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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