The court held that claims for arbitration are not barred by limitation if ongoing negotiations substantiate the cause of action arising upon refusal of payment, not upon contract completion.

JUDGMENT

Vibhu Bakhru, J. The appellant has filed the present appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (hereafter `the A&C Act') impugning a judgment dated 12.03.2020 (hereafter `the impugned judgment') passed by the learned Commercial Court, whereby the appellant's application (being Arbitration Petition No. 1947 of 2018) under Section 34 of the A&C Act, seeking to set aside an interim arbitral award dated 07.05.2018 (hereafter `the impugned award'), was rejected.

Factual Context

2. On 06.09.2008, the appellant awarded three work orders for the work of "Detailed Engineering, Supply and Installation of Refractory Lining of HGU Reformer Package of Bongaigaon Refinery and Petrochemicals Ltd at Bongaigaon, Assam" (hereafter `the Project') to the respondent. The date of completion of the Project was stipulated to be 30.04.2009. The contract value was set as Rs.3,70,00,000.

3. The appellant claims that both parties had agreed to consider the three work orders as a singular contract for the purposes of levying penalty and therefore, a penalty (10% of contract value) would be levied on the total contract value of Rs.3,70,00,000.

4. The appellant states that the respondent - due to delays solely attributable to the respondent - completed the work by 23.08.2010, which was well after the stipulated date of completion. Thus, the appellant invoked the penalty clause and imposed a penalty amounting to Rs.37,00,000.

5. Aggrieved by the decision of the appellant to recover damages for the delay, the respondent issued a notice dated 20.01.2016, invoking recourse to the arbitration agreement. Thereafter, the respondent filed a petition under Section 11(6) of the A&C Act for appointment of a sole arbitrator. By an order dated 16.12.2016, this Court referred the parties to the Delhi International Arbitration Centre (DIAC) for the arbitration to be conducted under the aegis of DIAC.

Arbitration

6. The respondent filed its Statement of Claims before the Arbitral Tribunal, inter alia, claiming the amount of Rs.37,00,000, which was withheld by the appellant. On 18.04.2017, the respondent filed an application under Section 16 of the A&C Act, stating that the claim of the respondent be dismissed as being barred by limitation as the notice invoking arbitration, under Section 21 of the A&C Act, was issued beyond the period of three years from the date of completion of the works in question, that is, from 23.08.2010.

7. The Arbitral Tribunal held that the cause of action arose when the appellant - by a letter dated 23.12.2015 sent in response to the legal notice sent by the respondent - finally declined to pay the amount of Rs.37,00,000 withheld by it. The Arbitral Tribunal noted that prior to this communication, the appellant never refuted the claim and therefore, the respondent's claim was not barred by limitation.

Section 34 of the A&C Act

8. The appellant challenged the interim impugned award by filing an application under Section 34 of the A&C Act. The learned Commercial Court found that Article 18 of the Schedule of the Limitation Act, 1963 applies where no schedule for payment is fixed; however, in the present case, the time for payment was fixed as per the agreements. Therefore, Article 18 of the Schedule of the Limitation Act, 1963 would not apply in this case.

9. The learned Commercial Court held that the correspondence between the parties showed that the appellant was leading the respondent to believe that the appellant was considering its request for extension of time until 23.08.2010 and would release the amount of Rs.37,00,000, if the time for completion was extended