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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