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The Union Of India And Others v. Bimal Kumar Kar .
Summary of Opinion (Goswami, C.J.) — Appeal concerning Section 20 Arbitration Act application and limitation
Factual and Procedural Background
The plaintiff was a registered contractor of the N.F. Railway who performed preliminary works related to the Brahmaputra Bridge construction at Adabari colony pursuant to an agreement (Ext. 1) and a later subsidiary contract. The plaintiff completed the works and submitted a final bill which the Railway paid in full in December 1958. Subsequently the Executive Engineer informed the plaintiff on 27 January 1961 (Ext. 2) that Rs. 21,056 had been paid in excess and proposed to withhold that sum from other pending bills. The plaintiff objected by letters dated 29 January 1961 (Ext. 3) and 30 January 1961 (Ext. 4), requesting reconsideration and a communicated decision.
The General Manager replied on 14 June 1961 (Ext. Kha) stating that the Railway had acted in accordance with the agreement and that no liability attached for the deductions. Further correspondence followed (notably notices and replies in 1961–1963 and demands for arbitration): the plaintiff served a Section 80 CPC notice on 15 March 1961 (Ext. Ka); further notices were sent (e.g., 6 September 1961 — Ext. Ga) and replied to on 18 January 1962 (Ext. Gha, referring to clause 52). The plaintiff demanded reference to arbitration on 30 March 1963 (Ext. Unga) and again by a demand dated 30 September 1966 (Ext. Cha) received 3 October 1966. The Railway produced a document marked 'X' purporting to reject the plaintiff's demand.
The plaintiff applied to the Assistant District Judge under Section 20 of the Arbitration Act, 1940 for an order directing that an arbitration agreement be filed and the dispute referred to arbitration. The defendants resisted and pleaded, among other matters, limitation. At first instance two issues were framed: (1) whether the application was barred by limitation; and (2) whether there was sufficient ground for referring the matter to arbitration. The trial court decided both issues in favour of the plaintiff. The defendants (appellants) appealed; on appeal the primary question argued was limitation under Article 137 of the Limitation Act, 1963.
Legal Issues Presented
- Whether the application under Section 20 of the Arbitration Act, 1940 is barred by limitation (Article 137 of the Limitation Act, 1963).
- Whether there is sufficient ground for referring the dispute to arbitration (issue framed below and decided in favour of the plaintiff by the court below).
Arguments of the Parties
Appellants' (Defendants') Arguments
- The appellants, through learned counsel Mr. D.C. Choudhury, contended that the application under Section 20 of the Arbitration Act is barred by limitation under Article 137 of the Limitation Act, 1963.
- It was contended that the application to the court should have been made within the period prescribed by the residuary Article (three years) from the time the right to apply arose.
Respondent's (Plaintiff's) Arguments
- The respondent, through Mr. B. Das, argued that the application was not barred by limitation.
- He candidly admitted that if a decision had been communicated by the General Manager on 14 June 1961 (Ext. Kha) under clause 62 of the Regulations, the right to apply would arise on that date; however, he contended that no such decision had been notified in conformity with clause 62, and therefore the Railway's failure to make a decision within a reasonable time under clause 63(1) entitled the contractor to demand arbitration and to make an application only after such ultimate failure.
- The respondent relied on prior Supreme Court decisions (AIR 1967 SC 990 — Wazir Chand v. Union of India and AIR 1969 SC 474 — Mohd Usman v. Union of India) to argue that the residuary article should not govern applications under the Arbitration Act; in essence, he disputed the applicability of Article 137 to applications under the Arbitration Act as amended by the Limitation Act, 1963.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| AIR 1967 SC 990 — Wazir Chand v. Union of India | The Supreme Court in that decision interpreted Article 181 (Limitation Act, 1908) as governing applications under the Code of Civil Procedure and held that an application under the Arbitration Act would not necessarily be governed by that Article; it further observed that Section 37(1) of the Arbitration Act deals with the arbitrator's authority and does not empower the Court to reject an application under Section 20 because a claim is time-barred. | The present court considered this authority but held it inapposite to the post-1963 regime: after the Limitation Act, 1963 amendments (expanded definitions in Section 2), the residuary Article (now Article 137) applies to applications under special Acts such as the Arbitration Act. Thus Wazir Chand could not be applied to defeat the applicability of Article 137 in the new statutory context. |
| AIR 1969 SC 474 — Mohd Usman v. Union of India | The decision followed the reasoning in Wazir Chand, holding it was not possible to construe the implied reference in the residuary article of the Limitation Act as a reference to the Arbitration Act; thus Article 181 did not apply to applications under the Arbitration Act. | The court noted this authority but declined to follow it in the present case because the Limitation Act, 1963 introduced new definitions (Section 2) expanding the concepts of "application" and "applicant", thereby bringing applications under special Acts within the scope of the residuary Article (Article 137). Consequently, Mohd Usman was not decisive of the present question under the amended Limitation Act. |
Court's Reasoning and Analysis
The court proceeded by first identifying the narrow scope of the appeal: limitation was the only question argued before it. It examined the relevant contract Regulations (clauses 62 and 63(1)) which govern internal reference to the Railway and the procedure for demanding arbitration:
- Clause 62 requires the Railway to "make and notify decisions" in writing to the Contractor within a reasonable time after presentation of disputes; certain "Excepted Matters" are final and without appeal.
- Clause 63(1) provides that if the Contractor is dissatisfied with such a decision or if the Railway fails to make a decision within a reasonable time, the Contractor shall within 10 days of receipt of communication or after expiry of reasonable time demand in writing that the matter be referred to arbitration.
The court then addressed whether Article 137 of the Limitation Act, 1963 applied to an application under Section 20 of the Arbitration Act. It reviewed earlier Supreme Court authorities (Wazir Chand and Mohd Usman) which had held that the corresponding residuary Article in the earlier Limitation Act (Article 181 of the 1908 Act) did not apply to applications under the Arbitration Act. However, the court found that the Limitation Act, 1963 materially altered the statutory landscape by adding to the definitions in Section 2:
- Section 2(a) (applicant) was expanded to include petitioners and persons from or through whom an applicant derives his right.
- Section 2(b) defined "application" to include a petition, thus encompassing petitions/applications under special acts.
The court relied on the Law Commission's recommendation quoted in the opinion (Third Report) which explains that the changes were intended to provide periods of limitation for original petitions and applications under special laws. On this statutory basis the court concluded that Article 137 (the residuary Article of the Limitation Act, 1963) now applies to applications under special Acts including Section 20 applications under the Arbitration Act, 1940. The residuary period is three years from accrual of the right to apply.
Having determined that Article 137 applies, the court turned to the question of when the right to apply accrued. The respondent argued the Railway had never communicated a decision under clause 62 and hence the accrual should be from the Railway's ultimate failure (after the 30 September 1966 demand). The court rejected that contention, holding that the General Manager's letter of 14 June 1961 (Ext. Kha) constituted communication of the Railway's decision in response to the plaintiff's requests (including Ext. 3 and Ext. 4). Because the decision had been communicated on 14 June 1961, the right to apply under Section 20 accrued on that date.
The court then applied Article 137's three-year period from the accrual date: the plaintiff's Section 20 application was filed in Court on 10 April 1967, which the court held to be beyond three years from 14 June 1961. Consequently, the application was time-barred. The court found that the trial Judge erred in holding the application was not barred by limitation.
Holding and Implications
Holding: The appeal is allowed and the application under Section 20 of the Arbitration Act is dismissed as barred by limitation under Article 137 of the Limitation Act, 1963.
Implications and direct consequences:
- The court held that, by virtue of the Limitation Act, 1963 (notably the expanded definitions in Section 2), Article 137 applies to applications under special Acts such as Section 20 of the Arbitration Act, 1940, and provides a residuary limitation period of three years from the time the right to apply accrues.
- The court determined that the Railway's letter dated 14 June 1961 communicated the Railway's decision under the contract Regulations; therefore the right to apply accrued on that date and the subsequent Section 20 application filed on 10 April 1967 was beyond the three-year period and time-barred.
- There will be no order as to costs.
- The trial court's decision that the application was not barred by limitation was reversed; the Assistant District Judge's order directing the agreement to be filed for arbitration is set aside by dismissal of the application on limitation grounds.
Note: The opinion expressly explains a change in the legal position post-1963 (the Limitation Act amendments) as applied in this case; the court thus applied the amended Limitation Act to conclude Article 137 governs such Section 20 applications.
Disposition: Appeal allowed; Section 20 application dismissed as time-barred; no costs. (Bindra, J. agreed.)
Goswami, C.J:— This is a first appeal by the defendants and is directed against an order passed by Sri R.C Bora, Assistant District Judge No. 2, Gauhati ordering an agreement to be filed for arbitration under Section 20 of the Arbitration Act, 1940 (briefly ‘the Act’).
2. The plaintiff is a registered contractor of the N.F Railway and he took various contracts for doing miscellaneous works at Pandu under the aforesaid Railway. In the instant case the plaintiffs contract was in connection with the preliminary works of the Brahmaputra Bridge construction at Adabari colony. A deed of agreement was executed between the parties and later a subsidiary contract was also executed adding to the volume of the works. The plaintiff completed the works and a final bill was submitted. The defendant railway paid the amount of the bill in full in December, 1958. The plaintiff had however several other bills pending in connection with other contracts under the Railway. On 27th January, 1961, the plaintiff was intimated by the Executive Engineer II, Brahmaputra Bridge Project, Pandu that an amount of Rs. 21,056/- was paid to him in excess of the dues for the works done in connection with the aforesaid two contracts and that it was proposed to withhold the payment of other bills to the extent of that amount. The plaintiff objected to this, but the Railways actually withheld the abovesaid amount from the other bills of the plaintiff. It is common ground and is apparent from the agreement dated 30th January, 1958 (Ext. 1) that the contractor has agreed for the performance of the works in accordance with the General Conditions of Contract and Standard Specifications (1956 Edition) of the Engineering Department of the North-Eastern Railway (briefly ‘the Regulations’). By a letter dated 29th January 1961 (Ext. 3) the plaintiff requested the Executive Engineer to “reconsider your decision and exempt me from any such recovery for the reason as stated above”. This letter was in reply to the Executive Engineer's letter dated 27th January, 1961 (Ext. 2). By Ext. 4, the plaintiff again on 30th January, 1961 reiterated his objections and requested the Chief Engineer this time for a decision. In this letter, he concluded as follows:
“If my contentions are not agreed upon an early reply communicating your decision may kindly be given in order to enable me to take further action.”
3. There was no response from the Railway and the plaintiff, through his lawyer, gave a notice under Section 80 of the CPC to the General Manager, N.F Railway at Pandu, on 15th March, 1961 (Ext. Ka), This evoked a reply from the General Manager to the plaintiff dated 14th June, 1961 (Ext. Kha), whereby it was pointed out that “the Railway Administration has acted according to provisions of the agreement, thus no liability attaches to it for the deductions made”. Since Ext. Ka dated 15th March, 1961 referred to the previous letters of the plaintiff of 29th January, 1961 and 30th January, 1961, the General Manager's reply dated 14th June, 1961 can be taken as answer to all these letters. The plaintiff again on 6th September, 1961 served another notice (Ext. Ga) upon the General Manager through his advocate requesting “to consider the matter and pass orders for payment………”. The General Manager replied by Ext. Gha dated 18th January, 1962 to the plaintiff's advocate that “recovery was made in terms of clause 52 of the General Conditions of Contract amended by North Eastern Railway in correction slip No. 2.”. Finally the plaintiff on 30th March, 1963 made an application to the General Manager, North-Eastern Railway, representing the railway at Maligaon, Pandu (Ext. Unga) “an application demanding reference to arbitration, the matter in question, dispute or difference”. The plaintiff made another demand for reference to arbitration on the same terms by Ext. Cha which bears no date, but is now admitted by both sides to have been given on 30th September, 1966 and received by the defendant on 3rd October, 1966. The defendant attempted to prove by producing a document marked ‘X’ that it had replied rejecting the plaintiffs demand. The plaintiff in the above background submitted his application under Section 20 of the Act in the court of the Assistant District Judge. The defendants resisted the claim by filing a written statement denying liability. Amongst other points taken, was the question of limitation.
4. Apart from the documentary evidence to which we have already made reference, the plaintiff examined himself and no other oral evidence was adduced by him. The defendants also did not examine any witness.
5. Two issues were framed by the court below:
(1) Whether the application is barred by limitation?
(2) Whether there is sufficient ground for referring the matter for arbitration? Both the issues were decided in favour of the plaintiff. The court held that the application was not barred by limitation and that no sufficient cause was shown for not ordering for the agreement to be filed.
6. The only question that is canvassed before us on behalf of the appellants is that of limitation. According to the learned counsel Mr. D.C Choudhury, the application under Section 20 of the Act is barred under Article 137 of the Limitation Act, 1963. It is admitted that the New Act applies to this case. But Mr. B. Das the learned counsel for the respondent, contends that the application is not barred by limitation. He, however, candidly admits that the right to apply under Section 20 of the Act would arise on 14th June, 1961, the date of the reply of the General Manager by Ext. Kha if it can be held by that a decision has been communicated by the General Manager, under clause 62 of the Regulations. According to the learned counsel, no decision has been notified by the Railway in conformity with clause 62. We may, therefore, read that clause:
“All disputes or differences of any kind whatever arising out of or in connection with the contract whether during the progress of the works or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor to the Railway and the Railway shall within a reasonable time after their presentation make and notify decisions thereon in writing. The decision, directions and certificates with respect to any matters decision of which is specially provided for by these conditions, given and made by the Railway or by the Engineer on behalf of the Railway, which matters are referred to hereinafter as Excepted Matters shall be final and binding upon the Contractor and shall not be set aside or be attempted to be set aside on account of any informality, admission, delay or error in proceeding in or about the same or on any other ground or for any other reason and shall be without appeal.”
7. We may refer to Clause 63(1) of the Regulations, to which also our attention has been drawn by Mr. Das:
“If the Contractor be dissatisfied with the decision of the Railway, on any matters in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the Contractor may claim to be entitled to or if the Railway fails to make a decision within a reasonable time then in any such case but except in any of the Excepted Matters referred to in Clause 62 of these conditions the Contractor shall within 10 days of the receipt of the communication of such decision or after the expiry of the reasonable time as the case may be, demand in writing that such matters in question, dispute or difference be referred to arbitration. Such demand for arbitration shall be delivered to the Railway by the Contractor and shall specify the matters which are in question, dispute or difference and only such dispute or difference of which the demand has been made and no other shall be referred to arbitration.”.
8. Mr. Choudhury submits that since the plaintiff did not comply with clause 63(1) in making a demand within ten days of the receipt of the communication of the decision made under clause 62, he cannot make any application to the court under Section 20 of the Act. We are not required to consider Whether clause 63(1) can be a total bar to the institution of the application under Section 20 of the Act since the matter can be disposed of on the question of limitation.
9. With regard to the question of limitation, Mr. Das submits that Article 137 of the Limitation Act, 1963, which corresponds to Article 181 of the previous Act does not apply to an application under Section 20 of the Act. In support of his submission, he relies upon two decisions of the Supreme Court reported in AIR 1967 SC 990 (Wazir Chand v. Union of India) and AIR 1969 SC 474 (Mohd Usman v. Union Of India.). In the first decision (AIR 1967 SC 990), dealing with Article 181 of the limitation Act, 1908, the Supreme Court observed as follows:
“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.”
10. With regard to the argument advanced on the score of Section 37(1) of the Arbitration Act the Supreme Court observed:
“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 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.”
11. In the second decision (AIR 1969 SC 474), the Supreme Court, following its earlier decision in AIR 1967 SC 990, observed as follows:
“In the circumstances, it is not possible to construe the implied reference in Article 181 to the Code of Civil Procedure as a reference to the Arbitration Act, 1940, or to hold that Article 181 applies to applications under that Act.”
12. Although Mr. Das has strenuously urged that we should accept the ratio decidendi of the above two cases of the Supreme Court, we are unable to apply the same in the present case. The new Limitation Act, 1963 added a new clause to the definition of “applicant” under Section 2(a) which now includes (i) a petitioner; (ii) any person from or through whom an applicant derives his right to apply; (iii) any person whose estate is represented by the applicant as executor, administrator or other representative. A new clause 2(b) was also inserted, which provides that “application” includes a petition. This was made following the recommendations of the Third Report of the Law Commission of India, from which we may quote the relevant paragraph;
“Section 2 — Definitions:
We recommend that a new definition of the word “application”, so as to include any petition, original or otherwise, should be added. The object is to provide a period of limitation for original petitions and applications under special laws as there is no such provision now. Consequential alterations in the definition of the word “applicant” should also be made.”
13. It is therefore, clear that the legal position has changed after the commencement of the new Limitation Act and the provisions of the Limitation Act will be attracted to an application under the Special Act, such as the Arbitration Act. The matter is no longer in dispute about Article 137 applying to any applications. An application under Section 20 of the Act is also an application within the meaning of Section 2(b) of the Limitation Act, 1963 and the ‘applicant’ therein is a ‘petitioner’ within the meaning of Section 2(a)(i) of the Limitation Act. That being the position. Article 137, which is a residuary Article, will apply to an application under Section 20 of the Arbitration Act and the period will be three years from the time the right to apply accrues.
14. That takes us to the next question as to when the right to apply under Section 20 of the Act accrued to the petitioner in this case. Mr. Das strenuously contends that the railway has at no point of time, communicated its decision to the reference made by the contractor with regard to the admitted dispute or difference between the parties in connection with the contract. That being the position, he submits that since there was failure on the part of the railway to make a decision under clause 63(1), the plaintiff was entitled to make an application within a reasonable time under that clause. The plaintiff exercised that right by addressing to the railway two letters dated 30-3-63 (Ext. Unga) and 30-9-1966 (Ext. Cha) and since there is no response from the railway he submits that the right to make an application under Section 20 of the Act accrued to him only on the ultimate failure of the railway to comply with his notice dated 30-9-1966. Hence the application under Section 20 of the Act is not barred under the law. We are however, unable to accept this submission. We are clearly of opinion that the railway had communicated its decision on 14th June, 1961 when the General Manager replied to the various notices in answer to the request of the plaintiff for “an early reply communicating your decision”. (Vide Ext. 4). Since, therefore, the decision has been communicated, as we have held, by the letter dated 14-6-61, the right to make an application under Section 20 of the Act accrued from that time. That being the position, the application under Section 20 of the Act filed in Court on 10th April, 1967 is barred under Article 137 of the Limitation Act being beyond the period of three years. The learned Judge erred in law in holding that the application was not barred under the law. The application before the Assistant District Judge, therefore, stands dismissed.
15. The appeal is allowed.
16. There will, however, be no order as to costs.
17. Bindra, J.:— I agree.
18. Appeal allowed.
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