Whether arbitration award allowing time barred claim can be set aside?

The arbitral tribunal totally failed to appreciate that once the
cause of action has commenced when the breaches were alleged to have
been committed by the petitioner even according to the respondents

much prior to 14th January, 1997 did not stop. There was no part payment
made by the petitioner admittedly to the respondents arising out of such
demand by the respondents in the year 1997, nor the petitioner
acknowledged any liability to pay the said amount during the period
between 1997 and 2000. The impugned award is contrary to section 9 of
the Limitation Act and over looking the fact that the cause of action even
according to the respondents had commenced for recovery of
compensation / damages prior to 14th January, 1997 when the breach of
contract was alleged to have been committed by the petitioner. In my
view, since the arbitral tribunal has allowed the time barred claims, the
award is in conflict with the public policy and deserves to be set-aside on
this ground also.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.275 OF 2012
CMC Limited 

 Vs.
Unit Trust of India 
 CORAM : R.D. DHANUKA, J.

         PRONOUNCED ON :   6th  February, 2015 
Citation: 2016(2) ALLMR589

 By this petition filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (for short 'the said Act'), the petitioner has

impugned the arbitral awards rendered by the arbitral tribunal on 7th
February 2008 and 3rd November 2009 allowing some of the claims
made by the respondent and rejecting the counter claims made by the
petitioner. Some of the relevant facts for the purpose of deciding this
petition are as under :
2. The petitioner was the original respondent in the statement
of claim and was claimant to the counter claim before the arbitral
tribunal. The respondent herein was the original claimant to the
statement of claim and original respondent to the counter claim before
the arbitral tribunal.
3. On or about 23rd October 1992, the petitioner and the
respondent entered into an agreement by which the respondent awarded
job of its 'Information Technology Upgrade Project' comprising of (i)
Project Management, (ii) Software Development and Implementation,
(iii)Networking Services, and (iv) Training and Implementation Support
(for short 'the said Technology Upgrade Project') for the consideration
and on the terms and conditions contained in the Agreement dated 23rd
October 1992.
4. It is the case of the petitioner that as per Agreement dated
23rd October 1992, the parties met along with their consultants to
discuss the SRS of the Application Groups. Thereafter, the petitioner
sent the SRS for the modules AG-1 to AG-5. By its letter dated 19th
April 1994, the respondent confirmed the receipt and acceptance of
SRS of the modules AG-1A,AG-1B, AG-2, AG-3, Ag-5 and requested
that any observations put forth during the design review by the external

experts should be taken congnizance of by the petitioner in the
Application Software.
5. The petitioner started work on the AG-2 module and sought
to complete the project in terms of the said Agreement. By its letter
dated 29th March 1995, the petitioner raised various bills on the
respondent for the implemented milestones completed in the AG-2 and
AG-3 projects for Rs.37,25,961.72.
6. It is the case of the petitioner that the petitioner by its letter
dated 10th January 1996 requested for release of payment of bills raised
on 29th March 1995 for the project AG-2. The petitioner claimed the
balance amounts which were not paid by the respondent in respect of
AG-2 were pending. It is the case of the petitioner that the respondent
confirmed its Agreement to pay a sum of Rs.22,12,500/- and requested
the petitioner to raise the bill for the said amount by letter dated 15th April
1996. There was a meeting held on 22nd May 1996 wherein it was
agreed that the respondent would release the payment of pending bills of
the petitioner by 31st May 1996.
7. The respondent by its letter dated 19th June 1996 referred
to the Development of the 18 new reports prepared by the petitioner for
AG-2 project and requested the petitioner to raise a bill of Rs.3 lacs for
the said work. It is the case of the petitioner that the said letter itself
would indicate that the respondent was already using certain applications
of AG-2 module successfully and had requested for further development
of 18 applications. The petitioner accordingly raised a bill for Rs.3 lacs
for software development charges for the additional 18 reports prepared

for AG-2 module.
8. By letter dated 1st August 1996, the petitioner wrote to the
respondent requesting it to freeze the scope of AG-2 software. There
was no response from the respondent to the said letter. The petitioner
completed the software with the specifications mentioned in that letter. It
is the case of the petitioner that in the meeting held on 24th December
1996, the progress of AG-2 software was discussed. The respondent at
this meeting extended the date of completion of AG-2 software to 1st
April 1997 from the earlier date of 31st December 1996. The petitioner
by its letter dated 27th December 1996 informed the respondent that
the implementation and completion of AG-2 project would be the joint
and collective responsibility of both the parties.
9. It is the case of the petitioner that though the respondent
extended the completion date and despite realising the complexities
of the development of the software, suddenly and arbitrarily decided to
abandon the project and informed the petitioner of the same by its letter
dated 14th January 1997 unilaterally abandoning the AG-2 project.
According to the petitioner, the petitioner had completed various
milestones in respect of the said AG-2 project before the decision of
the respondent to abandon the said AG-2 project.
10. By letter dated 29th August 1997, the respondent informed
the petitioner that they wanted refund of all the amounts that have been
paid by them to the petitioner for the work that was done on the AG-2
project. In response to the said letter, the petitioner by its letter dated
16th October 1997 refuted the allegations, assertions and claims contained

in its letters dated 14th January 1997 and 29th August 1997 on various
grounds.
11. The petitioner by its letter dated 10th December 1998
requested the respondent to pay the outstanding dues of Rs.9,15,300/-
that was payable by the respondent to the petitioner as per the said letter.
On or about 13th February 2002, the respondent issued a notice to the
petitioner demanding a refund of Rs.99.404 lacs with additional interest
@ 13.5% p.a. with effect from 14th January 1997 till the actual date of
payment within 30 days from the receipt of the said notice failing which
the respondent threatened to take necessary legal action.
12. By its letter dated 4th March 2002, the petitioner reiterated
the said demand and alleged that the petitioner had incurred cost and
time overruns of more than 200 person months for which the respondent
owed the petitioner an amount of Rs.150 lacs. The petitioner also sent a
reminder to the respondent that the bills for an amount of Rs.10.75 lacs
and Rs.19.25 lacs were also pending. The petitioner demanded the said
amounts from the respondent.
13. On 16th May 2002, the respondent issued a Notice of
arbitration to the petitioner and appointed Mr.D.S. Phaterphekar,
Advocate as its nominee arbitrator. It is the case of the petitioner that the
petitioner did not take any cognizance of the said purported notice and
to act thereon alleging that the said notice was not in accordance with
the ICA Rules. The respondent thereafter filed an application under
Section 11 of the said Act. The arbitral tribunal was ultimately
constituted.

14. The respondent filed Statement of Claim on 31st July 2007
before the arbitral tribunal against the petitioner inter alia praying for a
declaration that the petitioner was liable to refund the amounts already
received by it from the respondent for the development of applications/
modules forming part of AG-2. The respondent also prayed for an award
against the petitioner for an amount of Rs.83.455 lacs as and by way of
refund of the amounts paid by the respondent to the petitioner for the
development of applications/modules forming part of AG-2 with
interest @13.50% p.a. with effect from 14th August 1997. The respondent
also prayed for damages against the petitioner amounting to Rs.15.959
lacs with interest @13.50 % p.a. with effect from 14th August 1997 till
payment and demanded cost of Arbitration. There was no averment
made in the Statement of Claim as to whether the claims made by the
respondent were within time and not barred by law of limitation.
15. The petitioner filed detailed written statement and counter
claim to the said claims filed by the respondent before the arbitral
tribunal. The said counter claim was resisted by the respondent on
various grounds including limitation and arbitrability.
16. By a separate order passed by the arbitral tribunal on 7th
February 2008, it is held that the arbitral tribunal has the jurisdiction
to adjudicate upon the respondent's counter claims prayed in prayers
'A', 'B', 'C', 'D', 'E' and 'H' of the counter claim and had no jurisdiction
to adjudicate upon the respondent's counter claim prayed in prayers 'F'
and 'G' of the counter claim. The said order was passed under Section 16
of the said Act which was filed by the respondent before the arbitral

tribunal. The petitioner did not file any appeal against the said order
dated 7th February 2008. The petitioner, however, challenged the said
order dated 7th February 2008 along with final award dated 3rd November
2009 in this petition. The respondent raised a preliminary objection about
maintainability of the arbitration petition in so far as the order dated 7th
February 2008 passed by the arbitral tribunal rejecting prayers 'F' and 'G'
are concerned.
17. Learned counsel for the petitioner fairly admitted that the
arbitration petition under Section 34 of the said Act for impugning the
order dated 7th February 2008 passed under Section 16 of the said Act in
respect of rejection of claim 'F' and 'G' is not maintainable. The arbitral
tribunal framed eight points for determination.
18. The respondent led oral evidence of Mr.Sanjivan Shirke,
Manager, Department of Accounts/ Information Technology Cell of the
respondent who was cross-examination by the counsel representing the
petitioner. The petitioner examined Mr. Jayant Shridhar Rawalgaonkar,
a retired Executive Director of the petitioner and Mrs.Mona Marathe,
Delivery Centre Co-ordinator who were cross-examined by the
respondent through its counsel.
19. By the impugned award dated 3rd November 2009, the
arbitral tribunal rejected the plea of limitation raised by the petitioner
in respect of the claims made by the respondent. The arbitral tribunal did
not decide the plea of limitation raised by the respondent regarding
counter claims made by the petitioner. By the said impugned award

dated 3rd November 2009, the arbitral tribunal directed the petitioner to
pay to the respondent the sum of Rs.83,45,500/- together with interest
@9% p.a. with effect from 31st July 2007 till payment or realization
and also awarded the arbitration cost in favour of the respondent at
Rs.9,30,000/-. The arbitral tribunal rejected the counter claims made by
the petitioner. The said award has been impugned by the petitioner in
this petition under Section 34 of the said Act on various grounds.
20. Learned counsel for the petitioner invited my attention to
various provisions of the Agreement dated 23rd October 1992 entered
into between the petitioner and the respondent and more particularly
Clauses 1.5 i.e. definition of 'Application Group', 1.9 i.e. 'Implementation
Milestones', 2.2.6 i.e. 'Application Group Acceptance', 2.2.7 i.e.'Defect
Liability Period for Application Groups', 2.2.8 i.e. 'Application Systems
Implementation Support', Clause 3 i.e. Charges, Clause 6 which provides
for 'Payment Schedule' under each of the heads mentioned therein against
the milestones defined thereunder, Clause 11 i.e. 'Time Schedule', Clause
16 i.e. 'Rights of Property', Clause 2 of Annexure-II i.e. 'Application
Group 1', Clause 3 i.e. 'Application Group 2' and Annexure-V at page 90
of the contract which provides for separate milestones in respect of
each application.
21. Relying upon these provisions of the contract, it is submitted
by the learned counsel that there being a separate amount earmarked for
each module, separate system of billing, separate amount fixed for
application AG-2, separate provision for testing of each application,
separate acceptance certificate, separate defect liability period and
separate payment for each group would clearly indicate that the contract

awarded to the petitioner was not an indivisible contract and application
AG-2 or other applications forming part of the said contract were not
dependent on each other applications. It is submitted that the applications
of group 3 and 5 are provided together under the contract. Abandonment
of application AG-2 has not affected work of the other modules. The
respondent had abandoned the other two modules also.
22. The petitioner had issued a separate bill in respect of
application AG-2 in accordance with the separate milestone provided
under the Agreement. The respondent had made substantial part of the
bill raised by the petitioner in accordance with the milestones achieved.
It is submitted that respondent had not disputed that even when the
application AG-2 was abandoned by the respondent, the respondent had
released the payment in favour of the petitioner for the other groups in
respect of the works carried out subsequently. Works of other groups
were continued by the petitioner and accepted by the respondent. It is
submitted that the works of other groups continued even after
abandonment of the application AG-2 and thus it is clear that the other
applications were separate and could be continued even without the
application AG-2.
23. It is submitted that the findings of the arbitral tribunal that
the contract awarded to the petitioner was an indivisible contract and
thus even if the application AG-2 was abandoned by the respondent,
cause of action had not arisen for making a claim in view of the work
of other applications going on which was part of such alleged indivisible
contract is contrary to the terms of the contract, contrary to the pleadings

of the respondent and shows patent illegality on the face of the award.
24. It is submitted that the respondent could not dispute
before the arbitral tribunal that out of five applications, the respondent
had abandoned three applications. The respondent could not demonstrate
before the arbitral tribunal that the work in respect of other three
applications which were abandoned by the respondent was completed by
the respondent itself or by any other agency and the entire project
could be commissioned only after the work of all the applications under
the contract was over. It is submitted that the finding of the arbitral
tribunal that the contract in respect of AG-1 and AG-3 comprised in
execution of the said project was completed in mid 2000, the cause of
action in favour of the respondent herein to claim the compensation
arose in June 2000 and thus the claim was not barred by limitation is
totally perverse and even contrary to the submission made by the
respondent.
25. It is submitted by the learned counsel that it was not the
case of the respondent in the pleadings or in the evidence that unless
and until all the application groups dealt with different aspects of the
execution of the project were placed at one place together before the
system could operate for successful execution and operation of the said
project, each application was inter-linked or related with the other
application group, the respondent could not have asserted the damage
suffered, if any, by the respondent. It is submitted that it was not the
case of the respondent that all the application groups were placed at one
place together and were put in operation in mid 2000 and only thereafter

the respondent could ascertain the actual loss suffered by the respondent.
The learned arbitrator has considered the submission alleged to have
been advanced across the bar contrary to the pleadings and evidence on
the issue of limitation and came to a conclusion that since the contract
was an indivisible contract, cause of action had not commenced till all
the applications were placed together for operation and execution. The
arbitral tribunal has decided not in accordance with what was submitted
to the learned arbitrator by the parties.
26. Learned counsel for the petitioner submits that admittedly
in this case, the respondent had abandoned the application AG-2 on 14th
January 1997. The petitioner vide its letter dated 3rd February 1997 had
placed on record that the reasons for the delay could not be attributed to
the petitioner alone. The petitioner also placed on record that lot of
development efforts would be wasted due to decision of abandonment
taken by the respondent.
27. It is submitted that the petitioner had incurred lot more
expenses than originally contracted due to the constantly changing
requirements by the respondent. The petitioner placed on record that
inability of the respondent to use the software inspite of incorporation by
the petitioner, the necessary changes seem to be main reason for
abandonment of the project. The petitioner also placed on record that
various bills raised by the petitioner on AG-2 Software Developmental
Work had remained unpaid by the respondent which bills were raised
against approval from time to time from the respondent based on
achievement of agreed milestones. The petitioner contended that it was
necessary for the respondent to compensate the petitioner for the effort

put in by the petitioner for the development of AG-2 software. The
petitioner requested the respondent to depute people from its side for
finalisation of the same to enable the petitioner to raise total bills for
that part of the project. Learned counsel also invited my attention to the
report on AG-2 forming part of the record which was Annexure to the
said letter dated 16th October 1997.
28. There was no response to the said letter dated 16th October
1997. The respondent by its notice dated 13th February 2002 alleged that
although AG-1 and AG-3 were implemented and completed by the
petitioner, AG-2 and AG-4 remained incomplete and were not
implemented to the satisfaction of the respondent. The petitioner did not
commence implementation of AG-5 and AG-6 as AG-4 was left
incomplete and unimplemented.
29. It is submitted that the notice invoking the arbitration
agreement was issued admittedly on 13th February 2002 that is much
after expiry of 3 years from the date of accrual of cause of action and
claims were thus ex facie barred by law of limitation. It is submitted
that since the learned arbitrator has allowed the time barred claim, the
award is in conflict with the public policy. Under Section 43 of the
Arbitration and Conciliation Act, 1996, all provisions of the Limitation
Act, 1963 were applicable to the arbitration proceedings also. The
respondent itself had contended before the learned arbitrator that its
claim for refund the amount paid to the petitioner was in the nature of
claim for damages and would fall under Article 55 of the Schedule to the
Limitation Act, 1963. It is submitted that the alleged breach, if any, was
thus committed much prior to the date of abandonment of said application

of AG-2 by the respondent alleging breaches. There was no further work
of whatsoever nature carried out or required to be carried out by the
petitioner in so far as the application AG-2 was concerned. The cause of
action for making a claim for compensation arose when the alleged
breaches had been committed by the petitioner that is much prior to the
date of abandonment. Limitation did not stop. Neither there was any part
payment made by the petitioner to the respondent nor any liability was
acknowledged by the petitioner. On the contrary, the petitioner had denied
the said claim made by the respondent immediately when the demand
was made by the respondent.
30. It is submitted by the learned counsel that the finding of the
learned arbitrator that the contract was not terminated is also patently
illegal and contrary to the evidence on record. The learned counsel
invited my attention to the deposition of the witness examined by the
petitioner and in particular his reply to the question no.108 when the
respondent had put a suggestion to the witness examined by the petitioner
that the contract was terminated to which suggestion the witness
examined by the petitioner answered in affirmative but did not agree
with the reasons of termination. It is submitted that there was no
provision for abandonment in the contract entered into between the
parties. The respondent had deliberately terminated the contract to
deprive the petitioner of the payment required to be made by the
respondent under Clause 13.4 of the contract for the work already
carried out by the petitioner.

31. It is submitted by the learned counsel that the admitted fact
that two other groups/applications were also abandoned by the

respondent would also show that the application AG-2 was a separate
group/application by itself and there was no indivisible contract as
erroneously held by the learned arbitrator. It is submitted that the
admitted fact that the payments were made by the respondent for other
groups subsequently and that work of the other groups was continued
though the work under application AG-2 was abandoned would also
clearly indicate that the contract awarded to the petitioner was not an
indivisible contract.
32. It is submitted by the learned counsel that in so far as the
counter claims made by the petitioner were concerned, the learned
arbitrator has rejected the entire counter claims without rendering any
reason. The findings rendered by the learned arbitrator are contrary to
Clause 13.4 of the contract. The claim nos.A and B made by the
petitioner in the counter claims were for the work done. The learned
arbitrator could not have rejected the said counter claims made by the
petitioner.
33. It is submitted that on one hand the learned arbitrator had
rendered a finding that the time was not an essence of the contract and
on the other hand, had rendered an inconsistent finding that the petitioner
was allegedly responsible for the delay and allowed the claim for
compensation made by the respondent on that ground. The award shows
inconsistency and contractions on the face of the award.
34. The learned counsel submits that the payment of
Rs.3,00,000/- made to the petitioner by the respondent was for extra

work for preparing 18 reports and not for any alleged changes in scope
of work as erroneously held by the learned arbitrator which finding is
contrary to the deposition of Mr. Rawalgaonkar, witness examined by
the petitioner.
35. The learned counsel for the petitioner also invited my
attention to the plea raised by the respondent in the written statement to
the counter claims which was filed by the petitioner before the learned
arbitrator. It is submitted that even in such written statement to the
counter claims, while raising the plea of limitation, it was the case of the
respondent itself that the said claims were barred by law of limitation on
the ground that the original cause of action in respect of each of the
claims were not a continuing cause of action. It is alleged in the written
statement that all the counter claims were claims for money in respect
of the work and claims for recovery of damages on account of alleged
breaches by the respondent herein under the terms of the Agreement
dated 23rd October 1992 in respect of which the cause of action had
arisen on a specific date and on a happening of specific event.
36. My attention is also invited to paragraphs 4 and 13 of the
written statement to the counter claims in which the respondent had
alleged that the counter claim of the petitioner herein was in respect of
application AG-2 which was altogether different application than AG1
and AG-3. It is alleged in the written statement that application AG-2
was for investment and back office accounting whereas AG-1 and AG-3
were different applications for sales and after sales services of the
respondent herein. It is submitted by the learned counsel that the

respondent itself having accepted the application AG-2 as different
altogether than AG-1 and AG-3, the respondent could not have taken
an inconsistent plea before the learned arbitrator that the contract
awarded to the petitioner was an indivisible contract and unless the work
under application AG-2 would have been completed and the work under
other applications would have been also completed, the work could not
have been treated as completed and the system could not have been set
up and implemented. It is submitted that the learned arbitrator
completely ignored this inconsistent and contradictory stand taken by
the respondent placed in the written statement to the counter claims and
argued across the bar before the learned arbitrator.
37. Learned counsel placed reliance on the judgment of the
Supreme Court in the case of Hindustan Zinc Ltd. Vs. Friends Coal
Carbonisation, reported in (2006) 4 Supreme Court Cases 445 and
would submit that since the award is contrary to the terms of the
contract and is patently illegal, it is opposed and in conflict with
public policy of India and thus this Court has an ample power under
Section 34 of the said Act for setting aside the impugned award.
Reliance is placed on paragraphs 13, 14 and 24 of the said judgment
which read thus :-
“13. This Court in Oil & Natural Gas Corporation Ltd. v.
Saw Pipes Ltd. [2003 (5) SCC 705] held that an award contrary
to substantive provisions of law or the provisions of the
Arbitration and Conciliation Act, 1996 or against the terms of
the contract, would be patently illegal, and if it affects the rights
of the parties, open to interference by court under Section 34(2)
of the Act. This Court observed :
"The question, therefore, which requires consideration is
whether the award could be set aside, if the Arbitral

Tribunal has not followed the mandatory procedure
prescribed under Sections 24, 28 or 31(3), which affects
the rights of the parties. Under sub-section (1)(a) of
Section 28 there is a mandate to the Arbitral Tribunal to
decide the dispute in accordance with the substantive law
for the time being in force in India. Admittedly,
substantive law would include the Indian Contract Act,
the Transfer of Property Act and other such laws in force.
Suppose, if the award is passed in violation of the
provisions of the Transfer of Property Act or in violation
of the Indian Contract Act, the question would be
whether such award could be set aside. Similarly, under
sub-section (3), the Arbitral Tribunal is directed to decide
the dispute in accordance with the terms of the contract
and also after taking into account the usage of the trade
applicable to the transaction. If the Arbitral Tribunal
ignores the terms of the contract or usage of the trade
applicable to the transaction, whether the said award
could be interfered. Similarly, if the award is a nonspeaking
one and is in violation of Section 31(3), can
such award be set aside? In our view, reading Section 34
conjointly with other provisions of the Act, it appears that
the legislative intent could not be that if the award is in
contravention of the provisions of the Act, still however, it
couldn't be set aside by the court. If it is held that such
award could not be interfered, it would be contrary to the
basic concept of justice. If the Arbitral Tribunal has not
followed the mandatory procedure prescribed under the
Act, it would mean that it has acted beyond its
jurisdiction and thereby the award would be patently
illegal which could be set aside under Section 34."
"31. …. in our view, the phrase "public policy of India"
used in Section 34 in context is required to be given a
wider meaning. It can be stated that the concept of public
policy connotes some matter which concerns public good
and the public interest. What is for public good or in
public interest or what would be injurious or harmful to
the public good or public interest has varied from time to
time. However, the award which is, on the face of it,
patently in violation of statutory provisions cannot be
said to be in public interest. Such award/judgment/

decision is likely to adversely affect the administration of
justice. Hence, in our view in addition to narrower
meaning given to the term "public policy" in Renusagar
case it is required to be held that the award could be set
aside if it is patently illegal. The result would be award
could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award
is against the public policy. Award could also be set aside
if it is so unfair and unreasonable that it shocks the
conscience of the court. Such award is opposed to public
policy and is required to be adjudged void."
14. The High Court did not have the benefit of the principles
laid down in Saw Pipes (supra), and had proceeded on the
assumption that award cannot be interfered, even if it was
contrary to the terms of the contract. It went to the extent of
holding that contract terms cannot even be looked into for
examining the correctness of the award. This Court in Saw
Pipes (supra), has made it clear that it is open to the court to
consider whether the award is against the specific terms of
contract and if so, interfere with it on the ground that it is
patently illegal and opposed to the public policy of India.
24. The appellant has given calculation fully and correctly
which shows that the escalation was only 11,42,203.90. This
was what was awarded by the trial court and this amount had
been paid with interest of Rs.12,75,442 in all Rs.24,17,646 on
6.2.1999. In spite of our directions on 21.3.2006, the respondent
has not given the actual calculations but has furnished only the
final figure of claim. The respondent's memo makes it clear that
the respondent wants the escalation to be calculated for
supplies from 14.7.1992 with reference to the base price of
washery grade II coal and not with reference to washery grade I
coal. This is impermissible. The order of the Division Bench is

unsustainable as it failed to interfere with the portion of the
award which is opposed to the specific terms of the contract. On
the other hand, trial court had correctly decided the matter.”
38. The learned counsel for the petitioner also placed reliance
on the judgment of the Division Bench of this Court in the case of
Hindustan Petroleum Corporation Ltd., Mumbai Vs. Batliboi
Environmental Engineers Ltd., Mumbai & Anr., reported in 2008 (2)
Mh.L.J. 542 and in particular paragraphs 9,13,14,15 and 18 which read
thus :-
“9. Arbitrator is creation of the contract between the
parties and he gets jurisdiction under the terms of contract. He
is expected to interpret and apply provisions of the contract and
pass an award accordingly. While passing the award he has to
bear in mind the provisions of Section 28 of the Act, which
clearly provides that in case of domestic arbitration in India,
the Arbitral Tribunal shall decide the dispute in accordance
with substantive law for the time in force in India. If the
Arbitrator ignores the substantive law in force in India and
passes an award, it is bound to cause injustice Page 2449 and is
liable to be set aside. For example law requires that the claim
should be within limitation. If the award is passed on a claim,
which is clearly barred by the limitation, that will be against the
provisions of law and the award can not be sustained. In the
present case, it is the contention of the petitioner that the
learned Arbitrator ignored the terms of the contract, relevant
documents as well as the provisions of Section 55 of the
Contract Act and, therefore, the award is liable to be set aside.
It will be necessary to examine the record to find out in the light
of this contention.
13. On perusal of the record, it becomes clear that while
the period of contract was to expire on 26-3-1993, the
contractor sought extension of time by letter dated 3-7-1993.
Paragraph 1 of that letter is material which reads as follows:
“1. You are aware of the difficult period that we had
gone through in the month of December 1992, January
1993 and March 1993 due to riots. This difficult period

was followed by a labour strike in HPCL in the month
of April 1993. A very good working period was lost due
to force majeure conditions.”
From this it is clear that delay was not on account of
any latches on the part of petitioner. The contractor himself
accepted that very good working period was lost due to the
force majeure conditions and this was one of the grounds on
which the time could be extended under the contract and in such
circumstances, no compensation could be claimed by the
contractor merely because of delay. Admittedly, as per this
request, the petitioner extended time. Thereafter by letter dated
25th August, 1994, the contractor sought further extension of
time, explaining the difficulties and circumstances. On this
request, the petitioner extended time by further period of ten
months by letter dated 20th September, 1994. Admittedly, the
contractor stopped the work on 31st March, 1996. However, on
4th July, 1996 the contractor addressed a letter to the petitioner
pointing out the causes of delay and by this letter for the first
time, the contractor made a claim of Rs. 3,41,24,558/-on
different heads including the loss of profits, overheads,
expenditure on machinery, etc. and thereafter on request of the
contractor. The dispute was referred to the Arbitrator. From the
above record, it is clear that the contractor sought extension of
time twice. First time, he clearly contended that due to the force
majeure conditions, work could not be done, while second time
he expressed certain difficulties faced and also sought time. In
none of the letters seeking extension of time, the contractor
indicated that he would claim compensation for delay as
required under Section 55 of the Contract Act. He had accepted
the extension of time and carried out work upto 31st March,
1996 and admittedly, by that time 80% of the work was
completed. It means he had carried on that work and, that too,
much beyond the agreed period of the contract without giving
any notice or indication that he would work beyond the agreed
period of time only if he would be compensated for the delay. As
he has not given such indication, he could not claim any
compensation on account of delays.
14. The learned Single Judge noted that the petitioner had
accepted the findings of the arbitrator that delay was on

account of petitioner. However, the learned Counsel for the
petitioner rightly pointed out that in ground (iv) in the petition,
the petitioner had contended that the arbitrator had failed Page
2452 to note the correspondence, which would clearly establish
that the respondent No. 1, i.e., the contractor was responsible
for the delay and was therefore, liable for liquidated damages.
The learned Counsel also pointed out that in ground (tt) of the
memo appeal the petitioner/appellant have stated that the
learned Single Judge erred in stating that the appellants have
not challenged the findings as to delay. We find substance in this
contention of the petitioner. The petitioner had consistently
taken stand that the delay was caused by the contractor while
the contractor contended that the delay was on account of the
petitioner. At least this was raised by the contractor in the
second letter seeking extension of time for completion of work.
Taking into consideration the correspondence between the
parties, it is difficult to hold that the delay was caused by the
petitioner. At the same time it is also difficult to come to
conclusion that the delay was caused by the contractor alone.
First letter of the contractor clearly shows that delay was on
account of force majeure, which was beyond the control of both
the parties. In view of the terms of the contract, the contractor
could not claim any compensation on account of delay, which
could not be attributed to the petitioner and particularly he
could not claim this compensation when he had carried on the
work beyond the period of contract without indicating that he
would proceed with the work beyond the period of contract only
if he is compensated for delay. It is material to note that the
contractor himself sought extension of time for carrying on the
work, therefore, in our considered opinion, the contractor could
not claim any compensation on account of loss of profits or loss
of overheads due to delays.
15. It is material to note that total cost of the work was Rs.
474 lakhs and 80% of the work was admittedly completed for
which the payment was also made. Thus, when the work was
stopped or abandoned by the contractor, only 20% of the work
was remaining and the cost of the 20% work was only Rs.
114.80 lakhs. If the contractor would have completed the work,
he would be entitled to receive Rs. 114.80 lakhs and according
to his own contention and as per the assessment made by the
arbitrator, he would be getting 10% on account of overheads

and 10% on account of profits. Thus, the gain of the contractor
would be 20% of the said amount, which would be only Rs.
22.96 lakhs. Against this the Arbitrator awarded Rs.
1,57,37,666/- which is much more than 20% of even the total
contract money and, therefore, it can be said that compensation
awarded by the arbitrator was infact arbitrary against the terms
of the contract and perverse and, therefore, it may be held that
he acted beyond his jurisdiction. It can not be termed as a mere
error within jurisdiction.
18. Taking into consideration the terms of the contract,
legal provisions and the award passed by the learned Arbitrator,
it is clear that the award is clearly against the terms of the
contract, provisions of law and infact, it is perverse and can not
stand judicial scrutiny. In our considered opinion, the award is
liable to be set aside. At the same time, we may also note that
the petitioner is also not entitled to any counter claim on
account of any delays on the part of the contractor as the
petitioner had extended time on request of the contractor and
that too without indicating that the petitioner would claim any
compensation as required under Section 55 of the Contract Act.
Though there was provision in terms of the contract for
liquidated damages, in fact as pointed out above, the petitioner
also could not establish that delay was only on account of the
contractor. In view of the above, the appeal deserves to be
allowed and the impugned judgment and the award are liable to
be set aside.”
39. Mr.Sen, learned senior counsel for the respondent on the
other hand submits that the question whether the contract awarded to the
petitioner was indivisible contract or not is a mixed question of fact and
law. The learned arbitrator has rendered a finding of fact after considering
the evidence on record and on interpretation of the terms of the contract
and thus this court cannot interfere with such finding of fact and cannot
substitute a possible interpretation of the terms of the contract by the
learned arbitrator with another interpretation. It is submitted that the
application AG-1, AG-2, AG-3 and AG-5 forming part of the contract

awarded to the petitioner were interlinked and all four links were must for
system to work. In support of this submission, learned senior counsel
submitted a chart and submits that there was organic connection between
all the four applications and unless the work under all the four
applications were complete, the system would not work. It is submitted
that since application AG-2 was abandoned by the respondent for the
reasons attributable to the petitioner, the entire system could not work
without completion of the application AG-2. It is submitted that merely
because respondent ultimately took the application AG-2 from outside or
completed the same departmentally, it would not make any difference on
the issue whether the contract awarded to the petitioner was indivisible
contract or not.
40. Learned senior counsel placed reliance on the judgment of
Supreme Court in case of G.Ramachandra Reddy and Company vs.
Union of India and another (2009) 6 SCC 414 and in particular
paragraph 19 and submits that the award containing reasons cannot be
interfered with unless the reasons are found to be perverse or based on a
wrong proposition of law and if two views are possible, it is trite, the
Court will refrain itself from interfering. Paragraph 19 of the said
judgment in case of G.Ramachandra Reddy and Company (supra) reads
thus :-
“19. We may, at the outset, notice the legal principles governing
the dispute between the parties. Interpretation of a
contract may fall within the realm of the arbitrator. The
Court while dealing with an award would not reappreciate
the evidence. An award containing reasons also may not be
interfered with unless they are found to be perverse or based
on a wrong proposition of law. If two views are possible, it

is trite, the Court will refrain itself from interfering. (See
State of U.P. v. Allied Constructions.)”
41. It is submitted by the learned senior counsel that the work of
applications AG-1 and AG-3 was completed by the petitioner. The work
under AG-4 and AG-5 was abandoned by the respondent. There was no
dispute about such abandonment of AG-4 and AG-5. The work under
AG-2 was also subsequently abandoned which is subject matter of this
dispute.
42. Learned senior counsel submits that since the contract
awarded to the petitioner was indivisible contract, merely because the
work under AG-2 was abandoned in 1997, it was not mandatory for the
respondent to make the claim of refund of the amount within three years
from the date of such abandonment but since the work under other
applications was going on, the respondent could wait for filing arbitration
proceedings till the other work was over and the system was
commissioned. It is submitted that the learned arbitrator has thus rightly
held that merely because payment in respect of application AG-2 was
made by the respondent to the petitioner and the said work was
incomplete and/or having found defective, since other work were
pending, the respondent was not bound to invoke arbitration clause when
the dispute arose only in respect of part of the work. It is submitted that
the finding of the learned arbitrator that the work was completed in the
middle of 2000 and thus application for appointment of arbitrator having
been made on 16th January, 2012 is within time is a finding of fact and no
interference is warranted. In support of this submission, learned counsel
strongly placed reliance on the following judgments :-
1. Judgment of Lahore High Court in case of Goenka Cotton

Spinning and Weaving Mills Ltd. vs. Messrs. Duncan Stratton and Co.,
AIR 1938 Lahore 277;
2. Judgment of Lahore High Court in case of Basheshar Lal-Bansi
Dhar vs.Bhik Raj and others, Indian Law Reports 1930 XII 254;
3. Judgment of Lahore High Court in case of Chhote Lal Ambay
Prasad vs. Nathu Mal Miri Mal, AIR 1930 Lahore 193(2); and
4. Judgment of Lahore High Court in case of Ganesh Das-Ishar Das
vs. Ram Nath and others, 1927 Indian Law Reports IX 148.
43. It is submitted by the learned senior counsel that though the
respondent had raised a plea of limitation in respect of counter-claim
of the petitioner on the ground that the application AG-2 was different
than the other applications and the counter claims made by the petitioner
herein were barred by law of limitation as the cause of action in respect
of the said claims for work done and for damages occurred on a
particular date, no reliance on such plea raised in the written statement
to the counter claims can be made by the petitioner since the said plea
was not pursued before the learned arbitrator by the respondent. It is
submitted that the learned arbitrator has not rejected the counter claims
on the ground of limitation and thus no cognizance of such plea though
raised in the written statement to the counter claims can be taken by this
Court or can be relied upon by the petitioner in this petition.
44. In so far as the submission of the learned counsel that there
was no provision for claiming any refund under the contract awarded to
the petitioner is concerned, it is submitted by the learned senior counsel
that the respondent had not terminated the contract and had made the

claim for refund of the amount paid to the petitioner for application
AG-2, since the work done by the petitioner for such application was of
no use to the respondent and being not in accordance with the
specifications provided under the terms of the contract. It is submitted
that the said claim was permissible under Section 55 read with Section
73 of the Indian Contract Act, 1872. It is submitted that Clause 13.4 of
the contract would not apply and thus claim for compensation made by
the respondent herein was not contrary to Clause 13.4 of the contract. It
is submitted that since the application AG-2 was tested and was found
unworkable and not as per the specifications and the petitioner had
committed breach of its obligation under the contract, the respondent
was entitled to recover the amount paid by the respondent to the
petitioner for such incomplete and defective work. It is submitted that in
any event, in view of the learned arbitrator having rendered a possible
view, no interference under Section 34 of the said Act is permissible.
45. In so far as the oral evidence relied upon by the learned
counsel for the petitioner to show that even according to the respondent,
there was a termination of the contract is concerned, it is submitted by
the learned senior counsel that the findings of the learned arbitrator on
this issue are express and clear that there was no termination of AG-2
which finding is rendered after considering the oral evidence led by the
parties and thus no interference with such findings of facts is permissible
under Section 34 of the said Act.
46. There is no ground raised by the petitioner under Section
34 in this petition or raised any issue before the learned arbitrator about
the plea raised by the respondent in the written statement to the counter

claims or that such plea was inconsistent with the submission made by
the respondent before the learned arbitrator.
47. In so far as the period for which interest awarded to the
respondent is concerned, it is submitted by the learned senior counsel
that though the respondent had claimed interest with effect from 1997,
the learned arbitrator has awarded interest from 31st July 2007 and
thus that part of the award would not indicate that the claims made by
the respondent with effect from 1997 were barred by law of limitation.
48. In so far as the limitation under Article 55 of the Schedule
to the Limitation Act, 1963 is concerned, learned senior counsel submits
that the old Article i.e. Article 115 which was in pari materia with
Article 55 of the Limitation Act, 1963 has already been considered by the
Lahore High Court in the judgments referred to and relied upon by the
respondent and followed by the learned arbitrator. It is submitted that
the judgments of the Lahore High Court are applicable to the facts of this
case and shall be considered by this Court.
49. In the rejoinder, Ms.Ghone, learned counsel for the
petitioner submits that in the counter claims of the petitioner, though the
petitioner had alleged that there was a termination of the contract
specifically, the respondent has not denied the plea of termination in the
written statement to the counter claims. It is submitted that though the
learned arbitrator has awarded interest with effect from 31st July 2007,
the fact remains that in the notice dated 13th February 2002 issued by the
respondent invoking arbitration agreement, the respondent had demanded

interest with effect from 14th January 1997 which itself would indicate
that the cause of action had arisen on 14th January 1997.
50. It is submitted by the learned counsel that since the so called
interpretation of the learned arbitrator on the terms of the contract is an
impossible interpretation and the findings rendered by the learned
arbitrator are perverse, this Court has an ample power under Section 34
of the said Act to interfere with such award to set aside the same on the
ground of the award being in conflict with the public policy.
51. The arbitral tribunal framed eight points for consideration,
including the issue whether claims made by the respondent (original
claimant) and counter claims made by the petitioner (original respondent)
were barred by law of limitation and have answered the same in the
impugned award in accordance with law. While holding that the claims
made by the respondent herein were barred by law of limitation, the
arbitral tribunal rendered a finding that the contract entered into between
the parties was indivisible contract. I shall first decide whether the
finding rendered by the arbitral tribunal that the contract awarded to the
petitioner was indivisible is contrary to the terms of the contract or not. I
shall first refer to some of the relevant provisions of the contract entered
into between the parties which are relied upon by parties.
52. The petitioner was awarded the job of “Technology Upgrade
Project of UTI” of the respondent comprising of project management
software development, networking, training and implementation support
on the terms and conditions recorded in the said agreement. Under clause

1.5 of the contract, “Application Group” has been defined. According to
the said definition, the application group shall mean each individual
system as described under Annexure - II to be developed by the petitioner
relating to four groups. Insofar as the dispute which is the subject
matter of these proceedings are concerned, it relates to application group
2 (AG-2). Under the heading “Application Group 2” it is provided as
under :-
“Dept of Market Operations, Dept of Investments, Dept of
Accounts and Resource Management.”
Under clause 1.9, it is provided that implementation milestones
shall mean the schedule of dates of completion of preconceived activities,
relating to the project, and as described in Annexure – V. Annexure – V
provides for a format for individual activities under each application
group in Phase-I. Various activities of each application group required to
be completed in each phase is also provided under the contract. Insofar as
AG-2 is concerned, in phase-I, it is provided that the said application
would be ported on systems at corporate office only in phase-I.
53. Clause 2.2.5 of the contract provides for acceptance test
procedure for application groups. Under clause 2.2.6, it is provided that
upon completion of development including testing of each application
group, the petitioner shall intimate the respondent in writing that the said
application group is ready for acceptance testing. The respondent shall
carry out the acceptance test with the help of the petitioner to demonstrate
and confirm that the application group has been completed and was
capable of performing in substantial conformity with the approved SRS.

On successful completion of the above testing of the application group,
the said application group will be construed to be delivered to the
respondent. It is provided that subsequent to the acceptance of the
application group, the petitioner shall install the respective application
group on the equipment of the respondent. Upon such installation , the
respondent shall test each application group in a manner specified in this
SAP within three calender weeks. On completion of the testing and
substantial conformity of the test results with the SRS, the application
group will be construed as accepted and UTI shall issue a certificate of
acceptance.
54. Clause 2.2.7 provides for defect liability period for
application groups. Clause 3 provides for charges payable by the
respondent to the petitioner for services provided under phase-I of the
project as per the schedule described in clause 6 of the said agreement.
The amount agreed to be paid by the respondent to the petitioner for the
services provided under phase-I was at Rs.325 lakhs.
55. Under clause 6 of the contract, the respondent has provided
the break up of the payment schedule for separate activities under phaseI.
It is provided that the charges for phases – II, III and IV would be
submitted later and will form part of the said agreement. All advances
shall be adjusted on a pro-rata basis at each milestones mentioned above.
56. Clause 11 of the contract provides for time schedule in respect of
various activities covered under the said agreement. Clause 13 of the
contract provides for termination, which is extracted as under :-

“TERMINATION
13.1 Either party shall have the right to terminate this
agreement upon 30 days written notice to the other upon :
i. violation or breach by the other or its employees
or agents, of any provision of this agreement.
ii. in the event no agreement is reached between
CMC and UTI as to the SRS', or any problems in or
relating to SRS' are not resolved to their mutual
satisfaction within 30 days of such problems being
identified.
iii. any disputes, that cannot be resolved, arising
which prevents the other from fulfilling its
obligations.
13.2 On mutual agreement or convenience.
13.3 In the above circumstances, this agreement shall
be terminated as provided in such with no additional
obligations or liabilities.
13.4 In the event of termination UTI shall be liable to
pay to CMC the charges for the work completed by
CMC,as per the rates mentioned in Clause 3.0. CMC
shall return all the documents / materials received from
UTI for development of Application Groups.”
Clause 16.1 provided that the application groups development will
be owned jointly by the petitioner and the respondent with the petitioner
having marketing rights to it. Clause 20 of the contract provides for
arbitration.
57. Annexure – II provides for scope of the application groups
development which states that the scope of the application software has
been categorized into six groups which were to be referred as application
groups 1 to 6. Insofar as the application group 2 is concerned, the scope
of that application is provided in clause 3 , at pages 75 to 77 of the

contract. Clause 3 which is relevant for the purpose of deciding this
arbitration petition is extracted as under :-
“APPLICATION GROUP 2 :
3. This group addresses the functions of Funds
Management, namely, Dept. of Market Operations, Dept.
of Investments, and Dept. of Accounts and Resource
Management. The applications will be ported on systems
at corporate office only in the Phase I.”
58. Similarly the scope of the work of other application groups
required to be carried out in the first place is provided therein. It is not in
dispute that the respondents themselves had abandoned the development
job application groups 4 and 5 also forming part of the said project
awarded to the petitioner much earlier. It is also not in dispute that the
petitioner had completed the development to AG-1 and AG-3 which was
also forming part of the scope of the work under the contract awarded to
the petitioner.
59. It is not in dispute that there were number of letters
exchanged between the parties in respect of AG-2. It was the case of the
respondents that the petitioner had not carried out AG-2 work in
accordance with the milestones provided under the contract and the
petitioner was granted extension for completing the said application
group. Various minutes of the meetings were drawn by the parties which
were recording the discussions only in respect of the work carried out
under AG-2. The respondents had carried out the test and allegedly found
that the AG-2 developed by the petitioners was not in accordance with
the specifications of the contract and accordingly took a decision to

abandon the said AG-2. The respondents relied upon such minutes of the
meetings before the arbitral tribunal to indicate that the test was carried
out prior to 14th January, 1997 and alleged that based on such test, it was
found that AG-2 provided for the petitioner was not in accordance with
the specifications and other provisions of the contract.
60. It is also not in dispute that in accordance with the
provisions of the contract, the petitioner had raised the separate invoices
in respect of the work carried out under AG-2 and which were released
separately by the respondents. It is also not in dispute that though AG-2
was treated as abandoned by the respondents by a letter dated 14th
January, 1997, the work under AG-1 and AG-3 continued by the
petitioner and various payments in respect thereof were made by the
respondents to the petitioner. It is also not in dispute that though the
respondents themselves had abandoned the work under AG-4 and AG-5,
the project of the respondents continued and such abandonment of AG-4
and AG-5 did not affect the entire work. Even when AG-2 was
abandoned by the respondent on 14th January, 1997, the work of AG-1
and AG-3 continued till the middle of 2000.
61. I will deal with some of the pleadings and evidence to
consider whether it was the stand of the respondents at any point of time
that the entire work awarded to the petitioner was under an indivisible
contract or whether the scope of AG-2 which is the subject matter of
these proceedings was an independent scope of the work and had nothing
to do with and/or other part of the work and completion of the other
application group could be dependent only on successful completion of
AG-2 or not.

62. In the statement of claim filed by the respondents before the
learned arbitrator, it is averred by the respondents that the claim was filed
for recovery of moneys paid by the respondents to the petitioner and for
further damages on account of losses suffered by the respondents as a
result of repudiatory and fundamental breach of the terms and conditions
of the said agreement. It has been alleged that the application of AG-2
and AG-3 delivered by the petitioner to the respondents were not as per
the specifications required by the respondents and had serious technical
software and drastic defects. It was averred that the agreement was
divided into various phases and each phase provided for completion of
certain predetermined work as contemplated by the agreement.
63. In paragraph 26 of the statement of claim, it was averred that
although as per the initial agreed time schedule, AG-2 development that
was part of phase-I had to be installed at the corporate office by October,
1993, until the middle of 1996, AG-2 applications were not developed
and as a result of the time overrun, the respondents convened various
internal meeting to ascertain the status of the AG-2 applications, which
meetings in fact recognized that one of the reasons for the delay was the
respondents inexperience with finance and frequent change of hands.
64. It is also averred that the claims of the petitioner that the
money market operations module of AG-2 had been in operation since
February, 1995 were falsified by the tests/reviews carried out by the
Systems Department of the respondents which results were documented

in the minutes of meeting dated 18th October, 1996 which clearly
indicated that even in relation to the single module of money market
operations only 49 out of 109 functions / sub-modules were working as
per the requirements, and a substantial part of the functions / submodules
were not working at all. It was urged that on 24th October, 1996,
the system department of the respondents carried out a review of the
development of the primary market operations of module of AG-2 and
the reports also indicate that only 8 out of 58 of the functions / submodules
were developed in compliance with the requirements of the
respondents.
65. It was urged that on 13th November, 1996, a detailed status
report was prepared by the respondent pursuant to an exhaustive test of
the money market operations applications / modules of AG-2 and it was
found that the said applications were woefully flawed, erroneous and
incomplete in their development. It was found that out of 17
functionalities which were earlier found to be non usable, 8 of them
continued to remain unacceptable. It was alleged that the respondent had
never been able to use the AG-2 successfully and the respondents have
not used AG-2 for development or usage of any other software
application of whatsoever nature.
66. In paragraph 37 of the statement of claim, it was alleged that
after presentation / discussions took place, the petitioner had addressed a
letter to the respondents stating that it was not possible to commence the
parallel run / user test of AG-2 in its entirety by 1st April, 1997. It was

averred that in view of the same and in conjunction with the results of
the earlier tests, the results of which establish inadequacy and nonusability
of AG-2 applications, the respondents at the end of December,
took an internal decision not to go ahead with the said AG-2 development
with the petitioner. It was also averred that the other applications
covered by the said agreement were continued to be developed by the
petitioner and thus decision not to proceed with the development of AG-2
did not amount to a termination of the agreement as the other aspects of
work covered under (AG-1 and AG-3) were to be continued with by the
petitioner.
67. On 14th January, 1997, the respondents had addressed an
important letter to the petitioner setting out the defaults committed by the
petitioner in the development of AG-2 and conveyed that the respondent
was forced for the situation of abandoning the project due to the nondelivery
of the working software. It was averred that the project
abandoned by the said letter was not the entire IT upgrade project,
covered by the said agreement, but only AG-2 module, which was a
discrete part of the larger agreement. The other aspects of software
development under the larger agreement continued despite the failure of
the petitioner to complete and deliver AG-2 module. The respondents by
a letter dated 29th August, 1997 called upon the petitioner to refund the
fees paid to it for development of AG-2 as the same was abandoned. It is
not in dispute that the petitioner denied the said claim and demanded the
payment for the work done by the petitioner under the said AG-2 and also
claimed compensation for the year 1997 itself.

68. In the affidavit in lieu of examination in chief of
Mr.Sanjeevan Shirke, examined by the respondent, the witness deposed
that as per the time schedule stated in Annexure – V, AG-2 development
that was part of phase – I, had to be installed in the corporate office by
October, 1993, which was grossly violated by the petitioner and there
was enormous delay in actual implementation of AG-2. It is also deposed
that the software developed by the petitioner as AG-2 was defective and
failed on many counts as was ascertained in the per-installation, checks
run by the respondents. The forms / programs, which were tested by the
respondents were unable to provide desired out-put, there was serious
discrepancy in the test out-put data.
69. It was deposed by the said witness that the total
consideration to be paid by the respondents to the petitioner for the work
done under phase-I was Rs.3.25 crores. Of the amount that was paid
towards phase-I, the amount of Rs.83.455 lakhs was paid towards the
development of modules forming part of AG-2, of which a refund was
being sought by the respondent due to complete non-conforming nature
of the said products in breach of specification requirements under the
agreement and understanding between the parties. In paragraph 13 of the
said affidavit, it was deposed that since the petitioner did not adhere to
the time schedule agreed as per the said agreement for the development
of AG-2 that was part of phase-I, which had to be installed in the
corporate office of the respondents by October, 1993 and since the same
was not developed until middle of 1996, the said inordinate delay in
implementation of the project resulted in tremendous financial loss to the
respondents and the entire purpose of the project was almost defeated.

70. In paragraph 25 of the said affidavit, the witness deposed
that in conjunction with the results of the earlier tests, which established
the inadequacy and non-usability of AG-2 applications, it was decided by
the respondents not to go ahead with the said AG-2 development with
the petitioner which decision was restricted to AG-2 alone and the said
agreements were continued to be developed / supported by the petitioner
and the decision not to proceed with the development of AG-2 did not
amount to termination of the whole agreement as the other aspects of the
work covered by the agreement (AG-1 and AG-3) were to be continued
by the petitioner. In paragraph 27 of the affidavit, it was deposed that the
project that was abandoned by the letter dated 14th January, 1997, was not
the entire IT upgrade project, covered by the said agreement, but only the
AG-2 module, which was a discrete part of the larger agreement. The
other aspects of the software development / supported under the larger
agreement (in particular AG-1 and AG-3) were continued despite failure
of the petitioner to complete and deliver the AG-2 module which
development and implementation of AG-1 and AG-3 was completed in
the middle of the year 2000.
71. In paragraph 30 of the said affidavit, the witness deposed
that by a letter dated 16th October, 1997, the petitioner had falsely and
wrongly asserted that they had developed AG-2 as per the specifications
of the respondents and called upon the respondents to pay the alleged
unpaid bills so as to compensate the petitioner for their development of
AG-2. In paragraph 36 of the affidavit, it has been deposed that the
respondents had suffered substantial and direct losses as a result of

various breaches committed by the petitioner.
72. The petitioner had also filed a counter claim before the
arbitral tribunal inter-alia praying for various amounts, including for the
work done under AG-2 and not paid by the respondents and also for loss
of profit, loss of reputation etc. In paragraph 21 of the counter claim, the
petitioner had averred that the cause of action had arisen on 14th January,
1997 which continued when the petitioner in good faith tried to settle the
dispute between the parties amicably between 1999 and 2000. It was
averred that the cause of action being continuous one and continued day
to day till the petitioner received all the amounts due and payable by the
respondents to the petitioner, the claims made by the petitioner were
within time.
73. The respondents filed a written statement to the counter
claim before the arbitral tribunal. In paragraph 4 of the written statement
to the counter claim, the respondents denied the averments and
submissions made by the petitioner in paragraph 21 of the counter claim
on the issue of limitation, including the averment that the original cause
of action in respect of each of the claims was continuing cause of action.
In the said paragraph, the respondents averred that all the counter claims
made by the petitioner were claims for money in respect of the work and
the claims for recovery of damages on account of the alleged breaches by
the respondents under the terms of the agreement. It is contended by the
respondents that in respect of each of those claims, as was apparent from
the averments made in the counter claim itself, the cause of action had

arisen on a specific date and on happening of specific event and
accordingly the period of limitation must be determined. In paragraph 13
of the said written statement, the respondents contended that the claim of
the respondents was in respect of AG-2 which was altogether different
application than AG-1 and AG-3. AG-2 application was for investment
and back office accounting, whereas AG-1 and AG-3 were different
applications for sales and after sales services of the respondent.
74. In paragraph 28 of the written statement, the respondents
contended that the letter dated 15th April, 1996, which was addressed by
the respondents to the petitioner was addressed at a time before which the
respondent was aware of the serious defects and breaches committed by
the petitioner in respect of its obligations in implementing the software
programme developed by it in the business system of the respondents.
75. In the counter claim, the petitioner had also alleged that the
said AG-2 was terminated by the respondents. However, the said
averment of the petitioner has not been denied by the respondents in the
said written statement.
76. A perusal of the provisions of the contract entered into
between the parties thus clearly indicates that the scope of the work
awarded to the petitioner by the respondents was in parts and covered by
separate application groups and were to be completed phase-wise in
accordance with the separate milestones stipulated under the contract.
The contract provided for separate payment in respect of each application

group in accordance with the milestones provided. It is common ground
that the petitioner issued separate bills in respect of each application
group carried out by the petitioner and were paid separately by the
respondents. It is also common ground that the respondents had already
abandoned the work under AG-4 and AG-5 much earlier which was also
part of the contract awarded to the petitioner. It is not in dispute that there
was a separate correspondence and minutes of the meeting recorded by
the respondents alleging various delays on the part of the petitioner in
completion of AG-2 in accordance with the milestones provided under
the contract and also alleging the defective work of the petitioner of the
said AG-2 and not being in accordance with the specification provided
under the contract.
77. The respondents had carried the tests from time to time in
accordance with the said provisions of the contract and had come to the
conclusion that the said AG-2 carried out by the petitioner was not in
accordance with the specification of the contract and was not completed
within the milestones agreed and was of no use to the respondents. All
such tests and discussions had already taken place much prior to 14th
January, 1997 when the respondents took a final decision to address a
letter to the petitioner purporting to abandon the work under AG-2. It is
not in dispute that after addressing a letter on 14th January, 1997, the
respondents did not carry out other tests in respect of the work carried out
by the petitioner under AG-2 after completion of other application group
i.e. AG-1 and AG-3. It is also not in dispute that though the work under
AG-2 was purported to have been abandoned by the respondents, the
respondents themselves permitted the petitioner to continue the work

under AG-1 and AG-3 considering the same as an independent and
separate work not interconnected with the work under AG-2 and/or not
dependent on the successful completion of AG-2.
78. The respondents themselves had raised a demand for
recovery of the amount paid to the petitioner for AG-2 immediately after
the letter dated 14th January, 1997 and did not wait for raising such
demand till completion of work under other two application groups i.e.
AG-1 and AG-3 in the middle of 2000.
79. The statement of claim, affidavit in lieu of examination filed
by the witness examined by the respondents and also the written
statement filed by the respondents to the counter claim made by the
petitioner clearly indicates that it was the stand of the respondents all
though out that the work under AG-2 was a part of the entire contract and
even though the same was abandoned, the other work under AG-1 and
AG-3 could be continued independently. The respondents itself while
opposing the impugned claims made by the petitioner had taken a stand
that the work under AG-2 was altogether different than AG-1 and AG-3.
It was the case of the respondents themselves that AG-2 application was
for investment and back office accounting, whereas AG-1 and AG-3 were
different applications for sales and after sales services of the respondent.
It was the case of the respondents itself that the work under AG-2 was to
be installed at different places and was to be completed only in phase-I.
Inspite of all these clear stand of the respondents in the pleadings as well
as the evidence led by the respondents, the arbitral tribunal has not only
permitted the respondents to take a different and contradictory stand than
what was pleaded and deposed in the evidence to the effect that the entire

contract awarded to the petitioner, including AG-2 was indivisible
contract and successful completion of the entire project was dependent
upon the successful completion of AG-2 but has accepted such
inconsistent and contradictory stand of the respondents.
80. A perusal of the impugned award indicates that the learned
arbitral tribunal has rendered a finding contrary to the pleadings and
evidence of the respondents themselves and has held that the said
contract was indivisible contract and unless all the application groups
dealing with the different types of execution of the project had been
placed at one place altogether before the system could operate, the
respondents could not have ascertained whether there was any damages
suffered by the respondents or not. In my view the learned arbitral
tribunal has not decided in accordance with what is submitted by the
parties before the learned arbitral tribunal and has taken a decision
contrary to and overlooking the stand of the respondents. The impugned
award thus being contrary to the terms of the contract and overlooking
the evidence led by the parties and is in conflict with the public policy.
81. The question that now arises for consideration is whether the
view of the arbitral tribunal holding that the contract was indivisible
contract and consequently the claims made by the respondents were
within time holding that the cause of action would have arisen only when
the other application groups i.e. AG-1 and AG-3 were completed in the
middle of the year 2000 is patently illegal or not. In my view, since the
finding of the arbitral tribunal that the contract was indivisible contract
itself being patently illegal and contrary to the terms of the contract,

consequently the finding of the learned arbitral tribunal that the cause of
action would arise only on completion of AG-1 and AG-3 in the middle
of the year 2000 is also patently illegal and contrary to law.
82. On the issue of limitation, the arbitral tribunal has held that
the cause of action began to run at the end of the completion of the
contract i.e. middle of June, 2000 and thus the notice invoking the
arbitration issued in the year 2002 was within time and not barred by law
of limitation. The arbitral tribunal has overlooked the correspondence
exchanged between the parties, including the letter of demand of the
respondents asking the petitioner to refund the amounts paid by the
respondents to the petitioner under AG-2, which was by a letter dated 29th
August, 1997 and denied by the petitioner immediately. The arbitral
tribunal did not render any finding as to how the cause of action which
had already commenced in the year 1997 was postponed till 2002. The
arbitral tribunal also overlooked the stand of the respondents themselves
opposing the counter claim made by the petitioner on the ground that the
cause of action was not continuing cause of action. The averments made
by the petitioner in paragraph 21 of the counter claim in respect of
limitation was denied by the respondents in toto. The arbitral tribunal, in
my view, could not have overlooked and ignored the contentions /
submissions made by the respondents themselves on the plea of
limitation. The award shows patent illegality on the face of the award on
the issue of limitation and the issue whether the contract was indivisible
or not is concerned.
83. Though the arbitral tribunal had framed a point for
determination that 'whether the counter claims made by the petitioner

were within time or not', in the entire award, the arbitral tribunal has not
dealt with the issue of limitation in respect of the counter claims made by
the petitioner.
84. The arbitral tribunal while rejecting the plea of limitation
raised by the petitioner in respect of the claims made by the respondents
referred to and relied upon by the Lahore High Court in the impugned
award.
85. The relevant parts of the judgment of the Lahore High
Court, which are relied upon by the respondents and followed by the
learned arbitral tribunal are extracted as under, for the purpose of
considering whether those documents are at all relevant to the facts of
this case or not :
1) Goenka Cotton Spinning & Weaving Mills Ltd vs. M/s.Duncan
Stratton & Co. AIR 1938, Lahore 277 -
“The first point argued was limitation. Admittedly the Article
applicable is 115 of the Limitation Act and the period three
years from the date of the breach. The Senior Subordinate
Judge held that the plaintiffs' order was an order for separate
pieces of machinery and time would run with regard to each
machine as and when it was delivered. Nearly all the
machinery was delivered in Bombay more than three years
before the institution of the suit, and if it were held that time
ran from delivery at Delhi, there was no evidence on that
point. The suit regarding the engine and the mangle was also
barred by time; only the claim for accounts was within time.
Mr. Mehr Chand Mahajan for the appellants argued that the
suit was within time because the order for the machinery was
single and indivisible and because there was also unity of
object. The dealings began by the plaintiffs, on 2nd December

1919, (V. 3) informing the defendants that they wished to erect
a weaving shed for three hundred looms and asking them to
send a complete specification for the same. The replies are the
specifications of 12th and 13th January 1920, printed at pp. 4
to 15 of Vol. V. and covered by a single letter of 13th January
1920 (V. 15, 16). The first estimate is for an engine, Lancashire
boiler, fire service pumps, humidifier pump and articles for the
mechanic's shop. The second estimate was for saturating
machine, kiers, chemicking machine, water mangle and starch
mangle. The third estimate was for a calendar and the baling
press. The covering letter gave the total price of these as
£18,026-16-6 and laid down that the plaintiffs should "pay
one-third in advance with the order, and will hand us within
the next ten days a sterling demand draft for £6000." The
clause about payment seems to me to show conclusively that
the order was regarded as a single whole and that time would
run only from the date of the last delivery. Admittedly, part of
the engine was delivered within three years of the suit and the
suit is therefore within time.”
2) Basheshar Lal-Bansi Dhar vs. Bhik Raj & Ors, Indian Law
Reports, Vol. XII, 254 :
“The question whether a contract is an entire or divisible one
is often a difficult one to decide. Each case has to be decided
on a consideration of all the circumstances and hence the
rulings cited are not of much assistance in deciding the point.
In the present instance, after considering the terms of the
contract and the conduct of the parties in dealing with it, I am
of opinion that the contract was an entire one. No definite
instalments were fixed by the contract, or was any period
specified for the delivery of any instalment. In fact, the
contract does not even say distinctly that the goods of each
shipment were to be delivered separately and in point of fact,
goods of more than one shipment were at times delivered
together. The quantities of the different shipments were also
not equal and appear to have been arbitrarily fixed by the
sellers. All these facts seem to indicate that the intention of the
parties was to contract for the delivery of the entire lot of 90
cases. The oral evidence of the parties is to the same effect. It

is true that goods of certain specified "shipments" were to be
delivered, but this appears to have been stipulated merely for
the sake of convenience in the matter of delivery and payment.
I therefore hold that the contract in the present instance was
an entire one.
On the above finding, the cause of action for the breach of the
contract could not arise till the expiry of the period for the
delivery of the goods of the last shipment. In this aspect of the
case, the claim with respect to the nondelivery of the seven
bales of the December-January shipments was not time barred
and this fact was conceded by the learned Counsel for the
respondents.”
3) Chhote Lal vs. Nathu Miri Lal, AIR 1930 Lahore, 193(2).
“The first point which arises for consideration is as to the
nature of the contract, and there is no doubt that the view
taken by both the lower Courts as to the goods being
deliverable in three instalments is wrong. The term
"December shipment, three lots, two months' grace" does not
imply that the contract goods are to be delivered in three
instalments, but merely that they are to be shipped in three
lots commencing with December, i.e., the first lot in
December the second in January and the third in February
allowing two months' grace. According to the terms of the
contract each lot had to be shipped respectively by the end of
February, March and April.
According to the learned District Judge the transit
period was 3 1/2 months and the last lot of goods should have
reached Delhi by the middle of August but, in my opinion this
period is insufficient for the goods to have reached Delhi. In
the cases cited below a transit period of four months from
England to Karachi was allowed and ten to fourteen days
from Karachi to Delhi. This would give a total period of
about 4 1/2 months. The due date of the third lot would
therefore be between the middle of August and middle of
September.
The view that the contract was an indivisible one and
the due date was the arrival of the last lot at Delhi is

supported by the decision of a Division Bench of this Court
Ganesh Das Ishar Das v. Ram Nath which was a precisely
similar case to the one under appeal. The decision in Ganesh
Das Ishar Das v. Ram Nath followed three other cases of this
Court:
Phul Chand Fateh Chand v. Chhote Lal Ambay
Parshad, Chhota Lal Ambay Parshad v. Basdev Mal Hira Lal
and Amba Parshad Gopi Nath v. Jawala Dat Ram Kanwar in
each of which it was held that a contract of the same nature
as the one in the present suit was an indivisible one and the
due date was the arrival of the last shipment. It follows,
therefore, that, as the arrival of the last shipment or third lot
in the present case did not take place till within three years of
filing the suit, the claim is within time in respect of all he ten
bales. In these circumstances it is unnecessary to discuss
Cooverjee Bhoja v. Rajendra Nath Mukerji and Jagmohandas
Vurjiwan Das v. Nusserwanji Jahangir relied on by Mr.
Kishan Dayal, the learned Counsel for the defendants
respondents. Both these decisions were discussed and
distinguished in Ganesh Das Ishar Das v. Ram Nath.”
4) Ganesh Das-Ishar Das vs. Ram Nath & Ors, Indian Law
Reports, Vol. IX, 148.
“The case was argued at considerable length by the learned
Counsel for the parties. A number of pleas were taken in the
memorandum of appeal, but it is not necessary to discuss
them at any length. On behalf of the appellants it was urged
that barring two bales only, the rest of the claim was time
barred. The argument is based upon the various due dates as
worked out by Mr. Sardha Ram, the learned Counsel for the
defendants-appellants, in the light of a certain memorandum
described as statement A which is printed at p. 8 of the
supplementary paper book. He says that the December
shipment reached Karachi on the 8th April 1917, and that
allowing four days for the journey between Karachi and
Delhi the date of arrival in Delhi was the 12th April 1917. In
the same way, about the January shipment the date of arrival
at Delhi according to him would be the 21st May 1917, and

as to the February shipment the date of arrival in Delhi
would be the 1st May 1917. It is only as regards the March
shipment consisting of two bales only which reached Delhi
on the 12th September 1917, that, according to Mr. Sardha
Ram, the claim was within time, since the present suit was
brought on the 19th July 1920. It may be mentioned that the
statement A deals with Mulls Nos. 35255 only, because
Messrs. Ralli Brothers, whose agent prepared the said
statement A, are the sole importers of Mulls No. 35255 and
not of Mulls No. 36556. Mr. Sardha Ram's argument on this
part of the case is that every date of the arrival of a
particular instalment of goods at Delhi constituted the due
date and default on the part of the defendants on such due
date gave a separate cause of action to the plaintiffs and as
the plaintiffs brought the present suit more than 'three years
after the dates, worked out as above, the suit was time barred
in respect of all the instalments with the exception of the two
bales of the March shipment. The point in controversy is not
free from difficulty, because the appellants' contention finds
some support from the reasoning contained in two cases at
least. Jagmohandas Vurjiwan Das v. Nusserwanji Jehangir
was quoted on behalf of the appellants. In this case the
defendants sold to the plaintiffs 1,000 tons of coal, shipment
January to May, at the rate of 200 tons monthly. There was a
breach, and the buyers sued the sellers for damages. It was
held that the contract was for delivery in monthly shipments
and as the coal took about four weeks to arrive at Bombay
after shipment, the dates for delivery under the contract
would be February to June, and damages should be assessed
in respect of each default and on the basis of the stipulated
instalments. Cooverjee Bhoja v. Rajendra Nath Mukerjee was
also cited on behalf of the appellants. Here the contract was
to deliver 5,000 tons of manganese ore, 500 tons before the
31st October 1906, 1,000 tons before the 30th November
1906, 1,500 tons before the 31st December 1906, and the
remaining 2,000 tons to be completed and delivered before
the 15th February 1907. It was held that the contract was in
fact a set of distinct contracts and on each period, when no
delivery was made, there was a cause of action for damages
for each breach.
 It may be mentioned that in none of these two cases

there was any question of limitation involved and the Courts
treated each default as a distinct breach of contract for the
purpose of assessing damages.
 On behalf of the respondents at least three cases of
the Lahore High Court have been quoted which seem to
support their contention.
 In Phul Chand Fateh Chand v. Chhote Lal Amba
Parshad a suit for damages was brought by the buyer for the
breach of contract by non-delivery of goods against the
defendant, seller. The defendant pleaded that qua certain
bales the suit was time barred. It was held that the contract
was an indivisible one and as the arrival of the last shipment
under the contract did not take place till within three years of
filing the suit, the claim was within time as to all the bales.
 This case was followed in Firm Amba Parshad Gopi
Nath v. Firm Jawala Dat Ram Kanwar . In this case also the
buyer brought a suit against the seller for damages for
breach of contract by non-delivery. The contract was for
eleven bales of Mulls, November (1916) shipment, four lots,
sixty days grace, delivery of goods to be taken against
payment on arrival of the railway receipt. November
shipment, four lots, meant that the goods were to be shipped
in four monthly lots commencing from November 1916,
allowing two months grace and four months for transit from
England to Karachi and one month for their conveyance from
Karachi to Lahore. The due date for the first lot was
calculated to be somewhere at the end of June 1917. The suit
was brought on the 15th July 1920. The lower appellate
Court held that the suit was time barred as regards the first
lot of goods. It was held on the authority of Phul Chand
Fateh Chand v. Chhote Lal Amba Parshad that the Contract
was an indivisible one and that the due date did not arrive
until the last shipment under the contract reached Karachi.
 Firm Chhota Lal-Amba Parshad v. Firm Basdeo Mal
Hira Lal was decided by a learned Judge of this Court sitting
singly. This was also a suit by a buyer against a seller for
damages for non-delivery of goods. The contract was for five
bales of white mulls, December shipment, three lots, 60 days
grace, payment against railway receipt and invoices. The

lower appellate Court held that the suit as regards the first
shipment was time barred as the due date of December
shipment expired on the 30th June 1917, and the suit was
instituted on the 20th July 1920. It was held that a contract
such as the present was not an instalment contract, that the
defendants could have delivered goods under it up to the last
day of arrival of the last shipment and that the plaintiffs
could not sue for damages for breach of contract until that
date had expired. It may be noted that in this case also,
March shipments were arriving until September, so that the
defendants could have shipped the goods up to March 1917
at the latest. To me the Lahore cases seem to be more in point
because they all deal with the question of limitation and the
terms of the contract in the last two cases seem to bear a
family resemblance to the terms of the contract Ex. P-1(a)
which forms the basis of the present suit. Following these
cases I hold that the suit was within time and that no portion
of 1. the claim is barred by limitation.”
86. A perusal of the aforesaid four judgments referred to and
relied upon by the arbitral tribunal clearly indicates that Lahore High
Court in the aforesaid four judgments however, dealing with the case
where a party to the contract had agreed to deliver the goods in
installments under a single contract. The contract provided for a lumpsum
payment for the entire consignment to be delivered in installment.
Considering those facts, the Lahore High Court took a view that the
question whether the contract was entire or indivisible one is often a
difficult one to decide. Each case has to be decided on a consideration of
circumstances. In the case of Basheshar Lal-Bansi Dhar vs. Bhik Raj &
Ors. (supra) the Court recorded that the defendant had conceded that the
claims were not time barred.
87. In my view, none of these judgments relied upon by the

respondents and followed by the arbitral tribunal were in any manner
applicable to the facts of these case at all. Admittedly under the contract
awarded to the petitioner by the respondents work was to be carried out
phase-wise. Separate milestone and separate payment was provided
under the contract for each application group. Two application groups
were already abandoned by the respondents themselves. The work under
AG-1 and AG-3 was allowed to be performed even though the work
under AG-2 was abandoned. The respondents themselves had raised a
demand for refund of the payment as and by way of damages from the
petitioner immediately after issuance of the said letter dated 14th January,
1997 purporting to abandon the contract considering the same as separate
cause of action. In my view, the facts of all four matters before the
Lahore High Court were totally different. The respondents themselves in
their pleadings as well as the evidence had taken a stand before the
arbitral tribunal that the work under AG-2 was different than the work
under other applications and was liable to be carried out at different
places. Reliance placed by the respondents on the said judgments was
totally misplaced. The arbitral tribunal without considering the fact that
the facts in these cases and more particularly without considering the
stand of the respondents themselves and the evidence led by them have
applied the judgments of Lahore High Court to the facts of this case,
which shows total non-application of mind on the part of the arbitral
tribunal.
88. The arbitral tribunal totally failed to appreciate that once the
cause of action has commenced when the breaches were alleged to have
been committed by the petitioner even according to the respondents

much prior to 14th January, 1997 did not stop. There was no part payment
made by the petitioner admittedly to the respondents arising out of such
demand by the respondents in the year 1997, nor the petitioner
acknowledged any liability to pay the said amount during the period
between 1997 and 2000. The impugned award is contrary to section 9 of
the Limitation Act and over looking the fact that the cause of action even
according to the respondents had commenced for recovery of
compensation / damages prior to 14th January, 1997 when the breach of
contract was alleged to have been committed by the petitioner. In my
view, since the arbitral tribunal has allowed the time barred claims, the
award is in conflict with the public policy and deserves to be set-aside on
this ground also.
89. I am not inclined to accept the submissions made by Mr.Sen,
the learned senior counsel for the respondents that though plea of
limitation was raised by the respondents while opposing the counter
claim in the written statement, the said plea was not persuaded by the
respondents before the arbitral tribunal and thus no cognizance thereof
could have been taken by the arbitral tribunal while deciding the claim or
counter claim. In my view, the respondents having raised the plea of
limitation in respect of the counter claims made by the petitioner
contending that the cause of action was not continuing cause of action
and the claims ought to have been made as and when the breaches had
been alleged to have been committed could not be permitted to oppose
the plea of limitation rendered by the petitioner on the similar ground. In
my view the cause of action in favour of the petitioner and in favour of
the respondents in respect of their respective claims in respect of AG-2,

which was abandoned / terminated on 14th January, 1997 arose at the
same time. The claim for damages made by the respondents and the
claim for work done by the petitioner and for compensation both arose
when the work was abandoned / terminated in the year 1997. The arbitral
tribunal however, completely overlooked the provisions of the Limitation
Act, 1963 which were applicable to and were binding on the arbitral
tribunal and rendered an impossible finding on the issue of limitation,
which deserves to be set-aside.
90. Insofar as the submission of Mr.Sen, the learned senior
counsel that the finding of the arbitral tribunal on the issue whether the
contract was indivisible or not or whether the claims made by the
respondents were barred by law of limitation or not are the finding of
facts and no interference with the finding of fact is permissible under
section 34 of the said Act is concerned, in my view since both the
findings rendered by the learned arbitral tribunal are perverse, patently
illegal and contrary to the terms of the contract and contrary to law, this
court has ample power under section 34 of the said Act to render such
impossible finding set-aside, having been rendered in conflict with the
public policy.
91. So far as the judgment of the Supreme Court in G.
Ramchandra Reddy & Co.vs. Union of India & Anr. (2009) 6 SCC 414,
relied upon by Mr.Sen, the learned senior counsel for the respondents is
concerned, there is no dispute about the proposition laid down by the
Supreme Court in the said judgment. Since this court has come to the
conclusion that the interpretation of the terms of the contract is

impossible interpretation and the findings rendered by the arbitral
tribunal are perverse, the said judgment of the Supreme Court relied
upon by the learned senior counsel for the respondents in my view does
not assist the respondents.
92. A perusal of the record indicates that though the petitioner
had raised a plea that the contract was illegally terminated by the
respondents, the said pleading had not been denied by the respondents. A
perusal of the oral evidence led by the petitioner also indicates that it was
suggestion by the respondents itself to the witness of the petitioner that
the contract was terminated by the respondents which suggestion was
accepted by the petitioner, the arbitral tribunal has rendered an erroneous
finding that it was not the case of the petitioner that the contract was
terminated. Both the parties had pleaded and proceeded on the premise
that the contract was terminated. In my view, once the contract was
terminated by the respondents, the consequences provided under the
contract 13.4 for payment to the contractor for the work done would
stand attracted. The question of awarding any claim for damages in
favour of the respondents therefore, was totally unwarranted and contrary
to the terms of the contract. Admittedly, there was no provision under the
contract for refund of the amount already paid for the work done.
93. A perusal of the provisions of the contract clearly indicates
that the respondents were liable to make payment for the work done in
accordance with the milestone used which payments were already been
made by the respondents to the petitioner for part of the work done. Even
if such claim for refund was considered as a claim under section 55 read
with section 73 of the Contract Act, the respondents were liable to prove

the breach alleged to have been committed by the petitioner and the loss
suffered by the respondents in view of such breach committed by the
petitioner. The respondents, in my view, have totally failed to prove the
breach alleged to have been committed by the petitioner and also the
losses, if any, suffered by the respondents due to such alleged breach
committed by the petitioner. The respondents did not produce any
material on record before the arbitral tribunal that due to abandonment /
termination of AG-2, the other two application groups which were
admittedly completed by the petitioner were not successfully
commissioned or that any loss was suffered by the respondents due to the
petitioner's not completing the work under AG-2. The arbitral tribunal on
this ground also could not have awarded any claim for damages in favour
of the respondents.
94. Insofar as submission of Mr.Sen, the learned senior counsel
for the respondent that there was no plea raised by the petitioner in this
petition or raised before the learned arbitral tribunal that the respondent
could not have been allowed to urge across the bar the stand taken on the
plea of limitation is concerned, it is not in dispute that such plea raised by
the respondents in the written statement to the counter claim was already
on record before the learned arbitral tribunal. In spite of such plea, the
arbitral tribunal permitted the respondents to raise such inconsistent
submission across the bar. In my view the submissions made by the
learned senior counsel is devoid of any merits and is accordingly
rejected.
95. In so far the submission of the learned senior counsel that

though the respondents had claimed interest with effect from 14th
January, 1997, the learned arbitral tribunal has awarded interest from 31st
July, 2007 and thus mere making a claim for interest with effect from 14th
January, 2007 would not indicate that the cause of action had arisen on
14th January, 1997 is concerned, in my view since the respondents had
already made demand for refund of the amount paid under AG-2 based
on a letter dated 14th January, 1997 and had made the claim for interest
with effect from 14th January, 1997, the respondents had proceed on the
premise that the cause of action had arisen with effect from 14th January,
1997. In my view the submission of Ms.Ghone, the learned counsel for
the petitioner that the cause of action had arisen on 14th January, 1997
deserves acceptance. The respondent cannot be allowed to blow hot and
cold at the same time.
96. In my view the entire award shows patent illegality on the
face of the award and being contrary to the terms of the contract,
contrary to law laid down by the Supreme Court and this court, the
provisions of the Limitation Act, 1963 and also being contrary to and
overlooking the pleadings and the evidence filed by both the parties, the
impugned award deserves to be set-aside and is accordingly set-aside.
97. I therefore, pass the following order :-
a) The arbitration petition is made absolute in terms of prayer
clause (a) insofar as the impugned award dated 3rd November,
2009 is concerned.

b) The impugned award dated 3rd November, 2009 is set aside.
c) There shall be no order as to costs.
 (R.D. DHANUKA, J.)