MANU/MH/0008/2015

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

IN THE HIGH COURT OF BOMBAY AT GOA
Arbitration Petition No. 10 of 2013
Decided On: 09.01.2015
Appellants: Gujarat State Fertilizers Co. Ltd.
Vs.
Respondent: Tata Motors Ltd.
Hon'ble Judges/Coram:
R.D. Dhanuka, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Milind Sathe, Senior Advocate a/w Mayur Khandeparkar i/by
Kanga & Co.
For Respondents/Defendant: Shailesh Shah, Senior Advocate a/w Heta Shah a/w Divya Ved i/by
MDP & Partners
Subject: Arbitration
Acts/Rules/Orders:
Arbitration And Conciliation Act, 1996 - Section 21, Arbitration And Conciliation Act, 1996 Section 28(a), Arbitration And Conciliation Act, 1996 - Section 31(7), Arbitration And
Conciliation Act, 1996 - Section 33, Arbitration And Conciliation Act, 1996 - Section 33(4),
Arbitration And Conciliation Act, 1996 - Section 34; Income Tax Act, 1961 - Section 156;
Limitation Act, 1963 - Section 19(1), Limitation Act, 1963 - Section 2(j), Limitation Act, 1963 Section 23, Limitation Act, 1963 - Section 24, Limitation Act, 1963 - Section 3, Limitation Act,
1963 - Section 9
Cases Referred:
State of Haryana and Ors. vs. S.L. Arora and Company MANU/SC/0131/2010; Lakshmirattan
Cotton Mills Co. Ltd. and Behari Lal Ram Charan vs. The Aluminium Corporation of India Ltd.
MANU/SC/0017/1970; Craft Centre and Ors. vs. The Koncherry Coir Factories, Cherthala
MANU/KE/0017/1991; Mst. Rukhmabai vs. Lala Laxminarayan and Ors. MANU/SC/0186/1959;
State of Punjab and Ors. vs. Gurdev Singh MANU/SC/0612/1991; Mt. Bolo vs. Mt. Koklan and
Ors. MANU/PR/0054/1930; Gannon Dunkerley and Co., Ltd. vs. Union of India (UOI)
MANU/SC/0475/1969; Mukhdeo Singh and Anr. vs. Harakh Narayan Singh and Ors.
MANU/BH/0092/1931; Madras Port Trust vs. Hymanshu International by its Proprietor V.
Venkatadri (Dead) by L.R.s MANU/SC/0046/1979
Industry: Chemicals
Industry: Auto
Citing Reference:

Discussed

Mentioned

18

Relied On

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1
Case Note:
Arbitration - Validity of award - Present petition filed against order whereby
Respondent's claim for declaration that Petitioner was bound and liable to pay to
Respondent under Lease Agreement pursuant to debit note with interest/service
charges was allowed - Whether impugned award pertaining to payment under Lease
agreement was required any interference - Held, perusal of impugned award clearly
indicated that Arbitrator had not considered submissions urged by Petitioner before
arbitrator that on disallowing claim for depreciation, incidence of income tax on
transaction would become smaller - Arbitrator had applied different yardstick to
Petitioner than what was applied to Respondent - Petitioner was right in contending
that there was total miscarriage of justice by arbitrator by applying different
yardstick while dealing with claim made by Respondent and Petitioner - Respondent
could not place any reliance on such disputed document before arbitrator - Since
claim made by Respondent before Arbitrator could not have been awarded, Petitioner
was dragged into arbitration proceedings illegally by Respondent and thus arbitrator
ought not to have awarded cost of arbitration in favour of Respondent and against
Petitioner - Therefore, impugned award made by arbitrator shows patent illegality
and was in conflict with public policy - Arbitrator had allowed time barred claim and
had also acted contrary to provisions of contract and award was thus liable to be set
aside - [paras 67, 68, 70 and 77]
JUDGMENT
R.D. Dhanuka, J.
1. By this petition filed u/s. 34 of the Arbitration and Conciliation Act, 1996 (for short "the said
Arbitration Act"), the petitioner has impugned the arbitral award dated 26.6.2012 and
additional award dated 3.9.2012 allowing the claim made by the respondent. Some of the
relevant facts for the purpose of deciding this petition are as under:2. On 30.4.1987, the petitioner placed an order on Bharat Heavy Electricals Ltd. (BHEL) for
supply of a Turbine Unit of Co-generation Plant for generation of electricity for its fertilizer plant
which was supplied by the said company and was commissioned in the year 1989. It is the case
of the petitioner that on 1.4.1990, the written down value of the said Turbine Unit in the books
of the petitioner was "zero."
3. On 27.9.1994, the petitioner addressed a letter to M/s. Tata Finance Ltd. offering it to take
lease finance for one Co-generation Unit. On 28.9.1994, M/s. Tata Finance Ltd. sanctioned
finance to the petitioner and the petitioner signed a letter of finance. On 28.9.1994, the
petitioner raised an invoice of Rs. 16,85,25,000/-. On the same day, M/s. Tata Finance Ltd.
paid the petitioner a sum of Rs. 16,85,25,000/- deducting Rs. 41,89,110/- towards Lease
Management Fee and towards Lease Rent for September 1994. On 28.9.1994, the petitioner
and the said M/s. Tata Finance Ltd. entered into an agreement for Lease. Under the said
agreement for Lease, lease rental was fixed at Rs. 25,03,860/- which was calculated on the
basis of Rs. 14.15 (Per Month Per Thousand). On 28.9.1994, the Lease Summary Schedule was
issued to the petitioner indicating the lease value and tenure.
4. The said M/s. Tata Finance Ltd. also issued Supplemental Lease Schedule on 28.9.1994 and
issued a Debit Note for Rs. 16,85,250/-. The petitioner confirmed having sold an asset covered
by Invoice No. TF/94. It was the case of the petitioner that it was a financial transaction and
the Turbine Unit of Co-generation Plant which was an immovable property and was never to be
moved from the factory premises of the petitioner. On 30.3.1995, a certificate was issued by
the Chartered Accountant of M/s. Tata Finance Ltd. certifying that the equipment was in
working condition. On 25.7.1997, the lease tax was reduced from 5% to 4%.
5. M/s. Tata Finance Ltd. claimed depreciation in respect of the said plant in their Income Tax

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Returns for the year ending 31.3.1995 for the assessment year 1995-1996. On 31.3.1998, the
Deputy Commissioner of Income Tax passed an order of assessment in respect of the return
filed by the said M/s. Tata Finance Ltd. for the assessment year 1995-96 disallowing the
depreciation. On 31.3.1998, the Income Tax Authorities issued a Demand Notice upon the said
M/s. Tata Finance Ltd. under Section 156 of the Income Tax Act which notice was received by
the said M/s. Tata Finance Ltd. on 1.4.1998. On 24.4.1998, the said M/s. Tata Finance Ltd. filed
an appeal against the order passed by the Income Tax Authorities on 31.3.1998.
6. In the month of April 2000, lease tax was increased from 4% to 4.4%. On 11.10.2000 the
said M/s. Tata Finance Ltd. raised a Debit Note for Rs. 24,60,83,090/- claiming it to be tax
liability on account of disallowance of depreciation for the assessment year 1995-96. On
16.2.2001, the Commissioner of Income Tax (Appeals) partly allowed the appeal filed by M/s.
Tata Finance Ltd.
7. It is the case of the respondent that by a letter dated 22.3.2001 issued to the said M/s. Tata
Finance Ltd., the petitioner had asked for various details and copies of assessment order etc. A
copy of the letter dated 22.3.2001 was not produced in the arbitration proceedings by any of
the parties. The respondent replied to the said letter by their letter dated 29.3.2001 and
forwarded copy of assessment order dated 31.3.1998 and appeal memo. The said M/s. Tata
Finance Ltd. also forwarded a Debit Note dated 11.10.2000. On 10.5.2001, the Tata Finance
Ltd. filed an appeal before the Income Tax Appellate Tribunal. On 1.6.2001, M/s. Tata Finance
Ltd. made a Statement of Accounts for the period 15.6.1994 to 1.6.2001. On 23.10.2001, the
Income Tax Authorities passed an order giving effect to the order passed by the Commissioner
of Income Tax (Appeals) thereby reducing the income tax to Rs. 19,88,61,416/-. On
15.12.2001, the petitioner addressed a letter forwarding a lease rental installment alleged to be
due on 25.12.2001 of Rs. 24,80,014/-.
8. On 22.12.2001, the petitioner issued a Debit Note to M/s. Tata Finance Ltd. for Rs.
1,43,44,847/- being alleged recovery of excess lease rent from the respondent by the petitioner
though there was reduction on account of income tax as well as the change in Gujarat Sales
Tax (lease tax). On 24.12.2001, the petitioner disputed the claim made in debit note dated
11.10.2000. On 24.12.2001, payment voucher was issued for having paid 88th lease rent
installment of Rs. 24,80,014/-. On 29.1.2002, the petitioner issued a debit note to the said M/s.
Tata Finance Ltd. for Rs. 2,11,90,966/-.
9. On 2.2.2002, the petitioner addressed a letter to M/s. Tata Finance Ltd. and forwarded a
debit note dated 29.1.2002 and demanded alleged outstanding amount of Rs. 1,91,08,490/after adjusting lease rental installment payable on 25.1.2002. On 31.8.2002, M/s. Tata Finance
Ltd. issued a Credit Note to the petitioner for Rs. 2,40,61,846/- on account of reduction of
income tax from the year 1996-1997. The Statement of Accounts of the petitioner made by the
said M/s. Tata Finance Ltd. for the period from 28.09.1994 to 31.8.2002 was also forwarded.
On 6.1.2003, M/s. Tata Finance Ltd. issued a debit note to the petitioner for Rs. 22,20,21,244/.
10. On 16.1.2003, the petitioner issued a letter to M/s. Tata Finance Ltd. claiming balance
amount of Rs. 1,72,44,766/- after adjusting lease rental payable for the months of January to
August, 2002 and residual value of 0.5% of the original lease cost as provided in Lease
Summary Schedule. On 10.10.2003, M/s. Tata Finance Ltd. through its advocate issued a notice
to the petitioner under clause 20.09 under the Lease Agreement invoking arbitration
agreement. By the said notice, the said M/s. Tata Finance Ltd. called upon the petitioner to pay
a sum of Rs. 25,06,60,030/- and to deliver plant and machinery used by the petitioner within a
period of 14 days from the date of receipt of the said notice and stating that in case of failure to
comply with the said requisition, the said M/s. Tata Finance Ltd. shall be constrained to adopt
such proceedings as may be necessary thereof. In the said notice, it was provided that if the
said amount and/or the equipment was not paid/delivered to the said M/s. Tata Finance Ltd.,
the said notice may be treated as notice under clause 20.09 of the Agreement invoking
arbitration agreement. The Petitioner neither made any payment nor returned the plant and
machinery within 14 days from the date of receipt of the said notice or at any point of time
thereafter.

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11. On 3.11.2003, the petitioner replied to the said notice dated 10.10.2003 and denied the
claim made by the respondent. The petitioner also pointed out that the petitioner had become
Relief Undertaking under the provisions of the Bombay Relief Undertaking (Special Provision)
Act, 1958. By letter dated 17.11.2003, M/s. Tata Finance Ltd. through their advocate sought
consent of a retired Chief Justice to act as a sole arbitrator. A copy of the said letter is also
forwarded to the advocate of the petitioner.
12. By their advocate's letter dated 18.11.2003 to the advocate of M/s. Tata Finance Ltd., the
petitioner contended that since the petitioner had been declared as relief undertaking under the
provisions of Bombay Relief Undertaking (Special Provision) Act, 1958, the said M/s. Tata
Finance Ltd. was prohibited from initiating arbitration proceedings for enforcement of the
alleged claim and called upon M/s. Tata Finance Ltd. to withdraw their letter addressed to the
learned arbitrator. On 21.11.2003, M/s. Tata Finance Ltd. addressed a letter to the petitioner
disputing the contention of the petitioner regarding the relief undertaking. On 24.11.2003, the
learned arbitrator declined to entertain the objections of the petitioner on account of the
Bombay Relief Undertaking Act notification.
13. On 27.1.2004, the said M/s. Tata Finance Ltd. filed a claim before the learned arbitrator
praying for a declaration that the petitioner herein is bound and liable to pay to the respondent
under the said Lease Agreement a sum of Rs. 28,99,46,267/- pursuant to the debit note with
interest/service charges thereon @ 30% w.e.f. 6.1.2004 till payment and/or realisation and for
other reliefs.
14. The petitioner filed a reply on 13.5.2004 denying the claims made by the said M/s. Tata
Finance Ltd. and also made a counter claim against the said M/s. Tata Finance Ltd. praying for
an order and decree to pay a sum of Rs. 7,39,05,720/- with interest @ 30% p.a. with effect
from 1.3.2004 till payment and/or realisation thereof and costs. The said M/s. Tata Finance Ltd.
filed further pleadings in reply to the said affidavit-in-reply and counter claim. On 22.11.2005,
the Income Tax Appellate Tribunal passed an order remitting back the matter to the Assessing
Officer in respect of M/s. Tata Finance Ltd. for the assessment year 1995-1996. On 12.12.2006,
the Assessing Officer passed an order disallowing depreciation. In the year 2007, M/s. Tata
Finance Ltd. filed an appeal against the said order dated 12.12.2006. On 2.6.2007, the said
M/s. Tata Finance Ltd. filed an application for amendment of the statement of claim to bring on
record the order passed by the Income Tax Department.
15. On 2.6.2007, the said M/s. Tata Finance Ltd. filed an affidavit of evidence of Mr. Ashwin
Naidu. The petitioner filed an application in the month of July 2007 for deciding issue of
limitation as preliminary issue. The learned arbitrator allowed amendment application by an
order dated 24.7.2007 and deferred the issue of limitation to be heard with the main matter.
16. The petitioner also examined the witness on 9.6.2010 to deal with the affidavit of evidence
of Mr. J.C. Bhatt on behalf of the petitioner. On 26.6.2012, the learned arbitrator made an
award in favour of the respondent and against the petitioner in the sum of Rs. 28,07,44,041/with interest @ 15% p.a. thereon from the date of award until payment or realisation thereof
and awarded a sum of Rs. 15,00,000/- to the respondent towards cost of arbitration. The
learned arbitrator rejected the counter claim made by the petitioner.
17. On 23.7.2012 the respondent made an application under Section 33 of the Arbitration and
Conciliation Act. 1996 to clarify omission in the impugned award by inadvertently omitting the
claim for interest payable to the respondent for the period from the date of filing of the
statement of claim i.e. 27.1.2004 till the date of award i.e. 26.6.2012 with interest @ 30% p.a.
and prayed for an additional award for interest. The learned arbitrator made an additional
award on 03.9.2012 directing the petitioner herein to pay simple interest @ 30% p.a. on the
principal amount of Rs. 28,07,44,041/- from 7.1.2004 till the date of the award i.e. 26.6.2012.
The petitioner impugned both these awards in this petition. Some of the relevant clauses of the
agreement which have been relied upon by both the parties are extracted as under:"i) Clause 2.2: that in the event of the Lessee being in arrears of such lease rentals,
such arrears of lease rentals shall carry service charges at the rate of 30% per

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annum on compounding basis with monthly rests from the due dates specified in
the Supplementary Lease Schedules attached to/to be attached till date of actual
payment;
ii) Clause 2.4: that the Lessor shall be entitled to vary the lease rental charges in
the event of a change occurring the variables relating to depreciation rate or
modifications in cost of money to Lessor."
18. Clauses 11 and 16 of the Lease Summary Schedule are extracted as under:"i) Clause 11 FINANCE CHARGES: provides that finance charges will be applicable @
2% per month (plus any taxes thereon) on all advance payments from the date of
disbursement to date of rentalisation.
ii) Clause 16 CAPITAL ALLOWANCE VARIATION: provides that if the eligibility of the
Claimant to claim depreciation is decreased/increased or if the Claimant is
disallowed its claim for the same, whether wholly or partly in any year during the
fixed period of the Lease or the Claimant is required to pay income tax at a
higher/lower rate than 46%, the rental will stand increased/decreased accordingly
as a percentage of acquisition cost."
19. Dr. Sathe, learned senior counsel for the petitioner invited my attention to the assessment
order dated 31.3.1998 passed by the Deputy Commissioner of Income Tax, Special Range 13,
Mumbai in respect of income tax returns filed by M/s. Tata Finance Ltd. for the assessment year
1995-1996. The Deputy Commissioner of Income Tax by its assessment order concluded that
the said M/s. Tata Finance Ltd. neither had the right nor interest in the real ownership of the
assets. It was only bothered about the recovery of funds made available to the Gujarat
Electricity Board by way of periodic lease rentals. It is held that irrespective of validity of invoice
issued by BHEL, in favour of the assessee, it was not the real owner of the assets (part of
assets).
20. It is submitted that in the said assessment order, the authority also considered the Lease
Agreements between M/s. Tata Finance Limited and various lessees including the petitioner
herein and M/s. Gujarat Electricity Board which subsequently became M/s. Gujarat Urja Vikas
Nigam Ltd. It is submitted that in the impugned award, the learned arbitrator has referred to
and relied upon on the arbitral award dated 19.7.2011 in the matter of Tata Motors Limited and
Gujarat Urja Vikas Nigam Limited. It is submitted that the claim made by M/s. Tata Finance Ltd.
against the said M/s. Gujarat Urja Vikas Nigam Limited was also based on the identical clauses
in the Lease Deed entered into between them and also based on the same order passed by the
Deputy Commissioner of Income Tax which was a common order passed after considering the
lease agreement including the lease agreement between M/s. Tata Finance Ltd. and the said
M/s. Gujarat Urja Vikas Nigam Limited.
21. Learned senior counsel placed reliance on the judgment of this Court delivered on 16th July
2013 in the case of M/s. Gujarat Urja Vikas Nigam Limited and Ors. Vs. Tata Motors Limited in
Arbitration Petition No. 955 of 2011 setting aside the impugned award dated 19.7.2011 after
considering identical issues and facts raised herein. It is submitted that the said judgment
squarely applies to the facts of this case.
22. Learned senior counsel invited my attention to clauses 2.2 and 2.4 of the lease agreement
which was entered into between the respondent and the said M/s. Gujarat Urja Vikas Nigam
Limited, successor of M/s. Gujarat Electricity Board in support of his submission that both the
clauses in the said agreement and this agreement were identical. Reliance is placed on
paragraphs 11 to 18, 20 and 22, 36 of the said judgment read thus:"11. On the issue as to whether cause of action as claimed in the statement of claim
filed by the respondents survived or not in view of the order passed by Income Tax
Appellate Tribunal setting aside the assessment order disallowing depreciation claim

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and remanding the matter back to the assessing officer during the pendency of the
claim before the learned arbitrator is concerned, the learned arbitrator rejected this
submissions made by the petitioners. It is held that claim in reference was not
based only on order dated 1st April 1998 but on the respondents' right under the
lease agreement and the lease summary schedule to increase rental on
disallowance of depreciation. It is held that such adjudication process may continue
for a long time but so long as the order of depreciation subsists, the cause of action
based on the lease agreement and lease summary schedule would remain. Until the
final orders setting aside the order disallowing depreciation is passed, the
right/cause of action remains the same. The learned arbitrator held that the
adjudication process is an ongoing process and there would be variations in the
orders passed but so long as there is an order disallowing depreciation the same
cause of action remains, otherwise a party would have to file, then withdraw, then
again file a claim and so on depending on the order prevailing which would lead to
multiplicity of proceedings and would result in incurring unnecessary costs by both
parties to defend such claims and there would be complete uncertainty. The learned
arbitrator held that same claim continues, the cause of action being the same till
the final decision.
12. It is not in dispute that after filing statement of claim on 9th December 2005,
by an order dated 22nd December 2005, Income Tax Appellate Tribunal had set
aside the disallowance of depreciation and it remanded the matter back to
Assessing Officer for reconsideration. Learned arbitrator on this issue has rejected
the contention of the petitioner that in view of the order dated 22nd December
2005, claim made before the learned arbitrator did not survive. Learned arbitrator
has held that after such order of remand by the Income Tax Appellate Tribunal,
Assessing Officer has passed a fresh order on 12th December 2006 disallowing the
depreciation and the appeal arising out of such order was filed by the respondents
before the Commissioner of Income Tax (Appeal) and the same was pending.
13. In my view, claim for depreciation which was disallowed by the Assessing
Officer and on setting aside such order by the Income Tax Appellate Tribunal, there
was no demand of any income tax from the Income Tax Department. Cause of
action did not survive. If the respondents were entitled to invoke arbitration by
virtue of Assessing Officer's disallowance of depreciation, the respondents could
have done so separately. Proceedings which had become infructuous by virtue of
initial order of dis-allowance of depreciation having been set aside, such proceeding
could not have been continued by the respondents. In my view, learned arbitrator
was not right in holding that there would be multiplicity of proceedings and in view
of subsequent order passed by the Assessing Officer once again disallowing the
depreciation, the original claim for creation of fund based on the earlier order
disallowing depreciation would survive. In my view, award shows gross illegality by
entertaining a claim which had become infructuous as the cause of action did not
survive.
14. On the issue raised by the petitioners that claims made by the respondents are
either premature or time barred, the learned arbitrator has held that as
depreciation had been disallowed, right of the respondents had accrued and thus
claim was not premature. It is held that every successive order disallowing
depreciation, gives fresh cause of action and thus claim is not barred by law of
limitation. Entitlement of the respondents was to claim the revision of the lease
rentals arose when the depreciation had been disallowed. The learned arbitrator
held that limitation is mixed question of facts and law. It is held that each and every
order passed by the Income Tax Authorities gives right to a successive cause of
action. The learned arbitrator in the impugned order has adopted the reasoning
given in a separate order passed on 4th February, 2009 by the learned arbitrator on
the application made by the petitioners to dismiss claim on the ground that no
cause of action survived.

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15. In the order dated 4th February, 2009, it is held by the learned arbitrator that
the notice invoking arbitration was placed on the factum of disallowance of
depreciation and on the terms of the lease agreement and not based only on the
order of 1st April, 2004 passed by the assessing officer disallowing depreciation. It
is held that claim of the respondents in the statement of claim would indicate that
they had a right or entitlement to vary the lease rentals, by increasing the same,
under the terms of the lease agreement and lease summary schedule by reason of
disallowance of the depreciation by the Income Tax Authority. It is held that the
statement of claim itself indicates that the appeal filed by the respondents was
pending and that in the event of respondents succeeding in the appeal, the
petitioners would not be liable to pay the increased rentals. It is held that the
adjudication process would be an ongoing process and there may and would be
variations by virtue of subsequent orders but so long as an order disallowing
depreciation remains the cause of action based on the lease agreements and the
lease summary schedule would remain. With these reasonings rendered by the
learned arbitrator, plea of the limitation raised by the petitioners is rejected. The
learned arbitrator held that if the claim is premature, it can't be time barred and if
time barred, it can't be premature.
16. It is not in dispute that for the assessment year 1994-95, by an order dated
31st March, 1997, the Deputy Commissioner had disallowed depreciation. By an
order dated 31st March, 1998 depreciation claimed for assessment year 1995-96
came to be disallowed. By orders dated 16th February, 2001 and 28th February,
2001 Commissioner of Income Tax (Appeal) dismissed appeals filed by the
respondents against orders dated 31st March, 1998 and 31st March, 1997
respectively. Respondents had already filed an appeal on 10th May, 2001 before
Income Tax Appellate Tribunal. During the pendency of the proceedings before
Commissioner of Income Tax (Appeals), the respondents had issued debit note on
11th October, 2000 demanding various amounts from the petitioners arising out of
disallowance of depreciation. The petitioners did not make any payment pursuant to
such debit note issued by the respondents on 11th October, 2000 or thereafter. On
1st February, 2005 respondents issued another debit note. Notice invoking
arbitration agreement was issued by the respondents on 17th May, 2005.
Petitioners denied the said demand on various grounds. Arbitration proceedings
commences when notice issued by claimant invoking arbitration agreement is
received by the respondent and limitation stops in respect of such dispute on the
date of receipt of such notice by respondents under section 21 of the Arbitration
and Conciliation Act, 1996. It is not in dispute that debit note issued on 11th
October, 2000 and 1st February, 2005 were based on disallowance of depreciation
by the assessing officer. It is not in dispute that notice dated 17th May, 2005
invoking arbitration agreement has been issued after three years of the order
passed by the Deputy Commissioner disallowing depreciation. It is also not in
dispute that no payment was made by the petitioners pursuant to the debit note
issued by the respondents on 11th October, 2000. During the pendency of appeal,
respondents demanded residual amount under the sanction letter from the
petitioners. On 26th March, 2004, petitioners paid residual amount as demanded by
the respondents and the same was accepted by the respondents. The learned
arbitrator had rejected the plea of limitation raised by the petitioners on the ground
that each subsequent order gives a new cause of action and therefore payment
need not have been within three years from the date of assessment order. It is held
by the learned arbitrator that by paying the residual amount which was payable
under the lease agreement, the petitioners have acknowledged that the jural
relationship i.e. contract was still alive and so long as jural relationship was alive
and claim was made during the existence of the contract and/or within three years
after termination, if any, of the contract, the claim would be within time. The
learned arbitrator has held that reference to the arbitration was not based only on
the order dated 1st April, 1998 but on the respondents' right under the lease
agreement and lease summary schedule to increase rentals on a disallowance of
depreciation.

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17. In my view, payment of residual amount of 26th March, 2004 by the petitioners
to the respondents would not extend period of limitation. Cause of action had
already begun on 31st March, 1997 when the Deputy Commissioner disallowed
depreciation for the assessment year 1994-95 and on 31st March, 1998 when the
said claim was disallowed for the assessment year 1995-96. Merely because appeal
was filed by the respondents before the Commissioner of Income Tax or before the
Income Tax Appellate Tribunal, limitation would not stop. In my view, pendency of
appeal would not save and/or extend limitation. Residual amount paid on 26th May,
2004 was not by way of part payment in respect of claim arising out of depreciation
thus would not extend limitation. The said payment would even otherwise not
extend limitation as the same was not within a period of three years from the date
of accrual of cause of action which was 31st March, 1997 and 31st March, 1998 for
the assessment year 1994-95 and 1995-96 respectively. Limitation does not be
extend by making any part payment against a time barred claim. The learned
arbitrator has held that the order disallowing depreciation have been already passed
hence cause of action to increase lease rentals had already arisen. In my view, the
learned arbitrator could not have rejected the plea of limitation. Award shows total
inconsistency and contradiction on this issue. This court in case of Aditya Birla
Chemicals (India) Ltd. (supra) has held that right to sue accrued when claim for
depreciation was rejected by assessing officer and fresh period of limitation would
not commence on denial of claim subsequently by the lessee in response to notice
dated 17th May, 2005. In my view, cause of action for making any claim arising out
of disallowance of depreciation would arise when claim of depreciation made by the
respondents was disallowed by the assessing officer in 1997 and 1998. Once time is
begun to run, no subsequent disability or inability to institute a suit or make an
application stops it. Once time starts running, it does not stop. Limitation is not
extended unless there is an acknowledgment of liability or part payment. This court
in case of Asian Electricals Vs. Tata Motors (supra) has also taken a similar view
that cause of action would arise on disallowance of depreciation by assessing
officer. I am respectfully bound by the judgment of this court and do not find any
reason to take a different view in this matter.
18. As far as judgment of Patna High Court in case of Mukhdeo Singh and another
(supra) relied upon by Mr. Purohit is concerned, it has been held in the said
judgment that where a party has recurring or successive causes of action whether
under the terms of contract or by operation of law, each cause of action will give a
fresh start to the period of limitation and the mere fact that a party has not availed
himself of the earlier cause of action, will not prevent him from availing himself of a
later one. In this case, the notice invoking arbitration agreement claim filed before
the learned arbitrator by the respondents clearly indicates that respondents had
already availed of cause of action already having arisen in favour of the respondents
due to disallowance of the claim of depreciation in the year 1997-98. Limitation
would stop on receipt of such notice dated 17th May, 2005 by the petitioners herein
and arbitration proceedings had already commenced in respect of such dispute. It is
thus clear that on the date of receipt of notice dated 17th May, 2005, claim arising
out of disallowance of depreciation on 31st March, 1997 and 31st March, 1998 has
already became time barred. The respondents opposed the plea of petitioners that
such claim was premature on the ground that liability of the respondents arising out
of such disallowance of depreciation was not crystalised in view of pendency of
appeal before the Income Tax Appellate Tribunal and cause of action had not arisen.
Even the learned arbitrator has held that cause of action had already arisen when
the claim for depreciation was disallowed by the assessing officer and merely
because appeal was pending would not mean that cause of action has not arisen.
The learned arbitrator has rejected the plea of the petitioners that claim was
premature. The learned arbitrator has held that claim which is premature cannot be
time barred and the time barred claim cannot be premature however has failed to
appreciate that even if a claim may not be premature but it can still be time barred.
In my view, the respondents once having invoked arbitration clause, proceeded on
the basis that cause of action had arisen on the basis of disallowance of
depreciation claim by the assessing officer in 1997-98, respondents could not have

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been permitted to take plea that on the assessing officer passing a fresh
assessment order after remand of matter by the Income Tax Appellate Tribunal, it
would give fresh cause of action and claims would not be barred by limitation. In
my view respondents having opposed plea of the petitioners that claims were
premature on the ground that cause of action had already arisen, could not have
opposed plea of limitation on the ground that cause of action has not arisen or the
same was continuing cause of action and thus such claim was not barred by
limitation. The stand taken by the respondents was inconsistent and contradictory
and the findings rendered by the learned arbitrator accepting such inconsistent plea
is also inconsistent and contradictory. In my view, once plea of the petitioners that
claims made in notice dated 17th May 2005 and statement of claim were premature is rejected, it presupposes that such claims were made on the premise that
cause of action had already arisen when such notice was issued. The learned
arbitrator therefore ought to have considered whether on the date of receipt of
notice dated 17th May, 2005 whether claims were barred or not. In my view
reliance placed by the respondents on the judgment of the Patna High Court in case
of Mukhdeo Singh and another (supra) is totally misplaced.
20. In my view merely because assessing officer passed fresh order disallowing
depreciation on 12th December, 2006 would not revive the time barred claim in
respect of which notice invoking arbitration was already issued on 17th May, 2005
on the basis of cause of action having accrued on 31st March, 1997 and 31st March,
1998 for assessment years 1994 -95 and 1995-96 respectively and statement of
claim was already filed. In my view, if according to the learned arbitrator cause of
action had not arisen in view of the pendency of appeal before the Appellate
Authority, the learned arbitrator could not have rejected the plea of the petitioners
that the claims were premature. In my view, the learned arbitrator was bound to
reject time barred claims made by the respondents. By allowing such time barred
claims, the learned arbitrator committed patent illegality and the award is in conflict
with public policy. Reliance thus placed by the respondents on the judgment of the
Supreme Court in case of Union of India vs. West Coast Paper Mills Ltd. (supra) is of
no assistance to the respondents.
22. On the issue as to whether by accepting residual amount from the petitioners
by the respondents during the pendency of appeal before the authority, would
amount to accord and satisfaction and the claims would be beyond the jurisdiction
of the learned arbitrator is concerned, it is held by the learned arbitrator that by
paying the residual amount which was payable under the lease agreement, the
petitioners have acknowledged that the jural relationship i.e. contract was still alive
and so long as jural relationship was alive and claim was made during the existence
of the contract and/or within three years after termination, if any, of the contract,
the claim would be within time. The learned arbitrator rejected this submission
made by the petitioners that there was any accord and satisfaction by accepting
residual value. It is held that the petitioners did not lead any oral evidence to show
that sales tax was paid by the petitioners and did not produce their books of
account to show that they had treated the equipments as their own. It is further
held that there was no transfer of equipments and therefore the contract as well as
liability still subsisted.
36. As far as rate of interest allowed by the learned arbitrator is concerned, Mr.
Purohit, learned counsel appearing for the respondents fairly submits that if this
court comes to the conclusion that award rendered by the learned arbitrator
allowing principle amount is correct, respondents have no objection if this court
considers reasonable interest on the principle amount though contract provided for
compound interest at the rate of 30%. Submission of the petitioners on the other
hand is that since no amount is due and payable by the petitioners, the question of
awarding any interest did not arise and in any event, since no default was
committed by the petitioners in making payment of revised rentals, the learned
arbitrator could not have awarded interest from retrospective effect and that also by

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way of interest on interest and at penal rate. Ms. Phene also invited my attention to
the fact that claim of interest awarded by the learned arbitrator w.e.f. 12th
December, 2006 at the rate of 30% per annum was on Rs. 15,76,68,108/- which
was already inclusive of penal interest and thus the learned arbitrator has awarded
interest on interest. In my view, since award of principle amount itself by the
learned arbitrator is illegal, the learned arbitrator could not have awarded interest
thereon. In any event, even if principle amount was required to be awarded for
securing the claim of the respondents, the learned arbitrator could not have
awarded interest at the rate other than what was required to be paid under Income
Tax Act, 1961 and not at the rate provided in the agreement between the parties.
The learned arbitrator also could not have awarded interest on interest and that
also from 12th December, 2006 i.e. period prior to the date of award. The learned
arbitrator almost could have awarded interest on the principle amount from the
date of award till payment at the rate provided under Income Tax Act, 1961. Since
award granting principal amount is set aside, award interest cannot sustain."
23. Learned senior counsel invited my attention to clause 16 of the lease summary schedule to
the lease agreement styled as 'capital allowance variation clause' and submits that under the
said clause if claim for depreciation of the respondent was disallowed whether wholly or partly
in any year during the fixed period of the lease or if the lessor was required to pay income tax
at higher/lower rate than 46%, the rental would stand increased/deceased accordingly as a
percentage of acquisition cost. It is submitted that the cause of action thus arose when the
Deputy Commissioner of Income Tax disallowed the claim for depreciation of M/s. Tata Finance
Limited on 31.3.1998 and a demand notice was issued by the income tax authorities on the
same date. The said notice was received by the M/s. Tata Finance Limited on 1.4.1998. There
was however no claim made by the respondent for revision of lease rental. It is submitted that
the arbitration proceedings commenced after expiry of 14 days from the date of receipt of the
notice dated 10.10.2003 issued by the said M/s. Tata Finance Limited. The limitation stopped
on expiry of 14 days from the date of receipt of the said notice. It is submitted that on the date
of expiry of 14 days from the date of receipt of the said notice, the claim was ex-facie barred by
law of limitation.
24. Learned senior counsel submits that merely because the said M/s. Tata Finance Limited
raised a debit note on 11.10.2000 for Rs. 24,60,83,090/- which was re-sent on 29.3.2001 and
denied by the petitioner on 24.12.2001 would not give any fresh cause of action to file the
claim. It is submitted that in any event even if the date of 11.10.2000 raising a debit note is
considered as the date of cause of action, three years had already expired much prior to the
date of expiry of 14 days from the date of receipt of the notice invoking arbitration clause by
the said M/s. Tata Finance Limited.
25. Learned senior counsel invited my attention to the finding rendered by the learned
arbitrator on issue no. 2 and in particular in paragraph 23 on interpretation of clause 16 'the
capital allowance variation clause' holding that if the eligibility to claim depreciation was
decreased or increased or if the claim for depreciation was disallowed partly or fully in any year
during the fixed period of the case, then the lease rental would stand increased and/or
deceased proportionately at a percentage of acquisition cost and the cost of acquisition would
stand increased/deceased by the same percentage of dis-allowance of depreciation and that the
lease rental would thereafter be re-calculated according to the re-worked acquisition cost.
26. The learned arbitrator rejected the contention of the petitioner herein that clause 16 of the
lease agreement was vague, untenable or unenforceable or void. It is submitted that the finding
and conclusion of the learned arbitrator while dealing with issue of limitation under issue no. 11
is contrary to and inconsistent with the finding and interpretation of the learned arbitrator on
clause 16 of the award which shows patent illegality on the face of the award.
27. On the issue of limitation learned senior counsel also placed reliance on the judgment of
this court in case of Asian Electronics Limited vs. Tata Motors Limited delivered on 28.12.2006
in Arbitration Petition No. 254 of 2006 and in particular paragraph 10 thereof holding that the
cause of action arose when the income tax officer disallowed the depreciation. Paragraph 10 of

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the said judgment reads thus:"10. The seventh ground on which the award is challenged is that the claim made
by the Respondent was barred by the law of limitation. According to the learned
Counsel reference was made after the income-tax officer made the order on 31st
March, 2000 and the amount of lease rental due from 27th September 1996
onwards were claimed. I find that the learned arbitrator has correctly held that the
cause of action arose when the Income-tax Officer disallowed the depreciation and
the Respondent would be entitled to claim lease rental from the year 1996.
Admittedly, no interest has been claimed on that amount. I, therefore, do not find
any infirmity in the finding recorded by the learned arbitrator on this count."
28. Learned senior counsel also placed reliance on the judgment dated 10.7.2007 of the division
bench dismissing the appeal filed by the said M/s. Asian Electronic Ltd. (384 of 2007) arising
out of the order and judgment dated 28.11.2006. He also placed reliance on the judgment of
this court in case of Aditya Birla Chemicals (India) Limited vs. Tata Motors Ltd. delivered on
9.10.2012 in Arbitration Petition no. 1027 of 2011 and in particular paragraphs 19 and 20 and
would submit that the cause of action once commence would not stop. Neither any part
payment is made by the petitioner nor the petitioner has acknowledged any liability during the
subsistence of the alleged liability or otherwise. Paragraphs 19 and 20 of the said judgment in
Arbitration Petition no. 1027 of 2011 read thus:"19. In my view claim made by the Respondent was a claim simpliciter for recovery
of additional lease rent by virtue of disallowance of depreciation by assessing
officer. In my view, Article 54 of the Schedule to Limitation Act does not apply to a
money claim. In my view, the reliance placed by the Learned Arbitrator on Article
54 while rejecting the plea of limitation is totally perverse and without application of
mind. The Learned Arbitrator has misdirected by applying wrong article of Schedule
to limitation. In my view the Learned Arbitrator has decided contrary to
substantiate law in force in India. Award is contrary to Section 28(a) of the
Arbitration and Conciliation Act, 1996 and is thus in conflict with public policy. In
my view, since the claim made by the Respondent was barred by the law of
limitation as on the date of the receipt of notice of invoking arbitration clause, it
was duty of the Learned Arbitrator to reject such time barred claim.
20. In my view right to sue accrued when claim for depreciation made by
Respondent was rejected on 31st March, 2004 and raising of demand by the
Respondent by issuing debit note on 19th June, 2006 and refusal to pay the said
demand by the Petitioner on 17th August, 2006 would not commence fresh period
of limitation, which had already commenced on 31st March, 2004. In view of
Section 9 of the Limitation Act, 1963, once time is begun to run, no subsequent
disability or inability to institute a suit or make an application stops it. Once time
starts running, it does not stop. Limitation is not extended unless there is an
acknowledgment of liability or part payment. It is not the case of the Respondent
that the Petitioner acknowledged its alleged liability or there was any part payment
made by the Petitioner after 31st March, 2004. In my view, correspondences does
not extend the period of limitation."
29. Learned senior counsel invited my attention to the submissions urged by the petitioner
before the learned arbitrator which are summarised in paragraph 5 of the impugned award and
in particular in sub-para (xi) to the effect that once the income tax authorities have disallowed
the claim for depreciation holding that the respondent was not the owner of the equipment by
treating the transaction as a finance transaction, the incidence of the income tax on the
transaction would become smaller as the full amount by the monthly rental received by the
respondent would include a part of the capital repayment on which no income tax would be
payable. The respondent in that situation would have made savings in payment of income tax
which could be set off against the dis-allowance in the first year and thus the respondent herein
was not entitled to make any claim. It is submitted that though the learned arbitrator
summarised the said submission of the petitioner in the impugned award, the said submission

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has not been considered at all in the entire award. It is submitted that the award is liable to be
set aside on this ground also.
30. Learned senior counsel invited my attention to the findings of the learned arbitrator on
issue no. 8 rendered in paragraphs 46 to 54 of the impugned award. It is submitted that the
learned arbitrator has on the basis of the dis-allowance by depreciation by the income tax
authorities in the year 1998 has allowed the claim of the respondent being the difference
between the month to month revised rental amount as calculated and the actual rental amount
paid from the month of September 1994 to July 2002 and allowed 30% overdue interest
thereon from September 1994 to July 2002. It is submitted that there was no question of any
default committed by the petitioner in making payment of revised rental in the year 1994. The
learned senior counsel submits that in respect of the claim of the petitioner for revision of the
lease rental arising out of reduction in payment of rate of income tax with service charges at
the rate of 30% per annum, the learned arbitrator however rejected the said claim holding that
there was no such provision in the agreement.
31. The learned arbitrator while considering the credit note issued by the petitioner in the sum
of Rs. 2,40,61,846/- did not direct the respondent to re-calculate the lease rental in the year in
which there was reduction of rate of income tax below 46%. It is submitted that if the learned
arbitrator would have considered to give effect of the reduction in rate of income tax on the
lease rental during the period when the said deduction took place, the petitioner would have
become entitled to the refund of the excess amount recovered by the respondent. The learned
arbitrator has applied different yardstick while dealing with the claims made by the respondent
and the petitioner.
32. In so far as claim for interest awarded by learned arbitrator is concerned, learned senior
counsel submits that though the learned arbitrator had not granted any interest for the period
between 6.1.2004 till the date of award, the learned arbitrator made an additional award under
section 33 of the said Arbitration Act and allowed the said claim for interest which is in teeth of
section 33 of the said Arbitration Act. It is submitted that interest was not the claim like other
principal claim and thus could not have been awarded under section 33(4) of the said
Arbitration Act. The additional award is vitiated on this ground.
33. Learned senior counsel submits that the learned arbitrator has awarded interest at the rate
of 30% per annum on the amount of Rs. 28,07,44,041/- which was inclusive of interest. The
learned arbitrator has awarded interest on interest which is not permissible. In support of this
submission learned senior counsel placed reliance in case of Supreme Court in case of State of
Haryana and others vs. S.L. Arora and Company MANU/SC/0131/2010 : (2010) 3 SCC 690 and
in particular paragraph 34 which reads thus:"24. Thus it is clear that Section 31(7) merely authorizes the arbitral tribunal to
award interest in accordance with the contract and in the absence of any prohibition
in the contract and in the absence of specific provision relating to interest in the
contract, to award simple interest at such rates as it deems fit from the date on
which the cause of action arose till the date of payment. It also provides that if the
award is silent about interest from the date of award till date of payment, the
person in whose favour the award is made will be entitled to interest at 18% per
annum on the principal amount awarded, from the date of award till date of
payment. The calculation that was made in the execution petition as originally filed
was correct and the modification by the respondent increasing the amount due
under the award was contrary to the Award."
34. Learned senior counsel also relied upon paragraph 36 of the judgment of this Court in the
case of Gujarat Urja Vikas Nigam Limited (supra) on issue of interest on interest.
35. Learned senior counsel submits that on the issue whether the claim was premature in view
of the pendency of the income tax proceedings raised under issue no. 18, the learned arbitrator
has placed reliance on the award of the learned arbitrator dated 19.7.2011 in case of Tata
Motors limited vs. Gujarat Urja Vikas Nigam Limited and has agreed with the reasonings given

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therein while holding that the claim was not premature. It is submitted that the said award
dated 19.7.2011 relied upon by the learned arbitrator in that case is set aside by this court. It is
submitted that in any event the learned arbitrator could not have relied upon award in another
matter as a precedent.
36. Learned senior counsel submits that the learned arbitrator could not have awarded any
amount towards cost in favour of the respondent. The petitioner was dragged into the
arbitration proceedings. The learned arbitrator ought to have rejected the claim for cost made
by the respondent and ought to have awarded cost in favour of the petitioner.
37. Mr. Shah, learned senior counsel for the respondent, on the other hand, invited my
attention to clauses 2.2 and 2.4 of the Lease Agreement and also clause 16 of the Lease
Summary Schedule and would submit that all these three clauses have to be read together. It is
submitted that under clause 2.4, the lessor was entitled to vary the lease rental charges every
time during continuance of agreement in the event of claim for the depreciation of the lessor is
disallowed by the Income Tax Authorities. The lessor is not bound to vary the lease rental
charges immediately upon such disallowance by the Income Tax Authorities. It is submitted that
the Lease Agreement was not expired when the depreciation was disallowed for the first time by
the Deputy Commissioner of Income Tax i.e. on 31.3.1998.
38. It is submitted that on 11.10.2000, the respondent had invoked clause 2.4 and had issued a
Debit Note calling upon the petitioner to pay various amounts based on the order passed by the
Deputy Commissioner of Income Tax on 31.3.1998. It is submitted that during the period
between March 1998 and March 2001, the respondent had paid income tax due to disallowance
of depreciation to the tune of Rs. 7.75 crores. Reliance is placed on the letter dated 30.1.2001
addressed by the petitioner to the respondent which was admittedly not part of the record of
the arbitral tribunal. Learned senior counsel placed reliance on the reply of the respondent
dated 29.3.2001 to the said letter dated 30.1.2001 and would submit that by the said letter,
the respondent had sent various documents and had furnished details in respect of assessment
order dated 31.3.1998 and copy of the demand notice issued by the Income Tax Authorities
upon the respondent.
39. It is submitted that from the reply of the respondent dated 29.3.2001, it would clearly
indicate that the petitioner had asked for various details and documents pertaining to
disallowance of the depreciation and steps taken by the respondent to impugn the said order.
Learned senior counsel submits that these two letters would clearly indicate that the jural
relationship between the parties existed. It is submitted that the petitioner thereafter, by letter
dated 22.12.2001 refused to accept the amount claimed under the Debit Note. The arbitration
clause invoked by the respondent on 10.10.2003 was thus within three years from the date of
debit note dated 11.10.2004, within three years from the date of letter dated 30.1.2001
addressed by the petitioner seeking certain documents and details and also the letter dated
24.12.2001 of the petitioner refusing to pay the amount claimed under the debit note.
40. Learned senior counsel submits that in view of jural relationship existing between the
parties and in view of the petitioner refusing to pay the demand by letter dated 24.12.2001, the
cause of action and right to sue arose on 24.12.2001 when the petitioner rejected the demand
made by the respondent. It is submitted that limitation is extended due to the correspondence
exchanged between the parties. The cause of action thus did not commence when the order
dated 31.3.1998 was passed by the Deputy Commissioner of Income Tax disallowing the claim
of depreciation made by the respondent. It is submitted by the learned senior counsel that the
liability was not crystallized prior to 24.12.2001.
41. In support of the aforesaid submission, learned senior counsel placed reliance on the
judgment of the Supreme Court in the case of Messrs Lakshmirattan Cotton Mills Co. Ltd. and
Messrs Behari Lal Ram Charan Vs. The Aluminium Corporation of India Ltd., reported in
MANU/SC/0017/1970 : 1971(1) SCC 67 and in particular paragraph 1, 2, 7 to 11, 17 and 18 of
the said judgment which read thus:"1. Prior to January 18, 1944 M/s. Lakshmiratan Cotton Mills Co. Ltd. (hereinafter

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referred to as the appellant company), Aluminium Corporation of India Ltd.

(hereinafter referred to as the corporation, J.K. Limited, Beharilal Kailashpat India
Supplies, Northern India Trading Co., and Northern India Brush Manufacturing Co.
Ltd. were all jointly managed by two, groups, who may conveniently be called the
Singhania and the Gupta groups. Disputes having arisen between them, they were
referred to arbitration by a deed of reference, dated December 9, 1943. It is not
necessary to go into the details of the award, dated January 18, 1944, by which
these disputes were adjudicated upon except that from and after the date of the
award the aforesaid concerns were brought under the management and, control of
one or the other of the said two groups. The corporation came under the control
and management of the Singhania group.
Clause 9 of the award provided as follows:
"The above award or directions in respect of Laxmi Ratan Cotton Mills
Co. Ltd., Aluminium Corporation of India Ltd., J.K. Ltd., Beharilal
Kailashpat India Supplies, Northern India Trading Co. and Northern
Brush Manufacturing Co. do not cover the advances which either party
or their separate firms may have made to all or any of them or their
moneys which may be in deposit with them and they shall be payable
and paid in their usual course."
According to the appellants, there existed in their trading books :accounts in
respect of amounts advanced or spent by them for,' the corporation in respect of
which cl. (9) of the award specifically made provision for and also for interest due
thereon. After the award was made the appellant-company sent a statement of
account to the corporation, but this was objected to on the ground that the
appellant-company, during the course, of the previous joint management of the
corporation, had not properly maintained the accounts and that several items were
either not properly accounted for or entered into. Correspondence thereafter ensued
between the parties. The parties also appointed their respective officers to meet
and reconcile their respective accounts the corporation being represented by its
Secretary-cum, Chief Accountant, one Subramanayam, and the appellant-company
sometimes by one Arora and at other times by one Newatia. Since no settlement
could be arrived at, the appellants filed two suits claiming Rs. 3,56,207-9-6 and Rs.
72,595-4-6 from the corporation, being Suit Nos. 63 and 65 of 1949.
2. In para 14 of the plaint in Suit No. 63 of 1949, it was claimed that the suit was
within time as after adjustment of several items in 1946 and 1947 a sum of Rs.
2,96,110-11-6 was found due to the appellant-company and that in any event the
suit was saved from being barred by limitation by a letter, dated April 16, 1946
addressed by the said Subramanayam, thereby acknowledging the liability of the
corporation to pay the amount which would be found due and payable under the
said accounts. Similar averments were also made in the plaint in Suit No. 65 of
1949. The written statements filed by the corporation inter alia pleaded that the
said claims were, barred by limitation, that the said letter did not amount to an
acknowledgement within the meaning of S. 19 of the Limitation Act, 1908 which
was then applicable to the suits, and lastly, that even if the said letter did amount
to an acknowledgment, it was not binding on the corporation as the said
Subramanayam had no authority to make any such acknowledgement for and on
behalf of and binding on the corporation.
7. The question, therefore, that really arises for our determination is whether the
said letter contains an acknowledgement, which its writer, Subramanyam, had the
authority, express or implied, to make. Even that question gets reduced in extent
and scope as it was never the case of the appellant-company at any stage that the
corporation had clothed its Secretary with such authority expressly. Such a case Mr.
Gupte did not make out even before us and proceeded in fact to argue that the
evidence on record showed that he had such authority given to him impliedly.

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8. Section 19(1) of the Limitation Act, 1908 provides that where, before the
expiration of the period prescribed for a suit in respect of any property or right, an
acknowledgement of liability in respect of such property or right has been made in
writing signed by the party against whom such property or right is claimed, a fresh
period of limitation shall be computed from the time when the acknowledgement
was so signed. The expression 'signed' here means not only signed personally by
such a party, but also by an agent duly authorised in that behalf. Explanation 1 to
the section then provides that an acknowledgement would be sufficient though it
omits to specify the exact nature of the property or right, or avers that the time for
payment has not yet, come, or is accompanied by a refusal to pay or is coupled
with a claim to a set-off, or is addressed to a person other than the person entitled
to the property or right. The new Act of 1963 contains in S. 18 substantially similar
provisions.
9. It is clear that the statement on which the plea of acknowledgement is founded
must relate to a subsisting liability as the section requires that it must be made
before the expiration of the period prescribed under the Act. It need not, however,
amount to a promise to pay, for, an acknowledgement does not create a new right
to action but merely extends the period of limitation. The statement need not
indicate the exact nature, or the specific character of the liability. The words used in
the statement in question, however, must relate to a present subsisting liability and
indicate the existence of jural relationship, between the parties, such as, for
instance, that of a debtor and a creditor, and the intention to admit such jural
relationship. Such an intention need not be in express terms and can be inferred by
implication from the nature of the admission and the surrounding circumstances.
Generally speaking, a liberal construction of the statement in question should be
given. That of-course does not mean that where a statement is made without
intending to admit the existence of jural relationship, such intention should be
fastened on the person making the statement by an involved and far-fetched
reasoning. (see Khan Bahadur Shapoor Freedom Mazda v. Durga Prosad Chamaria
And Tilak Ram v. Nathu. As Fry, L.J., in Green v. Humphreys said "an
acknowledgement is an admission by the writer that there is a debt owing by him
either to the receiver of the letter or to some other person on whose behalf the
letter is received but it is not enough that he refers to a debt as being due from
somebody. In order to take the case out of the statute there must upon the fair
construction of the letter, read in the light of the surrounding circumstances, be an
admission that the writer owes the debt." As already stated, the person making the
acknowledgement can be both the debtor himself as also a person duly authorised
by him to make the admission. In Khan Bahadur Shapoor Freedom Mazda's case
(supra) the Court accepted a statement in a letter by a mortgagor to a second
mortgagee to save the mortgaged property from being sold away at a cheap price
at the instance of the prior mortgagee by himself purchasing it as one amounting to
an admission of the jural relationship of a mortgagor and mortgage &, and
therefore, to an acknowledgement within s. 19. Also, an agreement of reference to
arbitration containing an unqualified admission that whoever on account should be
proved to 'be the debtor would pay to the other has been held to amount to an
acknowledgement. Such an admission is not subject to the condition that before the
agreement should operate as an acknowledgement, the liability must be ascertained
by the arbitrator. The acknowledgement operates whether the arbitrator acts or
not. (see Tejpal Saraogi v. Lallanjee Jain, approving Abdul Rahim Oosman & Co. v.
Ojamshee Prushottamdas & Co.
10. The letter (Ex. 1) relied on as an acknowledgement was written to the
appellant-company by Subramanayam signing it "for Aluminium Corporation of
India Ltd." it consists of Several paragraphs dealing with diverse items relating to
different amounts, claimed by the appellant-company in a statement of claim
previously sent by it to the corporation, some of which are refuted by the writer,
while the others are accepted. The penultimate paragraph, which is said to contain
the admission, reads as follows:

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"After all the above adjustments, the position will be as per statement
attached. Interest has been provided on some balances and on others it
has not been provided. We request you, to confirm the balance of Rs.
1,07,477-13-11, so that we may proceed with the calculation of interest
and settle your claim once and for all immediately.
Kindly acknowledge this letter and favour us with an immediate reply."
The letter speaks in the last sentence of a copy of it to be sent to Lala Purshottam
Dasji Singhania "for information". The co of the letter, as is clear from the other
evidence as also the words "for information" was not sent for approval and was
obviously not intended to be subject to such approval by Purushottam Singhania.
The statement enclosed with the letter headed "Account of M/s. Lakshmiratan
Cotton Mills Co. Ltd.' and first sets out the balance of Rs. 1,00,760-0-7 in favour of
the appellant-com any "as per our ledger", meaning the ledger of the corporation,
and the first foot-note thereto states that amount included interest of Rs. 26,49011-10 calculated upto March 31, 1943. Several amounts due to other concerns
payable to or by the appellant-company are, then adjusted and finally the balance
is struck at Rs. 1,07,447-13-11 (which is the one mentioned in the letter (Ex. 1)
which if confirmed by the appellant-company, the corporation would "settle your
claim once and for all immediately."
11. The High, Court, as aforesaid, held, contrary to the view of the Trial Court, that
these letter was only "explanatory" and was not intended to be an admission of
liability or of the jural relationship between the parties as debtor and creditor.
Counsel for the corporation also argued in support of the High Court's view that the
letter was written in the process of adjustment and reconciliation of the statement
of claim addressed by the appellant-company and a counter-statement to it by the
corporation and therefore, could not be held to be one intended as an admission of
liability on the part of the corporation, and that, in any event, Subramanayam, who
wrote it, had no authority to acknowledge any such liability on behalf of the
corporation.
17. Leaving aside for the time being the question as to Subramanayam's authority,
the following facts emerge from the correspondence and the statements of accounts
accompanying some of the letters sent on behalf of the corporation:
(a) In pursuance of cl. (9) of the said award, the appellant-company
sent to the corporation in the beginning of March 1945 a statement of
account claiming Rs. 2,94,000 and odd as due to it.
(b) At no time during the lengthy correspondence which ensued
between the parties, the corporation denied its liability to pay; what it
did was, to dispute the correctness of the amount claimed by the
appellant-company by challenging certain items for which the appellantcompany claimed credit and by making certain counter claims of its
own. As against the statement of account sent by the appellantcompany, the corporation sent its own statement which it called the
'reconciliation account'.
(c) During the process of adjustment and reconciliation of the several
items claimed by the appellant-company some were allowed and some
were rejected, and the corporation sought to debit certain items claimed
by it against the appellant-company.
(d) According to the reconciliation statement sent by the corporation on
September 17, 1945 only Rs. 98,000 and odd was due to the appellantcompany as against its claim for Rs. 2,94,000 and odd. Later, this figure

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was raised from time to time as some of the items claimed by the
appellant-company were allowed with the result that in the statement
sent along with the letter (Ex. 1) the balance due to the appellantcompany was shown at Rs. 1,07,447.
(e) The statements of accounts, (Exs. 43 and 44) and the one enclosed
with the letter, (Ex. 1) in clear terms stated that the balances shown
therein were as shown in the ledger maintained by the corporation. The
letters equally clearly stated that interest on such balances was being
credited up to certain dates and for the further period would be credited
when the accounts were finalised.
18. It must follow from these facts that there was a subsisting, account in the name
of the appellant-company in the books of the corporation in which interest on the
balance shown therein from time to time was being credited and in which amounts
in respect of items passed during the course of reconciliation were also being
credited. The statement in the letter (Ex. 1) that "after all the above adjustments
the position will be as per statement attached", that is to say, that there was a
balance of Rs. 1,07,447-13-11 due and payable to the, appellant-company, must
clearly amount to an acknowledgement within the meaning of S. 19(1). In our view
if the letter (Ex. 1) were to be looked at in the background of the controversy
between the parties, which controversy was, as aforesaid, limited to the question as
to the correctness of the amount claimed by the appellant company as also the
correspondence which ensued in regard to it, it would be impossible to say that the
letter (Ex. 1) and the statement of account enclosed therewith were merely
explanatory and did not amount to an admission of the jural relationship of debtor
and creditor and of the liability to pay the amount found due at the foot of the
account on finalisation."
42. It is submitted that though in the cross-examination of the witness examined by the
petitioner, the said witness was called upon to produce letter dated 30.1.2001, the witness did
not produce the said letter. The respondent is thus entitled to rely upon the reply of the
respondent dated 29.3.2001 to demonstrate that jural relationship between the parties had
existed. It is submitted that thus there was no need for specific admission/acknowledgement of
liability. Existence of jural relationship itself would amount to acknowledgement of liability. It is
submitted that there was no denial of claim prior to 29.3.2001. The arbitral tribunal as well as
this Court are bound to consider surrounding circumstances while dealing with the plea of
limitation.
43. Learned senior counsel placed reliance on the judgment of the Kerala High Court in the case
of M/s. Craft Centre and Ors. Vs. The Koncherry Coir Factories, Cherthala, reported in
MANU/KE/0017/1991 : AIR 1991 Kerala 83 and in particular paragraph 1 thereof in support of
the submission that the Court must lean against limitation and in favour of the subsistence of
the right to sue where two views are clearly possible. Paragraph 1 of the said judgment of the
Kerala High Court reads thus:"1. Law of limitation is not meant to be an aid to unconscionable conduct, although,
if a claim is clearly barred, the Court must unhesitatingly dismiss the suit. It is a law
of repose, peace and justice which bars the remedy after the lapse of a particular
period by way of public policy and expediency without extinguishing the right except
in certain cases. Therefore, the Court must lean against limitation and in favour of
the subsistence of the right to sue where two views are clearly possible. When there
is the benefit of a reasonable doubt in the matter of construction of a statement
relied upon to serve as an acknowledgment to save limitation, the benefit of that
doubt should go to the plaintiff. That is what V.R. Krishna Iyer, J. said in Eapen
Panicker v. Krishna Panicker, following earlier Supreme Court decisions."
44. In so far as submission of the learned senior counsel for the petitioner that the arbitral
tribunal has awarded the entire claim of the respondent only on the basis of the judgment of

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this Court in the case of Gujarat Urja Vikas Nigam Limited (supra) is concerned, my attention is
invited to paragraphs 54 to 67 of the impugned award by the learned senior counsel for the
respondent and it is submitted that the arbitral tribunal while allowing the claim of the
respondent and rejecting the plea of limitation has also considered the judgment of the
Supreme Court in the case of Messrs Lakshmirattan Cotton Mills Co. Ltd. (supra) and also the
judgment of Kerala High Court in the case of M/s. Craft Centre (supra).
45. Learned senior counsel for the respondent made an attempt to distinguish the judgment of
this Court in the case of M/s. Gujarat Urja Vikas Nigam Limited (supra) on the ground that in
this case the jural relationship is continued till 31.3.2001 whereas no such issue of jural
relationship was considered by this Court in the case of M/s. Gujarat Urja Vikas Nigam Limited
(supra). It is submitted that in the case of M/s. Gujarat Urja Vikas Nigam Limited (supra), the
petitioner had made part payment after three years of expiry of limitation whereas in this case,
the arbitration agreement invoked by the respondent on 10.10.2003 was within the period of
limitation. Learned senior counsel placed reliance on the paragraphs 14 to 17 and 22 of the
judgment of this Court in the case of M/s. Gujarat Urja Vikas Nigam Limited (supra) and made
an attempt to distinguish the said judgment.
46. In so far as the judgment of this Court of Aditya Birla Chemicals (India) Ltd. Vs. Tata
Motors Ltd. passed in Arbitration Petition No. 1027 of 2011 relied upon by the petitioner is
concerned, it is submitted by Mr. Shah that this Court in the said judgment had accepted the
plea of limitation while considering the Article 54 of the Schedule to the Limitation Act, 1963,
but did not consider Article 113 of the Schedule to the Limitation Act, 1963. It is submitted that
the said judgment is thus distinguishable in the facts of this case and does not assist the
petitioner. Learned senior counsel for the respondent placed reliance on the judgment of the
Supreme Court in the case of Rukhmabai Vs. Lala Laxminarayan & Ors., reported in
MANU/SC/0186/1959 : AIR 1960 SC 335 and would submit that right to sue did not accrue until
the right is asserted by one party and denied by another. Reliance is placed on paragraphs 31
and 32 of the said judgment which read thus:"31. The argument on the question of limitation is put thus: The plaintiff,
respondent herein, had knowledge of the fraudulent character of the trust deed as
early as 1917 or, at any rate, during the pendency of the partition suit between
Rukhmabai and Chandanlal instituted in the year 1929, and the suit filed in 1940,
admittedly after six years of the said knowledge, would be barred under Art. of the
Limitation Act. Article of the Limitation Act reads:

This Article was subject to judicial scrutiny both by the Judicial Committee as well
as by the High Court of various States. The leading decision on the subject is that of
the Judicial Committee in Bolo v. Koklan. Therein, Sir Benod Mitter, observed:
"There can be no 'right to sue' until there is an accrual of the right
asserted in the suit and its infringement, or at least a clear and
unequivocal threat to infringe that right, by the defendant against whom
the suit is instituted."
32. The said principle was restated and followed by the Judicial Committee in
Annamalai Chettiar v. A.M.K.C.T. Muthukaruppan Chettiar and in Gobinda Narayan
Singh v. Sham Lal Singh. The further question is, if there are successive invasions

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or denials of a right, when it can be held that a person's right has been clearly and
unequivocally threatened so as to compel him to institute a suit to establish that
right. In Pothukutchi Appa Rao v. Secretary of State, a Division Bench of the Madras
High Court had to consider the said question. In that case, Venkatasubba Rao J.,
after considering the relevant decisions, expressed his view thus:
"There is nothing in law which says that the moment a person's right is
denied, he is bound at his peril to bring a suit declaration. The
Government beyond passing the order did nothing to disturb the
plaintiff's possession. It would be most unreasonable to hold that a bare
repudiation of a person's title, without even an overt act, would make it
incumbent on him to bring the declaratory suit".
He adds at p. 199:
"It is a more difficult question, what is the extent of the injury or
infringement that gives rise to, what may be termed, a compulsory
cause of action ?"
47. Learned senior counsel placed reliance on the judgment of the Supreme Court in the case of
State of Punjab & Ors. Vs. Gurdev Singh, Ashok Kumar, reported in MANU/SC/0612/1991 : AIR
1991 SC 2219. He placed reliance on paragraph 4 of the judgment in support of his submission
that the suit must be instituted when the right asserted in the suit is infringed or when there is
a clear and an unequivocal threat to infringe that right by the defendant against whom the suit
is instituted. Paragraph 4 of the said judgment of the Supreme Court in the case of State of
Punjab (supra) reads thus:"4. First of all, to says that the suit is not governed by the law of Limitation runs
afoul of our Limitation Act. The statute of Limitation was intended to provide a time
limit for all suits conceivable. Section 3 of the Limitation Act provides that a suit,
appeal or application instituted after the prescribed "period of limitation" must
subject to the provisions of Section to 24 be dismissed although limitation has not
been set up as a defence. Section 2(j) defines the expression "period of limitation"
to mean the period of limitation prescribed in the Schedule for suit, appeal or
application. Section 2(j) also defines, "prescribed period" to mean the period of
limitation computed in accordance with the provisions of the Act. The Court's
function on the presentation of plaint is simply to examine whether, on the assumed
facts, the plaint is within time. The Court has to find out when the "right to sue"
accrued to the plaintiff. If a suit is not covered by any of the specific articles
prescribing & period of limitation, it must fall within the residuary article. The
purpose of the residuary article is to provide for cases which could not be covered
by any other provision in the Limitation Act. The residuary article is applicable to
every variety of suits not otherwise provided for. Article (corresponding to Article of
the Act 1908) is a residuary article for cases not covered by any other provisions in
the Act. It prescribes a period of three years when the right to sue accrues. Under
Article it was six years which has been reduced to three years under Article
According to the third column in Article time commences to run when the right to
sue accrues. The words "right to sue" ordinarily mean the right to seek relief by
means of legal proceedings. Generally, the right to sue accrues only when the cause
of action arises, that is, the right to prosecute to obtain relief by legal means. The
suit must be instituted when the right asserted in the suit is infringed or when there
is a clear and unequivocal threat to infringe that right by the defendant against
whom the suit is instituted (See: (i) Mt. Bole v. Mt. Koklam and Ors.,
MANU/PR/0054/1930 : AIR 1930 PC 270 and (ii) Gannon Dunkerley and Co. v. The
Union of India, MANU/SC/0475/1969 : AIR 1970 SC 1433."
48. It is submitted by the learned senior counsel that even if the respondent had not invoked
arbitration agreement immediately on the date of disallowance of depreciation by the Income
Tax Authorities i.e. on 31.3.1998, but cause of action being continuing cause of action and thus

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merely because the respondent did not avail of the earlier cause of action, the respondent was
not precluded from availing the cause of action of a later one. In support of this submission,
reliance is placed on the judgment of Patna High Court in the case of Mukhdeo Singh and Anr.
Vs. Harakh Narayan Singh and Ors., reported in MANU/BH/0092/1931 : AIR 1931 Patna 285.
Learned senior counsel relied upon the said judgment also in support of his submission that if
there are two views possible under this statute, one tending to deprive a person of his just dues
and the other entitling to recover them, the Court should not lean in favour of the view which
does not entail any hardships or lead to any unjust consequences. Relevant paragraph of the
said judgment is extracted as under:"The notion of continuing or successive causes of action is not entirely foreign to the
Limitation Act as will appear from S. 23 and Art. 116, Limitation Act. Where
therefore a party has recurring or successive causes of action whether under the
terms of contract or by operation of law, each cause of action will in my opinion
give a fresh start to the period of limitation and the mere fact that a party has not
availed himself of the earlier cause of action, will not prevent him from availing
himself of a later one.
It is in this connexion that it becomes material to consider how far the mortgagee is
entitled to waive his right to exercise an option given to him under the bond. Now
there is a good deal of conflict in the decisions of the various High Courts in this
country as to what would constitute a waiver and what would not. It has been held
in several cases that mere abstaining from bringing a suit does not amount to a
waiver, and some of these cases were relied on by the learned advocate for the
appellant. All those cases however were decided under Art. 75, Limitation Act, and
it is clear that if it is held in cases falling under that article, that mere abstention
from suing amounts to a waiver, that would nullify the main provision in that article
which is to the effect that the time would ordinarily begin to run from the date of
the first default. In cases however which are not governed by that article, if the
terms of the bond themselves provide expressly or by implication that it is open to
the mortgagee to sue as soon as the first default happens or to sue later, then I do
not see that there would be any difficulty in holding that if the suit is not brought as
soon as the first default occurs and is brought after a subsequent default or after
the date by which the whole amount due is to be paid, the mere abstention from
suing does not amount to a waiver. It has been remarked in certain cases that
where a contract gives the power to elect it is not within the province of the law to
say that such election shall not be made and it is equally clear that where the
contract itself provides for waiver, no statutory authority for such waiver is needed.
In this connexion, I may usefully refer to the following observation made in J.P.
Rego Vs. Phillip Tauro:
"It cannot be said of a person that on the date of the first suit he
became entitled to sue for the whole amount, unless he had previously
elected by some word or act to take advantage of the default clause. If
he had previously done nothing, that is, had made no election, the act
involved in bringing the first suit for a single instalment amounts to a
waiver on his part of the benefit reserved under that clause. If again
after the default has occurred he keeps the question open and does
nothing but finally sues for the whole amount, the fact that he has so
sued shows that he has waived the benefit reserved to him under the
contract."
I have so far dealt with the merits of the controversy; but on two other grounds I
am inclined to hold that we should adhere to the view which has prevailed so far in
this Court. This view has undoubtedly this advantage that it does not entitle the
debtor to go behind his own stipulation giving the creditor an option in the matter of
bringing the suit. I fully recognize that the Courts should have no hesitation in
applying the statute of limitation where it clearly applies, but where there are two
possible views under this statute, one tending to deprive a person of his just dues

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and the other entitling him to recover them, there is no reason I do not see why
one should not lean in favour of the view which does not entail any hardships or
lead to any unjust consequences. My other ground for adhering to the cursus curiae
of this court is substantially what has been pointed out recently by a Full Bench of
this Court in Babu Tribeni Prasad Vs. Ram Asray Prasad and what has been
expressed by Mukerjee, J. in the case of Kedar Nath Hazra V. Manindra Chandra
Nandy in these words:
"The Courts must always hesitate to overrule decisions which are not
manifestly erroneous and mischievous, which have stood for many
years unchallenged and which from their nature may reasonably be
supposed to have affected the conduct of a large portion of the
community in matters relating to rights of property: Young V.
Robertson."
I have already said that I am unable to hold that the view which has been held in
this Court so far, is manifestly erroneous and it is obvious that it is the very
opposite of being unjust or mischievous."
49. Learned senior counsel placed reliance on the judgment of the Supreme Court in the case of
The Madras Port Trust Vs. Hymanshu International, reported in MANU/SC/0046/1979 : AIR
1979 SC 1144 and would submit that a public authority should not ordinarily take a plea of
limitation to defeat legitimate claims of citizens. Paragraph 2 of the said judgment in the case of
the Madras Port Trust (supra) reads thus:"2. We do not think that this is a fit case where we should proceed to determine
whether the claim of the respondent was barred by Section of the Madras Port Trust
Act (II of 1905). The plea of limitation based on this Section is one which the court
always looks upon with disfavour and it is unfortunate that a public authority like
the Port Trust should, in all morality and justice, take up such a plea to defeat a
just claim of the citizen. It is high time that governments and public authorities
adopt the practice of not relying upon technical pleas for the purpose of defeating
legitimate claims of citizens and do what is fair and just to the citizens. Of course, if
a government or a public authority takes up a technical plea, the Court has to
decide it and if the plea is well founded, it has to be upheld by the court, but what
we feel is that such a plea should not ordinarily be taken up by a government or a
public authority, unless of course the claim is not well-founded and by reason of
delay in filing it, the evidence for the purpose of resisting such a claim has become
unavailable. Here, it is obvious that the claim of the appellant was a just claim
supported as it was by the recommendation of the Assistant Collector of Customs
and hence in the exercise of our discretion under Article 136 of the Constitution, we
do not see any reason why we should proceed to hear this appeal and adjudicate
upon the plea of the appellant based on Section of the Madras Port Trust Act (II of
1905)."
50. It is submitted that the petitioner had no other defence on merits. The petitioner had only
raised a hyper technical plea of limitation. The arbitral tribunal has interpreted the terms of the
agreement including clause 16 which interpretation is a possible interpretation. It is submitted
that even if this Court comes to a conclusion that another interpretation is possible, this Court
cannot substitute a possible interpretation of the learned arbitrator of the clauses of the
agreement and substitute the same by another interpretation.
51. It is submitted that the respondent had prepared a chart in the arbitral proceedings
showing the effect of deduction of income tax and also the effect of disallowance of depreciation
and to demonstrate that the demand made by the respondent was accurate. The said chart was
shown to the witness of the petitioner in the cross-examination. It is submitted that though the
said chart was marked as "X" for identification, the respondent is entitled to rely upon the said
chart. The strict provisions of the Evidence Act are not applicable to the arbitration proceedings.
It is submitted that the petitioner had not set off their claims on account of reduction of rate of

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income tax. The petitioner did not prove as to how the claim of the respondent could have been
reduced or that nothing was payable by the petitioner to the respondent. Though the
suggestion was put to the witness of the petitioner that the petitioner was liable to pay the
amount as claimed by the respondent, though the witness simpliciter denied the said
suggestion, the petitioner did not lead any positive evidence to prove that nothing was payable
by the petitioner to the respondent or that the chart prepared by the respondent was not
proper.
REASONS AND CONCLUSIONS
Whether claims made by the respondent were barred by law of limitation:
52. It is not in dispute that by an order dated 31.03.1998 passed by the Deputy Commissioner
of Income Tax, claim for depreciation made by the respondent has been disallowed. It is also
not in dispute that the respondent invoked arbitration agreement by notice dated 10.10.2003.
The arbitration proceedings under the said notice commenced after expiry of fourteen days
from the date of receipt of the said notice by the petitioner. The learned arbitrator has
considered the issue of limitation raised by the petitioner in para 63 to 67 of the impugned
award while deciding issue no. 11.
53. A perusal of the impugned award indicates that the learned arbitrator while rejecting the
plea of limitation raised by the petitioner has placed reliance on the judgment of the Supreme
Court in case of Messrs Laxmirattan Cotton Mills (supra), the judgment of Kerala High Court in
case of M/s. Craft Centre (supra) and the arbitral award dated 19.07.2011 in the matter of Tata
Motors Limited Vs. Gujarat Urja Vikas Limited and Others. In the impugned award the learned
arbitrator has referred to the correspondence between the parties being the letter dated
22.03.2001 of the petitioner herein and letter dated 29.03.2001 while considering the plea of
jural relationship between the parties. It is not in dispute that the letter dated 22.03.2001
addressed by the petitioner allegedly asking for certain details and copies of the assessment
order etc. as alleged by the respondent was not on record before the learned arbitrator. The
learned arbitrator appears to have accepted the existence of jural relationship on the basis of
the contents of the letter dated 29.03.2001 by which the respondent had forwarded certain
details and copy of the assessment order to the petitioner. In this context the learned arbitrator
held that the judgment of Supreme Court in case of M/s. Laxmirattan Cotton Mills Ltd. (supra)
supports the proposition canvassed by the respondent herein.
54. In so far as award of the learned arbitrator dated 19.07.2011 (S.N. Variava, J.) relied upon
by the learned arbitrator is concerned, it is not in dispute that the said award was impugned by
M/s. Gujarat Urja Vikas Limited by filing arbitration petition in this court. Even according to the
learned arbitrator the terms of the agreement considered by the learned arbitrator (S.N.
Variava, J.) in the said award were almost the same. By a judgment and order dated
16.07.2013 passed by this court in the said Arbitration Petition No. 955 of 2011, filed by
Gujarat Urja Vikas Nigam Limited, the said award dated 19.07.2011 relied upon by the arbitral
tribunal in this case has been set aside.
55. In so far as judgment of Supreme Court in case of M/s. Laxmirattan Cotton Mills (supra)
relied upon by the learned senior counsel for the respondent and also heavily relied upon by the
learned arbitrator is concerned, the defendant therein had addressed a letter to the plaintiff
thereby acknowledging the liability to pay the amount which would be found due and payable
under the accounts to the plaintiff. Considering the said letter and the other correspondence
exchanged between the parties, the Supreme Court held that at no point of time during the
lengthy correspondence ensued between the parties, the defendant denied its liability to pay.
The defendant had only disputed the correctness of the amount claimed by challenging certain
items for which the defendant had claimed credit by making certain counter claims on its own.
The defendant had sent its account statement which it called "Reconciliation Accounts".
According to the Reconciliation Statements sent by the defendant only part of the amount was
due and payable by the defendant to the plaintiff. Considering such facts, the Supreme Court
held that there was a subsisting account in the name of the plaintiff in the books of the
defendant in which the interest on the balance shown from time to time was being credited and

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in which amounts in respect of the items passed during the course of reconciliation were also
being credited. Supreme Court accordingly held after considering the correspondence
exchanged between the parties that it would not be possible to say that the letter and the
statement of account enclosed therewith by the defendant were mere explanatory and did not
amount to an admission of the jural relationship of debtor and creditor and of the liability to pay
the amount found due at the foot of the account on finalization.
56. In the said judgment Supreme Court has held that under section 19(1) of the Limitation
Act, 1908 if before the expiration of the prescribed period for a suit, in respect of any property
an acknowledgement of liability in respect of such property has been made in writing signed by
the party against whom such property or right is claimed, a fresh period of limitation shall be
computed from the time when the acknowledgement was so signed. The statement on which
the plea of acknowledgement is founded must relate to a subsisting liability. The statement did
not indicate the exact nature or the specific character of the liability. The words used in the
statement must relate to the present subsisting liability and shall indicate the existence of jural
relationship between the parties that of a debtor and the creditor and the intension to admit
such jural relationship. It is also held that it would however not mean that where a statement is
made without intending to admit the existence of jural relationship such intension should be
fastened on the person making the statement by an involved and far fetched reasoning.
57. In the facts of this case the letter dated 22.03.2001, by which the petitioner had alleged to
have asked for certain details and copies of the assessment order etc. was not on record in
evidence before the learned arbitrator admittedly. A perusal of the reply dated 29.03.2001
would not indicate the jural relationship between the parties that of a debtor and creditor or any
intention to admit such jural relationship. In my view, adverse inference can not be drawn of
admission of alleged jural relationship against the petitioner based on the reply of the
respondent furnishing certain details. I am bound by the judgment of the Supreme Court
referred to aforesaid holding that if a statement is made without intending to admit the
existence of jural relationship, no such intension should be fastened on the person making the
statement by an involved and far fetched reasoning. A perusal of the impugned award does not
indicate any reasons as to how jural relationship between the parties came to be proved by
respondent by relying upon the letter dated 29.03.2001 addressed by the respondent to the
petitioner. In my view the judgment of the Supreme Court in case of Messrs Laxmirattan Cotton
Mills (supra) does not assist the respondent.
58. In so far as judgment of Kerala High Court in case of M/s. Craft Center and others, (supra)
relied upon by the learned senior counsel for the respondent is concerned, Kerala High Court
has held that where two views are clearly possible the court must lean against limitation and in
favour of the subsistence of the right to sue and when there is a benefit of reasonable doubt in
the matter of construction of statement relied upon to serve as an acknowledgment to save
limitation, the benefit of that doubt should go to the plaintiff. In my view the facts of the case
before the Kerala High Court were totally different. In this case, there are no two views possible
on the issue whether claims made by the respondent were barred by law of limitation or not. In
the identical facts, this court has already set aside the impugned award in case of Tata Motors
Limited Vs. Gujarat Uraja Vikas Nigam Limited in Arbitration Petition No. 955 of 2011. The
Arbitral Tribunal itself has placed reliance on the said award while rejecting the plea of
limitation raised by the petitioner. In my view the learned arbitrator in any event could not
have placed reliance on an arbitral award as a precedent while considering the facts or law in
this matter. Arbitral Award cannot be considered as a precedent irrespective of the fact who has
delivered such arbitral award. In my view the judgment of this court in case of Gujarat Urja
Vikas Nigam Ltd. (supra) squarely applies to the facts of this case. The impugned award on the
issue of limitation, deserves to be set aside on that ground also.
59. In so far as reliance placed by the learned senior counsel for the respondent on the debit
note dated 11.10.2000 and the subsequent correspondence entered into between the parties
thereby respondent making demand for payment of alleged dues and denial of the payment by
the petitioner is concerned, even if the date of debit note dated 11.10.2000 is considered for
commencement of right to sue, the fact remains that the arbitration proceedings would
commence only on expiry of fourteen days from the date of receipt of the notice dated

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10.10.2003 invoking arbitration agreement which was admittedly beyond the period of three
years from the date of issuance of debit note. I am thus not inclined to accept the submission of
the learned senior counsel for the respondent that even if the date of issuance of debit note is
considered, claims were within time and not barred by law of limitation.
60. In so far as other correspondence entered into between the parties subsequently after
expiry of three years of the order passed by the Deputy Commissioner of Income Tax is
concerned, such correspondence in my view would not extent the period of limitation since the
right to sue had already commenced on 31.03.1998 when the deputy commissioner of income
tax had rejected the claim for depreciation made by the respondent. In my view
correspondence does not extend the period of limitation. This court in case of Aditya Birla
Chemicals (I) Ltd. (supra) has held that under section 9 of the Limitation Act, 1963 once time is
begun to run no subsequent disability or inability to institute a suit or make an application stops
it. Once time start running, it does not stop. Limitation is not extended unless there is
acknowledgment of liability or there is part payment. It is held that the correspondence does
not extend the period of limitation.
61. In my view once the right to sue had already accrued on 31.03.1998, subsequent
correspondence between the parties thereby respondent making a fresh demand in respect of
the same cause of action and the letter of the petitioner denying such demand would not create
any fresh right to sue or would not amount to a fresh cause of action. Reliance placed by the
learned senior counsel on the subsequent correspondence on the issue of limitation for the
purpose of extension of cause of action is misplaced.
62. In so far as the judgment of Patna High Court in the case of Mukhdeo Singh and Anr.
(supra) relied upon by the learned senior counsel for the respondent is concerned, the Patna
High Court has considered the provisions of the mortgage bond by which the defendant had
agreed to pay mortgage money in 18 yearly installments of Rs. 50/- each. It was provided that
if there was a default in the payment of any of the installments whether expired or unexpired
shall be payable by the mortgagor with interest thereon. In that context, the Patna High Court
held that a party has recurring or successive causes of action whether under the terms of
contract or by operation of law, each cause of action will give a fresh start to the period of
limitation and the mere fact that a party has not availed himself of the earlier cause of action,
will not prevent him from availing himself of a later one. The Patna High Court has also held
that the Courts should have no hesitation in applying the statute of limitation where it clearly
applies, but where there are two possible views under the said statute, one tending to deprive a
person to his just dues and the other entitling him to recover them, there is no reason as to
why the Court should not lean in favour of the view which does not entail any hardships or lead
to any unjust consequences. In my view, the said judgment of the Patna High Court does not
assist the respondent. In this case, the Deputy Commissioner of Income Tax had disallowed the
entire claim of depreciation made by the respondent. The cause of action has arisen on the date
of disallowing the depreciation by the Deputy Commissioner of Income Tax. There was no
question of any successive causes of action. In this case, in my view, there are no two views
possible on the issue of limitation and thus the said judgment of Patna High Court does not
assist the respondent.
63. In so far as the judgment of the Supreme Court in the case of Madras Port Trust (supra)
relied upon by the learned senior counsel for the respondent is concerned, it is held by the
Supreme Court that if a government or a public authority takes up a technical plea, the Court
has to decide it and if the plea is well-founded, it has to be upheld by the Court. The Supreme
Court, however, felt that such a plea should not ordinarily be taken up by a government or a
public authority unless of course the claim is not well-founded and by reason of delay in filing it,
the evidence for the purpose of resisting such a claim has become unavailable. In my view, this
observation of the Supreme Court cannot be considered as a ratio on the submissions urged by
the learned senior counsel for the respondent that the petitioner also being a public body could
not have raised a plea of limitation before the learned arbitrator. On the contrary, the Supreme
Court has held that if any such plea is raised, the Court has to decide it and if it is well-founded,
it has to be upheld by the Court.

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64. In so far as the judgment of the Supreme Court in the case of State of Punjab & Ors.
(supra) relied upon by the learned senior counsel for the respondent is concerned, it is held that
the Court has to find out when the "right to sue" accrues to the plaintiff. If the suit is not
covered by any of the specific articles prescribing a period of limitation, it must fall within the
residuary article. It is held that generally, the right to sue accrues only when the cause of action
arises, that is, the right to prosecute to obtain relief by legal means. The suit must be instituted
when the right asserted in the suit is infringed or when there is a clear and unequivocal threat
to infringe that right by the defendant against whom the suit is instituted. In this matter, the
learned arbitrator has not rendered any finding that Article 113 of the Schedule to the
Limitation Act, 1963 would be applicable to the claim made by the respondent. This Court has
already interpreted the identical clauses in the case of M/s. Asian Electronics Ltd. Vs. Tata
Motors Ltd. (supra) which judgment has been upheld by the division bench of this Court and
has been followed by this Court in subsequent judgment in the case of M/s. Aditya Birla
Chemicals (India) Ltd. Vs. Tata Motors Ltd. and also in the case of M/s. Gujarat Urja Vikas
Nigam Ltd. (supra). In my view, the judgment of the Supreme Court in the case of State of
Punjab and Ors. (supra) is of no assistance to the respondent.
65. In so far as the judgment of the Supreme Court in the case of Mst. Rukhmabai Vs. Lala
Laxminarayan and Ors. (supra) relied upon by the learned senior counsel for the respondent is
concerned, while dealing with Article 120 of the Limitation Act, the Supreme Court has held that
there can be no "right to sue" until there is an accrual of the right asserted in the suit and its
infringement or at least a clear and unequivocal threat to infringe that right by the defendant
against whom the suit is instituted. In my view, the said judgment does not assist the
respondent. This Court has interpreted the agreement between the parties which provides for
commencement of cause of action. The right to sue, in my view, arose when the Deputy
Commissioner of Income Tax had rejected the claim for depreciation made by the respondent
for the first time. The demand made by the respondent subsequently and/or rejection of such
demand by the petitioner would not create any fresh cause of action and/or right to sue.
66. This Court in the case of M/s. Aditya Birla Chemicals (India) Ltd. Vs. Tata Motors Ltd. in
Arbitration Petition No. 1027 of 2011 has already held that the right to sue accrues when the
claim made by the respondent was rejected by the assessing officer and raising of demand by
the respondent by issuing a debit note and refusal to pay the said demand subsequently would
not commence a fresh period of limitation which was already commenced when the claim for
depreciation was rejected. In my view, the said judgment is binding on this Court. I do not
propose to take any different view in the matter.
67. A perusal of the records and in particular paragraphs 23 and 64 to 67 of the impugned
award clearly indicates that on one hand, the learned arbitrator had on the interpretation of
clause 16 of the Lease Summary Schedule i.e. "Capital Allowance Variation Clause" held that if
the eligibility to claim depreciation was decreased or increased, or if the claim for depreciation
was disallowed partly or fully in any year during the fixed period of the lease, then the lease
rental would stand increased and/or decreased proportionately at a percentage of acquisition
cost and the cost of acquisition would stand increased/decreased by the same percentage of
disallowance of depreciation and that the lease rental would be recalculated according to the
reworked acquisition cost and on the other hand, while dealing with the issue of limitation, the
learned arbitrator has held that right to sue or initiate the arbitration proceedings would arise
only on refusal to pay and not merely because of the disputes with regard to the manner of
calculations. In my view, the finding rendered by the learned arbitrator is totally inconsistent
and contradictory and shows patent illegality on the face of the award.
68. A perusal of the impugned award clearly indicates that the learned arbitrator has not
considered the submissions urged by the petitioner before the learned arbitrator that on
disallowing the claim for depreciation, the incidence of income tax on the transaction would
become smaller as the full amount by the monthly rental received by the respondent would
include a part of the capital repayment on which no income tax would be payable and the
respondent would have made savings in payment of income tax which could be set off against
the disallowance in the first year and on that ground, the respondent was not entitled to make
any claim. Though the learned arbitrator has referred to this submission in paragraph 5 of the

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impugned award in the entire award, the said crucial submission of the petitioner has not been
dealt with at all.
69. A perusal of the award indicates that the learned arbitrator has allowed the claim of the
respondent being the difference between the month to month revised rental amount as
calculated and the actual rental amount paid from the months of September 1994 to July 2002
and allowed 30% overdue interest thereon from September 1994 to July 2002. It is a common
ground that the respondent did not make any demand and could not have made any demand
for additional amount in the month of September 1994 till the date of disallowing such
depreciation by the Deputy Commissioner of Income Tax. In my view, the petitioner in any case
could not have been treated as defaulter in making payment of difference between month to
month revised rental amount from September 1994 till the date of passing order by Deputy
Commissioner of Income Tax.
70. A perusal of the records further indicates that though on the basis of the same clause, the
respondent was bound to increase and/or decrease the lease rental arising out of reduction in
payment of rate of income tax with service charges which admittedly in this case had
happened, the learned arbitrator did not direct the respondent to recalculate the lease rental
giving effect of the reduction in payment of rate of income tax and did not direct the payment
of interest/service charges. In my view, the learned arbitrator has applied different yardstick to
the petitioner than what is applied to the respondent. If the learned arbitrator while considering
the credit note issued by the petitioner in the sum of Rs. 2,40,61,846/- would have directed the
respondent to recalculate the lease rental in the year in which there was reduction of rate of
income tax below 46%, claims of the respondent would have substantially changed. In my
view, Dr. Sathe, learned senior counsel for the petitioner is right in his submission that there
was a total miscarriage of justice by the learned arbitrator by applying different yardstick while
dealing with the claim made by the respondent and the petitioner.
71. In so far as the submission of Mr. Shah, learned senior counsel for the respondent that
under clause 2.4 to be read with clause 2.2 of the Lease Agreement and under clause 16 of the
Lease Summary Schedule, the respondent was not bound to vary the lease rental charges
immediately upon such disallowance by the income tax authorities is concerned, in my view,
this submission is contrary to the findings rendered by the learned arbitrator on interpretation
of clause 16 of the Lease Summary Schedule and is also contrary to the law laid down by this
Court in catena of decisions referred to aforesaid and is accordingly rejected.
72. In so far as the submission of Mr. Shah, learned senior counsel for the respondent that
since the petitioner did not produce copy of the letter dated 22.3.2001, though called upon to
produce, the learned arbitrator was justified in considering the surrounding circumstances on
the issue of existence of jural relationship between the parties is concerned, in my view, there
is no substance in this submission made by the learned senior counsel for the respondent. The
said document dated 30.1.2001 was admittedly not on record and/or not marked as 'Exhibit.'
The issue of existence of jural relationship could not have been decided by the learned
arbitrator in absence of the said letter on record and simpliciter on the basis of a reply of the
respondent dated 29.3.2001. This submission of the learned senior counsel is thus devoid of
any merits.
73. In so far as the submission of the learned senior counsel that various judgments relied upon
by the learned counsel for the petitioner are distinguishable in the facts of this case is
concerned, in my view, this submission is also devoid of any merits. The learned arbitrator
himself has referred to the award of (S.N. Variava J.) in the case of Tata Motors Ltd. Vs. M/s.
Gujarat Urja Vikas Nigam Ltd. by holding that the clauses in both the agreements are identical
which award has already been set aside by this Court. Learned senior counsel for the
respondent could not point out as to how the judgments relied upon by the learned senior
counsel for the petitioner were not applicable to the facts of this case and why the same were
not binding.
74. In so far as the submission of learned senior counsel that though the respondent had
prepared a chart in arbitral proceedings showing the effect of deduction of income tax and also

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the effect of disallowance of depreciation and to demonstrate that the demand made by the
respondent was accurate and though the respondent was entitled to rely upon the said chart is
concerned, a perusal of the records clearly indicates that the said chart was shown to the
witness examined by the petitioner and was disputed. The said chart was admittedly marked 'X'
for identification. The respondent did not prove the existence and contents of the said chart
independently though the oral evidence was led by the respondent. In my view, the respondent
thus could not place any reliance on such disputed document before the learned arbitrator.
Principles of Evidence Act and of natural justice are applicable to the arbitration proceedings. In
my view, there is thus no merit in this submission of the learned senior counsel for the
respondent.
75. In so far as the claim for interest awarded by the learned arbitrator is concerned, I am not
inclined to accept the alternate submission of Dr. Sathe, learned senior counsel for the
petitioner that the learned arbitrator would not have awarded interest for the period between
6.1.2004 till the date of award by additional award made under Section 33 of the said
Arbitration Act. In my view, it is a common ground that the respondent had made a claim for
interest for the said period also in the statement of claim which claim was admittedly not
rejected by the learned arbitrator in the impugned award. Under Section 33 of the Arbitration
Act, the learned arbitrator was entitled to consider in the additional award the claim which was
made and not rejected by the learned arbitrator but remained to be considered in the impugned
award by making an additional award. I am thus not inclined to accept the submission of Dr.
Sathe, learned senior counsel for the petitioner on this issue. In any event, since this Court has
taken a view that all the claims were barred by law of limitation, this issue has become
redundant.
76. In so far as the interest on interest awarded by the learned arbitrator is concerned, since no
amount could have been awarded by the learned arbitrator towards principal amount in favour
of the respondent, in my view, the learned arbitrator could not have awarded any interest. Be
that as it may, the learned arbitrator could not have awarded any interest on interest as
awarded by the learned arbitrator in the impugned award under Section 31(7) of the Arbitration
Act. The Supreme Court in the case of State of Haryana and Ors. Vs. S.L. Arora and Company
(supra) has held that simple interest can be awarded by the learned arbitrator in the absence of
any prohibition in the contract and in the absence of specific provision relating to interest in the
contract at such rates as it deems fit from the date on which the cause of action arose till the
date of payment on the principal amount awarded. I am respectfully bound by the judgment of
the Supreme Court in the case of State of Haryana & Ors. (supra) which in my view, squarely
applies to the facts of this case. Since the learned arbitrator has awarded interest on interest
that part of the award even otherwise is patently illegal in light of the decision in the case of
State of Haryana and Ors. (supra) and also is contrary to Section 31(7) of the said Arbitration
Act and deserves to be set aside.
77. Since the claim made by the respondent before the learned arbitrator could not have been
awarded, in my view, the petitioner was dragged into the arbitration proceedings illegally by the
respondent and thus the learned arbitrator ought not to have awarded cost of arbitration in
favour of the respondent and against the petitioner.
78. I am therefore of the view that the impugned award made by the learned arbitrator shows
patent illegality and is in conflict with the public policy. Learned arbitrator has allowed time
barred claim and has also acted contrary to the provisions of the contract and the award is thus
liable to be set aside.
79. I, therefore, pass the following order:a) The arbitration petition is made absolute in terms of prayer clause (a).
b) The arbitral award dated 26.6.2012 and additional award dated 3.9.2012 are set
aside.

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c) There shall be no order as to costs.

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