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MANU/MH/0008/2015

Equivalent Citation: 2015(3)ABR421, 2015(2)ARBLR290(Bom), 2015(2)BomCR522

IN THE HIGH COURT OF BOMBAY AT GOA

Arbitration Petition No. 10 of 2013

Decided On: 09.01.2015

Appellants: Gujarat State Fertilizers Co. Ltd. Vs.

Respondent: Tata Motors Ltd.

Hon'ble Judges/Coram:R.D. Dhanuka, J.

Counsels:

For Appellant/Petitioner/Plaintiff: Milind Sathe, Senior Advocate a/w Mayur Khandeparkar i/byKanga & Co.

For Respondents/Defendant: Shailesh Shah, Senior Advocate a/w Heta Shah a/w Divya Ved i/byMDP & Partners

Subject: Arbitration

Acts/Rules/Orders:Arbitration And Conciliation Act, 1996 - Section 21, Arbitration And Conciliation Act, 1996 -

Section 28(a), Arbitration And Conciliation Act, 1996 - Section 31(7), Arbitration AndConciliation Act, 1996 - Section 33, Arbitration And Conciliation Act, 1996 - Section 33(4),

Arbitration And Conciliation Act, 1996 - Section 34; Income Tax Act, 1961 - Section 156;Limitation Act, 1963 - Section 19(1), Limitation Act, 1963 - Section 2(j), Limitation Act, 1963 -Section 23, Limitation Act, 1963 - Section 24, Limitation Act, 1963 - Section 3, Limitation Act,1963 - Section 9

Cases Referred:

State of Haryana and Ors. vs. S.L. Arora and Company MANU/SC/0131/2010; LakshmirattanCotton Mills Co. Ltd. and Behari Lal Ram Charan vs. The Aluminium Corporation of India Ltd.MANU/SC/0017/1970; Craft Centre and Ors. vs. The Koncherry Coir Factories, CherthalaMANU/KE/0017/1991; Mst. Rukhmabai vs. Lala Laxminarayan and Ors. MANU/SC/0186/1959;

State of Punjab and Ors. vs. Gurdev Singh MANU/SC/0612/1991; Mt. Bolo vs. Mt. Koklan andOrs. MANU/PR/0054/1930; Gannon Dunkerley and Co., Ltd. vs. Union of India (UOI)

MANU/SC/0475/1969; Mukhdeo Singh and Anr. vs. Harakh Narayan Singh and Ors.MANU/BH/0092/1931; Madras Port Trust vs. Hymanshu International by its Proprietor V.Venkatadri (Dead) by L.R.s MANU/SC/0046/1979

Industry: Chemicals

Industry: Auto

Citing Reference:

9

18

Discussed

Mentioned

Relied On

2016-03-08 (Page 1 of 28 ) www.manupatra.com M/s A K Singh and Co

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1

Case Note:Arbitration - Validity of award - Present petition filed against order wherebyRespondent's claim for declaration that Petitioner was bound and liable to pay toRespondent under Lease Agreement pursuant to debit note with interest/servicecharges was allowed - Whether impugned award pertaining to payment under Lease

agreement was required any interference - Held, perusal of impugned award clearlyindicated that Arbitrator had not considered submissions urged by Petitioner before

arbitrator that on disallowing claim for depreciation, incidence of income tax ontransaction would become smaller - Arbitrator had applied different yardstick toPetitioner than what was applied to Respondent - Petitioner was right in contending

that there was total miscarriage of justice by arbitrator by applying differentyardstick while dealing with claim made by Respondent and Petitioner - Respondentcould not place any reliance on such disputed document before arbitrator - Sinceclaim made by Respondent before Arbitrator could not have been awarded, Petitioner

was dragged into arbitration proceedings illegally by Respondent and thus arbitratorought not to have awarded cost of arbitration in favour of Respondent and againstPetitioner - Therefore, impugned award made by arbitrator shows patent illegality

and was in conflict with public policy - Arbitrator had allowed time barred claim andhad also acted contrary to provisions of contract and award was thus liable to be setaside - [paras 67, 68, 70 and 77]

JUDGMENT

R.D. Dhanuka, J.

1. By this petition filed u/s. 34 of the Arbitration and Conciliation Act, 1996 (for short "the said

Arbitration Act"), the petitioner has impugned the arbitral award dated 26.6.2012 andadditional award dated 3.9.2012 allowing the claim made by the respondent. Some of therelevant facts for the purpose of deciding this petition are as under:-

2. On 30.4.1987, the petitioner placed an order on Bharat Heavy Electricals Ltd. (BHEL) forsupply of a Turbine Unit of Co-generation Plant for generation of electricity for its fertilizer plantwhich was supplied by the said company and was commissioned in the year 1989. It is the caseof the petitioner that on 1.4.1990, the written down value of the said Turbine Unit in the booksof the petitioner was "zero."

3. On 27.9.1994, the petitioner addressed a letter to M/s. Tata Finance Ltd. offering it to takelease finance for one Co-generation Unit. On 28.9.1994, M/s. Tata Finance Ltd. sanctionedfinance to the petitioner and the petitioner signed a letter of finance. On 28.9.1994, thepetitioner raised an invoice of Rs. 16,85,25,000/-. On the same day, M/s. Tata Finance Ltd.

paid the petitioner a sum of Rs. 16,85,25,000/- deducting Rs. 41,89,110/- towards Lease

Management Fee and towards Lease Rent for September 1994. On 28.9.1994, the petitionerand the said M/s. Tata Finance Ltd. entered into an agreement for Lease. Under the saidagreement for Lease, lease rental was fixed at Rs. 25,03,860/- which was calculated on thebasis of Rs. 14.15 (Per Month Per Thousand). On 28.9.1994, the Lease Summary Schedule wasissued to the petitioner indicating the lease value and tenure.

4. The said M/s. Tata Finance Ltd. also issued Supplemental Lease Schedule on 28.9.1994 and

issued a Debit Note for Rs. 16,85,250/-. The petitioner confirmed having sold an asset coveredby Invoice No. TF/94. It was the case of the petitioner that it was a financial transaction andthe Turbine Unit of Co-generation Plant which was an immovable property and was never to bemoved from the factory premises of the petitioner. On 30.3.1995, a certificate was issued by

the Chartered Accountant of M/s. Tata Finance Ltd. certifying that the equipment was in

working condition. On 25.7.1997, the lease tax was reduced from 5% to 4%.

5. M/s. Tata Finance Ltd. claimed depreciation in respect of the said plant in their Income Tax


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Returns for the year ending 31.3.1995 for the assessment year 1995-1996. On 31.3.1998, theDeputy Commissioner of Income Tax passed an order of assessment in respect of the returnfiled by the said M/s. Tata Finance Ltd. for the assessment year 1995-96 disallowing the

depreciation. On 31.3.1998, the Income Tax Authorities issued a Demand Notice upon the saidM/s. Tata Finance Ltd. under Section 156 of the Income Tax Act which notice was received bythe said M/s. Tata Finance Ltd. on 1.4.1998. On 24.4.1998, the said M/s. Tata Finance Ltd. filed

an appeal against the order passed by the Income Tax Authorities on 31.3.1998.

6. In the month of April 2000, lease tax was increased from 4% to 4.4%. On 11.10.2000 thesaid M/s. Tata Finance Ltd. raised a Debit Note for Rs. 24,60,83,090/- claiming it to be taxliability on account of disallowance of depreciation for the assessment year 1995-96. On16.2.2001, the Commissioner of Income Tax (Appeals) partly allowed the appeal filed by M/s.Tata Finance Ltd.

7. It is the case of the respondent that by a letter dated 22.3.2001 issued to the said M/s. TataFinance Ltd., the petitioner had asked for various details and copies of assessment order etc. Acopy of the letter dated 22.3.2001 was not produced in the arbitration proceedings by any of

the parties. The respondent replied to the said letter by their letter dated 29.3.2001 andforwarded copy of assessment order dated 31.3.1998 and appeal memo. The said M/s. Tata

Finance Ltd. also forwarded a Debit Note dated 11.10.2000. On 10.5.2001, the Tata FinanceLtd. filed an appeal before the Income Tax Appellate Tribunal. On 1.6.2001, M/s. Tata FinanceLtd. made a Statement of Accounts for the period 15.6.1994 to 1.6.2001. On 23.10.2001, theIncome Tax Authorities passed an order giving effect to the order passed by the Commissionerof Income Tax (Appeals) thereby reducing the income tax to Rs. 19,88,61,416/-. On15.12.2001, the petitioner addressed a letter forwarding a lease rental installment alleged to bedue on 25.12.2001 of Rs. 24,80,014/-.

8. On 22.12.2001, the petitioner issued a Debit Note to M/s. Tata Finance Ltd. for Rs.1,43,44,847/- being alleged recovery of excess lease rent from the respondent by the petitioner

though there was reduction on account of income tax as well as the change in Gujarat SalesTax (lease tax). On 24.12.2001, the petitioner disputed the claim made in debit note dated

11.10.2000. On 24.12.2001, payment voucher was issued for having paid 88th lease rentinstallment of Rs. 24,80,014/-. On 29.1.2002, the petitioner issued a debit note to the said M/s.Tata Finance Ltd. for Rs. 2,11,90,966/-.

9. On 2.2.2002, the petitioner addressed a letter to M/s. Tata Finance Ltd. and forwarded adebit note dated 29.1.2002 and demanded alleged outstanding amount of Rs. 1,91,08,490/-after adjusting lease rental installment payable on 25.1.2002. On 31.8.2002, M/s. Tata FinanceLtd. issued a Credit Note to the petitioner for Rs. 2,40,61,846/- on account of reduction ofincome tax from the year 1996-1997. The Statement of Accounts of the petitioner made by thesaid M/s. Tata Finance Ltd. for the period from 28.09.1994 to 31.8.2002 was also forwarded.

On 6.1.2003, M/s. Tata Finance Ltd. issued a debit note to the petitioner for Rs. 22,20,21,244/-.

10. On 16.1.2003, the petitioner issued a letter to M/s. Tata Finance Ltd. claiming balanceamount of Rs. 1,72,44,766/- after adjusting lease rental payable for the months of January to

August, 2002 and residual value of 0.5% of the original lease cost as provided in LeaseSummary Schedule. On 10.10.2003, M/s. Tata Finance Ltd. through its advocate issued a noticeto the petitioner under clause 20.09 under the Lease Agreement invoking arbitrationagreement. By the said notice, the said M/s. Tata Finance Ltd. called upon the petitioner to paya sum of Rs. 25,06,60,030/- and to deliver plant and machinery used by the petitioner within aperiod of 14 days from the date of receipt of the said notice and stating that in case of failure tocomply with the said requisition, the said M/s. Tata Finance Ltd. shall be constrained to adopt

such proceedings as may be necessary thereof. In the said notice, it was provided that if thesaid amount and/or the equipment was not paid/delivered to the said M/s. Tata Finance Ltd.,

the said notice may be treated as notice under clause 20.09 of the Agreement invokingarbitration agreement. The Petitioner neither made any payment nor returned the plant andmachinery within 14 days from the date of receipt of the said notice or at any point of timethereafter.


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11. On 3.11.2003, the petitioner replied to the said notice dated 10.10.2003 and denied theclaim made by the respondent. The petitioner also pointed out that the petitioner had becomeRelief Undertaking under the provisions of the Bombay Relief Undertaking (Special Provision)

Act, 1958. By letter dated 17.11.2003, M/s. Tata Finance Ltd. through their advocate soughtconsent of a retired Chief Justice to act as a sole arbitrator. A copy of the said letter is alsoforwarded to the advocate of the petitioner.

12. By their advocate's letter dated 18.11.2003 to the advocate of M/s. Tata Finance Ltd., thepetitioner contended that since the petitioner had been declared as relief undertaking under theprovisions of Bombay Relief Undertaking (Special Provision) Act, 1958, the said M/s. TataFinance Ltd. was prohibited from initiating arbitration proceedings for enforcement of thealleged claim and called upon M/s. Tata Finance Ltd. to withdraw their letter addressed to thelearned arbitrator. On 21.11.2003, M/s. Tata Finance Ltd. addressed a letter to the petitionerdisputing the contention of the petitioner regarding the relief undertaking. On 24.11.2003, thelearned arbitrator declined to entertain the objections of the petitioner on account of the

Bombay Relief Undertaking Act notification.

13. On 27.1.2004, the said M/s. Tata Finance Ltd. filed a claim before the learned arbitratorpraying for a declaration that the petitioner herein is bound and liable to pay to the respondent

under the said Lease Agreement a sum of Rs. 28,99,46,267/- pursuant to the debit note withinterest/service charges thereon @ 30% w.e.f. 6.1.2004 till payment and/or realisation and forother reliefs.

14. The petitioner filed a reply on 13.5.2004 denying the claims made by the said M/s. TataFinance Ltd. and also made a counter claim against the said M/s. Tata Finance Ltd. praying foran order and decree to pay a sum of Rs. 7,39,05,720/- with interest @ 30% p.a. with effectfrom 1.3.2004 till payment and/or realisation thereof and costs. The said M/s. Tata Finance Ltd.filed further pleadings in reply to the said affidavit-in-reply and counter claim. On 22.11.2005,the Income Tax Appellate Tribunal passed an order remitting back the matter to the Assessing

Officer in respect of M/s. Tata Finance Ltd. for the assessment year 1995-1996. On 12.12.2006,the Assessing Officer passed an order disallowing depreciation. In the year 2007, M/s. Tata

Finance Ltd. filed an appeal against the said order dated 12.12.2006. On 2.6.2007, the saidM/s. Tata Finance Ltd. filed an application for amendment of the statement of claim to bring onrecord the order passed by the Income Tax Department.

15. On 2.6.2007, the said M/s. Tata Finance Ltd. filed an affidavit of evidence of Mr. AshwinNaidu. The petitioner filed an application in the month of July 2007 for deciding issue oflimitation as preliminary issue. The learned arbitrator allowed amendment application by anorder dated 24.7.2007 and deferred the issue of limitation to be heard with the main matter.

16. The petitioner also examined the witness on 9.6.2010 to deal with the affidavit of evidenceof Mr. J.C. Bhatt on behalf of the petitioner. On 26.6.2012, the learned arbitrator made anaward in favour of the respondent and against the petitioner in the sum of Rs. 28,07,44,041/-

with interest @ 15% p.a. thereon from the date of award until payment or realisation thereofand awarded a sum of Rs. 15,00,000/- to the respondent towards cost of arbitration. Thelearned arbitrator rejected the counter claim made by the petitioner.

17. On 23.7.2012 the respondent made an application under Section 33 of the Arbitration and

Conciliation Act. 1996 to clarify omission in the impugned award by inadvertently omitting theclaim for interest payable to the respondent for the period from the date of filing of thestatement of claim i.e. 27.1.2004 till the date of award i.e. 26.6.2012 with interest @ 30% p.a.and prayed for an additional award for interest. The learned arbitrator made an additionalaward on 03.9.2012 directing the petitioner herein to pay simple interest @ 30% p.a. on theprincipal amount of Rs. 28,07,44,041/- from 7.1.2004 till the date of the award i.e. 26.6.2012.The petitioner impugned both these awards in this petition. Some of the relevant clauses of the

agreement which have been relied upon by both the parties are extracted as under:-

"i) Clause 2.2: that in the event of the Lessee being in arrears of such lease rentals,such arrears of lease rentals shall carry service charges at the rate of 30% per


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annum on compounding basis with monthly rests from the due dates specified inthe Supplementary Lease Schedules attached to/to be attached till date of actualpayment;

ii) Clause 2.4: that the Lessor shall be entitled to vary the lease rental charges in

the event of a change occurring the variables relating to depreciation rate ormodifications in cost of money to Lessor."

18. Clauses 11 and 16 of the Lease Summary Schedule are extracted as under:-

"i) Clause 11 FINANCE CHARGES: provides that finance charges will be applicable @2% per month (plus any taxes thereon) on all advance payments from the date of

disbursement to date of rentalisation.

ii) Clause 16 CAPITAL ALLOWANCE VARIATION: provides that if the eligibility of theClaimant to claim depreciation is decreased/increased or if the Claimant isdisallowed its claim for the same, whether wholly or partly in any year during thefixed period of the Lease or the Claimant is required to pay income tax at ahigher/lower rate than 46%, the rental will stand increased/decreased accordingly

as a percentage of acquisition cost."

19. Dr. Sathe, learned senior counsel for the petitioner invited my attention to the assessment

order dated 31.3.1998 passed by the Deputy Commissioner of Income Tax, Special Range 13,Mumbai in respect of income tax returns filed by M/s. Tata Finance Ltd. for the assessment year1995-1996. The Deputy Commissioner of Income Tax by its assessment order concluded thatthe said M/s. Tata Finance Ltd. neither had the right nor interest in the real ownership of the

assets. It was only bothered about the recovery of funds made available to the GujaratElectricity Board by way of periodic lease rentals. It is held that irrespective of validity of invoiceissued by BHEL, in favour of the assessee, it was not the real owner of the assets (part ofassets).

20. It is submitted that in the said assessment order, the authority also considered the LeaseAgreements between M/s. Tata Finance Limited and various lessees including the petitionerherein and M/s. Gujarat Electricity Board which subsequently became M/s. Gujarat Urja Vikas

Nigam Ltd. It is submitted that in the impugned award, the learned arbitrator has referred toand relied upon on the arbitral award dated 19.7.2011 in the matter of Tata Motors Limited andGujarat Urja Vikas Nigam Limited. It is submitted that the claim made by M/s. Tata Finance Ltd.against the said M/s. Gujarat Urja Vikas Nigam Limited was also based on the identical clauses

in the Lease Deed entered into between them and also based on the same order passed by theDeputy Commissioner of Income Tax which was a common order passed after considering thelease agreement including the lease agreement between M/s. Tata Finance Ltd. and the saidM/s. Gujarat Urja Vikas Nigam Limited.

21. Learned senior counsel placed reliance on the judgment of this Court delivered on 16th July2013 in the case of M/s. Gujarat Urja Vikas Nigam Limited and Ors. Vs. Tata Motors Limited inArbitration Petition No. 955 of 2011 setting aside the impugned award dated 19.7.2011 after

considering identical issues and facts raised herein. It is submitted that the said judgmentsquarely applies to the facts of this case.

22. Learned senior counsel invited my attention to clauses 2.2 and 2.4 of the lease agreementwhich was entered into between the respondent and the said M/s. Gujarat Urja Vikas NigamLimited, successor of M/s. Gujarat Electricity Board in support of his submission that both theclauses in the said agreement and this agreement were identical. Reliance is placed onparagraphs 11 to 18, 20 and 22, 36 of the said judgment read thus:-

"11. On the issue as to whether cause of action as claimed in the statement of claimfiled by the respondents survived or not in view of the order passed by Income Tax

Appellate Tribunal setting aside the assessment order disallowing depreciation claim


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and remanding the matter back to the assessing officer during the pendency of theclaim before the learned arbitrator is concerned, the learned arbitrator rejected thissubmissions made by the petitioners. It is held that claim in reference was not

based only on order dated 1st April 1998 but on the respondents' right under thelease agreement and the lease summary schedule to increase rental ondisallowance of depreciation. It is held that such adjudication process may continue

for a long time but so long as the order of depreciation subsists, the cause of action

based on the lease agreement and lease summary schedule would remain. Until thefinal orders setting aside the order disallowing depreciation is passed, theright/cause of action remains the same. The learned arbitrator held that theadjudication process is an ongoing process and there would be variations in theorders passed but so long as there is an order disallowing depreciation the samecause of action remains, otherwise a party would have to file, then withdraw, then

again file a claim and so on depending on the order prevailing which would lead tomultiplicity of proceedings and would result in incurring unnecessary costs by bothparties to defend such claims and there would be complete uncertainty. The learnedarbitrator held that same claim continues, the cause of action being the same till

the final decision.

12. It is not in dispute that after filing statement of claim on 9th December 2005,by an order dated 22nd December 2005, Income Tax Appellate Tribunal had setaside the disallowance of depreciation and it remanded the matter back toAssessing Officer for reconsideration. Learned arbitrator on this issue has rejectedthe contention of the petitioner that in view of the order dated 22nd December2005, claim made before the learned arbitrator did not survive. Learned arbitrator

has held that after such order of remand by the Income Tax Appellate Tribunal,Assessing Officer has passed a fresh order on 12th December 2006 disallowing thedepreciation and the appeal arising out of such order was filed by the respondentsbefore the Commissioner of Income Tax (Appeal) and the same was pending.

13. In my view, claim for depreciation which was disallowed by the Assessing

Officer and on setting aside such order by the Income Tax Appellate Tribunal, therewas no demand of any income tax from the Income Tax Department. Cause ofaction did not survive. If the respondents were entitled to invoke arbitration byvirtue of Assessing Officer's disallowance of depreciation, the respondents couldhave done so separately. Proceedings which had become infructuous by virtue ofinitial order of dis-allowance of depreciation having been set aside, such proceeding

could not have been continued by the respondents. In my view, learned arbitratorwas not right in holding that there would be multiplicity of proceedings and in viewof subsequent order passed by the Assessing Officer once again disallowing thedepreciation, the original claim for creation of fund based on the earlier order

disallowing depreciation would survive. In my view, award shows gross illegality byentertaining a claim which had become infructuous as the cause of action did notsurvive.

14. On the issue raised by the petitioners that claims made by the respondents areeither premature or time barred, the learned arbitrator has held that asdepreciation had been disallowed, right of the respondents had accrued and thusclaim was not premature. It is held that every successive order disallowing

depreciation, gives fresh cause of action and thus claim is not barred by law oflimitation. Entitlement of the respondents was to claim the revision of the leaserentals arose when the depreciation had been disallowed. The learned arbitratorheld that limitation is mixed question of facts and law. It is held that each and every

order passed by the Income Tax Authorities gives right to a successive cause ofaction. The learned arbitrator in the impugned order has adopted the reasoninggiven in a separate order passed on 4th February, 2009 by the learned arbitrator on

the application made by the petitioners to dismiss claim on the ground that nocause of action survived.


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15. In the order dated 4th February, 2009, it is held by the learned arbitrator thatthe notice invoking arbitration was placed on the factum of disallowance ofdepreciation and on the terms of the lease agreement and not based only on the

order of 1st April, 2004 passed by the assessing officer disallowing depreciation. Itis held that claim of the respondents in the statement of claim would indicate thatthey had a right or entitlement to vary the lease rentals, by increasing the same,

under the terms of the lease agreement and lease summary schedule by reason of

disallowance of the depreciation by the Income Tax Authority. It is held that thestatement of claim itself indicates that the appeal filed by the respondents waspending and that in the event of respondents succeeding in the appeal, thepetitioners would not be liable to pay the increased rentals. It is held that theadjudication process would be an ongoing process and there may and would bevariations by virtue of subsequent orders but so long as an order disallowing

depreciation remains the cause of action based on the lease agreements and thelease summary schedule would remain. With these reasonings rendered by thelearned arbitrator, plea of the limitation raised by the petitioners is rejected. Thelearned arbitrator held that if the claim is premature, it can't be time barred and if

time barred, it can't be premature.

16. It is not in dispute that for the assessment year 1994-95, by an order dated31st March, 1997, the Deputy Commissioner had disallowed depreciation. By anorder dated 31st March, 1998 depreciation claimed for assessment year 1995-96came to be disallowed. By orders dated 16th February, 2001 and 28th February,2001 Commissioner of Income Tax (Appeal) dismissed appeals filed by therespondents against orders dated 31st March, 1998 and 31st March, 1997

respectively. Respondents had already filed an appeal on 10th May, 2001 beforeIncome Tax Appellate Tribunal. During the pendency of the proceedings beforeCommissioner of Income Tax (Appeals), the respondents had issued debit note on11th October, 2000 demanding various amounts from the petitioners arising out of

disallowance of depreciation. The petitioners did not make any payment pursuant tosuch debit note issued by the respondents on 11th October, 2000 or thereafter. On1st February, 2005 respondents issued another debit note. Notice invoking

arbitration agreement was issued by the respondents on 17th May, 2005.Petitioners denied the said demand on various grounds. Arbitration proceedingscommences when notice issued by claimant invoking arbitration agreement is

received by the respondent and limitation stops in respect of such dispute on thedate of receipt of such notice by respondents under section 21 of the Arbitrationand Conciliation Act, 1996. It is not in dispute that debit note issued on 11thOctober, 2000 and 1st February, 2005 were based on disallowance of depreciation

by the assessing officer. It is not in dispute that notice dated 17th May, 2005invoking arbitration agreement has been issued after three years of the orderpassed by the Deputy Commissioner disallowing depreciation. It is also not in

dispute that no payment was made by the petitioners pursuant to the debit noteissued by the respondents on 11th October, 2000. During the pendency of appeal,

respondents demanded residual amount under the sanction letter from thepetitioners. On 26th March, 2004, petitioners paid residual amount as demanded bythe respondents and the same was accepted by the respondents. The learnedarbitrator had rejected the plea of limitation raised by the petitioners on the groundthat each subsequent order gives a new cause of action and therefore payment

need not have been within three years from the date of assessment order. It is heldby the learned arbitrator that by paying the residual amount which was payableunder the lease agreement, the petitioners have acknowledged that the jural

relationship i.e. contract was still alive and so long as jural relationship was aliveand claim was made during the existence of the contract and/or within three yearsafter termination, if any, of the contract, the claim would be within time. Thelearned arbitrator has held that reference to the arbitration was not based only on

the order dated 1st April, 1998 but on the respondents' right under the leaseagreement and lease summary schedule to increase rentals on a disallowance ofdepreciation.


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17. In my view, payment of residual amount of 26th March, 2004 by the petitionersto the respondents would not extend period of limitation. Cause of action hadalready begun on 31st March, 1997 when the Deputy Commissioner disallowed

depreciation for the assessment year 1994-95 and on 31st March, 1998 when thesaid claim was disallowed for the assessment year 1995-96. Merely because appealwas filed by the respondents before the Commissioner of Income Tax or before the

Income Tax Appellate Tribunal, limitation would not stop. In my view, pendency of

appeal would not save and/or extend limitation. Residual amount paid on 26th May,2004 was not by way of part payment in respect of claim arising out of depreciationthus would not extend limitation. The said payment would even otherwise notextend limitation as the same was not within a period of three years from the dateof accrual of cause of action which was 31st March, 1997 and 31st March, 1998 forthe assessment year 1994-95 and 1995-96 respectively. Limitation does not be

extend by making any part payment against a time barred claim. The learnedarbitrator has held that the order disallowing depreciation have been already passedhence cause of action to increase lease rentals had already arisen. In my view, thelearned arbitrator could not have rejected the plea of limitation. Award shows total

inconsistency and contradiction on this issue. This court in case of Aditya BirlaChemicals (India) Ltd. (supra) has held that right to sue accrued when claim fordepreciation was rejected by assessing officer and fresh period of limitation wouldnot commence on denial of claim subsequently by the lessee in response to noticedated 17th May, 2005. In my view, cause of action for making any claim arising outof disallowance of depreciation would arise when claim of depreciation made by the

respondents was disallowed by the assessing officer in 1997 and 1998. Once time isbegun to run, no subsequent disability or inability to institute a suit or make anapplication stops it. Once time starts running, it does not stop. Limitation is notextended unless there is an acknowledgment of liability or part payment. This court

in case of Asian Electricals Vs. Tata Motors (supra) has also taken a similar viewthat cause of action would arise on disallowance of depreciation by assessingofficer. I am respectfully bound by the judgment of this court and do not find any

reason to take a different view in this matter.

18. As far as judgment of Patna High Court in case of Mukhdeo Singh and another(supra) relied upon by Mr. Purohit is concerned, it has been held in the said

judgment that where a party has recurring or successive causes of action whether

under the terms of contract or by operation of law, each cause of action will give afresh start to the period of limitation and the mere fact that a party has not availedhimself of the earlier cause of action, will not prevent him from availing himself of alater one. In this case, the notice invoking arbitration agreement claim filed before

the learned arbitrator by the respondents clearly indicates that respondents hadalready availed of cause of action already having arisen in favour of the respondentsdue to disallowance of the claim of depreciation in the year 1997-98. Limitation

would stop on receipt of such notice dated 17th May, 2005 by the petitioners hereinand arbitration proceedings had already commenced in respect of such dispute. It is

thus clear that on the date of receipt of notice dated 17th May, 2005, claim arisingout of disallowance of depreciation on 31st March, 1997 and 31st March, 1998 hasalready became time barred. The respondents opposed the plea of petitioners thatsuch claim was premature on the ground that liability of the respondents arising outof such disallowance of depreciation was not crystalised in view of pendency of

appeal before the Income Tax Appellate Tribunal and cause of action had not arisen.Even the learned arbitrator has held that cause of action had already arisen whenthe claim for depreciation was disallowed by the assessing officer and merely

because appeal was pending would not mean that cause of action has not arisen.The learned arbitrator has rejected the plea of the petitioners that claim waspremature. The learned arbitrator has held that claim which is premature cannot betime barred and the time barred claim cannot be premature however has failed to

appreciate that even if a claim may not be premature but it can still be time barred.In my view, the respondents once having invoked arbitration clause, proceeded onthe basis that cause of action had arisen on the basis of disallowance of

depreciation claim by the assessing officer in 1997-98, respondents could not have


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been permitted to take plea that on the assessing officer passing a freshassessment order after remand of matter by the Income Tax Appellate Tribunal, itwould give fresh cause of action and claims would not be barred by limitation. In

my view respondents having opposed plea of the petitioners that claims werepremature on the ground that cause of action had already arisen, could not haveopposed plea of limitation on the ground that cause of action has not arisen or the

same was continuing cause of action and thus such claim was not barred by

limitation. The stand taken by the respondents was inconsistent and contradictoryand the findings rendered by the learned arbitrator accepting such inconsistent pleais also inconsistent and contradictory. In my view, once plea of the petitioners thatclaims made in notice dated 17th May 2005 and statement of claim were pre-mature is rejected, it presupposes that such claims were made on the premise thatcause of action had already arisen when such notice was issued. The learned

arbitrator therefore ought to have considered whether on the date of receipt ofnotice dated 17th May, 2005 whether claims were barred or not. In my viewreliance placed by the respondents on the judgment of the Patna High Court in caseof Mukhdeo Singh and another (supra) is totally misplaced.

20. In my view merely because assessing officer passed fresh order disallowing

depreciation on 12th December, 2006 would not revive the time barred claim inrespect of which notice invoking arbitration was already issued on 17th May, 2005on the basis of cause of action having accrued on 31st March, 1997 and 31st March,1998 for assessment years 1994 -95 and 1995-96 respectively and statement ofclaim was already filed. In my view, if according to the learned arbitrator cause ofaction had not arisen in view of the pendency of appeal before the Appellate

Authority, the learned arbitrator could not have rejected the plea of the petitionersthat the claims were premature. In my view, the learned arbitrator was bound toreject time barred claims made by the respondents. By allowing such time barredclaims, the learned arbitrator committed patent illegality and the award is in conflict

with public policy. Reliance thus placed by the respondents on the judgment of theSupreme Court in case of Union of India vs. West Coast Paper Mills Ltd. (supra) is ofno assistance to the respondents.

22. On the issue as to whether by accepting residual amount from the petitionersby the respondents during the pendency of appeal before the authority, wouldamount to accord and satisfaction and the claims would be beyond the jurisdictionof the learned arbitrator is concerned, it is held by the learned arbitrator that by

paying the residual amount which was payable under the lease agreement, thepetitioners have acknowledged that the jural relationship i.e. contract was still aliveand so long as jural relationship was alive and claim was made during the existenceof the contract and/or within three years after termination, if any, of the contract,

the claim would be within time. The learned arbitrator rejected this submissionmade by the petitioners that there was any accord and satisfaction by acceptingresidual value. It is held that the petitioners did not lead any oral evidence to show

that sales tax was paid by the petitioners and did not produce their books ofaccount to show that they had treated the equipments as their own. It is furtherheld that there was no transfer of equipments and therefore the contract as well as

liability still subsisted.

36. As far as rate of interest allowed by the learned arbitrator is concerned, Mr.Purohit, learned counsel appearing for the respondents fairly submits that if thiscourt comes to the conclusion that award rendered by the learned arbitratorallowing principle amount is correct, respondents have no objection if this court

considers reasonable interest on the principle amount though contract provided forcompound interest at the rate of 30%. Submission of the petitioners on the otherhand is that since no amount is due and payable by the petitioners, the question of

awarding any interest did not arise and in any event, since no default wascommitted by the petitioners in making payment of revised rentals, the learnedarbitrator could not have awarded interest from retrospective effect and that also by


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way of interest on interest and at penal rate. Ms. Phene also invited my attention tothe fact that claim of interest awarded by the learned arbitrator w.e.f. 12thDecember, 2006 at the rate of 30% per annum was on Rs. 15,76,68,108/- which

was already inclusive of penal interest and thus the learned arbitrator has awardedinterest on interest. In my view, since award of principle amount itself by thelearned arbitrator is illegal, the learned arbitrator could not have awarded interest

thereon. In any event, even if principle amount was required to be awarded for

securing the claim of the respondents, the learned arbitrator could not haveawarded interest at the rate other than what was required to be paid under IncomeTax Act, 1961 and not at the rate provided in the agreement between the parties.The learned arbitrator also could not have awarded interest on interest and thatalso from 12th December, 2006 i.e. period prior to the date of award. The learnedarbitrator almost could have awarded interest on the principle amount from the

date of award till payment at the rate provided under Income Tax Act, 1961. Sinceaward granting principal amount is set aside, award interest cannot sustain."

23. Learned senior counsel invited my attention to clause 16 of the lease summary schedule tothe lease agreement styled as 'capital allowance variation clause' and submits that under the

said clause if claim for depreciation of the respondent was disallowed whether wholly or partly

in any year during the fixed period of the lease or if the lessor was required to pay income taxat higher/lower rate than 46%, the rental would stand increased/deceased accordingly as apercentage of acquisition cost. It is submitted that the cause of action thus arose when theDeputy Commissioner of Income Tax disallowed the claim for depreciation of M/s. Tata FinanceLimited on 31.3.1998 and a demand notice was issued by the income tax authorities on thesame date. The said notice was received by the M/s. Tata Finance Limited on 1.4.1998. There

was however no claim made by the respondent for revision of lease rental. It is submitted thatthe arbitration proceedings commenced after expiry of 14 days from the date of receipt of thenotice dated 10.10.2003 issued by the said M/s. Tata Finance Limited. The limitation stoppedon expiry of 14 days from the date of receipt of the said notice. It is submitted that on the date

of expiry of 14 days from the date of receipt of the said notice, the claim was ex-facie barred bylaw of limitation.

24. Learned senior counsel submits that merely because the said M/s. Tata Finance Limitedraised a debit note on 11.10.2000 for Rs. 24,60,83,090/- which was re-sent on 29.3.2001 anddenied by the petitioner on 24.12.2001 would not give any fresh cause of action to file theclaim. It is submitted that in any event even if the date of 11.10.2000 raising a debit note isconsidered as the date of cause of action, three years had already expired much prior to the

date of expiry of 14 days from the date of receipt of the notice invoking arbitration clause bythe said M/s. Tata Finance Limited.

25. Learned senior counsel invited my attention to the finding rendered by the learnedarbitrator on issue no. 2 and in particular in paragraph 23 on interpretation of clause 16 'the

capital allowance variation clause' holding that if the eligibility to claim depreciation was

decreased or increased or if the claim for depreciation was disallowed partly or fully in any yearduring the fixed period of the case, then the lease rental would stand increased and/ordeceased proportionately at a percentage of acquisition cost and the cost of acquisition wouldstand increased/deceased by the same percentage of dis-allowance of depreciation and that thelease rental would thereafter be re-calculated according to the re-worked acquisition cost.

26. The learned arbitrator rejected the contention of the petitioner herein that clause 16 of thelease agreement was vague, untenable or unenforceable or void. It is submitted that the finding

and conclusion of the learned arbitrator while dealing with issue of limitation under issue no. 11is contrary to and inconsistent with the finding and interpretation of the learned arbitrator onclause 16 of the award which shows patent illegality on the face of the award.

27. On the issue of limitation learned senior counsel also placed reliance on the judgment ofthis court in case of Asian Electronics Limited vs. Tata Motors Limited delivered on 28.12.2006in Arbitration Petition No. 254 of 2006 and in particular paragraph 10 thereof holding that thecause of action arose when the income tax officer disallowed the depreciation. Paragraph 10 of


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the said judgment reads thus:-

"10. The seventh ground on which the award is challenged is that the claim madeby the Respondent was barred by the law of limitation. According to the learnedCounsel reference was made after the income-tax officer made the order on 31st

March, 2000 and the amount of lease rental due from 27th September 1996onwards were claimed. I find that the learned arbitrator has correctly held that the

cause of action arose when the Income-tax Officer disallowed the depreciation andthe Respondent would be entitled to claim lease rental from the year 1996.Admittedly, no interest has been claimed on that amount. I, therefore, do not findany infirmity in the finding recorded by the learned arbitrator on this count."

28. Learned senior counsel also placed reliance on the judgment dated 10.7.2007 of the divisionbench dismissing the appeal filed by the said M/s. Asian Electronic Ltd. (384 of 2007) arisingout of the order and judgment dated 28.11.2006. He also placed reliance on the judgment ofthis court in case of Aditya Birla Chemicals (India) Limited vs. Tata Motors Ltd. delivered on9.10.2012 in Arbitration Petition no. 1027 of 2011 and in particular paragraphs 19 and 20 and

would submit that the cause of action once commence would not stop. Neither any partpayment is made by the petitioner nor the petitioner has acknowledged any liability during the

subsistence of the alleged liability or otherwise. Paragraphs 19 and 20 of the said judgment inArbitration Petition no. 1027 of 2011 read thus:-

"19. In my view claim made by the Respondent was a claim simpliciter for recoveryof additional lease rent by virtue of disallowance of depreciation by assessingofficer. In my view, Article 54 of the Schedule to Limitation Act does not apply to amoney claim. In my view, the reliance placed by the Learned Arbitrator on Article54 while rejecting the plea of limitation is totally perverse and without application ofmind. The Learned Arbitrator has misdirected by applying wrong article of Scheduleto limitation. In my view the Learned Arbitrator has decided contrary to

substantiate law in force in India. Award is contrary to Section 28(a) of theArbitration and Conciliation Act, 1996 and is thus in conflict with public policy. In

my view, since the claim made by the Respondent was barred by the law oflimitation as on the date of the receipt of notice of invoking arbitration clause, itwas duty of the Learned Arbitrator to reject such time barred claim.

20. In my view right to sue accrued when claim for depreciation made byRespondent was rejected on 31st March, 2004 and raising of demand by theRespondent by issuing debit note on 19th June, 2006 and refusal to pay the saiddemand by the Petitioner on 17th August, 2006 would not commence fresh periodof limitation, which had already commenced on 31st March, 2004. In view ofSection 9 of the Limitation Act, 1963, once time is begun to run, no subsequent

disability or inability to institute a suit or make an application stops it. Once timestarts running, it does not stop. Limitation is not extended unless there is an

acknowledgment of liability or part payment. It is not the case of the Respondentthat the Petitioner acknowledged its alleged liability or there was any part paymentmade by the Petitioner after 31st March, 2004. In my view, correspondences doesnot extend the period of limitation."

29. Learned senior counsel invited my attention to the submissions urged by the petitionerbefore the learned arbitrator which are summarised in paragraph 5 of the impugned award andin particular in sub-para (xi) to the effect that once the income tax authorities have disallowedthe claim for depreciation holding that the respondent was not the owner of the equipment bytreating the transaction as a finance transaction, the incidence of the income tax on the

transaction would become smaller as the full amount by the monthly rental received by therespondent would include a part of the capital repayment on which no income tax would be

payable. The respondent in that situation would have made savings in payment of income taxwhich could be set off against the dis-allowance in the first year and thus the respondent hereinwas not entitled to make any claim. It is submitted that though the learned arbitratorsummarised the said submission of the petitioner in the impugned award, the said submission


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has not been considered at all in the entire award. It is submitted that the award is liable to beset aside on this ground also.

30. Learned senior counsel invited my attention to the findings of the learned arbitrator onissue no. 8 rendered in paragraphs 46 to 54 of the impugned award. It is submitted that the

learned arbitrator has on the basis of the dis-allowance by depreciation by the income taxauthorities in the year 1998 has allowed the claim of the respondent being the difference

between the month to month revised rental amount as calculated and the actual rental amountpaid from the month of September 1994 to July 2002 and allowed 30% overdue interestthereon from September 1994 to July 2002. It is submitted that there was no question of anydefault committed by the petitioner in making payment of revised rental in the year 1994. Thelearned senior counsel submits that in respect of the claim of the petitioner for revision of thelease rental arising out of reduction in payment of rate of income tax with service charges atthe rate of 30% per annum, the learned arbitrator however rejected the said claim holding thatthere was no such provision in the agreement.

31. The learned arbitrator while considering the credit note issued by the petitioner in the sum

of Rs. 2,40,61,846/- did not direct the respondent to re-calculate the lease rental in the year inwhich there was reduction of rate of income tax below 46%. It is submitted that if the learned

arbitrator would have considered to give effect of the reduction in rate of income tax on thelease rental during the period when the said deduction took place, the petitioner would havebecome entitled to the refund of the excess amount recovered by the respondent. The learnedarbitrator has applied different yardstick while dealing with the claims made by the respondentand the petitioner.

32. In so far as claim for interest awarded by learned arbitrator is concerned, learned seniorcounsel submits that though the learned arbitrator had not granted any interest for the periodbetween 6.1.2004 till the date of award, the learned arbitrator made an additional award undersection 33 of the said Arbitration Act and allowed the said claim for interest which is in teeth of

section 33 of the said Arbitration Act. It is submitted that interest was not the claim like otherprincipal claim and thus could not have been awarded under section 33(4) of the said

Arbitration Act. The additional award is vitiated on this ground.

33. Learned senior counsel submits that the learned arbitrator has awarded interest at the rate

of 30% per annum on the amount of Rs. 28,07,44,041/- which was inclusive of interest. Thelearned arbitrator has awarded interest on interest which is not permissible. In support of thissubmission learned senior counsel placed reliance in case of Supreme Court in case of State ofHaryana and others vs. S.L. Arora and Company MANU/SC/0131/2010 : (2010) 3 SCC 690 andin particular paragraph 34 which reads thus:-

"24. Thus it is clear that Section 31(7) merely authorizes the arbitral tribunal toaward interest in accordance with the contract and in the absence of any prohibitionin the contract and in the absence of specific provision relating to interest in the

contract, to award simple interest at such rates as it deems fit from the date onwhich the cause of action arose till the date of payment. It also provides that if theaward is silent about interest from the date of award till date of payment, the

person in whose favour the award is made will be entitled to interest at 18% perannum on the principal amount awarded, from the date of award till date ofpayment. The calculation that was made in the execution petition as originally filedwas correct and the modification by the respondent increasing the amount dueunder the award was contrary to the Award."

34. Learned senior counsel also relied upon paragraph 36 of the judgment of this Court in thecase of Gujarat Urja Vikas Nigam Limited (supra) on issue of interest on interest.

35. Learned senior counsel submits that on the issue whether the claim was premature in viewof the pendency of the income tax proceedings raised under issue no. 18, the learned arbitratorhas placed reliance on the award of the learned arbitrator dated 19.7.2011 in case of TataMotors limited vs. Gujarat Urja Vikas Nigam Limited and has agreed with the reasonings given


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therein while holding that the claim was not premature. It is submitted that the said awarddated 19.7.2011 relied upon by the learned arbitrator in that case is set aside by this court. It issubmitted that in any event the learned arbitrator could not have relied upon award in another

matter as a precedent.

36. Learned senior counsel submits that the learned arbitrator could not have awarded anyamount towards cost in favour of the respondent. The petitioner was dragged into the

arbitration proceedings. The learned arbitrator ought to have rejected the claim for cost madeby the respondent and ought to have awarded cost in favour of the petitioner.

37. Mr. Shah, learned senior counsel for the respondent, on the other hand, invited myattention to clauses 2.2 and 2.4 of the Lease Agreement and also clause 16 of the LeaseSummary Schedule and would submit that all these three clauses have to be read together. It issubmitted that under clause 2.4, the lessor was entitled to vary the lease rental charges everytime during continuance of agreement in the event of claim for the depreciation of the lessor isdisallowed by the Income Tax Authorities. The lessor is not bound to vary the lease rentalcharges immediately upon such disallowance by the Income Tax Authorities. It is submitted that

the Lease Agreement was not expired when the depreciation was disallowed for the first time bythe Deputy Commissioner of Income Tax i.e. on 31.3.1998.

38. It is submitted that on 11.10.2000, the respondent had invoked clause 2.4 and had issued aDebit Note calling upon the petitioner to pay various amounts based on the order passed by the

Deputy Commissioner of Income Tax on 31.3.1998. It is submitted that during the periodbetween March 1998 and March 2001, the respondent had paid income tax due to disallowanceof depreciation to the tune of Rs. 7.75 crores. Reliance is placed on the letter dated 30.1.2001addressed by the petitioner to the respondent which was admittedly not part of the record ofthe arbitral tribunal. Learned senior counsel placed reliance on the reply of the respondentdated 29.3.2001 to the said letter dated 30.1.2001 and would submit that by the said letter,the respondent had sent various documents and had furnished details in respect of assessment

order dated 31.3.1998 and copy of the demand notice issued by the Income Tax Authoritiesupon the respondent.

39. It is submitted that from the reply of the respondent dated 29.3.2001, it would clearlyindicate that the petitioner had asked for various details and documents pertaining to

disallowance of the depreciation and steps taken by the respondent to impugn the said order.Learned senior counsel submits that these two letters would clearly indicate that the juralrelationship between the parties existed. It is submitted that the petitioner thereafter, by letterdated 22.12.2001 refused to accept the amount claimed under the Debit Note. The arbitrationclause invoked by the respondent on 10.10.2003 was thus within three years from the date ofdebit note dated 11.10.2004, within three years from the date of letter dated 30.1.2001addressed by the petitioner seeking certain documents and details and also the letter dated

24.12.2001 of the petitioner refusing to pay the amount claimed under the debit note.

40. Learned senior counsel submits that in view of jural relationship existing between theparties and in view of the petitioner refusing to pay the demand by letter dated 24.12.2001, thecause of action and right to sue arose on 24.12.2001 when the petitioner rejected the demand

made by the respondent. It is submitted that limitation is extended due to the correspondenceexchanged between the parties. The cause of action thus did not commence when the orderdated 31.3.1998 was passed by the Deputy Commissioner of Income Tax disallowing the claimof depreciation made by the respondent. It is submitted by the learned senior counsel that theliability was not crystallized prior to 24.12.2001.

41. In support of the aforesaid submission, learned senior counsel placed reliance on the judgment of the Supreme Court in the case of Messrs Lakshmirattan Cotton Mills Co. Ltd. andMessrs Behari Lal Ram Charan Vs. The Aluminium Corporation of India Ltd., reported in

MANU/SC/0017/1970 : 1971(1) SCC 67 and in particular paragraph 1, 2, 7 to 11, 17 and 18 ofthe said judgment which read thus:-

"1. Prior to January 18, 1944 M/s. Lakshmiratan Cotton Mills Co. Ltd. (hereinafter


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referred to as the appellant company), Aluminium Corporation of India Ltd.(hereinafter referred to as the corporation, J.K. Limited, Beharilal Kailashpat IndiaSupplies, Northern India Trading Co., and Northern India Brush Manufacturing Co.

Ltd. were all jointly managed by two, groups, who may conveniently be called theSinghania and the Gupta groups. Disputes having arisen between them, they werereferred to arbitration by a deed of reference, dated December 9, 1943. It is not

necessary to go into the details of the award, dated January 18, 1944, by which

these disputes were adjudicated upon except that from and after the date of theaward the aforesaid concerns were brought under the management and, control ofone or the other of the said two groups. The corporation came under the controland management of the Singhania group.

Clause 9 of the award provided as follows:

"The above award or directions in respect of Laxmi Ratan Cotton MillsCo. Ltd., Aluminium Corporation of India Ltd., J.K. Ltd., BeharilalKailashpat India Supplies, Northern India Trading Co. and Northern

Brush Manufacturing Co. do not cover the advances which either partyor their separate firms may have made to all or any of them or their

moneys which may be in deposit with them and they shall be payableand paid in their usual course."

According to the appellants, there existed in their trading books :accounts inrespect of amounts advanced or spent by them for,' the corporation in respect ofwhich cl. (9) of the award specifically made provision for and also for interest duethereon. After the award was made the appellant-company sent a statement ofaccount to the corporation, but this was objected to on the ground that theappellant-company, during the course, of the previous joint management of thecorporation, had not properly maintained the accounts and that several items were

either not properly accounted for or entered into. Correspondence thereafter ensuedbetween the parties. The parties also appointed their respective officers to meet

and reconcile their respective accounts the corporation being represented by itsSecretary-cum, Chief Accountant, one Subramanayam, and the appellant-companysometimes by one Arora and at other times by one Newatia. Since no settlementcould be arrived at, the appellants filed two suits claiming Rs. 3,56,207-9-6 and Rs.72,595-4-6 from the corporation, being Suit Nos. 63 and 65 of 1949.

2. In para 14 of the plaint in Suit No. 63 of 1949, it was claimed that the suit waswithin time as after adjustment of several items in 1946 and 1947 a sum of Rs.2,96,110-11-6 was found due to the appellant-company and that in any event thesuit was saved from being barred by limitation by a letter, dated April 16, 1946

addressed by the said Subramanayam, thereby acknowledging the liability of thecorporation to pay the amount which would be found due and payable under the

said accounts. Similar averments were also made in the plaint in Suit No. 65 of1949. The written statements filed by the corporation inter alia pleaded that thesaid claims were, barred by limitation, that the said letter did not amount to anacknowledgement within the meaning of S. 19 of the Limitation Act, 1908 whichwas then applicable to the suits, and lastly, that even if the said letter did amountto an acknowledgment, it was not binding on the corporation as the saidSubramanayam had no authority to make any such acknowledgement for and onbehalf of and binding on the corporation.

7. The question, therefore, that really arises for our determination is whether the

said letter contains an acknowledgement, which its writer, Subramanyam, had theauthority, express or implied, to make. Even that question gets reduced in extent

and scope as it was never the case of the appellant-company at any stage that thecorporation had clothed its Secretary with such authority expressly. Such a case Mr.Gupte did not make out even before us and proceeded in fact to argue that theevidence on record showed that he had such authority given to him impliedly.


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8. Section 19(1) of the Limitation Act, 1908 provides that where, before theexpiration of the period prescribed for a suit in respect of any property or right, anacknowledgement of liability in respect of such property or right has been made in

writing signed by the party against whom such property or right is claimed, a freshperiod of limitation shall be computed from the time when the acknowledgementwas so signed. The expression 'signed' here means not only signed personally by

such a party, but also by an agent duly authorised in that behalf. Explanation 1 to

the section then provides that an acknowledgement would be sufficient though itomits to specify the exact nature of the property or right, or avers that the time forpayment has not yet, come, or is accompanied by a refusal to pay or is coupledwith a claim to a set-off, or is addressed to a person other than the person entitledto the property or right. The new Act of 1963 contains in S. 18 substantially similarprovisions.

9. It is clear that the statement on which the plea of acknowledgement is founded

must relate to a subsisting liability as the section requires that it must be madebefore the expiration of the period prescribed under the Act. It need not, however,amount to a promise to pay, for, an acknowledgement does not create a new right

to action but merely extends the period of limitation. The statement need not

indicate the exact nature, or the specific character of the liability. The words used inthe statement in question, however, must relate to a present subsisting liability andindicate the existence of jural relationship, between the parties, such as, forinstance, that of a debtor and a creditor, and the intention to admit such juralrelationship. Such an intention need not be in express terms and can be inferred byimplication from the nature of the admission and the surrounding circumstances.

Generally speaking, a liberal construction of the statement in question should begiven. That of-course does not mean that where a statement is made withoutintending to admit the existence of jural relationship, such intention should befastened on the person making the statement by an involved and far-fetched

reasoning. (see Khan Bahadur Shapoor Freedom Mazda v. Durga Prosad ChamariaAnd Tilak Ram v. Nathu. As Fry, L.J., in Green v. Humphreys said "anacknowledgement is an admission by the writer that there is a debt owing by him

either to the receiver of the letter or to some other person on whose behalf theletter is received but it is not enough that he refers to a debt as being due fromsomebody. In order to take the case out of the statute there must upon the fair

construction of the letter, read in the light of the surrounding circumstances, be anadmission that the writer owes the debt." As already stated, the person making theacknowledgement can be both the debtor himself as also a person duly authorisedby him to make the admission. In Khan Bahadur Shapoor Freedom Mazda's case

(supra) the Court accepted a statement in a letter by a mortgagor to a secondmortgagee to save the mortgaged property from being sold away at a cheap priceat the instance of the prior mortgagee by himself purchasing it as one amounting to

an admission of the jural relationship of a mortgagor and mortgage &, andtherefore, to an acknowledgement within s. 19. Also, an agreement of reference to

arbitration containing an unqualified admission that whoever on account should beproved to 'be the debtor would pay to the other has been held to amount to anacknowledgement. Such an admission is not subject to the condition that before theagreement should operate as an acknowledgement, the liability must be ascertainedby the arbitrator. The acknowledgement operates whether the arbitrator acts or

not. (see Tejpal Saraogi v. Lallanjee Jain, approving Abdul Rahim Oosman & Co. v.Ojamshee Prushottamdas & Co.

10. The letter (Ex. 1) relied on as an acknowledgement was written to theappellant-company by Subramanayam signing it "for Aluminium Corporation of

India Ltd." it consists of Several paragraphs dealing with diverse items relating todifferent amounts, claimed by the appellant-company in a statement of claim

previously sent by it to the corporation, some of which are refuted by the writer,while the others are accepted. The penultimate paragraph, which is said to containthe admission, reads as follows:


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"After all the above adjustments, the position will be as per statementattached. Interest has been provided on some balances and on others ithas not been provided. We request you, to confirm the balance of Rs.

1,07,477-13-11, so that we may proceed with the calculation of interestand settle your claim once and for all immediately.

Kindly acknowledge this letter and favour us with an immediate reply."

The letter speaks in the last sentence of a copy of it to be sent to Lala PurshottamDasji Singhania "for information". The co of the letter, as is clear from the other

evidence as also the words "for information" was not sent for approval and wasobviously not intended to be subject to such approval by Purushottam Singhania.The statement enclosed with the letter headed "Account of M/s. LakshmiratanCotton Mills Co. Ltd.' and first sets out the balance of Rs. 1,00,760-0-7 in favour ofthe appellant-com any "as per our ledger", meaning the ledger of the corporation,and the first foot-note thereto states that amount included interest of Rs. 26,490-11-10 calculated upto March 31, 1943. Several amounts due to other concerns

payable to or by the appellant-company are, then adjusted and finally the balanceis struck at Rs. 1,07,447-13-11 (which is the one mentioned in the letter (Ex. 1)

which if confirmed by the appellant-company, the corporation would "settle yourclaim once and for all immediately."

11. The High, Court, as aforesaid, held, contrary to the view of the Trial Court, thatthese letter was only "explanatory" and was not intended to be an admission ofliability or of the jural relationship between the parties as debtor and creditor.Counsel for the corporation also argued in support of the High Court's view that theletter was written in the process of adjustment and reconciliation of the statementof claim addressed by the appellant-company and a counter-statement to it by thecorporation and therefore, could not be held to be one intended as an admission of

liability on the part of the corporation, and that, in any event, Subramanayam, whowrote it, had no authority to acknowledge any such liability on behalf of the

corporation.

17. Leaving aside for the time being the question as to Subramanayam's authority,

the following facts emerge from the correspondence and the statements of accountsaccompanying some of the letters sent on behalf of the corporation:

(a) In pursuance of cl. (9) of the said award, the appellant-companysent to the corporation in the beginning of March 1945 a statement ofaccount claiming Rs. 2,94,000 and odd as due to it.

(b) At no time during the lengthy correspondence which ensuedbetween the parties, the corporation denied its liability to pay; what it

did was, to dispute the correctness of the amount claimed by theappellant-company by challenging certain items for which the appellant-company claimed credit and by making certain counter claims of itsown. As against the statement of account sent by the appellant-company, the corporation sent its own statement which it called the

'reconciliation account'.

(c) During the process of adjustment and reconciliation of the severalitems claimed by the appellant-company some were allowed and somewere rejected, and the corporation sought to debit certain items claimedby it against the appellant-company.

(d) According to the reconciliation statement sent by the corporation onSeptember 17, 1945 only Rs. 98,000 and odd was due to the appellant-company as against its claim for Rs. 2,94,000 and odd. Later, this figure


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was raised from time to time as some of the items claimed by theappellant-company were allowed with the result that in the statementsent along with the letter (Ex. 1) the balance due to the appellant-

company was shown at Rs. 1,07,447.

(e) The statements of accounts, (Exs. 43 and 44) and the one enclosedwith the letter, (Ex. 1) in clear terms stated that the balances shown

therein were as shown in the ledger maintained by the corporation. Theletters equally clearly stated that interest on such balances was beingcredited up to certain dates and for the further period would be creditedwhen the accounts were finalised.

18. It must follow from these facts that there was a subsisting, account in the nameof the appellant-company in the books of the corporation in which interest on thebalance shown therein from time to time was being credited and in which amountsin respect of items passed during the course of reconciliation were also beingcredited. The statement in the letter (Ex. 1) that "after all the above adjustments

the position will be as per statement attached", that is to say, that there was abalance of Rs. 1,07,447-13-11 due and payable to the, appellant-company, must

clearly amount to an acknowledgement within the meaning of S. 19(1). In our viewif the letter (Ex. 1) were to be looked at in the background of the controversybetween the parties, which controversy was, as aforesaid, limited to the question asto the correctness of the amount claimed by the appellant company as also thecorrespondence which ensued in regard to it, it would be impossible to say that theletter (Ex. 1) and the statement of account enclosed therewith were merelyexplanatory and did not amount to an admission of the jural relationship of debtorand creditor and of the liability to pay the amount found due at the foot of the

account on finalisation."

42. It is submitted that though in the cross-examination of the witness examined by thepetitioner, the said witness was called upon to produce letter dated 30.1.2001, the witness did

not produce the said letter. The respondent is thus entitled to rely upon the reply of therespondent dated 29.3.2001 to demonstrate that jural relationship between the parties hadexisted. It is submitted that thus there was no need for specific admission/acknowledgement ofliability. Existence of jural relationship itself would amount to acknowledgement of liability. It issubmitted that there was no denial of claim prior to 29.3.2001. The arbitral tribunal as well asthis Court are bound to consider surrounding circumstances while dealing with the plea oflimitation.

43. Learned senior counsel placed reliance on the judgment of the Kerala High Court in the caseof M/s. Craft Centre and Ors. Vs. The Koncherry Coir Factories, Cherthala, reported in

MANU/KE/0017/1991 : AIR 1991 Kerala 83 and in particular paragraph 1 thereof in support ofthe submission that the Court must lean against limitation and in favour of the subsistence of

the right to sue where two views are clearly possible. Paragraph 1 of the said judgment of theKerala High Court reads thus:-

"1. Law of limitation is not meant to be an aid to unconscionable conduct, although,if a claim is clearly barred, the Court must unhesitatingly dismiss the suit. It is a lawof repose, peace and justice which bars the remedy after the lapse of a particularperiod by way of public policy and expediency without extinguishing the right exceptin certain cases. Therefore, the Court must lean against limitation and in favour ofthe subsistence of the right to sue where two views are clearly possible. When thereis the benefit of a reasonable doubt in the matter of construction of a statement

relied upon to serve as an acknowledgment to save limitation, the benefit of thatdoubt should go to the plaintiff. That is what V.R. Krishna Iyer, J. said in Eapen

Panicker v. Krishna Panicker, following earlier Supreme Court decisions."

44. In so far as submission of the learned senior counsel for the petitioner that the arbitral

tribunal has awarded the entire claim of the respondent only on the basis of the judgment of


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this Court in the case of Gujarat Urja Vikas Nigam Limited (supra) is concerned, my attention isinvited to paragraphs 54 to 67 of the impugned award by the learned senior counsel for therespondent and it is submitted that the arbitral tribunal while allowing the claim of the

respondent and rejecting the plea of limitation has also considered the judgment of theSupreme Court in the case of Messrs Lakshmirattan Cotton Mills Co. Ltd. (supra) and also the

judgment of Kerala High Court in the case of M/s. Craft Centre (supra).

45. Learned senior counsel for the respondent made an attempt to distinguish the judgment ofthis Court in the case of M/s. Gujarat Urja Vikas Nigam Limited (supra) on the ground that inthis case the jural relationship is continued till 31.3.2001 whereas no such issue of juralrelationship was considered by this Court in the case of M/s. Gujarat Urja Vikas Nigam Limited(supra). It is submitted that in the case of M/s. Gujarat Urja Vikas Nigam Limited (supra), thepetitioner had made part payment after three years of expiry of limitation whereas in this case,the arbitration agreement invoked by the respondent on 10.10.2003 was within the period oflimitation. Learned senior counsel placed reliance on the paragraphs 14 to 17 and 22 of the

judgment of this Court in the case of M/s. Gujarat Urja Vikas Nigam Limited (supra) and madean attempt to distinguish the said judgment.

46. In so far as the judgment of this Court of Aditya Birla Chemicals (India) Ltd. Vs. Tata

Motors Ltd. passed in Arbitration Petition No. 1027 of 2011 relied upon by the petitioner isconcerned, it is submitted by Mr. Shah that this Court in the said judgment had accepted theplea of limitation while considering the Article 54 of the Schedule to the Limitation Act, 1963,but did not consider Article 113 of the Schedule to the Limitation Act, 1963. It is submitted thatthe said judgment is thus distinguishable in the facts of this case and does not assist thepetitioner. Learned senior counsel for the respondent placed reliance on the judgment of theSupreme Court in the case of Rukhmabai Vs. Lala Laxminarayan & Ors., reported inMANU/SC/0186/1959 : AIR 1960 SC 335 and would submit that right to sue did not accrue until

the right is asserted by one party and denied by another. Reliance is placed on paragraphs 31and 32 of the said judgment which read thus:-

"31. The argument on the question of limitation is put thus: The plaintiff,

respondent herein, had knowledge of the fraudulent character of the trust deed asearly as 1917 or, at any rate, during the pendency of the partition suit betweenRukhmabai and Chandanlal instituted in the year 1929, and the suit filed in 1940,admittedly after six years of the said knowledge, would be barred under Art. of theLimitation Act. Article of the Limitation Act reads:

This Article was subject to judicial scrutiny both by the Judicial Committee as wellas by the High Court of various States. The leading decision on the subject is that ofthe Judicial Committee in Bolo v. Koklan. Therein, Sir Benod Mitter, observed:

"There can be no 'right to sue' until there is an accrual of the right

asserted in the suit and its infringement, or at least a clear andunequivocal threat to infringe that right, by the defendant against whomthe suit is instituted."

32. The said principle was restated and followed by the Judicial Committee inAnnamalai Chettiar v. A.M.K.C.T. Muthukaruppan Chettiar and in Gobinda NarayanSingh v. Sham Lal Singh. The further question is, if there are successive invasions


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or denials of a right, when it can be held that a person's right has been clearly andunequivocally threatened so as to compel him to institute a suit to establish thatright. In Pothukutchi Appa Rao v. Secretary of State, a Division Bench of the Madras

High Court had to consider the said question. In that case, Venkatasubba Rao J.,after considering the relevant decisions, expressed his view thus:

"There is nothing in law which says that the moment a person's right is

denied, he is bound at his peril to bring a suit declaration. TheGovernment beyond passing the order did nothing to disturb theplaintiff's possession. It would be most unreasonable to hold that a barerepudiation of a person's title, without even an overt act, would make itincumbent on him to bring the declaratory suit".

He adds at p. 199:

"It is a more difficult question, what is the extent of the injury orinfringement that gives rise to, what may be termed, a compulsorycause of action ?"

47. Learned senior counsel placed reliance on the judgment of the Supreme Court in the case ofState of Punjab & Ors. Vs. Gurdev Singh, Ashok Kumar, reported in MANU/SC/0612/1991 : AIR1991 SC 2219. He placed reliance on paragraph 4 of the judgment in support of his submissionthat the suit must be instituted when the right asserted in the suit is infringed or when there isa clear and an unequivocal threat to infringe that right by the defendant against whom the suit

is instituted. Paragraph 4 of the said judgment of the Supreme Court in the case of State ofPunjab (supra) reads thus:-

"4. First of all, to says that the suit is not governed by the law of Limitation runsafoul of our Limitation Act. The statute of Limitation was intended to provide a timelimit for all suits conceivable. Section 3 of the Limitation Act provides that a suit,appeal or application instituted after the prescribed "period of limitation" must

subject to the provisions of Section to 24 be dismissed although limitation has notbeen set up as a defence. Section 2(j) defines the expression "period of limitation"to mean the period of limitation prescribed in the Schedule for suit, appeal orapplication. Section 2(j) also defines, "prescribed period" to mean the period oflimitation computed in accordance with the provisions of the Act. The Court's

function on the presentation of plaint is simply to examine whether, on the assumedfacts, the plaint is within time. The Court has to find out when the "right to sue"accrued to the plaintiff. If a suit is not covered by any of the specific articlesprescribing & period of limitation, it must fall within the residuary article. Thepurpose of the residuary article is to provide for cases which could not be coveredby any other provision in the Limitation Act. The residuary article is applicable toevery variety of suits not otherwise provided for. Article (corresponding to Article of

the Act 1908) is a residuary article for cases not covered by any other provisions inthe Act. It prescribes a period of three years when the right to sue accrues. UnderArticle it was six years which has been reduced to three years under Article

According to the third column in Article time commences to run when the right tosue accrues. The words "right to sue" ordinarily mean the right to seek relief bymeans of legal proceedings. Generally, the right to sue accrues only when the causeof action arises, that is, the right to prosecute to obtain relief by legal means. Thesuit must be instituted when the right asserted in the suit is infringed or when thereis a clear and unequivocal threat to infringe that right by the defendant againstwhom the suit is instituted (See: (i) Mt. Bole v. Mt. Koklam and Ors.,

MANU/PR/0054/1930 : AIR 1930 PC 270 and (ii) Gannon Dunkerley and Co. v. TheUnion of India, MANU/SC/0475/1969 : AIR 1970 SC 1433."

48. It is submitted by the learned senior counsel that even if the respondent had not invokedarbitration agreement immediately on the date of disallowance of depreciation by the Income

Tax Authorities i.e. on 31.3.1998, but cause of action being continuing cause of action and thus


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merely because the respondent did not avail of the earlier cause of action, the respondent wasnot precluded from availing the cause of action of a later one. In support of this submission,reliance is placed on the judgment of Patna High Court in the case of Mukhdeo Singh and Anr.

Vs. Harakh Narayan Singh and Ors., reported in MANU/BH/0092/1931 : AIR 1931 Patna 285.Learned senior counsel relied upon the said judgment also in support of his submission that ifthere are two views possible under this statute, one tending to deprive a person of his just dues

and the other entitling to recover them, the Court should not lean in favour of the view which

does not entail any hardships or lead to any unjust consequences. Relevant paragraph of thesaid judgment is extracted as under:-

"The notion of continuing or successive causes of action is not entirely foreign to theLimitation Act as will appear from S. 23 and Art. 116, Limitation Act. Wheretherefore a party has recurring or successive causes of action whether under theterms of contract or by operation of law, each cause of action will in my opiniongive a fresh start to the period of limitation and the mere fact that a party has not

availed himself of the earlier cause of action, will not prevent him from availinghimself of a later one.

It is in this connexion that it becomes material to consider how far the mortgagee is

entitled to waive his right to exercise an option given to him under the bond. Nowthere is a good deal of conflict in the decisions of the various High Courts in thiscountry as to what would constitute a waiver and what would not. It has been heldin several cases that mere abstaining from bringing a suit does not amount to awaiver, and some of these cases were relied on by the learned advocate for theappellant. All those cases however were decided under Art. 75, Limitation Act, andit is clear that if it is held in cases falling under that article, that mere abstentionfrom suing amounts to a waiver, that would nullify the main provision in that article

which is to the effect that the time would ordinarily begin to run from the date ofthe first default. In cases however which are not governed by that article, if theterms of the bond themselves provide expressly or by implication that it is open to

the mortgagee to sue as soon as the first default happens or to sue later, then I do

not see that there would be any difficulty in holding that if the suit is not brought assoon as the first default occurs and is brought after a subsequent default or afterthe date by which the whole amount due is to be paid, the mere abstention fromsuing does not amount to a waiver. It has been remarked in certain cases thatwhere a contract gives the power to elect it is not within the province of the law tosay that such election shall not be made and it is equally clear that where the

contract itself provides for waiver, no statutory authority for such waiver is needed.In this connexion, I may usefully refer to the following observation made in J.P.Rego Vs. Phillip Tauro:

"It cannot be said of a person that on the date of the first suit he

became entitled to sue for the whole amount, unless he had previously

elected by some word or act to take advantage of the default clause. Ifhe had previously done nothing, that is, had made no election, the actinvolved in bringing the first suit for a single instalment amounts to awaiver on his part of the benefit reserved under that clause. If againafter the default has occurred he keeps the question open and doesnothing but finally sues for the whole amount, the fact that he has so

sued shows that he has waived the benefit reserved to him under thecontract."

I have so far dealt with the merits of the controversy; but on two other grounds Iam inclined to hold that we should adhere to the view which has prevailed so far in

this Court. This view has undoubtedly this advantage that it does not entitle thedebtor to go behind his own stipulation giving the creditor an option in the matter ofbringing the suit. I fully recognize that the Courts should have no hesitation inapplying the statute of limitation where it clearly applies, but where there are two

possible views under this statute, one tending to deprive a person of his just dues


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and the other entitling him to recover them, there is no reason I do not see whyone should not lean in favour of the view which does not entail any hardships orlead to any unjust consequences. My other ground for adhering to the cursus curiae

of this court is substantially what has been pointed out recently by a Full Bench ofthis Court in Babu Tribeni Prasad Vs. Ram Asray Prasad and what has beenexpressed by Mukerjee, J. in the case of Kedar Nath Hazra V. Manindra Chandra

Nandy in these words:

"The Courts must always hesitate to overrule decisions which are notmanifestly erroneous and mischievous, which have stood for manyyears unchallenged and which from their nature may reasonably besupposed to have affected the conduct of a large portion of thecommunity in matters relating to rights of property: Young V.Robertson."

I have already said that I am unable to hold that the view which has been held inthis Court so far, is manifestly erroneous and it is obvious that it is the very

opposite of being unjust or mischievous."

49. Learned senior counsel placed reliance on the judgment of the Supreme Court in the case ofThe Madras Port Trust Vs. Hymanshu International, reported in MANU/SC/0046/1979 : AIR1979 SC 1144 and would submit that a public authority should not ordinarily take a plea of

limitation to defeat legitimate claims of citizens. Paragraph 2 of the said judgment in the case ofthe Madras Port Trust (supra) reads thus:-

"2. We do not think that this is a fit case where we should proceed to determinewhether the claim of the respondent was barred by Section of the Madras Port TrustAct (II of 1905). The plea of limitation based on this Section is one which the courtalways looks upon with disfavour and it is unfortunate that a public authority likethe Port Trust should, in all morality and justice, take up such a plea to defeat a

just claim of the citizen. It is high time that governments and public authorities

adopt the practice of not r

bom hc-para 32 & 75

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