1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. APPEAL APPEAL APPEAL NO.903 OF 2006 NO.903 OF 2006 NO.903 OF 2006 IN IN IN ARBITRATION ARBITRATION ARBITRATION PETITION NO.159 OF 2006 PETITION NO.159 OF 2006 PETITION NO.159 OF 2006 Maharashtra Industrial Development Corporation Ltd., Mahakali Caves Road, Appellant Andheri (East), Mumbai 400 093. (Org.Petitioner) vs. Govardhani Construction Company 60-61, Prabhat Center, Near Fire Station, Sector-6, C.B.D., New Bombay. Respondent (Org.Respondent) Mr.C.J.Sawant, Senior Advocate with Mr.P.P.Chavan and Mr.Kiran Gandhi i/b. M/s.Little & Co. for the Appellants. Mr.Aspi Chinoy, Senior Advocate with Mr.F.Devitre, Senior Advocate with Mr.Harvinder Toor, Mr.Sagar Pawar and Mr.Aniket Deshmukh and Mr.Vipin Kameli i/b.M/s.S.K.Legal Associates for the Respondents. CORAM : DR.S.RADHAKRISHNAN & ANOOP V. MOHTA,JJ. JUDGMENT RESERVED ON: 23rd January 2008 JUDGMENT PRONOUNCED ON: 27th February,2008 ORAL JUDGMENT (Per Anoop V. Mohta,J.): Being aggrieved by an order of rejection of the Arbitration Petition, passed by the learned Single Judge dated 20.09.2006 and confirming the Award dated 7.12.2005 passed by the learned Arbitrator in the matter of disputes between the parties regarding construction of Runaway of WEB at Yavatmal, the Appellant (original Petitioner) has filed this Appeal. 2 2. On 27.10.1993 the Appellant (Maharashtra Industrial Development Corporation Ltd., for short, "MIDC") floated tender for Construction of Air Strip of 1372 meters x 30.5 meters at Yavatmal. The estimated cost of the same was Rs.1,59,26,027/- and time for completion of the work was 11 months. 3. On 21.12.1993 the Appellant by letter addressed to the Respondent accepted the Respondent’s tender and allotted said work to Respondent. The letter also required the Respondent to provide to Appellant bank guarantee in sum of Rs.3,18,600/-. 4. Thereafter the Respondent and the Appellant entered into and executed contract bearing No.B-1/12 for 93-94 in respect of said work. 5. The Appellant by letter dated 27.12.1993 addressed to the Respondent issued work order in respect of said work. On 27.12.1993 the Appellant accepted the Tender of the Respondent at 5% below the estimated cost of Rs.1,59,26,027/-. 6. On 29.11.1994 the Appellant decided to extent the Air Strip from 1372 meters 30.50 meters to 2100 meters 45 meters with modification in the appron and some allied work and therefore enquire with the Respondent’s 3 as to whether the Respondent were willing to take up the said work under the existing Agreement. 7. The Respondent by letter dated 02.12.1994 addressed to the Appellant, accepted the proposal to construct the additional length of Runway as aforesaid. 8. Stipulated date of completion of the eleven months of contract period was 26.11.1994. The Appellant by letter dated 1.2.1995 addressed to the Respondent granted extension of the contract period by 12 months, i.e. upto 26.11.1995. 9. During execution of work large quantities of hard and soft rock were excavated. The Appellant verbally instructed the Respondent to stack the excavated stones on the Runway. Accordingly the excavated stones were stacked on Runway for purpose of taking measurements. After the measurements were taken, the Appellant instructed the Respondent to convey the stacked stones to a nearby field in Bhari village. However, the concerned farmer objected to the unloading by the Respondent of excavated stones and requested the Respondent to shift them from his land. When this was brought to notice of the Appellant, verbal instructions were issued from the Appellant to the Respondent to re-convey the excavated material from aforesaid field to 4 boundary of Runway and dump it along the entire boundary, and the Respondent accordingly reconveyed the entire excavated material. 10. Whilst excavation for construction of additional length of runway (1372 mtrs to 2100 mtrs) was in progress, the Appellant by letter dated 03.08.1995 addressed to the Respondent, instructed the Respondent to complete the excavation upto 2100 mtrs but to limit the construction of WBM Standard runway to the size of only 1372 mtr. x 30.5 mts. By that time, the Respondent had nearly completed conversion of excavated stones into stone metal for construction of runway in the extended length 1372 mtrs to 2100 mtrs. The instructions of the Appellants to the Respondent, prevented the Respondent from using the stone metal which had been prepared for construction for the WBM layers, in the extended length. Thus, the additional work of extension of Runway from 1372 m upto 2100m remained incomplete. On 3.8.1995 the Superintendent Engineer Circle Office, MIDC, Amravati of the Appellant directed the Respondent to restrict the scope of the work to the extent stated in the said letter. 11. In November 1995, a team of experts from National Airport Authority of India (hereinafter briefly called "NAAI") visited the work site, and suggested to the 5 Appellant and the Respondent certain changes in the work. 12. In the light of the instructions given by experts of NAAI, the Appellant by letter dated 29.03.1996 addressed to the Respondent granted further extension of the contract period by 4 months, i.e. upto 26.3.96 ex-post facto. [The contract period was extended from time to time upto 26.03.1996 so as to complete additional work from 1372 mtrs to 2100 mtrs as also to complete additional excavation in hard rock ordered by the Appellant upto 1372 mtrs length (II-B(606/C-13) & II-B (607/C-14)]. On 23.3.1996 the Respondent completed the work of the Air Strip and the measurements in respect of the work completed by the Respondent were also recorded in the Measurement Book. 13. The original work upto 1372 mtrs and the excavation without flattening of side slopes in the extended length from 1372 mtrs to 2100 mtrs was completed by the Respondent by 23.03.96 within the extended time. Thus the additional work remained incomplete in respect of laying the WBM layers of the Runway and flattering of the side slopes from 1372 m to 2100 m. 14. In March/April 1996, the Respondent desired to remove his plant & machinery from site, and accordingly 6 approached MIDC’s Executive Engineer for permission to remove the plant & machinery. However, the Executive Engineer orally instructed the Respondent to retain the plant & machinery at the work site, as MIDC was considering whether to have the Respondent compete the balance WBM work upto 2100m. On 25.06.1996, 02.07.1996 and 16.07.1996 the Respondent addressed letters to the MIDC Executive Engineer seeking permission to remove the plant & machinery which was lying idle/unutilized at the work site. 15. On 21.06.96 the Honourable Minister of Industries of State of Maharashtra (Chairman of the Appellant) in his letter addressed to Add.Chief Engineer of the Appellant, duly recorded that he had directed to the Superintending Engineer of the Appellant to retain the machinery of the Respondents at work site. 16. In spite of receipt by the Appellant of the letter dated 25.06.96, no further instructions were received by the Respondent from the Appellant regarding the plant and machinery idling at the work site. Therefore, the Respondent again addressed letters to the Appellant on 02.07.96 and 16.07.96 about removal of the plant and machinery and the idling labour the Respondent from the work site. 7 17. The Executive Engineer, Yavatmal, of the Appellant, Mr.Tambe, by letter dated 16.08.96 addressed to the Respondent instructed the Respondent in writing "not to remove the plant & machinery from above site till further instructions". He also added in the said letter that "since you have accepted to execute the additional work of extension of the runway at the same rates for above tender without any extra claim, the proposal to get the above work done by your agency is already in process". 18. On 1.11.1996 the fact of retaining plant and machinery was also conformed from by Appellant Executive Engineer Handing over Note, in which he had said that, "H had requested the contractor to do not de-mobilise his plant and machinery from above site." . 19. In October, 1996, a sum of Rs.9,20,000/- was paid to the Respondent as advance towards the 27th and final bill of Rs.18.73 lakhs in respect of construction of Air Strip. 20. On 27.11.96, Executive and Deputy Engineers of the Appellant signed work completion certificate as: "This is to certify that M/s.Govardhani Construction Co., New Mumbai has completed the work on 23.03.96 satisfactorily." The said work completion certificate 8 was issued to and received by the Respondent on 19-12-1997 alongwith R.A. Bill No.27, finalized as Final Bill, by the Appellant. 21. On 27.11.96, Executive and Deputy Engineers of the Appellant signed "No Dues Certificate" as: "There are no dues against contractor except shown in Recovery Statement." The Recovery Statement shows NIL recovery. The said No Dues Certificate was issued to and received by Respondent on 19.12.1997 alongwith R.A. Bill No.27, finalized as Final Bill, by the Appellant. 22. The proposal to extend the Runway beyond 2100 m and upto 2600/2700 m, was furthermore evident from the Appellant’s Additional Chief Engineer’s note dated 12.02.97 written to the Appellant’s CEO. Executive Engineer of the Appellant, Mr.Pannikar by letter dated 19.12.97 addressed to the Respondent, instructed the Respondent to take away the plant & machinery from the work site and advised the Respondent to accept and sign the R.A.Bill No.27, finalized as Final Bill, by the Appellant. However, as said Final Bill did not provide for the extra work done by the Respondent, the Respondent under protest accepted and signed, the R.A.Bill No.27, finalized as Final Bill by the Appellant. 9 23. On 24.12.1997 the Respondent pointed out to MIDC that although he had agreed to complete the work of Runway in WBM upto 2100, he had been subsequently (after completing excavation upto 2100) been stopped from completing the WBM layer from 1372 to 2100. 24. The Respondent by letter dated 30.12.97 submitted to the Appellant preliminary claims of the Respondent worth Rs.1123 lacs. The Respondent in the letter also informed the Appellant that the Respondent had some other claims which would be submitted to the Appellant in a short period. 25. On 31.12.1997 the Respondent raised claim for sum of Rs.11,23,21,420/- towards extra excavation, extra conveyance and idle plant and machinery. 26. Accordingly, the Respondent thereafter submitted preliminary further claims of Rs.11.58 lacs and Rs.9.90 lacs through letters of the Respondent dated 21.01.98 and 02.03.98 addressed to the Appellant. 27. The Appellant, however, failed and neglected to consider or appreciate the preliminary claims of the the Respondent. As such, the Respondents by letter dated 27.2.1998 addressed to the Additional Chief Engineer of the Appellant, duly invoked the Arbitration Clause No.21 10 of the contract. The letter dated 27.2.98 was duly received by Appellant on 02.03.98 whereupon arbitration by and between the Respondent and the Appellant has commenced. 28. Executive Engineer of the Appellant by letter dated 25.03.98 invited the Respondent to visit the work site alongwith the Appellants’ Superintending Engineer for inspection of work site for finalization of claims with respect to "above subject work". The letter clearly bears the subject as "Airstrip @ Yavatmal .... Additional Claims". (This clearly shows that the Appellant had clearly accepted the fact that the claims had arisen out of the contract for "construction of the Airstrip at Yavatmal under Contract No.B-1/12".) 29. The Appellant’s Superintending Engineer by letter dated 20.04.98 addressed to the Respondent, informed the Respondent that with reference claims of the Respondent, a report had been received by his office from Executive Engineer and the same was under verification of his office. 30. The Respondent by letter dated 09.06.98 addressed to the Appellant, claimed interest @ 30% on preliminary 11 claim amount. 31. The Executive Engineer of the Appellant, by letter dated 09.06.98 addressed to the Respondent, requested the Respondent to remain present for a meeting with the Additional Chief Engineer in his office on 15.06.98. The letter stated that claims of Rs.11,37,48,250/- made by the Respondent concerning Contract No.B-1/12, year 93-94 were to be discussed under provision of Clause No.21 of the Contracts. 32. The Appellant’s Executive Engineer, by letter dated 25.08.98 addressed the Respondent, again invited the Respondent to attend a meeting with the Appellant’s Additional Chief Engineer on 01.09.98 for settlement of claims. 33. The Appellant’s Executive Engineer in his letter dated 10.09.98 has dealt with two claims concerning the (excess) excavation below the desired level and Conveyance of the excavated hard and soft rock. In the letter the Appellant has admitted that excess excavation of 25 cms has been done and the same has not been paid before. Similarly the Appellant has also admitted that payment has not been released for the additional conveyance of the excavated hard and soft rock and that the quantity of such conveyance is about 12,50,000 to 12 13,00,000 Cum. 34. By their letters dated 09.10.98, 27.10.98, 11.02.99 and 22.02.99, the Appellant informed the Respondent that verification of claims is in process and after verification the claims have been submitted to the senior office of the Appellant for further action. This clearly shows that the claims were under active consideration of the Appellant till February 1999. 35. The Appellant, after going through the claims admitted that a sum of Rs.7,84,66,240/- will have to be paid for keeping machinery idle and have so recorded in their Internal Note dated 27.06.99. 36. On 09.07.99 also after considering various aspects of claims, the Superintendent Engineer, Mr.Gori, in his Note addressed to the Additional Chief Engineer, has admitted that a sum of Rs.7,66,30,103/- will have to be paid to the Respondent towards the claims. 37. Thereafter on 09.07.99, the Appellant’s Additional Chief Engineer, discussed with the Respondent claims of the Respondent and offered to the Respondent a compensation of Rs.7,66,30,103/- the Respondent pointed out that said sum was much lesser than even preliminary claim of the Respondent and as such was not acceptable 13 to the Respondent. Thereupon the Additional Chief Engineer verbally informed the Respondent that he would be sending the case to higher authority for settlement. This is also evident by Office Note of additional Chief Engineer dated 13.07.99. 38. Immediately after the meeting, on 11.07.99 the Respondent wrote a letter to the Appellant’s Executive Engineer, pointed out that during the meeting held on 09.07.99, the Additional Chief Engineer of the Appellant had offered to the Respondent compensation amount of Rs.7,66,30,103/-, which was the amount recommended for payment by Shri Gori, the Superintending Engineer of the Appellant. 39. The Respondent, by letter dated 06.08.99 addressed to the Appellant, inquired about the Appellant decision regarding settlement of his dues pending with the Appellant. 40. In reply to the Respondent’s letter letter dated 06.08.99, the Appellant’s Executive Engineer by letter dated 17.08.99 informed that as the Respondent had declined the Appellant’s offer, the same was sent to the Appellant’s Head Office for final Decision. 41. The Respondent sent several reminders to the 14 various officers of the Appellant, including the Chief Executive Officer, as also to the Honourable Minister (Industries) who is also the Chairman of the Appellant and also to the Honourable Chief Minister, Govt. of Maharashtra for expeditious settlement of claims. 42. To some of said letters, the Respondent received replies, stating inter alia that their case was under consideration. However, in none of these letters, the Appellant/Officers or Ministers rejected the Respondent’s claims. 43. From August 1999 to October, 2003, in response to queries from the Respondent MIDC’s officers stated that the claims had been submitted to their head office and they would inform the Respondent when instructions were received from the Head Office. 44. On 21.5.2003, MIDC’s Note recording/confirming that Claims 1(a) to 1(d) pertained to work that had been done by the Respondent on oral instructions of MIDC Officers. 45. For the first time the Manager-Legal of the Appellant, by letter dated 21.11.03 addressed to the Respondent, informed the Respondent that all claims were not acceptable to the Corporation (Appellant). The letter denied that a sum of Rs.7,66,30,103/- was offered 15 by Additional Chief Engineer (North Zone) to the Respondent against the Respondent’s claim and stated that Additional Chief Engineer (North Zone) did not have competence to approve the claim of a nature as submitted by the Respondent and it should not be construed that the Appellant had approved the claims for sum of Rs.7,66,30,103/-. 46. Till 21.11.2003, none of the officials of the Appellant acting on behalf of the Appellant had officially rejected claims of the Respondent. For first time the claims of the Respondent were rejected by the Manager (Legal) of the Appellant on behalf of the Appellant. 47. Clause 21 of the contract bestowed authority upon the Appellant’s Additional Chief Engineer, to decide the Respondent’s claims and accordingly the Appellant’s Additional Chief Engineer had partially settled the claims, but the Appellant vitiated the process of settlement of claims stating that (Additional Chief Engineer) had no authority to decide upon the claims and was not competent to decide upon the claims. 48. Therefore in reply to letter dated 21.11.2003, the Respondent issued notice dated 4.12.2003 to the Appellant to appoint an independent and neutral 16 arbitrator for settlement of the dispute. The Respondent submitted a panel of three eminent persons who would be acceptable to the Respondent as Arbitrator. The notice also stipulated that if the Appellant did not agree with any of the 3 persons, then he was at liberty to appoint his own co-arbitrator and the Respondent would select one from the list. 49. In reply to the notice dated 4.12.2003, the Appellant by letter dated 24.12.2003 addressed to the Respondent, informed that the proposal would be put up before the Appellant Board of Directors for decision. The Appellant also requested the Respondent to defer appointment of neutral Arbitrator till then. 50. Thereafter, the Respondent & the Appellant orally agreed to termination of mandate of the Appellant’s Additional Chief Engineer and appointment of neutral Arbitrator under aegis of High Court. The Appellant thereafter with consent of Respondent terminated mandate of Additional Chief Engineer, and participated in appointment of neutral Arbitrator under aegis of High Court. 51. Accordingly, in January, 2004, the Respondent moved Arbitration Application No.7 of 2004 before the Hon’ble High Court Bombay for appointment of a sole arbitrator. 17 After hearing both the parties this Court by Order dated 20.02.2004 held interalia, "..... after hearing the parties for some time, the learned counsel for the parties are mutually agreeable to have Mr.Justice P.S.Shah (Retd.) as sole Arbitrator. Under these circumstances, Mr.Justice P.S.Shah (Retd) is appointed as the Sole Arbitrator to resolve all the disputes between the parties". 52. On 22.03.2004, thereafter, the Respondent formally submitted certain claims in the Statement of Claims on various grounds before learned Arbitrator, Mr.Justice P.S.Shah (Retd.). In the course of arbitration, the Respondent amended certain claims. The first amendment was for increment in the total claimed amount from Rs.15487.15 lacs to Rs.15820.89 lacs. The second amendment was for reduction of claimed amount from Rs.15820.89 to Rs.13937.64 lacs. 53. On 28.4.2005 the Appellant opposed the said amendment by; filing a detail reply and pointed out that the Respondent (Original Claimants) have already completed their arguments and amendment at such a late stage to change the entire case of the Respondent (Original Claimants) should not be permitted. 54. On 30.4.2005 the learned Arbitrator allowed the 18 amendment. The Appellant recorded their protest and reserve their right to challenge the said order of allowing the amendment. The learned Arbitrator recorded the said submission of the Appellant in the said order. 55. On 09.06.2004 the Appellant filed Reply before learned Arbitrator to the Statement of Claim of the Respondent. 56. On 07.08.2004 the Respondent filed application for amendment of the Statement of Claim by addition of claim no.8, i.e. claim for pushing rock into the valley by engaging bulldozer. The Appellant filed a Reply to the amendment Application. 57. On 03.09.2004 The learned Arbitrator passed Order allowing the amendment of Statement of Claim by addition of said Claim No.8. Issues were framed by learned Arbitrator in the arbitration. 58. On 21.10.2004 the Respondent filed Affidavit dated 21.10.2004 of Evidence of Mr.Mhatre before learned Arbitrator. From 04.11.2004 to 28.01.2005 the Appellant cross-examined Mr.Mhatre of Respondent before learned Arbitrator. On 28.01.2005 the evidence of the Respondent was closed before learned Arbitrator. 19 59. On 18.04.2005 the Respondent, after commencing arguments on the claims, sought to file Application before learned Arbitrator for amendment of the Statement of Claims. On 19.04.2005, the Respondent filed the Application before learned Arbitrator for amendment of the Statement of Claims; the Appellant filed a Reply to the amendment Application. 60. On 30.04.2005 learned Arbitrator passed Order allowing the amendment to the Statement of Claims. 61. The Respondent filed additional affidavit dated 30.06.2005 of evidence of Mr.Mhatre before learned Arbitrator. 62. From 09.07.2005 to 30.07.2005 the Appellant further cross-examined Mr.Mhatre of the Respondent before learned Arbitrator. 63. On 05.08.2005 the Respondent re-examined Mr.Mhatre before learned Arbitrator. The Appellant did not examine any witness or led any evidence on their behalf. The learned Arbitrator directed parties to commence arguments. The Appellant and the Respondent made oral submissions before learned Arbitrator in the arbitration. On 25.10.2005 the Appellant and the Respondent filed written submission before learned 20 Arbitrator, who then heard the parties on their written submissions. 64. On 6.8.2005 the Appellant commenced their arguments. 65. Learned Arbitrator passed arbitral Award dated 07.12.2005 whereunder certain claims of the Respondent have been allowed in part. 66. On 04.03.2006 the Appellant filed Arbitration Petition No.159 of 2006 under Section 34 of Arbitration and Conciliation Act, 1996 (for short, "Arbitration Act") to impugn the Award dated 07.12.2005. 67. On 26.06.2006 Order passed by Vazifdar, J. admitting the Arbitration Petition No.159 of 2006. 68. On 20.09.2006 Order passed by Deshmukh, J. dismissing Arbitration Petition No.159 of 2006. 69. On 10.11.2006 the Appellant filed this Appeal, being Appeal No.903.2006, under Section 37 of Arbitration and Conciliation Act, 1996. 70. On 19.12.2006 Order passed by Lodha & Bobde, JJ. admitting Appeal No.903 of 2006. 21 71. The submission of the learned senior counsel for the Appellants that in view of Section 26 of the Arbitration Act read with Section 43 of the Arbitration Act as held in (2004) 7 SCC 288-Milk Food Limited vs. (2004) 7 SCC 288-Milk Food Limited vs. (2004) 7 SCC 288-Milk Food Limited vs. GMC GMC GMC Ice Cream (Pvt.) Limited. Ice Cream (Pvt.) Limited. Ice Cream (Pvt.) Limited. the arbitration in the present case cannot be said to be commenced within limitation. The claims are barred by limitation on the face of record. Therefore, in view of Section 3 of the Limitation Act, 1963 it is the duty of the Court to satisfy itself that the claims are within limitation.Therefore the learned Judge ought not to have precluded the Appellants from contending that in Section 34 Arbitration Petition the claims were barred by the limitation, including added claims barred under clause 15(B) of the Contract. 72. The acceptable proposition of law with regard to Section 3 of the Limitation Act need no discussion. However, we have to consider the facts of the case. These cases as cited, are distinct and distinguishable on facts from the case in hand: (i) AIR AIR AIR 1964 SC 1336 - Mahindra Land & 1964 SC 1336 - Mahindra Land & 1964 SC 1336 - Mahindra Land & Building Building Building Corporation vs. Bhutnath Corporation vs. Bhutnath Corporation vs. Bhutnath Banerjee Banerjee Banerjee & ors. & ors. & ors. (paras 9 and 10) (ii) (2005) (2005) (2005) 4 4 4 SCC 613 - V.M. Salgaocar & Bros. SCC 613 - V.M. Salgaocar & Bros. SCC 613 - V.M. Salgaocar & Bros. vs. vs. vs. Board of Trustees of Port of Mormugao Board of Trustees of Port of Mormugao Board of Trustees of Port of Mormugao & Anr. Anr. Anr. - (paras 19, 20 and 21). 22 (iii) (1999) (1999) (1999) 8 SCC 122 - Steel Authority of 8 SCC 122 - Steel Authority of 8 SCC 122 - Steel Authority of India India India vs. J.C.Budhraja, Government and vs. J.C.Budhraja, Government and vs. J.C.Budhraja, Government and Mining Mining Mining Contractor Contractor Contractor (Paras 23 to 29). 73. A letter dated 21.1.1998 was addressed to the Executive Engineer, MIDC, Akola Division, Akola with a copy to Deputy