three years as prescribed under Article 137 of the Limitation Act. Coming to the findings on issue No.2, the learned Lower Appellate Court observed that the No Objection Certificate was issued by M/s.Radha Traders, Kapurthala, attorney of M/s. Aggarwal Rice and General Trading Corporation- petitioner herein, on 20.09.1982 regarding full and final payment of the supplies, shelling of the paddy settlement of all disputes between the parties and, thus, the contract came to an end. The learned Lower Appellate Court further proceeded to observe that additional supply of rice i.e. 328 quintals and 30 Kgs made on 22.10.1982 was not regarding the contract in dispute and the petitioner M/s.Aggarwal Rice and General Trading Corporation can avail legal remedy under law. While returning this findings, the learned Lower Appellate Court has completely overlooked and ignored the admitted factual position. It is no body’s case that the supply of 328 quintals and 30 Kgs of rice was on account of any different agreement between the parties. As a matter of fact, except the agreement dated 03.05.1980, no other agreement was pleaded by any of the parties. The bank guarantee sought to be encashed was also in relation to CR No.2940 of 1989 -8- the aforesaid agreement. So is the position with regard to the recovery made by the respondent-FCI. These facts are being noticed only to appreciate the facts on record for the purpose of determination of the controversy regarding the existence/non-existence of the disputes between the parties and in no manner it should be construed to be a finding of fact in regard to the merits of the case. The dispute between the parties and their rights and obligations are required to be determined and adjudicated upon by the Arbitrator, if to be appointed and not by this Court, particularly in proceedings under Section 20 of the Arbitration Act. In short, the transaction between the parties arising out of the contract dated 03.05.1980 continued till 22.10.1982 with the supply of 328 quintals and 30 Kgs of rice and recovery from the final bill of the petitioner. This supply was even after the issuance of No Objection Certificate by the alleged attorney on 20.09.1982. By the conduct of the respondent-FCI, the alleged No Objection Certificate itself has been rendered ineffective in view of the acceptance of subsequent supply of rice on 22.10.1982. The other question is whether such an No Objection Certificate which seems to be routine matter at the time of the preparation of the final bill can create an impediment or embargo for seeking settlement of disputes between the parties. Impact of the No Objection Certificate and in what context and under what circumstances the same has been issued will have to be seen while determining the rights of the parties arising out of the contract which is within exclusive domain of the Arbitrator. Be that as it may, similar question came up for consideration by the Hon’ble Supreme Court in the case of M/s.Bharat Heavy Electricals Limited, Ranipur Vs. M/s.Amar Nath CR No.2940 of 1989 -9- Bhan Prakash, (1982) 1 Supreme Court Cases, 625, wherein the following observations have been made:- “It appears from the order of the High Court impugned in the appeal that the High Court has not correctly appreciated the position that the question whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract and is liable to be referred to arbitration and hence the application of the respondent under Section 20 of the Indian Arbitration Act should have been allowed and the matters in dispute between the parties, including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration.” In the case of Chairman and MD, NTPC Ltd. Vs. Reshmi Constructions, Builders & Contractors, (2004) 2 Supreme Court Cases 663, it has been held as under:- “Even when right and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of CR No.2940 of 1989 -10- determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a “No Demand Certificate” is signed. Each case, therefore, is required to be considered on its own facts.” The facts noticed in the present case clearly unequivocally indicate that the parties continued their transactions arising out of contract dated 03.05.1980 till 22.10.1982 and even after No Objection Certificate granted by the Attorney of the petitioner on 20.09.1982. This sufficiently demonstrate the intention of the parties to settle their disputes even after the signing of No Objection Certificate. Thus, the No Objection Certificate carries no purpose nor it was intended to shut the right of the parties. Apart from that, the agreement does not come CR No.2940 of 1989 -11- to its complete end unless mutual rights/obligations of the parties are finally settled. The findings of the learned Lower Appellate Court that the termination of the agreement/contract came to be concluded and no dispute survives, are erroneous and based upon misconstruction of the agreement and misconception of law as also completely divorced from facts on record. If the view of the learned Lower Appellate Court is accepted, then all disputes between the parties after the period for performance of contract cannot be adjudicated upon by any Court/Forum. These findings are also liable to be set aside. These revisions are accordingly allowed. The judgment and order of the learned Lower Appellate Court dated 02.06.1989 in both the appeals No.22 and 23 of 1988, is hereby set aside. Resultantly, petition under Section 20 of the Arbitration Act succeeds and the dispute between the parties is ordered to be referred to the Arbitrator who shall enter upon the reference and publish his award within the statutory period. 21.01.2008 (PERMOD KOHLI) BLS JUDGE Note: Whether to be referred to the Reporter? YES