Cause Of Action Arises From Clear Refusal To Perform Contractual Obligations, Not Mere Non-Performance: Calcutta High Court

The Calcutta High Court bench of Justice Shampa Sarkar held that when there is a clear refusal by one of the parties to perform the terms of a contract, the cause of action arises from the date of such refusal, and not from the date of initial non-performance, especially where negotiations continued, implying that the parties possibly wanted to extend the time for performance. The present application filed under section 11(6) of the Arbitration and Conciliation Act, 1996 arose from an agreement executed on 13.04.2012. Clause 14 of the Agreement states that all disputes and differences relating to or arising from the agreement shall be referred to arbitration. The Petitioner submitted that the respondents refused to accede to the request for reference of the dispute to arbitration. Thus, it was prayed before this court that the application should be allowed and disputes between the parties should be referred to the arbitration of a sole arbitrator. It was further submitted that as the respondents did not obtain the sanction for the building plan, time was no longer the essence of the contract. Moreover, in construction contracts time could never be the essence. Per contra, the Respondent submitted that not only was the application belated, but the relief for specific performance of an unregistered agreement for sale of the flats with the car parking space dated April 13, 2012, was ex facie barred by limitation. It was further submitted that the petitioner was well aware of the refusal on the part of the respondents in fulfilling their obligation under the contract. By letters dated July 11, 2016 and August 9, 2017 issued by the learned Advocate for the petitioner, specific performance of the agreement was demanded. It was also submitted that as per the petitioner's own admission, the cause of action arose on January 14, 2014. The period of limitation started to run from January 2014 and expired in December 2017. The court noted that as per clauses 3 and 4 of the Agreement, the Developer was obligated to complete the construction as per the sanctioned plan and hand over the possession by December 2013. However in 2020 the respondents acknowledged its inability to fulfill the terms of the agreement and undertook to refund the advance money of the petitioner along with a penalty with a request from the petitioner to cancel the agreement and become a confirming party to the land's sale. This correspondence between the parties suggests continued negotiations and a possible extension of time implying that the agreement was alive. It further observed that the Petitioner contended that the cause of action for seeking specific performance arose from the date of letter issued on 15 December 2020 in which the respondents admitted their liability, promised to refund the amount and sought cancellation. This communication extended the time period for performance thereby reviving the agreement. Even if specific performance is time barred, this letter may give rise to fresh cause of action for claiming refund. This issue can further be adjudicated by the Arbitrator. It held that “in the present case, the dispute continued from 2016 and the petitioner approached different fora for rederssal. The proceedings before the NCLT was withdrawn. According to the petitioner, the parties mutually extended the time and it was only on December 15, 2020, when the first refusal came from the respondents' side, the cause of action arose. There are no letters of refusal on any earlier occasion.” Accordingly, the present application was allowed. Case Title:Kamini Ferrous Limited Vs. Om Shiv Mangalam Builders Private Limited & Anr. Case Number:A.P - 43 of 2024 Judgment Date: 06/08/2025 For the Petitioner: Mr. Rudraman Bhattacharyya, Sr. Adv. Ms. Amrita Panja Moulick, Adv. Mr. Sourajit Dasgupta, Adv. Mr. Akash Munshi, Adv. Mr. Siddharth Banerjee, Adv. Ms. Shivangi Agarwal For the Respondent : Adv Mr. Aritra Basu, Adv. Mr. Ritoban Sarkar, Adv. Mr. Arka Banerjee, Adv. Ms. Surabita Biswas, Adv. Click Here To Download Order/Judgement

Cause Of Action Arises From Clear Refusal To Perform Contractual Obligations, Not Mere Non-Performance: Calcutta High Court

Mohd Malik Chauhan

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