TECHNICAL CONSTRUCTION COMPANY vs ENGINEERING PROJECT (INDIA) LIMITED

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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 15th March, 2024.
+ ARB.P. 510/2023
TECHNICAL CONSTRUCTION COMPANY ….. Petitioner
Through: Mr. Pulkit Tare, Adv. with Mr. Anup Jain, Mr. Udit Gupta and Ms. Prachi Gupta, Advs. (M: 9312989749).
versus

ENGINEERING PROJECT (INDIA) LIMITED ….. Respondent
Through: Ms. Anu Bagai, Advocate with Ms. Nikita Bhardwaj & Ms. Aakriti Bhandari, Advocates.
CORAM:
JUSTICE PRATHIBA M. SINGH

Prathiba M. Singh, J. (Oral)

1. This hearing has been done through hybrid mode.
2. The present petition has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter, ‘the Act’). The petition arises out of a work order dated 4th June, 2012 by which the Petitioner was awarded the work at Kho river for 33 KV Line of 33.11 KV, Badharpur Sub-Station in District Bijnour U.P. (hereinafter, ‘project’).
3. As per the Petitioner, the work was completed on 29th August, 2012 and the final claim raised by it was Rs. 48,47,041.98/-. The Bill was raised on 29th October, 2013. The admitted position is that a sum of Rs.15,00,000/- was paid as part payment to the Petitioner in 2014 i.e. on 3rd January, 2014. Thereafter, TDS was deducted in the following manner:-

4. The Petitioner continued to follow up for the remaining outstanding amount but the same was not paid. Various letters were written by the Petitioner between 2014 and 2015, however, the balance payment of Rs. 33,47,042/- was not paid.
5. The Petitioner then moved some RTI applications requesting for furnishing details and information including amount due and payable. In response to one of the said applications, i.e., the RTIs’ reply dated 4th April, 2016, it was stated as under:-
“1. Work order of rupees 40,96,115/- was released in favour of M/S Technical Construction Company.
2. As per the available records, the date of completion of the project was 29.08.2012.
3. A payment of rupees 15 lakh has been made against the above said work order.
4. Until today payment of rupees 15 lakh has been made and remaining amount is 30,86,719/-.
5. VAT and TDS has already been deducted and deposited before the concerned authority.
6. Remaining payment could not be made due to non-receiving of payment from PVVNL.”

6. When this reply was received, the Petitioner issued further notice dated 9th September, 2017 calling upon the Respondent to pay the amount.
7. Thereafter, on the basis that the said amount is an undisputed amount, the Petitioner filed Writ Petition Civil 1196/2018 titled M/S Technical Construction Company v. Engineering Projects (India) Ltd. and Anr. Vide order dated 9th February, 2018, the Court rejected the said writ petition in the following terms:-
“8. I have heard the learned counsel appearing for the petitioner. A bare perusal of the terms and conditions indicates that it includes an alternate dispute resolution clause, whereby all disputes are to be resolved amicably failing which the same are to be referred to the sole arbitration of the Chairman and Managing Director of EPI or a person appointed by the CMD, of EPL.
9. It is also apparent that the dispute raised is a contractual dispute and the petitioner has an adequate remedy by way of arbitration. Further, it would not be apposite to entertain a writ petition in respect of such contractual disputes.
10.The contention that there is no dispute since the amount payable been admitted by EPIL, is not persuasive. EPIL has given a reason for not making the remaining payment; that is, non-receipt of funds from PVVNL. The question whether the said explanation is justified is plainly a matter of dispute
11.In view of the above this Court is not inclined to entertain the present petition. The same is, accordingly, dismissed leaving it open for the petitioner to take such remedies as may be available in law.”

8. The Petitioner continued to pursue with the Respondent and letters were written repeatedly on 26th March, 2019, in October, 2019 and on 12th October, 2021 again.
9. On 29th October, 2021, the Respondent called the Petitioner for a meeting in their office. A meeting was held subsequently on 9th November 2021. It is stated that in the said meeting, the Petitioner was assured that the payment would be released at the earliest, once the payment from Paschimanchal Vidyut Vitran Nigam Ltd. (PVVNL) is received by the Respondent. Pursuant to the assurance in the said meeting, the Petitioner waited for 10 months. Subsequently a conciliation letter was also sent by the Petitioner on 30th September, 2022.
10. Finally, the fifth notice was issued by the Petitioner seeking appointment of an Arbitrator on 28th January, 2023. In response to this letter, the Respondent vide letter dated 22nd February, 2023 stated as under:-
With regard to the above said Legal Notice sent by you on behalf of your client M/s Technical Construction Company it is stated that the issues raised by yourself on behalf of your client in respect of the above said project are not tenable.

First and foremost, EPI has categorically informed your client that as per Clause 3.2 of the Work Order dated 04.06.2012 executed between EPI and your client, “all payments shall be released to the Sub-Contractor within 15 days of receiving the corresponding bill along with requisite documents and certification of the same by EPI/Client after deducting all recoveries”.

Paschimanchal Vidyut Vitran Nigam Ltd. (PVVNL) had awarded the contract for supply of equipment & materials for Rural Electrification works in Moradabad and Bijnor District of Uttar Pradesh to UBEL (now liquidated) which in turn was awarded by UBEL to EPI in pursuance of MoU between UBEL and EPI dated 07.05.2005. A part work of the said contract was placed on your client vide abovesaid work order dated 04.06.2012.

EPI is in the process of recovering said funds/dues from PVVNL and your Client’s dues amounting to Rs. 30,86,219/- shall be released as and when the same is received from PVVNL. Further, it is emphatically stated that your client has admitted to the said amount of Rs. 30,86,219/- being due and had prayed for the same in their Writ Petition (Civil) filed in February, 2018 before the Hon’ble High Court of Delhi, which was dismissed vide Hon’ble High Court Order dated 09.02.2018. Any amount being claimed over and above the said amount of Rs.30,86,219/- Lacs is clearly an afterthought, as the same has never been raised till date, therefore not acceptable or justifiable.

Further as regards appointment of Arbitrator it is stated that your request for said invocation is ex facie barred by limitation as per the provisions of section 43(1) and section 11 of the Arbitration and Conciliation Act 1996 (read jointly) since period of three years has expired from your First Notice for Invocation of Arbitration dated 19.03.2019 starts from expiry of 30 days of first notice.

It is brought to your kind notice that period of limitation for issuing notice of arbitration would not get extended by mere exchange of letters or mere settlement discussions. The same has been upheld by various High Courts in number of cases including Hon’ble High Court of Delhi (Golden Chariot Recreations Pvt. Ltd. vs. Mukesh Panika & Anr.) and the Hon’ble Supreme Court of lndia (BSNL & Anr. vs. M/S Nortel Networks India Pvt. Ltd.).

In view of the above. your notice dated 28.01.2023 invoking arbitration cannot be entertained.

11. The present petition has thereafter been filed seeking appointment of an Arbitrator. The submission of ld. Counsel for the Petitioner is that the last letter dated 22nd February, 2023 constitutes an acknowledgment and thus, the ld. Sole Arbitrator is liable to be appointed.
12. On the other hand, Ms. Anu Bagai, ld. Counsel appearing for the Respondent has taken the Court through the correspondence and submits that the petition is barred by limitation under Section 43 of the Act and the claims are also barred by limitation. It is her submission that the cause of action, initially, itself arose when the RTI reply was given by the Respondent on 4th April, 2016, as extracted above.
13. She submits that despite that reply being given that the amount could be released only when the PVVNL makes the payment to the Respondent, the Petitioner has filed the present petition. Ld. Counsel further submits that the stand of the said Respondent has not changed over the years, however, the Petitioner could not have waited for all these years to file the present petition under Section 11(6) of the Act. She relies upon the following decisions of the ld. Supreme Court:-
* Vishram Varu & Co. v. Union of India, Represented by the General Manager, South Eastern Railway, Kolkata (2022 SCC OnLine SC 487)[para 11]

* B and T AG v. Ministry of Defence (2023 SCC OnLine SC 657)[ paras 65, 77]

* M/S Arif Azim Co. Ltd v. M/S Aptech Ltd. (2024 INSC 155)[paras 77, 89]

14. It is her submission, on the strength of these decisions that even if negotiations are continuing, the Section 11(6) petition under the Act has to be filed within a period of limitation i.e. within three years from the cause of action. If the petition itself becomes time barred and the claims are dead, no appointment of ld. Arbitrator can be made by the Court. Ld. Counsel submits that while considering the petition under Section 11(6) of the Act, the twin test as laid down in M/s Arif Azim (supra) must be considered. The relevant portion of the said judgement is set out below:
“89. Thus, from an exhaustive analysis of the position of law on the issues, we are of the view that while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test – first, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings. If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal.”

15. According to her, even if, negotiations continue after cause of action has arisen, the petition would not be maintainable, as laid down in B and T AG (supra) wherein it was held that mere negotiations will not postpone the “cause of action” for the purpose of limitation.
16. The Petitioner, on the other hand, relies upon Section 18 of the Limitation Act, 1963 to the effect that in the above-cited decisions relied on by the Respondent, there was no acknowledgment in writing by the parties. In the present case, repeatedly, the Respondent has acknowledged and each acknowledgment constitute a fresh cause of action as per Section 18(1) of the Limitation Act, 1963. Ld. Counsel for the Petitioner submits that since the last acknowledgment by the Respondent was on 22nd February, 2023, the claim and the Petition are not barred by limitation.
17. Heard the ld. Counsel for the parties. At first blush it appears that since the dispute itself dates back to 2013, the claims and the petition would be barred by limitation. However, in the present case, it is not merely negotiations which have taken place between the parties. The Respondent has deducted the TDS in respect of the admitted payable amount. The only defence of the Respondent is that the payment from PVVNL has not been received. This position has been reiterated on 22nd February, 2023 where the Respondent states categorically that the EPI is in the process of recovering the dues from PVVNL and that the Petitioner’s dues would be paid to the tune of Rs.30,86,219/- which shall be released as soon as the same is received from PVVNL.
18. In the opinion of this Court, the acknowledgement in the said reply, prima facie, constitutes an acknowledgment in terms of Section 18 of the Limitation Act, 1963 and would also constitute a fresh cause of action for the Petitioner to seek its claimed amount. The same has been established in Food Corporation of India v. Assam State Cooperative Marketing & Consumer Federation Ltd., (2004) 12 SCC 360.
19. The question as to whether the Respondent has received the said amount and whether such a contingent condition could be imposed for the payment of dues to the Petitioner, would itself be an arbitral dispute.
20. In all the three decisions cited by the Respondent, there was no acknowledgement and only negotiations were taking place. The relevant paragraphs of the said decisions are set out below:
i. In Vishram Varu (supra) the Supreme Court held as under:
“11. At the outset, it is required to be noted that in the present case, work order was issued on 7.4.1982 and the work/excess work was completed in the year 1986. Even as per the statement of claim, the amount due and payable was under work order dated 7.4.1982, which was executed up to 11.05.1986 and work order dated 15.01.1984 which was executed up to 26.8.1985. Therefore, right to claim the amount, due and payable, if any, can be said to have accrued in the year 1985/1986. Thereafter, the correspondences under the RTI Act had taken from the year 2012 onwards. Thereafter, for the first time, the appellant served a legal notice upon the General Manager, South Eastern Railway on 22.10.2018 requesting either to release the amount which was overdue or to refer the dispute to the arbitrator under clauses 63 & 64 of GCC under the 1996 Act. The aforesaid legal notice is thereafter followed by three to four letters/communications and thereafter the appellant herein filed the present application under Section 11(6) of the 1996 Act before the High Court in the year 2019. Merely because for the claim/alleged dues of 1985/1986, the legal notice calling upon the respondent to pay the amount due and payable or to refer the dispute to the arbitrator is made after a period of approximately thirty-two years, the appellant cannot be permitted to say that the cause of action to file the application under Section 11(6) of the 1996 Act had accrued in the year 2018/2019. In the present case, the legal notice has been served and the arbitration clause is invoked and request to appoint the arbitrator was made after a period of approximately thirty-two years from the date of completion of work. Therefore, the appellant, who served the legal notice invoking the arbitration clause and requesting for appointment of an arbitrator after a period of approximately thirty-two years, cannot contend that still his application under Section 11(6) of the 1996 Act be considered as the limitation would start from the date of serving the legal notice and after completion of 30 days from the date of service of the legal notice and invoking arbitration clause.”

ii. In B and T AG (supra) the Supreme Court observed as under:
“65. On a conspectus of all the aforesaid decisions what is discernible is that there is a fine distinction between the plea that the claims raised are barred by limitation and the plea that the application for appointment of an arbitrator is barred by limitation.
xxx xxx xxx xxx xxx
67. “Cause of action” means the whole bundle of material facts, which it is necessary for the plaintiff to prove in order to entitle him to succeed in the suit. In delivering the judgment of the Board in Mussummat Chand Kour v. Partab Singh, reported in ILR (1889) 16 Cal 98, Lord Watson observed:
“Now the cause of action has no relation whatever to the defence which may be set up by the defendant, nor does it depend upon the character of the relief prayed for by the plaintiff it refers entirely to the grounds set forth in the plaint as the cause of action, or in other words to the media upon which the plaintiff asks the court to arrive at a conclusion in his favour.”
68. Cause of action becomes important for the purposes of calculating the limitation period for bringing an action. It is imperative that a party realises when a cause of action arises. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become time-barred even before the party realises the same.
xxx xxx xxx xxx xxx
71. In Law of Arbitration by Justice Bachawat at p. 549, commenting on Section 37, it is stated that subject to the Act 1963, every arbitration must be commenced within the prescribed period. Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date when the cause of action accrues, so in the case of arbitrations the claim is not to be put forward after the expiration of a specified number of years from the date when the claim accrues. For the purpose of Section 37(1) “action” and “cause of arbitration” should be construed as arbitration and cause of arbitration. The cause of arbitration arises when the claimant becomes entitled to raise the question, that is, when the claimant acquires the right to require arbitration. An application under Section 11 of the Act 1996 is governed by Article 137 of the Schedule to the Act 1963 and must be made within 3 years from the date when the right to apply first accrues. There is no right to apply until there is a clear and unequivocal denial of that right by the respondent. It must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of cause of action arisen in a civil action
xxx xxx xxx xxx xxx
77. Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the “cause of action” for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating.”

iii. In M/s Arif Azim Co. Ltd (supra) the relevant observations of the Court read:
“77. From the email communications placed on record, it appears that due to the pre-existing disputes between the parties in relation to the franchise agreements, the respondent sent a demand notice to the petitioner seeking payment of royalty and renewal fees from the petitioner. It appears that in reply to the said notice dated 23.03.2018, the petitioner raised the issue of payment of dues relating to the ICCR project. Some more emails were exchanged between the parties on the issue however it can be seen that vide email dated 28.03.2018, the respondent clearly showed unwillingness to continue further discussions regarding payments related to the ICCR project. Thus, it can be said that the rights of the petitioner to bring a claim against the respondent were crystallised on 28.03.2018 and hence the cause of action for invocation of arbitration can also said to have arisen on this date. This position has also been admitted in the Written Submission dated 05.02.2024 wherein the petitioner has submitted as follows:

“4. The limitation for claiming the due amount would expire on 27.03.2021….”

78. We are not impressed with the submission canvassed on behalf of the respondent that the cause of action for raising the claims arose on 01.11.2017 and thus the limitation period for invoking arbitration should commence from the said date. The petitioner has alleged that the respondent received the payment for the course from the ICCR on 03.10.2017. However, the perusal of the communication exchanged between the parties indicates that it is only on 28.03.2018 that the right of the petitioner to bring a claim against the respondent could be said to have been crystallised. The position of law is settled that mere failure to pay may not give rise to a cause of action. However, once the applicant has asserted its claim and the respondent has either denied such claim or failed to reply to it, the cause of action will arise after such denial or failure.
79. In B and T AG (supra) three principles of law came to be enunciated by this Court regarding the manner in which the point in time when the cause of action arose may be determined. First, that the right to receive the payment ordinarily begins upon completion of the work. Secondly, a dispute arises only when there is a claim by one side and its denial/repudiation by the other and thirdly, the accrual of cause of action cannot be indefinitely postponed by repeatedly writing letters or sending reminders. It was further emphasised by this Court that it was important to find out the “breaking point” at which any reasonable party would have abandoned the efforts at arriving at a settlement and contemplated referral of the dispute to arbitration. Such breaking point would then become the date on which the cause of action could be said to have commenced.
xxx xxx xxx xxx xxx
89. In the present case, the notice invoking arbitration was received by the respondent on 29.11.2022, which is within the three-year period from the date on which the cause of action for the claim had arisen. Thus, it cannot be said that the claims sought to be raised by the petitioner are ex-facie time-barred or dead claims on the date of the commencement of arbitration.
90. Thus, from an exhaustive analysis of the position of law on the issues, we are of the view that while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test – first, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings. If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal.
xxx xxx xxx xxx xxx
95. Before we part with the matter, we would like to mention that this Court while dealing with similar issues in many other matters has observed that the applicability of Section 137 to applications under Section 11(6) of the Act, 1996 is a result of legislative vacuum as there is no statutory prescription regarding the time limit. We would again like to reiterate that the period of three years is an unduly long period for filing an application under Section 11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to the Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously. We are of the considered opinion that the Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators under Section 11 of the Act, 1996. The Petition stands disposed of in the aforesaid terms.

21. As can be seen from the above decisions, in none of the above-mentioned cases, was there an acknowledgement of the debt. The above decisions also do not deal with cases where the provision of limitation for filing of a petition in view of an express acknowledgement provided by the parties during the stage of notice, as per Section 18 of the Limitation Act, 1963 is raised as an issue. Thus, the fact situation in the present case is distinguishable.
22. Section 18 of the Limitation Act, reads:
(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.
Explanation.—For the purposes of this section,—
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right,
(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf, and
(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

23. The above-mentioned provision clearly provides that if there is an express acknowledgement of liability in writing by the opposite party, a fresh period of limitation shall be computed from the time when acknowledgement was signed. The same has also been laid down by the Supreme Court in Food Corporation of India(supra), wherein it was held that that to amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, it need not be accompanied by a promise to pay either expressly or even by implication. The relevant paragraphs of the said judgement are set out below:
“14. According to Section 18 of the Limitation Act, an acknowledgement of liability made in writing in respect of any right claimed by the opposite party and signed by the party against whom such right is claimed made before the expiration of the prescribed period for a suit in respect of such right has the effect of commencing a fresh period of limitation from the date on which the acknowledgement was so signed. It is well settled that to amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, it need not be accompanied by a promise to pay either expressly or even by implication.
15. The statement providing foundation for a plea of acknowledgement must relate to a present subsisting liability, though the exact nature or the specific character of the said liability may not be indicated in words. The words used in the acknowledgement must indicate the existence of jural relationship between the parties such as that of debtor and creditor. The intention to attempt such jural relationship must be apparent. However, such intention can be inferred by implication from the nature of the admission and need not be expressed in words. A clear statement containing acknowledgement of liability can imply the intention to admit jural relationship of debtor and creditor. Though oral evidence in lieu of or making a departure from the statement sought to be relied on as acknowledgement is excluded but surrounding circumstances can always be considered. Courts generally lean in favour of a liberal construction of such statements though an acknowledgement shall not be inferred where there is no admission so as to fasten liability on the maker of the statement by an involved or far-fetched process of reasoning. So long as the statement amounts to an admission, acknowledging the jural relationship and existence of liability, it is immaterial that the admission is accompanied by an assertion that nothing would be found due from the person making the admission or that on an account being taken something may be found due and payable to the person making the acknowledgement by the person to whom the statement is made.”

24. Adverting to the facts of this case, in the letter dated 22nd February 2023, the Respondent states categorically that the amount is payable and that the same would be paid once payment is received from PVVNL. Considering the acknowledgment which has been given, at this stage, the Court is unable to hold that the claims and the petition are barred by limitation. This issue shall, however, be adjudicated by the ld. Arbitrator after evidence is led in the matter.
25. Accordingly, for the purpose of appointment of an Arbitrator, the Court holds that the claim is not barred by limitation. This observation shall, however, not bind the ld. Arbitrator post-trial. The issue of limitation shall be finally adjudicated in the Arbitral proceedings.
26. Mr. Dhanesh Relan, Advocate (M: 9910247777), who is present in Court is appointed as a ld. Sole Arbitrator. The fee of the ld. Sole Arbitrator is fixed at lump sum Rs. 3,00,000/- to be equally shared by the parties.
27. The claims shall be filed before the ld. Sole Arbitrator. The venue for the arbitration shall be A 2/133, Safdarjung Enclave New Delhi 110029. The claim shall be filed by the Petitioner within two weeks.
28. Considering the age of the Petitioner’s director, the ld. Sole Arbitrator shall make an endeavour to conclude the proceedings within a period of six months.
29. Ld. Sole Arbitrator shall disclose to the ld. Counsels for the parties within one week if there is any conflict or any factor that would debar him from being appointed as an arbitrator.

30. The first hearing before the ld. Sole Arbitrator is on 4th April, 2024 at 5.pm.
31. Accordingly, the present petition is disposed of. All pending applications are also disposed of.

PRATHIBA M. SINGH
JUDGE
MARCH 15, 2024
mr/bh
(corrected and released on 20th March, 2024)

ARB.P. 510/2023 Page 2 of 2