J.C. Budhraja vs Chairman, Orissa Mining ...

2. The appellant is stated to be legal heir and successor in interest of N.C. Budhraja (hereinafter referred to as the contractor). M/s. Orissa Mining Corporation Ltd. (for short OMC or respondent) entered into an agreement dated 16.9.1967 (Agreement No.30/F-2) for removal of over-burden at Kaliapani (Cuttack District) by excavation in all kinds of soil (including stoney earth and gravel mixed with boulders), and depositing/disposing of the same, as directed. The maximum lift was 6m including initial lift of one metre. The order to commence work was issued on 23.9.1967. Parties also entered into three supplementary agreements in regard to the said contract No.30/F-2, on 2.8.1969, 7.3.1970 and 10.2.1972. [Note : OMC had also entered into other contracts with the contractor including contract dated 22.2.1968 (Contract No.2/F/2) for raising Chrome Ore by open excavation from the said mining area. We are not concerned with those contracts in these appeals].

3. The main agreement enumerated two items of work in its schedule. The first, second, and third supplementary agreements enumerated respectively eight items, one item and four items in their respective schedules. The work was completed by the contractor on 15.6.1975. The final bill in respect of the work was prepared by OMC on 21.10.1976. It was revised in March-April 1977 by OMC. The final Bill It showed the total value of the work done (under several items in the schedule to main and three supplementary agreements) as Rs.1,49,190,76.74. The contractor countersigned the said bill on 14.4.1977 under protest, but, however, certified and confirmed that the measurements shown therein were correct.

5. The contractor sent a reply dated 16.11.1978 enclosing therewith a statement quantifying his claims relating to contract no. 30F-2 (subject matter of these appeals) as also another contract (no. 2F-2). A Committee was constituted by OMC to scrutinize and recommend on the admissibility of the claims made by the contractor in regard to Agreement No.30/F-2 and Agreement No.2/F-2. Several meetings were held by the said Committee and the claims of the contractor aggregating to Rs.50,15,820 in regard to contract no.30.F2 were considered. Ultimately the Committee submitted a final report dated 7.12.1979 expressing the view that the contractor could be paid only a sum of Rs.3,52,916/- in regard to his claims in respect of the two contracts. The contractor, thereafter, wrote a letter dated 29.2.1980 stating that he had come to know that the Committee had submitted its final report and requested for a copy of the report and for payments of the amounts due. OMC sent a reply dated 4.3.1980 stating that the claims were not accepted yet but however agreed to release a sum of Rs.3.5 lakhs and released the said sum on that day.

6. The contractor sent a notice dated 4.6.1980 invoking the Arbitration Agreement (Clause 23) in respect of pending claims relating to Contract No. 30F-2 and two other contracts. He suggested a panel of names and requested OMC to appoint one of them as Arbitrator. Immediately, thereafter, the contractor filed Misc. Case No.306/80 in regard to the contract in the Court of the Sub-Judge, Bhubaneswar, under section 8(2) of Arbitration Act, 1940 (Act for short) for appointment of an Arbitrator. The court allowed the said petition by order dated 6.10.1980 appointing Mr. Justice Balakrishna Patro, a retired Judge of the Orissa High Court as Arbitrator by consent. On 16.12.1982, an application was made by the present appellant under Order 22 Rule 3 CPC claiming to be the son of legatee of the contractor and for substituting him in place of the deceased N.C. Budhraja, as his legal heir. The said application was allowed by the court on 15.11.1985. In the meanwhile, Arbitration Act, 1940 ('Act' for short) was amended by the Arbitration (Orissa Amendment) Act, 1984, inserting section 41A providing for constitution of and reference to the Arbitration Tribunal. By Notification dated 3.5.1986, (amended by Memo dated 23.6.1986) the State Government constituted a one Member Special Arbitral Tribunal with Justice N. K. Das as Arbitral Tribunal to settle the disputes between the contractor and OMC in regard to contract no. 30/F-2.

7. The contractor filed a claim statement dated 27.6.1986 before the arbitrator praying for an award of Rs.3,41,42,040 with interest from 1.6.1986, as detailed below :

The Arbitrator determined the value of work executed after 1.4.1973 as Rs.52,96,967/-. He awarded an escalation of 32.6% on the said value of work and awarded Rs.17,26,811.00 as escalation in cost of labour and material.

8.4) Thus the Arbitrator awarded Rs.102,66,901.66 to the appellant as detailed below (exclusive of interest), as against the claim of Rs.95,96,616/- (exclusive of interest) made by the appellant :

16. We will now examine this case with reference to the said principles. In this case, the cause of action accrued on 14.4.1977 when the final bill was signed by the contractor. It is not in dispute that the final bill showed that a sum of Rs.17,69,608.73 was payable to the contractor (after giving credit to the payments made and after withholding a sum of Rs.7,45,953.83 as 5% security deposit). Towards the said sum of Rs.17,69,608.73. Rs.17 lacs was paid on 25.2.1976 and Rs.70,000/- was paid on 6.8.1977. The contractor had made some claims and OMC wrote a letter dated 28.10.1978 in regard to the pending claims of the contractor. In regard to Kaliapani matters, OMC informed the contractor that it has been decided to constitute a Committee which will go into the claims of the contractor so that the dues, if any, could be ascertained. It further stated that on the details of the claims and payments received being given to the contractor, OMC will settle up the pending matters at the earliest. This clearly showed an intention on the part of OMC to admit the jural relationship of contractor and employer and an intention to settle the pending claims after being satisfied about them. Therefore, the letter dated 28.10.1978 was clearly an acknowledgement in writing in so far as the pending claims of the contractor. What were the pending claims is made clear in the letter dated 16.11.1978 written by the contractor enclosing a statement showing that in all, a sum of Rs.50,15,820/- was due. The Committee constituted by the OMC examined these claims and admitted the claims only to an extent of Rs.3,52,916/- as per its final report dated 7.12.1979. OMC paid Rs.3,50,000/- on 4.3.1980. In view of the acknowledgement in writing on 28.10.1978 and payment of the Rs.3,50,000/- on 4.3.1980, it can be said that in regard to the pending claims of the contractor, the limitation stood extended by three years from 4.3.1980 and at all events by three years from 28.10.1978. It is not in dispute that the contractor issued the notice invoking arbitration on 4.6.1980 and immediately filed a petition under section 8(2) of the Act for appointment of Arbitrator which was allowed on 6.10.1980. Therefore, whatever claims were made before the Arbitrator which was part of the claim of Rs.50,15,820, was within time, having been made within three years from 28.10.1978 and 4.6.1980.

17. In regard to the claims aggregating to Rs.95,96,616/- made in the claim statement filed before the Arbitrator, only claims aggregating to Rs.28,32,138 related to and formed part of the said pending claim of Rs.50,15,820. The appellant did not make a claim in regard to the remaining Rs.21,83,692. Therefore, out of the claim of Rs.95,96,616 made by the appellant before the Arbitrator, the claim for only Rs.28,32,138/- was not barred by limitation. The remaining claims of the appellant aggregating to Rs.67,64,488/- out of the total of Rs.95,96,616/- being fresh claims, were not pending claims in respect of which the acknowledgement was made. Therefore the said fresh claims aggregating to Rs.67,64,488 made for the first time in the claims statement filed on 27.6.1986 were clearly barred by limitation.

18. The learned counsel for the appellant submitted that the limitation would begun to run from the date on which a difference arose between the parties, and in this case the difference arose only when OMC refused to comply with the notice dated 4.6.1980 seeking reference to arbitration. We are afraid, the contention is without merit. The appellant is obviously confusing the limitation for a petition under section 8(2) of the Arbitration Act, 1940 with the limitation for the claim itself. The limitation for a suit is calculated as on the date of filing of the suit. In the case of arbitration, limitation for the claim is to be calculated on the date on which the arbitration is deemed to have commenced. Section 37(3) of the Act provides that for the purpose of Limitation Act, an arbitration is deemed to have been commenced when one party to the arbitration agreement serves on the other party thereto, a notice requiring the appointment of an arbitrator. Such a notice having been served on 4.6.1980, it has to be seen whether the claims were in time as on that date. If the claims were barred on 4.6.1980, it follows that the claims had to be rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of limitation for filing a petition under section 8(2) of the Act. Insofar as a petition under section 8(2), the cause of action would arise when the other party fails to comply with the notice invoking arbitration. Therefore, the period of limitation for filing a petition under section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in Inder Singh Rekhi vs. Delhi Development Authority - (1988) 2 SCC 338, Panchu Gopal Bose vs. Board of Trustees for Port of Calcutta - (1993) 4 SCC 338 and Utkal Commercial Corporation vs. Central Coal Fields - (1999) 2 SCC 571 also make this position clear.

21. The arbitrator committed an error apparent on the face of the record and a legal misconduct in holding that the entire claim was within time. His assumption that if the application filed by the contractor in 1980 under section 8(2) of Arbitration Act for appointment of an Arbitrator was in time, all claims made in the claim statement filed before the Arbitrator appointed in such proceeding under section 8(2) are also in time, is patently erroneous and is an error apparent on the face of the record. The reasoning of the arbitrator that on account of the formation of the Committee by OMC to scrutinize the pending claims in pursuance of the OMC's letter dated 28.10.1978, and the payment of Rs.3,50,000/- on 4.3.1980 in pursuance of the Committee giving its final report on 7.12.1979, every claim of the contract including new claims which were made for the first time in the claim statement filed in 1986 (as contrasted with 'pending claims' considered by OMC), are not barred by limitation, is also an error apparent in the face of the award. Under section 18 an acknowledgement in writing extends the limitation. Under section 19 a payment made on account of a debt, enables a fresh period of limitation being computed. Therefore, the letter of OMC dated 28.10.1978 and the payment of Rs.3,50,000/- by OMC, would result in a fresh period of limitation being computed only in regard to the 'existing debt' in respect of which acknowledgment and payment was made. Admittedly, as at that time, the claim of the contractor was only for a sum of Rs.50,15,820. Therefore, the letter dated 28.10.1978 and payment on 4.3.1980 extended the limitation only in respect of the claims which were part of the said claim of Rs.50,15,820. Therefore, the fresh claims of Rs.67,64,488/- (out of the total claim of Rs.95,96,616) is barred by limitation and the award made in that behalf is liable to be set aside. Consequently, we hold that only that part of the claim before the Arbitrator which was part of the claim of Rs.5015,820/- made by the contractor, that was existing or pending as on 28.10.1978 and 4.3.1980, namely Rs.28,32,128 (out of Rs.95,96,616) could have been considered by the Arbitrator.

Question (iii) & (iv) :

25. The award of the arbitrator in respect of time barred claim of Rs.67,64,488 is an error apparent on the face of the award. Award of amounts in excess of claim (referred to in paras 22, 23 and 24) clearly amount to exceeding the jurisdiction. All these, that is awarding amount towards time barred part of the claim of Rs.67,64,488, and awarding amounts of Rs.29,86,871, Rs.670,285 and escalation in cost at a rate more than what is claimed, are all legal misconducts and the award in regard to those amounts are null and void. There is however some overlapping of the aforesaid amounts.

26. Does it mean that the entire award should be set aside? The answer is no. That part of the award which is valid and separable can be upheld. That part relates to the claims which were validly before the Arbitrator, which were part of the existing or pending claims of Rs.50,15,820 and which were not barred by limitation. As stated above they were the claims which were existing or pending in 1978, 1979 and 1980 (considered by the committee and payment made by OMC) which were carried before the Arbitrator to an extent of Rs.28,32,128. Only the amounts awarded by the Arbitrator against those claims can be considered as award validly made in Arbitration, falling within jurisdiction. They are clearly severable from the other portions of the award. The particulars of the claims and corresponding awards are as follows:

Cutting and uprooting trees 5 20,869.32 11,352.00 Nil

17. Extra head lead for 90 M 7(a) 2,61,926.40 28,10,144.00 24,50,042.88 (261,926.40)*

18. Removal of excavated material from edge of quarry 3 3,43,360.58 54,888.60 50,858.60

19. Unmeasured quantity of excavation 4 8,44,360.00 8,48,372.64 6,64,720.00

20. Catch water drain 12 1,55,400.00 27,842.50 27,842.50

21. Removal of slipped earth from side slopes 15 3,42,960.00 1,43,646.00 Nil

26. Extra lift for excavated material dumped at quarry edge 7(e) 42,370.00 3,60,690.49 270,517.88 (42,370.00)*

27. Extra lift measured by surveyor 7(b) 1,25,642.00 13,96,128.67 10,47,096.50 (125,642.00)*

29. Idle labour (for want of site) 9(c) 75,450.00 76,850.00 Nil

30. Idle labour (due to stoppage of work and restriction of working area) 9(b) & (d) 2,61,205.00 3,89,288.00 194,644.00

32. Reconstruction of Embasskent 10(vii) 25,370.00 25,370.00 25,370.00

33. Wire fencing 13 1,05,000.00 27,315.00 Nil

Thus the total amount awarded by the Arbitrator against claims which were not barred by limitation was only Rs.13,93,373.50. The award to this extent is not open to challenge. This part of the award does not suffer from any legal misconduct. There is also no error apparent on the face of the award in respect of the amount. It is not open to challenge.

Therefore, the Award of the Arbitrator has to be upheld to an extent of Rs.13,93,373.50.

28. In view of the foregoing, we allow these appeals in part, set aside the judgment of the High Court and direct a decree in terms of the award for a sum of Rs.13,93,373.50 with interest at the rate of 12% P.A. from 1.8.1977 to date of award (28.11.1986) and at the rate of 6% P.A. thereafter, that is from 29.11.1986 till date of payment. Parties to bear their respective costs.