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Wazir Chand Mahajan And Another v. Union Of India .
Factual and Procedural Background
On 1 November 1950, Triloknath Mahajan entered into a one-year agreement with the State of Himachal Pradesh to extract medicinal herbs from forests in Chamba District. Clause 22 of that agreement required that any dispute be referred to the sole arbitration of the Deputy Commissioner, Mandi District. With governmental consent, Triloknath later assigned his rights to Wazirchand Mahajan.
Disputes over exclusive collection rights and alleged governmental failure to restrain trespassers arose in October 1950. On 30 May 1952, the appellants demanded arbitration; the Chief Conservator of Forests refused on 23 June 1952, asserting the disputes lay outside the arbitration clause. On 22 June 1955 the appellants petitioned the District Court, Chamba, under Section 20 of the Arbitration Act, 1940 to file the arbitration agreement and compel a reference.
The trial court held that no limitation period applied—or, alternatively, that the application was timely even under Article 181 of the Limitation Act, 1908—and ordered the agreement filed and the dispute referred. After the Part ‘C’ State became a Union Territory, the Union of India replaced the State as respondent and successfully appealed: the Judicial Commissioner ruled that Article 181 governed the application and that time began to run in 1950–51, rendering the 1955 application time-barred. The present Supreme Court appeal challenges that ruling.
Legal Issues Presented
- Whether an application to file an arbitration agreement under Section 20 of the Arbitration Act, 1940 is governed by Article 181 of the Limitation Act, 1908.
- Whether Section 37(1) of the Arbitration Act extends limitation provisions to such a court application.
Arguments of the Parties
Appellants’ Arguments
- Article 181 applies only to applications made under the Code of Civil Procedure; the present application, made under the Arbitration Act, falls outside its scope.
- Section 37(1) concerns the arbitrator’s power to apply limitation law to claims before him, not the court’s power to entertain an application for filing the agreement.
Union of India’s Arguments
- Article 181 governs the application because no specific limitation provision exists for Section 20 petitions.
- Section 37(1) shows legislative intent that the Limitation Act apply broadly to arbitration matters, including court proceedings initiating arbitration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hansraj Gupta v. Official Liquidators of the Dehradun-Mussorie Electric Tramway Co. Ltd. | Article 181 relates only to applications under the Code of Civil Procedure. | Used to support the conclusion that Article 181 does not govern Section 20 Arbitration Act applications. |
| Bai Manekbal v. Manekji Kayasji | Beginning of judicial view that the words “under the Code” are implicit in Article 181. | Cited as part of the historical “catena of authorities” limiting Article 181 to CPC applications. |
| Sha Mulchand & Co. Ltd. (in liquidation) v. Jawahar Mills Ltd. [1953] SCR 351 | Confirmed the implied addition of “under the Code” to Article 181. | Relied on to reinforce the restricted scope of Article 181. |
| Bombay Gas Co. Ltd. v. Gopal Bhiva [1964] 3 SCR 709 | Reiterated that Article 181 applies only to CPC applications. | Quoted to show consistent Supreme Court acceptance of the limited reach of Article 181. |
| Ramdutt Ramkissendass v. F.D. Sassoon & Co. | Limitation law is impliedly applicable to claims before an arbitrator. | Explained the legislative origin of Section 37(1); distinguished from court applications under Section 20. |
Court's Reasoning and Analysis
The Court examined Article 181’s placement within the Limitation Act, noting that historically all preceding articles concerned applications under the Code of Civil Procedure. Decades of precedent—beginning with Bai Manekbal and culminating in Bombay Gas—have treated Article 181 as confined to such CPC applications. The 1940 repeal of Schedule II CPC and consequential amendment of Articles 158 and 178 did not alter that settled interpretation.
Because a Section 20 petition seeks judicial assistance to initiate arbitration rather than relief “under the Code,” Article 181 cannot apply unless another statute plainly so provides. Section 37(1) of the Arbitration Act does not create such a provision; it merely obliges arbitrators, once seized of the dispute, to apply limitation law to the claims before them. Therefore, limitation may bar a claim during arbitration but cannot bar the court from filing the arbitration agreement itself.
Accordingly, the Judicial Commissioner erred in dismissing the Section 20 application as time-barred. The correct approach is to file the agreement and leave questions of limitation to the arbitrator during substantive adjudication.
Holding and Implications
Appeal Allowed; trial court order restored. The Supreme Court set aside the Judicial Commissioner’s decision and reinstated the directive to file the arbitration agreement and refer the disputes to the named arbitrator.
Implications: The ruling confirms that Article 181 of the Limitation Act does not govern applications made under Section 20 of the Arbitration Act, 1940. Limitation defences remain available before the arbitrator, but they do not preclude courts from effectuating the arbitration clause. The judgment thus clarifies procedural law without creating a new substantive precedent beyond the arbitration-limitation interface.
Shah, J.— Under an agreement dated November 1, 1950, with the State of Himachal Pradesh. Triloknath Mahajan — second appellant in this appeal — purchased the right to extract and collect certain medicinal herbs from the forests of Chamba District. The period of the agreement was one year from September 1, 1950. By clause 22 of the agreement it was provided that all disputes between the parties arising under the agreement or under any clause thereunder or in any manner connected with or arising out of the agreement or the operation thereof, or the rights, duties or liabilities of either parties thereunder including the dispute or difference as to the construction of the agreement shall be referred to the sole arbitration of the Deputy Commissioner, Mandi District, Himachal Pradesh, and if that officer be unable or unwilling to act, to such Assistant as the Deputy Commissioner shall appoint as the sole arbitrator. Triloknath Mahajan transferred all his rights, title and interest under the agreement to Wazirchand Mahajan — the first appellant — with the permission of the State of Himachal Pradesh.
2. Disputes arose in October 1950 between the appellants and the State of Himachal Pradesh regarding the right to collect herbs from certain areas and the failure of the State authorities to prevent trespassers from removing herbs, the right to which was granted to the second appellant. The appellants addressed a letter on May 30, 1952 to the Chief Conservator of Forests, Himachal Pradesh, requiring that Officer to submit the matters in difference to the arbitration of the Deputy Commissioner, Mandi District. By his reply dated June 23, 1952, the Chief Conservator declined to agree to a reference contending that the matters desired to be referred to were outside the arbitration clause. On June 22, 1955 the appellants applied to the District Court of Chamba for an order that the agreement dated November 1, 1950 be filed in the court and that the disputes between them and the State be referred to the sole arbitration of the Deputy Commissioner, Mandi District. The State of Himachal Pradesh contended, inter alia, that the application for filing the arbitration agreement was barred by the law of limitation as the right to apply, if any, arose in the year 1950 and not on June 23, 1952, as alleged. The court of First Instance held that the Limitation Act did not govern an application for filing an arbitration agreement under Section 20 of the Arbitration Act, 1940, and that even if the application was governed by Article 181 of Schedule 1 of the Limitation Act, 1908, since the application was made within three years from the date on which the Chief Conservator of Forests, Himachal Pradesh, declined to make a reference, it was not barred. The court accordingly ordered that the agreement be filed and the disputes be referred to the arbitrator named in the agreement. During the pendency of this application before the trial court, the Part ‘C' State of Himachal Pradesh became Union Territory, and the Union of India was substituted as a party in place of the State of Himachal Pradesh. In appeal by the Union of India, the Judicial Commissioner, Himachal Pradesh, reversed the order of the trial court. In the view of the Judicial Commissioner an application for filing an arbitration agreement under Section 20 of the Arbitration Act is governed by Article 181 of the Limitation Act and since the period of three years prescribed thereby commences to run from the date on which differences arose between the parties i.e about the month of September — October 1950, and in any case on September 1, 1951, the application for reference filed by the appellants was barred.
3. The terms of Article 181 are general, and are apparently not restricted to applications under the Code of Civil Procedure. But that Article is included in the group of articles which fall under the head “Third Division Applications”. As originally enacted all applications contemplated to be made under Articles 158 to 180, were applications made under the Code of Civil Procedure and there was a catena of authorities holding that in Article 181 the expression “under the Code of Civil Procedure” must be deemed to be necessarily implicit.
4. In Hansraj Gupta v. Official Liquidators of the Dehradun-Mussorie Electric Tramway Company Ltd. the Judicial Committee of the Privy Council observed at p. 20:
“… but a series of authorities commencing with Bai Manekbal v. Manekji Kayasji has taken the view that Article 181 only relates to applications under the Code of Civil Procedure, in which case no period of limitation has been prescribed for the application.”
In Sha Mulchand & Company Ltd. (In liquidation) v. Jawahar Mills Ltd. [1953] SCR 351 this court observed after referring to certain decisions:
“This long catena of decisions may well be said to have, as it were, added the words “under the Code” in the first column of that article (Art. 181).”,
and in Bombay Gas Company Ltd. v. Gopal Bhiva [1964] 3 SCR 709 this court observed:
“It is well settled that Article 181 applies only to applications which are made under the Code of Civil Procedure, ….”
It is true that in Hansraj Gupta case the Judicial Committee was dealing with the period of limitation for filing an application under Section 186(f) of the Indian Companies Act, 1913, to order a contributory in a winding-up to pay a debt; and Sha Mulchand case [1953] SCR 351 related to an application under the Indian Companies Act, 1913, for rectification of the share-register and restoration of the name of a member whose shares were forfeited for non-payment of calls. In the Bombay Gas Company case [1964] 3 SCR 709 this court was dealing with an application for enforcement of an order under Section 33-C (2) of the Industrial Disputes Act 14 of 1947 for computation of benefit in terms of money and for a direction to the employers to pay the same. But in each case the decision of the court proceeded upon the general ground that Article 181 of the Limitation Act, 1908 governed applications under the Code of Civil Procedure. This court impliedly rejected in each case the argument that merely because powers under the Code of Civil Procedure may be exercised by a court entertaining an application, the application could not be deemed to be one under the Code. It is true that in the Limitation Act originally enacted in 1908, by the group of Articles 158 to 180 only applications under the Code of Civil Procedure were dealt with. By the amendment made by the Arbitration Act 10 of 1949, Articles 158 and 178 were modified and in the articles for the expression “under the Code of Civil Procedure, 1908” the words “under the Arbitration Act 1940” were substituted. The reason which persuaded the courts from time to time to hold that the expression “under the Code” must be deemed to be added in Article 181 did not continue to apply after the amendment of Articles 158 and 178. It may be recalled that the law relating to consensual arbitration, except in respect of cases governed by Arbitration Act, 1899, was enacted in Schedule II of the Code of Civil Procedure, 1908. By the enactment of Act 10 of 1940, Schedule II of the Code of Civil Procedure and the Indian Arbitration Act, 1899, were repealed and an Act dealing with all arbitrations was enacted, and it was found necessary on that account to amend Articles 158 & 178 so as to make them consistent with the legislative changes. The reason which persuaded the courts to hold that the expression “under the Code” was deemed added to Article 181 has now disappeared, but on that account the expression “applications for which no period of limitation is provided elsewhere in this Schedule” in Article 181 cannot be given a connonation different from the one which prevailed for nearly 60 years before 1940.
5. If Article 181 of the Limitation Act only governs applications under the Code of Civil Procedure for which no period of limitation is provided under the Schedule, an application under the Arbitration Act, 1940 not being an application under the Code of Civil Procedure, unless there is some provision, which by express enactment or plain intendment to the contrary in the Arbitration Act, will not be governed by that Article.
6. Counsel for the Union of India contended that Section 37(1) of the Arbitration Act, 1940, indicates a contrary intention. That sub-section provides:
“All the provisions of the Indian Limitation Act, 1908, shall apply to arbitrations as they apply to proceedings in Court.”
In our judgment, this clause does not govern an application for filing an arbitration agreement under Section 20 of the Arbitration Act. In terms, it provides, that the provisions of the Indian Limitation Act are to apply to arbitrations as they apply to proceedings in Court. In other words, an arbitrator in dealing with a matter submitted to him is bound to apply the provisions of the Limitation Act: Section 37(1) has no reference to an application under the Arbitration Act for effectuating a reference to the arbitrator such as an application for filing an arbitration agreement. The genesis of this sub-section is to be found in the judgment of the Judicial Committee of the Privy Council in Ramdutt Ramkissendass v. F.D Sassoon and Company. In that case the Judicial Committee observed that even-though Section 3 of the Limitation Act deals primarily with suits, appeals and applications made in law courts and makes no reference to arbitration proceedings and, therefore, the Limitation Act does not in terms apply to arbitrations in mercantile references, it would be “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 to exclude that defence. Were it otherwise, a claim for breach of a contract containing a reference clause could be brought at any time, it might be twenty or thirty years after the cause of action had arisen although the legislature had prescribed a limit of three years for the enforcement of such a claim in any application that might be made to the law courts”. In enacting the Arbitration Act, 1940 the legislature incorporated, with some modification, the rule which was regarded by the Judicial Committee as implicit in a commercial reference under an arbitration agreement. The legislature provided that all the provisions of the Limitation Act, 1908, shall apply to arbitrations as they apply to proceedings in Court.
7. There is no doubt that clause (1) of Section 37 of the Arbitration Act deals only with the authority of the arbitrator to deal with and decide any dispute referred to him: it has no concern with an application made to the court to file an arbitration agreement and to refer a dispute to the arbitrator. After an agreement is filed in Court and the matter is referred to the arbitrator, it is for the arbitrator to decide by the application of the law contained in the Limitation Act, whether the claim is barred. But Section 37(1) does not confer authority upon the court to reject the application for filing of an arbitration agreement under Section 20 of the Arbitration Act because the claim is not made within three years from the date on which the right to apply arose. In dealing with an application for filing an arbitration agreement, the court must satisfy itself about the existence of a written agreement which is valid and subsisting and which has been executed before the institution of any suit, and also that a dispute has arisen with regard to the subject-matter of the agreement which is within the jurisdiction of the court. But the court is not concerned in dealing that application to deal with the question whether the claim of a party to the arbitration agreement is barred by the law of limitation: that question falls within the province of the arbitrator to whom the dispute is referred.
8. The Judicial Commissioner was in our judgment, in error in rejecting the application of the appellants for filing the arbitration agreement as barred under Article 181 of the Limitation Act, 1908.
9. We direct that the appeal be allowed, the order passed by the Judicial Commissioner be set aside and the order passed by the trial court for filing the arbitration agreement and referring the matters to the arbitrator be restored. The appellants will be entitled to their costs in this court and in the court of the Judicial Commissioner.
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