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High Court Of Delhi
SHAH CONSTRUCTION COMPANY LIMITED - Appellant
Versus
MUNICIPAL CORPORATION OF DELHI - Respondent
First Appeal (OS) 106 of 1979
Decided On : 05/21/1984
ARBITRATION - APPLICATION UNDER SECTION 20 OF THE ARBITRATION ACT, 1940 - LIMITATION - CAUSE OF ACTION - WHEN ACCRUES - DISPUTE REGARDING PAYMENT OF AMOUNT - CAUSE OF ACTION ARISES WHEN CLAIM IS DENIED OR THERE IS A THREAT TO DENY - RIGHT TO APPLY UNDER SECTION 20 ACCRUES FROM THAT DATE - APPLICATION FILED AFTER 3 YEARS FROM THE DATE OF ACCRUAL OF CAUSE OF ACTION IS BARRED BY LIMITATION - RES JUDICATA - CLAIM NOT RAISED IN EARLIER SUIT - NOT BARRED BY RES JUDICATA - ARBITRATION AGREEMENT - DOES NOT EXHAUST ITSELF ON REJECTION OF APPLICATION UNDER SECTION 34 OF THE ACT - FAILURE TO RAISE DISPUTE IN ONE REFERENCE DOES NOT DEBAR A PARTY FROM RAISING OTHER DISPUTES IN A SUBSEQUENT REFERENCE - SUFFICIENT CAUSE FOR NOT ORDERING ARBITRATION - NOT SHOWN - APPLICATION UNDER SECTION 20 DISMISSED.
Fact of the Case:
The contractor filed a suit for recovery of Rs. 704,869.76 against the Corporation, claiming refund of security deposit and other charges under the contract. The Corporation contested the suit and took the plea that there was an arbitration agreement covering the subject-matter of the disputes raised in the suit. The Corporation wanted the suit to be stayed. This contention was, however, negatived because the Corporation did not take this objection before filing the written statement or taking any other step in the proceedings. During the course of the arbitration proceedings before the arbitrator appointed by the court, the Corporation filed a statement showing its claim of Rs. 3.51 lacs. The arbitrator awarded a sum of Rs. 2,95,286.00 to the contractor. Objections were filed to the award by the Corporation and these were dismissed by the learned single judge. The Corporation filed an application under S. 20 of the Arbitration Act, 1940, praying that the agreement be filed and the dispute be referred to the arbitrator. This was objected to by the contractor, and, as stated above, issues were framed on the pleadings of the parties.
Finding of the Court:
The court held that the right to apply under S. 20 of the Arbitration Act, 1940, accrued to the Corporation at the earliest on 25th March, 1975, when the award was made ignoring the claim of the Corporation. The court further held that the claim of the Corporation is not barred by res judicata or principles analogous thereto. The court also held that the arbitration agreement does not exhaust itself on the rejection of the application of the Corporation under S. 34 of the Act in the suit. The court further held that no sufficient cause has been shown for not ordering the agreement to be filed.
Issues: 1. Whether the application under S. 20 of the Arbitration Act, 1940, is barred by limitation? 2. Whether the claim of the Corporation is barred by res judicata? 3. Whether the arbitration agreement exhausts itself on the rejection of the application of the Corporation under S. 34 of the Act in the suit? 4. Whether sufficient cause has been shown for not ordering the agreement to be filed?
Ratio Decidendi: 1. The cause of action for an application under S. 20 of the Arbitration Act, 1940, accrues when there exists a dispute/difference regarding payment of amount. The right to apply under S. 20 accrues from the date when the claim is denied or there is a threat to deny. 2. A claim not raised in an earlier suit is not barred by res judicata. 3. An arbitration agreement does not exhaust itself on the rejection of the application under S. 34 of the Act in the suit. Failure to raise a dispute in one reference does not debar a party from raising other disputes in a subsequent reference. 4. Sufficient cause for not ordering arbitration must be shown.
Final Decision: The appeal was allowed with costs, and the application under S. 20 of the Arbitration Act, 1940, was dismissed on the ground of limitation.
( 1 ) THE contractor (M/s. Shah Construction Company Limited) has filed the present appeal against the decision of the learned single judge (Sultan Singh, J.), allowing an application of the respondent Corporation (Municipal Corporation of Delhi) under S. 20 of the Arbitration Act (for short the Act ).
( 2 ) TO the application , the contractor had raised various objections. The court framed the following issues: 1. whether the petition is within time ? 2. Whether the claims are barred by the principles, of res judicata ? 3. Whether any valid arbitration agreement is subsisting between the parties ? 4. If issue No. 3 is found in favour of the petitioner, then are the disputes between the parties liable to be referred for arbitration ? 5. Relief.
( 3 ) ISSUE Nos. 1 and 2 were treated as preliminary issues and were decided by a judgment dated 22nd December 1978. Both the issues were decided against the contractor. The other issues were decided by a judgment dated 10th July 1979. These v/ere also decided against the contractor. The present appeal is directed against both these Judgments.
( 4 ) THE facts are bried and may be stated. The tender of the contractor for the construction of a 48" diameter main sewer along Najafgarh Drain for North Delhi was accepted by the Corporation by letter dated 11-3-1959. The work was estimated to cost Rs. 14. 78 lacs and was to be completed in 245 working days. Subsequently, the scope of the contract was increased to Rs. 21. 98 lacs. The work proceeded and 20 running bills from 24-8-1959 to 30-7-1962 of the value of Rs. 15,53505. 96 for the work done by the contractor were submitted to the Corporation for payment. An amount of Rs. 1,55,351 was deducted by the Corporation as security deposit at the rate of 10 per cent of the value of the running bills. Some time in December 1963, the contract appears to have been cancelled. It was the case of the Corporation that the work valuing Rs. 6. 35 lacs was not done by the contractor. It is not necessary, at this stage, to go into the question as to who committed breach of the contract though both the parties accuse each other.
( 5 ) ON 28-11-1964, the contractor field a suit for the Recovery of Rs. 704,869. 76 against the Corpration, The contractor claimed refund of the security of Rs. 1,55,351 and other charges under the contract like wrongful deductions, extra work and charges on account of increase in quantities of excavations etc. All the claims, however, partained to the period upto which the work had been done by the contractor. In para 31 of the plaint, the contractor summed up its case as under:
"31. That now a total amount of Rs. 7,04. 869. 76 NP as detailed above, is due to the plaintiff from the defendant regarding North Trunk Sewer Works done by the plaintiff and for the damages suffered on account of breaches by the defendant in the matter of the contract in suit. In any case, the plaintiff is also entitled to recover the above mentioned amounts from the defendant on the basis of quantum meruit. "
( 6 ) THE Corporation contested the suit. In the written statement bearing the verification date 27-12-1964, the Corporation took the plea that there was an arbitration agreement covering the subject-matter of the disputes raised in the suit and reliance was placed on clause 25 of the contract which is to the following effect :
"except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship, or materials used on the work, or as to any other question, claim right, matter or thing whatsoever, in any way arising out of, or relating to the contract, designs, drawings, specifications, estimates, instructions, orders, or these conditions, or otherwise concerning the works, or the execution, or failure to execute the same, whether arising during the progress of the work, or after the completion
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