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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPEALLATE JURISDICTION

CIVIL APPEAL NO. 7184 OF 2008

M/S. EMM ENN ASSOCIATES             … APPELLANT(S)

VERSUS

COMMANDER WORKS ENGINEER        … RESPONDENT(S) & ORS           

WITH

  CIVIL APPEAL NO. 7185 OF 2008

J U D G M E N T

ASHOK BHUSHAN, J.

These two appeals raising identical questions of law

have been heard together and are being decided by this

common judgment.   For  deciding  both  the  appeals,  it

shall be sufficient to refer to facts and pleadings in Civil

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Appeal No. 7184 of 2008.  Appeal No. 7184 of 2008 has

been filed against judgment of Chief Justice of Punjab &

Haryana High Court in Arbitration Case No. 184 of 2006

by which judgment learned Chief Justice has dismissed

the  application,  filed  by  appellant  for  referring  the

dispute  to  an  arbitrator  in  exercise  of  power  under

Section 11 of the Arbitration and Conciliation Act 1996

(hereinafter referred to as ‘Act’).

2. Civil Appeal No. 7185 of 2008 has also been filed

against the identical judgment of learned Chief Justice in

Arbitration Case No. 89 of 2006 by which the application

filed  by  the  appellant  for  appointing  an arbitrator  has

been dismissed.   

3. Brief facts giving rise to Appeal No. 7184 of 2008

now need to be noted.  

The  appellant  a  partnership  firm  was  allotted  a

contract on 10.11.1998 for providing additional security

fencing  at  Mullanpur.   The  work  was  completed  on

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10.7.2000. Work completion certificate was issued. Final

bill was prepared on 20.2.2001 and the payment of final

bill was made to the petitioner on 10.04.2001. Payment

of  the  undisputed  part  of  the  final  bill  was  made  by

cheque dated 10.04.2001.

4. Although  Clause  67  of  general  conditions  of

contract  contemplated  for  recovery  from  contractor  in

several  contingencies  one  of  which  as  referred  in

sub-Clause (f) was that if as a result of any audit and

technical examination, any over payment is discovered in

respect of work done under this contract, the contractor

shall on demand make payment of a sum equal to the

amount of over-payment. Sub-Clause (g) further provided

that the Government shall not be entitled to recover any

over-payment beyond a period of two years from the date

of payment of the undisputed portion of the final bill.  

5. Even  though,  two  years  period  expired  after

payment of  final  bill,  no demand for  any recovery was

issued by the Government.   Contractor by letter  dated

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23.02.2005 served a notice stating that final bill amount

as paid during April, 2001 did not include the payments

due  to  contractor  against  several  items  which  were

claimed as per appendix A annexed to the notice.  

6. It  was  further  stated  that  the  decision  be

communicated within thirty days failing which it shall be

assumed that the claim is disputed and contractor shall

be left with no remedy except to seek adjudication by an

arbitrator appointed in terms of the contract.  

7. The  Garrison  Engineer  issued  a  letter  dated

22.03.2005  informing  that  contractor  had  signed  the

final bill without any protest and had given ‘No Further

Claim’  certificate.   Hence  no  arbitrable  dispute  exists.

The claim now intimated after the lapse of  a period of

approx four years is baseless and hence denied.  

8. A  letter  dated  24.03.2005  was  written  by  the

contractor  to  the  chief  engineer  in  reference  to  notice

dated  23.02.2005  with  a  prayer  that  arbitrator  under

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condition 70 of the Contract may kindly be appointed to

adjudicate the dispute.  The appellant thereafter filed an

application under Section 11 of the Arbitration Act before

District  Judge,  Ropar.  The  application  was  ultimately

taken by Chief Justice of the High Court and by an order

dated 12.03.2007, the application was rejected taking the

view that appellant’s claim is not a live claim. Aggrieved

against  the  above  judgment  dated  12.03.2007  in

Arbitration Case  No.  184 of  2006,  Appeal  No.  7184 of

2008 has been filed.  

9. Arbitration Case No. 89 of 2006 has also been filed

by  the  appellant  seeking  appointment  of  an  arbitrator

under Section 11 of the Act in the said case and also the

work was completed on 23.09.2000 and the final bill was

paid on 10.04.2001. Notice along with list of claim was

sent by the appellant on 23.02.2005 i.e. on the same day

when notice  in  Arbitration  Case  No.  184  of  2006  has

been sent.

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10. Hon’ble  Chief  Justice  giving  the  same  reasons

rejected  the  application  in  Arbitration  Case  No.  89  of

2006 holding that the claim made by the appellant is not

a  live  claim.   Hon’ble  Chief  Justice  by  order  dated

12.03.2007 took the view that final bill has been paid on

10.04.2001,  the  notice  having  been  given  only  on

23.02.2005  the  period  of  limitation  was  over.   With

regard to the Clause 67 of the contract, it was observed

by the Chief Justice that Embargo of two years as per

sub-Clause (f) and (g) is with regard to the right of the

Government  for  effecting  recovery  from  the  contractor

which clause does not extend the period of limitation in

favour of the contractor.  

11. Shri O. P. Gupta, the partner of the appellant firm

has appeared in-person and made his submission.  We

have  also  heard the  learned counsel  appearing for  the

respondents.  

12. The  appellant’s  case  is  that  the  claim  raised  by

contractor by notice dated 23.02.2005, was not barred by

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time and was a live claim which ought not to have been

rejected  by  the  Chief  Justice  in  exercise  of  his  power

under Section 11 of the Act.   It  is  contended that the

issues as to whether the claim is barred by time are the

issues  which  ought  to  have  been  left  for  decision  of

arbitrator.  It is contended that payment in respect to the

final bill made on 10.04.2001, was payment with regard

to undisputed amount.  Apart from undisputed amount

there  were  other  claims of  the  contractor  and the  ‘No

Liability’ certificate given by the appellant was only with

regard  to  undisputed  claim.   Payment  made  on

10.04.2001  was  the  payment  only  in  reference  to

undisputed claim and that in no manner precluded the

appellant from raising claim.    

13. As  per  Clause  67  of  the  contract,  there  was  two

years  period  for  effecting  any  recovery  from  the

contractor and when no claim against the contractor was

raised during the aforesaid period, the appellant raised

the claim for disputed amount which was not paid.  The

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period of two years is defect liability period and it  was

clearly  open  for  the  appellant  to  raise  the  claim  for

disputed amount after expiry of the aforesaid period of

two years.  

14. The  respondents  never  adjudicated  the  disputed

part of the final bill and after serving notice the appellant

had  rightly  sought  for  adjudication  by  an  arbitrator

which  application  has  been  rejected  by  Hon’ble  Chief

Justice not on valid considerations.   

15. Learned  counsel  appearing  for  the  respondents

supported  the  judgment  of  the  Chief  Justice  and

contends that for filing any application limitation is three

years  as  per  Article  137  of  the  Limitation  Act,  1963.

Final bill had been paid on 10.04.2001, any application

for any claim in respect to final bill ought to have been

raised  within  three  years.  It  is  contended  that  the

respondents  have  raised  the  preliminary  objections  in

reply objecting the application for arbitration filed by the

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appellant,  which has rightly been rejected by the Chief

Justice.  

16. We  have  considered  the  submissions  of  both  the

parties and have perused the record,  what is the nature

of  jurisdiction  of  the  Chief  Justice  while  deciding  an

application under Section 11 of the Act has elaborately

been considered by Seven Judge Bench of this court in

SBP & CO. versus Patel Engineering Ltd and another

(2005)  8  SCC  618.   In  para  47  of  the  judgment,

conclusions  were  recorded  by  the  larger  Bench.

Conclusion IV is relevant for the present case which is

quoted as below:  

“47. We, therefore, sum up our conclusions as follows:

(iv)  The  Chief  Justice  or  the  designated Judge  will  have  the  right  to  decide  the preliminary  aspects  as  indicated  in  the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the  existence  of  a  valid  arbitration agreement,  the existence or otherwise of  a live claim, the existence of the condition for the  exercise  of  his  power  and  on  the qualifications   of       the     arbitrator   or

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arbitrators.  The  Chief  Justice  or  the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but  the  order  appointing  the  arbitrator could only be that of the Chief Justice or the designated Judge.”

17. The Chief Justice exercises the judicial power while

passing an order under Section 11 of the Act thus can

examine the question as to whether the claim which has

been  raised  before  him  survives  and  needs  to  be

adjudicated.  It goes without saying that if Chief Justice

finds  that  claim  is  a  dead  claim,  he  can  exercise

jurisdiction in rejecting the application.

18. A  two  Judge  Bench  of  this  court  in  Indian  Oil

Corporation  Limited  vs.  SPS  Engineering  Limited,

2011 (3) SCC 507, had  occasion  to  consider what is a

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‘live claim’ within the meaning of Section 11 of the Act.

Elaborating the jurisdiction of the Chief Justice, under

Section 11 of  the  Act  following was laid  down by  this

court in para 14 of the judgment:

“14. …….The Chief Justice or his designate may however choose to decide whether the claim  is  a  dead  (long-barred)  claim  or whether  the  parties  have,  by  recording satisfaction,  exhausted  all  rights, obligations and remedies under the contract, so  that  neither  the  contract  nor  the arbitration agreement  survived.  When it  is said that the Chief Justice or his designate may  choose  to  decide whether the claim is a dead claim, it is implied that he will do so only  when  the  claim  is  evidently  and patently a long time-barred claim and there is no need for any detailed consideration of evidence.  We  may  elucidate  by  an illustration: if the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgment of a  liability  or  other  factors  that  kept  the claim alive in law, and the claim is patently long        time-barred,   the   Chief      Justice

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or his designate will examine whether the claim  is  a  dead  claim  (that  is,  a  long time-barred claim).  On the other hand, if the contractor makes a claim for payment, beyond  three  years  of  completing  of  the work  but  say  within  five  years  of completion of work,  and alleges that the final  bill  was  drawn  up  and  payments were  made within  three  years  before  the claim,  the  Court  will  not  enter  into  a disputed question whether the claim was barred by limitation or not. The Court will leave  the  matter  to  the  decision  of  the Tribunal.  If  the  distinction  between apparent  and  obvious  dead  claims,  and claims  involving  disputed  issues  of limitation  is  not  kept  in  view,  the  Chief Justice  or  his  designate  will  end  up deciding the question of limitation in all applications under Section 11 of the Act.”

19. Further this court has observed that an application

under  Section  11  of  the  Act  is  expected  to  contain

pleading  about  the  existence  of  a  dispute  and  the

applicant  is  not  expected to  justify  the  claim or  plead

extensively   in   regard   to   limitation  or  production  of

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document  to  demonstrate  that  claim is  within  time  in

proceeding  under  Section  11  and  that  issue  should

normally be left to the Arbitral Tribunal. Following was

observed in para 15:

“15.  An application under Section 11 of the  Act  is  expected  to  contain  pleadings about the existence of  a dispute and the existence  of  an  arbitration  agreement  to decide such dispute. The applicant is not expected  to  justify  the  claim  or  plead exhaustively  in  regard  to  limitation  or produce  documents  to  demonstrate  that the claim is within time in a proceeding under  Section  11  of  the  Act.  That  issue should  normally  be  left  to  the  Arbitral Tribunal.  If  the  Chief  Justice  or  his designate is of the view that in addition to examining whether there is an arbitration agreement between the parties, he should consider the issue whether the claim is a dead  one  (long  time-barred)  or  whether there  has  been  satisfaction  of  mutual rights and obligation under the contract, he should record his intention to do so and give an opportunity to the parties to place their  materials  on  such  issue. Unless the

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 parties  are  put  on  notice  that  such  an issue will be examined, they will be under the  impression  that  only  questions  of jurisdiction  and  existence  of  arbitration agreement  between  the  parties  will  be considered in such proceedings.”

20. From the above, it is clear that Chief Justice may

chose  to  hold  a claim as  a  dead claim only  when the

claim is  evidently  and patently  long time barred claim

and there is  no need for  any detailed consideration of

evidence. An illustration have been given in para 14 as

extracted above. The above illustration becomes relevant

for the facts of the present case.  In the present case also,

the appellant has raised the claim beyond the three years

of  completing  of  the  work  but  within  five  years  of

completion of the work.

21. In  the  present  case,  the  appellant  has  also

contended that  there  is  a defect  liability  period of  two

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years during which any recovery can be made from the

contractor.  Further the categorical case of the appellant

was that final payment made at 10.04.2001 was the final

payment of the undisputed claim and there were other

claims  of  the  appellant  which  were  disputed  and  the

payment  received  on  10.4.2001  was  with  regard  to

undisputed  claim.  There  being  no  adjudication  with

regard to disputed claim the claim raised by notice dated

23.02.2005 cannot be said to be barred by time or a dead

claim.  

22. In  the  present  appeal  by  IA  No.  03  of  2012,  the

appellant  has  brought  certain  additional  materials  for

consideration  of  the  Court.   By  annexure  16  certain

certificates  which  were  given  by  the  contractor  on

20.02.2001 that is when the final bill was prepared, has

been  brought  on  record.   The  payment  was  made  by

cheque dated 10.04.2001 and para 3/4 of the certificate

filed at the 2nd page of the annexure 16 states as follows:

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“3.  Printed  Certificate  signed  by  the petitioner at the time of receiving payment of the undisputed part of the Final Bill.  

Received Rs.  57532/-.  This  payment is  in full and final settlement of all money due under C WE/AF CHD /  CHD-5/98-99 and I have  no  further  claim  in  respect  of  the ………………..

Sd/- Contractor”

“4. Payment by Cheque of the undisputed part  of  the  Final  Bill  made  by  the dispersing  officer, mentioned-herein-below:-

Cheque No.  H –  916930 dated 10.4.2001 for  Rs.  57532/-  issued  in  favour  of  M/s Emm  Enn  Associates  on  SBI  AF Chandigarh Treasury.

Sd/-  Signature of Dispersing Office ”  

23. Para  04  of  the  above  certificate  as  quoted  above

clearly mentions payment by cheque of the  undisputed

part of  the  final  bill  and  above  certificate  also  clearly

indicates that payment on 10.04.2001 was made of the

undisputed part of the final bill which presupposes that

there  are  certain  other  claims  which  are  disputed.

Clause  67 of  the  contract  entered between the  parties

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also uses expressions “undisputed portion of  the Final

Bill”

24. Appellant had relied on Clause 67 which contains a

heading “Recovery From Contractor” under sub-Clause (f)

and (g) which is to the following effect:

(f)  If,  as  a  result  of  such  audit  and technical  examination,  any  over-payment is discovered in respect of the work done under this  Contract,  the contractor shall on demand make payment of a sum equal to the amount of over-payment or agree for effecting  necessary  adjustment  from  any amounts  due  to  him  by  Government.   If however,  he  refuses  or  neglects  to  make the payment on demand or does not agree for effecting adjustment from any amounts due to him, Government shall be entitled to take action as in sub-para (a) hereinbefore. If as a result of such audit and technical examination  any  under  payment  is discovered, the amount of under payment shall  be  duly  paid  to  the  Contractor  by Government.  

(g)  Provided,  that,  nothing  hereinbefore contained shall entitled the Government to recover any over-payment in respect of any price agreed between the C.W.E or the G.E. and  the  Contractor  under  the circumstances  specifically  prescribed  for such method of  assessment and that the said  right  of  the  Government  to  adjust

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over-payment  from any  sum due  or  from any  sum  which  may  become  due  to  the Contractor  or  from  Security  Deposit  or Security  Bond  amount  and  adjust  under payment, shall not extend beyond a period of two years from the date of payment of the undisputed portion of the Final Bill or in the case of minus Bill,  from the date, the  net  amount  of  the  final  bill  is communicated to the Contractor. “

25. In  sub-Clause  (g)  the  period  of  two  years  under

which  the  Government  is  entitled  to  make  recovery  is

“from the date of payment of the undisputed portion of

the final bill”. The examination of the additional materials

brought  on  this  appeal,  does  indicate  that  the  case

required  consideration of  relevant  bills  and certificates

and  determination  on  the  question  as  to  whether  the

claim laid by appellant was a dead claim and was not a

live  claim  depended  upon  scrutiny  of  relevant

documents.  The  pleadings  in  the  proceeding  under

Section 11 by the appellant were clearly to the effect that

on 10.04.2001, he was paid only undisputed part and

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the appellant has reserved his right to raise claim to the

disputed part.

26. In view of the Division Bench judgment in  Indian

Oil Corporation Ltd. supra para 14 as extracted above,

the present was the case which ought to have been left

for  the  decision  by  the  Tribunal.  We,  however,  have

proceeded  further  to  examine  the  claim  raised  by  the

appellant in his notice dated 23.02.2005.  The pleadings

of the appellant are categorical to the effect that the final

payment made on 10.04.2001 was only with regard to

undisputed portion and he has reserved his right to raise

claim with regard to other disputed claims.  

27. The disputed claims having never been adjudicated,

we are of the view that there was a dispute which needed

an adjudication after looking into all relevant documents,

bills and certificates which could have been appropriately

examined by Arbitral Tribunal and the observation of the

Chief Justice “As the appellant has failed to prima facie

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show  this  court  that  there  was  a  live  claim  of  the

appellant” does not commend us.

28. The claim raised by petitioner  in  the  facts  of  the

case  could  not  have  been  said  to  be  a  dead  claim.

Especially  in  view  of  the  additional  documents  which

have been placed before us by IA No. 03 of 2012. We are

thus of the view that the order dated 12.03.2007 passed

in  Arbitration  Case  No.  184  of  2006  and  89  of  2006

deserves to be set-aside.

29. As a consequence thereof, the application made by

the appellant under Section 11 of the Act is allowed. We,

however,  consider  it  apposite  to  remit  the  case  to  the

High  Court  (designated  Judge)  to  pass  consequential

orders for appointment of the arbitrator for deciding the

disputes  which  have  arisen  between  the  parties.  The

appointment of the arbitrator may be made in the first

instance with the consent of the parties and if, for any

reason,  it  is  not  possible to do so then the Court will

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appoint the arbitrator in its discretion. It be done within

one month from the date of the parties appearance.  

30. Parties to appear before the designated Judge in the

High Court on 25.07.2016 to enable the Court to pass

appropriate consequential order as directed above.  Both

the appeals are accordingly allowed.  

………………….…...........................J. (ABHAY MANOHAR SAPRE)

………………..…...........................J.       (ASHOK BHUSHAN)

NEW DELHI, JUNE 26, 2016.