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1986 DIGILAW 574 (ALL)

L. K. AHUJA AND CO. v. UNION OF INDIA

1986-08-14

K.C.AGRAWAL, RAVI S.DHAVAN

body1986
JUDGMENT K. C. Agrawal, J. - This appeal under Section 39 of the Arbitration Act, has been preferred by M/s. L.K. Ahuja and Company against the judgment of the Civil Judge, Allahabad dated 10 February, 1978 rejecting the application filed by the aforesaid firm for appointment of an Arbitrator under Section 20 of the aforesaid Act. The appellant entered into an agreement with the Engineer-in-chief, Northern Railway, Allahabad for construction of certain quarters. Four agreement dated 18 September, 1969 were executed by the appellant and the Executive Engineer, Northern Railway, During the period when the work was being executed, supplementary agreements were executed on 18 March, 1972 and 10th May, 1972 for doing the additional work which was not the subject-matter of the original agreement. The appellant claimed that under the agreement referred to above, he was entitled to a sum of Rs. 1,91,636 and as such, the dispute with regard to the same was liable to be referred to the Arbitrator in terms of the agreements entered into between the parties. For the purpose of getting the Arbitrator appointed, a letter dated 4th June, 1976 was sent by the appellant to the Additional Chief Engineer (N.E. Railway) Allahabad. Since respondent no. 2 did not take any steps into the matter, appellant filed application under Section 20 of the Arbitration Act, on 4-6-1976. Refuting the claim of the appellant for appointment of the Arbitrator, it was stated on behalf of the respondents that all the four contracts were finally executed and completed by the appellant on different dates and the last date was 30.5.1971. The respondents claimed that since the appellant had accepted full and finally payment of the agreements which had been executed by it and no claim declaration in respect of the same had been given by the appellant, there was no dispute and the application filed under Section 20 was misconceived. On the pleadings of the parties, the court below framed the following four issued :- 1. Whether this court had jurisdiction to try this case ? 2. Whether any dispute exists ? 3. Whether application is maintainable ? 4. Whether the application is time barred ? The court below decided issue No. 1 in favour of the appellant. It decided all other issues against it and dismissed the application filed under Section 20. Feeling aggrieved, the appellant filed the present appeal. 2. Whether any dispute exists ? 3. Whether application is maintainable ? 4. Whether the application is time barred ? The court below decided issue No. 1 in favour of the appellant. It decided all other issues against it and dismissed the application filed under Section 20. Feeling aggrieved, the appellant filed the present appeal. The question that a rose before the court below and still arises before us is whether the application filed under Section 20 of the Arbitration Act was within time. What the learned Civil Judge did in the instant case was that while deciding the aforesaid question, he mixed up the points relating to the claim of the appellant being time barred. The fact that the claim of the appellant had become barred by time weighed heavily in finding that the application filed under Section 20 was beyond lime. The approach of the learned Civil Judge was wholly erroneous. The Civil Judge was required to decide first whether the application filed under Section 20 was within time or not. He was not called upon to consider whether the application referring the matter to the Arbitrator had become time barred insomuch as while deciding the application under Section 20, the court below was not concerned with the claim being time barred or within time. That would be the controversy which would arise before the Arbitrator if the reference is made under Section 20 to the Arbitrator. The question of the claim having became time barred and the question of limitation for filing the application under Section 20 of the Arbitration Act are two distinct matters and deal with different eventualities. One has no connection with the other. Section 73(3) of the Arbitration Act deals with the claim within time before the arbitrator, and it has no relevance to the time within which and from what date application under Section 20 has to be filed. Section 37(1) of the Arbitration Act provides that all the provisions of the Limitation Act, shall apply to the arbitrations as they apply to the proceedings in Court. Since there is no specific provision of lying down the period of limitation within which an application under Section 20 of the Arbitration Act, can be filed, limitation for filing such an application would be governed by Article 137 of the Limitation Act. Since there is no specific provision of lying down the period of limitation within which an application under Section 20 of the Arbitration Act, can be filed, limitation for filing such an application would be governed by Article 137 of the Limitation Act. Earlier, the Supreme Court held that Article 181 of the old Limitation Act which is equivalent to Article 137 of the present Act did not apply to applications filed under Section 20. But subsequently, this view was over-ruled in Kerala State Electricity Board v. T. P. Kunhaliumms ( AIR 1977 S.C. 282 ). According to Article 137 of the Limitation Act, the period for filing an application which may be covered by that provision is three years from the date of accrual of the right to apply. The words "when the right to apply accrues" means when the right to apply first accrues. There can be no such right until there is an actual accrual of the same and in respect of infringements had been alleged. In the instant case, the appellant sent a letter to respondent no. 2 for referring the dispute to the arbitrator which was replied by the letter dated 4-6-1976 stating therein that there was no dispute pending in between respondent no. 2 and the appellant and, as such, no question to appoint the arbitrator arises. The learned civil judge, as stated above, had found that since no claim certificate had been given by the appellant in June, 1972, the application for reference filed under Section 20 on 10 December, 1976 was barred by time being much beyond three years. According to our view, the date on which the claim to appoint an arbitrator is rejected is not a relevant date for the purpose of deciding whether the application filed under Section 20 was within time. An occasion to move the application under Section 20 could arise when the prayer to make the reference to the arbitrator was rejected by respondent no. 2 in Jiwanani Engineering Works v. Union of India, (AIR 1978 Cal. 288) a similar question relating to the applicability of the period with regard to the filing the application under Section 20 came up for consideration. In that case, the request was made by the contractor for making the reference by the letter dated 7th April, 1975. 2 in Jiwanani Engineering Works v. Union of India, (AIR 1978 Cal. 288) a similar question relating to the applicability of the period with regard to the filing the application under Section 20 came up for consideration. In that case, the request was made by the contractor for making the reference by the letter dated 7th April, 1975. On the failure of the General Manager to comply within request made by the contractor, that the application under Section 20 was filed on 9th December, 1976. In that case, the Calcutta High Court held that calculating the period of limitation on the act of fact mentioned above, the application under Section 20 of the Arbitral ion Act could not be held to be barred by time. In Wazir Chand v. Union of India, ( AIR 1967 S.C. 990 ) the Supreme Court held that in an application under Section 20 of the Arbitration Act, the Court was not concerned with the question whether the claim sought to be sent to the Arbitrator was time barred or not. That was the matter within the jurisdiction of the Arbitrator to decide. In Mohammad Usman v. Union of India, ( AIR 1969 SC 474 ) the same view was reiterated by the Supreme Court. In our view, therefore, the question whether the claim which has to be referred to the Arbitrator had become barred by time or not is foreign to the controversy arising out of an application under Section 20 of the Arbitration Act. If the application under Section 20 is not moved with in three years of the accrual of the cause of section, that would be liable to be dismissed on the ground of limitation. In other decision of the Calcutta High Court reported in H.C. Bhawds Private Ltd. v. Union of India, ( AIR 1978 Cal. 271 ) the same view was taken. It was observed that there was a distinction between the claim being barred under the Limitation Act and right to apply under Section 20 which is only a question for referring the dispute to the arbitrator by an order of the court. Union of India v. M/s. Vijai Construction Company, (AIR 1981 Delhi 1982) relied upon by the learned counsel for the respondents, was on different facts. Union of India v. M/s. Vijai Construction Company, (AIR 1981 Delhi 1982) relied upon by the learned counsel for the respondents, was on different facts. In the facts it was held that the cause of action to file an application under Section 20 arose on the date when the contract was rescind by the other party thereto and the limitation of three years has to be counted from that date and not from the date of notice when that party to the arbitration agreement serves a notice on the other party thereto requiring the appointment of an arbitrator even this judgment does not lay down that the cause under Section 20 would arise on the date when the claim was made by the contractor. Amar Nath v. Union of India, ( AIR 1957 All 206 ) relied upon the engineer-in-chief's learned counsel is also distinguishable in as much as in the case also although the contract had been rescind but the application under Section 20 of the arbitration act was not filed within three years of the date of rescission. In a case of rescission, a party crempts any contract as discharged. In chestire's law of contract, tenth addition, page 491, deling with the decision, it was observed :- "a party who treats a contract as discharged is often said to rescind the contract. To describe the legal position in such a matter, however, such inevitable mislead and confuse the away, executing its primary and more correct sense as we have already seen rescission means the representative cancellation of the contract ab initio, as for instance where one of the parties has been guilty of fraudulent misrepresentation. In such a case the contract is destroyed as if it had been existed, but its discharge by breach never infringe upon rights and obligations that have already matured. It would be better, therefore in this contest to talk of termination or discharge rated than of rescission." But where there is no rescission of contract, it is not a destroyed and the relationship of the parties continued to be governed by it irrespective of the fact that breach has been Committed by transfer, a contract, the term of when has been broken, continues to be on the parties. Since a contract is destroyed for rescission, no reference clause remains operative. Hence there can be no application for reference to the arbitrator. Since a contract is destroyed for rescission, no reference clause remains operative. Hence there can be no application for reference to the arbitrator. Consequently, it appears that the decision of Amar Nath v. Union of India, (supra) is distinguishable on facts. In that case the difference was found to have arisen between the parties on the date when the contract was rescind and the security furnished by the contractor was forfeited. The next argument advanced by Sri Lalji Singh, learned counsel appearing for the respondents was that since the letter to refer the dispute by the appellant had not been sent to the Central Manager, Northern Railway, the appellant make the demand in terms or the agreement as required by it. Counsel contended that since there was no demand the refusal by the Additional Chief Engineer could not confer any cause of action on the appellant to file the application under Section 20. This point had not been taken by the opposite parties in the written statement filed in opposition to the application under Section 20 of the Arbitration Act. The demand had been made to the Additional Chief Engineer, Railway, Allahabad. From the array of the parties, it appeared that the Chief Engineer (R.E.) was subsequently described as Additional Chief Engineer. There was no difference between the two. The Additional Chief Engineer had refused the prayer for reference to the arbitrator acting on behalf of the General Manager and the Union of India. He was the agent of the General Manager and, as such refusal to refer the dispute by him for all purpose would be deemed to be on behalf of the General Manager. This agreement falls. For what we have said above, we set aside the finding of the learned Civil Judge on issue no. 3 and by holding that the application filed under Section 20 of the Arbitration Act being within three years of the accrual of the cause of action, direct him to refer the dispute to the arbitrator in terms of the agreement entered into by the parties and in accordance with Section 20. In the result, the appeal succeeds and is allowed. The judgment and order of the learned Civil Judge, Allahabad dated 10-2-1978 are set aside. The application for appointment of an arbitrator by the appellant is allowed with costs. (Appeal allowed).