Madras High Court
Glaxy Agencies vs The Food Corporation Of India, ... on 27 October, 1992
Equivalent citations: (1993)1MLJ403
JUDGMENT Mishra, J.
1. A learned single Judge of this Court has held that since a clause in the arbitration agreement contemplated a period of limitation of one year, the plaintiffs appellant's suit under Section 20 of the Indian Arbitration Act, 1940 was filed beyond time. We record, however, before we state the facts that the impugned judgment cannot be sustained for the reason of the authoritative pronouncement of the Supreme Court of India in the case of Kerala State Electricity Board, Trivandrum v. T.P.K.K. Amson and Besom, Kerala and another authoritative pronouncement of the Supreme Court in the case of Union of India v. L.K. Ahuja & Company . Facts which are not in dispute are that the appellant herein was appointed by the respondent Corporation to transport foodgrains, fertilizers, etc. from Madras Port to Air Field (vacant space of their storage) at Sholavaram for a period of three months from 6.4.1976. After furnishing the required security deposit, the appellant carried on and completed the work of transport of foodgrains and fertilizers, as stated above. It appears, however, that after the completion of work the appellant furnished a detailed statement to the respondent on 9.7.1976. The respondent issued a cheque for Rs. 7,517.09 purported to be in full and final settlement of the claims of the plaintiff/appellant on 25.8.1977. The respondent while issuing the cheque deducted Rs. 17,482.91 from the security deposit of Rs. 25,000 of the appellant towards transit dues and transit loss. On 27.8.1977 the appellant wrote to the respondent that any deduction from the security deposit was unwarranted and requested for reconsideration and refund of the said amount. The appellant issued a lawyer's notice on 10.10.1977 in which besides requesting refund of (fee full security deposit the appellant also alleged that it had incurred a loss to the tune of Rs. 74,760 on account of the alleged detention of the lorries at the Air Strip outing nights on several days without being unloaded and demanded the respondent to compensate "the loss. The respondent replied to the above on 2.11.1977 repudiating all claims of the appellant. On 8.4.1980 the appellant issued a letter cemanding appointment of an arbitrator under Clause 19 of the terms and conditions of the agreement, it followed the said letter by reminders on 11.6.1980, 7.7.1980, 6.8.1980 and 19.12.1980. The only reply to all these, however, came from the Joint Manager in the Office of the respondent on 25.2.1981 stating that the request for appointment of an. arbitrator could not be considered. The appellant then came to the Court and filed the suit, C.S. No. 489 of (AA) under Section 20 of the Indian Arbitration Act, 1940.
2. Learned single Judge has considered the question of limitation after quoting the proviso to Clause 19 of the agreement and thereafter saying "Now, it is for consideration whether there is justifiable reason for invoking Section 37(4) of the Indian Arbitration Act, 1940" and then quoting Section 37(4) to finally say:
A reading of Sub-section (4) of Section 37 of the Act clearly envisages that the terms of the agreement including the term relating to limitation for referring the dispute to Arbitration, will prevail subject to the condition that the party aggrieved in appropriate cases, can invoke the benefit of Sub-section (4) of Section 37 of the Act. In the present case, the defendant, at any rate has clearly negatived the claim of the plaintiff by a letter dated 25.8.1977. Again, the defendant denied its liability on 2.11.1977. Strictly speaking, the plaintiff should have asked for a reference to the Arbitrator within one year from 5.7.1976 or at least within one year from 2.11.1977. However, the plaintiff, for reason best known to itself, has called upon the Managing Director of the Food Corporation of India, to appoint an Arbitrator under Clause XIX of the Contract by a letter dated 8.4.1980. It is clear from the dates given above, that the request for appointment of an Arbitrator under Clause XIX of the Contract is hopelessly barred by limitation. In para 10 of the pleadings which has been set out above in full, except vaguely claiming that the applicant is entitled to claim the benefits of Section 37(4) of the Act, it has not been satisfactorily explained as to how and why the appellants should be given the benefit of Section 37(4) of the Act. In addition to claiming the benefit of Section 37 (4), the applicant has also stated that the request for arbitration has been made within three years from 25.8.1977 and therefore, the plaintiff was well within time in its claim for referring the dispute to an Arbitrator. It is not clear under what provision of law this period of three years is claimed. As noticed above, the terms of the agreement including she term for fixing the time for referring the dispute to an Arbitrator will prevail among the parties and therefore, the claim of the plaintiff that it is entitled to demand for an arbitration within three years from 25.8.1977 is not sustainable. As pointed out already, no evidence, oral or documentary, has been let in support of the claim. This is an additional factor against the plaintiff.
He has proceeded further, after referring to a judgment of the Supreme Court in Sterling General Insurance Company Ltd. v. Plinters Airways (P) Ltd. , to say as follows:
Even applying the principles set down by the Supreme Court in the said case, I do not consider that the plaintiff has made out a case for invoking the benefits of Section 37(4) of the Act. As pointed out above, there are no clear averments in the affidavit to explain the long delay in demanding the defendant to refer the dispute to an Arbitrator and further more, no evidence oral or documentary in support of the claim has been let in. Taking all these factors into consideration, I am inclined to think that the suit is liable to be dismissed on the ground of limitation.
There has been some doubts, on account of certain judgments of the courts including a judgment of the Supreme Court in the case of Wazir chand Mahajan v. Union of India , and another judgment of the Supreme Court in Mohd. Usman Military Contractor, Jhansi v. Union of India , on the question how to determine in a proceeding under Section 20 of the Arbitration Act any issue of limitation as to arbitration, which has been finally settled by the Supreme Court in the case of Kerala State Electricity Board, Trivandrum v. T.P.K.K. Amson & Besom, Kerala and reiterated by the Supreme Court in the case of Union of India v. L.K. Ahuja & Company , that there is no relation between the limitation for a proceeding under Section 20 of the Arbitration Act and the limitation for the arbitration by appointment of an arbitrator in accordance, with an arbitration agreement, that Article 137 would apply to any petition or application filed under any Act to a civil court, that the words' any other application' under Article 137 cannot be read on the principle of ejusdem generis to be applications under the Civil Procedure Code other than those mentioned in. Part. I of the third division., and that all that is required in order to be entitled to ask for a reference under Section 20, there must, be an entitlement to money and a difference or dispute in respect of the same. It will be entirely wrong to mix up the two aspects, namely, whether there was any valid claim for reference under Section 20 and, secondly, whether the claim to be adjudicated by the arbitrator, was barred by lapse of time. The second is a matter which the arbitrator would decide unless, however, if on admitted facts a claim is found at the time of making an order under Section 20 to be barred by limitation. To quote the words of the Supreme Court in this behalf in the case of Union of India v. L.K. Ahuja & Company :
In view of the well settled principles we are of the view that if will be entirely wrong to mixup the two aspects, namely, whether there was any valid claim for reference under Section 20 of the Act, and secondly, whether the claim to be adjudicated by the arbitrator, was barred by lapse of time. The second is a matter which the arbitrator would decide unless however, if on admitted facts a claim is found at the time of making an order under Section 20 of the Arbitration Act, to be barred by limitation. In order to be entitled to ask for a reference under Section 20 of the Act; there must be an entitlement to money and a difference or dispute in respect of the same. It is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable.
Since there is no limitation, separately created for any application under Section 20 of the Arbitration Act, it is only Article 137 of the Limitation Act which prescribes a period of three years, when the right to apply accrues, is attracted as held by the Supreme Court, there can be no doubt any further as to this.
3. As we have already noticed; there are two aspects: (1) Whether the claim made in the arbitration is barred by limitation? and (2) whether the claim made by an application under Section 20 of the Arbitration Act is barred by limitation. In order to be a valid claim for reference under Section 20 of the Arbitration Act, it is necessary that there should be an arbitration agreement and secondly differences must arise to which the agreement in question applied and thirdly that must be within time as stipulated its Section 20 of the Act. It is indeed a mistake 'to mix up the two aspects and it will be necessary on the facts of each, case to see whether the application in court under Section 20 is beyond the time limit prescribed under Article 137 of the Limitation Act or. not Learned Single Judge has not adverted to this aspect of the law at all The facts are so mixed up that it is not possible for us, without a further opportunity afforded to the parties, to show how for the purpose of Section 20 of the Arbitration Act an application is sought to be maintained and whether the application is within the time stipulated for the said purpose. Since we have already noticed that if on admitted facts a claim is found, at the time of making an order under Section 20 of the Arbitration Act, to be barred by Limitation, the Court may decline to refer the case to the arbitrator, we are inclined to observe that it will be necessary on such facts as are available to decide afresh whether the proviso aforementioned of the arbitration clause in the agreement in fact could be applied as the rule of limitation in the instant dispute between the parties. The proviso has taken care of saying that the demand for arbitration should be made within one year of the date of termination or completion (expiry of the period) of the contract. That will mean, when the work was completed, that is to say 5.7.1976 in the instant case, or, when the payment was made in full and final settlement by the respondent on 25.8.1977. There is a possibility, however, to think that there can be no commencement of any dispute for arbitration between the parties on 5.7.1976, or, even until 25.8.1977, that is until the deduction of Rs. 17,482.90 from the security deposit of the appellant, there was no dispute between the parties and this 25.8.1977 dispute matured only by repudiation of the claims of the appellant by the respondent on 2.11.1977. Will it then be possible to say that termination or completion of the contract will stand extended until payment in full and final settlement was made by the respondent on 2.11.1977?. If the answer to this is in the negative, it is obvious the proviso shall not be available for the purposes of limitation to either party. If that will go as the special rule of limitation between the parties, the only rule of limitation that will be available will again be as one found in Article 137 of the Limitation Act read with Section 37 of the Arbitration Act. Since we are of the opinion that a serious error of law has been committed on account of the mixing up of the two aspects of the case, as indicated above, and since we have reasons not to enter into these two aspects ourselves separately, we are inclined to interfere with the impugned judgment and remit the case for rehearing and disposal in accordance with law.
4. In the result, the appeal is allowed, the impugned judgment is set aside and the case is remitted to the learned single Judge for rehearing and disposal in accordance with law. No costs.