JUDGMENT
S.B. Sinha, C.J.
1. The petitioner herein in response to a tender floated by the respondents for
manufacture and supply of 2,50,000 pre-stressed mono block concrete sleepers submitted
its offer pursuant whereto the parties entered into an agreement, which contained an
arbitration clause. On or about 30.03.1992, the said, the said contract was terminated whereupon
the petitioner herein by a demand notice dated 05.01.1995 called upon the respondents to
pay a sum of Rs. 39,24,000/- by way of damages. Again by a notice dated 18.03.1995,
the petitioner called upon the respondents to appoint an Arbitrator.
2. By a letter dated 11.12.1995 the request for arbitration made by the
petitioner was rejected. The petitioner thereafter filed a suit under Section 20 of the
Arbitration Act, 1940 (in short, ‘1940 Act’) on 25.05.1996, which was marked as Suit
No. 1541 of 1996. However, the said suit was converted into an application under
Section 11 of the Arbitration and Conciliation Act, 1996 (in short, ‘the Act’).
3. By reason of the impugned order dated 21.12.2000, the said application
has been dismissed on the ground of being barred by limitation. This writ petition is
directed against the said order.
4. Mr. Arvind Nigam, the learned counsel appearing on behalf of the
petitioner, would submit that having regard to the provisions contained in Article 137 of
the Limitation Act, 1963, the learned Single Judge must b e held to have erred in
dismissing the said application.
5. The learned counsel would contend that a cause for filing an application
under Section 11(6) of the Act would arise on the day when the request for appointment
of the Arbitrator was rejected and thus the period of limitation in this case would start
from 11.12.1995.
6. In support of the aforesaid contention, the learned counsel has placed
reliance on Utkal Commercial Corporation v. Central Coal Fields Ltd. , Major (Retd.)
Inder Singh Rekhi v. Delhi Development Authority and Konkan Railway Corporation
Ltd. and Ors. v. Mehul Construction Co. .
7. Ms. B. Sunita Rao, the learned counsel appearing on behalf of the
respondent, on the other hand, would submit that having regard to the fact that the
process for referring the matter to the Arbitrator was initiated prior to coming into force
of the Act, thus an application under Section 11(6) thereof must be held to be not
maintainable.
8. The arbitration clause as mentioned in the aforesaid agreement is as
under:-
“ARBITRATION:
a) In the event of any question, dispute or difference
arising under these conditions or any special conditions of
contract or in connection with this contract except as to any
matters (the division of which is specially provided by these
or the special conditions) the same shall be referred to the
sole arbitration of a Gazetted Railway Officer appointed to
be the Arbitrator, by the General Manager in the case of
contracts entered into by the Zonal Railways and Production
Units; by any member of the Railway Board, in the case of
contracts entered into by the Railway Board; and by the
Head of the Organization in respect of contracts entered into
by the other organizations under the Ministry of Railways.
The Gazetted Railway Officer to be appointed as Arbitrator,
however, will not be one of those who had an opportunity to
deal with the matters to which the contract relates or who in
the course of their duties as Railway servants have
expressed views on all or any of the matters under dispute or
difference. The award of the Arbitrator shall be final and
binding on the parties to this contract.”
Article 137 of the Limitation Act, 1963 reads thus:-
137. Any other application Three years When the
for which no period of right to
limitation is provided apply
elsewhere in this accrues."
Division. [1905-
Article 151]
9. The petitioner herein by a letter dated 18.03.1995, as noticed hereinbefore,
called upon the respondent to appoint Arbitrator in terms of the arbitration clause referred
to hereinbefore in the following terms:-
“14. In view of the above, you are hereby requested to
appoint and nominate a Gazetted Railway Officer to be an
Arbitrator within 15 days from the receipt of this notice and
refer the above disputes and differences mentioned in para
12 above to the said Arbitrator for adjudication.”
10. The aforementioned letter was replied by the respondent by its letter dated
11.12.1995 stating as under:-
“WESTERN RAILWAYS
Head quarter office,
Churchgate, Bombay, 20.
No. W634/12/2/14
Dt. 11.12.1995
M/s. Ashi Private Ltd.,
S-66, L.G. Floor,
Greater Kailash-I
New Delhi: 110048
Sub: Manufacture and supply of MG concrete sleepers
against contract No. W634/12/2/14 Dt: 25.8.89.
Ref: Shri. Sanjeev Ralli Advocate Delhi’s letter No. Nil
Dated: 6.1.95 and dated: 18.3.95.
Your request for arbitration received through above
referred letters from Shri. Sanjeev Ralli your advocate, has
been considered by Railway Administration (Western
Railway) and found that it is not justified and not tenable, as
such the demand for arbitration is regretted.
[Chief Engineer (G)]
for General Manager”
11. In the aforementioned situation, the said application under Section 20 of
1940 Act was filed.
Section 20 of 1940 Act reads thus:-
“Section 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 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 shown, 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.”
12. However, the said suit was converted into an application under Section 11
(6) of the Act purported to be on a wrong notion.
13. In absence of any specific provisions contained in the schedule appended
to the Limitation Act indisputably Article 137 thereof would be attracted.
In Major (Retd.) Inder Singh Rekhi (Supra), the Apex Court held:-
“4. Therefore, in order to be entitled to order of
reference under Section 20, it is necessary that there should be an
arbitration agreement and secondly, different must arise to
which this agreement applied. In this case, there is no
dispute that there was an arbitration agreement. There has
been an assertion of claim by the appellant and silence as
well as refusal in respect of the same by respondent.
Therefore, a dispute has arisen regarding non-payment of
the alleged dues of the appellant. The question is for the
present case when did such dispute arise. The High Court
proceeded on the basis that the work was completed in 1980
and, therefore, the appellant became entitled to the payment
from that date and the cause of action under Article 137 arose
from that date. But in order to be entitled to ask for a
reference under Section 20 of the Act there must not only be an
entitlement to money but there must be a difference or a
dispute must arise. It is true that on completion of the work
a right to get payment would normally arise but where the
final bills as in this case have not been prepared as appears
from the record and when the assertion of the claim was
made on 28th Feb. 1983 and there was non-payment, the
cause of action arose from that date, that is to say, 28th of
Feb. 1983. It is also true that a party cannot postpone the
accrual of cause of action by writing reminders or sending
reminders but where the bill had not been finally prepared,
the claim made by a claimant is the accrual of the cause of
action. A dispute arises where there is a claim and a denial
and repudiation of the claim. The existence of dispute is
essential for appointment of an arbitration under Section 8 or a
reference under Section 20 of the Act. Lee Law of Arbitration by
R.S. Bachawat, 1st Edition, page 354. There should be
dispute and there can only be a dispute when a claim is
asserted by one party and denied by the other on whatever
grounds. Mere failure or inaction to pay does not lead to the
inference of the existence of dispute. Dispute entails a
positive element and assertion in denying, not merely
inaction to accede to a claim or a request. When in a
particular case a dispute has arisen or not has to be found out
from the facts and circumstances of the case.”
14. Yet again in Utkal Commercial Corporation (Supra), it was held by the
Apex Court:-
“13. If the submission is that the claims filed before the
arbitrator are barred by limitation, we cannot examine such a
contention without the relevant particulars and details of the
disputes between the parties being placed before us. These
particulars and even the documents have not been filed
before us because such a contention has not been raised in
these proceedings at all. One cannot assume that the cause
of action arose on the date of expiry of the contract. As
pointed out by this Court in Major (Retd.) Inder Singh Rekhi
case in the passage cited above, cause of action can arise
later, depending on the facts of the case. Whether the claims
were or were not barred by limitation before the arbitrator
can be examined only on the basis of the relevant material,
which material has not been produced. We, therefore,
declined to examine this contention.”
15. It is not in dispute that as the learned Single Judge exercised his
jurisdiction under Section 11(6) of the Act, a writ petition, therefore, is maintainable.
16. In Konkan Railway Corporation Ltd. and Ors. (Supra), the Apex court held that
an order under Section 11(6) of the Act being administrative in nature, a writ petition
would be maintainable.
17. This aspect of the matter has been considered by a Division Bench of the
Andhra Pradesh High Court in Union of India v. Vengamamaba Engineering Co. and
Ors. 2001(4) ALT 45 (D.B.). The Division Bench considered the question as to when a writ petition would be
maintainable and held thus:-
“17. In first Konkan Railways case (1 supra), a three-judge
Bench referring to various provisions of the said Act
observed that when the legislative intent is clear, it would be
proper for the Chief Justice or his nominee just to appoint an
arbitrator without wasting any time or without entertaining
any contentious issues raised at that stage, by a party
objecting to the appointment of an arbitrator inasmuch as all
issues can be raised in the arbitral proceedings. But dealing
with a contingency where the Chief Justice or his nominee
refuses to make an appointment of arbitrator, it was held that
remedy by way of writ petition would lie. It was held that if
an order passed under Section 11(6) is construed to be a
judicial or quasi-judicial order, the same would be amenable
to judicial intervention and any reluctant party may frustrate
the entire purpose of the Act by adopting dilatory tactics in
approaching a Court of law even against an order of
appointment of an arbitrator, which interpretation should be
avoided with a view to achieve the basic objective for which
the Parliament enacted the Act of 1996 adopting
UNICITRAL Model. It was held:
“If on the other hand, it is held that
the order passed by the Chief Justice under
Section 11(6) is administrative in nature,
then in such an event in a case where the
learned Chief Justice or his nominee refuses
erroneously to make an appointment then an
intervention should be possible by a Court in
the same way as an intervention is possible
against an administrative order of the
executive. In other words, it would be a case
of non-performance of the duty by the Chief
Justice or his nominee, and therefore, a
mandamus would life. If such an
interpretation is given with regard to the
character of the order that has been passed
under Section 11(6) then in the event an
order of refusal is passed under Section 11(6)
it could be remedied by issuance of a
mandamus. We are persuaded to accept the
second alternative in as much as in such an
even there would not be inordinate delay in
setting arbitral process in motion. But, as
has been explained earlier in the earlier part
of this Judgment, the duty of the Chief
Justice or his nominee being to set the
arbitral process in motion, it is expected that
invariably the Chief Justice or his nominee
would make an appointment of arbitrator or
so that the arbitral proceeding would start as
expeditiously as possible and the dispute
itself could be resolved and the objective of
the Act can be achieved.
18. However, we may notice that the correctness of the decision in Konkan
Railway Corporation Ltd. and Ors. (Supra) was doubted in Konkan Railway Corporation
Ltd. and Anr. v. Rani Construction Pvt. Ltd. 2002 (1) SCALE 465, wherein the Constitution Bench of the
Apex Court by a judgment dated 30.1.2000 held:-
“… There is nothing in Section 11 that requires the
party other than the party making the request to be noticed.
It does not contemplate a response from that other party. It
does not contemplate a decision by the Chief Justice or his
designate on any controversy that the other party may raise,
even in regard to its failure to appoint an arbitrator within
he period of thirty days. That the Chief Justice or his
designate has to make the nomination of an arbitrator only
if the period of thirty days is over does not lead to the
conclusion that the decision to nominate is adjudicatory. In
its request to the Chief Justice to make the appointment the
party would aver that this period has passed and, ordinarily,
correspondence between the parties would be annexed to
bear this out. This is all that the Chief Justice or his
designate has to see. That the Chief Justice or his designate
has to take into account the qualifications required of the
arbitrator by the agreement between the parties (which,
ordinarily, would also be annexed to the request) and other
considerations likely to secure the nomination of an
independent and impartial arbitrator also cannot lead to the
conclusion that the Chief Justice or his designate is
required to perform an adjudicatory function. That the
word ‘decision’ is used in the matter of the request by a
party to nominate an arbitrator does not of itself mean that
an adjudicatory decision is contemplated.
As we see it, the only function of the Chief Justice
or his designate under Section 11 is to fill the gap left by a
party to the arbitration agreement or by the two arbitrators
appointed by the parties and nominate an arbitrator. This is
to enable the arbitral tribunal to be expeditiously
constituted and the arbitration proceedings to commence.
The function has been left to the Chief Justice or his
designate advisedly, with a view to ensure that the
nomination of the arbitrator is made by a person occupying
high judicial office or his designate, who would take due
care to see that a competent, independent and impartial
arbitrator is nominated.
It might be that though the Chief Justice or his
designate might have taken all due care to nominate an
independent and impartial arbitrator, a party in a given case
may have justifiable doubts about that arbitrator’s
independence or impartiality. In that event it would be
open to that party to challenge the arbitrator under Section
12, adopting the procedure under Section 13. There is no
reason whatever to conclude that the grounds for challenge
under Section 13 are not available only because the
arbitrator has been nominated by the Chief Justice or his
designate under Section 11.
It might also be that in a given case the Chief
Justice or his designate may have nominated an arbitrator
although the period of thirty days had not expired. If so,
the arbitral tribunal would have been improperly
constituted and be without jurisdiction. It would then be
open to the aggrieved party to require the arbitral tribunal
to rule on its jurisdiction. Section 16 provides for this. It
states that the arbitral tribunal may rule on its own
jurisdiction. That the arbitral tribunal may rule “on any
objections with respect to the existence or validity of the
arbitration agreement” shows that the arbitral tribunal’s
authority under Section 16 is not confined to the width of
its jurisdiction, as was submitted by learned counsel for the
appellants, but goes to the very root of its jurisdiction.
There would, therefore, be no impediment in contending
before the arbitral tribunal that it had been wrongly
constituted by reason of the fact that the Chief Justice or his
designate had nominated an arbitrator although the period
of thirty days had not expired and that, therefore, it had no
jurisdiction.
The schemes made by the Chief Justice under
Section 11 cannot govern the interpretation of Section 11.
If the schemes, as drawn, go beyond the terms of Section
11 they are bad and have to be amended. To the extent that
the appointment of Arbitrators by the Chief Justice of India
Scheme, 1996, goes beyond Section 11 by requiring, in
Clause 7, the service of a notice upon the other party to the
arbitration agreement to show cause why the nomination of
an arbitrator, as requested, should not be made, it is bad and
must be amended. The other party needs to be given notice
of the request only so that it may know of it and it may, if it
so chooses, assist the Chief Justice or his designate in the
nomination of an arbitrator.
In conclusion, we hold that the order of the chief
Justice or his designate under Section 11 nominating an
arbitrator is not an adjudicatory order and the Chief Justice
or his designate is not a tribunal. Such an order cannot
properly be made the subject of a petition for special leave
to appeal under Article 136. The decision of the three
Judge Bench in Konkan Railway Corporation Ltd. and Ors.
v. Mehul Construction Co. is affirmed.
…..
In the result, the appeals are dismissed. No order as
to costs.”
See also Narayan Prasad Lohia v. Nijunj Kumar Lohia and Ors. 2002 (2) SCALE 232.
19. In this view of the matter, the writ petition must be held to be
maintainable.
20. However, the learned counsel appearing on behalf of the respondent
appears to be correct to the effect that Section 11(6) of the Act in this case would not
apply.
21. In Shetty’s Constructions Co. Pvt. Ltd. v. Konkan Railway Construction and
Anr. , the Apex Court held as under:-
“4. A mere look at Sub-section (2)(a) of the Section 85
shows that despite the repeal of “Arbitration Act, 1940″, the
provisions of the said enactment shall be applicable in
relation to arbitration proceedings which have commenced
prior to the coming into force of the new Act. The new Act
came into force on 26-1-1996. The question therefore,
arises whether on that date the arbitration proceedings in the
present four suits had commenced or not. For resolving this
controversy we may turn to Section 21 of the new Act which
lays down that unless otherwise agreed to between the
parties, the arbitration suit in respect of arbitration dispute
commenced on the date on which the request for referring
the dispute for arbitration is received by the respondents.
Therefore, it must be found out whether the request by the
petitioner for referring the disputes for arbitration were
moved for consideration of the respondents on and after 26-1-1996
or prior thereto. If such requests were made prior to
that date, then on a conjoint reading of Section 21 and
Section 85(2)(a) of the new Act, it must be held that these
proceedings will be governed by the old Act. As seen from
the afore-noted factual matrix, it at once becomes obvious
that the demand for referring the disputes for arbitration was
made by the petitioners in all these cases months before 26-1-1996, in March and April 1995 and in fact thereafter all
the four arbitration suits were filed on 24.8.1995. These
suits were obviously filed prior to 26-1-1996 and hence they
had to be decided under the old Act of 1940. This
preliminary objection, therefore, is answered by holding that
these four suits will be governed by the Arbitration Act,
1940 and that is how the High Court in the impugned
judgments has impliedly treated them.”
22. In Asia Resorts Ltd. v. Usha Breco Ltd. , the Apex Court held that the
application under Section 20 of 1940 Act should have been filed within 3 years of the
receipt of the reply to notice.
23. However, we may notice that recently in Union of India v. Popular
Construction Co. , the Apex Court has held that the Arbitration and Conciliation Act,
1966 is a special law in terms of Section 29(2) of the Limitation Act, 1963 providing a
limitation period different from that prescribed under the Limitation Act.
24. In this view of the matter, we are of the opinion that the matter should be
considered afresh by an appropriate Bench treating the application to be under Section 20
of 1940 Act for passing appropriate order(s).
25. Having regard to the fats and circumstances of this case, we would
request the appropriate Bench to consider the desirability of disposing of the matter at an
early date.
26. This writ petition is disposed of accordingly without any orders as to cost.