2022 (1) TMI 755 - HC - Indian Laws

Validity of Arbitral Award - dishonor of cheque - legally enforceable debt or not - claimant having exercised the option under section 60 of the Indian Contract Act by adjusting the payment of ₹ 50 lakhs towards four earlier invoices, three invoices fully adjusted and one invoice partly adjusted - claimant not having made the claim in respect of those three fully paid invoices is estopped from raising the plea that the cheque of ₹ 50 lakhs issued by the respondent towards part payment having been dishonored - acknowledgment of liability in respect of all the outstanding invoices on the date of commencement of the arbitral proceedings or not. HELD THAT - A perusal of the statement of claim indicates that the only averment regarding period of limitation is found in paragraph 26 of the statement of claim alleging that the cause of action arose to file the statement of claim. The respondent made last payment of ₹ 16 lakhs. Even according to the claimant, the claimant was entitled to interest at the rate of 21% monthly compoundable interest on principle amount from 20th January, 2011 to 20th December, 2016. It is thus clear that even according to the claimant the cause of action arose for payment of interest as well as principle amount after expiry of 45 days from the date of each invoice. The last invoice is dated 2nd June, 2011, the alleged part payment of ₹ 16 lakhs on 28th July, 2015 thus would not extend the period of limitation. It is clear that the entire claim had already become barred by law of limitation prior to 28th July, 2015 and was not a legally enforceable debt as on 28th July, 2015. Learned single Judge in the impugned judgment dated 5th September, 2019 considered the issue of limitation in detail and has rightly held that the supplies were payable respectively at the expiry of 45 days of each individual notice. The arbitration agreement was arrived at between the parties on 22nd November, 2016 and accordingly the terminus ad quem in respect of the claim in the arbitration was 22nd November, 2016. It is with reference to that date the bar of limitation has to be construed - the arbitral proceedings in this case commenced when both the parties agreed to refer their disputes to arbitration on 22nd November, 2016 in the company petition. The cause of action has to be within the period of three years prior to the date of commencement of the arbitral proceedings. A perusal of the record clearly indicates that the cause of action in this case was much prior to three years prior to the date of commencement of the arbitral proceedings i.e. 22nd November, 2016. Under section 18 of the Limitation Act, 1963, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed only where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment 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, or by any person through whom he derives his title or liability - Admittedly in this case, the claim was for recovery of the price of the goods sold and delivered to be paid after expiry of the period of credit. Article 15 of Part-II of the Limitation Act is applicable which provides for the period of three years when the period of credit expires. Admittedly, in this case the respondent was granted 45 days credit period for making payment of each invoice. The claimant though urged before this Court vehemently that the respondent having issued a cheque of ₹ 50 lakhs, which was dishonored, the entire outstanding claim under various invoices stood revived on the ground that there was fresh period of limitation under section 18 of the Limitation Act, the claimant having exercised the option under section 60 of the Indian Contract Act, no such inconsistent plea can be permitted. The power under Section 37 are narrower than the powers under Section 34 of the Arbitration Act which are already narrow. Learned Arbitrator has rendered various findings of facts on the issue of limitation after considering the pleadings, documents and oral evidence. Neither there was any perversity in the impugned award nor any patent illegality therein. Learned Single Judge rightly did not interfere with the impugned award - the appeal is totally devoid of merit and is accordingly dismissed.

Issues Involved:
1. Limitation period for filing the claim.
2. Acknowledgment of debt and part payments.
3. Appropriation of payments.
4. Application of Sections 18 and 19 of the Limitation Act, 1963.
5. Application of Sections 60 and 61 of the Indian Contract Act, 1872.
6. Judicial scrutiny under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Limitation Period for Filing the Claim:
The appellant (claimant) supplied steel materials to the respondent (original respondent) under various purchase orders. The dispute arose regarding the payment for these supplies. The learned arbitrator rejected most of the claims on the ground of limitation, except for a small part. The appellant argued that the limitation period was extended due to acknowledgments of debt and part payments made by the respondent. The learned Single Judge upheld the arbitral award, dismissing the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996. The appellant then filed this appeal under Section 37 of the Arbitration and Conciliation Act, 1996.

2. Acknowledgment of Debt and Part Payments:
The appellant contended that the respondent acknowledged the debt and made part payments, which should have extended the limitation period. The respondent issued a cheque for ?50 lakhs on 30th June 2013, which was dishonored. The appellant filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, which was later withdrawn after the respondent paid ?50 lakhs in three installments. The appellant argued that these payments and acknowledgments extended the limitation period.

3. Appropriation of Payments:
The appellant appropriated the payments made by the respondent against the earliest outstanding invoices on a FIFO (First In First Out) basis. The learned arbitrator found that the payments were appropriated towards invoices that did not form part of the claims before the arbitrator. The appellant argued that the payments should extend the limitation for all invoices, but the learned arbitrator and the learned Single Judge disagreed.

4. Application of Sections 18 and 19 of the Limitation Act, 1963:
The appellant relied on Sections 18 and 19 of the Limitation Act, 1963, arguing that acknowledgments of liability and part payments extended the limitation period. The learned arbitrator held that the acknowledgments and payments were not within the prescribed limitation period and thus did not extend the limitation. The learned Single Judge concurred, noting that the acknowledgments were made more than three years before the filing of the company petition.

5. Application of Sections 60 and 61 of the Indian Contract Act, 1872:
The appellant argued that the dishonored cheque and subsequent payments extended the limitation period for all invoices. However, the learned arbitrator and the learned Single Judge found that the appellant had exercised the option under Section 60 of the Indian Contract Act by appropriating the payments towards specific invoices. Section 61, which deals with appropriation in the absence of specific instructions, was not applicable as the appellant had already made specific appropriations.

6. Judicial Scrutiny under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996:
The learned Single Judge emphasized the narrow scope of judicial scrutiny under Section 34 and the even narrower scope under Section 37 of the Arbitration and Conciliation Act, 1996. The learned Single Judge found no perversity or patent illegality in the arbitral award and thus upheld it. The appeal under Section 37 was dismissed, with the court reiterating that it could not re-evaluate the merits of the case but only ensure that the lower court's exercise of power did not exceed the scope of Section 34.

Conclusion:
The appeal was dismissed, with the court finding that the claims were barred by limitation and that the appellant's arguments regarding acknowledgments and part payments did not extend the limitation period. The court upheld the findings of the learned arbitrator and the learned Single Judge, emphasizing the limited scope of judicial interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

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