1966 (9) TMI 134 - SC - Companies Law

Supreme Court Overturns Judicial Commissioner's Order, Restores Trial Court's Decision on Arbitration Agreement

WAZIR CHAND MAHAJAN Versus UOI.

The Supreme Court allowed the appeal, set aside the Judicial Commissioner's order, and restored the Trial Court's order for filing the arbitration ... Whether The Judicial Commissioner was in error in rejecting the application of the appellants for filing the arbitration agreement as barred under Art. 181 of the Limitation Act, 1908? Held that:- There is no doubt that cl. (1) of s. 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 s. 37(1) does not confer authority upon the Court to reject the application for filing of an arbitration agreement under s. 20 of the Arbitration Act because the claim is not made within three years form 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 with 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. The Judicial Commissioner was, in our judgment, in error in rejecting the application of the appellants for filing the arbitration agreement as barred under Art. 181 of the Limitation Act, 1908. Appeal allowed. Issues:Application of Limitation Act to arbitration agreements under the Arbitration Act, 1940.Analysis:The case involved a dispute between the appellants and the State of Himachal Pradesh regarding the right to collect medicinal herbs from certain areas. The agreement between the parties included a clause for arbitration by the Deputy Commissioner, Mandi District, Himachal Pradesh. The appellants sought to refer the disputes to arbitration, but the State declined, stating that the matters were outside the arbitration clause. The appellants then applied to the District Court to file the arbitration agreement, which was initially allowed by the Trial Court.The key issue revolved around the application of the Limitation Act to the filing of arbitration agreements under the Arbitration Act, 1940. The Trial Court held that the Limitation Act did not govern such applications, and even if it did, the application was within the prescribed time limit. However, the Judicial Commissioner reversed the order, stating that the application was barred by Art. 181 of the Limitation Act, as the three-year period commenced from the date of the dispute in 1950, making the application untimely.The Supreme Court analyzed the historical context of Art. 181 and its interpretation in various cases. It was noted that originally, Art. 181 was considered to apply only to applications under the Code of Civil Procedure. However, with the amendment of the Arbitration Act in 1949, the scope of Art. 181 was expanded to include applications under the Arbitration Act. The Court emphasized that the provisions of the Limitation Act apply to arbitrations as they apply to court proceedings, but this did not mean that every aspect of the Limitation Act applied to arbitration agreements.The Court clarified that while arbitrators must apply the provisions of the Limitation Act in deciding disputes, the filing of an arbitration agreement and the referral of a dispute to an arbitrator were distinct processes. The authority of the Court to file an arbitration agreement was not dependent on the application being made within the limitation period. Therefore, the Judicial Commissioner's decision to reject the appellants' application as time-barred under Art. 181 was deemed erroneous.In conclusion, the Supreme Court allowed the appeal, set aside the Judicial Commissioner's order, and restored the Trial Court's order for filing the arbitration agreement and referring the matters to the arbitrator. The appellants were awarded costs in both the Supreme Court and the Court of the Judicial Commissioner.