The Calcutta High Court has held that the period of limitation would begin to run from the date of final payment for the claims that are rejected under it.
The Court held that once a claim that was existing at the time of preparation of the final bill is rejected in the final payment, the limitation period commences which cannot be stopped by issuing unilateral letters by a party.
The bench of Justice Shekhar B. Saraf held that at the stage of appointment of arbitrator the Courts do not perform a meagre cosmetic exercise and simply refer every dispute to arbitration but are expected to apply judicial minds to determine the aspects of arbitrability of the dispute.
It further observed that had the exercise been to merely examine the existence of an arbitration agreement, this could have been delegated to an AI-empowered computer system.
The Court further held that Section 11(6A) does not prevent the Courts to examine the issue of limitation of substantive claims when the claims are ex-facie barred by limitation and the case is of a clear deadwood.
The Court further held that period of limitation once expired would not stand extended by the conduct of the parties.
The parties entered into a contract in the year 2008-09 wherein the petitioner was to carry out certain construction and basic utility works for the respondent. Initially the agreement was required to be completed by August 2009, however, on account of certain delays and increase in the scope of deadline was extended time and again till 31.08.2014, the date on which the work was completed.
The respondent furnished the final bill on 11.03.2016 and the petitioner accepted it as full and final settlement of all its claims vide a letter dated 15.03.2016. By another letter dated 17.03.2016, the petitioner reiterated its acceptance of the final amount but this time a request for price escalation was made.
Thereafter, by a letter dated 16.05.2016, the petitioner contended that its claim for price escalation has not been settled yet and sought permission for arbitration. It sent a reminded letter dated 25.08.2017 to which respondent replied vide its letter dated 12.09.2017 and denied any liability to pay escalation claims on the ground that the payment made on 15.03.2016 was excepted as full and final settlement of its claim, thus, no claim survives.
In response to the letter dated 12.09.2017, the petitioner sent another letter whereby it, for the first time, contended sending approval for final bill as full and final settlement under coercion. Thereafter, certain other letters were exchanged between the parties. The formal notice of arbitration was issued on 08.03.2021 Finally, the petitioner approached the Court for the appointment of arbitrator on the ground that appointment procedure under the agreement provides for unilateral appointment of the sole arbitrator.
Contention of the Parties
The petitioner sought the appointment on the following grounds:
Appointment procedure under the agreement is not valid in law, thus, the Court can appoint the arbitrator.
The existence of the arbitration agreement is not disputed, thus, the requirement of Section 11 that only pertains to the existence of arbitration agreement is satisfied.
The Court cannot examine the aspect of limitation of the substantive claims while exercising powers under Section 11 of the Act as in view of Section 11(6A) such an exercise is impermissible. Moreover, limitation being a mixed question of law and fact should be decided by the arbitrator only.
The petitioner was assured by the respondent regarding the consideration of its claim for escalation costs and the acceptance letter dated 15.03.2016 was given under coercion, thus, the same cannot amount to waiver of its right to claim price escalation.
The notice of arbitration was issued within the three years limitation period that commenced only after the respondent denied its liability to pay vide letter dated 12.09.2017. Prior to this the parties were negotiating or having mutual discussions and this letter would amount to the ‘breaking point’ as enunciated under Geo Miller Case.
The respondent had acquiesced its right to object on limitation as it had nominated its arbitrator. Moreover, a high powered committee was constituted to consider the escalation claim of the petitioner.
The respondent objected to the maintainability of the petition on the following grounds:
The petition is barred by limitation as the cause for action for any claim arose on the date of payment of final bill.
The claims of the petitioner were discharged by accord and satisfaction and it had issued a no-claim certificate in favour of respondent.
The objection regarding the coercion is an afterthought made to wriggle out of the settlement reached between the parties.
A mere request, after the settlement, cannot amount to a claim or demand, thus, the payment made pursuant to final bill was the full and final payment and no dispute survived thereafter.
There is no price escalation clause in the agreement. Further clause 17 proscribe any escalation whatsoever, therefore, the dispute is not covered by the arbitration clause.
The formation of an internal committee would not entitle the petitioner to claim a remedy that is barred by law.
Even if letter dated 16.05.2016 is to be treated as notice under Section 21 of the A&C Act then also the petition for the appointment of arbitrator is barred by limitation.
Analysis by the Court
The Court first considered the issue of procedure of appointment of arbitrator given under the agreement. The Court held that it provides for unilateral appointment of sole arbitrator by respondent, therefore, the appointment is to be made by the Court
Power of Court to determine issue of arbitrability under Section 11
The Court held that while exercising powers under Section 11 of the Act, the Courts do not perform a meagre cosmetic exercise and simply refer every dispute to arbitration but are expected to apply judicial minds to determine the aspects of arbitrability of the dispute. It further observed that had the exercise been to merely examine the existence of an arbitration agreement, this could have been delegated to an AI-empowered computer system.
The Court relied on the judgements of the Supreme Court in Vidya Drolia , DLF Home v. Rajapura Homes, BSNL v. Nortel and Uttrakhand Purv Sainik to hold that scope of interference is limited, however, the Court can decline arbitration if on a prima facie examination the claims appear to barred by limitation and falls into the category of deadwood claims.
When did the period of Limitation begin?
Next, the Court considered the issue as to when did the limitation period begin in the case. The Court held that period of limitation began when the petitioner accepted the final bill as full and final settlement of its claim and issued a no-objection certificate in respondent’s favour. The Court held that subsequent letters were mere requests to consider the escalation cost. Moreover, the petitioner has failed to show that the no-claim certificate was issued under coercion in light of the fact that the petitioner had reiterated its acceptance of the final bill in two subsequent letters.
The Court held that rejection of a claim that was existing at the time of final bill in the final payment would give rise to the cause of action and the limitation period would begin on that date only. The Court held that once the period of limitation begins to run mere exchange of letters cannot stop it.
Whether the period of limitation can be extended by consent of parties?
The Court rejected the argument of the petitioner that since respondent had nominated its arbitrator vide letter dated 10.04.2021, thus, the issue of limitation does not arise. The Court held that limitation is not something that is to be decided by the consent of the parties but something that is statutorily mandated and judicially enforced.
The Court relied on the judgement of Delhi High Court in Extramarks Education v. Shri Ram School to hold that once the period of limitation is expired that cannot be extended merely because the other party had agreed to refer the disputes to arbitration.
The Court further observed that in the letter itself respondent had asserted that the claims are barred by limitation, therefore, the letter cannot be treated as acceptance of claims resulting in the extension of period of limitation.
Accordingly, the Court dismissed the petition.
Case Title: B.K. Consortium Engineers Pvt Ltd. v. Indian Institute of Management (Calcutta) AP/237/2021
Counsel for the Petitioner: Mr. Jayanta Kumar Mitra, Sr. Adv. Mr. Dhruba Ghosh, Sr. Adv. Mr. Sakya Sen, Adv. Ms. Dola Adhikari, Adv. Mr. Rohit Banerjee, Adv. Mr. Sunil Gupta, Adv. Mr. Altamash Alim, Adv. Ms. Ajeyaa Choudhury, Adv
Counsel for the Respondent: Mr. Sabyasachi Chowdhury, Adv. Mr. Bhaskar Mukherjee, Adv. Ms. Nafisa Yasmin, Adv.