Voltas Ltd vs Rolta India Ltd

Leave granted in both the Special Leave Petitions.

3. The expose’ of facts are that the appellant and respondent entered into a civil construction contract for construction of two buildings known as Rolta Bhawan II (RB-II) and Rolta Bhawan III (RB-II) and also for modification of building Rolta Bhawan I(RB-I) previously constructed by the respondent. As certain disputes arose, on 3.12.2004 the respondent terminated the contract. After certain correspondences between the parties pertaining to the termination of the contract the appellant by letter dated 29.3.2006 invoked the arbitration clause in respect of its claims against the respondent. As the respondent failed to appoint an arbitrator, it filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) before the High Court of Bombay for appointment of arbitrator and the designated Judge vide order dated 19.11.2010 appointed the sole arbitrator.

4. After the controversy came in seisin before the learned Arbitrator, he issued certain directions and, as the facts would unfurl, the appellant filed its statement of claim on 13.4.2011 claiming a sum of Rs.23,31,62,429.77 together with interest at the rate of 15% per annum from the respondent. The respondent, after filing its defence on 24.8.2011, filed the counter claim of Rs.333,73,35,026/- together with interest at the rate of 18% per annum from the date of filing till payment/realization thereof. In the counter claim the respondent justified the termination of the agreement and contended that it was entitled to damages for breach of contract. In the counter claim the notice dated 17.4.2006 sent by the respondent detailing its counter claim to the appellant was referred to.

9. Being dissatisfied, the respondent-herein preferred an appeal before the Division Bench which chronologically referred to the correspondences made between the parties, the reasoning ascribed by the learned Arbitrator, the submissions propounded before it, the principles stated in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.[3] as regards the jurisdiction of the Court while dealing with an application under Section 34 of the Act, the concept of limitation as has been explained in Praveen Enterprises (supra), the demand made by the appellant therein by letter dated 17.4.2006 quantifying a sum of Rs.68.63 crores, exclusion of period between 3.5.2006 to 19.11.2010 during which period the application under Section 11 of the Act was pending before the High Court and on that foundation, in the ultimate eventuate, came to hold that the counter claim filed on 26.9.2011 was within limitation. The aforesaid view obliged the Division Bench to allow the appeal, set aside the judgment and order passed by the learned single Judge as a consequence thereof the rejection of the counter claim by the learned Arbitrator stood overturned. Be it noted, rest of the interim award of the learned Arbitrator was not disturbed.

15. The principles laid down in the aforesaid cases were under the 1940 Act at the stage of appointment of arbitrator. In the case at hand, though we are dealing with a lis under the 1996 Act, yet we are to deal with the said facet as the learned Arbitrator has passed an interim award as regards the sustenance of the counter claim. In this regard, it is necessary to refer to the correspondences entered into between the parties and to appreciate the effect and impact of such communications. By letter dated 1.3.2005 the appellant, while referring to the letter dated 3.12.2004 issued by the respondent terminating the contract on the ground of alleged delay and default in completion of the project, without prejudice had made a request for payment of final bill in full and settle the claim made therein at the earliest. It was also suggested therein that if the respondent needed any additional information or material in support of the claim put forth, the appellant would furnish the same. On 18.3.2005 the respondent communicated to the appellant through its counsel that it would compute its losses, damages, costs, charges, expenses, etc. after the building work was over and claim the same from the appellant. The appellant vide letter dated 7.4.2005, through its counsel, intimated the respondent that it was not liable to pay any alleged losses, damages, costs, charges and expenses, allegedly suffered by the respondent. On 27.4.2005 by another communication an assertion was made about the losses suffered by the respondent. The respondent asseverated that it was not liable to pay to the appellant any compensation and damages or other amounts as claimed in the letter dated 1.3.2005 to the respondent. In fact, the respondent was compelled to terminate the civil contractor as per the recommendation of the Architects, M/s. Master & Associates, and the respondent had suffered huge losses and damages and had incurred heavy costs, charges and expenses for which the appellant was solely respondible. It was also mentioned in the letter that the respondent reserved its right to take appropriate steps against the appellant as per the agreement entered into between the parties as per law. As the factual exposition would unfurl, on 29.3.2006 the appellant, referring to its earlier communications dated 14.4.2004, 23.4.2004, 24.5.2004, 18.6.2004, 13.7.2004 and 1.3.2005, claimed for appointment of an arbitrator. On 17.4.2006 the respondent specified the claims under various heads and also claimed payment to be made within seven days failing which it will invoke the arbitration clause. To the said communication and another communication dated 21.4.2006 we shall refer to at a later stage while dealing with the other facet of submission. It may be noted here that on 9.5.2006 the appellant, referring to letter dated 17.4.2006 whereby the respondent had raised its claims, stated as follows: -

20. Keeping in view the aforesaid factual scenario we shall now proceed to appreciate what has been stated by this Court in Praveen Enterprises (supra). In the said case, the respondent therein had raised certain claims and given a notice to the appellant-therein to appoint an arbitrator in terms of the arbitration clause. As the appellant did not do so, the respondent filed an application under Section 11 of the Act and an arbitrator was appointed. The respondent filed its claim statement before the arbitrator and the learned arbitrator passed an award. In regard to the counter claims made by the appellant, the arbitrator awarded certain sum without any interest. An application under Section 34 of the Act was filed by the respondent challenging the award for rejection of its other claims and award made on a particular item of the counter claim. The civil court disposed of the matter upholding the award in respect of the claims of the respondent but accepted the objection raised by it in regard to the award made on the counter claim opining that the arbitrator could not have enlarged the scope of the reference and entertain either fresh claims by the claimants or counter claims from the respondent. The said judgment came to be assailed before the High Court which dismissed the appeal by holding that the counter claims were bad in law as they were never placed before the court by the appellant in the proceeding under Section 11 of the Act and they were not referred to by the court to arbitration and, therefore, the arbitrator had no jurisdiction to entertain the matter.

29. In the present case, when it is absolutely clear that the counter claim in respect of the enhanced sum is totally barred by limitation and is not saved by exception carved out by the principle stated in Praveen Enterprises (supra), we are unable to agree with the view of the Division Bench of the High Court that the counter claim, as a whole, is not barred by limitation. Thus analysed, the counter claim relating to the appeal which deals with civil contracts shall be restricted to the amount stated in the letter dated 17.4.2006, i.e., Rs.68,63,72,178.08, and as far as the other appeal which pertains to air-conditioning contract, the quantum shall stand restricted to as specified in the letter dated 21.3.2006, i.e., Rs.19,99,728.58.

31. Consequently, both the appeals are allowed in part, the judgment of the Division Bench in Appeals Nos. 7 of 2013 and 8 of 2013 is modified and the interim award passed by learned Arbitrator as regards rejection of the counter claims in toto stands nullified. The learned Arbitrator shall now proceed to deal with the counter claims, as has been indicated hereinabove by us. Needless to say, we have not expressed any opinion on the merits of the claims or the counter claims put forth by the parties before the learned Arbitrator. The parties shall bear their respective costs.

February 14, 2014.

[1] Arbitration Petition No. 570 of 2001 decided on 4.12.2001.