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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"                                                        650 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                                                        651 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                                                        653 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                                                        654 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