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PETITIONER: STEEL AUTHORITY OF INDIA LIMITED

       Vs.

RESPONDENT: J.C.  BUDHARAJA, GOVERNMENT AND MINING CONTRACTOR

DATE OF JUDGMENT:       01/09/1999

BENCH: D.P.Wadhwa, M.B.Shah

JUDGMENT:

Shah, J.

     This  appeal  is filed against the judgment and  order dated  11th September, 1991 passed by the Patna High  Court, Ranchi  Bench  in Miscellaneous Appeal No.621 of 1987  under Section  39(1)(vi) of the Arbitration Act, 1940 (hereinafter referred  to  as the Act).  The High Court  dismissed  the appeal  filed by the appellant and confirmed the order dated 2nd  April, 1990 passed by the Subordinate Judge, Ist Court, Chas  in Arbitration Suit No.  28 of 1988 by which award  is made  rule of Court with 8% per annum interest from the date of the decree.

     It is undisputed that the National Mineral Development Corporation,  predecessor  of the Steel Authority  of  India Limited  on 1.8.1977 executed a contract with the respondent for  construction of tailing-cum-storage reservoir at  Kundi for  Megha Taburu Iron Ore Project.  As per the terms of the contract,  the  work was to be completed within a period  of two years.  During this period, Public Sector Iron and Steel Companies (Re-structuring and Miscellaneous Provisions) Act, 1978  was passed and Steel Authority of India Limited became the  employer  in  place  of  National  Mineral  Development Corporation.   Further, the contractor, N.C.  Budharaja also died and was succeeded by the present respondent.

     After  two  years of contract period, on 29th  August, 1979,  respondent  raised  the claim of about  18  lakhs  as damages  for  delay  in handing over work sites  and  allied reasons.   On 20th December, 1980, a supplementary agreement was  executed  between the appellant and the respondent  for the  same  work at an increased rate.  The relevant part  of the said agreement is as under:  -

     The  Supplementary agreement made this twentieth  day of  December, 1980 between Steel Authority of India  Limited having  its  registered  office at  Hindustan  Times  House, 18/20,  Kasturba Gandhi Marg, New Delhi  110 001 and having one of fits units at Bokaro Steel Plant at Bokaro Steel City (hereinafter  referred to as the (Employer) which expression shall  include  its successors and assigns) of the one  part and  M/s  N.C.   Budhraja Govt.  and Mining  Contractor,  at Jharpada,  P.O.  Budheswari Colony, Bhubaneswar (hereinafter referred  to  as  the Contractor) which  expression  shall

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include its successors and assigns of the other part.

     WHEREAS  the contractor entered into an agreement  dt. 1st  August  1977  with  M/s  National  Mineral  Development Corporation  Limited in regard to the work of Constructions of  Tailing-cum-Storage Reservoir at Meghahatuburu Iron Ore Project relating to their Meghahatuburu Iron Ore Project.

     AND  WHEREAS  the  said unit of the  National  Mineral Development  Corporation Limited after the coming into force of the Public Sector Iron and Steel Companies (Restructuring and  Miscellaneous Provisions) Act, 1978 was transferred  to Steel  Authority of India Limited and declared as a  captive unit  for the Bokaro Steel Plant of Steel Authority of India Limited.

     AND  WHEREAS pursuant to the provisions of Section  23 of  the  Restructuring Act aforesaid, the agreement  entered into  by  and  between   M/s  National  Mineral  Development Corporation  Ltd.   in respect of Meghahatuburu unit of  M/s National  Mineral  Development Authority Ltd.  became  fully enforceable  and  effective  against or in favour  of  Steel Authority of India of India Limited.

     AND  WHEREAS  the  Contractor  is  yet  to  execute  a considerable portion of the work more particularly described in the schedule to this agreement.

     AND  WHEREAS the contractor has agreed to complete the said  balance  work as on 12.3.80 the estimated quantity  of which  is set out in document specified at 2(d) on the terms and conditions hereinafter enumerated.

     Further  clauses 3 and 4 of the said agreement read as under:  -

     3.   In  consideration of the payments to be made  by the  employer to the Contractor as hereinafter mentioned the contractor  hereby covenants with the employer to construct, complete  and  maintain  the works in  conformity  with  the provisions of contract in all respect.

     4.   The  employer  hereby  covenants to  pay  to  the contractor  in consideration of the construction  completion and  maintenance of the works the contract price at the time and in the manner prescribed by the contract.

     Despite  the  aforesaid  fact that  the  supplementary agreement  was  executed for the same work at  an  increased rate,  it  is stated that the appellant wrote  letter  dated 3.9.1983 repudiating claim of 18 lakhs on account of damages for  any loss sustained by the contractor as claimed by  him by his letter dated 29th August, 1979.

     Thereafter,  dispute  arose, in the year 1985 for  the work  with  regard to second agreement dated 20th  December, 1980  and  the matter was referred to arbitration.  In  that Reference,  respondent raised certain claims relating to the work done under the first agreement.  On 2nd December, 1985, the  appellant raised an objection that the claim could  not be  decided by the Arbitrators as the same was pertaining to previous agreement.  Thereafter respondent gave notice dated 2nd  December,  1985  to  the   appellant  to  appoint  sole arbitrator  as  provided for under the first agreement.   On

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10th December, 1985, the appellant appointed sole arbitrator with  reservation regarding the tenability, maintainability and  validity  of the Reference as also on  further  grounds that  the  claim was barred by the period of limitation  and that  it pertained to excepted matters of general conditions of the contract.

     On  11th  July,  1986, the arbitrators gave  an  award pertaining   to  the  dispute   under  the  agreement  dated 20.12.1980.   Against the claim of Item No.1 of Rs.17  lakhs and  odd  pertaining  to first  agreement,  the  arbitrators awarded  Nil;  this award has been made rule of the  Court by the High Court of Delhi.

     Meanwhile,  the appellant challenged the  jurisdiction of  the sole arbitrator by filing Miscellaneous Case No.  22 of  1987.   Finally, the High Court dismissed  the  Revision Application  on  22nd  August,  1988.   Thereafter  on  18th November,  1988, the sole arbitrator made an award  granting damages  to  the  tune of Rs.11,26,296/-  as  principal  sum (unliquidated  damages) and a further sum of  Rs.12,06,000/- as  interest on the above principal amount from 29th August, 1979  till  the date of the Reference, i.e.  15th  December, 1985.   The  arbitrator also awarded future interest at  the rate  of 17 per cent from the date of the award to the  date of  payment or the date or decree whichever is earlier.   By order  dated 2nd April, 1990, the learned Sub-Judge made the award  rule of the court with a modification for the payment of interest from the date of the decree at the rate of 8 per cent on the principal amount or unpaid part till the date of actual  payment.   The  appeal filed before the  High  Court against  the  said judgment and decree was  also  dismissed. Hence this appeal.

     At  the  time of hearing, the learned counsel for  the appellant  submitted that the award passed by the arbitrator is  (a)  without  jurisdiction, (b) The claim  made  by  the respondent  was  on the face of it barred by the  period  of limitation,  and (c) Award of interest is wholly unjustified and  illegal.   The  learned   counsel  for  the  respondent supported  the order passed by the High Court.  He submitted that  (1)  The award is non-speaking.  Hence,  courts  below rightly  refused  to  interfere  with.   (2)  The  question, whether  claim  made by the contractor was within period  of limitation  or  not,  was  required to  be  decided  by  the arbitrator,  and  (3) There is no prohibition  for  awarding interest  from  the  date  of the claim  till  the  date  of reference and thereafter.

     For deciding the controversy, it would be necessary to refer to the material part of the award dated 18th November, 1988  which  is as under:  - The claimant has put  forth  a claim amounting to Rs.18,10,014.48 plus interest on the same amount at 30% per annum from 29.8.79 till date of payment.

     The  amount of interest at the above rate on the claim amount  from  29.8.79 till 18.11.88, i.e.  date  of  AWARD worked  out  to Rs.33,39,351.00 (Rupees Thirty  three  lakhs thirty nine thousand three hundred fifty one only).

     Thus  the total amount of claims including interest up to  the date of AWARD works out to Rs.51,49,365.48 (Rupees fifty one lakhs forty nine thousand three hundred sixty five and paise forty eight only).

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     On  perusal of all documents filed by both parties and relied  upon  by  the parties and keeping in view  oral  and written  submissions and chain of arguments of both  parties relating  to  factual  and legal.  I am convinced  that  the claimant  sustained  losses  on  account  of  the  following reasons:-

     (a)  The  work  site  is   located  in  the  wild-life sanctuary   of   Saranda  Reserve   forest.    The   project authorities  issued  work  order   without  completing   the departmental  formalities  in  obtaining permission  of  the Forest  Department  for executing the work inside  wild-life sanctuary.

     (b)   The  project  authorities   could   not   obtain permission of Forest Department to take men and machinery to the work site as and when necessary for executing the work.

     (c)   The  project  authorities   could   not   obtain permission  of Forest Department in time for making hutments at work site and could not hand over the site in time.

     (d)  The  project  authority could not  remove  forest growths from the working area before issue or work order.

     (e)   The  project  authorities   could   not   obtain permission  of  Forest  Department   for  transporting   the required  machinery and materials for blasting operation and executing  drilling  and blasting work inside the  wild-life sanctuary till March 1979.

     (f)  Delay  in  payment  of  legitimate  dues  of  the claimant for more than nine years.

     After  recording the aforesaid reasons, the arbitrator held that in consideration of the documents, submissions and arguments of both the parties, contractor was entitled to be paid  by  the  Steel  Authority of India Limited  a  sum  of Rs.11,26,296/-   as   principal   amount   and  a   sum   of Rs.12,06,000/-  as interest from 29th August, 1979 till 15th August,  1985,  in all Rs.23,32,296/-.  The Arbitrator  also awarded  future interest at the rate of 17% on the principal sum  of Rs.11,26,296 from the date of award till the date of payment or the date of decree whichever is earlier.

     Learned  counsel for the appellant submitted that  the award  is a speaking one and the Arbitrator has awarded  the damages  for  the reasons that department failed  to  obtain various permissions from the forest department.  The reasons which  are specifically mentioned in the award for  granting damages  clearly  reveal  that the arbitrator has  passed  a speaking  award.   He pointed out the terms of the  contract and  submitted  that  it  is apparent  that  arbitrator  has awarded  the  amount  for  the  items  for  which  there  is prohibition  in  the  contract and thereby he  has  traveled beyond  his jurisdiction.  For this purpose, learned counsel for  the appellant referred to conditions which are referred to  by  the learned Single Judge and the trial court.   They are as under:  -

     Clause  25:   No  claim  if   work  is  abandoned  or postponed-

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     The successful tenderer shall have no claim whatsoever against  the  Corporation  if the work or any  part  thereof covered  by these tender documents if postponed to any later date or abandoned in the overall interest of the Corporation or  for any other reason.  The Corporations decision in the matter shall be final and binding on the contractor.

     Clause 32:  Site for execution of work:

     Site  for execution of work will be available as  soon as  the work is awarded.  In case it is not possible for the Corporation  to make the entire site available on the  award of  work  the  contractor will have to arrange  his  working programme  accordingly.  No claim whatsoever for not  giving the  entire  site on award of work and for giving  the  site gradually will be tenable.

     Clause 39:  (Force majeruo):-

     No  failure or omission to carry out the provisions of the contract shall give rise to any claim by the Corporation and  the contractor, one against the order, if such  failure ommission  arises  from an act of God, which  shall  include natural   calamities  such  as   fire,  flood,   earthquake, hurricane   or  any  postilence,  or  from   civil   strike, compliance  with  any statute or regulation  of  Government, lockouts and strikes, or from any political or other reasons beyond  the  control  or  either   the  Corporation  or  the Contractor, including war whether declared or not, Civil war or state of insurrection.

     Clause  5 (iv):  General Conditions of Contract  (Time for Completion of work covered by the Contract:  -

     Failure  or  delay by the Corporation to hand over  to the  contractor  possession of the lands necessary  for  the execution  of  the work, or to give the  necessary  drawings instructions or any other delay by the Corporation which due to  any  other  cause whatsoever shall in no way  affect  or vitiate  the  contract  or alter the  character  thereof  or entitle  the  contractor to damage or compensation  therefor provided  that  the  Corporation  may extend  the  time  for completion  of  the work by such period as it  may  consider necessary and proper.

     Before  the  learned Sub-Judge and the High Court,  it was submitted that in view of the aforesaid conditions which are  laid  down  in the contract which prohibited  award  of damages  or compensation, it was not open to the  arbitrator to award damages for the alleged losses sustained on account of  not obtaining or delay in obtaining various  permissions required  to be taken under the law or rules from the Forest Department.

     Re:  Lack of Jurisdiction of the Arbitrator

     From  the  Award  quoted above, it  is  apparent  that damages  are  granted by the arbitrator for delay in  obtain permission  from  the Forest Department:  (a) for  executing the work inside the wildlife sanctuary;  (b) to take man and machinery  to  the worksite in the forest;  (c)  for  making hutments  at the work site and failure to hand over site  in time;   (d)  failure to remove Forests growths from  working

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area  before issue of work order;  and (e) for  transporting the  required machinery and materials for blasting operation and  executing  the  drilling and blasting work  inside  the wild-life sanctuary till March, 1979.

     Clause  32  of the agreement  specifically  stipulates that  no claim whatsoever for not giving the entire site  on award  of  work  and for giving the site gradually  will  be tenable  and  the  contractor  is required  to  arrange  his working programme accordingly.  Clause 39 further stipulates that  no failure or omission to carry out the provisions  of the contract shall give rise to any claim by the Corporation and  the contractor, one against the other, if such  failure or  omission  arises  from compliance with  any  statute  or regulation of Government or other reasons beyond the control of  either  the  Corporation or the  Contractor.   Obtaining permission  from Forest Department to carry out the work  in wild  life  sanctuary  depends   on  statutory  regulations. Clause  (vi)  of  General  condition of  the  contract  also provides  that  failure or delay by the Corporation to  hand over to the Contractor possession of the lands necessary for the  execution  of  the  work  or any  other  delay  by  the Corporation  which  due to any other cause whatsoever  would not entitle the contractor to damage or compensation thereof ;   in  such cases, the only duty of the Corporation was  to extend the time for completion of the work by such period as it  may  think  necessary   and  proper.   These  conditions specifically  prohibit  granting claim for damages  for  the breaches  mentioned  therein.   It  was   not  open  to  the arbitrator  to ignore the said conditions which are  binding on  the  contracting parties.  By ignoring the same, he  has acted  beyond  the jurisdiction conferred upon him.   It  is settled  law that arbitrator derives the authority from  the contract  and  if  he  acts in  manifest  disregard  of  the contract,  the  award given by him would be  arbitrary  one. This deliberate departure from the contract amounts not only to  manifest disregard of the authority or misconduct on his part,  but  it may tantamount to mala fide action.   In  the present case, it is apparent that awarding of damages of Rs. 11 lakhs and more for the alleged lapses or delay in handing over  work site is, on the face of it, against the terms  of the contract.

     Further,  the Arbitration Act does not give any  power to  the arbitrator to act arbitrarily or capriciously.   His existence  depends upon the agreement and his function is to act within the limits of the said agreement.  In Continental Construction Co.  Ltd.  vs.  State of Madhya Pradesh [(1988) 3 SCC 82], this Court considered the clauses of the contract which stipulated that contractor had to complete the work in spite  of  rise in the prices of materials and also rise  in labour  charges  at  the rates stipulated in  the  contract. Despite  this,  the arbitrator partly  allowed  contractors claim.  That was set aside by the court and the appeal filed against  that was dismissed by this Court by holding that it was  not open to the contractor to claim extra costs towards rise  in  prices of material and labour and that  arbitrator misconducted  himself in not deciding the specific objection regarding  the  legality of extra claim.  In that case,  the Court  referred  to  the various  decisions  and  succinctly observed:  -

     If  no  specific  question of law  is  referred,  the decision  of  the arbitrator on that question is  not  final however  much  it may be within his jurisdiction and  indeed

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essential  for him to decide the question incidentally.  The arbitrator is not a conciliator and cannot ignore the law or misapply  it  in  order  to do what he thinks  is  just  and reasonable.   The  arbitrator is a tribunal selected by  the parties  to decide their disputes according to law and so is bound to follow and apply the law, and if he does not he can be  set right by the court provided his error appears on the face of the award.

     It  is  to be reiterated that to find out whether  the arbitrator  has travelled beyond his jurisdiction and  acted beyond  the  terms  of the agreement  between  the  parties, agreement  is  required to be looked into.  It is true  that interpretation  of  a particular condition in the  agreement would   be  within  the   jurisdiction  of  the  arbitrator. However,   in   cases  where  there   is  no   question   of interpretation  of  any term of the contract, but of  solely reading  the same as it is and still the arbitrator  ignores it  and  awards  the amount despite the prohibition  in  the agreement,  the  award  would be arbitrary,  capricious  and without  jurisdiction.   Whether  the arbitrator  has  acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional  facts,  and are required to be gone into  by the  court.   Arbitrator may have jurisdiction to  entertain claim and yet he may not have jurisdiction to pass award for particular items in view of the prohibition contained in the contract  and,  in such cases, it would be a  jurisdictional error.   For this limited purpose reference to the terms  of the  contract is a must.  Dealing with similar question this Court  in  New India Civil Erectors (P) Ltd.  Vs.   Oil  and Natural  Gas Corporation [(1997) 11 SCC 75] held thus:   It is  exiomatic  that the arbitrator being a creature  of  the agreement,  must  operate  within the four  corners  of  the agreement  and cannot travel beyond it.  More  particularly, he  cannot award any amount which is ruled out or prohibited by  the terms of the agreement.  In this case, the agreement between  the  parties  clearly says that  in  measuring  the built-up  area,  the balcony areas should be excluded.   The arbitrators  could  not  have  acted contrary  to  the  said stipulation  and awarded any amount to the appellant on that account.

     However,  the  learned  Counsel   for  the  Respondent submitted that the award being non-speaking one, the learned Sub-Judge  and  the  High Court have rightly refused  to  go behind  the  award  or interfere with.  In  our  view,  this submission  is  without any substance.  It is apparent  that the  Arbitrator has awarded Rs.  11,26,296/- for the  losses sustained  for  the  reasons stated therein  which  we  have incorporated  in the previous paragraph.  These reasons only pertained  to non-obtaining or delay in obtaining permission from  the Forest Department as the work site was located  in the  wild-life  sanctuary  of Saranda reserve  forest.   The Arbitrator  in his award in terms mentioned I am  convinced that  the claimant sustained losses on account of  following reasons and thereafter reasons are recorded.  Therefore, it cannot be said that the award is a non-speaking one.

     Further  even  if such reasons are not  recorded,  the claim itself for such prohibited items was not entertainable by  the  Arbitrator.  In the agreement between the  parties, there  is specific bar to raising of such claims.  Hence the decision  of  the arbitrator is without jurisdiction.   This

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aspect  is  also  dealt with by this Court  in  H.P.   State Electricity  Board Vs.  R.J.  Shah and Company [1999(4)  SCC 214].  In paragraph 26, the Court held as under:

     In  order  to  determine whether the  arbitrator  has acted  in  excess  of jurisdiction what has to  be  seen  is whether  the  claimant could raise a particular  dispute  or claim   before  the  arbitrator.   If   the  answer  is   in affirmative, then it is clear that arbitrator would have the jurisdiction  to deal with such a claim.  On the other  hand if the arbitration clause or a specific term in the contract or  the law does not permit or give the arbitrator the power to  decide  or  to  adjudicate on a dispute  raised  by  the claimant  or  there  is a specific bar to the raising  of  a particular  dispute or claim, then any decision given by the Arbitrator  in respect thereof would clearly be in excess of jurisdiction.

     The  Court  further  held that in order  to  find  out whether   the  Arbitrator  has  acted   in  excess  of   the jurisdiction, the Court may have to look into some documents including  the  contract  as well as the  reference  of  the dispute  made  to the Arbitrator limited for the purpose  of seeing whether the Arbitrator has the jurisdiction to decide the claim made in the arbitration proceedings.

     Further  dealing  with  the similar condition  in  the contract,  such as no claim for price escalation other  than those  provided  therein  shall  be  entertained  and   the Contractor  will  not be entitled for any extra rate due  to change  in selection of querries, this Court in  Associated Engineering  Co.   Vs.   Government of  Andhra  Pradesh  and Another  [(1991)  4  SCC  93],  observed  that  four  claims mentioned  therein  were not payable under the contract,  in fact,  it prohibited such payment and for this purpose.  The Court  held this conclusion is reached not by  construction of the contract but by merely looking at the contract.  The Court  further  observed that the Arbitrator could  not  act arbitrarily,  irrationally, capriciously or independently of the contract;  his sole function is to arbitrate in terms of the contract.  The Court further held thus:  -

     An  arbitrator who acts in manifest disregard of  the contract  acts  without  jurisdiction.    His  authority  is derived from the contract and is governed by the Arbitration Act  which  embodies principles derived from  a  specialised branch  of  the  law  of  agency  (see  Mustill  and  Boyds Commercial  Arbitration,  2nd  edn., p.  641).   He  commits misconduct  if  by his award he decides matters excluded  by the  agreement  (see Halsburys Laws of England, Volume  II, 4th  edn., para 622).  A deliberate departure from  contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action.   A conscious disregard of the law or the provisions of  the  contract  from which he has derived  his  authority vitiates the award.

     In view of the aforesaid settled law, the award passed by  the  arbitrator is against the conditions agreed by  the contracting  parties  and  is  in  conscious  disregard   of stipulations  of  the  contract from  which  the  arbitrator derives his authority.  His appointment as a sole arbitrator itself was conditional one and he was informed that the same was    with   reservation     regarding   the   tenability,

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maintainability  and  validity of the Reference as  also  on further  grounds that the claim was barred by the period  of limitation  and  that  it pertained to excepted  matters  of general  conditions  of the contract.  Despite this he  has ignored  the  stipulations and conditions  between  parties. Hence, the said award is, on the face of it, illegal.

     Re:  LIMITATION

     Our  next  question is of limitation.  The  period  of limitation  is required to be considered on the basis of the arbitration clause between the parties which is as under:  -

     All disputes or differences whatsoever which shall at any  time  arise  between  the parties  hereto  touching  or concerning  the works or the execution meaning operation  or effect thereof or to the rights or liabilities of parties or arising  out  of or in relation thereto, whether  during  or after completion of the contract, or whether before or after determination,  foreclosure or breach of the contract (other that those in respect of which the decision of any person is by  the  contract expressed to be final and  binding)  shall after  written notice by either party to the contract to the other  of  them and to the M.D./Chairman of the  Corporation (who  will  be  the appointing Authority)  be  referred  for adjudication  to  be  sole  Arbitrator to  be  appointed  as hereafter provided.

     The  Appointing Authority will send within thirty days of  the receipt of notice a penal of three names of  persons not  directly connected with the work of the contractor  who will  select any one of the persons named to be appointed as a  sole  Arbitrator  within thirty days of  receipt  of  the names.   If the Contractor fails to select the name from the panel  and  communicate  within  30  days,  the   appointing authority  shall  appoint  one  out of  the  panel  sole  as Arbitrator.

     If  the  Appointing  Authority fails to  send  to  the contractor  the  panel of three names, as aforesaid,  within the  period  specified,  the Contractor shall  send  to  the Appointing  Authority a panel of three names of persons  who shall  all be unconnected with the organisation by which the work is executed.  The Appointing Authority shall on receipt of  the  names  as aforesaid select any one of  the  persons named  and  appoint  him  as the  Sole  Arbitrator,  if  the appointing  authority fails to select the person and appoint him  as the Sole Arbitrator within 30 days of receipt of the panel  and inform the contractor accordingly, the Contractor shall  be  entitled to invoke the provisions of  the  Indian Arbitration  Act,  1940  and   any  statutory   modification thereof.

     In  view  of  the aforesaid arbitration  clause,  even though the claim made by the contractor was time barred, the dispute  was  required  to be referred  to  the  arbitrator. However, the reference was subject to the contention that it was  barred  by the period of limitation.  In that  context, the  learned counsel for the appellant submitted that it  is settled  law that application under Section 20 or notice for appointment  of arbitrator is to be filed within three years from  the date when cause of action arises as provided  in Article  137  of the Limitation Act, 1963.  The  application filed by the contractor in December 1985 was, on the face of it,  time barred because the cause of action to recover  the

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amount  arose,  according to the contractor, in August  1979 when  he  demanded the alleged damages for loss suffered  by him  because of the delay in handing over the worksites.  He further  submitted  that, in the present case, in year  1980 for   the  same  work,  the   Contractor  has   executed   a supplementary  agreement  for  the completion  of  the  work within the stipulated time and at a higher rate.  This would also show that Contractor waived his alleged right of asking for  appointment  of Arbitrator as provided  in  arbitration clause.   He referred to the arbitration clause and  pointed out  that  within  30  days of the receipt  of  the  notice, arbitrator  is  required  to be appointed  by  the  Managing Director.   If  arbitrator is not appointed then  Contractor has  option  to  send the penal of three  names  from  which arbitrator  is required to be appointed.  He contended  that after  the supplementary agreement, there was no question of adjudicating the so- called demand made by the contractor in the  year  1979.   In  any   case,  he  submitted  that  the Contractor  ought to have approached the Court under Section 20  or ought to have demanded arbitration within three years from  the  date of the notice demanding the amount for  loss suffered  by him.  As against this, learned Counsel for  the respondent  submitted that the cause of action to refer  the matter  to the arbitrator arose only in 1983 when respondent denied contractors claim.

     For deciding this controversy, we would first refer to the  decision  of this Court in the State of Orissa  &  Ors. Vs.   Damodar Das [1996(2) SCC 216] wherein this Court  held that Section 3 of the Limitation Act, 1963, enjoys the Court to consider the question of limitation whether it is pleaded or not.  The Court in paragraph 5 held as under:  -

     Russell  on Arbitration by Anthony Walton (19th Edn.) at  pp.   4-5  states  that the  period  of  limitation  for commencing  an  arbitration runs from the date on which  the cause  of  arbitration accrued, that is to say,  from  the date  when  the  claimant first acquired either a  right  of action  or a right to require than an arbitration take place upon  the  dispute concerned.  The period of limitation  for the  commencement  of an arbitration runs from the  date  on which,  had  there been no arbitration clause, the cause  of action would have accrued:

     Just as in the case of actions the claim is not to be brought  after the expiration of a specified number of years from  the  date on which the cause of action accrued, so  in the case of arbitrations, the claim is not to be put forward after  the expiration of the specified number of years  from the date when the claim accrued.

     Even  if  the arbitration clause contains a  provision that  no  cause  of action shall accrue in  respect  of  any matter agreed to be referred to until an award is made, time still  runs  from the normal date when the cause  of  action would have accrued if there had been no arbitration clause.

     The  Court  also referred to the earlier  decision  in Panchu  Gopal  Bose  Vs.   Board of  Trustees  for  Port  of Calcutta  [1993(4)  SCC  338], where the Court  observed  as under:  -

     The   Period   of  limitation   for   commencing   an arbitration  runs  from  the  date on  which  the  cause  of

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arbitration  accrued, that is to say, from the date when the claimant  first acquired either a right of action or a right to  require that an arbitration takes place upon the dispute concerned.

     Therefore,   the   period  of   limitation   for   the commencement  of an arbitration runs from the date on which, had  there  been no arbitration clause, the cause of  action would  have  accrued.   Just as in the case of  actions  the claim  is  not  to  be brought after  the  expiration  of  a specified  number of years from the date on which the  cause of action accrued, so in the case of arbitrations, the claim is  not  to  be  put forward after  the  expiration  of  the specified  number  of  years from the date  when  the  claim accrued.

     Applying  the  aforesaid  ratio in the  present  case, right  to refer the dispute to the arbitrator arose in  1979 when Contractor gave a notice demanding the amount and there was  no  response from the appellant and the amount was  not paid.   The cause of action for recovery of the said  amount arose  from the date of the notice.  Contractor cannot  wait indefinitely  and  is  required to take  action  within  the period  of  limitation.   In  the present  case,  there  was supplementary  agreement between the parties.  Supplementary agreement  nowhere  provides  that so-called  right  of  the contractor  to recover damages was in any manner saved.   On the  contrary, it specifically mentions that contractor  was yet  to  execute  a considerable portion of  the  work  more particularly  described  in the schedule to  the  agreement. And  that  the  contractor has agreed to complete  the  said balance  work on the terms and conditions enumerated in  the agreement.   Now,  in this set of circumstances,  contractor cannot  wait  and  approach the authority or the  court  for referring the dispute to the arbitrator beyond the period of limitation.   Section 37 of the Arbitration Act specifically provides  that provisions of the Indian Limitation Act shall apply  to  the arbitrations as they apply to proceedings  in the Court.

     Learned  counsel  for the respondent relied  upon  the decision  of  this Court in Major (Retd.) Inder Singh  Rekhi vs.   Delhi  Development  Authority [(1988) 2 SCC  338]  for contending  that  cause  of action for referring  the  claim arises  only  when the appellant disputed the right  of  the respondent  to  recover the damages claimed by him.  In  the said  case, the Court has observed that on completion of the work,  the  right  to get payment would clearly  arise,  but wherein  the final bills have not been prepared and when the assertion  of the claim was made on 28th February, 1983  and there  was non-payment, the cause of action arose from  that date.   In that case, application under Section 20 was filed in January 1986.  The Court also observed that:  it is true that  the  party  cannot postpone the accrual  of  cause  of action  by writing reminders or sending reminders but  where the  bill had not been finally prepared, the claim made by a claimant  is the accrual of the cause of action.  A  dispute arises  where there is a claim and a denial and  repudiation of  the  claim.  The existence of dispute is  essential  for appointment  of an arbitrator under Section 8 or a reference under Section 20 of the Act.  See Law of Arbitration by R.S. Bachawat,  first edition, page 354.  There should be dispute and  there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds.  Mere

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failure or inaction to pay does not lead to the inference of the  existence  of  dispute.   Dispute  entails  a  positive element  and  assertion of denying, not merely  inaction  to accede  to  a claim or a request.  Whether in  a  particular case  a  dispute has arisen or not has to be found out  from the facts and circumstances of the case.

     In  the present case, as stated above, on 29th August, 1979,  the  contractor wrote letter making  certain  claims. Thereafter, the supplementary agreement was executed on 20th December, 1980.  In that agreement it is nowhere stated that contractors  alleged  right  of getting  damages  or  losses suffered  by  him was kept alive.  On the contrary,  he  has agreed  to  complete the work within the time stipulated  in the   second  agreement  by   charging  some  higher   rate. Contractor  has not sought any reference within three  years from  the  date when cause of action arose, i.e., from  29th August,  1979.  Only in 1985 when dispute arose with  regard to  the  second  agreement, respondent gave  notice  on  2nd December,  1985  to  appoint   sole  arbitrator.   The  sole arbitrator  was  appointed  with   a  specific   reservation regarding  the  tenability, maintainability and validity  of reference as also on the ground that claim was barred by the period of limitation and it pertained to excepted matters in terms  of  general conditions of the contract.   From  these facts,  it  is apparent that claim before the arbitrator  in November   December 1985 was apparently barred by period of limitation.  Letter dated 3rd September, 1983 written by the appellant  repudiating the respondents claim on account  of damages  or  losses  sustained by him would not  give  fresh cause  of  action.   On  that   date  cause  of  action  for recovering the said amount was barred by the period of three years  prescribed  under Article 137 of the Limitation  Act, 1963.   Under  Section 3 of the Limitation Act, it  was  the duty  of the arbitrator to reject the claim as it was on the face of it, barred by the period of limitation.

     In  the  present  case,  in   view  of  the  aforesaid findings, it is not necessary to discuss the contention with regard  to the award of interest prior to coming into  force of  the  Interest  Act, 1978 or that no  interest  could  be awarded  on  the  unliquidated  damages.   It  is  also  not necessary  to discuss whether arbitration agreement provided in  first  agreement  executed in 1977 would  survive  after execution of the second agreement in December, 1980.

     In  the result, the appeal is allowed with costs.  The impugned  order passed by the Patna High Court, Ranchi Bench in Miscellaneous Appeal No.  621 of 1987 and the order dated 2nd  April, 1990 passed by the Subordinate Judge, Ist Court, Chas in Arbitration Suit No.  28 of 1988 are quashed and set aside.