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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.       2073            OF 2014 (Arising out of SLP (Civil) No. 30015 of 2013)

Voltas Limited ... Appellant

Versus

Rolta India Limited          ...Respondent

WITH

CIVIL APPEAL NO.       2076            OF 2014 (Arising out of SLP (Civil) No. 31195 of 2013)

J U D G M E N T

Dipak Misra, J.

Leave granted in both the Special Leave Petitions.

2. Regard being had to the similitude of controversy in both

the appeals they were heard together and are disposed of

by a common judgment.  Be it noted, the Division Bench

of  the  High  Court  of  Judicature  at  Bombay,  by  two

separate judgments and orders passed on 16.8.2013 in

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Appeals Nos. 7 of 2013 and 8 of 2013 has set aside the

judgment  and  order  dated  1.10.2012  passed  by  the

learned single Judge in Arbitration Petition (L) Nos. 1239

of 2012 and 1240 of 2012 respectively as a consequence

of  which  two  interim  awards  passed  by  the  learned

Arbitrator  on  26.7.2012  in  respect  of  two  contracts

between the same parties rejecting the counter claim of

the respondent-herein have been annulled.  For the sake

of clarity and convenience we shall state the facts from

Civil Appeal arising out of Special Leave Petition (C) No.

30015 of 2013, for the Division Bench has observed that

the Appeal No. 7 of 2013 had emanated from the disputes

which  arose  in  respect  of  civil  construction  agreement

dated 2.2.2001 and in Appeal No. 8 of 2013 the disputes

related to agreement dated 8.1.2003 for air-conditioning

of the two buildings to be constructed for the appellant

therein  and  no  separate  submissions  were  advanced

before it and the position was the same before the learned

single Judge.

3. The  expose’  of  facts  are  that  the  appellant  and

respondent entered into a civil construction contract for

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construction of two buildings known as Rolta Bhawan II

(RB-II)  and  Rolta  Bhawan  III  (RB-II)  and  also  for

modification of building Rolta Bhawan I(RB-I) previously

constructed  by  the  respondent.   As  certain  disputes

arose,  on  3.12.2004  the  respondent  terminated  the

contract.   After  certain  correspondences  between  the

parties pertaining to the termination of the contract the

appellant  by  letter  dated  29.3.2006  invoked  the

arbitration  clause  in  respect  of  its  claims  against  the

respondent.   As  the  respondent  failed  to  appoint  an

arbitrator, it filed an application under Section 11 of the

Arbitration  and  Conciliation  Act,  1996  (for  short  “the

Act”) before the High Court of Bombay for appointment of

arbitrator  and  the  designated  Judge  vide  order  dated

19.11.2010 appointed the sole arbitrator.

4. After the controversy came in seisin before the learned

Arbitrator, he issued certain directions and, as the facts

would unfurl, the appellant filed its statement of claim on

13.4.2011 claiming a sum of Rs.23,31,62,429.77 together

with  interest  at  the  rate  of  15% per  annum from the

respondent.  The respondent, after filing its defence on

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24.8.2011, filed the counter claim of Rs.333,73,35,026/-

together with interest at the rate of 18% per annum from

the date of filing till payment/realization thereof.  In the

counter claim the respondent justified the termination of

the  agreement  and  contended  that  it  was  entitled  to

damages for breach of contract.  In the counter claim the

notice dated 17.4.2006 sent by the respondent detailing

its counter claim to the appellant was referred to.   

5. After the counter claim was lodged, the appellant-herein

filed  its  objections  about  the  tenability  of  the  counter

claim stating that  the same was not  maintainable  and

was also barred by limitation.  The learned Arbitrator on

7.1.2012 framed two issues regarding the tenability and

limitation  of  the  counter  claim  as  preliminary  issues.

They are: -

“(i) Whether  the  counter  claim,  or  a  substantial part thereof, is barred by the law of limitation?   

(ii) Whether the counter claim is not maintainable and beyond the scope of reference?”

6. After  adumbrating  to  the  facts  the  learned  Arbitrator

came to  hold  that  the  limitation for  making a  counter

claim is required to be asserted with reference to the date

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on  which  the  cause  of  action  arises  and  the  date  on

which the  counter  claim is  filed.   After  so  opining the

learned Arbitrator recorded as follows: -

“The respondent has been vigilant and assertive of its legal rights right from 3rd December 2004 on which date the Contract was terminated.  The assertions in the letters dated 27th April 2005 and 29th March  2006  show  unmistakable consciousness  of  its  rights  on  the  part  of  the Respondent.   The  last  letter  dated  29th March 2006  is  the  notice  of  the  Advocates  of  the Respondent  asserting  its  right  to  invoke arbitration.   The  Tribunal  is  of  the  view  that cause of action for the Counter-claim which must be  treated  as  an  independent  action  to  be instituted, really arose latest by 29th March 2008, if not earlier it is clear that the Counter claim is filed only on 26th September, 2011 and as such it is beyond the period of limitation of three years.”

It  may  be  noted  here  that  the  learned  Arbitrator,

however,  overruled  the  objection  with  regard  to  the

maintainability of the counter claim being beyond the scope

of reference.

7. After  the  interim  award  was  passed  by  the  learned

Arbitrator,  the  respondent  filed  an  application  under

Section 34 of the Act for setting aside the decision of the

learned Arbitrator rejecting the counter claims made by it

on the ground of limitation.  The learned single Judge,

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after adverting to the facts in detail and the contentions

raised by the learned counsel for the parties, referred to

certain authorities, namely, Ispat Industries Limited v.

Shipping Corporation of India Limited1 and State of

Goa v. Praveen Enterprises2, and came to hold that the

arbitral  proceedings  in  respect  of  those  disputes

commenced on the date on which the request for the said

disputes to be referred to arbitration was received by the

respondent,  and further that only such disputes which

were  referred  to  in  the  notice  invoking  arbitration

agreement with a request to refer the same to arbitration,

the  arbitral  proceedings  commenced  and  it  would  not

apply to the counter claim.  Thereafter the learned single

Judge proceeded to state as follows: -

“When the notice was given by the respondent on 29th March,  2006,  the  said  notice  was  only  in respect of the disputes having arisen between the parties  due  to  refusal  of  claims  made  by  the petitioner.   On  the  date  of  issuance  of  such notice,  the  petitioner  had not  even asserted its claim.   After  issuance  of  such  notice  on  29th March,  2006,  the  petitioner  by  its  letter  dated 17th April,  2006 had  asserted  its  claim for  the first time.  The dispute in respect of the counter claim raised when the petitioner did not pay the

1 Arbitration Petition No. 570 of 2001 decided on 4.12.2001. 2 (2012) 12 SCC 581

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said amount as demanded.  Such disputes thus did not exist when the notice invoking arbitration agreement was given by the respondent on 29th March,  2006.   In  my  view,  the  arbitral proceedings  therefore,  cannot  be  said  to  have commenced in respect of the counter claim when the notice was given by the respondent on 29th March, 2006.  The counter claim was admittedly filed on 26th September,  2011 which was made beyond  the  period  of  limitation.   The  arbitral proceedings commenced in respect of the counter claim  only  when  the  said  counter  claim  was lodged by the petitioner on 26th September, 2011. Even  if  the  date  of  refusal  on  the  part  of  the respondent, to pay the amount as demanded by the petitioner by its notice dated 17th April, 2006 is considered as commencement of dispute, even in  such  case  on  the  date  of  filing  the  counter claim  i.e.  26th September,  2011,  the  counter claim was  barred  by  law of  limitation.   In  my view, thus the tribunal was justified in rejecting the counter claim filed by the petitioner as time barred.”

8. After  so stating the learned single Judge held that  the

opinion  expressed  by  the  learned  Arbitrator  was  not

perverse and based on correct appreciation of documents

and  was  resultant  of  a  plausible  interpretation  and

accordingly  rejected  the  application  preferred  under

Section 34 of the Act.

9. Being  dissatisfied,  the  respondent-herein  preferred  an

appeal  before the Division Bench which chronologically

referred  to  the  correspondences  made  between  the

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parties, the reasoning ascribed by the learned Arbitrator,

the  submissions  propounded  before  it,  the  principles

stated in Oil and Natural Gas Corporation Ltd. v. Saw

Pipes Ltd.3 as regards the jurisdiction of the Court while

dealing with an application under Section 34 of the Act,

the  concept  of  limitation  as  has  been  explained  in

Praveen Enterprises (supra), the demand made by the

appellant therein by letter dated 17.4.2006 quantifying a

sum  of  Rs.68.63  crores,  exclusion  of  period  between

3.5.2006  to  19.11.2010  during  which  period  the

application  under  Section  11  of  the  Act  was  pending

before  the  High  Court  and  on  that  foundation,  in  the

ultimate eventuate, came to hold that the counter claim

filed on 26.9.2011 was within limitation.  The aforesaid

view obliged the Division Bench to allow the appeal, set

aside  the  judgment  and  order  passed  by  the  learned

single Judge as a consequence thereof the rejection of the

counter claim by the learned Arbitrator stood overturned.

Be  it  noted,  rest  of  the  interim  award  of  the  learned

Arbitrator was not disturbed.

3 (2003) 5 SCC 705

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10. Assailing the legal substantiality of the view expressed

by  the  Division  Bench,  Mr.  K.K.  Venugopal,  learned

senior counsel appearing for the appellant, has raised the

following contentions: -

(i) Existence of  dispute is fundamentally  essential  for a

controversy to be arbitrated upon and in the case at

hand there being no dispute raised by the respondent

as warranted in law, the counter claim put forth before

the  learned Arbitrator  deserved  to  be  thrown at  the

threshold and the High Court would have been well

advised to do so.

(ii) The limitation for a counter claim has to be strictly in

accordance  with  Section  43(1)  of  the  Act  read  with

Section  3(2)(b)  of  the  Limitation  Act,  1963  and  any

deviation therefrom is required to be authorized by any

other provision of law.  The only other provision of law

which can depart from Section 43(1) of the Act read

with  Section  3(2)(b)  of  the  Limitation  Act,  is  the

provision contained in Section 21 of the Act, where the

respondent to the claimant’s claim invokes arbitration

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in regard to specific or particular disputes and further

makes a request for the said disputes to be referred to

arbitration and in that event alone, the date of filing of

the counter claim would not be the relevant date but

the date of making such request for arbitration would

be  the  date  for  computing  limitation.   The  Division

Bench has not  kept  itself  alive  to the requisite  twin

tests and has erroneously ruled that the counter claim

as filed by the respondent is not barred by limitation.

(iii) The principle stated in  Praveen Enterprises’s case is

not  applicable  to  the  present  case  because  the

correspondences made by the respondent, including the

letter  dated  17.4.2006,  show  that  there  had  neither

been any enumeration of specific claims nor invocation

of  the  arbitration  clause  but  merely  computation  of

certain claims, though for application of the exception

as carved out in Praveen Enterprises (supra), both the

conditions  precedent,  namely,  making  out  a  specific

claim and invocation of arbitration are to be satisfied.

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(iv) The  exclusion  of  the  period  during  pendency  of  the

application under Section 11 of the Act,  as has been

held by the Division Bench, is wholly contrary to the

principle  laid  down  in  paragraphs  20  and  32  in

Praveen Enterprises (supra).

(v) Assuming the principle stated in Praveen Enterprises

(supra) is made applicable, the claims asserted by the

respondent in its letter dated 17.4.2006 could only be

saved  being  not  hit  by  limitation  and  not  the

exaggerated counter claim that has been filed before the

learned Arbitrator.

(vi) The Division Bench completely erred in interfering with

the interim award in exercise of power under Section 34

of the Act,  though the principle stated in  Saw Pipes

Ltd. (supra)  is  not  attracted  and  further  that  the

recording  of  finding  that  the  award  passed  by  the

learned Arbitrator suffers from perversity of approach is

not  acceptable  inasmuch as a possible  and plausible

interpretation of the contract and documents has been

made  which  is  within  the  domain  of  the  learned

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Arbitrator  as  has  been  stated  in  Rashtriya  Ispat

Nigam Limited v. Dewan Chand Ram Saran4.

11. Mr. R.F. Nariman, learned senior counsel appearing for

the respondent, defending the impugned judgment, has

proponed the following: -

(a) The  documents  brought  on  record  demonstrably

establish  that  dispute  existed  between  the  parties  as

regards  the  counter  claim  and  hence,  the  submission

raised on behalf  of the appellant on that score is sans

substance.  

(b)The  Division  Bench has  rightly  come to  hold  that  the

counter claim filed by the respondent-herein was within

time  on  the  basis  of  the  law  laid  down  in  Praveen

Enterprises (supra) inasmuch as the date of filing of the

counter  claim has  to  relate  back  to  the  date  of  claim

made  by  the  respondent  and  the  correspondences

between the parties do clearly show that the respondent

had raised its claim and also sought for arbitration in a

legally accepted manner.

4 (2012) 5 SCC 306

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(c) The alternative submission that the counter claim has to

be confined to the amount quantified in the letter dated

17.4.2006  is  unacceptable  in  law,  for  in  Praveen

Enterprises (supra) it has been held that the statement

of claim need not be restricted to the claims in the notice

and on that base it can safely be concluded that the said

proposition holds good for counter claims as well.  That

apart, the principle also gets support from what has been

laid  down  in  McDermott  International  Inc.  v.  Burn

Standard Co. Ltd. and others5.

12. First, we shall address to the submissions pertaining

to existence and raising of dispute as regards the counter

claim.  We are required to deal with the same in the case

at hand since Mr. Venugopal, learned senior counsel, has

urged that if no dispute was raised at any point of time, it

could not have been raised before the learned Arbitrator

as it would be clearly hit by limitation.  Learned senior

counsel  has  placed  reliance  on  Major  (Retd.)  Inder

Singh  Rekhi  v.  Delhi  Development  Authority6 and

Jammu  and  Kashmir  State  Forest  Corporation  v.

5 (2006) 11 SCC 181 6 (1988) 2 SCC 338

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Abdul  Karim  Wani  and  others7,  to  bolster  the

submission  that  in  the  case  at  hand  the  disputes  as

regards the counter claim really had not arisen, for mere

assertions  and  denials  do  not  constitute  a  dispute

capable of reference to arbitration and hence, not to be

entertained when it is dead or stale.

13. In Major (Retd.) Inder Singh Rekhi (supra) the High

Court had rejected the petition preferred under Section

20 of Arbitration Act, 1940 as barred by limitation.  The

two-Judge Bench referred to Section 20 of the 1940 Act

and  opined  that  in  order  to  be  entitled  to  order  of

reference  under  Section  20,  it  is  necessary  that  there

should be an arbitration agreement and secondly, dispute

must arise to which the agreement applied.  In the said

case,  there  had  been  an  assertion  of  claim  of  the

appellant and silence as well as refusal in respect of the

same  by  the  respondent.   The  Court  observed  that  a

dispute had arisen regarding non-payment of the alleged

dues to the appellant and, in that context, observed thus:

-

7 (1989) 2 SCC 701

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“A dispute arises where there is a claim and a denial  and  repudiation  of  the  claim.   The existence of dispute is essential for appointment of  an arbitrator under Section 8 or a reference under  Section  20  of  the  Act.   See  Law  of Arbitration  by R.S. Bachawat, first edition, page 354.  There should be dispute and there can only be  a  dispute  when  a  claim is  asserted  by  one party  and  denied  by  the  other  on  whatever grounds.  Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of  denying,  not  merely  inaction  to  accede  to  a claim or a request.  Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case.”

14. In  Abdul  Karim  Wani  and  others (supra)  the

question  arose  whether  the  dispute  mentioned  in  the

contractor’s application could have been referred to the

arbitration at  all.   The majority  came to hold  that  the

claim raised by the plaintiff  in his application was not

covered by the arbitration clause and, therefore, was not

permissible to be referred for a decision to the arbitrator.

Be it noted, in the said case, the work under the contract

had  already  been  executed  without  any  dispute.   The

majority  also  observed  that  in  the  absence  of  a

repudiation by the Corporation of the respondent’s right

to be considered, if and when occasion arises, no dispute

could be referred for arbitration.  It further ruled that in

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order  that  there  may  be  a  reference  to  arbitration,

existence of a dispute is essential and the dispute to be

referred to arbitration must arise under the arbitration

agreement.

15. The principles laid down in the aforesaid cases were

under  the  1940  Act  at  the  stage  of  appointment  of

arbitrator.  In the case at hand, though we are dealing

with a lis under the 1996 Act, yet we are to deal with the

said facet as the learned Arbitrator has passed an interim

award as regards the sustenance of the counter claim.  In

this  regard,  it  is  necessary  to  refer  to  the

correspondences entered into between the parties and to

appreciate the effect and impact of such communications.

By letter dated 1.3.2005 the appellant, while referring to

the  letter  dated  3.12.2004  issued  by  the  respondent

terminating the contract on the ground of alleged delay

and  default  in  completion  of  the  project,  without

prejudice had made a request for payment of final bill in

full and settle the claim made therein at the earliest.  It

was also suggested therein that if the respondent needed

any additional information or material in support of the

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claim put forth,  the appellant would furnish the same.

On  18.3.2005  the  respondent  communicated  to  the

appellant through its counsel that it would compute its

losses, damages, costs, charges, expenses, etc. after the

building  work  was  over  and  claim  the  same  from the

appellant.   The  appellant  vide  letter  dated  7.4.2005,

through its counsel, intimated the respondent that it was

not  liable  to  pay  any  alleged  losses,  damages,  costs,

charges  and  expenses,  allegedly  suffered  by  the

respondent.  On 27.4.2005 by another communication an

assertion  was  made  about  the  losses  suffered  by  the

respondent.  The respondent asseverated that it was not

liable  to  pay  to  the  appellant  any  compensation  and

damages or other amounts as claimed in the letter dated

1.3.2005 to the respondent.  In fact, the respondent was

compelled  to  terminate  the  civil  contractor  as  per  the

recommendation  of  the  Architects,  M/s.  Master  &

Associates, and the respondent had suffered huge losses

and damages and had incurred heavy costs, charges and

expenses for which the appellant was solely respondible.

It was also mentioned in the letter that the respondent

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reserved its right to take appropriate steps against the

appellant as per the agreement entered into between the

parties  as  per  law.   As  the  factual  exposition  would

unfurl, on 29.3.2006 the appellant, referring to its earlier

communications dated 14.4.2004, 23.4.2004, 24.5.2004,

18.6.2004,  13.7.2004  and  1.3.2005,  claimed  for

appointment  of  an  arbitrator.   On  17.4.2006  the

respondent specified the claims under various heads and

also  claimed  payment  to  be  made  within  seven  days

failing which it will invoke the arbitration clause.  To the

said communication and another  communication dated

21.4.2006 we shall refer to at a later stage while dealing

with the other facet of submission. It may be noted here

that on 9.5.2006 the appellant, referring to letter dated

17.4.2006 whereby the respondent had raised its claims,

stated as follows: -

“Our  clients  deny  that  the  claim made  against you is false and frivolous.  Our clients deny that any amount is due to you for the alleged breach of the aforesaid contract.  Our clients deny that they have committed any breach of the aforesaid contract.

xxx xxx xxx

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In view of what is stated hereinabove, our clients deny that they are liable to pay to you a sum of Rs.68,63,72,743.08 or any other sum.”

16. Thus, the correspondences between the parties make it

vivid that the claims made by the respondent were denied

by  the  appellant  on  many  a  ground  and,  therefore,  it

would be inappropriate to say that there was inaction or

mere denial.  Therefore, in the obtaining fact situation,

the principles stated in Major (Retd.) Inder Singh Rekhi

(supra) and Abdul Karim Wani and others (supra) are

not applicable.   

17. The  next  aspect  that  has  been  highlighted  by  Mr.

Venugopal is that the respondent had never, in the true

sense of  the term, invoked arbitration by appropriately

putting forth specified claims.  In this context, we may

refer to the letter dated 29.3.2006 which would show that

the  appellant  had  asserted  that  the  disputes  and

differences  had  arisen  between  the  parties  to  the

agreement  and  invoked  the  arbitration  clause  calling

upon the respondent to appoint an independent unbiased

arbitrator  within  30  days  from the  receipt  of  the  said

notice,  failing  which  they  would  be  constrained  to

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approach the  designated Judge of  the  Chief  Justice  of

Bombay  High  Court  for  appointment  of  an  arbitrator

under Section 11 of the Act.  The respondent, vide letter

dated 17.4.2006, sent through its counsel while stating

that it was surprised to receive the demand made by the

appellant  with  regard  to  the  final  R.A.  bill  dated

21.12.2004,  clearly  stated  that  the  earlier  letter  dated

1.3.2005 had  already  been replied  to  vide  letter  dated

18.3.2005.  In the said letter  it  was mentioned by the

respondent that it had crystallized its claim amounting to

Rs.68,63,72,743.08 and, be it noted, the said claim was

made on various heads by the respondent.  Reproduction

of part of the said letter would be apposite: -

“The final  R.A.  Bill  sent  by  you is  incorrect  in many respects; one of them being that you have made claims based on works actually not done by you  Nothing  is  due  and  payable  by  us  to  you against your final R.A. Bill.  We call upon you to pay  to  us  the  aforesaid  sum  of Rs.68,63,72,743.08  within  seven  days  of  the receipt  of  this  letter,  failing  which  you  will  be liable to pay interest at the rate of 18% p.a. on expiry of seven days after receipt of this letter by you, till payment and/or realization.  Please note that if the aforesaid payment is not made within seven days of  the  receipt  of  this  letter,  we will invoke the arbitration clause of the civil contract and refer the disputes to arbitration.”

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18. In  this  regard  reference  to  letter  dated  21.4.2006

written by the appellant is seemly.  The relevant part of

the said letter is as follows: -

“We are instructed to inform you that our client was out of India in connection with the business tour and returned to India on 19th April,  2006. Our  client  thereafter  has  been  extremely  busy with the work of the Company.  He has seen your letter dated 29th March, 2006.

Please,  therefore,  ask  your  clients  to  note that our client will appoint an Arbitrator within 30 days from the date of his return to India.”

19. These  two  communications  make  it  clear  that  the

respondent had crystallized the claims on various heads

by letter dated 17.4.2006 and the appellant had agreed to

appoint an arbitrator within thirty days.  The heads that

have  been  mentioned  in  the  letter  dated  17.4.2006

pertained to liquidated damages for delay in performance,

cost of repairs and rework which had to be done by the

respondent, differential cost of the works left over by the

appellant and was completed by the respondent through

other agencies, cost of direct consequential  damages to

the  respondent  due to defect  in the work done by the

appellant,  cost of  consultancy fees and other expenses,

loss of profit for four years based on revenue generated

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per employee, etc. and outstanding mobilization advance

remaining  with  the  appellant.   The  total  sum  as

mentioned in the letter was Rs.74,78,34,921.54.  From

the said amount monies retained by the respondent and

monies received by the respondent as per the contract,

i.e.,  Rs.6,14,62,178.46  were  reduced.   Needless  to

emphasize, the validity of the claims had to be addressed

by the learned Arbitrator but the fact remains that the

respondent had raised the claims by giving heads.  Thus,

there can be no scintilla of doubt that the respondent had

particularized  or  specified  its  claims  and  sought

arbitration for the same.

20. Keeping in view the aforesaid factual scenario we shall

now proceed to appreciate what has been stated by this

Court in Praveen Enterprises (supra).  In the said case,

the  respondent  therein  had  raised  certain  claims  and

given  a  notice  to  the  appellant-therein  to  appoint  an

arbitrator  in  terms  of  the  arbitration  clause.   As  the

appellant  did  not  do  so,  the  respondent  filed  an

application under Section 11 of the Act and an arbitrator

was appointed.  The respondent filed its claim statement

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before the arbitrator and the learned arbitrator passed an

award.   In  regard  to  the  counter  claims  made  by  the

appellant,  the  arbitrator  awarded  certain  sum without

any interest.  An application under Section 34 of the Act

was  filed  by  the  respondent  challenging  the  award  for

rejection  of  its  other  claims  and  award  made  on  a

particular  item  of  the  counter  claim.   The  civil  court

disposed of the matter upholding the award in respect of

the claims of the respondent but accepted the objection

raised by it in regard to the award made on the counter

claim opining that the arbitrator could not have enlarged

the  scope  of  the  reference  and  entertain  either  fresh

claims  by  the  claimants  or  counter  claims  from  the

respondent.   The  said  judgment  came  to  be  assailed

before  the  High  Court  which  dismissed  the  appeal  by

holding that the counter claims were bad in law as they

were never placed before the court by the appellant in the

proceeding under Section 11 of the Act and they were not

referred to by the court to arbitration and, therefore, the

arbitrator had no jurisdiction to entertain the matter.

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21. This Court posed two questions, namely, whether the

respondent  in  an  arbitration  proceeding  is  precluded

from making a counter claim, unless (a) it had served a

notice  upon  the  claimant  requesting  that  the  disputes

relating to that counter claim be referred to arbitration

and  the  claimant  had  concurred  in  referring  the

counterclaim to the same arbitrator; and/or (b) it had set

out the said counterclaim in its reply statement to the

application under  Section 11 of  the  Act  and the  Chief

Justice or his designate refers such counter claim also to

arbitration.  Thereafter, the Court referred to the concept

of “reference to arbitration” and, analyzing the anatomy

of Sections 21 and 43 of  the Act and Section 3 of  the

Limitation Act, 1963, opined thus: -

“Section 3 of  the Limitation Act,  1963 specifies the  date  of  institution  for  suit,  but  does  not specify  the  date  of  “institution”  for  arbitration proceedings. Section 21 of the Act supplies the omission.  But  for  Section  21  there  would  be considerable confusion as to what would be the date of “institution” in regard to the arbitration proceedings. It will be possible for the respondent in an arbitration to argue that the limitation has to  be  calculated  as  on  the  date  on  which statement of claim was filed, or the date on which the arbitrator entered upon the reference, or the date  on which the  arbitrator  was appointed by the court, or the date on which the application

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was filed under Section 11 of the Act. In view of Section  21  of  the  Act  providing  that  the arbitration  proceedings  shall  be  deemed  to commence on the date on which “a request for that  dispute  to  be  referred  to  arbitration  is received by the respondent” the said confusion is cleared. Therefore, the purpose of Section 21 of the  Act  is  to  determine  the  date  of commencement  of  the  arbitration  proceedings, relevant mainly for deciding whether the claims of the claimant are barred by limitation or not.”

22. Thereafter, addressing the issue pertaining to counter

claims, the Court observed as follows: -

“20. As far as counterclaims are concerned, there is no room for ambiguity in regard to the relevant date for determining the limitation. Section 3(2) (b)  of  the Limitation Act,  1963 provides that in regard  to  a  counterclaim in  suits,  the  date  on which the counterclaim is made in court shall be deemed  to  be  the  date  of  institution  of  the counterclaim. As the Limitation Act, 1963 is made applicable  to  arbitrations,  in  the  case  of  a counterclaim  by  a  respondent  in  an  arbitral proceeding, the date on which the counterclaim is made  before  the  arbitrator  will  be  the  date  of “institution” insofar as counterclaim is concerned. There is, therefore, no need to provide a date of “commencement”  as  in  the  case  of  claims  of  a claimant.  Section  21  of  the  Act  is  therefore  not relevant for counterclaims. There is however one exception. Where the respondent against whom a claim is made, had also made a claim against the claimant  and  sought  arbitration  by  serving  a notice to the claimant but subsequently raises that claim  as  a  counterclaim  in  the  arbitration proceedings initiated by the claimant,  instead of filing a separate application under Section 11 of the Act, the limitation for such counterclaim should be computed, as on the date of service of notice of

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such claim on the claimant and not on the date of filing of the counterclaim.”

[Italics is ours]

23. Mr. R.F. Nariman, learned senior counsel appearing for

the  respondent,  submitted  that  the  case  of  the

respondent comes within that exception because it had

raised its claims on various dates and crystallized it by

letter dated 17.4.2006 and had sought arbitration also.

It  is his submission that  the learned single Judge had

incorrectly  understood  the  exception carved  out  in  the

aforesaid case and has opined that the date of filing of

the counter claims, i.e., 26.9.2011 is the pertinent date.

It is urged by him that the Division Bench has correctly

determined the  date  to  be  17.4.2006.   Mr.  Venugopal,

learned senior counsel, has disputed the said position by

relying  upon  Section  3  of  the  Limitation  Act  which

stipulates the limitation to be mandatory.

24. On  a  careful  reading  of  the  verdict  in  Praveen

Enterprises (supra), we find that the two-Judge Bench,

after  referring  to,  as  we  have  stated  hereinbefore,

Sections  21  and  43  of  the  Act  and  Section  3  of  the

Limitation  Act  has  opined,  regard  being  had  to  the

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language employed in Section 21, that an exception has

to  be  carved  out.   It  saves  the  limitation  for  filing  a

counter claim if a respondent against whom a claim has

been made satisfies the twin test, namely, he had made a

claim  against  the  claimant  and  sought  arbitration  by

serving  a  notice  to  the  claimant.   In  our  considered

opinion the said exception squarely applies to the case at

hand inasmuch as the appellant had raised the counter

claim and sought arbitration by expressing its intention

on number of occasions.  That apart, it is also perceptible

that  the  appellant  had  assured  for  appointment  of  an

arbitrator.   Thus,  the  counter  claim was  instituted  on

17.4.2006 and hence, the irresistible conclusion is that it

is within limitation.

25. Presently  to  the  alternative  submission  of  Mr.

Venugopal, learned senior counsel for the appellant.  It

basically  pertains  to  the  nature,  scope  and  gamut  of

applicability  of  the  exception  carved  out  in  Praveen

Enterprises (supra) for the purpose of saving a counter

claim  being  barred  by  limitation.   The  learned  senior

counsel  would  submit  that  the  respondent  had

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crystallized  its  claims  by  letter  dated  17.4.2006

amounting to Rs.68,63,72,743.08 whereas in the counter

claim dated 26.9.2011 filed before the learned Arbitrator

amounts to Rs.333,73,35,026/- which is impermissible.

In essence, the submission of Mr. Venugopal is that the

claims  which  were  not  raised  in  the  letter  dated

17.4.2006  have  to  be  treated  as  being  barred  by

limitation.  Mr. R.F. Nariman, learned senior counsel for

the  respondent,  on  the  contrary,  has  referred  to

paragraph  11  of  the  Praveen  Enterprises (supra)  to

buttress his submission that when all the disputes are

referred to the arbitrator, he has the jurisdiction to decide

all the disputes, i.e., both the claims and counter claims.

That  apart,  the  respondent  had  reserved  its  rights  to

quantify  the claim.  In this regard,  he has also drawn

inspiration from  McDermott International Inc. (supra)

wherein  this  Court  has  stated  that  while  claiming

damages,  the  amount  therefor  is  not  required  to  be

quantified, for quantification of a claim is merely a matter

of  proof.   Mr. Nariman has also commended us to the

decision  in  Bharat  Sanchar  Nigam  Limited  and

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another v. Motorola India Private Limited8 wherein it

has  been  ruled  that  the  question  of  holding  a  person

liable  for  liquidated  damages  and  the  question  of

quantifying the amount to be paid by way of liquidated

damages  are  entirely  different.   Fixing  of  liability  is

primary while the quantification is secondary to it.

26. In our considered opinion, the aforesaid decisions do

not render any assistance to the proposition canvassed

by the learned senior counsel for the respondent.  We are

inclined to think so on two counts.   First,  in  Praveen

Enterprises (supra)  the  Court  has  carved  out  an

exception and, while carving out an exception, has clearly

stated that the limitation for “such counter claim” should

be computed as on the “date of service of notice” of “such

claim  on  the  claimant”  and  not  on  the  date  of  final

counter  claim.   We  are  absolutely  conscious  that  a

judgment is not to be read as a statute but to understand

the  correct  ratio  stated  in  the  case  it  is  necessary  to

appreciate the repetitive use of the words.  That apart, if

the  counter  claim  filed  after  the  prescribed  period  of

8 (2009) 2 SCC 337

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limitation before the arbitrator is saved in entirety solely

on the  ground that  a party  had vaguely  stated that  it

would  be  claiming  liquidated  damages,  it  would  not

attract the conceptual exception carved out in  Praveen

Enterprises (supra).  In fact, it would be contrary to the

law laid down not only in the said case, but also to the

basic  principle  that  a  time  barred  claim  cannot  be

asserted after the prescribed period of limitation.   

27. Mr.  Nariman,  learned  senior  counsel,  has  also

contended that the counter claims filed before the learned

Arbitrator is an elaboration of the amount stated in the

notice and, in fact, it is an amendment of the claim of the

respondent  which  deserved  to  be  dealt  with  by  the

learned Arbitrator.   In this  context,  we may refer  with

profit to the ruling in K. Raheja Construcitons Ltd. and

another  v.  Alliance Ministeries and others9 wherein

the plaintiff had filed a suit for permanent injunction and

sought  an  amendment  for  grant  of  relief  of  specific

performance.  The said prayer was rejected by the learned

trial  court.   A  contention  was  canvassed  that  the

9 1995 Supp (3) SCC 17

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appellant had not come forward with new plea and, in

fact,  there  were  material  allegations  in  the  plaint  to

sustain  the  amendment  of  the  plaint.   The  Court

observed that having allowed the period of seven years to

elapse from the date of filing the suit, and the period of

limitation  being  three  years  under  Article  54  of  the

Schedule to the Limitation Act, 1963, any amendment on

the grounds set out, would defeat the valuable right of

limitation accruing to the respondent.  The said principle

has been reiterated in  South Konkan Distilleries and

another v. Prabhakar Gajanan Naik and others10 and

Van  Vibhag  Karamchari  Griha  Nirman  Sahkari

Sanstha  Maryadit  (Registered)  v.  Ramesh  Chander

and others11.

28. In  Revajeetu  Builders  and  Developers  v.

Narayanaswamy and sons and others12, while laying

down  some  basic  principles  for  considering  the

amendment, the Court has stated that as a general rule

the court should decline amendments if a fresh suit on

10 (2008) 14 SCC 632 11 (2010) 14 SCC 596 12 (2009) 10 SCC 84

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the amended claims would be barred by limitation on the

date of application.

29. In the present case, when it is absolutely clear that the

counter claim in respect of the enhanced sum is totally

barred by limitation and is not saved by exception carved

out  by  the  principle  stated  in  Praveen  Enterprises

(supra),  we  are  unable  to  agree  with  the  view  of  the

Division Bench of the High Court that the counter claim,

as a whole, is not barred by limitation.  Thus analysed,

the counter claim relating to the appeal which deals with

civil contracts shall be restricted to the amount stated in

the letter dated 17.4.2006, i.e., Rs.68,63,72,178.08, and

as  far  as  the  other  appeal  which  pertains  to

air-conditioning  contract,  the  quantum  shall  stand

restricted to as specified in the letter  dated 21.3.2006,

i.e., Rs.19,99,728.58.

30. At this juncture, we may, for the sake of completeness,

deal  with  the  justifiability  of  the  interference  by  the

Division  Bench  in  the  award  passed  by  the  learned

Arbitrator.  It has been urged by Mr. Venugopal, learned

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senior counsel for the appellant, that the view expressed

by the learned Arbitrator being a plausible interpretation

of  the  contract  the  same did  not  warrant  interference.

We  have  already  analyzed  at  length  how  the  interim

award  is  indefensible  as  there  has  been  incorrect  and

inapposite appreciation of the proposition of law set out

in  Praveen  Enterprises’s  case.   In  Rashtriya  Ispat

Nigam Limited (supra) this Court has opined that the

learned Arbitrator had placed a possible interpretation on

clause 9.3 of the contract involved therein and hence, the

interference was exceptionable.  In the present case, the

factual matrix and the controversy that have emanated

are absolutely different and hence, the principle stated in

the  said  authority  is  not  applicable.   Thus,  we

unhesitatingly repel the submission of the learned senior

counsel for the appellant that the award passed by the

learned Arbitrator did not call for any interference.

31. Consequently,  both  the  appeals  are  allowed in  part,

the judgment of the Division Bench in Appeals Nos. 7 of

2013 and 8 of 2013 is modified and the interim award

passed by learned Arbitrator as regards rejection of the

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counter  claims  in  toto  stands  nullified.   The  learned

Arbitrator  shall  now  proceed  to  deal  with  the  counter

claims,  as  has  been  indicated  hereinabove  by  us.

Needless to say, we have not expressed any opinion on

the merits of the claims or the counter claims put forth

by the parties before the learned Arbitrator.  The parties

shall bear their respective costs.

…………….……..…..J. [Anil R. Dave]

…………………….….J. [Dipak Misra]

New Delhi;  February 14, 2014.