Full Judgment Text
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PETITIONER:
S. RAJAN
Vs.
RESPONDENT:
STATE OF KERALA AND ANOTHER
DATE OF JUDGMENT29/07/1992
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
SAWANT, P.B.
CITATION:
1992 AIR 1918 1992 SCR (3) 649
1992 SCC (3) 608 JT 1992 (4) 312
1992 SCALE (2)86
ACT:
Arbitration Act, 1940-Section 20(1) read with Articles
137 and 113, Limitation Act, 1963-Application to appoint
arbitrator-Period of limitation-Three years from the date
when the right to apply accrues.
Arbitration Act, 1940-Section 20(1)-Application to
appoint arbitrator-Court’s power-Arbitration agreement
specifies and names arbitrator-Court’s direction to submit
panels for appointment of arbitrator-Legality of.
HEADNOTE:
On 19.2.1966 an agreement was entered into between the
appellant-contractor and the respondent-State whereunder the
appellant undertook to carry out certain work within a
period of ten months. He did not complete the work within
the period prescribed, whereupon the contract was terminated
on 19.12.1968. The work was re-tendered and completed by
another contractor.
Respondent-State took proceedings under the provisions of
the Revenue Recovery Act for recovering the loss suffered on
account of the appellant’s failure to carry out the
contracted work. A notice of demand was served upon him on
30.5.1974.
The appellant challenged the notice by way of a writ
petition in the High Court, which was dismissed on
25.11.1978.
In the year 1983, the appellant applied to the
respondent to refer the disputes between them on an
arbitrator, which was refused in the year 1984.
Thereafter the appellant filed an application under
Section 20 of the Arbitration Act before the Subordinate
Judge, for the appointment of an abritrator to decide the
disputes between him and the State of Kerala.
The Subordinate Judge directed the parties "to submit
their panels of arbitrator to be appointed within ten days
from the date of the order"
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for the purpose of the appointment of an Arbitrator to
decide the disputes and differences between the parties.
Against the order of the Subordinate Judge, an appeal
was filed by the respondent-State before the High Court.
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The Division Bench of the High Court allowed the appeal
on the only ground that the very application under Section
20 was barred by Articles 137 & Article 113 of the
Limitation Act, 1963,
The present appeal by special leave was filed by the
contractor against the judgment of the High Court contending
that no period of limitation was prescribed for making an
application under Section 20 of the Arbitration Act either
by that Act or the Limitation Act and that whenever
differences or disputes arose between the parties, they
could approach the court under section 20 of the Arbitration
Act; that the appellant requested the Government to refer
the disputes and differences between them to arbitration in
the year 1983 which was rejected in the year 1984; that the
application under Section 20 filed in 1985 could not be
said to be barred by limitation, even if Article 137 or 113
was held to apply; that if the three years’ period of
limitation was applied, it would lead to very serious
consequences and many arbitration disputes would become
barred by time.
Dismissing the appeal, this Court,
HELD: 1.01. According to Article 137 of the Limitation
Act, 1963 the period of three years’ begins to run from the
date when the "right to apply accrues". [654F]
1.02. According to the Sub-section (1) of Section 20 of
the Arbitration Act, the occasion for filling the
application arises when a difference arises between the
parties to which the agreement applies. In such a case, it
is open to a party to apply under this section instead of
proceeding under Chapter-II. In other words, an application
under Section 20 is an alternative to the proceedings under
Chapter-II. [655 F-G]
1.03 Reading Article 137 of the Limitation Act, 1963
and sub-section (1) of Section 20 of the Aribitation Act
together, it must be said that the right to apply accrues
when the difference arises or differences arise, as
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the case may be, between the parties. It is thus a question
of fact to be determined in each case having regard to the
facts of that case. [656B]
1.04. The dispute had arisen in 1974 with the service
of the demand notice. Only in the year 1983, did the
appellant choose to request the Government to refer the
dispute to the arbitrator in terms of the agreement which
was rejected in the following year. [656E]
1.05. The date on which notice of demand under the
Revenue Recovery Act was served upon the appellant, namely,
30.5.1974 is the dated on which the right to apply accrued
in terms of Article 137 read with Section 20(1) and that
therefore the application filed in the year 1984 was clearly
barred by limitation. [656H]
Inder Singh Rekhi v. Delhi Development Authority,
A.I.R. 1988 S.C. 1007 and Kerala State Electricty Board v.
Amson, [1977] 1 S.C.R. 996, followed.
Town Municipal Council Athani v. Presiding Officer,
Labour Court, [1970] 1 S.C.R.51 over-ruled in [1977] 1
S.C.R. 996.
2.01. Only in cases where the agreement does not
specify the arbitrator and the parties cannot also agree an
arbitrator, does the Court get the jurisdiction to appoint
an arbitrator. [657D]
2.02. This is a case where the agreement itself
specifies and names the arbitrator. In such a situation, it
was obligatory upon the Subordinate Judge, in case he was
satisfied that the dispute ought to be referred to the
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arbitrator, to refer the dispute to the arbitrator specified
in the agreement. It was not open to him to ignore the said
clause of the agreement and to appoint another person as an
arbitrator. Only if the arbitrator, specified and named in
the agreement, refuses or fails to act, the court gets the
jurisdiction to appoint another person or person as the
arbitrator. [657C]
2.03. In the present case, there was no occasion or
warrant for the Subordinate Judge to call upon the parties
to submit panels of arbitrators. He was bound to refer the
dispute only to the arbitrator named and specified in the
agreement. [657F]
652
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No.2683 of 1992.
From the Judgment and Order dated 2.9.1991 of the
Kerala High Court in M.F.A. No.1 of 1987.
P.S. Poti and Ms. Malini Poduval for the Appellant.
G. Viswanatha Iyer and M.A. Firoz for the Respondent.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. Heard Counsel for the parties.
Leave granted.
The Civil Appeal is directed against the judgment of a
Division Bench of Kerala High Court allowing the appeal
preferred by the State of Kerala and setting aside the order
of the learned Subordinate Judge, Thiruvanathapuram. On an
application made under Section 20 of the Arbitration Act by
the appellant, the learned Subordinate Judge had directed
the appointment of an Arbitrator to decide the dispute and
differences between the parties. He directed both the
parties "to submit their panels of arbitator to be appointed
within ten days from the date of the order" for the purpose.
A Division Bench set aside the said order on the ground that
the very application under Section 20 was barred by
limitation.
An agreement was entered into between the appellant and
the State of Kerala on 19.2.1966 whereunder the appellant
undertook to carry out certain work within a period of ten
months. He did not complete the work within the period
prescribed whereupon the contract was terminated on
19.12.1968 and the work retendered. It was completed by
another contractor. State of Kerala took proceedings under
the provisions of the Revenue Recovery Act for recovering
the loss suffered by the State on account of the appellant’s
failure to carry out the work in accordance with the
contract. A notice of demand was served upon him on
30.5.1974. The appellant challenged the said notice by way
of a writ petition in the High Court of Kerala which was
dismissed on 25.11.1978. in the year 1983, he applied to the
Government of Kerala to refer the disputes and differences
between them to an arbitrator. This was refused in the year
1984, whereupon the
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appellant filed the application under Section 20 of the
Arbitration Act before the learned Subordinate Judge. He
prayed for the appointment of an arbitrator to decide the
disputes arising between him and the State of Kerala. In
their written statement the State raised several objections
including limitation and resjudicata. An objection was also
raised as to the maintainability of the said application. It
was submitted that according to clause (3) of the contract
the Superintending Engineer, (B&R) South Circle, Trivandrum
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is the named arbitrator. In that view of the matter, it was
submitted, the appellant’s request for appointing an
arbitrator by the court is inadmissible and liable to be
rejected.
The learned Subordinate Judge concluded that here is
a case where certain claims were put forward by the
plaintiff which were denied by the defendants. (In the State
of Kerala, an application under Section 20 is registered as
a suit). Since there is a clause in the agreement providing
for arbitration, the disputes and differences arising
between the parties ought to be referred. He rejected the
various objections raised by the State. The operative
paragraph of the judgment reads:
"In the result the disputes and differences
mentioned in para 10 of the plaint are hereby
ordered to be referred to an arbitrator for
arbitration. Both parties are directed to submit
their panels of Arbitrator to be appointed within
10 days from the date."
The State of Kerala filed an appeal which has been
allowed by the Division Bench, as stated hereinabove, on the
only ground that the very application under Section 20 was
barred by Articles 137 (and also under Article 113) of the
limitation Act, 1963. The High Court held that the three
year’s period of limitation prescribed by the said Articles
commenced on 30.5.1974 when the notice demanding the payment
of loss suffered by the Government was served upon the
appellant. The present application is filed in the year
1985, he held, was clearly barred. In this appeal the
correctness of the said view is questioned.
Sri P.S. poti, learned counsel for the appellant
contended that no period of limitation is prescribed for
making an application under Section 20 of the Arbitration
Act either by that Act or the Limitation Act and that
whenever differences or disputes arise between the parties,
they can approach the court under the said provision. He
submitted that the appellant
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requested the Government to refer the disputes and
differences between them to arbitration only in the year
1983 which was rejected in the year 1984. The application
under Section 20 filed in 1985 cannot be said to be barred
by limitation, even if Article 137 or 113 is held to apply.
Learned counsel submitted that if the three years’ period of
limitation is applied, it will lead to very serious
consequences and many arbitration disputes would become
barred by time.
So far as the applicability of Limitation Act to an
application under Section 20 of the Arbitration Act is
concerned, it is no longer res integra. In Inder Singh Rekhi
v. Delhi Development Authority, A.I.R. 1988 S.C. 1007 it has
been held by this court that Article 137 of the Limitation
Act, 1963 applied to an application under Section 20 of the
Arbitration Act. It was so held following the decision in
Kerala State Electricity Board v. Amsom, [1977] 1 S.C.R. 996
which overruled the earlier decision of this court in Town
Municipal Council, Athani v. Presiding Officer, Labour
Court, [1970] 1 S.C.R. 51. it is true that under the
Limitation Act 1908, it was held that Article 181 of that
Act does not govern and application under Section 20 of the
Arbitration Act but as has been pointed out in kerala State
Electricity Board the new Act makes a difference to the
position. By virtue of the definitions of the words
‘applicant’ and ‘application’ contained in Sections 2(a) and
2(b) of the limitation Act 1963, the new Act, it was held,
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governs all petitions and the applications under the special
laws so long as they are filed in a Civil Court. It was this
principle which was followed in Inder Singh and it was held
that Article 137 governs the applications under Section 20.
In this view of the matter, we cannot agree with Sri Poti
that no period of limitation is prescribed for making an
application under Section 20.
According to Article 137, the period of three years’
begins to run from the date when the "right to apply
accrues". The question is when did the right to apply under
Section 20 accrue in this case. Section 20 reads as follows:
"20 APPLICATION TO FILE IN COURT ARBITRATION
AGREEMENT.
(1) Where any persons have entered into an
arbitration agreement before the institution of any
suit with respect to the subject-matter of the
agreement or any part of it, and where a difference
has arisen to which the agreement applies, they or
any of them, instead of proceeding under Chapter
II, may apply
655
to a Court having jurisdiction in the matter to
which the agreement relates, that the agreement be
filed in Court.
(2) The application shall be in writing and shall
be numbered and registered as a suit between one or
more of the parties interested or claiming to be
interested as plaintiff or plaintiffs and the
remainder as defendant or defendants, if the
application has been presented by all the parties,
or, if otherwise, between the applicant as
plaintiff and the other parties as defendants.
(3) On such application being made, the Court
shall direct notice thereof to be given to all
parties to the agreement other than the
applicants, requiring them to show cause within the
time specified in the notice why the agreement
should not be filed.
(4) Where no sufficient cause is show, the Court
shall order the agreement to be filed, and shall
make an order of reference to the arbitrator
appointed by the parties, whether in the agreement
or otherwise, or, where the parties cannot agree
upon an arbitrator, to an arbitrator appointed by
the court.
(5) Thereafter the arbitration shall proceed in
accordance with, and shall be governed by, the
other provisions of this Act so far as they can be
made applicable."
According to Sub-section (1) where an arbitration
agreement has been entered into before the institution of
any suit with respect to subject matter of such agreement,
and where difference has arisen to which the agreement
applies, either or both the parties can apply to the Court
that the agreement be filed in Court. According to the Sub-
section, the occasion for filing the application arises when
a difference arise between the parties to which the
agreement applies. In such a case, it is open to a party to
apply under this section instead of proceeding under
Chapter-II. In other words, an application under Section 20
is an alternative to the proceedings under Chapter-II. Sub-
section (2) is procedural. So is Sub-section (3). Sub-
section (4) provides that after hearing the parties and on
being satisfied that the agreement should be filed, "the
Court shall order an agreement to be filed and shall make an
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order of reference to the arbitrator
656
appointed by the parties, whether in the agreement or
otherwise or where the parties cannot agree upon an
arbitrator, an arbitrator appointed by the Court."
Reading Article 137 and Sub-section (1) of Sub-section
(20) together, it must be said that the right to apply
accrues when the difference arises or differences arise, as
the case may be between the parties. It is thus a question
of fact to be determined in each case having regard to the
facts of that case. The question in the present case is when
should the difference between the parties be said to have
arisen. According to the High Court the date on which notice
of demand under the Revenue Recovery Act was served upon the
appellant namely 30.5.1974 is the date on which difference
must be held to have arisen between the parties, if not
earlier. Sri Poti, however, says that it is not so and that
it must be held to have arisen only when the appellant
applied to the Government to refer the disputes between them
to the arbitrator in terms of the agreement and the
Government refused to do so. We find it difficult to agree
with the learned counsel. The agreement was entered into in
1966. It was terminated on 19.12.1968. The work was re-
tendered and it was completed through another contractor.
The State then worked out the loss suffered by it on account
of the appellant’s failure to carry out the work in
accordance with the agreement and called upon the appellant
to pay the same through the demand notice dated 30.5.1974.
It is relevant to notice that this demand notice was
questioned by the appellant by way of writ petition in the
High Court of Kerala which was dismissed on 25.11.1978.
Thus, the dispute had arisen in 1974 with the service of the
demand notice. Only in the year 1983, did the appellant
choose to request the Government to refer the dispute to the
arbitrator in terms of the agreement which was rejected in
the following year. Neither the arbitration clause nor a
copy of the agreement is placed before us. Therefore, we
cannot say whether the arbitration clause contemplates that
a reference to arbitration can be made only by the
Government and not by the appellant. Assuming that such was
the requirement of the arbitration clause, even so it must
be held that the very request in 1983 was very much belated
and cannot, in any event, be treated as the date on which
the right to apply accrued. The differences had already
arisen between the parties following the service of the
demand notice. The challenge to the said demand notice made
by the appellant by filing a writ petition in the Kerala
High Court is the demonstrable proof of the dispute.
Accordingly, we agree with the High Court that 30.5.1974 is
the date on which the right to apply accrued in terms of
article 137 read with Section 20(1) and that therefore the
application filed in the year 1985 was clearly
657
barred by limitation.
We also think it appropriate to point out that the
learned Subordinate Judge was not justified in directing the
parties to submit their respective panels of arbitrator so
as to enable him to appoint an arbitrator or arbitrators, as
the case may be, out of such panels. Clause (3) of the
agreement (extracted in the Counter Affidavit filed by the
State of Kerala in this court, the correctness whereof is
not questioned by the learned counsel for the appellant)
says that "the arbitrator for fulfilling the duties set
forth in the arbitration clause of the Standard preliminary
Specification shall be the Superintending Engineer, Building
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and Roads Circle, Trivandrum:. Thus, this is a case where
the agreement itself specifies and names the arbitrator. It
is the Superintending Engineer, Building and Roads Circle,
Tribandrum. In such a situation, it was obligatory upon the
learned Subordinate Judge, in case he was satisfied that the
dispute ought to be referred to the arbitrator, to refer the
dispute to the arbitrator specified in the agreement it was
not open to him to ignore the said clause of the agreement
and to appoint another person as an arbitrator. Only if the
arbitrator specified and named in the agreement refuses or
fails to act the Court, does the court get the jurisdiction
to appoint another person or persons as the arbitrator. This
is the clear purport of Sub-section (4). It says that the
reference shall be to the arbitrator appointed by the
parties. Such agreed appointment may be contained in the
agreement itself or may be expressed separately. To repeat,
only in cases where the agreement does not specify the
arbitrator and the parties cannot also agree upon an
arbitrator, does the court get the jurisdiction to
appointment an arbitrator. It must, accordingly, be said
that in the present case, there was no occasion or warrant
for the learned Subordinate Judge to call upon the parties
to submit panels of arbitrators. He was bound to refer the
dispute only to the arbitrator named and specified in the
agreement. This aspect, however, has become academic now in
view of the fact that the very application under Section 20
has been held by us to be barred by limitation. Even so we
thought it necessary to emphasise this aspect in view of the
numerous instances noticed by us where courts ignore the
arbitrator specified in the agreement and appoint a
different person as the arbitrator.
For the reasons given above, the appeal fails and is
dismissed with costs.
V.P.R. Appeal dismissed.
658