M/ S. Triveni Constructions vs. Military Engineer Services
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M/s. Triveni Constructions, a partnership firm registered under the MSMED Act, 2006, engaged in construction, filed an Arbitration Application seeking the appointment of a sole arbitrator. The applicant was awarded a tender by Military Engineer Services (MES) for replacing AC sheets with Galvalume sheets for Rs. 3,62,13,440/-. The applicant contended that the bid amount excluded GST at 12% and labour welfare cess at 1%, which were to be paid additionally. However, the respondents allegedly deducted these taxes from the principal bid amount instead of paying them over and above. The applicant raised this issue on January 23, 2022, and after receiving a reply from the Accounts Officer on February 14, 2022, stating that taxes were credited as per norms, the applicant reiterated their claim on June 18, 2022, treating it as a notice under Condition No. 70 of IAFW-2249. The respondents, through a letter dated July 19, 2022, refused amicable settlement, citing the applicant's acceptance of the final bill without protest and the contract's arbitration clause.
Held
The Court held that the applicant's claim for the differential amount of GST and labour welfare cess is not barred by limitation. It was established that the Limitation Act, 1963, applies to arbitration proceedings, and Section 43 of the Arbitration and Conciliation Act, 1996, mandates this. The Court noted that Article 137 of the Limitation Act, 1963, provides a three-year limitation period for applications where no specific period is prescribed. The cause of action for filing the application under Section 11 accrues when the right to apply arises. Since the applicant raised the dispute soon after the final bill settlement on March 7, 2021, and before the expiry of the three-year limitation period, the application is within time. The Court further held that the applicant has indeed raised a dispute by asserting their claim and the respondents' failure to respond adequately constitutes a denial of the claim, giving rise to a cause of action for reference to arbitration. The Court appointed Sri Tariq Khan, Advocate, as the sole arbitrator to adjudicate the disputes between the parties, directing the arbitrator to complete the proceedings within six months. The respondents were granted liberty to raise all permissible objections under Section 16 of the Act.
Key Issues
1. Whether the applicant's claim for the differential amount of GST and labour welfare cess is barred by limitation, considering the final bill was settled on March 7, 2021, and the arbitration application was filed later. 2. Whether the applicant has raised a dispute that warrants the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. Petitioner's Arguments: The applicant argued that the bid amount expressly excluded GST and labour welfare cess, which were to be paid over and above the quoted rates. They contended that the respondents wrongly deducted these statutory taxes from the principal bid amount. The applicant asserted that they raised this dispute promptly after the final bill settlement and that the claim is within the limitation period prescribed by the Limitation Act, 1963, as applicable to arbitration proceedings. Respondent's Arguments: The respondents argued that the applicant signed the final bill without any reservation, and since the final bill was processed and paid in March 2021, no further claims should be entertained as per Condition No. 65 of IAFW-2249. They also contended that the applicant's claim was raised after a lapse of almost two years and that the GST and labour welfare cess deducted were already deposited with the concerned authorities. They argued that the prayer of the applicant is not in terms of the contract provisions, and therefore, a sole arbitrator should not be appointed.
Sections Cited
Section 11(6), Section 43, Section 16, Article 137
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
The Court made the following ORDER
'_--5 i5.;$:: -7 2 I THE HONOURABLE SRI JUSTICE C.V. BHASI(AR REDDY ARBITRATION APPLICATION No.174 OF 2o22 ORDER: This application, under Section 1l(6) of the Arbitration and Conciliation Act, 1996 (for short "the Act') read with Scheme for Appointment of Arbitrators, 1996, is filed by the applicant seeking appointment of a sole Arbitrator to adjudicate the claims and disputes between the applicant and the respondents.
The case of the applicant, in brief is that, it is a Partnership firm registered under Micro, Small and Medium Enterprises Development Act, 20O6 and it is engaged in the business of construction and also undertakes Government work contracts. It is further case of the applicant that Respondent No. 1 invited tenders for replacement of existing AC sheets with Galvalume sheets in LMS Shop Building No.06 inside factory area at O.F.Medak, vide tender published on 08.12.2O17. The respondent No. 1 accepted the applicant's bid for the subject tender work for a sum of Rs.3,62,13,440 /- and declared the applicant as successful bidder vide proceedings dated 16.04.2018. It is further case of applicant that bid amounts quoted were only for completion of work by the applicant and the said bid amount was excluding the GST @ 12o/o and labour welfare cess @ loh and it was expressly agreed between the applicant and the Respondents that the GST and labour welfare
3 cess are to be charged over and above the bid amounts. However, during internal financial audit it came to light that the .Respondent Nos.l and 2 have been deducting the GST @ 127o and labour welfare cess @ lo/o from Jhe principal bid amount instead of paying additional amounts to the tune of l3o/o which includes GST and labour welfare cess over and above the bid consideration. The applicant submitted a letter dated 23.01.2022 to the Respondent No.3 and inforrrred the disparity in the internal hnancial audit and rcquested the Respondents to immediately release the amounts of the taxes and repay tax arnounts deducted along with interest @ 24oh per annum including penalties, if any, til the date of payment' The Accounts Oflicer addressed a letter dated, 14.02.2022, to the Respondent No.3 and the applicant, stating that as per their offrce records the applicable GST and labour welfare cess have been credited from time to time with public fund account as per Government of India norrns. To the said letter, the applicant gave a reply vide letter dated 18.06.2022 and stated that the bid amounts did not include statutory taxes i.e., GST @ l2o/o and labour welfare cess @ l%o and that the Respondents deducted the said statutory taxes from his quoted rates and therefore, the applicant requested tlre respondents to release the said statutory taxes i'e' GST @ 12% and labour welfare cess @ l% to the applicant over and above the tendered amount quoted within 15 days from the date of receipt of I lr
4 ) letter and it is further stated that the said communication should be treated as notice under Condition No.7O of IAFW -2249 forming part of the contract agreement. The Respondent no.3 vide its letter dated 23.06.2022 stated that the GST amounts were being uploaded against the GST number provided by the applicant to the department and that the lumpsum amounts of a particular month was deposited with Reserve Bank of India and the labour welfare cess was also being deposited with ttre Telangana State Building and other Construction Workers Welfare Board, Hyderabad through a crossed cheque wherever any amount recovered on account of LEC. It is further case of applicant that due to non-payment of statutory taxes to the tune of Rs.53,29,536/- to the applicant as per the tender condition, he was constrained to issue a letter dated L1.O7.2O22 invoking Arbitration clause as per condition No.70 of IAFW-2249. However, the respondent No.2 vide letter dated 19.07.2022 stated that as per condition No.70 of IAFW -2249 general conditions of contract, if any, dispute arises between the parties, the same shall be referred to sole arbitrator, who would be a serving oflicer duly appointed by the Engineer-in-Chief, New Delhi. The Respondent No.2 further stated that the Applicant accepted the final bill process on O8.O7.2022 without protest and therefore taking recourse to arbitration in view of condition No.70 of IAFW - 2249 would be at the own risk of the Applicant, and refused to settle the 5 f. dispute amicably. Therefore, the applicant is constrained to file the present Arbitration Application for appointment of a sole Arbitrator as pcr the provisions of Section 11 and other relevant provisions of the Arbitration and Conciliation Act, 1996. 3. A counter affidavit has been filed by the respondent No. l, wherein inter alia it is stated that the applicant_hrm was awarded a contract bearing No.CE (Fy)/HyD/MDK/02 of 2Ot8_tg for Replacement of existing AC sheets with Garvarume sheets in LMS shop Building No.6 inside Factory area at ordnance Factory Medal< for an amount of Rs. 3,62,13,440/_. As per the work order the work was commenced on O3.0S.201g and the work was physically completed by the contractor on 22.12.2019 subject to completion of rectification of defects as pointed out while issuing completion certificate by AGE (lndep) F}z Eddumilaram vide letter No.g199lCE/ 95/E8 dated 26.L2.2O19 and requested . to rectify the defects by 3O.OI.2O2O. It is further submitted that the complete details of recovered amount on account of GST/LEC against CA No.CE (Fy)/HYD/MDK/O2 of 2o18_tg also intimated to rhe applicant contractor vide letter d,ated 23.06.2O22. Inspite of receiving all the details of payments, applicant is making allegations against the Department that the statutory taxes were ncither paid to the applicant nor deposited with the Central Government against the credit of applicant-firm. The amount so deducted against GST from I
6 all works executed by the applicant contractor during the period was already deposited with the authorities concerned. In this connection, Form GSTR 7A TDS certificate duly downloaded from GST Portal is filed before this Court. With regard to Labour welfare cess, the same is being deposited with Telangana State Building and other Construction Workers Welfare Board Hyderabad through a crossed cheque whenever any amount recovered on account ofLEC. It is further stated in the counter afl-rdavit that after lapse of almost 2 years, the applicant with an intention to receive further payments raised this claim of tax returns and when the same was not accepted by the respondents, the applicant has hled the present Arbitration Application. It is further stated that as per Condition No.65 of IAFW -2249 , no further claims shall be made by the contractor after submission of Final Bill and they shall be deemed to have been waived and extinguished. Further, since the applicant contractor has signed the final bill without any reservation and as the final bill was processed and paid to the contractor vide D.V.No.O7 of March, 2021, no claims whatsoever shall be entertained. It is frnally stated that since the prayer of the applicant is not in terms of provisions of contract, sole arbitrator shall not be appointed under Section I I of the Act.
Heard the arguments of the respective counsel and perused * -.the record.
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Smt. M. Vanajakshi, learned counsel for the applicant has submitted that bid amounts quoted were only for completion of work by the applicant and the said bid amount was excluding the GST @ l2c/o and labour welfare cess @ lo/o and it was expressly agrced behveen the applicant and the respondents ttrat the GST and labour welfare ccss are to be charged over and above the bid amounts. It is further statcd that during intemal financial audit it came to light tJrat the Respondent Nos. I & 2 have bee n deducting the GST @ l2o/o and labour welfare cess @ 1% from the principal bid amount instead of paying additional amounts to the tune of 13% and soon after noticing the same, the applicant submitted a letter dated,23.07.2022 to the respondent No.3 and informed the disparity in the internal financial audit and requested the Respondents to immediately release the amounts of the taxes and repay tax amounts deducted along with interest @ 24o/o per annum including penalties, if any, till the date of payment. It is submitted that there are serious disputes with regard to deduction of the amounts contraqr to the terms of the agreement and those are required to be determined by the Arbitrator. Since the respondents have not turned up to settle the disputes before the Arbitrator as per the notice dated 18.06.2022, the applicant was constrained to approach this Court invoking the juri iction under Section 11(6) of the Act. \. ^i \l \l\
-,e?_*7 8
Per contra, Smt.L.Pranathi Reddy, learned Standing Counsel for Government appearing for the respondents has vehemently contended that as per Condition No.65 of IAFW -2249, no further claims shall be made by the contractor after submission of final bill and the claims shall be deemed to have been waived and extinguished and therefore, even though the agreement provides arbitration clause, the subject dispute cannot be referred to arbitral tribunal. It is further contended by the learned Standing counsel that since the applicant accepted the Final Bill without any reservation and as the Final Bill was processed and paid to the contractor, no claims whatsoever is maintainable and the application filed under Section I 1(6) of the Act, is liable to be dismissed as barred by limitation.
In reply, learned counsel for the applicant relying upon the decision in Inder Stngh Rekhl us Delhl Deuelopment Authotityr has submitted that once there is a valid claim for reference under Section 20 of the Arbitration and Conciliation Act, 1996, the cause of action survives even after passing of the Final Bill. Whether the claim made by the applicant is barred by limitation or not is required to be decided by the arbitrator after entering into reference and at the time of making an award. lt is also further stated that at ' (1988) 2 scc a38
9 the stage of deciding the application filed under Section l1(6) of the Act, the issue relating to the limitation cannot be gone into.
It is well settled principle of law that considering the applicalion filed under Section 1 I (6) of the Arbitration and Conciliation Act, 1996, this Court has to see whether there is an arbitral dispute between the parties and whether the agreemcnt entered between the parties has an arbitration clause to refer the matter to an arbitrator or not. Further, it is also well-settled law that while deciding the question of appointment of arbitrator, the Court shouid not touch the merits of the case as it may cause prejudice to the case of the parties. g. Condition No.65 of General Conditions of "IAFW -2249" reads as under: '
Illnal Blll (Applicdblc onlg to Measurement and Lump Surn Contracts): Tlrc Finat Bills shall be submttted by the Contractor on IAFW-2262 in duplicate uithin three montLs of phgsical conptetion of the u.nrks to the sati.sfaction of the -Eigineer-in-Clarge. ft shall be accompanied by all dbstracts, uoichers, etc., sttpporting it ond shnll be prepared in the manner prescribed bg tle G.E. No further claims shall be mnde bg the Controctor ofier submission of he Fino,l .Bill and tlese .lholt b. d.eemed to nnue been uaiued and extinguished. Tle Controctor sholl be entitled to be poid the rtnd sum less the ualue of paAments already made on ac@unt, subiect to thE certification of the final bill bg the G.E. No charges. shall be allou:ed to tlte Contractor on account of the prep.ration of the rtnal BiU. I
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Condition No.7O of General Conditions ol "IAFW -2249" which relates to Arbitration Clause, reads as under: '7O. Arbltratlon. All disputes, between the parties to the Contract(other thon those for uhich the decision of the C.W.E. or anA other person is bg tle Contract expressed to be final and binding) shall, ofier uritten notice bg either partA to tlle Contract to the other of them" be referred to the sole arbitration of an Dngineer offi.er to be appointed bg the authoritg mentioned in the tender d-ocum.ents. Unless both parties agree in turiting such reference shnll not take place until afi.er the completion or alleged completion of the Work or tennination or determination of the Contract under Condition Nos. 55 56 and 57 Lereof. Provided that in the euent of abandonment of the Works or cancellation of the Contract under C.ondition Nos. 52, 53 or 54 hereof, such reference slnll not take plaee until altematiue 1rrangements haue been finalized bg the Gouemment to get tlte Works ampleted bg or through ony other Contractor or Contractors or Agency or Agencies. Provided alwags that comm.encement or continuance of any arbitration proceeding hereunder or oth.enube shall not in any manrler militate against the Gouernment's ight of recouery from tle controctor as prouided in Condition 67 hereof. If the Arbitrator so appointed resigns his appointment or uacates his offtce or is unable or unutilling to act due to ang reason tuha.tsoeuer, th.e duthoitg appointing him mag appoint a neu Arbitrator to act in hi-s plae. TLE Arbitrator slalt be d.eemed to houe entered. on tle referene on the date he rssues notie to both the parties, asking them to submit to him tlair statement of the case and. pleadings in defence. Tle Arbitrato.r may proeed urith the arbitration, exp.rte, if either party, inspite of a ratice from the Arbitrator fai6 to take pant in the proceedings. The Arbitrator mag, frcm time to time taith the consent of the 4om":, enlarge, tle time upto but not exeed.ing one gear-from thr. .!?t? of. hb entering on the rekrence, fir miking- and_ pu b lishing th.e anu ard.
1t The Arbitrator shall girc his au.tard within o peiod of sk months from the dnte of hb entering on the reference or within tle extended time a-s the case maA be on all matters referred to him and shall indicete his findings, olong uith sums a u-tarded, separatelg on each indiuidual item of dispute. Th.e- uenue of Arbitration shnll be such place or places as mag be fixed by the Arbitrator in his soLe discretion. The auard of th.e Arbitrator slull be final and binding on both parties to th.e Contract..'
It IBI Consultancg (Indta) (P) Ltd. a. DSC Ltd.z, the Honble Supreme Court while dealing with the Arbitration Application fileci under Section 11(6) read with Section 1l(9) of the Arbitration and Conciliation Act, 1996 for appointment of arbitrator to adjudicate the disputes that have arisen between the parties therein in connection with the contracts in question, has held, at Para 8, as under:
The first ond. the foremost thing is the existence of an arbitration ogreem.ent befiDeen the parties to the petition under Section 11 of the Act and the exbtence of dispute(s) to be refered to arbitrator is @ndition preedent for appointing an arbitrator under *ction 1 1 of the Act. It is also a well-settled law thnt uhile deciding th.e question of oppointment of arbitrator, the court hos not to touch the merits of the cose o.s it mag catse prejudie to the case of tle parties. Th.e sape under kction 11(6) rcad uith Section 11(9) is wry limited. to th.e erte of appointment of arbitrator. Thi-s Court hns to see u.*ether there exists an arbitration agreement behteen ttle parties and if the answer is in the alfirmotiue then uheth.er the opplicant hns made out a case for the appointment of arbitrator. L2. In Duro Felguera, S.A. u. Gangantaram Port Ltd.,s the Hon'ble Supreme Court, at para 59, has held as under: , (2018) 17 SCC 9s 3 (2ot7l 9 ScC 729* _
:_-_-!...r -,i,..:.+- :7 t2 "TLe scope of the pouter under Section 11(6) of the 1996 Act yas.ytysinerablg uide in uieut of the aeaiirrs in SBp and. Co. lSBp and Co. u. patet Engs_. Ltd., (2o(;;i-B" sZZ atal 7nl pogl1ra potgfab lNationotT*ur"ii c".ii. idgnoro X!{12!!l^to: (?.oor.t .?gc zaz : eoogti'-icc-icTt , tzt t n$ posttton continued. till tle amendment brouglil a ut in 2o15. Afier the amend.ment, a that the *;"-;Z; t"sr" rs uhether an arbitration agreement exists nothing more, nothi.ng less. The legistatiue poticy and. purpos;;'"sZentiattg to minimise the Court,s interienti\n "t ti {tigl of-iiiinting the. arbitrotor and this intention o" in*rpoiotii ia'il"tion 1 1(6-A) ought to be respected.."
It is settled law that in a commercial dispute, mere failure to pay may not give rise to a cause of action. Once the applicant has asserted his claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant,s claim giving rise to a dispute, and thus it is the cause of action for reference to arbitration. In the case on hand, it is the case of applicant that having found in intemar financial audit that the Respondent Nos. I & 2 have been deducting the GST @ l2o/o and labour welfare cess @ l%o from the principal bid amount instead of paying additional amounts to the tune of 13olo, has addressed a letter dated 23.01.2022 to the respondent No.3 requesting to release the amounts. It is further case of the applicant that on 14.02.2022, the respondent has issued a reply through Accounts Officer shting that as per the office records, the applicable GST and labour welfare cess have been credited from time to time with public fund accotmt as per Government of India norms. The applicant has issued a reply dated 18.06.2022 stating that the bid amounts did not include
13 statutory taxes i.e., GST @ l2o/o and labour welfare cess @ 1olo and that the Respondents deducted the said $tatutory taxes from his quoted ratcs and therefore, the applicant requested the respondents to release the said statutory taxes i.e., GST @ 127o and labour welfare cess @ 17o to the applicant over and above the tendered amount quoted within 15 days from the date of receipt of letter, otherwise requested the respondents to treat the said letter as notice under Condition No.7O of IAFW -2249 forming part of the contract agreement. This shows that thc applicant socn after settlement of Final Bill has raised a dispute that the amounts have been deducted over and above as mentioned in the statutory contract and requested the respondents to pay the amounts, otherwise treat the said communication as notice invoking the arbitration clause.
Sofaras limitation aspect is concerned, it is settled law that mere negotiations will not postpone the cause of action for the purpose of limitation. The limitation period of three years for filing such application would commence from the date when the cause of action arose. Since there is no provision in the Arbitration and Conciliation Act, 1996 specifying the period of limitation for filing an application under Section 1 1 , one would have to take recourse to theLimitationAct,lg63'Section43oftheArbitrationand Conciliation Act, 1996 provides that the Limitation Act shall apply
t4 to arbitrators, as it applies to proceedings in Court. Since none of the Articles in Schedule to the Limitation Act, 1963 provide a time period for hling an application for appointment of arbitrator under Section I 1 , it would be covered by the residual provision under Article 137 of the Limitation Act which provides that the period of limitation is three years for any other application for which no period of Iimitation is provided elsewhere in the division. The time limit starts from the period when the right to apply accrues. Admittedly, in the instant case, the Final Bill of the applicant has been settled on O7.O3.2O21 and even before the expiry of the three years limitation period prescribed under Article 137 of the Limitation Act, 1963, the applicant has raised a dispute and sought reference to the Arbitrator. Therefore, viewing the case from any angle, the dispute sought for reference to the arbitrator is not barred by limitation. Adding further, whether the claim is barred by lapse of time is a matter which requires to be decided by the Arbitrator at the time of making an order under Section 2O of the Arbitration and Conciliation Act, 1996. 15. For the aforementioned reasons, Sri Tariq Khan, Advocate (resident of 2l"t Floor, Vijay Krishna Towers, Nanakramguda, Gachibowli, Hyderabad-32, Mobile No.9999663628) is appointed as Arbitrator to adjudicate the disputes between the parties. The learned Arbitrator is requested to enter upon reference and take , , I i I
15 further steps in terms of the Arbitration and Conciliation Act, 1996. The learned Arbitrator shall fix his remuneration, costs and expenses of the secretarial assistance for the arbitration proceedings upon deliberation and consultation with thc parties. The learned Arbitrator is requested to complete the arbitration proceedings, and pass arr award at the earliest, preferably within a period of six months from the date of commcncement of the arbitral proceedings. Needless to state that the respondents are at liberty to raise all such objections as are permissible to be raised under' Section 16 of the Act.
The parties shall appear before the learned Arbitrator on 27 .O1.2024 at I 1:00 am for further proceedings.
Registry to inform and communicate a copy of this order to the learned Arbitrator.
Accordingly, this Arbitration Application is allowed Miscellaneous Applications, if any, pending in the Arbitration Application shall stand closed. .M.VIJAYA BHASKAR JOINT REGISTRAR //// V SECTION OFFICER One Fair Copy to the Hon'ble Sri Justice C'V' Bhaskar Reddy (For His Lordships Kind Perusal) Sri Tario Khan. Advocate FJo. 21't Floor, Viiay Krishna.Towers' n;#;;;il;. 6""nio"*ri, iivteraoad - s2: Mobile No esse663628 ( Bv ii;#iaiilH;;;s"ri'i fu,r"d witn a copv ot affidavit and material papers) 11 LR Copies To 1 .-@rnlJ -
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Two CD CoPies The Under Secretary, Union of lndia Ministry of law, Juslice and Company Affairs, New Delhi
The Secretary Telangana Advocates Association, Library, High Court Buildings HYderabad 5. one c6 to M/s. M. VANAJAKSHI, Advocate [o-P-uc] -
O;; aa io srt. r- PRANATHI REDDY (Sr SC FoR oENTRAL GOW) loPUCl k-ul 6
t1 / \ HIGH COURT DATED:03/01/2024 L.R. COPY TO BE MARKED ORDER ARBITRATION APPLICATION No.17 4 ol 2022 ALLOWING THE ARBITRATION APPLICATION I I q 1trE STAIA J A I'l 202[ oEs PAJ r-Q ,. 53 1B C) i+ I t @o's *. )y \
Reproduced from the public record of the Telangana High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.