2000 JTR(SC) 334
2000 AIR(SC) 1295 ; 2000 AIR(SCW) 982 ; 2000 2 AllCJ 1464 ; 2000 AllLJ 871 ; 2000 1 ArbLR 658 ; 2000 3 BBCJ(SC) 63 ; 2000 2 CLT(SC) 119 ; 2000 1 CurLJ 353 ; 2000 3 JT 34 ; 2000 3 MLJ 14 ; 2000 3 PLR(SC) 341 ; 2000 2 RAJ 205 ; 2000 2 RCR(Civ) 500 ; 2001 92 RD 226 ; 2000 2 Scale 221 ; 2000 3 SCC 364 ; 2000 2 SCJ 207 ; 2000 1 SCR 767 ; 2000 1 UJ 640 ; 2000 WBLR 274 ; 2000 KHC 1052 ; 2000 2 Supreme 351
2000(2) Supreme 351
SUPREME COURT OF INDIA
(From Allahabad High Court)
S. Saghir Ahmad & S.N. Phukan, JJ.
M/s. Jupitor Chit Fund (P) Ltd. -Appellant
versus
Sri Shiv Narain Mehta (dead) by LRs. & Ors. -Respondents
Civil Appeal No. 1288 of 1982
Decided on 10-2-2000
Counsel for the Parties :
For the Appellant : Jitendra Sharma, Sr. Advocate, Ms. Minakshi Vij, P.N. Jha, Parmanand Gaur, Advocates.
For the Respondent : Arvind Kumar, Ms. Laxmi Arvind and B.A. Mishra, Advocates.
IMPORTANT POINT
Where an arbitration award was set aside on the ground reference to arbitration itself was bad, time taken in pursuing arbitration proceedings cannot be excluded while computing time limit for filing civil suit subsequently.
Act
Referred
:ARBITRATION ACT : S.37
LIMITATION ACT : S.14
(A) The Arbitration Act, 1940 (Section 37) read with the Limitation Act, 1908 (Section 14) governs the interplay of arbitration timelines and limitation periods. Section 37(1) mandates that limitation provisions apply to arbitrations as they do to court proceedings, while Section 37(5) carves out a specific exclusion windowrunning from the commencement of arbitration to the courts order setting it asidewithin which limitation time is tolled for subsequent civil proceedings. Here, the statutory framework was invoked to assess whether the period spent in a flawed arbitration reference attracted exclusion.
(B) Key legal principles include: (i) an arbitration must be properly constituted with valid notice to all parties; (ii) the period excluded under Section 37(5) is strictly limited to the window between the deemed commencement of arbitration and the courts order setting it aside; (iii) if the arbitration reference is defective ab initio due to lack of notice, the exclusion under Section 37(5) does not apply; and (iv) the limitation period for filing a civil suit continues to run from the date when the arbitration was bound to be ineffective.
Facts of the case:
The appellant, a chit fund company, had a dispute with respondents over unpaid instalments. The respondents were bound by a chit fund agreement, with two others as sureties. The appellant sought arbitration without issuing a proper notice to the respondents, leading to an award. Subsequently, the award was set aside on the ground that the arbitration reference was improper. The appellant then filed a civil suit, which was held to be time-barred.
Findings of Court:
The court found that since no notice was served to invoke arbitration validly, the reference was not proper. Consequently, the period spent in arbitration could not be excluded under Section 37(5), and the limitation period for the civil suit had expired, upholding the dismissal of the suit.
Issues:
(i) Whether the exclusionary provision under Section 37(5) of the Arbitration Act applies when the arbitration reference is itself invalid due to absence of notice; (ii) whether the period of an invalid arbitration can be excluded while computing the limitation period for a civil suit.
Ratio Decidendi:
The exclusion under Section 37(5) applies only to the period between a valid arbitrations commencement and the courts order setting it aside. Where the arbitration is void ab initio due to lack of proper notice, the exclusion does not attach, and the limitation period continues to run, rendering any subsequent suit time-barred.
Result:
The appeal is dismissed, upholding the finding that the civil suit was barred by limitation.
(A) The Arbitration Act, 1940 (Section 37) read with the Limitation Act, 1908 (Section 14) governs the interplay of arbitration timelines and limitation periods. Section 37(1) mandates that limitation provisions apply to arbitrations as they do to court proceedings, while Section 37(5) carves out a specific exclusion windowrunning from the commencement of arbitration to the courts order setting it asidewithin which limitation time is tolled for subsequent civil proceedings. Here, the statutory framework was invoked to assess whether the period spent in a flawed arbitration reference attracted exclusion.
(B) Key legal principles include: (i) an arbitration must be properly constituted with valid notice to all parties; (ii) the period excluded under Section 37(5) is strictly limited to the window between the deemed commencement of arbitration and the courts order setting it aside; (iii) if the arbitration reference is defective ab initio due to lack of notice, the exclusion under Section 37(5) does not apply; and (iv) the limitation period for filing a civil suit continues to run from the date when the arbitration was bound to be ineffective.
Facts of the case:
The appellant, a chit fund company, had a dispute with respondents over unpaid instalments. The respondents were bound by a chit fund agreement, with two others as sureties. The appellant sought arbitration without issuing a proper notice to the respondents, leading to an award. Subsequently, the award was set aside on the ground that the arbitration reference was improper. The appellant then filed a civil suit, which was held to be time-barred.
Findings of Court:
The court found that since no notice was served to invoke arbitration validly, the reference was not proper. Consequently, the period spent in arbitration could not be excluded under Section 37(5), and the limitation period for the civil suit had expired, upholding the dismissal of the suit.
Issues:
(i) Whether the exclusionary provision under Section 37(5) of the Arbitration Act applies when the arbitration reference is itself invalid due to absence of notice; (ii) whether the period of an invalid arbitration can be excluded while computing the limitation period for a civil suit.
Ratio Decidendi:
The exclusion under Section 37(5) applies only to the period between a valid arbitrations commencement and the courts order setting it aside. Where the arbitration is void ab initio due to lack of proper notice, the exclusion does not attach, and the limitation period continues to run, rendering any subsequent suit time-barred.
Result:
The appeal is dismissed, upholding the finding that the civil suit was barred by limitation.
JUDGMENT
S. Saghir Ahmad, J.-Appellant is a Chit Fund Private Limited Company. Respondent No. 1 subscribed to the appellant s chit fund scheme for the value of Rs.1000/- which was to be repaid in instalments. Respondent Nos. 2 and 3 were the sureties for Respondent No. 1. On a dispute having arisen between the parties for non-payment of instalments, the matter was referred by the appellant to named arbitrator who passed an award. In proceedings for making the award a rule of the Court, it was held that the award was liable to be set aside on the ground that the reference to the arbitration was not proper as there could not be a unilateral reference without notice to the respondents.
2. On the award being set aside, the appellant filed a civil suit which was held to be barred by time.
3. Learned counsel for the appellant has placed reliance upon the provisions of Section 37 of the Arbitration Act, 1940 and has contended that the entire period taken by it in pursuing the matter before the arbitrator ought to be excluded under Section 14 of the Limitation Act which has been made applicable to the proceedings under the Arbitration Act. Relevant provisions of Section 37 are quoted below :-
"37. Limitations.-(1) All the provisions of the Indian Limitation Act, 1908 (9 of 1908), shall apply to arbitrations as they apply to proceedings in Court.
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(3) For the purposes of this section and of the Indian Limitation Act, 1908 (9 of 1908), an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement requiring that the difference be submitted to the person so named or designated.
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(5) Where the Court orders that an award be set aside or orders, after the commencement of an arbitration, that the arbitration agreement shall cease to have effect with respect to the difference referred, the period between commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Indian Limitation Act, 1908 (9 of 1908), for the commencement of the proceedings (including arbitration) with respect to the difference referred."
4. In view of the provisions of Sub-section (5) extracted above, it is contended that for purposes of commencement of the proceedings in a civil suit for the recovery of the amount due from the respondents, the appellant was entitled to exclusion of the entire period from the date on which the arbitration commenced to the date when the award was set aside or when it was held that there could not have been an arbitration between the parties as the dispute in question was not covered by the arbitration agreement.
5. We are not prepared to accept this contention. Sub-section (5) and Sub-section (3) of Section 37 are to be read together to find out the period which is liable to be excluded in computing the time prescribed by the Indian Limitation Act, 1908. Sub-section (5) speaks of the period between "commencement of the arbitration" and the "date of the order of the Court" which is to be excluded in computing the period of limitation for initiating the proceedings in a Court with respect to the subject matter of "difference" which was referred to arbitration. The phrase "commencement of an arbitration", used in Sub-section (5), has been given a fictional meaning in Sub-section (3) which provides that for purposes of the Indian Limitation Act, 1908, an arbitration shall be "deemed to be commenced" when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator or where an arbitrator has already been named in the arbitration agreement, the notice should be for requiring the difference to be submitted to the named arbitrator.
6. Admittedly, in the instant case, notice was not issued by the appellant to the respondents for making a reference to arbitration. Thus, reference to arbitration itself was not proper as was held in the earlier proceedings which have become final between the parties and it was on that basis that the suit was held to be beyond time as the period taken by the appellant in pursuing its remedy before the arbitration was not excluded on the ground that the reference to arbitration itself was bad. We approve the decision of the Allahabad High Court in Pandit Daya Shankar v. Sheo Ram1, which was cited before us by the counsel for the respondents. We find no infirmity in the judgment passed by the High Court. The appeal is dismissed.
(C.R.) Appeal dismissed.
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