Amit Mahajan JUDGMENT
Vibhu Bakhru, J.
1. 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 ` 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 ` 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 ` 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 ` 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 ` 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 ` 37,00,000, if the time for completion was extended. Therefore, it held that the cause of action arose when the claim was refused by way of reply to the legal notice, that is, on 23.12.2015.
Reasons and Conclusions
10. The limited question that falls for consideration to this Court is whether the impugned award, rejecting the appellant's contention that the claim preferred by the respondent is barred by limitation, is vitiated by patent illegality.
11. The controversy, as stated above, relates to an amount of ` 37,00,000/-, which was withheld by the appellant from the amounts due and payable to the respondent. The appellant states that it had retained the said amount on account of liquidated damages. According to the appellant, the cause of action for recovery of the same had arisen on the date when the work was completed, that is, on 23.08.2010 or when the remaining payment had been released.
12. In regard to the aforesaid controversy, it is necessary to refer to a few dates. Admittedly, the work was finally completed on 23.08.2010. Certain amounts had already been released as part payment for the work done. Admittedly, the appellant had withheld certain amounts due to the respondent on account of an 'anticipated liability'.
13. By an email dated 09.03.2010, the appellant had clarified that it was not deducting any amount on account of penalty "but was only retaining the amount". Subsequently, on 18.03.2011, after the work was completed, the appellant sent a statement of account reflecting that it had retained an aggregate amount of ` 37,00,000 being "10% of the amount as towards anticipated liability". It was common ground, at least as on 18.03.2011, that the appellant had not taken any action for levy of penalty but had merely retained the amount due against anticipated liability.
14. The appellant relies heavily on an email dated 11.05.2011, sent in response to the respondent's communication dated 10.05.2011. In its communication, the respondent had expressed that the amount of ` 37,00,000 had been withheld in view of "feared L.D." The appellant responded by its email dated 11.05.2011 stating that the "amount held is on account of L.D. due to enormous delays in completion of the job by LLOYD, it is not feared L.D. as stated by you". However, the communication did not end with the said statement; the appellant also called upon the respondent to submit the letters "giving facts/reasons justifying waiver L.D." It is apparent that the appellant's claim for levying damages was on account of delay in completion of the work. It is not disputed that if the respondent was able to justify the delay to the satisfaction of the appellant, the amounts withheld would have been released to the respondent.
15. The respondent had, pursuant to the appellant's letter dated 11.05.2011, furnished the reasons justifying the delay and also requested the appellant to grant extension of time for completion of the work till 23.08.2010 (date of actual completion) and to release the amount withheld.
16. It appears that issue relating to extension of time remained festering. In this regard, pursuant to the appellant's email dated 05.12.2012, the respondent submitted an activity-wise chart reflecting the commencement and completion date and the actual time taken for completing separate items of work against the planned schedule. The said statement was sent by the respondent by its letter dated 10.12.2012. The appellant sent an email dated 03.04.2013 to the respondent seeking documents in regard to the extension of time. The said email was addressed by the appellant to one of its officers but was marked to the respondent.
17. The respondent responded to the said email by referring to its earlier communications and stated that it had already submitted all documents regarding extension of time and had also provided the necessary clarifications by emails dated 10.12.2012 and 12.12.2012. It does not appear from the communications placed on record that the question whether the respondent would be granted extension of time as requested was finally closed at the material time. On the contrary, the communications exchanged between the parties does indicate that the extension of time for completion of the work was under consideration. Admittedly, the appellant had not issued any communication at the material time rejecting the explanation/justification provided by the respondent for seeking extension of time. It is also not disputed that if the said request was accepted by the appellant, the respondent would be entitled to release of the withheld amount of ` 37,00,000, which was withheld by the appellant from the amounts due to the respondent.
18. The Arbitral Tribunal had examined the said correspondence and had concluded as under:
"If the facts are analysed from the details of the various annexures, the work having been completed on 23.08.2010 the account statement Ann A-11, dated 18.03.2011 was prepared by the respondent, retaining the amount of Rs. 37 lakhs as anticipatory liability, looking into the reasons for delay etc. it is made out that the respondent was not still at definite conclusion after due required investigation in the reasons given by the claimant, whether the delay was final for the fault of the claimant or not in order to justify the retention of this amount."
19. The appellant did not release the withheld amount of ` 37,00,000 and this led the respondent to issue a legal notice dated 14.12.2015. The appellant responded to the said notice by a letter dated 23.12.2015, unequivocally denying its liability to pay the said amount. Thereafter, the respondent issued a notice dated 23.12.2015, invoking the arbitration.
20. In Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd: MANU/SC/1198/2019 : (2020) 14 SCC 643, the Supreme Court had reiterated that mere correspondence by a party by writing letters and reminders does not extend the period of limitation. It is, thus, necessary for the parties to invoke arbitration within a period of three years from the date when the cause of action arises. However, if the parties are in bona fide negotiations to resolve the disputes, the date on which the 'breaking point' is reached would be the date on which the cause of action arises. The Supreme Court had also emphasised that in such cases, the entire history of negotiations would require to be placed on record.
21. There is no dispute that the appellant had withheld the payment of the amount of ` 37,00,000 from the amounts due and payable to the respondent. In the statement of accounts, furnished by the appellant on 08.03.2011, an amount was reflected as "10% retention towards anticipated liability". However, further correspondence indicates that the appellant had treated the said amount as liquidated damages for failure to execute the work within time. As noted above, the appellant had called upon the respondent to provide an explanation and justification for the delay in the context of levy of such liquidated damages.
22. The respondent had provided such explanation, however, the amount withheld was not released.
23. It is not in dispute that if the extension of time was permitted by the appellant, the same would have bearing on the levy of liquidated damages. The correspondence does indicate that the appellant had sought for details for examining whether the extension of time was justified.
24. The question as to when did the 'breaking point' arise in this case is a question of fact. The Arbitral Tribunal had examined this question and found that the respondent had unequivocally denied the respondent's claim for the first time in response to its legal notice.
25. The notice invoking arbitration was issued on 23.12.2015, which is within a period of three years of the appellant's communication seeking documents in connection with the extension of time. This Court is unable to accept that, in the given facts, the said decision that the respondent's claims are not barred by limitation, is vitiated by patent illegality on the face of the award. The Arbitral Tribunal's view is a plausible one.
26. It is settled law that it is impermissible for a court to re-evaluate the material on record and supplant its view over that of the arbitral tribunal in proceedings under Section 34 of the A&C Act. In Delhi Airport Metro Express Private Limited v Delhi Metro Rail Corporation Limited: MANU/SC/0623/2021 : (2022) 1 SCC 131; the Supreme Court had explained that even if it is accepted that the arbitral tribunal has committed an error, the same would not vitiate the arbitral award on the ground of patent illegality. The ground of patent illegality is available if it strikes at the root of the matter and is ex facie apparent on the face of the record.
27. Given the limited scope of examination under Section 34 of the A&C Act, this Court finds no fault with the learned Commercial Court in declining the appellant's application to set aside the impugned award.
28. The appeal is, accordingly, dismissed.
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