1988 (4) TMI 429 - SC - Companies Law

Whether the High Court was right in dismissing the application under Section 20? Held that - In view of the well-settled principles we are of the view that it will be entirely a wrong to mix-up 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. In this case the claim for reference was made within three years commencing from April 16, 1976 and the application was filed on December 18, 1976. We are, therefore, of the view that the High Court was right in this case

Issues:
1. Timeliness of application under Section 20 of the Arbitration Act, 1940.
2. Interpretation of limitation period for filing arbitration agreements.
3. Validity of claim for reference under Section 20 of the Act.

Analysis:

Issue 1: Timeliness of application under Section 20 of the Arbitration Act, 1940
The case involved an appeal regarding the dismissal of an application for the appointment of an Arbitrator under Section 20 of the Arbitration Act, 1940, on the grounds of being barred by limitation. The High Court allowed the appeal, leading to the current appeal before the Supreme Court. The key question was whether the application under Section 20 was filed within the prescribed time limit. The Supreme Court referred to precedents and established that Article 137 of the Limitation Act would apply to such petitions or applications filed in a Civil Court. The Court clarified that the application under Section 20 was not governed by Article 181 of the Limitation Act, as argued by the respondent, but rather by Article 137, which has a longer limitation period.

Issue 2: Interpretation of limitation period for filing arbitration agreements
The judgment discussed previous cases to clarify the interpretation of the limitation period for filing arbitration agreements. The Court cited a case where an application for filing an arbitration agreement was held to be barred by the Judicial Commissioner based on Article 181 of the Limitation Act. However, the Supreme Court disagreed with this interpretation, emphasizing that Article 181 should not be applied to applications under the Arbitration Act, 1940. The Court highlighted that the Legislature had made specific amendments to the Limitation Act concerning arbitration proceedings, indicating that Article 181 did not govern applications under the Arbitration Act.

Issue 3: Validity of claim for reference under Section 20 of the Act
The Court examined whether there was a valid claim for reference under Section 20 of the Arbitration Act, 1940, and whether the claim was barred by limitation. It was established that for a claim to be valid under Section 20, there must be an arbitration agreement, existing differences between the parties, and the claim must be within the stipulated time frame. In this case, the High Court found that there was a valid claim for reference under Section 20, as the appellant had asserted a claim within the prescribed time and had taken necessary steps for arbitration. The Court emphasized the importance of distinguishing between the validity of the claim for reference and the potential bar by limitation, which would be decided by the arbitrator.

In conclusion, the Supreme Court dismissed the appeal, affirming the High Court's decision regarding the timeliness of the application under Section 20 of the Arbitration Act, 1940. The Court emphasized that the costs of the appeal would be the same as the costs in the arbitration proceedings.

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