"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Friday, February 21, 2014

Voltas v. Rolta India: A Comment

The Supreme Court has been very busy this year in the arbitration front. An example of this is the decision of the court in Voltas Ltd. v. Rolta India Ltd. (Civil Appeal No. 2073/2014 arising out of SLP (Civil) no. 30015/2013 dt. 14.02.2014).

Voltas Ltd. ("Voltas") and Rolta India Ltd. ("Rolta") entered into a construction contract for the construction of two buildings and modification of an existing building. Disputes arose between the parties and Rolta terminated the contract in December 2004.

In March 2005, Rolta communicated to Voltas that it is yet to compute the losses, damages, etc., after the building work is over and that it would claim the same from Voltas. Voltas replied in April 2005 that it was not liable for damages. In the same month, Rolta wrote to Voltas stating that it was not liable to pay any compensation and that it had suffered huge losses and damages and incurred heavy costs for which Voltas was responsible. Rolta also stated that it had the right to take approprirate steps as per agreement. Voltas invoked arbitration in March 2006 for the adjudicaiton of the dispute. Several correspondences between the parties ensued and ultimately Rolta raised claims under several heads vide its letter in April 2006. Against the said letter, Voltas denied liability in May 2006. Since an arbitrator was not appointed by Rolta, Voltas approached the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) and the Bombay High Court ordered appointment of an arbitrator in November 2010.

The arbitrator entered reference and Voltas filed its Statement of Claim claiming about 23.31 crores plus interest. Rolta filed a counter claim for Rs. 333 crores with interest. In the counter-claim, Rolta stated that it had sent a demand letter in April 2006 claiming several amounts which were subsequently raised in its counter-claims.

Against the counter-claims, Voltas objected stating that the counter claims were not maintainable and was barred by limitation. The arbitrator had to decided (1) whether the counter claim or a part thereof was barred by limitation, and (2) whether the counter claim was not maintainable and beyond the scope of reference. The arbitrator overruled the objections regarding maintainability of counter claims but held that the counter-claims were barred by time in the Interim Award.

Against the said Award, Rolta filed an application under Section 34 of the 1996 Act. The Single Judge upheld the Interim Award. On appeal, the Division Bench reversed the decision of the Single Judge and held that the counter-claim was filed within limitation. The Division Bench held that since a demand was made by Rolta in April 2006 for Rs. 68.63 crores, the period from May 2006 till 2010 during which the Section 11 proceedings were pending had to be excluded. Voltas appealed to the Supreme Court.

After hearing the contentions of the parties, the Supreme Court held that the correspondences between the parties after termination in December 2004 had an implication on the ultimate decision. Pursuant to the termination letter, Voltas replied requesting payment for its final bill. The court held that Rolta had already crystallised its claims against Voltas in March 2005 where in claimed Rs. 68.63 crores and threatented to invoke arbitration if Voltas did not pay the said amount within seven days. Further in reply to Rolta's April 2006 letter, Voltas' counsel had replied in April 2006 that since their client had gone abroad, an arbitrator would be appointed within thirty days from their client's return. The Supreme Court considered these communications to indicate that Rolta had crystallised its claims by then. Further, Rolta's letter in April 2006 containing the claims in detail clearly indicated the amounts allegedly due from Voltas. According to the Supreme Court, these communications had indicated that Rolta "had particularised or specified its claims and sought arbitration for the same."

On State of Goa v. Praveen Enterprises (blog post on the decision can be accessed from here), the Court held that the court carved out an exception to the normal rule that in case of counter-claims, the date of filing counter-claims in the arbitration would be the date of its institution. According to the Court, the exception was that in case the respondent against whom arbitration was invoked had also made a claim against the claimant and sought arbitration by serving a notice to the claimant but subsequently raises that claim made previously as a counter claim, the date of institution of such counter-claim would be the date of service of notice of such claim and not the date of filing of the counter claim. Since the counter-claim was made in April 2006 itself, the same was within limitation.

Against the contention that the counter-claim of Rolta had to be restricted to 68.63 crores against the counter-claim of Rs. 333 crores filed by Rolta, the court accepted the submission and held that the exception contemplated in Praveen Enterprises saved only those counter claims which were claimed previously through the notice and not those in addition to such claims. The court also held that a time barred claim cannot be asserted after the prescribed period of limitation.

Consequently, the court modified the decision of the Division Bench and allowed counter-claims to be made in respect of Rs. 68.63 crores. 

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