JUDGMENT
Gita Mittal, J.
1. This petition has been filed by the petitioner under Section 11(6) of the Arbitration & Conciliation Act, 1996 praying for appointment of an arbitrator in accordance with the terms of the arbitration agreement between the parties. The brief facts so far as necessary for the adjudication of the present petition are briefly noticed hereafter.
2. The petitioner is a sole proprietor of M/s Kamal Construction Company which was awarded two contracts by the respondent during the year 2000-01. Pursuant to the first contract, a work order dated 24th May, 2000 for the desilting and removal of silt of Bhagat Singh Road Nalla in W. No. 78 was placed on the petitioner. The second contract relate to desilting and removal of silt from West Vinod Nagar drain in W. No. 72, RD 0 To 550 mtrs was awarded to the petitioner and order dated 25th May, 2000 was placed on him. The petitioner has contended that the work was successfully completed and bills for payment of the work were duly given, finalised and cleared for payment by the respondent. According to the petitioner, against work order No. 107, a sum of Rs. 1,34,607/- is due and payable while against work order No. 184 a sum of Rs. 1,648,000/- is due and payable. Meanwhile the petitioner has urged that he is entitled to a total sum of Rs. 2,35,255/- from the respondent with interest. The bills of the petitioner are stated to have been certified and placed for payment on 13th July, 2001 in respect of work order No. 184 and on 16th July, 2001 in respect of a work order No. 107. Despite clearance for payment, the amounts so payable are till date outstanding from the Municipal Corporation of Delhi to the petitioner. Numerous requests for payment have not elicited any positive response. Accordingly, the petitioner invoked the arbitration clause between the parties contained in Clause 25 of the conditions of the contract which governs both contracts. The petitioner sent a notice dated 15th April, 2004 to the respondents requesting appointment of an arbitrator in terms thereof. This was followed by a reminder dated 5th June, 2006. As the respondent failed to act in terms of the arbitration agreement, the present petition was filed by the petitioner on 11th July, 2006 praying for appointment of an independent arbitrator.
3. This petition has been vehemently opposed by Mr. Gurinder Pal Singh, learned Counsel for the respondent on the ground that the petitioner has not exhausted the requirements of Clause 25 of the general conditions of the contract which governs the parties and consequently the petition is premature. The respondent has also challenged the manner of invocation and contended that the notice issued by the petitioner is not as per Clause 25. At the same time, an objection has been taken that the petition is not maintainable inasmuch as the claims of the petitioner are hopelessly barred by limitation.
4. Having heard learned Counsel for the parties and having given my considered thought to the respective contentions, I find that the objections taken by the respondent are not only mutually destructive but are legally misconceived in the facts of the present case. It becomes necessary to consider the terms of Clause 25 of the general conditions of contract which admittedly governs the parties. This term in the contract reads thus:
Arbitration Clause 25:
Except where other wise provided in the contract an illustration and disputes relating to the measuring of specification, designs, drawings, and instructions herein before mentioned and as to the quality of workmanship of material used on the work as to any other question claim, right matters of things whatever in any way arising out are relating to the contractor, designs drawings, specifications, estimate instruction order or these conditions or otherwise concerning the works or execution of failure to execute the same wherever arising during the progress of work or after the completion or abandonment shall be referred to the sole arbitrator of person appointed by the Commissioner, MCD at the time of dispute of the administrative head of MCD at the time of such appointment. It will be no objection to any such appointment that the arbitrator so appointed is a govt. servant, that he had to deal with the matters to which contract relates and that in the course of his duties as Govt. servant he had expressed his views on all/or any of the matters in disputes of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Commissioner or administrative head as aforesaid at the time of such transfer vacation of officer or inability to act, shall appoint another person as Arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with reference from such stage at which it was left by his predecessor, it is also a term of this contract that no person other than the person appointed by Commissioner or Administrative head of the MCD as aforesaid should act as Arbitrator any if for any reason that is not possible, the matter not be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 25,000/- (Twenty five thousand only), and above the Arbitrator shall give reason for the award.
Subject as aforesaid the provision of the arbitration act 1940 or any statutory modification or reenactment there of and the rules made there under for the time being in force shall apply to the arbitration proceedings under this clauses. It is a term of the contract that the pay invoking arbitration shall specify the dispute or disputes to be reference of arbitration under this clause together with the amount or amounts claimed in respect of such disputes.
It is also a term of the contract that if the Contractor(s) do/does not make any demand for arbitration in respect of any claim in writing within 90 days of receiving the intimation from the corporation or any officer authorised in this behalf that the bill is ready for payment to claim of the contractor(s) will be deemed to have been waxed and absolutely barred and the corporation shall be discharged and released to all liabilities under the contract in respect of these claims.
The arbitrator may from time to time with the consent of parties enlarge time for making and publishing the award. The decision of the Superintending Engineer regarding quantum of reduction as well as subject justification thereof in respect of rates for substandard work which any be decided to be accepted will be final and would not be open to arbitration.
5. The petitioner addressed a notice dated 15th April, 2004 to the Commissioner of Municipal Corporation of Delhi clearly stating that disputes had arisen between the parties in terms of this clause in the general conditions of contract, setting out the claim of the petitioner and requesting the appointment of an arbitrator within the statutory period of 30 days of the receipt of the notice. A receipted copy of this notice has been placed before this court. When no action took place on this notice, the petitioner addressed a reminder dated 5th of June, 2006 on which the executive engineer of the MCD effected the following endorsement:
The abovementioned bills were sent to cash liability after passing by the then officer. The payment is still pending in view of some audit/objection/vigilance enquiries.
Signed
5/6/06
This noting has been approved by the executive engineer DEMS, Shahdara, South Zone MCD, Delhi.
6. So far as the other objection to the effect that the petition is premature is concerned, as noticed hereinabove, the contract contains a stipulation that if the contractor does not make any demand for arbitration in respect of any claim in writing then 90 days of receiving intimation from the corporation or any officer authorised in this behalf that the bill is ready for payment to the claim of the contractor will be deemed to have been waived and absolutely barred and the corporation shall be discharged and released of all liabilities under the contract in respect of these claims. It is therefore apparent that the communication of the fact that the bill of the contractor is ready for payment is a sine qua non for waiver or a prohibition to come into force. In the instant case, there is admittedly no communication to the contractor that his bills were ready for payment. On the contrary even on 5th June, 2006, the petitioner has been informed that the bills are pending for payment with the accounts section.
The objection therefore taken on behalf of the respondent in the instant case is clearly misconceived.
7. Even otherwise, the stipulation of the 90 day period for raising a claim, failing which the same would stand waived and contractually barred, has fallen for consideration in several judicial pronouncements wherein it has been held that such a condition is contrary to law and would not bind the parties. In this behalf, reference can appropriately be made to the judicial pronouncements reported at entitled J.K. Anand v. Delhi Development Authority And Anr. wherein the court held thus:
2. The question involved for determination is whether the arbitration was competent to reject the claim of the petitioner on the ground that the deemed for arbitrator was not made within 90 days from the date of the final bill as per Clause 25 of the agreement.
3. Clause 25 of the agreement provides as under:
It is also a term of the contract that if the contractor does not make deemed of arbitration in respect of any claim in writing within 90 days of the intimation from the Engineer-in-charge that the bill is read for payment the claim of the contractor will be demand to have been waived absolutely and the Delhi Development Authority shall be discharged and released of all liabilities under the contract in respect of those claims.
4. The validity of the above clause of the agreement cropped up for consideration in Hindustan Construction Corporation v. Delhi Development Authority . In the aforesaid case also, the arbitration was not demanded within 90 days and the claims of the petitioner were dismissed on that short ground alone and not on merits. It was held that Clause 25 is hit by an amendment which has been made to Section 28 of the Contract Act (vide Amendment Act I of 1997) whereby Clause (b) has been incorporated therein. Section 28 of the Contract Act provides as under:
Every agreement:
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharge any party thereby, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights.
5. Perusal of the aforesaid provisions shows that these are applicable to the facts and circumstances of this case in hand. It was observed that Clause 25 of the agreement that the contractor’s right to claim arbitration comes to an end after the expiry of 90 days from the date of intimation of the final bill being ready for payment deprives the contractor of a very valuable right to claim the amount which was due to him from the respondent.
6. Since the arbitrator did not decide the claim on merits and the Clause (b) of Section 28 of the Contract Act keeps the rights of the contractor to claim the amount which was due to him alive irrespective of Clause 25 in the agreement, the application is allowed.
8. This judgment was relied upon in 2007 (1) ALR 486 D.C. Kapur v. DDA wherein the court reiterated the principles earlier laid and held thus:
7. The second issue to be considered is a plea of limitation raised by the respondent inasmuch as it is the contention of the respondent that the period of 90 days referred to in Clause 25 mandates the dispute to be raised from the date when it arose and not 90 days from the final bill. This issue has also dealt with in Anil Garg on the ground that such a stipulation was contrary to the general period of limitation and in these circumstances, fell within the contemplation of Section 28 of the Contract Act. The learned judge relied upon another judgment of the learned Single Judge of this Court in Hindustan Construction Co. v. DDA I am in full agreement with this view.
9. In this view of the matter, the condition of the contract to the effect that if the claim is not raised within 90 days of receiving the intimation from the contractor that the bill was ready for payment has to be held to be void and not binding on the parties, even if this condition applies. However, as no intimation has been sent to the petitioner till date, such condition in any case would not prohibit the maintainability of the claim of the petitioner.
10. The respondents have set up a plea that the claim is barred by limitation on the ground that the same has been lodged beyond the ninety day stipulation in Clause 25 aforenoticed. In this behalf, reference can appropriately be made to the pronouncement reported at 1999 (1) ALR 298 EN Veeka Construction Co. v. DDA and Anr., wherein this issue was raised and the court held thus:
5. Clause 25 of the arbitration agreement provides that a claim is to be raised by the contractor within 90 days from the date of payment of the final bill. According to the said provisions, if a claim is not lodged and arbitration clause is not invoked within 90 days of the date of payment of final bill, the said claim would not be entertained.
6. Article 137 of the Limitation Act also lays down provisions fixing the time limit for raising the claims and invocation of the arbitration agreement. According to the said provisions, a claims to be raised within a period of three years from the date when the right to apply first accrues. The Supreme Court in the decision of The State of Orissa v. Damoder Dass, has held that no right to apply would accrue until there is a clear and unequivocal denial of that right by the respondent.
7. My attention was also drawn tot he notification dated 8.1.1997 notifying the Indian Contract (Amendment) Act, 1996 amending the provisions of Section 28 of the Contract Act which provides thus:
Every agreement:
(a) By which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary Tribunal, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.
prescribing that an agreement by which a party thereto is restricted absolutely from restring his rights under or in respect of any contract, which limits the time within which he may thus enforce his rights, is void to that extent.
11. The similar stipulation in the contract relied upon by the MCD is therefore clearly void by application of Section 28 of the Contract Act and the principles laid down in the above noticed judicial pronouncements. Certainly the respondent in the instant case cannot be permitted to avoid its liability in the given facts on such a plea as has been raised on its behalf.
12. I find that the noting of the officer of the MCD on the letter dated 5th of June, 2006 clearly states that the bill duly approved is pending for payment. It is an admitted fact that the petitioner has not received any intimation from the corporation or any officer authorised by it that the amount is ready for payment to the contractor. Thus, so far as the petitioner was concerned, the respondent was still processing the bill for payment.
In view of the clear admission by the executive engineer in his noting dated 5th June, 2006, the respondent had not repudiated the claim of the petitioner or informed the petitioner that its bills were rejected. As per this noting, the respondent was still processing the bill for payment after the same had the approval of the concerned engineer.
13. There is thus no denial of the right or entitlement of the right or the claim of the petitioner by the respondent which would have given it cause of action prior hitherto. It cannot therefore be held that the claim of the petitioner is barred by limitation.
14. The respondents do not dispute that the contract between the parties contained an arbitration agreement in Clause 35 which has been noticed hereinabove. Disputes have admittedly arisen inasmuch as the claim of the petitioner though admitted by the respondent has not been paid till date.
15. Notice has been served upon the commissioner of the MCD on 15th April, 2004 as per the endorsement contained thereon. Admittedly, no arbitrator has been appointed to adjudicate upon the claims of the petitioner within the statutorily permissible period of thirty days.
16. The consequences of failure to so appoint an arbitrator have been considered in the pronouncement of the Apex Court reported in (2006) 2 SCC 638 Punj Lloyd Ltd. v. Petronet MHB Ltd. and the pronouncement of this Court reported at 137 (2007) DLT 47 Gurdeep Singh v. NDMC.
In (2006) 2 SCC 638 Punj Lloyd Ltd. v. Petronet MHB Ltd., the Apex Court had placed reliance on its earlier pronouncement reported at Switchgears Ltd. v. Tata Finance Ltd. and held that upon failure to appoint an arbitrator within 30 days of the demand, the right to appointment would not get automatically forfeited even after 30 days, if the opposite party makes an appointment after 30 days of demand, but before the first party had moved the court under Section 11. This would sufficiently meet the legal requirements of an appointment under Section 11(6). However, if no appointment is made even till such time as the first party moves the court under Section 11, the opposite party would forfeit its right to make the appointment.
17. Therefore the respondent having failed to appoint an arbitrator within the statutory period of 30 days of the notice issued on 15th April, 2004, followed by the reminder of 5th June, 2006 till even filing of the present petition has forfeited the right to appoint an arbitrator.
In the light of the principles laid down by the Apex Court in S.B.P. & Co. v. Patel Engineering Limited 2005 (8) SCC 618, this petition therefore satisfies all the necessary conditions for appointment of an arbitrator and there is thus no prohibition to this Court appointing an independent arbitrator to adjudicate upon the claims of the petitioner. This Court is informed that Shri G.P. Thareja, Additional District Judge (Retd.) has been appointed an arbitrator in similar matters wherein contractors have not received payment from the MCD.
Accordingly, this petition is allowed.
The claims of the petitioner are referred for arbitration of Shri G.P. Thareja, Additional District Judge (Retd.) (Address : B-201, Priyadarshini Apartments, Patparganj, Delhi 92, Phone No. 20906899). The arbitrator shall be paid fees of Rs. 33,000/- and all incidental and ancilliary expenses which shall be shared between the parties.
This petition is allowed in the above terms.