Full Judgment Text
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PETITIONER:
PANCHU GOPAL BOSE
Vs.
RESPONDENT:
BOARD OF TRUSTEES FOR PORT OF CALCUTTA
DATE OF JUDGMENT23/04/1993
BENCH:
RAMASWAMY, K.
BENCH:
RAMASWAMY, K.
MOHAN, S. (J)
CITATION:
1994 AIR 1615 1993 SCR (3) 361
1993 SCC (4) 338 JT 1993 (3) 537
1993 SCALE (2)696
ACT:
%
Arbitration Act, 1940:
Ss.5, 12, 33 and 37:
Limitation Act. 1908/1963:
Delay of 10 years in seeking reference to arbitration-Held,
limitation applies to arbitration-Claim barred by delay-
Courts below justified in rescinding arbitration agreement.
HEADNOTE:
On May 27, 1978, the petitioner entered into an arbitration
agreement under which he had to execute a certain work
within 9 months. He averred that he had sent his bills on
July 12, 1979, but payment was not made. On November 28,
1989, for the first time he sent a notice to the respondent
for reference to arbitration. The respondent approached the
High Court under Ss. 5,12 and 33 of the Arbitration Act,
1940. A learned Single Judge held that the claim was
hopelessly barred by limitation, and cancelled the
arbitration agreement. A Division Bench dismissed the
Appeal.
On appeal, this Court addressed itself to 2 questions:
Whether the High Court could permit a party to rescind an
arbitration agreement; and whether delay can be a ground for
rescinding such agreement.
Dismissing the appeal, this Court,
HELD:1. The Court has the power and jurisdiction under Ss. 5
and 12 to grant leave to the applicant in exceptional
circumstances to revoke the contract of arbitration. The
Court should exercise the power sparingly, cautiously and
with circumspection in permitting a party to rescind an
arbitration agreement he had entered into voluntarily. (365-
B)
2.By virtue of s. 37 of the Arbitration Act, the provisions
of the Limitation Act would apply to arbitrations,
notwithstanding any term in the contract to the contrary.
(366-B)
3.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
362
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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. (368-D-E)
Ram Dutt Ramkissen dass v.Sassoon(E.D.)&Co.(1929)(56)1A
128(PC); Naamlooze Vennootschap Handels-En-Transport
Maatschappij’ Vulcan’ v. A/S J. Ludwig Mowinckels Rederi [1
938] 2 All ER 152; Pegler v. Railway Executive [1948] AC 332
at 338 and; West Riding of Yorkshire Country Council
Huddersfield Corporation [1957] 1 AR ER 669 and Russell on
Arbitrations; Justice Bachawat Law of Arbitration, applied.
4. Delay defeats justice: Defaulting party should hear the
hardship and should not transmit the hardship to the other
party, after the claim in the cause of arbitration was
allowed to he barred. (369-F )
Mustiu and Boyd’s Commercial Arbitration (1982 edn.),
referred to.
5. The claim in the case on hand is undoubtedly hope-
lessly barred by limitation as the petitioner by his conduct
slept over his right for more than 10 years. The High Court
justifiably exercised the discretionary power and
jurisdiction under Ss. 5 and 12 (2) (b) in permitting the
respondent to rescind the agreement. (370-E)
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Special Leave Petition (C)
Nos. 4304-06 of 1993.
From the Judgment and Order dated 18.12.1992 of the Calcutta
High Court in Appeal from Original Order Nos. 105. 104. and
106 of 1991.
Panchugopal Bose-in-person for the Petitioner.
D.P. Gupta, Solicitor General, A.K Sil and G. joshi for the
Respondent.
The Judgment of Court was delivered by
K. RAMASWAMY. J.: These three Special Leave Petitions
arise out of Arbitration Agreement said to be executed by
the petitioner on May 27, 1978 which provided that the
petitioner had to execute the work within 9 months. It is
363
his claim that while executing the work he sent the bills on
July 12, 1979 but payment was not made. For the first time
he sent notice on Nov. 28, 1989 to the respondent for
reference to the arbitration. On receipt thereof, the
respondent filed an arbitration suits in the Calcutta High
Court under ss. 5, 12 and 33 of the Arbitration Act, 1940
for short the Act. The learned Single Judge held that the
claim was hopelessly barred by limitations There was no
proof that the petitioner had sent any claim in July, 1979.
Since the Claim was made long after 10 years the arbitration
cannot be proceeded with. Accordingly finding that it to be
an exceptional case for interference, the learned Single
Judge cancelled the arbitration clause 68 of the contract in
matter Nos. 1326, 1364 and 1365/90 dated November 23. 1990.
On further appeals the division bench by its order dated
December 18, 1992 in Appeal Nos 104/90 etc. dismissed the
appeals. Thus these special leave petitions.
The contention of the petitioner appearing in person is that
Clause 68 of the Contract provides for appointment of an
arbitrator and when the petitioner has legally invoked
clause 68 and issued notice to the respondent, the
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respondent is duty bound to appoint an arbitrator and on its
failure it is open to him to approach the Court for
appropriate remedy under s. 8 of the Act for appointment of
an arbitrator. The High Court scuttled this procedure in
exercising the power under S. 5 of the Act which is illegal
and ultra vires. He further contented that Section 5 has no
application to the facts of this case. We have heard also
Shri D.P. Gupta, the learned Solicitor General for the
respondent.
The question for consideration is whether the High Court
was justified in permitting the respondent to rescind the
contract of Arbitration provided in Clause 68 of the
Contract. Undoubtedly, Clause 68 provides reference to
arbitration of all or any of the disputes or differences
enumerated therein that have arisen between the parties, at
the instance of either party to the contract. It empowers
either party to issue notice calling upon the Engineer to
refer the dispute or difference for arbitration. In this
case, as found by the High Court that though the petitioner
was said to have made the claim for payment for the first
time in July 12, 1979. Though there is no proof in that
behalf, and the respondent claimed that the petitioner had
abandoned the contract, even assuming that any claim was as
a fact made in July. 1979 and payment was not made, the
petitioner had not taken follow up action thereafter for
well over 10 years. It was open to him to avail Clause 68
of the contract seeking reference to the arbitration. No
such action was taken till November 28, 1989 Immediately on
receipt of the notice, the respondent invoked the
jurisdiction of the Calcutta High Court under ss. 5 and 12
at 330 of the Act.
Section 5 provides thus:
364
"The authority of an appointed arbitrator or umpire shall
not be revocable except with the leave of the Court, unless
a contrary intention is expressed in the arbitration
agreement".
Therefore, Section 5 postulates that there must be an order
of appointing an arbitrator or umpire and thereafter the
same cannot be revoked except with the leave of the Court,
unless a contrary intention is expressed in the agreement.
Exfacie it would appear that appointment of an arbitrator is
a condition to avail the remedy under s.5. Section 12
accords consequential power which postulates that the power
of the Court where Arbitrator is removed or his authority
revoked. Subsection (2) says that:
"Where the authority of an arbitrator or arbitrators or an
umpire is revoked by leave of the Court, or where the Court
removes an umpire who has entered on the reference or a sole
arbitrator or all the arbitrators, the Court may, on the
application of any party to the arbitration agreement,
either
(b)order that the arbitration agreement shall cease to have
effect with respect to the difference referred."
Therefore, by a conjoint reading of ss. 5 and 12 (2) (b) it
is clear that the court has been given power in given
circumstances to grant leave to a contracting party to have
the arbitrator or umpire removed and the-arbitration
agreement entered into with other contracting part revoked.
Where the Court grants such authority consequentially
arbitration agreement shall cease to have effect with
respect to the difference or dispute. It flows therefrom
that there exist implied power vested in the court
permitting a party to avail the remedy under ss. 5 & 12 to
rescind the arbitration agreement. In all cases it is not a
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condition precedent that there should in the first instance
be an order appointing an arbitrator or he should enter upon
reference for adjudication. In given circumstances and the
factual background the court may be justified to exercise
the power under ss.5 and 12. The question then is under
what circumstances such power would be exercised. This
Court in M/s Amarch and Lalit Kumar v. Shree Ambica Jute
Mills Ltd. [1963] 2 SCR 953 at 969 held thus: "In exercising
its discretion cautiously and sparingly the Court has no
doubt (kept) these circumstances in view, and consider that
the parties should not be relieved from a tribunal they have
chosen because they fear that the arbitrator’s decision may
go against them. The grounds on which leave to revoke may
be given have been put under five heads:
365
1. Excess or refusal of jurisdiction by arbitrator; 2.
Misconduct of arbitrator; 3. Disqualification of
arbitrator; 4. Charges of Fraud; and 5. Exceptional cases.
Thus it could be seen that the Court has the power and
jurisdiction under ss. 5 and 12 to grant leave to the
applicant in exceptional circumstances to revoke the
contract of arbitration. The court should exercise the
power sparingly, cautiously and with circumspection to
permit a party to the contract of a arbitration voluntarily
entered into to relieve the party from dispute or difference
and to order that the arbitration agreement shall cease to
have effect in respect of the dispute or difference.
In this case we have seen that even assuming that the
petitioner had putforward his claim in July, 1979 and the
respondent had not acted thereon till November 28, 1989 for
long 10 years he did not move his little finger to approach
the Engineer and later the Court. For the first time on
November 28, 1989 he issued notice to the respondent to
refer the case for arbitration. Clause 68 of the Contract
provides that when any disputes or differences has arisen he
should approach the Engineer in the first instance seeking
reference of it to an arbitration and if the Engineer
refuses to act upon or omits to refer the dispute to the
arbitration within 15 days from the date of the receipt of
notice, then it is open to him to approach a Civil Court for
reference to the arbitration. On his own showing cause of
arbitration has arisen in July, 1979, the petitioner did not
take any action from then. On the other hand when notice
was issued in November, 1989 the respondent immediately
approached the Court and sought its leave to rescind the
agreement explaining the circumstances. The Court exercised
the jurisdiction in permitting the respondent to revoke the
arbitration agreement. The question then is whether it is
justified?
Section 37 (1) of the Act provides that all the provisions
of the Indian Limitation Act, 1908 (since amended Act came
into force in 1963) shall apply to arbitrations as they
apply to the proceedings in court. Sub-section (2),
employing non-obstenti clause, says that notwithstanding any
term in an arbitration agreement to the effect that no cause
of action shall accrue in respect of any matter required by
the agreement to be referred until an award is--made under
the agreement, a cause of action shall, for the purpose of
limitation, be deemed to have accrued in respect of any such
matter at the time when it would have accrued but for that
term in the agreement. Sub-section (3) thereof states that
for the purposes of this section and of the Indian
Limitation Act, 1908 an arbitration shall-be
366
deemed to be commenced when one party to the arbitration
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agreement serves on the other party thereto a notice
requiring the appointment of an arbitrator, or where the
arbitration agreement provides that the reference shall be
to a person named or designated in the agreement, requiring
that the difference be submitted to the person so named or
designated. Sub-sections (4) and (5) are omitted as being
not material. It would, therefore, be clear that the
provisions of the Limitation Act would apply to arbitrations
and notwithstanding any term in the contract to the
contrary, cause of arbitration for the purpose of limitation
shall be deemed to have accrued to the party in respect of
any such matter at the time when it should have accrued but
for the. contract. Cause of arbitration shall be deemed to
have commenced when one party serves the notice on the other
party requiring the appointment of an arbitrator. The
question is when the cause of arbitration arises in the
absence of issuance of a notice or omits to issue for long
time or contract to the contrary?
It is stated in Robertson’s History that honest men dread
arbitration more than they dread law suits. The
arbitrations differ from legal proceedings proper only in
the choice of tribunal and all ordinary defences legally
permissible are available to the Parties. Parties to an
arbitration may voluntarily determine among themselves the
procedure to be followed including the constitution of the
arbitral tribunal to adjudicate the dispute or differences
arising from the contract including the power of the
arbitrator. They could also contract restricting the
limitation for adjudication. Subject to the above s. 37 of
the Act regulates the limitation for the arbitration
proceedings. In Ram Dutt Ramkissendass v. Sassoon (E.D) &
Co. 1929 (56) Indian Appeals 128, the Privy Council held
that although, it is indisputable that, in a modern
arbitration, the principles of equity must be applied just
as they would now be applied in a court of law, since upon a
special case for the opinion of the court under Sec. 7 if
the Arbitration Act or the Judicature Act, 1925, s.94
(replacing sec. 19 of the Arbitration Act), the court is,
and has long been, bound to apply equitable rules and
relief. It is difficult to see how the equitable view of
the applicability of Limitation Act, 1908, to a case of debt
can be excluded in a legal arbitration. Although the
Limitation Act does not in terms apply to arbitrations, they
(their Lordships of the Judicial Committee) 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, and
that every defence which would have been open in a court of
law can be equally proponed for the arbitrator’s decision
unless the parties have agreed- which is not suggested here-
to exclude that defence. Were it otherwise, a claim for
breach of contract containing a reference cause 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
367
might be made to the law courts. This ratio was approved by
House of Lords in Naamlooze Vennootschap Handels-En-
Transport-Maatschappij "Vulcaan’ v. A/S J. Ludwig Mowinckels
Rederi [1938]2 All E.R. 152, Lord Maugham, L.C. speaking for
the unanimous Court held that in considering whether the
Limitation Act would apply to arbitration (pre-statutory
arbitrations), it was held that this seems to be a good
reason for holding that there may well be cases where the
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object of both parties to the arbitration might be to
determine whether a sum was due, though possible or
certainly not recoverable by legal Proceedings. We are,
however, here concerned with an arbitration in which legal
rights are being advanced or denied If the defence of the
statute is to be deemed in admissible, it would seem that
the claims of one party or the other might be put forward
long after the persons who could give useful evidence had
died and the most relevant documents had been destroyed If
the legal defence were to be excluded, it was in this
agreement that one would expect to find such a provision The
matter does not rest cause we have to consider how far the
suggested elimination of defences available at law or in
equity must logically be held to extent in other
arbitrations. If the party defending may not rely on the
Statute of Limitations, can he rely on the Statute of
Frauds, or the Act partially replacing it? Could he rely in
a commercial arbitration on the Garming Act? A number of
like questions might be asked It is indisputable that, in a
modem arbitration, the principles of equity must be applied
just as they would now be applied in a court of law. In the
concluding findings it is said thus:
"In the circumstances of this case as above-stated, it is, I
think, impossible-to come to the conclusion that there was
an implied agreement between the parties to exclude any
defence under any Statute of Limitations. In the absence of
such-an implied agreement, the Limitation Act was open to
the respondents, and the consequence must follow that the
arbitrator was acting rightly in admitting the defence under
the statute".
In Pegler v. Railway Executive 1948 Appeal Cases 332 at 338,
House of Lords held that 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. While accepting the interpretation put up by
Atkinson, J. as he then was in the judgment under appeal,
learned Law Lords accepted the conclusion of Atkinson, in
the Language thus: "the cause of arbitration" corresponding
to "the cause of action" in litigation "treating a’ cause of
arbitration in the same way as a cause of action would be
treated if the proceeding were in a court of law.
368
In West Riding of Yorkshirs Country Council v. Huddersfield
Corporation [1957] 1 All E.R. 669, the Queens Bench
Division, Lord Goddard, C. J. (as he then was) held that the
Limitation Act applies to arbitrations as it applies to
actions in the High Court and the making, after a claim has
become statute barred, of a submission of it to arbitration,
does not prevent the statute of limitation being pleaded.
Russell on Arbitration, 19th Edition, reiterates the above
proposition. At page 4 it was further stated that the
parties to an arbitration agreement may provide therein, if
they wish, that an arbitration must be commenced within a
shorter period than that allowed by statute; but the court
then has power to enlarge the time so agreed. 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 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
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no arbitration clause, the cause of action would have
accrued. Just as in the case of civil 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.
In Russell on Arbitration, at pages 72 and 73 it is stated
thus:
"Disputes under a contract may also be removed, in effect,
from the jurisdiction of the court, by including an
arbitration clause in the contract, providing that any
arbitration under it must be commenced within a certain time
or not at all, and going on to provide that if an
arbitration is not so commenced the claim concerned shall be
barred. Such provisions are not necessarily found together.
Thus the contract may limit the time for arbitration without
barring the claim depriving a party who is out of time of
his right to claim arbitration but leaving open a right of
action in the courts. Or it may make compliance with a time
limit a condition of any claim without limiting the
operation of the arbitration clause, leaving aparty who is
out of time with the right to claim arbitration but so that
it is a defence in the arbitration that the claim is out of
time and barred.
369
Nor, since the provisions concerned are essentially
separate, is there anything to prevent the party relying on
the limitation clause waiving his objection to arbitration
whilst still relying on the clause as barring the claim."
At page 80 it is stated thus:
"An extension of time is not automatic and it is only
granted if "undue hardship" would otherwise be caused. Not
all hardship, however, is "undue hardship,"-, it may be
proper that hardship caused to aparty by his own default
should be borne by him and not transferred to
the other party by allowing a claim to be
reopened after it has become barred. The mere
fact that a claim was barred could not be held
to be "undue hardship."
The Law of Arbitration by Justice Bachawat in Chapter XXXVII
at p.549 it is stated that 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 when the claim
accrues, as also in the case of arbitrations, the claim is
not to be put forward after the expiration of a specified
number of years from the date when the claim accrues. For
the purpose of s. 37 (1) ’action’ and cause of action’ in
the Limitation Act should be construed as arbitration and
cause of arbitration. The cause of arbitration, therefore,
arises when the claimant becomes entitled to raise the
question, i.e. when the claimant acquires the right to
require arbitration. The limitation would run from the date
when cause of arbitration would have accrued, but for the
agreement.
Arbitration implies to charter out timous commencement of
arbitration availing the arbitral agreement, as soon as
difference or dispute has arisen. Delay defeats justice and
equity aid the promptitude and resultant consequences.
Defaulting party should bear the hardship and should not
transmit the hardship to the other party, after the claim in
the cause of arbitration was allowed to be barred. The
question, therefore, as posed earlier is whether the court
would be justified to permit a contracting party to rescind
the contract or the court can revoke, the authority to refer
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the disputes or differences to arbitration. Justice
Bachawat in his Law of Arbitration, at p. 552 stated that
"in an appropriate case leave should be given to revoke the
authority of the arbitrator’. It was also stated that an
ordinary submission without special stipulation limiting or
conditioning the functions of the arbitrator carried with it
the implication that the arbitrator should give effect to
all legal defences such as that of limitation. Accordingly
the arbitrator was entitled
370
and bound to apply the law of limitation. Section 3 of the
Limitation Act applied by way of analogy to arbitration
proceedings, and like interpretation was given to s. 14 of
the Limitation Act, The Proceedings before the arbitration
are like civil proceedings before the court within the
meaning of s. 14 of the Limitation Act, By consent the
parties have substituted the arbitrator for a court of law
to arbiter their disputes or differences. It is, therefore,
open to the parties to plead in the proceedings before him
of limitation as a defence.
In Mustiu and Boyd’s Commercial Arbitration (1982 Edition)
under the heading "Hopeless Claim" in Chapter 31 at page 436
it is stated thus:
"There is no undoubtedly jurisdiction to interfere by way of
injunction to prevent the respondent from being harassed by
claim which can never lead to valid award for example in
cases where claim is brought in respect of the alleged
Arbitration agreement which does not really exist or which
has ceased to exist. So also where the dispute lies outside
the scope of Arbitration agreement".
The case on hand is clearly and undoubtedly hopelessly
barred claim as the petitioner by his conduct slept over his
right for more than 10 years. Statutory arbitrations stand
apart. In these circumstances it is an exceptional case and
the courts below have justifiably exercised their
discretionary power, and jurisdiction under ss. 5 and 12(2)
(b) to permit the respondent to rescind the arbitration
agreement and declared that the arbitration agreement shall
cease to have effect with respect to the difference or
dispute referred to in the notice of the petitioner and
relieved the parties from the arbitration agreement. The
Special Leave Petitions are accordingly dismissed without
costs.
U.R
Appeal dismissed.
371