Manohar Singh and Sons Vs. Raksha Karamchari Coop. Gr. H. Soc. and Anr.

MANU/DE/3478/2009

FACTS

Respondent-cooperative society (“R“) floated a tender for construction of flats, and the work was awarded to petitioner-contractor (“P“) through an agreement . The Architect certified P’s final bill for an amount of Rs. 9,47,043 along with a sum of Rs. 13,50,600/-. However, R withheld the other certified amount of Rs. 13,50,600/- on account of alleged defects. Consequently, P raised certain grievances against the said act of R and requested for an amicable resolution of the same. After the payment of certified amount the cooperative society retained a sum of Rs. 50,000/- for a period of three months for maintenance of the building. After giving a last opportunity for settling the accounts, as P was not satisfied with the reply received from R , P invoked the arbitration clause and sought appointment of an arbitrator. An appeal was made to the court challenging the arbitral award.

ISUUE

Whether Clause 6 (limitation clause) of the Agreement is void or violative of Section 28 of the Indian Contract Act.

CONTENTIONS

Petitioner-Contractor (P)

P contended that agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending Section 28 of the Contract Act.

Respondent-Cooperative Society (R)

R submitted that arbitration clause was a condition precedent for invoking the alternative disputes resolution mechanism
Clause 6 of the Agreement was not void or violative of Section 28 of Contract Act.
P had lost its right to seek arbitration as it did not invoke the arbitration clause within 28 days of certification of the final bill by the Architect

HELD

The sole Arbitrator in the award had given a preliminary opinion that the arbitration clause had not been invoked within the stipulated time as prescribed in Clause 6 of the contract. The court examined the interpretation of section 28 of the Indian Contract Act with regard to clause 6 that limited the time period for making any claim for 28 days.

Section 28 of the Contract Act was amended in the year 1997 prior to which the clause of arbitration was added to the Contract . The effect of the amendment of Section 28 thus made it clear that any clause extinguishing the right of a party or discharging any party from the liability in respect of any contract on expiry of specific period so as to restrict the time period would be void.

The court relied on the judgement of the case National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. and Anr.[1] wherein it was held that an agreement which curtails the period of limitation and prescribes a shorter period than prescribed by law would be void as offending Section 28 of the Contract Act. In this case, the Court distinguished between a clause curtailing the period of limitation being void under Section 28 of the Contract Act and a clause which provides for forfeiture or waiver of a right if no action is commenced within the period stipulated by the agreement.

The single judge bench observed that bills and payments made during the midst of execution of the contract were interim in nature and were not conclusive of the work done .Arbitration claim at the stage of interim bill would be premature. Accepting this interpretation would result in a number of arbitrations between the same parties with regard to the same contract and this in turn could lead to different arbitral tribunals reaching different conclusions. Objections were dismissed and in its verdict it was held that the preliminary opinion is based on a wrong proposition of law

Hence the verdict clear upholds the validity of the section 28 of the Indian contract Act disagreeing with the defence of waiver taken up by the respondents.

Author: Sushmita R., School of Law Christ University, Bangalore

Editor: Vivek Verma

[1] AIR 1997 SC 2049

Manohar Singh and Sons Vs. Raksha Karamchari Coop. Gr. H. Soc. and Anr.