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2013 SCC OnLine Bom 181 : (2013) 2 Bom CR 211 : (2013) 1 Arb LR 443

In the High Court of Bombay

(BEFORE R.D. DHANUKA, J.)

State of Maharashtra (at the instance of Irrigation Department, Executive

Engineer, Koyna Division No. 2) … Appellant;
Versus
Hindustan Construction Company Ltd. and Others … Respondents.
Arbitration Appeal No. 6 of 2007
Decided on February 1, 2013
Advocates who appeared in this case:
Mr. A.A. Kumbhakoni, learned counsel a/w Mrs. S.V. Sonawane learned A.G.P., Mr. Shardul
Singh and Mr. Abhay Anturkar for Appellant;
Mr. Aspi Chinoy, senior Counsel a/w Mr. Arif Doctor i/b M/s. Haresh Joshi & Co. for
Respondents.
JUDGMENT
1. By this appeal filed under Section 37 of the Arbitration And Conciliation Act 1996 (for
short herein after referred as ‘the Act’), the Government seeks to challenge an order and
judgment dated 29th June 2006 passed by the learned District Judge, Ratnagiri rejecting
arbitration application No. 44 of 2003 filed by the Government under Section 34 of the Act.
2. The Government had challenged an award delivered by the Arbitral Tribunal allowing some
of the claims made by the respondent (for short the Government is referred as ‘Government’
and the respondent is referred as ‘the contractor’). Some of the relevant facts for the purpose of
deciding this appeal are as under:
Pursuant to the invitation of tender on 1st April 1991 by the Government and submission
of bid by the contractor on 17th June 1991, the Government awarded the work of construction
of civil work of pressure and power house in ICT contract No. 2 to the contractor. The amount
of the contract awarded was at Rs. 6825 lakh. Both the parties entered into an agreement on
20th March 1992. Stipulated date of commencement of the work was 20th March 1992. The
stipulated date of completion was 19th March 1997. The Government granted extension of
time to complete the work to the contractor till 31st March 2000. The work was completed by
the contractor on 31st March 2000. The date of completion of maintenance period was 3rd
October 2000.
3. The dispute arose between the parties during execution of work in respect of hidden
expenses. The contractor invoked arbitration clause. On 27th April 1998, first arbitration
proceedings started. By an award dated 4th December 1998, the claim of the contractor was
partly accepted by the learned arbitrator. Pursuant to said award, the Government paid sum of
Rs. 10.2 crore to the contractor. The Government did not challenge the said award.
4. On 3rd October 2000, defect liability period ended. The dispute arose between the parties.
The matter was referred to arbitration. Arbitral Tribunal was constituted by appointment of one
arbitrator by each party. The presiding arbitrator was appointed by the Central Water
Commission, New Delhi.
5. On 26th June 2003, the learned arbitrator made an award in favour of the contractor
awarding a sum of Rs. 17,81,25, 152/-. Being aggrieved by the said award, the Government
filed arbitration application No. 44 of 2003 on 22nd March 2003 in the Court of District Judge,
Ratnagiri challenging the said award under Section 34 of the Act. By an order and judgment
dated 29th June 2006, the learned District Judge dealt with five objections raised by the
Government by way of preliminary objections only and negatived each of such objection and
rejected the said arbitration application. The Government has filed this appeal under Section 37
of the Act for impugning the order and judgment dated 29th June 2006 passed by the learned
District Judge.
6. Though Mr Kumbhakoni, the learned counsel appearing for the Government wanted to
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advance arguments in respect of various other issues touching the merits of the claims,
however, as the learned senior counsel appearing for the contractor objected to such additional
submissions which were not made before the learned District Judge, Mr Kumbhakoni the learned
counsel was not allowed to agitate those additional issues. Mr Kumbhakoni, the learned counsel,
therefore did not address this Court on additional issues raised by the Government and
addressed this Court only on five preliminary objections raised by the Government before the
District Judge in this proceedings also.
7. Mr Kumbhakoni, the learned counsel submits that the contractor had accepted payment
under final bill without making any protest and thus the contract itself cease to exist. The
learned counsel submits that the claims thus made by the contractor were not arbitrable in view
of such accord and satisfaction due to acceptance of final bill without protest. The learned
counsel submits that the contractor had accepted and signed 164th and final bill and 165th and
final bill without protest. It is submitted that both these bills were signed by the authorised
representative of the contractor and cheques for final bill had been accepted and credited in the
bank account of the contractor.
8. Mr Chinoy, the learned senior counsel appearing on behalf of the contractor, on the other
hand submits that the signatory to 164th and 165th bills was not authorised to sign any such
bills but he was authorised to sign/accept RA bills. The learned counsel submits that under
clause 60.8 of the GCC, the contractor had submitted the draft final bill on 30th December 2000
containing 3 parts (i) BOQ items, (ii) Extra items and (iii) Claims. It is submitted that the
Government did not prepare the requisite draft final account within 2 months as required under
Clause 60.8 and also did not prepare final certificate under the said clause. It is submitted that
payment of BOQ items and Extra items was made by the Government as part of 164th and final
bill and payment for price variation was made as part of 165th and final bill. It is submitted that
however, in respect of 5 claims, no final bill was issued either accepting or rejecting the claims
made by the contractor. It is submitted that even the amounts as certified under 164th and
165th bills were paid by the Government in 3-4 instalments. It is submitted that 164th and 165th
and final bills were not final bills as contemplated by clause 60.8. The contractor did not issue
no claim certificate. It is submitted that thus, there was no accord or satisfaction on the part of
the contractor and thus claims were arbitrable.
9. The learned senior counsel placed reliance upon the judgment of Supreme Court in case of
Bharat Coking Coal Ltd. v. Annapurna Construction1 and more particularly para 9 which reads
thus:
10. Only because the respondent has accepted the final bill, the same would not mean that it
was not entitled to raise any claim. It is not the case of the Government that while accepting
the final bill, the respondent had unequivocally stated that he would not raise any further claim.
…
11. Relying upon the said judgment, the learned counsel submits that, as the contractor had
not unequivocally stated that he would not raise any further claim, contractor would be entitled
to raise any claim and would not be estopped or precluded from raising any claim.
12. The arbitral tribunal has considered this issue in paragraph 10 to 10.13 of the impugned
award. It was observed that procedure stated under clause 60.8(b) and (c) was not observed by
the Government. Contractor also did not submit the ‘draft statement of Final Accounts’ as per
Clause 60.8(a) and did not pursue it with the Government for issuance of such certificate of
Final Account as per Clause 60.8(c). The Arbitral Tribunal observed that neither the contractor
nor the Government herein adhered to the provisions of Clause 60.8. It has been held that it
would have been reasonable on the part of the contractor to expect that the five claims would
be considered by the Government independently and accepted, partially accepted or rejected on
their merits as the case may be and if that decision of the Government was not acceptable to
the contractor, the dispute could then be referred to the Panel of Arbitrators as per Clause 66-
Settlement of Dispute. The Arbitral Tribunal rendered a finding that the contractor did not waive
its right to refer its claim for adjudication by the Arbitral panel merely because they had not
lodged the protest against the payment by the Government on either 164th and final or 165th or
final bill.
13. The District Judge has considered this issue in paragraphs 33 and 34 of the impugned
Order and has rejected the contention raised by the Government after recording reasons.
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14. On perusal of the records produced by both the parties and on perusal of the award made
by the Arbitral Tribunal and order passed by the learned District Judge, it is clear that the
procedure under Clause 60.8 was not followed by either party. Thus RA bills 164 and 165 and
final bills were rightly not considered by the Arbitral Tribunal as final bills. It is not in dispute
that there was any separate bill prepared in respect of five claims made by the contractor. In
my view, after considering the facts and the documents and on interpretation of Clause 60.8,
Arbitral Tribunal has rendered a finding that there was no accord and satisfaction and the
contractor had not waived its right to make any claims. Such findings rendered by the Arbitral
Tribunal and confirmed by the learned District Judge are not perverse. In my view, no
interference is thus warranted with such findings rendered by the Arbitral Tribunal and upheld
by the District Judge.
15. The next submission of Mr Kumbhakoni, the learned counsel appearing for the
Government is that Claim No. 1 made by the contractor before the learned arbitrator was barred
by res-judicata. The learned counsel submits that Claim No. 1 ought to have been referred to
earlier Arbitral Panel in the year 1998. It is submitted that though the work in respect of this
claim was completed during the pendency of earlier arbitration proceedings, the contractor did
not raise this claim in the earlier arbitration.
16. Mr Chinoy, the learned senior counsel appearing on behalf of the contractor on the other
hand submits that there were 3 Claims referred to earlier arbitral tribunal and 2 Claims were
added later on. It is submitted that present Claim No. 1 was not matured at that time and could
not be included in that arbitration. It is submitted that making payment for Extra/deviated
items with denovo rate analysis after applying the labour mark up and overhead and profit mark
up, as awarded by the earlier arbitration panel was under consideration at various levels of the
Government. The contractor initiated the said Claim on 30th March 1999 and the same was
recommended by the Engineer of the Government. The issue was under consideration at
different levels of the Government as the Government did not pay even at the rate adopted by
the Arbitral Tribunal in the earlier arbitration, the contractor invoked arbitration vide letter dated
27th July 2000. It is submitted that the learned arbitrator has rendered a finding of fact. Claim
No. 1 was referred by the Government itself for adjudication of the arbitral tribunal. The District
Judge also rejected this contention advanced by the Government in paragraph 45 of the
impugned order. The District Judge held that the disputes referred in 1997-1998 were distinct
than present one and therefore, no question of res-judicata arises. The learned senior counsel
pointed out that the only ground raised in arbitration application filed under Section 34 on this
issue was that the Claim was barred by the principles of res-judicata. It is pointed out that
similar ground is raised even in the appeal memo in ground (g). The learned senior counsel
submits that the claim made before the arbitral tribunal in the second reference was admittedly
not made before the arbitral tribunal in the first reference. There was no adjudication of any
such claim in the earlier proceedings. The question of applicability of the principles of res-
judicata therefore, did not arise.
17. On perusal of the impugned award as well as the order passed by the learned District
Judge, it is clear that the finding is rendered by the arbitral tribunal as well as the learned
District Judge that Claim No. 1 pertained to variation in proposed percentages for the labour
mark up and overheads and profit on the same lines for extra items and deviated items which
had cropped up during the rest of the contract work. It has been held that major part of these
items had been executed even prior to referring the claim to the earlier Arbitral Panel. The
learned Tribunal observed that Claim No. 1 had been included by the Government itself for
adjudication before the Arbitral Tribunal in the second reference. A finding is recorded that the
item excluded and claimed in the second reference were different. The District Judge also
negatived the contention of the Government on the issue while recording detail reasons. In my
view, as Claim No. 1 made in the present proceedings was not claimed admittedly in the earlier
arbitration proceedings, there was no adjudication on such claim by the Arbitral Tribunal, and
thus question of applicability of principles of res-judicata did not arise. The only ground raised
by the Government in its application under Section 34 before the District Judge and in this
appeal memo filed under Section 37 of the Act, it is urged that the claim was barred by the
principles of res-judicata. In my view, there is no merit in the plea of the Government that
Claim No. 1 is barred by res-judicata and thus, this plea raised by the Government is rejected.
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18. The next submission urged by Mr Kumbhakoni, the learned counsel for the Government
is that the claims are barred by law of limitation. It is submitted that the work of pressure shaft
excavation was started on 9th July 1993 and was completed on 2nd September 1997. The
contractor referred the dispute against item No. 3 to the Executive Engineer on 10th February
1997 and invoked arbitration on 20th November 2011. As far as work of Transformer Hall Arch.
Concrete is concerned, it is submitted that the said work was started on 23rd October 1992 and
was completed on 19th February 1994. The dispute was referred in respect of this item to
Executive Engineer on 14th October 1996 whereas arbitration was invoked on 1st June 2001. As
far as work of Transformer Hall excavation is concerned, it is submitted that the said work was
started on 16th July 1992 and was completed on 31st March 1995, whereas issue was raised
before the Executive Engineer on 4th June 2001. It is submitted that as per Clause 66A of the
General Conditions of Contract, in case of dispute, the contractor ought to have promptly asked
the Engineer's Representative in writing, for written decision and the Engineer's Representative
would give the decision within 60 days. It is submitted that on expiry of 60 days, the cause of
action had arisen for invoking arbitration. It is submitted that upon the failure by the Executive
Engineer to decide the dispute within 60 days, the contractor ought to have appealed to the
Superintending Engineer within 30 days. It is submitted that after preferring the dispute to
Executive Engineer, contractor waited for 3 years but did not exercise his right to file an appeal.
It is submitted that item Nos. 3, 4 and 5 were in existence in the year 1998 when the first
arbitration took place. The learned counsel placed reliance upon Article-18 Part-I of schedule to
Limitation Act 1963. It is submitted that as per Article-18 of Limitation Act, as no time has been
fixed for payment, the period of limitation is 3 years commencing from the date when the work
was completed. It is submitted that in respect of Claim Nos. 3, 4 and 5, the work was
completed much prior to 3 years before the arbitration clause was invoked by the contractor.
The learned counsel demonstrated from table referred in written submissions, the date of
completion of work, reference made to Executive Engineer, rejection of Executive Engineer;
reference made to Superintending Engineer, rejection by Superintending Engineer; reference
made to Chief Engineer and rejection of Claim by Chief Engineer and also the date of invoking
arbitration. The said table is reproduced as under:
Claim Work Ref. to Rej. by Ref. to Rej. by Ref. To Rej. By Arbitration
Nos. completed EE EE SE SE CE CE invoked
3 02.09.97 10.02.97 17.07.00 03.08.00 22.09.00 12.10.00 08.11.00 20.11.00
4 19.02.94 14.10.96 04.11.00 27.02.01 12.04.01 10.05.01 21.05.01 01.06.01
5 31.03.95 14.10.96 19.09.00 27.02.01 12.04.01 10.05.01 25.05.01 04.06.01
Article-18 and Article-55 of Part-II, Article-113 of Part-X and Article-137 of Part-II of the
Limitation Act read as under:
Art. Description of application Period of Time from which period
limitation begins to run
18 For the price of work done by the Three years When the work is done.
plaintiff for the defendant at his
request, where no time has been
fixed for payment.
55 For compensation for the breach of Three years When the contract is
any contract, express of implied not broken or (where there are
herein specially provided for. successive breaches) when
the breach in respect of
which the suit is instituted
occurs or (where the
breach is continuing when
it ceases).
113 Any suit for which no period of There years When the right to sue
limitation is provided elsewhere in accrues.
this Schedule.
137 Any other application for which no Three years When the right to apply
period of limitation is provided accrues.
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elsewhere in this division.

19. Mr Kumbhakoni, the learned counsel submits that once cause of action had commenced,
it did not stop. It is submitted that merely because the representation and/or Claim was made
by the contractor before various officers were pending and were not decided, cause of action
would not stop. The learned counsel pressed into service Section 9 of the Limitation Act in
support of this plea. The learned counsel placed reliance upon the judgment of this Court
decided on 9th October 2012 in case of Aditya Birla Chemicals (India) Ltd. v. Tata Motors Ltd.2 in
Arbitration Petition No. 1027 of 2011 delivered by this Court (R.D. Dhanuaka, J.) and more
particularly paragraphs 18 an19 which read thus:
18. In my view claim made by the Respondent was a claim simplicitor for recovery of
additional lease rent by virtue of disallowance of depreciation by assessing officer. In my
view, Article 54 of the Schedule to Limitation Act does not apply to a money claim. In my
view, the reliance placed by the learned Arbitrator on Article 54 while rejecting the plea of
limitation is totally perverse and without application of mind. The learned Arbitrator has
misdirected by applying wrong article of Schedule to limitation. In my view the Learned
Arbitrator has decided contrary to substantiate law in force in India. Award is contrary to
Section 28(a) of the Arbitration and Conciliation Act, 1996 and is thus in conflict with public
policy. In my view, since the claim made by the Respondent was barred by the law of
limitation as on the date of the receipt of notice of invoking arbitration clause, it was duty of
the Learned Arbitrator to reject such time barred claim.
19. In my view right to sue accrued when claim for depreciation made by Respondent was
rejected on 31st March, 2004 and raising of demand by the Respondent by issuing debit note
on 19th June, 2006 and refusal to pay the said demand by the Petitioner on 17th August 2006
would not commence fresh period of limitation, which had already commenced on 31st March,
2004. In view of Section 9 of the Limitation Act, 1963, once time is begun to run, no
subsequent disability or inability to institute a suit or make an application stops it. Once time
starts running, it does not stop. Limitation is not extended unless there is an
acknowledgment of liability or part payment. It is not the case of the Respondent that the
Petitioner acknowledged its alleged liability or there was any part payment made by the
Petitioner after 31st March, 2004. In my view, correspondences does not extend the period of
limitation.
20. Mr Kumbhakoni, the learned counsel also placed reliance upon the Judgment of Supreme
Court in case of J.C. Budhraja v. Chairman, Orissa Minig Corporation Ltd.3 and more particularly
paragraphs 25 and 26 in support of his plea that limitation for a suit is calculated as on the date
of filing of suit, whereas in case of arbitration, limitation of the Claim is to be calculated on the
date on which the arbitration is deemed to have been commenced.
25. The learned Counsel for the Government 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 Government 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.
26. 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 v. Delhi Development Authority (1988) 2 SCC 338 : (1988) 3 SCR 351, Panchu Gopal
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Bose v. Board of Trustees for Port of Calcutta (1993) 3 SCR 361 and Utkal Commercial
Corporation v. Central Coal Fields (1999) 1 SCR 166 also make this position clear.
21. The learned counsel submits that limitation for seeking an appointment of an arbitrator
cannot be confused with period of limitation for making a claim. It is submitted that the learned
arbitrator as well as the District Judge have mixed the two separate articles of limitation i.e.
applicable to Claims and for making application for appointment of arbitrator. The learned
counsel submits that the learned District Judge has placed reliance upon Article 137 of Schedule
-I to the Limitation Act and also Article 55 which are not at all applicable to the Claims made. It
is submitted that Article 137 applies to the application in Court and not to the Claim. It is
submitted that there was no claim for compensation before the learned arbitrator which would
fall under Article 55. The learned counsel then placed reliance upon the Judgment of this Court
delivered on 16th December 2011 in case of Maharahshtra State Power Generation Co. Ltd. v.
Geo Miller Co. Pvt. Ltd. in Arbitration Petition No. 466 of 2006 and more particularly
paragraphs 2 to 8 which read thus:
2. The relevant facts are, the Petitioner had floated a tender for the design, manufacture,
supply, erection, testing and commissioning of the pre-water treatment plant, MSEB
Chandrapur Thermal Power Station, Unit 6 and advertisement in that behalf was published by
MSEB in the year 1987. The Respondent participated in the bid and the contract was awarded
to the Respondent. Dispute arose between the parties with regard to certain claims of the
Respondent for extra work carried out by the Respondent. It is an admitted position that the
Arbitration clause was invoked by the Respondent by letter dated 27-1-2001. Before the
Arbitrator, one of the objections raised on behalf of the Petitioner was that the reference is
barred by the law of limitation. It is also common ground before me that so far as the
payment for the civil work done by the Respondent is concerned, the payment has been
made. The claim which has been awarded by the learned Arbitrator is in relation to the price
of the extra work carried out by the Respondent. Before the learned Arbitrator it was claimed
on behalf of the Petitioner that the extra work in relation to which the claim has been made
was completed on 15-6-1992 and the plant was handed over to the Petitioner on 24-8-1994.
Thereafter, the Respondent made claim for the price of the extra work and that claim was
rejected by letter dated 10-10-1995. The Respondent invoked arbitration clause and made
the claim on 27-1-2001, and therefore, it was claimed that it is barred by the law of
limitation. The learned Arbitrator has considered this objection in his award. He accepted that
though it is clear that the work was completed on 15-6-1992, that the plant was handed over
by the Respondent to the Petitioner on 24-8-1994 and that though the claims were rejected
on 10-10-1995, according to the learned Arbitrator as the final bill was not submitted till the
year 2000 and as the correspondence between the parties was going on, cause of action for
invoking the arbitration would not arise till 16th December, 2000. It is the case of the present
Respondent that the final bill was prepared on 16-12-2000.
3. The learned Counsel appearing for the Petitioner submits that the learned Arbitrator
failed to see that the period of limitation for invoking the arbitration clause will be governed
by Article 18 of the Schedule of the Limitation Act. According to the learned Counsel, the
cause of action for invoking the arbitration clause will arise when the work for the price of
which the arbitration clause has been invoked was done and that was in the year 1992 and
therefore, invocation of the arbitration clause in January, 2001 is barred by the law of
Limitation. The learned Counsel referring to the provisions of Section 9 of the Limitation Act
submitted that once the period of limitation is commence, it will run continuously and
therefore, merely because correspondence was going on between the parties in relation to
the amount to be paid, running of the period of limitation will not stop. The reference has to
be made by the Respondent within a period of three years from the date on which the work
was completed.
4. The learned Counsel appearing for the Respondent, on the other hand, relying on
several judgments including the judgment of the learned single Judge of this court in the
case of Shri Nyaneshwa Bhiku Dhargalkar v. Executive Engineer, 1999 RAJ 3 submitted that
it is Article 137 of the Limitation Act which applies in the present case and that the right to
apply will accrue when the dispute between the parties arose. According to the learned
Counsel till the negotiations between the parties were going on and as there was no denial to
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make the payment in the year 1992, the cause of action will not accrue and therefore the
arbitration clause was invoked within the period of limitation. The learned Counsel also relies
on the judgment of the learned single Judge of the Delhi High Court in the case of Prem
Power Construction (Pvt) Ltd. v. National Hydroelectric Power Corp. Ltd. (2009) 160 DLT 610.
Perusal of the judgment of the learned single Judge of this court in the case of Nyaneshwar
(supra) and the judgment of the learned single Judge of the Delhi High Court in the case of
Prem Power Construction Ltd. (supra) shows that both have relied on the judgment of the
Supreme Court in the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development
Authority, (1988) 2 SCC 338. The learned Counsel for the Respondent also submitted that in
any case the period of limitation would be governed by Article 113 of the Limitation Act.
According to him, the cause of action will arise when the right to sue accrues and the right to
sue will accrue when the Petitioner refused to make the payment for the extra work after final
bill. Thus, the right to sue accrued in the year 1999 when there was refusal to make the
payment.
5. Now in the light of these rival submissions, if the record is perused, it is clear from the
award itself that there is no dispute between the parties that the extra work for the payment
of which the present reference was made was completed on 15-6-1992. There is also no
dispute that the Petitioner rejected the claim made by the Respondent for extra work by
letter dated 10-10-1995. The learned Arbitrator has referred to this aspect of the matter in
paragraph 21 of the award and has observed thus:
“Even if there was rejection of the Claimants' claim for extra work on 10-10-1995 as
submitted by them the limitation cannot be said to have commenced from that date, if
regard be had to the fact that even according to the Respondents the final bill was
prepared as late as on 16th December, 2000.”
Thus, according to the learned Arbitrator the cause of action does not accrue on
completion of the work. It does not accrue even on rejection of the claim, but it accrues when
the final bill is prepared.
6. On behalf of the Petitioner reliance is placed on Article 18 of the Limitation Act. That
Article reads as under:
(18) For the price of work done by the plaintiff for the defendant at his request, where
no time has been fixed for payment. The Period of limitation is three years and the time
begins to run when the work is done.
7. Perusal of the above quoted Article shows that when a suit is to be instituted for
recovery of the price of the work done by the Plaintiff for the Defendant, and when there is no
time fixed for payment to be made, the cause of action for instituting the suit arises when
the work is completed and the suit has to be instituted within a period of three years from
the accrual of cause of action. It is clear from the record that the present dispute which was
referred to arbitration is for recovery of the price of the extra work done by the Respondent
for the Petitioner at the request of the Petitioner and there was no time fixed for making the
payment. Therefore, according to this Article, the cause of action will accrue when the work is
done. The learned Counsel appearing for the Respondent relied on Article 113 of the
Limitation Act.
Article 113 reads as under:—
“113. Any suit for which no period of limitation is provided elsewhere in the Schedule,
the period of limitation is three years and the time begins to run when the right to sue
accrues.
8. Perusal of the above Article makes it clear that this Article comes into play only on a
finding that for institution of a suit for the claim which is involved in the present matter,
there is no period of limitation provided elsewhere in the schedule. Therefore, unless a
finding is recorded that Article 18 does not apply, Article 113 cannot apply. I do not see any
reason why Article 18 will not apply to the present dispute, because the present dispute is in
relation to the price of the work done by the Respondent for the Petitioner. The learned
Counsel for the Respondent also could not give any reason why Article 18 will not apply.
Thus, as the work was completed in the year 1992, the cause of action in terms of Article 18
will accrue in 1992 and therefore the reference will have to be made within a period of 3
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years from 1992 unless according to Respondent the time gets extended because of any
acknowledgement etc. Admittedly neither arbitration clause is invoked within three years
from 1992 nor any extension of the period of limitation is claimed by the Respondent, and
therefore the claim will be barred by the law of limitation. What is interesting is that the
question before the learned Arbitrator was whether the claim was made within the period of
limitation. The learned Arbitrator has recorded a finding that the claim is not barred by the
law of limitation, but in the entire award there is no reference to any Article in the Schedule
of the Limitation Act, which applies to the present case. In my opinion, this is an
impossibility. An argument as to whether a claim is made within the period of limitation has
always to be made with reference to some Article in the Schedule of the Limitation Act,
without referring to any article in the Schedule of the Limitation Act, a finding either that the
claim is barred by limitation or it is not so barred is impossible to be recorded.
22. So far as application of Article 137 is concerned, that Article is in Part-II, relating to
applications. For invoking the arbitration clause the limitation provided by the Limitation Act for
making application will not apply, the limitation provided by the schedule for institution of a suit
will apply. The learned single Judge of this Court in his judgment in Nyaneshwar case (supra)
and the learned single Judge of the Delhi High Court in the case of Prem Power Construction
Ltd. (supra) have relied on judgment of the Supreme Court in the case of Inder Singh Rekhi,
referred to above. Perusal of that judgment of the Supreme Court shows that there the Supreme
Court was dealing with the application made under Section 20 of Arbitration Act, 1940, and as
under Section 20 of the Arbitration Act, 1940 an application was to be made to the court,
obviously Article 137 of the Limitation Act will apply. But in the scheme of the 1996 Act no such
application is contemplated to be made to any court for invoking the arbitration clause. Perusal
of the provisions of Section 21 of the Arbitration Act shows that Arbitral proceedings commence,
unless there is an agreement contrary between the parties, on the date on which a request for
reference of the dispute to arbitration is received by the Respondent. The 1996 Act does not
contemplate any application to be made to the court for invoking the arbitration application and
for commencement of arbitration proceedings. Sub-section 2 of Section 43 of the Arbitration Act
lays down that for the purpose of limitation Act an arbitration shall be deemed to have
commenced on the date referred to in Section 21. Therefore, it is clear that invocation of the
arbitration clause has to be made within the period of limitation provided by the Limitation Act
for institution of a suit on the same cause of action. So far as an application to be made under
Section 11 is concerned, that application is not for invoking the arbitration clause. That
application is for appointment of arbitrator, after invoking the arbitration clause. Invocation of
the arbitration clause precedes an application under Section 11. Therefore, when an application
under Section 11 is made, that application has to be made within the period of limitation, which
is provided by the Limitation Act for institution of the suit on that cause of action. An application
under Section 11 cannot be made after expiry of the period of limitation provided for institution
of suit for recovery of the claim. The Hon'ble the Chief Justice or his designate will have to make
an inquiry to find out whether the appointment of Arbitrator at this juncture would be necessary
as a period of limitation is over. The Supreme Court in its judgment in the case of National
Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267 : AIR 2009 SC 170, has
referred to the issues which have to be decided by the Chief Justice or his designate under
Section 11 and the issues which can be left for decision by the Arbitrator. One of the issues,
according to the Supreme Court that has to be decided by the Hon'ble Chief Justice or his
designate under Section 11 is whether the claim is a dead claim or a live claim. It means that if
an objection is raised, when application under Section 11 is made, that invocation of the
arbitration clause in that case has not been made within the period of limitation, then that
question has to be decided by the Chief Justice or his designate. The question to be considered
at that time is not whether an application under Section 11 is made within the period of
limitation, but whether the invocation of the arbitration clause was made within the period of
limitation. In my opinion, therefore, there is no question of provisions of Section 137 applying in
so far as invocation of the arbitration clause and commencement of the period of limitation is
concerned. So far as the present case is concerned, to my mind it is clear that Article 18 of the
Limitation Act applies and therefore as the invocation of the Arbitration clause is not within
period of three years from the date of completion of the work, which was in the year 1992, the
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claim was clearly barred by the law of limitation.

23. Relying upon this Judgment of this Court, the learned counsel submits that Article-18
was applicable to the claims made by the contractor and not Article-55 or Article 137 as sought
to be applied by the District Judge. The learned counsel submits that both these issues are
considered by this Court and the facts of this case are identical to the facts of the case in case
of Maharashtra State Power Generation Co. Ltd. (supra) and the said Judgment is thus binding.
24. The learned counsel also placed reliance upon the Judgment of Punjab And Haryana High
Court in case of Jullunder Improvement Trust, Jullunder v. Kuldip Singh4 and more particularly
paragraphs 4 and 5 which read thus:
4. The main controversy in this appeal is : whether the suit of the plaintiff wan within time
or not? It is the common case of the parties that it is Article 18, Limitation Act, 1963, which
would govern the plaintiffs case. It provides a limitation of three years from the time the
work is done. The present suit was filed on 9-2-1971. According to the plaintiff the cause of
action arose to him on 14-12-1967, when the payment of the final bill, Exhibit D.19, was
received by him under protest whereas the case of the defendant is that the period of three
years would commence from the date the work was done which according to it was
completed on 28-9-1967, as admitted by the plaintiff himself vide, Exhibit D.4, dated 28-9-
1967, written in this own hand wherein he had stated that 90 feet wide road under 84 acres
scheme was complete and, therefore, his final bill, be prepared accordingly. In any case,
according to the defendant, in the final bill, Exhibit D.19, the certificate to the effect that
necessary detailed measurements have been taken as recorded in the Measurement Book No.
44, was given on 7-10-1967, by the Engineer in charge Mohinder Singh, who appeared as
D.W. 7. Thus, it was argued on behalf of the defending that even after that date. i. e. 7-10-
1967, the present suit filed on 9-2-1971, even after allowing the notice period of two months
was barred by time. According to the trial Court, the cause of action would arise to the
plaintiff for the price of the work done only on furnishing of the completion certificate by the
Engineer in charge. The certificate of the Engineer in charge, according to the trial Court did
not bear any date. Since, according to the trial Court the payment of the last bill was
received by the plaintiff on 14-12-1967, under protest, the period of limitation will start from
that date and that after allowing the notice period of two months, the suit filed by the
plaintiff on 9-2-1971, was within time. The trial Court also found that the plaintiff prosecuted
with due diligence another civil proceeding founded upon the same cause of action in a Court
which could not give the relief and, therefore, he was entitled to get, the period spent in
prosecuting those proceedings excluded under S. 14, Limitation Act, (hereinafter called the
Act).
5. After hearing the learned counsel for the parries, I am of the considered opinion that
the plaintiffs suit was barred by time.
25. Mr Chinoy, the learned senior counsel appearing on behalf of the contractor on the other
hand submits that Article-18 is not applicable to the claims made by the contractor. The learned
senior counsel submits that the claims made before the arbitral tribunal were for enhancement
of the price for the work done and thus Article-113 of Schedule-1 of Limitaiton Act would apply.
The learned senior counsel placed reliance upon the Judgment in case of Gannon Dunkerley And
Co. Ltd. v. Union of India5 and more particularly paragraphs 2 to 11 which read thus:
2. The Sindri Factory Buildings were to be constructed under the advice and guidance of
M/s. Chemical Construction Corporation of New York. That Firm made delay in supplying the
drawings and specifications which involved work of a complicated nature not included in the
original contract. Time for completion of the work was on that account extended till February
26, 1950.
3. On September 20, 1950 the Government Company made a demand for payment of an
enhanced rate of 42 1/2% over the basic rates stipulated under the original contract. This
claim was made on five grounds:
1. that there was a “substantial deviation” in the nature of work of which the detailed work
drawings were supplied to the Government Company after the date of the contract. The
work involved was of a complex nature requiring highly skilled labour, and that
additional labour and materials not covered by the contract rates were required;
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2. that there was “great increase in the price of materials and labour on account of undue
prolongation of the period of work”;
3. that there was increase in the cost of transportation on account of rise in the price of
petrol and increase in railway freight;
4. that the Government of India entered into other contracts incidental to the construction
of the Sindri Factory at substantially higher rates which directly affected the cost of
labour and materials of the Government Company who had to compete with the other
contractors;
5. that additional work ordered to be done involved in many instances quantity of work
several times the work set out in the contract.
4. By his letter dated September 13, 1950, the Additional Chief Engineer rejected the
claim. In September 1954 the disputes relating to the claim for rise in cost of material
and labour due to delay in supplying detailed work drawings, the claim arising from rise
in price of petrol and for increase in the cost of material and labour due to other
contractors working on the site, were referred to arbitration, but not the claims for
revision of rates due to complex nature of the work and increase in the quantity of
work. The arbitrator rejected the claims of the Company in respect of the matters which
were referred.
5. Thereafter the Government Company filed a suit on August 9, 1956, against the Union
of India, for a decree for Rs. 3,62,674/9/6 being the amount claimed at the rate of 42
1/2% above the contract rate, in the alternative, a decree for Rs. 2,44,000/- being the
amount claimed at the rate of 28.1% above the contract rate as recommended by the
Executive Engineer, and in the further alternative, a decree for Rs. 1,36,222/- at the
rate of 18.17% above the contract rate as certified by the Superintending Engineer. The
Union of India contended, inter alia, that the claim was barred by the law of limitation.
6. The Trial Court held that the claim was not barred by the law of limitation and decreed
the claim for Rs. 1,36,222/- as certified by the Superintending Engineer. Against the
decree passed by the Trial Court the Government Company as well as the Union of India
appealed to the High Court.
7. Before the High Court, in support of the appeal only the plea of limitation was pressed
on behalf of the Union of India. In the view of the High Court the claim was governed
either by Article 56 or by Article 115 of the First Schedule to the Limitation Act, 1908,
and the suit not having been filed within three years of the date on which the work was
done and in any event of the date on which the claim was rejected was barred. The
Government Company has appealed to this Court with certificate.
8. The Government Company had undertaken under the terms of the contract to do
specific construction work at “basic rates”. The Engineer-in-charge was by the terms of
Clause 12 of the agreement competent to give instructions for work not covered by the
terms of the contract, and it was provided that remuneration shall be paid at the rate
fixed by the Engineer-in-charge for such additional work, and in case of dispute the
decision of the Superintending Engineer shall be final. It is common ground that the
claim made by the Government Company was not covered by the arbitration
agreement, and on that account it was not referred to the arbitrator. The claim in suit
related to the revision of rates due to the complex nature of the work and due to
increase in the quantity of work and also grant of contracts to other competing parties
at substantially higher rates and other related matters.
9. Article 56 of the First Schedule to the Indian Limitation Act, 1908, prescribes a period
of three years for a suit for the price of, work done by the plaintiff for the defendant at
his request, where no time has been fixed for payment, and the period of limitation
commences to run from the date when the work is done. A suit is governed by Article
56 if it arises out of a contract to pay the price of work done at the request of the
defendant. The claim in the present case is for payment at an additional rate over the
stipulated rate in view of change in circumstances, and not for price of work done by
the Government Company. It is true that additional work was done at the request of the
Engineer-in-charge, but the claim in suit was not for the price of work done but for
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enhanced rates in view of altered circumstances.

10. Article 115 of the First Schedule to the Limitation Act is a residuary article dealing with
the claim for compensation for the breach of any contract, express or implied, not in
writing registered and not specially provided for, in the First Schedule. The period of
limitation in such cases is three years and it commences to run when the contract is
broken, or where there are successive breaches when the breach in respect of which the
suit is instituted occurs, or where the breach is continuing when it ceases. The suit filed
by the Government Company is not a suit for compensation for breach of contract
express or implied : it is a suit for enhanced rate because of change of circumstances,
and in respect of work not covered by the contract. The additional work directed by the
Engineer-in-charge when carried out may be deemed to be done under the terms of the
contract : but the claim for enhanced rates does not arise out of the contract : it is in
any case not a claim for compensation for breach of contract.
11. The claim is therefore not covered by any specific article under the First Schedule, and
must fall within the terms of Article 120. The Solicitor-General appearing on behalf of
the Union of India contended that even if the claim falls within the terms of Article 120
of the Limitation Act, it was barred, for, the Government Company had in the suit made
a claim for work done more than six years before the institution of the suit. Counsel
submitted that under Article 120 the period of limitation commences to run from the
date on which the defendant obtains the benefit of the work done by the plaintiff. But
under Article 120 of the Limitation Act the period of six years for suits for which no
period of limitation is provided elsewhere in the Schedule commences to run when the
right to sue accrues. In our judgment, there is no right to sue until there is an accrual
of the right asserted in the suit, and its infringement, or at least a clear and
unequivocal threat to infringe that right by the defendant against whom the suit is
instituted; Bolo v. Kokan.
26. The learned counsel submits that the Supreme Court had considered Article-120 of the
Limitation Act, 1908 and Article 56 which are corresponding to Article-113 and Article-18 to the
first schedule to Limitation Act 1963. It is submitted that after considering these Articles, the
Supreme Court held that the period of 6 years for suits for which no period of limitation is
provided elsewhere in the Schedule commences to run when the right to sue accrues. It is is
held that there was no right to sue until there was accrual of the right asserted in the suit, and
its infringement, or at least a clear and unequivocal threat to infringe that right by the
defendant against whom the suit is instituted. It is submitted that the Supreme Court has held
that in a suit for enhanced rate because of change of circumstances, and in respect of work not
covered by the contract, claim for enhanced rate did not arise out of contract and would be thus
not governed by Article-56 corresponding to Article-18 under Limitation Act 1963 but would be
covered by Article-120 (corresponding to Article-113 under Limitation Act 1963). The learned
senior counsel thus, submits that the facts of this case are identical to the facts before the
Honourble Supreme Court in case of Gannon Dunkerley (supra) and thus principles of law laid
down by the Supreme Court are squarely applicable to the facts of this case and are binding on
this Court.
27. The learned senior counsel also placed reliance upon the Judgment of Rajashthan High
Court in case of State of Rajasthan v. Ram Kishan (AIR 1977 Raj 165), Judgment of Allahabad
High Court in case of State of U.P. v. Thakur Kundan Singh (AIR 1984 All 161), Judgment of
Gujrat High Court in case of State of Gujrat v. Pirojsha Wadia reported in 17 GLR 638; by which
various High Courts have taken a similar view which has been taken by the Honourable
Supreme Court in case of Gannon Dunkerly (supra).
28. Perusal of the award indicates that before the arbitral tribunal, the submission of the
contractor was that dispute could start only after rejection of the claim by the Government. It
was submitted that the claims were pending for decision and thus cause of action started only
after decision was finally taken by the Government. It was submitted that limitation
commenced from the date on which cause of action had accrued.
29. The arbitral tribunal has held that all those claims even though there was specific
recognisable period of start of incurring of the loss, the same continued since then during the
currency of the contract, including the extended period at least for Claim Nos. 1 and 2. Majority
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of the loss incurred for Claim Nos. 3, 4 and 5 was known when the items were nearly complete
by March 1998. It is held that in respect of Claim Nos. 1 and 2, the loss continued till the
currency of the contract. The arbitral tribunal then held that for Claim Nos. 3, 4 and 5, first
reference to Engineer's representative (Executive Engineer) was made in February 1997 and
October 1996 and on getting no decision within 60 days, the contractor could have referred the
dispute to higher level and then to the ‘Engineer’ as per provisions of Clause-66 and invoked
the arbitration within 220 days at the most. It is further held that this course was not taken by
the contractor for the reasons best known to him. The contractor might take the shelter of the
word ‘may’ in the contractor may appeal within 30 days to Engineer’ by claiming that it was not
obligatory for him to appeal in case no reply was given the Executive Engineer. In spite of such
finding rendered by the arbitral tribunal, it is held that the cause of arbitration would be cause
of action and time of limitation should be recorded from the date for respective claims. The
tribunal held that all five claims in question were not time barred on account of limitation. It
would be useful to extract the relevant paragraphs on this issue from the arbitral award which
are as under:
For referring the dispute to arbitration, there had to be an arbitration agreement (clause)
and there had to be a dispute. In the instant case, Cl-66 Settlement of dispute (RTD-1/103-
4) provided for recourse to arbitration. For existence of ‘dispute’ there had to be an
‘assertion’ by one party & ‘denial’ by the other party. ‘Cause of arbitration’ arose in the
instant case whenever there was rejection of a claim by the ‘Engineer’ (Chief Engineer Koyna
Project) (RTD-1/38) Rejection of inaction by the ‘Engineer's representative’ i.e. Executive
Engineer/Superintending Engineer did not, however, result into ‘cause of arbitration’. In
which case the claimant had to approach the ‘Engineer, furnish required evidence and on
rejection by the ‘Engineer’ could invoke arbitration.
Clause 66(b) specifically mentioned that ‘Performance under the contract shall if
reasonably be possible, continue during the arbitration proceedings. Hence claimant could
either lodge claims with the respondent and pursue them for their settlement through the
‘Employer’ by negotiations or could take the recourse to arbitration by following
obligations/requirements under Cl. 66 culminating into invoking the arbitration. In all the
claims the claimant preferred to take the earlier recourse to begin with and continued for
quite some time. The claimant approached secretary ID and Dy. Chief Minister during this
period. Recourse to Arbitration was taken quite late, after completion of the work physically.
Even after referring some of their claims under this contract to the earlier Arbitral Panel and
getting Award for the same in December 1998, the claimant continued to follow the course of
negotiations & pursuations, for the reasons best known to him.
Question now before the Arbitral Panel was whether the claims had become time barred
because of this apparent delay on the part of the claimant in not invoking the arbitration
early and promptly. The claimant was said to have been suffering loss because of various
reasons in respect of several items of the contract, which resulted into initiating the claims
right from the beginning of the contract and continued to incur the loss for certain period
since then for some claims (No. 3, 4 & 5) and till the completion of the contract for some
(Claim No. 1). Loss on account of claim No. 2 was said to have occurred only during the
extension period and continued till completion of the contract. The claimant could have
pursued these claims with the respondent for some reasonable time but should have gone in
for settlement of dispute as per Cl. 66 either when items for 3 claims (3, 4 & 5) were mostly
complete i.e. after 3/98 or when the cumulative losses were foreseen to be beyond the
capacity of the claimant to pull on without impairing the progress of the contracted work,
whichever was earlier. IF the claim No. 1 had been referred to the arbitration (or even to the
earlier Arbitral panel) claimant could have got the compensation in time. For claim No. 2,
issue could have been pursued vigorously with the respondent say during a year or so after
getting the first extension and failing to get favourable response (or partial response), the
claimant could have invoked the arbitration.
The claimant in all the correspondence had been mentioning about incurring of heavy
losses, financial crunch, heavy strain or financial resources etc. because of these claims. But
apparently the follow up/pursuations for settlement of claims was very very poor despite
provision of clause for arbitration. Arbitrators had hence observed during the third meeting
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that ‘efforts of follow up & pursuation of the claims would be expected to be related to the
amount involved in the claims because, delay in settlement of substantial amount of claim
was likely to affect performance of the contract’.
It could not be ascertained from the record or from the deliberations during the meetings
as to why this logical and easier course could not be taken by the claimant. Claimants
contention/argument on this point had consistently been that, without rejection of the claims
by the ‘Engineer’, recourse to arbitration was not open to them. In all these claims even
though there was specific recognisable period of start of incurring of the loss, the same
continued since then during the currency of the contract, including the extended period at
least for claim Nos. 1 & 2. Majority of the loss incurred for claim Nos. 3, 4 & 5 was known
when the items were nearly complete by 3/98. But for claim Nos. 1 & 2 the loss continued till
the currency of the contract. Question then was, what should be considered as the start of
reckoning of the time of limitation. For claim Nos. 3, 4 & 5, first reference to Engineer's
representative (Executive Engineer) was made in Feb 97 & Oct 96. On getting no decision
within 60 days, the claimant could have referred the dispute to higher level and then to the
‘Engineer’ as per provisions of Cl. 66 and invoked the arbitration within about 200 to 220
days at the most. This course was not taken by the claimant for the reasons best known to
him. The claimant might take the shelter of the word ‘may’ in the contractor may appeal
within 30 days to Engineer’ by claiming that it was not obligatory for him to appeal in case
no reply was given by the Executive Engineer.
There have been citations stating that the cause of action and cause of arbitration to be
the same for reckoning the start of time of limitation. It was true that the ‘cause of action’, if
it was other than the ‘cause of arbitration’ could not be pinpointed as a specific point of time
in the activity of the execution of the contract (including extensions). Loss continued,
negotiations/pursuations continued, work continued but ‘cause of arbitration’ or invoking the
arbitration’ were the only specific events in this activity.
Hence the Arbitral Panel had come to the conclusion that ‘cause of arbitration’ would be
the ‘cause of action’ and time of limitation should be reckoned from that date for respective
claims. Hence all the 5 claims in question were not time barred on account of limitations.
One question that required to be considered and decided was that, should the claimant
prefer to defer and delay the action of invoking the arbitration apparently for no reason or for
some other reasons best known to him, ever when provision of clause for settlement of
dispute existed in the contract and continued to make the respondent suffer because of any
extra liability on account of such avoidable delay. Arbitral panel has come to a conclusion
that claimant should not be awarded interest on the claims for past period at the rates which
normally & reasonably a claimant would have been entitled to. It was decided that for claim
Nos. 1, 3, 4 & 5 he should be granted only price escalation as per Tender formulae up to 31-3
-2000 (date of completion of the contract period) by treating that payment for amount of
these claims was made on that date. From 1-4-2000 to the date of reference to arbitration
for each claim, interest only at 10% (ten percent) per annum shall only be paid on the
escalated amount.
30. The District Judge has dealt with issue of limitation in paragraphs 35 to 37 of its
Judgment. The contractor argued that limitation of the period of three years had to be reckoned
from the date of final rejection by the competent authority i.e. Engineer in the present case. It
was submitted that in respect of all the claims, arbitration was invoked within 30 days after
final rejection by the Engineer as per Clause-66A of the contract. It was submitted that when
the contract was spread over for a period and damage was sustained during the whole period,
the limitation for total damages would commence from the date when the period of contract
ends. It was submitted that the claim for compensation for successive continuing breaches of
any contract, the period of three years limitation would be computed when the breach ceased to
occur. It was submitted that dispute could start only after the denial of an assertion. The
contractor submitted that limitation would not start from the date of entitlement of payment
but on which the claim was made by the contractor and was rejected by the Government and
such rejection would be the accrual of the cause of action. It was submitted that the claims
were pending for decision for years together, the limitation would start only after the decision
was communicated. District Judge rendered a finding that the contractor could either lodge
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claims with the Government and pursue them for their settlement through the Government by
negotiations or by culminating into invoking the arbitration. It is held that the contractor
preferred to take earlier recourse to begin with and continue to quite some time. The contractor
approached Secretary, Irrigation Department and Dy. Chief Minister during that period and
recourse to arbitration was taken quite late after completion of the work physically. The District
Judge held that Article-137 of the Limitation Act would be invoked in this case. Relying upon
Article-137, it is held that the period of limitation starts when the right to apply accrues under
Article-137. The District Judge held that the period of limitation for commencing an arbitration
runs from the date on which “ cause of arbitration accrues i.e to say from the date when the
contractor acquired either right of action or right to require an arbitration takes place upon the
dispute concerned. It is held that cause of arbitration arose when the contractor became
entitled to raise the question. The District Judge held that Claim Nos. 1, 2, 3 and 5 were in the
nature of extra items and new rates were necessitated by the variation in particular work
ordered by the Government. The District Judge held that under Article 55 of the Limitation Act,
when the breach was continuing, the limitation of three years commences when it ceases. The
District Judge finally held that the cause of action would commence from 25th May 2001 when
the claim was finally rejected by the Chief Engineer. In my view, Article-55 could not be
attracted in respect of the claims made by the contractor for the work done. The learned District
Judge, however, has applied Article-55 of the Schedule to the Limitation Act to all the claims
which shows patent illegality on the fact of the Judgment of the learned District Judge.
31. The arbitral tribunal has rendered a finding that in respect of Claim Nos. 3, 4 and 5, the
claim could be said to have initiated when the concerned items were executed and it continued
till completion of each such item. The arbitral tribunal also rendered a finding that a contractor
could have pursued Claim No. 2 with the Government for some reasonable time but should have
gone in for settlement of dispute as per Clause 66 either when items for 3 Claim Nos. 3, 4 and 5
were mostly complete i.e after March 1998 or when the cumulative losses were foreseen to be
beyond the capacity of the contractor to pull on without impairing the progress of the contracted
work, whichever was earlier. Similarly in respect of Claim No. 2, the arbitral tribunal held that
issue could have been pursued vigorously with the Government during the year or soon after
getting the first extension and failing to get favourable response or partial response, the
contractor could have invoked the arbitration. It is further observed that though the contractor
in all the correspondence were alleging incurring of heavy losses, financial crunch, heavy strain
etc., follow up/pursuations for settlement of claims on the part of contractor was very poor
despite provision of clause for arbitration. The learned arbitral tribunal observed that it could not
be ascertained from the record or from the deliberations during the meetings as to why this
logical and easier course could be taken by the contractor.
32. The arbitral tribunal though rendered a finding against the contractor for gross delay in
making a claim and pursuing it, rejected the plea of the Government for rejection of the claims
on the ground of limitation. On one hand, the arbitral tribunal observed that the Government
shall not suffer any extra liability on account of avoidable delay on the part of the contractor and
contractor should not be awarded interest on the claims for past period at the rates which
normally and reasonably a contractor would have been entitled to. In my view, it is clear that
the conclusion drawn by the arbitral tribunal is totally inconsistent with the finding rendered by
the arbitral tribunal on the issue of limitation. The issue of limitation has been dealt with
without application of mind.
33. The District Judge has rendered a finding in favour of the contractor on erroneous
premise that Article-137 of the Limitation Act was applicable to the claims made by the
contractor. In my view, Article 55 of the Limitation Act would not apply for the claim for price
increase in respect of the work carried out under the provisions of contract. Application of Article
-55 to the claim for work done by the District Judge, is totally an erroneous and is on the face of
it perverse. Article-137 of the Limitation Act applies to the applications and not to the claims. In
my view, for invoking the arbitration clause, the limitation provided by the Limitation Act for
making application will not apply, but the limitation provided by the schedule for institution of a
suit will apply. This Court has held that there is no question of provisions of Article-137 applying
in so far as invocation of the arbitration clause and commencement of the period of limitation is
concerned. This Court held that in respect of the claim for price of extra work carried out by the
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contractor, Article-18 of the Limitation Act would apply and not Article-137. It is held that when
a suit is instituted for recovery of the price of the work done by the plaintiff for the defendant,
and when there is no time fixed for payment to be made, the cause of action for instituting the
suit arises when the work is completed and the suit has be instituted within a period of three
years from the accrual of cause of action. It is held that cause of action would accrue when the
work is done. After considering Article-113 on which the contractor has placed reliance, this
Court held that the said Article comes into play only on finding that for institution of a suit for
the claim which was involved in that matter, there was no period of limitation provided
elsewhere in the schedule. It is held that only on a finding recorded that Article 18 did not
apply, Article 113 could not apply. This Court held that though the learned arbitrator had
recorded a finding that the claim was not barred by law of limitation, in the entire award there
was no reference to any Articles in the Schedule of the Limitation Act, which applies to that
case. This Court observed that such finding recorded by the learned arbitrator was an
impossibility.
34. In my view, refusal to pay the amount demanded by the petitioner, would not commence
fresh period of limitation which had already commenced. In view of Section 9 of the Limitation
Act, 1963, once time is begun to run, no subsequent disability or inability to institute a suit or
make an application stops it. Once time starts, it does not stop. Limitation is extended only
when there is an acknowledgment of liability or part payment. Correspondence does not extend
the period of limitation.
35. It is not the case of the contractor that there was any part payment made by the
Government in respect of the claims in question or there was any acknowledgment of liability
made by the Government in favour of the contractor in respect of such claims. Merely because,
there was inaction and/or delay on the part of the officers of the Government in considering
and/or rejecting the claims made by the contractor, limitation would not be extended. The
limitation had already commenced when the work was done and the payment was not made. It
is not in dispute that the work in respect of the claims in question was completed more than
three years prior to the date of contractor making representation to the concerned officers of the
Government. In my view, even if the officers of the Government had not decided the
representation and/or claim of the contractor within the time specified under Clause-66, cause
of action had not stopped.
36. In my view, the arbitral tribunal as well as the District Judge has mixed up the issue of
limitation in making a claim and in making an application to the Court for appointment of
arbitrator. The reference made by the District Judge to Article-137 and Article-55 is totally
misplaced and contrary to law. In my view, limitation for making a claim and limitation for
making an application for appointment of arbitrator cannot be mixed up.
37. Perusal of the award indicates that Claim No. 1 was for revision of rates demanded by the
contractor on the basis that certain items of work which were different from those included in
BOQ (Bill of Quantities) items were required to be executed. It was the case of the contractor
that there were some extra items where rates of item could not be derived from the BOQ rates
by making appropriate variations. Under Clause-51 of the contract, the Engineer had powers to
make any variation of the form, quality or quantity of the works or any part thereof. Procedure
of valuation of variation had been specified under Clause-52 of the contract. Accordingly, the
Government had prepared rate analysis with ‘labour mark up’ as 50% and overhead and profit
as 20%. The contractor, however demanded the same as 195% and 40% respectively. The
learned learned arbitral tribunal, in the impugned award allowed this claim. It was the plea of
the Government that dispute regarding rates of extra/deviated items started when the first
payment was made prior to 27th July 1997; whereas the contractor had invoked arbitration
clause on 27th July 2000. It is not in dispute that the said work was carried out as ordered by
the Government under Clause-51 read with Clause-52 of the contract. The said work was thus,
contractual work as ordered by the Government. The limitation for making such claim for rates
of such extra/deviated items will thus arise when such item of wrk was done by the contractor,
which in this case, much prior to 27th July 1997. In my view, Article-18 of Schedule to
Limitation Act would apply to this claim and not Article-113 as sought to be applied by the
contractor in the present proceedings. The learned arbitrator did not refer to any Article while
rejecting the plea of limitation in the impugned award.
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38. In so far as Claim No. 2 is concerned, perusal of the award indicates that the said claim
was for compensation for the work carried out by the contractor beyond the original stipulated
date of completion which was 19th March 1997. The Government granted five extensions for the
period between 20th March 1997 making the same terms and conditions applicable for the work
carried out during the extended period. The contractor thus, ought to have invoked arbitration
clause no sooner such extension was granted by the Government by making the same terms
and conditions applicable for the work carried out during the extended period. The cause of
action for claim for compensation would arise when the breach is committed by the either party.
If according to the contractor, the Government was responsible for prolongation of contract and
extension was necessitated due to such reasons and the contractor was not bound to carry out
the balance work on the same terms and conditions, cause of action would begin as soon as
such breach was committed by the Government according to the contractor. The learned arbitral
tribunal, however, did not decide this issue in the impugned award but rejected the plea of
limitation merely on the ground that the claim was initiated on 18th March 1997 i.e the date on
which the Government granted extension under the same conditions of contract and its effect
will start from 20th March 1997 and it continued till actual completion of the contract. The
learned arbitral tribunal considered that the Engineer had rejected the claim on 6th September
2000 and the arbitration was invoked on 21st September 2000, thus the claim was in time. No
Article of Limitation Act has been referred by the learned arbitral tribunal while dealing with
plea of limitation even in respect of this claim for compensation.
39. As far as Claim No. 3 made by the contractor is concerned, perusal of the award indicates
that the said claim was made for revision of rates for Pressure Shaft Excavation. According to
contractor, it encountered various difficulties during the excavations of the Pressure Shafts such
as changed sequence of the work, method and timing, physical obstructions in the work due to
work of other agency, variation in rock strata/geological conditions etc., which was not
attributable to the contractor. According to contractor, in view of such situation, they changed
the scope of item and the contractor prepared rate analysis for each component of the work
based on componentwise expenditure. The learned arbitral tribunal allowed this claim.
40. Perusal of the award indicates that this item was carried out during the period between
July 1993 to March 1998 to the extent of 94%. The demand was made before the Executive
Engineer on 10th February 1997. It was rejected by Executive Engineer on 17th July 2000. In my
view, the contractor ought to have made this claim when any such breach was committed by
the Government resulting in suffering of compensation due to breaches attributable to the
Government. The contractor was not bound to wait beyond 60 days for decision of the Executive
Engineer. In this case, it is clear that the contractor waited for decision of Executive Engineer
for more than three years and four months. Limitation once commenced, does not stop. The
learned arbitral tribunal has not referred to any Article of Limitation Act while dealing with this
type of claim. In my view, the claim in view of the alleged breaches committed by the
Government, ought to have made within three years from the date of alleged breach and claim
not having made within three years, was barred by law of limitation.
41. In so far as Claim No. 4 is concerned, perusal of award indicates that the said claim was
made for fixation of the rate on account of variation in the item of Transformer Hall Arch
Concrete due to the problems such as changes in nature of rock, doing additional work not
provided in the contract, changes in sequence and methodology, delay in issue of drawings,
increase in quantities etc., resulting in contractor to incur extra expenditure not contemplated in
the rate analysis. The contractor made that claim by way of compensation towards extra
expenses alleged to have been incurred by it. The learned arbitral tribunal allowed this claim.
The data placed on record in the award indicates that this work was carried out during the
period between October 1993 and February 1994. The contractor made a demand before the
Executive Engineer on 14th October 1996. The Executive Engineer rejected this claim on 4th
November 2000. Arbitration was invoked on 1st June 2001. In my view, the contractor ought to
have made this claim when such work was done and no payment was made to the contractor for
the same. The contractor was not bound to wait for decision of Executive Engineer beyond the
period of 60 days whereas, in this case, he waited for decision of the Executive Engineer for a
period of more than four years. In my view, this claim was on the face of it is barred by law of
limitation. The learned arbitral tribunal has not considered these facts in proper direction.
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42. In so far as Claim No. 5 is concerned, the said claim was made by the contractor for
fixation of new rate on account of variation in the item of Transformer Hall excavation. It was
the case of the contractor that excavation of horizontal niches had delayed the work and caused
extra expenses due to other reasons, such as stoppage of work of shotcrete, increase in quantity
of rock bolts, frequent revision of drawings, additional works, reduction and omission of some
works etc. necessitated appropriated compensation in favour of contractor. The learned arbitral
tribunal allowed this claim for compensation. The award indicates that this work was executed
during the period between January 1993 and September 1995. The contractor made this claim
before the Executive Engineer on 14th October, 1996 which was rejected by the Executive
Engineer on 19th September, 2000. Arbitration clause was invoked on 6th June 2001. In my
view, when the work was carried out and payment was not made by the Government, cause of
action had commenced. In any event, the contractor was not required to wait for the decision of
the Executive Engineer for more than 60 days whereas for this claim, the contractor waited for
decision for about four years. In my view, the claim on the face of it, is barred by law of
limitation.
43. In so far as judgment of the Supreme Court in case of Gannon Dunkerly (supra) relied
upon by the contractor is concerned, in my view, it was not the plea of the contractor before the
arbitral tribunal or before the District Judge that Article-113 of the Limitation Act
(corresponding to Article-120 of the Limitation Act 1908) would apply to the fact of this case. In
my view, as no such plea was not raised before the arbitral tribunal placing reliance upon Article
-113 corresponding to Article-120 of Limitation Act 1908, and since no finding is rendered by
the arbitral tribunal applying Article-113, contractor cannot be permitted to raise such plea for
the first time in the present proceedings under Section 37 of the Act of 1996. Plea of limitation
is a mixed question of fact and law and unless such specific plea by placing reliance upon Article
-113 was first raised before the arbitral tribunal, it cannot be allowed to be raised for the first
time in appeal under Section 37 of the Act of 1996. I am, therefore, of the view that reliance
placed by the learned senior counsel appearing for the contractor in case of Gannon Dunkerley
(supra) is of no assistance to the contractor in the facts of this case.
44. In any event, considering the nature of claims made by the contractor i.e. Claim Nos. 1
to 5 which were allowed by the learned arbitral tribunal, it is clear that the claims were either
for work done or for compensation and thus specific Article for referring the dispute to
arbitration would be attracted such as Article-18 or Article-55 of Schedule of the Limitation Act
and therefore, Article-113 cannot be attracted. In my view, thus the facts of the case before the
Honourable Supreme Court in case of Gannon Dunkerley (supra) are clearly distinguishable with
the facts of this case and thus, said judgment relied upon by the contractor, with great respect,
is of no assistance to the contractor.
45. The next submission of Mr Chinoy, the learned senior counsel appearing for the
contractor is that even if Article-18 is applicable to the claims made by the contractor, period of
limitation would commence only when the entire work is done. The learned senior counsel
submits that the claims made by the contractor were not for the entire work done by the
contractor but was only in respect of some items from the scope of entire work awarded to the
contractor. The learned senior counsel submits that only when the entire work is completed,
cause of action would arise for making claims even for items for the work done. It is submitted
that if the contractor is asked to invoke arbitration clause on completion of each item in dispute,
there would be multiplicity of arbitrations under the same contract.
46. Mr Kumbhakoni, learned counsel appearing for the Government on the other hand on this
issue in rejoinder submits that the contractor had made claims in respect of each items
separately and did not make claim for the entire work. It is submitted that even in the earlier
arbitration proceedings, the contractor had made claims having arisen in respect of the items of
the work done and did not wait till completion of work. The Government had made payment
item-wise to the contractor and thus it cannot be construed that cause of action would arise
only after entire work was done and not when items of work was done in respect of which the
dispute had already arisen. Clause-66-(A) and Clause-66(b) of the General Conditions of
Contract read as under:
66-A) SETTLEMENT OF DISPUTES - ARBITRATION:
(A) If the Contractor considers any work demanded of him to be outside the
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requirements of the contract or considers any drawings, record or ruling of the Engineer's
“Representative” on any matter in connection with or arising out of the Contract or the
carrying out of work to be unacceptable, he should promptly ask the “Engineer's
representative in writing, for written instructions or decision. Thereupon the “Engineer's
Representative” shall give his written instructions of decision within a period of 60 days of
such request.
Upon receipt of the written instructions or decisions, the contractor shall promptly
proceed without delay to comply with such instructions or decision.
If the “Engineer's Representative” fails to give his instructions or decision in writing
within a period of 60 days of being requested or if the Contractor is dissatisfied with the
instructions or decision of the “Engineer's Representative” the Contractor may within 30
days after receiving the instructions or decision appeal upwards to “Engineer” who shall
afford an opportunity to the Contractor to be heard and to offer evidence in support of his
appeal. The “Engineer” shall give a decision within a period of 60 days after the Contractor
has given the said evidence and further documentary proof the “Engineer” calls for in
support of Contractor's appeal.
If the Contractor is dissatisfied with this decision, the Contractor within a period of 30
days from receipt of the decision shall indicate his intention to refer the dispute to
Arbitration, as per the procedure set out in Clause 66(b) below, failing which the said
decision shall be final and conclusive.
66-(b) : ARBITRATION:
In the event of any dispute or difference arising out of or in any way relating to or
concerning these presents or the construction or effect of these presents (the settlement
whereof has not been hereinbefore expressly provided for), the same in respect of which
the decision is not final and conclusive, shall on the initiative of either party to the
contract be referred to three arbitrators, one to be appointed by the employer, the second
by the contractor and third by the Chairman Central Water Commission in the case of
Indian Contractors. In the case of Foreign Contractor, the third arbitrator will be decided
by the two arbitrators within 60 days of their appointment. The term “Indian Contractor”
shall include an Indian firm or a group of firms or a joint venture eligible for price
preference as a domestic tenderer. The term Foreign Contractor shall include a foreign firm
or a group of firms and joint venture consortia not eligible for price preference as domestic
tenderer. The Arbitration shall be conducted in accordance with the provisions of the
Indian Arbitration Act 1940 or any statutory modifications thereof. The arbitration shall be
held at such place and time in India as the arbitrators may determine. If either of the
parties fail to appoint its arbitrator within sixty days after receipt of notice for the
appointment of an arbitrator from the other party then the Chairman, Central Water
Commission shall appoint an arbitrator on receipt of the request from the aggrieved party.
A certified copy of the appointments made by the “Chairman” CWC shall be furnished to
both parties.
The decision of the majority of the arbitrators shall be final and binding upon both the
parties. The expense of the arbitrators shall be paid as may be determined by the
arbitrators.
Performance under the contract, shall if reasonably be possible, continue during the
arbitration proceedings and payments due to the Contractor by the Engineer's
representative shall not be withheld, unless they are the subject matter of the arbitration
proceedings.
All awards shall be in writing and in case of claims equivalent to Rupees one hundred
thousand or more, such awards shall state reasons for the amounts awarded.
Neither party is entitled to bring a claim to arbitration if its Arbitrator has not been
appointed by thirty days after the expiration of the defects liability period.
47. Perusal of the arbitration clause indicates that in case of any dispute, the contractor was
required to promptly ask the representative of the Government in writing, for written
instructions or decision. From the perusal of the clauses, it is clear that it contemplates dispute
to be referred even during the course of execution of work and the contractor was not required
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to wait till completion of the work. Perusal of the arbitration clause indicates that the contractor
was permitted to refer the disputes to arbitration arising during the execution of the work and
simultaneously to continue to perform under the contract if reasonably possible. This Clause
indicates that the contractor was not bound to wait for completion for the entire work, but could
have invoked arbitration promptly as soon as dispute had arisen even in respect of items of
work out of entire scope of work were executed. It is not in dispute that even in respect of the
earlier arbitration arising under the same contract, the contractor had already made claims in
respect of some of the items of work. I am thus, not inclined to accept the submission made by
the learned senior counsel appearing for the contractor that the cause of action would arise only
when the entire work was completed by the contractor and not when the payment was not
made in respect of the items of work done on completion of that item. In my view, cause of
action had arisen when the work was done in respect of the items of work done and cause of
action would not postpone till the date of completion of entire scope of work awarded to the
contractor. In my view, the learned arbitral tribunal ought to have referred to the relevant
Article which would be attracted for the purposes of deciding the issue of limitation, which is
absent in the impugned award. The learned District Judge has misdirected by applying wrong
Article to the facts of this case.
48. The award is vitiated and is in-conflict with public policy on the issue of limitation. View
taken by the learned District Judge is also contrary to law and deserves to be set aside. I,
therefore, pass the following order.
i) Impugned order and judgment dated 29th June 2006 passed by the learned District Judge,
Ratnagiri in Arbitration Application No. 44 of 2003 and the impugned award dated 26th
June 2003 passed by the learned arbitral tribunal are set aside on the ground of limitation.
ii) Arbitration Application No. 44 of 2003 filed by the Government is allowed.
iii) Appeal is disposed of in aforesaid terms. There shall be no order as to costs.
iv) Respondent is directed to refund the amount withdrawn in the above matter with interest
@12% per annum from the date of withdrawal till payment within eight weeks of this
order.
———
1
2004 ALL MR 5
2 2012 SCC OnLine Bom 1509
3
(2008) 2 SCC 444

4 AIR 1984 P&H 185

5 (1969) 3 SCC 607

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