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Application u/s.11 can be filed only after notice of arbitration in respect of particular claim: SC



CIVIL APPEAL NOS. 900-902 OF 2021

Decided on March 15, 2021.

A two-Judge bench consisting of Justice R.F. NARIMAN and Justice B.R. GAVAI decided on this case. The court held that the judgment of the High court is set aside and the appeal is granted.

These appeals arise out of applications under Section 11 of the Arbitration and Conciliation Act, 1996. On 02.09.2000, the appellant before us, Secunderabad Cantonment Board, floated a notice inviting tender for an annual term contract. The Appellant argued that the Respondent had failed to complete the work within the stipulated period, but vide its meeting dated 05.10.2002, it resolved to grant an extension of time up to 31.12.2002 on an undertaking from the Respondent that the Appellant would be at liberty to impose a penalty as provided in the contracts and as decided by the Appellant in case balance works were not completed by 31.12.2002. On 30.10.2002, the Respondent submitted the required undertaking. It is not disputed that vide the final contract certificates issued by the Appellant on 18.02.2003 and 26.03.2003, the final payment was received by the Respondent in respect of the works in question. After a hiatus of about six months, the Respondent then started making demands towards reimbursement on account of variation in prices of material, Labour, and fuel. These demands were made vide letters dated 08.09.2003, 24.07.2004, and 12.10.2004. After a silence of over two years, the Respondent then issued a letter dated 07.11.2006 by which the Respondent requested the appointment of an arbitrator in respect of the claim of reimbursement on account of price variation in all three contracts. It was specifically stated that necessary steps should be taken by the Appellant within 15 days of receipt of the letter. Receiving no reply from the Appellant, the Respondent issued yet another letter dated 13.01.2007, in which it spoke of a fundamental breach of contractual obligations and then stated that it had no option but to rescind the contracts and have an arbitrator appointed within 30 days, in conformity with the arbitration clause provided in the contracts. To this letter, a laconic reply was received from the Appellant on 23.01.2007, stating that the matter referred to in their letter was under consideration. It is not disputed that the 30-day period, spoken of in the letter dated 13.01.2007, was over by 12.02.2007. Despite this being the position, the Respondent kept on writing letters at long intervals between the years 2007-2009, reiterating its claim. The Respondent issued what it called a “clarification notice” on 20.03.2010, followed by three letters dated 30.09.2010, reiterating the earlier requests for the appointment of an arbitrator. This was rejected by the Appellant vide a letter dated 10.11.2010, which letter informed the Respondent that the President of the Secunderabad Cantonment Board had rejected the application for appointment of an arbitrator as all payments were made and nothing remained pending. After a three-year-long hiatus, the Respondent then filed applications under Section 11 of the Arbitration Act on 06.11.2013. Vide the impugned judgment dated 20.08.2019, a learned Single Judge of the High Court for the State of Telangana held that the Section 11 applications were within time as they were filed within three years from the letter dated 10.11.2010 rejecting the request to appoint an arbitrator. As a result, Section 11 applications were allowed and Shri Y.V. Ramakrishna (Retired District Judge) was appointed as an arbitrator to adjudicate the disputes between the parties arising out of the three agreements. The question of the bar of limitation of the claims made was left open to be considered and decided by the arbitrator.

The present Appeals raise two important issues for consideration: (i) the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”); and (ii) whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred.

For the first issue the court observed that “Applying the aforesaid judgments to the facts of this case, so far as the applicability of Article 137 of the Limitation Act to the applications under Section 11 of the Arbitration Act is concerned, it is clear that the demand for arbitration in the present case was made by the letter dated 07.11.2006. This demand was reiterated by a letter dated 13.01.2007, which letter itself informed the Appellant that appointment of an arbitrator would have to be made within 30 days. At the very latest, therefore, on the facts of this case, time began to run on and from 12.02.2007. The Appellant’s laconic letter dated 23.01.2007, which stated that the matter was under consideration, was within the 30-day period. On and from 12.02.2007, when no arbitrator was appointed, the cause of action for appointment of an arbitrator accrued to the Respondent and time began running from that day. Obviously, once time has started running, any final rejection by the Appellant by its letter dated 10.11.2010 would not give any fresh start to a limitation period which has already begun running, following the mandate of Section 9 of the Limitation Act. This being the case, the High Court was clearly in error in stating that since the applications under Section 11 of the Arbitration Act were filed on 06.11.2013, they were within the limitation period of three years starting from 10.11.2020. On this count, the applications under Section 11 of the Arbitration Act, themselves being hopelessly time barred, no arbitrator could have been appointed by the High Court.” (Para 20)

For the second issue the court observed that “Even otherwise, the claim made by the Respondent was also ex facie time barred. It is undisputed that final payments were received latest by the end of March 2003 by the Respondent. That apart, even assuming that a demand could have been made on account of price variation, such demand was made on 08.09.2003. Repeated letters were written thereafter by the Respondent, culminating in a legal notice dated 30.01.2010. Vide the reply notice dated 16.02.2010, it was made clear that such demands had been rejected. Even taking 16.02.2010 as the starting point for limitation on merits, a period of three years having elapsed by February 2013, the claim made on merits is also hopelessly time barred.” (Para 21)

The court held that “For all these reasons, the appeals are allowed and the impugned judgment of the High Court dated 20.08.2019 is set aside.” (Para 22)

To view/download judgment: SECUNDERABAD CANTONMENT BOARD V/s

Saptarshi Mukhopadhyay



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