Page 1 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

Page 2 2

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

Page 3 3

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

Page 4 4

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

Page 5 5

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 3

rd

December 2004

on which date the Contract was terminated. The

assertions in the letters dated 27

th

April 2005 and

29

th

March 2006 show unmistakable

consciousness of its rights on the part of the

Respondent. The last letter dated 29

th

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 29

th

March 2008,

if not earlier it is clear that the Counter claim is

filed only on 26

th

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,

Page 6 6

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 Limited

1

and State of

Goa v. Praveen Enterprises

2

, 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

29

th

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 29

th

March, 2006, the petitioner by its letter dated

17

th

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

Page 7 7

said amount as demanded. Such disputes thus

did not exist when the notice invoking arbitration

agreement was given by the respondent on 29

th

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 29

th

March, 2006. The counter claim was admittedly

filed on 26

th

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 26

th

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 17

th

April, 2006

is considered as commencement of dispute, even

in such case on the date of filing the counter

claim i.e. 26

th

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

Page 8 8

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

Page 9 9

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

Page 10 10

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.

Page 11 11

(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

Page 12 12

Arbitrator as has been stated in Rashtriya Ispat

Nigam Limited v. Dewan Chand Ram Saran

4

.

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

Page 13 13

(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 others

5

.

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 Authority

6

and

Jammu and Kashmir State Forest Corporation v.

5

(2006) 11 SCC 181

6

(1988) 2 SCC 338

Page 14 14

Abdul Karim Wani and others

7

, 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

Page 15 15

“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

Page 16 16

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

Page 17 17

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

Page 18 18

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

Page 19 19

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

Page 20 20

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.”

Page 21 21

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 19

th

April, 2006.

Our client thereafter has been extremely busy

with the work of the Company. He has seen your

letter dated 29

th

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

Page 22 22

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

Page 23 23

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.

Page 24 24

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

Page 25 25

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

Page 26 26

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

Page 27 27

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

Page 28 28

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

Page 29 29

another v. Motorola India Private Limited

8

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

Page 30 30

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 others

9

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

Page 31 31

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 others

10

and

Van Vibhag Karamchari Griha Nirman Sahkari

Sanstha Maryadit (Registered) v. Ramesh Chander

and others

11

.

28.In Revajeetu Builders and Developers v.

Narayanaswamy and sons and others

12

, 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

Page 32 32

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

Page 33 33

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

Page 34 34

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.