Limitation Period For Arbitration Starts From Date When Cause Of Action Accrued: Orissa High Court

Therefore, the bench held that the limitation period for starting arbitration matches the period from when the cause of action would have accrued if there were no arbitration clause.

The bench referred to the decision of the Calcutta High Court's decision in Dwijendra Narayan Roy v. Jogesh Chandra Dey and held that just as claims in court actions must be brought within a specified number of years from the date the cause of action accrued, so must arbitration claims be initiated within the same timeframe from the date the claim accrued.

Brief Facts:

M/s. Jagannath Choudhury (Respondent), a Superclass Contractor, was awarded the task of constructing the Jambhira Earth Dam Reach-IV(B) under the Subarnarekha Irrigation Project (SIP) in Odisha. An agreement was executed between the Respondent and the Principal Secretary to the Govt. of Odisha (Appellant) for a contract price of Rs.2,50,68,948.00/-. The contract involved the execution of 11 specified items of work as outlined in the schedule of quantities in Chapter VII of the agreement. During the project's progress, the Chief Engineer urged all contractors, including the Respondent, to complete the work by the end of March 1997, ahead of the original deadline. This required deviations in work. The Respondent complied and completed all work by March 1997, but the final bill was not settled. Only part of the dues for the executed work was paid which led the Respondent to claim Rs.2,12,59,430.07/- for work entitlement, Rs.25,11,166.95/- for price escalation, Rs.5,15,858.00/- for idle charges of machinery and personnel, Rs.5,45,719.00/- for the refund of security deposits.

The Appellant countered the claims on several grounds. It argued that the dispute was not arbitrable before the appointed Arbitrator and that the reference was not maintainable due to the Respondent's failure to furnish a security deposit as required by Clause-5 of the GCC. They argued that the Respondent only executed two extra items of work, for which payment had been made, and that the other three extra items were not duly completed within the financial assistance timeframe of NABARD.

The Respondent filed an application under Section 11 of the Arbitration and Conciliation Act before the High Court, which appointed Justice P.K. Mishra (Retd.) as the sole Arbitrator. After considering the evidence, the Arbitrator awarded amounts under various heads, summarily granting Rs.73,76,378.00 towards the work bill, Rs.12,51,932.00 for price escalation, Rs.5,45,719.00 for the refund of the security deposit, and interest at 18% on Rs.91,74,029.00 from the date of the award till payment. Costs of Rs.7,00,000.00 for arbitration were also awarded.

The Appellant filed an application under Section 34 of the Arbitration Act to set aside the award, which was rejected by the learned District Judge. Consequently, an appeal under section 37 of the Arbitration Act was filed in the High Court. The Appellant contended that the Arbitrator proceeded without following the mandate of Clause-53(F) of the agreement, which requires a security deposit for arbitration maintainability. It argued that the claims were barred by limitation referring that the final bill was cleared on December 24, 1997, and the claim was invoked in November 2007.

The Respondent argued that the arbitral award should not be lightly interfered with and that the Arbitrator rightfully considered the limitation issue. It argued that the cause of action arose when the Respondent filed for arbitration after prolonged inaction by the Appellant. It contended that the Arbitrator's detailed consideration of materials and case facts justified the award, and there was no express denial of the interest claim in the contract.

Observations by the High Court:

The High Court addressed the issue of limitation. It referred to the decision of the Supreme Court in M/s.T & AG vs. Ministry of Defence. In this case, the Supreme Court faced a petition under Section 11(6) of the Arbitration Act, opposed on the grounds that it was time-barred, and that the claims were hopelessly barred by limitation. The Supreme Court held that if a time-barred claim could still be referred to arbitration. It noted that although no specific time limit is set for filing an application under Section 11(6) for appointing an arbitrator, Section 43 of the Arbitration Act, along with the decision in Consolidated Engineering Enterprises v. Principal Secretary, made it clear that the Limitation Act, 1963 applies to all proceedings under the Arbitration Act unless expressly excluded.

The High Court made a distinction between claims barred by limitation and the limitation for applying for the appointment of an arbitrator. The High Court, referring to Dwijendra Narayan Roy, held that the cause of action is crucial for calculating the limitation period. A delay in identifying the cause of action can result in a claim being time-barred before the claimant realizes it.

The High Court further clarified, drawing from Russell on Arbitration and the Law of Arbitration by Justice Bachawat, that the limitation period for arbitration begins when the cause of arbitration accrues, similar to civil actions. This means arbitration must be commenced within the prescribed period, and the cause of arbitration arises when the claimant is entitled to require arbitration. It held that an application under Section 11 of the Arbitration Act must be made within three years from the date when the right to apply first accrues. Negotiations do not extend this period.

The High Court noted that the arbitrator examined the relevant documents and found that final measurements were not recorded in the Measurement Books, and there was no indication that the 18th Running Account Bill was final. The Respondent wasn't informed that the final bill was ready for payment, as required by clause 53(g) of the contract. Therefore, the claim was not barred by limitation.

The High Court held that the findings of an arbitrator that are unsupported by evidence are perverse and can be set aside. However, it held that the Arbitrator's decision was based on substantial evidence, and the Appellant's own admissions corroborated the absence of final measurements and clear communication regarding the final bill. Consequently, the claim was found to be within the limitation period. The High Court held that an arbitration award should not be overturned simply because the evidence was minimal or not legally robust, as long as the Arbitrator's approach was not arbitrary or capricious.

Consequently, the appeal challenging the judgment passed by the District Judge was disposed of with 9% per annum as a rate of interest.

Case Title: Principal Secretary to the Govt. of Odisha & Others vs M/s.Jagannath Choudhury

Citation : 2024 LiveLaw (Ori) 49

Case Number: ARBA No.28 of 2019

Advocate for the Appellants: Mr. S.N. Das

Advocate for the Respondent: Mr. Pratik Parija

Date of Judgment: 20.05.2024

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