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Union of India Vs. Vijay Construction Co. - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 95 of 1980
Judge
Reported in19(1981)DLT49; 1981RLR215
ActsArbitration Act, 1940 - Sections 20; Limitation Act - Schedule - Article 137
AppellantUnion of India
RespondentVijay Construction Co.
Advocates: P.K. Jaitely and; P.N. Kumar, Advs
Cases ReferredMoti Lal v. Lal Chand
Excerpt:
.....to be set aside - - but nevertheless he urged that the petition u/s 20 of the act is within time as the time from which the period begins to run did not start earlier than 17.11.76 when the notice was given by the respondent and as the application was moved on 4.9.78 it is well within time. the whole confusion in the argument arises from the failure to appreciate this distinctiveness of matters. 1929 p c 103. it may be noticed that this was prior to the enactment of 1940 arbitration act did not contain any provision like section 37 of the act. (14) according to the learned judge in that case, the application u/s 20 filed in march, 1978, was well within time because the limitation would expire only in 1980. how untenable it is when it is recalled that the contract was rescinded on..........within time before the arbitrator, which has no relevancy to the time within which and from what date application u/s 20 has to be filed. the whole confusion in the argument arises from the failure to appreciate this distinctiveness of matters. (8) at one time, it was strongly contended that no purpose would be served by sub-section (3) of section 37 of the commencement of arbitration was to be deemed to be from a date, as in the present case from 17.11.76 and a period of three years for limitation purposes could start from some other date under article 1 37 of the limitation act. this argument obviously ignores the various eventualities for which section 37(3) is meant. one indication is provided in section 37(3) itself which says that where the court orders that an award be set.....
Judgment:

Sachar, J.

(1) This is an appeal against the order of the learned Single Judge by which, he has held that the application filed by the respondent u/s 20 of the Arbitration Act (the Act) was filed within time and directed the appointment of the arbitrators in accordance with the conditions of the contract.

(2) On 8.6.73 a contract was entered into between the respondent and the Union of India for construction of 48 units of types staff quarters at Moradabad. The contract was to be completed by 8.6.74. This date was, however, extended to 512.74. Apparently, the work was not completed and the appellant, thereforee, rescinded the contract on 6.12.74, The respondent sent a notice, dated 17.10.76 to the General Manager, Northern Railways, requiring that as per the agreement, he was to Act as the sole arbitrator and informing him that he may appoint some one else as an arbitrator, within the prescribed period of 15 days from the receipt of the letter and that if no such arbitrator was appointed within the said statutory period, the respondent will proceed u/s 20 of the Act or any other provision as might be open. A reminder was also sent to the appellant who by his letter of 24.8.77 stated that the matter was receiving active consideration and final reply will be sent as early as possible. No further communication was received from the appellant. The respondent thereafter moved an application on 8 9.78 u/s 20 of the Act for filing the arbitration agreement and referring the matter to arbitration.

(3) The appellant pleaded bar of limitation The learned Single Judge has held it against the appellant and has held the application to be within time.

(4) The appellant need not have filed the appeal, but as explained by Mr. Jaitley, counsel for the appellant, a number of matters have been decided on this point, the department wants the matter to be finally decided by this Court because the learned Single Judge of this Court have taken contrary views on this aspect of the matter.

(5) Section 37(1) of the Arbitraton Act provides that all the provisions of Limitation Act, 1963, shall apply to arbitrations as they apply to proceedings in Court. There is no specific Article in the Limitation Act, 1963, laying down for filing an application u/s 20 of the Act There is, however, a residuary Art. 137 which lays down a period of limitation of three years and the time from which the period begins to run is when the right to apply accrues . At one time under Limitation Act, 1908 there was a view that the residuary Art. 137 does not apply to the proceedings under Arbitration Act. That position is no longer correct law in view of Kerala State Electricity Board v. T.P. Kunhaliuma, : [1977]1SCR996 which lays down that the interpretation which was given to Article 181 Limitation Act, 1908 on the principle of ejusdem generis is not applicable with regard to Art. 137 of Limitation Act, 1963. It was held that Art. 137 will apply to any petition or any application filed under any Act to a civil court. As there is no specific provision under the Limitation Act for an application u/s 20 of the Arbitration Act it is apparent that the time for filing an application is governed by Art. 137 of the Limitation Act. This position is, indeed, not disputed by the learned counsel for the respondent Mr. Kumar though a half hearted efforts was made by Mr. Daljit Singh appearing in connected matter to urge that notwithstanding the decision in the Kerala State Elec. Bd., an application u/s 20 of the Act was not governed by the Limitation Act and there was no limitation period, as according to the counsel Section 20 is merely a procedural section. The argument is unacceptable. In view of the Supreme Court decision, it is no longer open to urge that the applications under the Arbitration Act which are filed in civil court are not governed by the Limitation Act To be fair to Mr. Kumar, who argued the main matter, we may note that he did not subscribe to this untenable proposition and conceded that an application u/s 20 would be governed by Art. 137 of the Limitation Act. But nevertheless he urged that the petition u/s 20 of the Act is within time as the time from which the period begins to run did not start earlier than 17.11.76 when the notice was given by the respondent and as the application was moved on 4.9.78 it is well within time.

(6) The real controversy is when the right to apply u/s 20 of the Act is deemed to accrue. The respondent himself understood that the cause of action had arisen to him on 6.12.74 when the contract was rescinded and so stated specifically in para 8 of the application u/s 20 of the Act where he stated that the cause of action accrued to him when the Union of India illegally rescinded the contract on 6.12.74. Of course, he also added that cause of action also accrued when the notice dated 17.11.76 was sent by the Advocates of the plaintiff for appointment of an arbitrator.

(7) Mr. Kumar urges that u/s 37(3) of the Act, for the purposes of the Section and of the Indian Limitation Act, an arbitration shall be deemed to commence when one party to the arbitration agreement serves on the other party thereto a notice requiring the appointment of an arbitrator and as that notice was sent on 17.11.76 that is the date when the right to apply u/s 20 of the Act would accrue in the eventuality of the arbitrator not being appointed by the other party. We cannot agree This argument seems to mix up the question of the time of commencement of the arbitration, and the question of limitation for filling application u/s 20 of the Arbitration Act. These are two distinct matters and deal with different eventualities. One has no connection with the other Section 37(3) deals with claim being within time before the arbitrator, which has no relevancy to the time within which and from what date application u/s 20 has to be filed. The whole confusion in the argument arises from the failure to appreciate this distinctiveness of matters.

(8) At one time, it was strongly contended that no purpose would be served by sub-section (3) of Section 37 of the commencement of arbitration was to be deemed to be from a date, as in the present case from 17.11.76 and a period of three years for limitation purposes could start from some other date under Article 1 37 of the Limitation Act. This argument obviously ignores the various eventualities for which section 37(3) is meant. One indication is provided in Section 37(3) itself which says that where the court orders that an award be set aside, after the commencement of the arbitration, the period between the commencement of the arbitration and the date of the order of the court shall be excluded in computing the time prescribed by the Indian Limitation Act for the commencement of the proceedings. Another instance in which section 37(3) would be relevant would be to determine whether the claim before the arbitrator is barred by time or not. To take an instance, as in the present case, notice was given on 17.11.76 and even if an arbitrator had been appointed in 1978 and the claim was filed before him by the respondent it would not be open to the appellant to urge that the claim filed before the arbitrator in 1978 is time barred as it is beyond the period of three years from the date of cause of action, i.e., the rescision of the contract on 6.12.74 because by virtue of the deeming provision of section 37(3) the arbitration would be deemed to have commenced from 17.11.76 which date is within time being within three years from 6.12 74. Then in Penukonda Bathkriseanmurti Vs Balsumbremania & Co., Air 1949 Madras 559 where the date of alleged breach of contract was 31.3.72 the invocation of arbitration clause under the Arbitration bye-laws of Merchant's association on 29.3.75 was held to be a date on which the arbitration commenced. This authority was followed in M/s. Khubrai Lakshmichand Vs State 1971 (2) C W.R. 927.

(9) One of the arguments urged by the counsel for appellant was that if the period of limitation was not to be counted from the date of service of the notice u/s 37(3), this may defeat the remedy of having an arbitrator appointed by moving an application u/s 20. He gives an extreme illustration where notice is given on the last day of three years from the date of rescision of the contract and then urging that if three years are to start from the date of rescision of the contract, the party could not move an application u/s 20 of the Act and thus would be without a remedy. But then illustration is where a situation is created by the party itself and the justification for the fear urged on account of inaction of the party. It is no doubt true that if the party does wait till the last day of limitation to give notice and then also wishes to wait for some days to await the reply, he would have lost the remedy u/s 20 in case the other party did not agree to the appointment of an arbitrator. But same situation will arise even if the notice is given, say one year earlier, but the party giving notice does not choose to move u/s 20 of the Act within the period of one year. The situation brought about by one's own negligence is not only an inapposite example but hardly a justification to give different meaning to the plain words of the statute. The consequence of a party itself delaying to move an application u/s 20 of the Act beyond the period of Limitation and the situation resulting in a party being left without a remedy are consequences created by its own default and it is unfair to find fault with the draftsman of the legislation for this predicament Moreover. this argument is made obviously on the assumption as if it is a condition precedent to moving an application u/s 20 of the Act to first give a notice to the other party u/s 37(3) of the Act. This assumption, however, is unsupportable in law. Even the learned Judge accepts that it is open to the party to move an application u/s 20 of the Act without having first to give a notice u/s 37(3) of the Act. If that be so, as indeed it is the correct law then obviously if there was no arbitration clause what a person would do by filing a suit, he could in the present case do by filing an application u/s 20 of the Act. It is not, thereforee, correct to equate the giving of a notice u/s 37(3) of the Act to the filing of a suit because the latter cannot be equated to the filing of an application u/s 20 of the Act and limitation can only be saved from the date when application u/s 20 of the Act is filed, and not from any earlier date, because giving of notice etc. are not essential conditions for moving such an application. If the view of the learned Single Judge were accepted there would be no definite or specific period of limitation laid down for moving an application u/s 20 of the Act. To take the present case, if no notice is given under section 37(3) of the Act, an application under section 20 of the Act would have to be moved within three years from 6.12.74, the date of breach. If, however, a notice is given u/s 37(3) the question will arise whether the limitation is to start from the date of the giving of notice or is to start sometime later on the ground that the party giving notice was justified in awaiting the response from the other side. And still further, how long a wait is permissible, and would it vary in each case with no definite rule as a guide but purely as an ad hoc arrangement. The interpretation would make a mockery of Section 37(1) which provides that all the provisions of the Indian Limitation Act shall apply to arbitration as they apply to proceedings in court Because in the absence of firm test when the right to apply arises as provided in Art. 137 of Limitation Act it would vary with no certainty and be matter of confusion everywhere. Limitation, if applicable, must be

(10) In that connection reference may with advantage be made to Ramdutt R. Dass v. E.D. Sarson & Co. AIR. 1929 P C 103. It may be noticed that this was prior to the enactment of 1940 Arbitration Act did not contain any provision like Section 37 of the Act. Nevertheless, in dealing with the question, whether Indian Limitation Act of 1908 applies to arbitration proceedings, the Privy Council observed ;

'ALTHOUGHthe Limitation Act does not in term apply to arbitrations, they think that in mercantile reference, of the kind in question it is an implied term of the contract that the arbitrator must decide the dispute according to the existing law of contract...... Were it otherwise a claim for breach of a contract containing a reference clause could be brought at any time, it might be 20 or 30 years after the cause of action had arisen although the legislature has prescribed a limit of three years for the enforcement of such a claim in any application that might be made to the law Courts.'

This case was followed in Moti Lal v. Lal Chand, : AIR1960Cal6 . There is thus no scope for the argument that the specific period of limitation provided u/Art. 137 Limitation Act should be allowed to be over-ridden by the vague and uncertain eventuality if the notice is given u/s 37(3) of the Act even though such a requirement is not necessary for moving an application u/s 20 of the Limitation Act.

(11) Mr. Kumar had urged that section 37(1) of the Act applies to arbitrations and, thereforee, section 37(3) carves out an exception for the commencement of arbitration for the purpose of Limitation Act and, thereforee, notwithstanding Art. 137 of the Limitation Act, the Limitation period for an application u/s 20 must be read in the light of Section 37(3) of the Act. This argument naturally assumes as if the provisions of Section 37(1) are applicable to proceedings before the Court under the Arbitration Act. This is a misapprehension of the position in law. The word 'arbitration' should be limited to proceedings before the arbitrator and an application to set aside an award being a proceeding in court cannot be held to be an arbitration proceeding (see H. Chandanmull and Co. Vs Mohanlal, : AIR1953Mad561 ) Similarly, Section 37(1) of the Act in terms provides that the provisions of the Indian Limitation Act are to apply to arbitrations as they apply to proceedings in court. In other words, an arbitrator in dealing with a matter submitted to him is bound to apply the provisions of the Limitation Act ; S. 37(1) has no reference to an application under the Arbitration Act for effectuating a reference to the Arbitrator, such as an application for filing an arbitration agreement. There is no doubt that Section 37(1) of the Arbitration Act deals only with the authority of the arbitrator to deal with and decide any dispute referred to him ; it has no concern with an application made to the court to file an arbitration agreement and to refer a dispute to the arbitrator. Thus, the argument that Section 37(3) of the Act should be read as an exception to the Limitation Act is without any merit and must be repelled.

(12) Then an application u/s 20 cannot be held to be an arbitration within the meaning of Section 37(1). As a matter of fact, to all the applications which are moved in a court under the Arbitration Act, it is the provisions of the Limitation Act which will apply.

(13) We have also been referred to a decision of D K Kapur J. in Bhardwaj Industries V Union of India, S. No. 308 A of 1978, decided on 2.2.79 where the learned Judge has expressed the same view. In that case the contract was rescinded on 4.3 72 and the notice u/s 37(3) was given on 26 4.73. But the application u/s 20 of the Act which was filed on 4 3.78 was held to be within time on the ground that the General Manager, Railways rejected the request to appoint an arbitrator only on 22.8.77. We cannot accept this as a correct view of law. This case also will show the uncertainty and the delay which will occur if this view of the learned Judge is to be accepted.

(14) According to the learned Judge in that case, the application u/s 20 filed in March, 1978, was well within time because the Limitation would expire only in 1980. How untenable it is when it is recalled that the contract was rescinded on 4 8.72 the grievance of the contractor really arises from that date and yet the learned Judge would permit a period of eight years for an application to be filed u/s 20 of the Act. How uncertain the position is will be apparent if the reply in this case was received not in 1977, but in 1980, the limitation would be extended still further till 1983. This would make the applicability of Limitation Act too vague to stand. The learned Judge accepts that the existence of a right to apply arises when the contract was rescinded. But yet he postpones the right to move u/s 20 of the Act to the date when the General Manager of the railways replied rejecting the resort to arbitration on the ground that if the General Manager had accepted to refer the matter to arbitration there would be no grievance to the contractor. We feel there is a fallacy in the reasoning. No doubt if the General Manager Railways accepted the request to refer the matter to arbitration there would be no necessity to move the application u/s 20 of the Act. But, this does not mean that the right to apply which had accrued to the contractor on the date when the contract was rescinded is not the starting period for the purpose of limitation. When the contractor is informed of the rescission, he must at that point of time take a view that an injury has been caused to him. If he feels that it is not an injury, then obviously there is no dispute and no need to have recourse to any legal remedy. But if he feels aggrieved then the right to apply has accrued at that point of time and the same cannot be postponed to await the letter from the General Manager. It cannot be said simply because the General Manager may in an eventuality accept the request to refer the matter to arbitration that no differences had already arisen in the sense that an injury has been caused to the contractor. The right to apply for arbitration is dependent on a dispute having arisen and the dispute is whether the rescission of the contract was justified or not. The learned Judge assumes that it is only if the General Manager rejects the request for arbitration that a dispute arises. We cannot agree. The dispute between the contractor and the railway arose on the rescission of the contract. Making a request for referring the matter to arbitration is a demand to refer the dispute to the forum which the parties had agreed upon. Awaiting reply from the Railways cannot save limitation which had already started running from the date of the rescision of the contract. The rescision of the contract is a clear and straight intimation to the contractor that his work has not been found satisfactory and the consequences will follow. It is no doubt true that if in pursuance of a notice given, the arbitrator had been appointed by the Railways, no necessity to file an application u/s 20 would have arisen. But the grievance of the contractor had arisen from the date of rescission of the contract. In order to get the relief from the injury done to him by the rescission of contract, the appointment of an arbitrator was one of the steps, he had to take. The right to apply and take effective steps had thus arisen from that date,

(15) We may notice that in the judgment in Bhardwaj industries case the learned Judge has expressed a doubt whether there is any limitation involved u/s 20 of the Act. We do not find in the judgment of the learned Single Judge any reference to the Kerala State Elec. Bd case, where it has been held that Art. 137 of the Limitation Act applies to all applications under any Act In view of the settled law, the learned Judge was in error in assuming that applications u/s 20 of the Act are not governed by the Limitation Act. As there is no other specific provision, Art. 137 of the Limitation Act is the only provision applicable. We are thus of the view that the right to apply accrued to the respondent on 6.12.74, when the contract was rescinded and limitation has to be counted from that date. In the normal course, thereforee, the application filed on 4.9.78 would be beyond time. The view of the learned Single Judge to the contrary cannot, thereforee, be accepted and must be set aside.

(16) Mr. Kumar at this stage orally prayed for being given the benefit of Section 5 of the Limitation Act, as according to him, there was sufficient cause for filing the application late. He says that application u/s 20 was filed on 4.9.78 in the bonafide belief that limitation would run from the date of the issue of the notice on 17.11.76. Considering that the learned Single Judge has not only in the present case but in other cases also held the same view, we cannot say that the belief of the respondent was in any way unreasonable. The learned Single Judge has already directed the appointment of the arbitrator as provided by the arbitration agreement. We may, however, note the concession which was made by Mr. Kumar regarding the claim which was filed along with the application. Mr. Kumar has stated that he does not intend to pursue claim Nos. 6 and 7. The same, thereforee, may be deemed to be deleted from the list of claims. The dispute and the claim which the respondent is claiming will be now restricted to the claim filed by him except items 6 and 7 which stands deleted. We are not happy that the Government Agency, like the Railways should deny the citizens right by taking the plea of limitation-Governmental agencies should normally have the matter adjudicated on merits and succeed or fail on the justification or otherwise of the claim.

(17) With the observations above, the appeal is dismissed. There will be no order as to costs.


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