1993 (4) TMI 302 - SC - Companies Law

Whether the High Court was justified in permitting the respondent to rescind the contract of Arbitration provided in Clause 68 of the Contract? Held that - 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.

Summary

Issues Involved:
1. Whether the High Court was justified in permitting the respondent to rescind the arbitration agreement under Clause 68 of the contract.
2. Applicability of Sections 5 and 12 of the Arbitration Act, 1940.
3. Applicability of the Limitation Act to arbitration proceedings.
4. Whether the petitioner's claim was barred by limitation.

Detailed Analysis:

1. Justification for Rescinding the Arbitration Agreement:
The primary issue was whether the High Court was justified in permitting the respondent to rescind the arbitration agreement under Clause 68 of the contract. Clause 68 provides for the appointment of an arbitrator for disputes or differences arising between the parties. The petitioner claimed to have sent bills on July 12, 1979, but no payment was made, and he did not take any follow-up action for over ten years. The petitioner issued a notice for arbitration on November 28, 1989. The respondent immediately approached the Calcutta High Court to rescind the arbitration agreement, and the High Court permitted this under Sections 5 and 12 of the Arbitration Act, 1940.

2. Applicability of Sections 5 and 12 of the Arbitration Act, 1940:
Section 5 of the Arbitration Act states, "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." Section 12 provides that when an arbitrator's authority is revoked by the Court, the arbitration agreement ceases to have effect with respect to the difference referred. The Court has the power to grant leave to revoke the arbitration agreement in exceptional circumstances, such as excess or refusal of jurisdiction by the arbitrator, misconduct, disqualification, charges of fraud, and other exceptional cases. The Court exercised this power cautiously and sparingly, considering the petitioner's long delay in invoking the arbitration clause.

3. Applicability of the Limitation Act to Arbitration Proceedings:
Section 37(1) of the Arbitration Act provides that the provisions of the Indian Limitation Act apply to arbitrations as they apply to court proceedings. The cause of arbitration is deemed to have commenced when one party serves notice on the other party requiring the appointment of an arbitrator. The Limitation Act ensures that claims are not brought after the expiration of a specified number of years from the date when the cause of action accrued. The Court referenced several precedents, including the Privy Council's decision in Ram Dutt Ramkissendass v. Sassoon (E.D) & Co., and the House of Lords' decision in Pegler v. Railway Executive, to emphasize that the Limitation Act applies to arbitration proceedings just as it does to court actions.

4. Whether the Petitioner's Claim was Barred by Limitation:
The petitioner did not take any action to invoke the arbitration clause for over ten years, from July 12, 1979, to November 28, 1989. The Court found this delay to be excessive and unjustified. The Court emphasized that arbitration should be commenced promptly to ensure justice and equity. The petitioner's prolonged inaction led the Court to conclude that the claim was hopelessly barred by limitation. The Court held that the respondent was justified in seeking to rescind the arbitration agreement due to the petitioner's undue delay.

Conclusion:
The Supreme Court dismissed the Special Leave Petitions, upholding the High Court's decision to permit the respondent to rescind the arbitration agreement. The Court found that the petitioner's claim was barred by limitation and that the High Court had appropriately exercised its discretion under Sections 5 and 12 of the Arbitration Act, 1940. The Court emphasized the importance of timely action in arbitration proceedings and the applicability of the Limitation Act to such cases. The appeal was dismissed without costs.