[2016] 5 S.C.R. 503

M/S. EMM ENN ASSOCIATES

COMMANDER WORKS ENGINEER & ORS.

(Civil Appeal No.7184 of2008)

JUNE 29, 2016

[ABHAY MANOHAR SAPRE AND ASHOK BHUSHAN, JJ.)

Arbitration and Conciliation Act, 1996 - s. 11 - Work contract

- To appellant-contractor, by Government - After completion of work, payment of undisputed part of final bill on 10.4.2001 - As per the contract defect liability period was two years, during which recovery could be made from the contractor - On 23.2.2005 contractor served notice to the Government raising other claims which were disputed - Claim denied - Letter by contractor to Government for appoint111ent of arbitrator as per the contract -

Thereafter application uls.11 filed - Rejection of application by the Chief Justice of High Court on the ground that the clai111 was not a live clai111 and the notice dated 23.2.2005 was ti111e-barred -

On appeal, held: The Chief Justice since exercises judicial power while deciding application u/s. 11, can examine the question as to whether the claim survives or needs to be adjudicated - But a clai111 can be held to be a dead claim only when the clai111 is evidently and patently long time-barred and there is no need for any detailed consideration of evidence - Jn the present case there was a dispute which needed adjudication after looking into all relevant documents, which could have been appropriately exa111ined by Arbitral Tribunal

- Case remitted to Designated Judge for appointment of the arbitrator.

Allowing the appeals and remitting the matters to Designated Judge, the Court

HELD: 1. The Chief Justice exercises the judicial power while passing an order under Section 11 of the Arbitration and Conciliation Act, 1996 and thus can examine the question as to whether the claim which has been raised before him survives and needs to he adjudicated. If Chief Justice finds that claim is a dead claim, he can exercise jurisdiction in rejecting the application. [Para 17] [ 509-B-C)

A SEP & CO. versus Patel Engineering Ltd and another 2005 (4) Suppl. SCR 688 : (2005) 8 SCC 618 - relied on.

2. 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. Therefore, the 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. [Paras 19 and 20] [510-C-D, H; 511-A)

Indian Oil Corporation Limited v. SPS Engineering Limited 2011 (2) SCR 512 : 2011 (3) SC 507 - relied on.

3. 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.

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. [Para 21] [511-B-C]

4. The examination of the additional materials brought on this appeal, d.oes 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. [Para 25] [513-A-B)

5. Thus, 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

MIS. EMM ENN ASSOCIATES v. COMMANDER WORKS 505

ENGINEER & ORS.

Tribunal and the observation of the Chief Justice "As the appellant A has failed to prinw facie show this court that there was a live claim of the appellant" is not correct. [Para 27] [513-D-E]

6. It is 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 B 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. (Para 29) (513-G-H]

Case Law Reference C

2005 ( 4) Suppl. SCR 688

2011 (2) SCR 512

relied on

relied on

Para 16

Para 18

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7184 of 2008.

From the Judgment and Order dated 12.03.2007 of the High Court of Punjab and Haryana at Chandigarh in Arbitration Case No. 184 of 2006.

WITH

C. A. No. 7185 of 2008.

Petitioner-in-person.

Yashank Adhyaru, Sr. Adv., 8. Krishna Prasad, Ms. Rashmi Malhotra, Advs. for the Respondents.

The Judgment of the Court was delivered by

ASH OK BHUSHAN, J. 1. These two appeals raising identical questions oflaw 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 of2008. Appeal No. 7184 of 2008 has been filed against judgment of Chief Justice of Punjab & Haryana High Court in Arbitration Case No. 184 of2006 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 of2008 has also been filed against the identical judgment ofleatned 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 of2008 now need to be noted.

The appellant a partnership firm was allotted a contract on I 0.11.1998 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 (t) 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 appeilant 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 appel !ant's claim is not a live claim. Aggrieved against the above judgment dated 12.03 .2007 in Arbitration Case No. 184 of2006, 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 10.04.200 I. 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 of2006 has been sent.

I 0. Hon 'hie 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 oflimitation 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 favourofthe contractor.

11. Shri 0. 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 I 0.04.2001, 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 replyobjectingthe 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 F 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 4 7 of the judgment, conclusions were recorded by the larger Bench. Conclusion IV is relevant for the present case which is quoted as below:

G "4 7. We, therefore, sum up our conclusio11s as follows:

(iv) Tile Chief Justice or the designated Judge will /lave tile right to decide tile prelimillary aspects as indicated in tile earlier part of this judgment. T/lese will be /tis own jurisdiction to entertain tlte request, tlte existence of a valid arbitration H agreement, tlte existence or otherwise of a live claim, tlte

existence of tire condition for tire exercise of liis power and on tire qualifications of tlte arbitrator or arbitrators. Tire Cltief Justice or tire designated Judge would be entitled to seek tire opinion of an institution in tlte matter of nominating an arbitrator qualified in terms of Section 11 (8) of tlte Act if tlte need arises but tlte order appointing tlte arbitrator could only be tliat of tire Cltief Justice or tlte 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 in Indian Oil Corporation . Limited vs. SPS Engineering Limited, 2011 (3) SCC 507, 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 ........ Tlte Chief Justice or llis designate may ltowever clroose to decide wlretlrer tire claim is a dead (long-barred) claim or wlretlter tlte parties !rave; by recording satisfaction, exhausted all riglrts, obligations and remedies under tlte contract, so tltat neither tile contract nor tlte arbitration agreement survived. Wiren it is said tllat tile Cllief Justice or llis designate may clloose to decide wltetller tile claim is a dead claim, it is implied tlrat Ile will do so only wllen tile claim is evidently and patently a long time-barred claim and tllere is no need for any detailed consideration of evidence. We may elucidate by an illustration: if tile contractor makes a claim a decade or so after completion of t/1e work wit/tout ref erring to any acknowledgment of a liability or otlter factors tltat kept tile claim alive in law, and tile claim is patently long timebarred, tile Cllief Justice or llis designate will examine wltetller tlte claim is a dead claim (tllat is, a long time-barred claim). On tile otlter lland, if tile contractor makes a claim for payment, beyond tllree years of completing of tile work but say wit/tin jive years of completion of work, and alleges

that tile final bill was drawn up and payments were made

within three years before tile claim, the Court will not enter into a disputed question whether tile claim was barred by limitation or not. Tile Court will leave tile matter to the decision of the Tribunal. If tile distinction between apparent and obvious de(l(/ claims, and claims involving disputed issues of limitation is not kept in view, tile Chief Justice or his designate will end 11p deciding tile question of limitation in all applications under Section 11 of tile Act."

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. An 11pplicatio11 111uler Section 11 of tile Act is expected to ctmtain ple11di11gs about the exi.te11ce of 11 dispute mu/ tile existence of <Ill arbitration agreement to decide suclt disp11te.

Tlte applimnt is 1101 expected to justify tile claim or plead exhaustively in regard to limitlllion or produce documents to denwmtrate tli11t tile claim is wit/till time in a proceeding under Section 11 of tlte Act. Tll11t isue sl1011/d normally be left to tlieArbitral Tribunal. If tile Cltief Justice or his designate is of tile view that in addition to examining whether there is wi arbitration agreement between tile parties, lie should consider tile issue wlletller tlte claim is a dead one (long timebarred) or whether there has been satisfaction of mutual rights and obligation under the contract; lie should record his

intention to do so and give aJI opportuJ1ity to tile parties to place their materials OJI such issue. UJ1less tile parties are put OJI notice that suclt an ilsue will be examined, they will be 11J1der tlte impression that only questions of jurisdiction aJ1d existence of arbitratioJI agreement between tile parties will be considered in such proceedinJ:S."

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 H 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 10.04.200 I 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 of2012, 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 I 0.04.200 I and para 3/4 of the certificate filed at the 2nd page of the annexure 16 states as follows:

"3. Printed Certificate signed by tlte petitioner at tlte time of receiving payment of tile undisputed part of tile Final Bill.

Received Rs. 575321-. Tltis payment is in full and final settlement of all money due under C WE/AF CHD I CHD-51 98-99 and I have no f.urt/ier claim in respect of tlte

Sd/- Contractor" "4. Payment by Clteque of tlte undisputed part of tile Final Bill made by tlte dispersing officer, mentio11ed-lierein-below:-

Clieq11e No. H - 916930 dated 10.4.2001 for Rs. 575321issued in favour of Mis Emm Emt Associates on SB/ AF

Cllandigarli Treasury.

Sd/-

Signature of Dispersing Office" H

_,_B

.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 I 0.04.200 I 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 (t) and (g) which is to the following effect:

(/) If, as a result of sucft audit and tecftnica/ examination, any over-payment is discovered in respect of tfte work done under tftis Contract, tfte contractor sftall on demand make payment of a sum equal to tfte amount of over-payment or agree for effecting necessary adjustment from any amounts due to ftim by Government. If ftowever, lie ref uses or neglects to make tfte payment on demand or does not agree for effecting adjustment from any amounts due to ftim, Government sltal/ be entitled to take action as in sub-para (a) ltereinbefore. If as a result of suclt audit and tee/mica/ examination any under payment is discovered, tlte amount of under payment slta/l be duly paid to tlte Contractor by Government.

(g) Provided, tltat, not/ting ltereinbefore contained s/1a// entitled tlte Government to recover any over-payment in respect of any price agreed between tlte C. W.E or tlte G.E. and tlte Contractor under tfte circumstances specifically prescribed for suclt metftod of assessment and tltilt tlte said rigftt of tlte Government to adjust over-payment from any sum due or from any sum wlticlt may become due to tlte Contractor or from Security Deposit or Security Bond amount and adjust under payment, sltall not extend beyond a period of two years from tlte date of payment of tfte undisputed portion of tile Final Bill or in tile case of minus Bill, from tile date, tile net amount of tile final bill is communicated to tlte 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 10.04.200 I, 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 of2012. 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.

H --

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.

Kalpana K. Tripathy Appeals allowed.