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Vimal G. Jain v. Vertex Financial Services Pvt. Ltd., Pune And Another
Factual and Procedural Background
This appeal arises from the order dated 10-1-2005 passed in Arbitration Petition No. 451 of 2004, whereby the arbitration petition filed for setting aside the award made by the arbitration committee of the Stock Exchange was dismissed. The appellant challenged the impugned order on two grounds: first, that the arbitration proceedings were initiated after the expiry of the limitation period prescribed under the Bye-laws; and second, that the appellant had already paid Rs. 5,00,000/- to the respondents. The learned single Judge rejected the petition under section 34 of the Arbitration and Conciliation Act, 1996, holding that the limitation point was not raised before the arbitrator and that the payment was made to individuals prior to the company's formation, not to the respondent-company.
Legal Issues Presented
- Whether the arbitration proceedings were initiated within the period of limitation prescribed under the Bye-laws?
- Whether the amount of Rs. 5,00,000/- was paid to the respondent-company?
Arguments of the Parties
Appellant's Arguments
- The arbitration proceedings were initiated beyond the six-month limitation period prescribed under Clause (2) of Bye-law 252.
- The arbitrator lacked jurisdiction to entertain the proceedings due to the limitation bar.
- The Apex Court has held that a plea of limitation can be raised even for the first time at the appellate stage.
- The appellant contended that Rs. 5,00,000/- had been paid to the respondents.
Respondents' Arguments
- The amended Bye-laws came into force on 4-6-2003, and the arbitration proceedings initiated in September 2003 were within the limitation period.
- The Rs. 5,00,000/- payment was made prior to the formation of the company to two persons who later became directors, and not to the respondent-company itself.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Management of the State Bank of Hyderabad v. Vasudev Anant Bhide, (1969) 2 SCC 491 : AIR 1970 SC 196 | Consideration of limitation and jurisdiction in arbitration-like proceedings under the Industrial Disputes Act | Held not applicable as the case arose under a different statute without provisions analogous to sections 4 and 16(2) of the Arbitration and Conciliation Act, 1996. |
| Ramesh B. Desai v. Bipin Vadilal Mehta, (2006) 5 SCC 638 | Limitation is a mixed question of law and fact; the starting point for limitation must be ascertained on facts | Used to affirm that limitation cannot be decided abstractly and that the plea must be raised timely; absence of such plea before arbitrator results in waiver. |
| Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572 | Requirement to raise jurisdictional objections including limitation plea before submission of statement of defence; failure to do so amounts to waiver under section 4 of the Arbitration Act | Applied to hold that the limitation plea was waived as it was not raised before the arbitrator within the prescribed time. |
Court's Reasoning and Analysis
The court analyzed the issue of limitation in light of sections 4 and 16(2) of the Arbitration and Conciliation Act, 1996. Section 4 mandates that a party must promptly raise objections to non-compliance, failing which such objections are deemed waived. Section 16(2) requires that jurisdictional objections, including limitation pleas, be raised not later than the submission of the statement of defence. Since the appellant did not raise the limitation objection before the arbitrator, it was deemed waived.
Further, the court recognized limitation as a mixed question of law and fact, referencing the Apex Court’s ruling in Ramesh Desai’s case. The limitation plea cannot be entertained at the appellate stage if not raised earlier. The court also distinguished the precedent of the State Bank of Hyderabad case as inapplicable since it arose under the Industrial Disputes Act, which lacks provisions analogous to those in the Arbitration Act.
On merits, the court found that the arbitration proceedings were initiated within the six-month period computed from the date the amended Bye-laws came into effect (4-6-2003), as the proceedings started in September 2003. Regarding the payment of Rs. 5,00,000/-, the court accepted the finding that the payment was made to individuals prior to the company’s formation and not to the respondent-company, thus rejecting the appellant’s contention.
Holding and Implications
The appeal is DISMISSED. The impugned order dismissing the arbitration petition under section 34 of the Arbitration and Conciliation Act, 1996, is upheld.
The decision directly affects the parties by affirming the dismissal of the petition and confirms that limitation pleas must be raised timely before the arbitrator or are deemed waived. No new precedent was established beyond reinforcing settled principles on waiver and limitation in arbitration proceedings.
R.M.S Khandeparkar, J.:— Admit. The learned Advocate for the respondents waives service. By consent, heard forthwith.
2. This appeal arises from the order dated 10-1-2005 passed in Arbitration Petition No. 451 of 2004. By the impugned order, the arbitration petition filed for setting aside the award made by the arbitration committee of the Stock Exchange has been dismissed.
3. The challenge to the impugned order is on two grounds: firstly, that the learned single Judge failed to take note of the fact that the arbitration proceedings were sought to be initiated after the expiry of the period of limitation, as prescribed under the Bye-laws and secondly that the appellant had already paid a sum of Rs. 5,00,000/- to the respondents.
4. Perusal of the impugned order apparently discloses that the point regarding bar of limitation was not raised before the learned arbitrator and, therefore, the same being a mixed question of law and fact, the learned single Judge has rejected the petition under section 34 of the Arbitration and Conciliation Act, 1996, hereinafter called as “the said Act”, which was to be filed on the said ground of bar of limitation. Secondly, the contention about the payment of Rs. 5,00,000/- to the respondents has been rejected as the records, based on which the award was passed, evidently disclosed that the sum of Rs. 5,00,000/- was paid prior to the formation of the company to the two persons, who thereafter became the Directors of the said company and not to the respondent-company in spite of the admitted fact that the appellant was liable to pay the amount to the respondent-company.
5. As regards the first ground of challenge, placing reliance in the decisions in the matters of Management of the State Bank of Hyderabad v. Vasudev Anant Bhide, reported in (1969) 2 SCC 491 : AIR 1970 SC 196 and Ramesh B. Desai v. Bipin Vadilal Mehta, reported in (2006) 5 SCC 638, as also Bye-law 252 of the Bye-laws applicable to the parties, the learned Advocate appearing for the appellant submitted that in terms of Clause (2) of Bye-law 252, an arbitration proceedings ought to have been initiated within six months from the date of cause of action and the same having not been so initiated, the arbitrator had no jurisdiction to entertain the proceedings and the learned single Judge failed to take into consideration this aspect of the matter. It was also sought to be contended that the Apex Court has clearly held that plea of limitation can be raised, even for the first time, at the appellate stage. The learned Advocate appearing for the respondents, on the other hand, drawing attention to Clause (2) of Bye-law 252 of the said Bye-laws, and more particularly to the third proviso thereto, submitted that the amended Bye-laws came into force from 4-6-2003 and the proceedings were initiated in September, 2003. Hence, they were within the period of limitation.
6. As regards the second ground of challenge, attention was sought to be drawn to the copy of the statement of account of the respondents, prepared and based on the books of account maintained by the appellant and it was sought to be contended that the same reveal payment of Rs. 5,00,000/- to the Directors of the respondent-company. On the other hand, it is sought to be argued that admittedly the amount was paid prior to the formation of the company.
7. Considering the rival contentions on behalf of the parties to the proceedings, the following points arise for consideration:
(i) Whether the arbitration proceedings were initiated within the period of limitation prescribed under the Bye-laws?
(ii) Whether the amount of Rs. 5,00,000/- was paid to the respondent-company?
8. The section 4 of the said Act provides that:
“4. Waiver of right to object:— A party who knows that—
(a) any provision of this Part from which the parties may derogate, or
(b) any requirement under the arbitration agreement,
has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.”
9. Further, the section 16(2) of the said Act clearly provides that a plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of, an arbitrator. Conjoint reading of the above provisions of law would disclose that a party to the arbitration proceedings seeking to raise the point of bar of limitation for initiating the arbitration proceedings should raise the issue at the earliest opportunity and in any case not later than the submission of the statement of defence, otherwise it would be deemed to have been waived. The law in that regard is well-settled by the decision of the Apex Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia, reported in (2002) 3 SCC 572 wherein it has been clearly held that unless the objection in terms of section 16(2) is raised within the time prescribed under the said Section, it would be deemed to have been waived in terms of section 4 of the said Act. In the case in hand, undisputedly, the point regarding the bar of limitation was never raised before the learned arbitrator. Being so, it should be deemed to have been waived.
10. Even otherwise, the point of limitation is a mixed question of law and fact. In fact, the law in this regard also is well-settled and the same was reiterated by the Apex Court in the decision sought to be relied upon on behalf of the appellant himself. In Ramesh Desai's case (supra), it was clearly observed by the Apex Court that “A plea of limitation cannot be decided as an abstract principle of law divorced from facts as in every case the starting point of limitation has to be ascertained which is entirely a question of fact. A plea of limitation is a mixed question of law and fact.” Once it is clear that the point of limitation was not raised before the learned Arbitrator, apart from the fact that it is deemed to have been waived, the question of entertaining such point in proceedings under section 34 of the said Act or in an appeal arising from the order passed therein, cannot arise. Hence no fault can be found with the impugned order in that regard.
11. The decision of the Apex Court in the matter of Management of the State Bank of Hyderabad (supra) has no application to the facts of the case in hand. That was a case arising out of the Industrial Disputes Act and there is no provision on par with section 4 r/w Section 16(2) of the said Act, either in the Industrial Disputes Act or any other Act dealing with the service conditions of the Bank employees. Hence the ruling of the Apex Court in The Management of the State Bank of Hyderabad's case is of no help to the appellant to seek interference in the impugned order.
12. Even on merits, there is absolutely no substance as far as the plea of limitation is concerned. The Clause 252(2) of the said Bye-laws, which deals with the period for filing an arbitration reference, in its third proviso, clearly provides that “in respect of Arbitration Cases arising out of the transactions having been done prior to the date on which this Bye-law comes into effect, the limitation period of six months shall be computed from the date on which this Bye-law comes into effect.” Undisputedly, the said Bye-law came into force from 4-6-2003. It is also not in dispute, nor can be disputed that the proceedings in question were initiated in September, 2003. Obviously, the same were initiated within a period of six months from the date of coming into force of the said Bye-laws and hence the same were initiated within the period of limitation.
13. As regards the second ground of challenge regarding the payment of Rs. 5,00,000/-, the finding arrived at by the learned single Judge is clearly borne out from the award which, in turn, is based on the records and it is not in dispute that sum of Rs. 5,00,000/- was paid to the persons who subsequently became the Directors of the company, but the payment to them was prior to the formation of the company. Being so, the said finding also cannot be found fault with.
14. As no other ground is disclosed or urged for challenging the impugned order, the appeal fails and is hereby dismissed. There shall be no order as to costs.
Appeal dismissed.
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