Arbitration limitation and validity of contract upheld as repudiation triggered the right to apply and the dispute stayed referable.

Limitation for an application under section 20 of the Arbitration Act, 1940 ran from the date the right to apply accrued, which arose only when the company repudiated the claim and denied liability; the application was therefore within time. The agreement dated 1 June 1967 was upheld as valid and binding because board approval existed, the interested director disclosed his interest and abstained, fraud was unsupported, consideration was shown, and no shareholder approval or other legal bar was established. The arbitration clause was construed broadly enough to cover the dispute on remuneration and performance, so the controversy was referable to arbitration and a sole arbitrator was appointed.

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Issues: (i) Whether the application under section 20 of the Arbitration Act, 1940 was barred by limitation. (ii) Whether the agreement dated 1 June 1967 was void or otherwise unenforceable for undue influence, misuse of fiduciary position, non-compliance with the Companies Act, lack of shareholder approval, or absence of consideration. (iii) Whether the dispute fell within the arbitration clause.

Issue (i): Whether the application under section 20 of the Arbitration Act, 1940 was barred by limitation.

Analysis: Limitation under article 137 of the Limitation Act, 1963 runs from the date when the right to apply accrues, not from the date of the agreement itself. The right to apply accrued when the company repudiated the claim and denied liability, because that was when a dispute crystallised between the parties.

Conclusion: The application was within limitation and not barred.

Issue (ii): Whether the agreement dated 1 June 1967 was void or otherwise unenforceable for undue influence, misuse of fiduciary position, non-compliance with the Companies Act, lack of shareholder approval, or absence of consideration.

Analysis: The board had approved the contract and the interested director had disclosed his interest and taken no part in the discussion or voting, which satisfied the requirement of disclosure under section 297 of the Companies Act, 1956. Non-compliance was not established, and the plea of fraud was unsupported by particulars. The contract was held to be a service contract supported by consideration, and the record showed financial assistance of Rs. 5,00,000 from the firm. No provision of law or the articles required shareholder approval for the contract, and the contract was not shown to be a sole selling agency attracting section 294 or a disqualifying office of profit under section 314.

Conclusion: The agreement was valid and binding and not void on the grounds urged.

Issue (iii): Whether the dispute fell within the arbitration clause.

Analysis: The controversy was not a mere failure to pay but a disputed claim after repudiation of the contract. The arbitration clause covered any dispute or difference arising in regard to the terms of the agreement, which was wide enough to include the present controversy about entitlement to remuneration and performance of obligations.

Conclusion: The dispute was referable to arbitration.

Final Conclusion: The agreement was ordered to be filed, the matter was referred to arbitration, and a sole arbitrator was appointed to decide the dispute.

Ratio Decidendi: For an application under section 20 of the Arbitration Act, 1940, limitation begins when the right to apply accrues upon repudiation or denial of the claim, and a broad arbitration clause will cover a substantive dispute as to liability and entitlement where the contract itself is found valid.

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