Holding

An application under Section 20 of the Arbitration Act, 1940 is not governed by Article 181 of the Limitation Act; the three‑year limitation runs from the date the differences arose, and the 1976 application was timely.

Summary

The Union of India entered into four construction contracts with L.K. Ahuja & Co., which were completed and final bills were accepted. Later the respondent claimed a balance of Rs 1,91,137 and sought arbitration, but the government replied that no dispute existed. The respondent filed an application under Section 20 of the Arbitration Act, 1940 for appointment of an arbitrator on 13 December 1976; the trial court dismissed it as barred by limitation. The Allahabad High Court allowed the appeal, holding the application was within the three‑year period prescribed for Section 20 applications. The Supreme Court affirmed the High Court, ruling that Section 20 applications are not governed by Article 181 of the Limitation Act and that the filing was timely, and dismissed the appeal.

Issues considered

Whether an application for appointment of an arbitrator under Section 20 of the Arbitration Act, 1940 is subject to the limitation period prescribed in Article 181 of the Limitation Act, 1908.
Whether the application filed on 13 December 1976 was within the applicable limitation period.
Whether a dispute must exist at the time of filing for the court to have jurisdiction under Section 20.

Legislation cited

Subjects

ArbitrationSection 20LimitationArticle 181Civil ProcedureAppointment of arbitratorContract disputeSupreme Court

Judgment

'1'1
A
UNION OF INDIA & ANR.
v.
L.K. AHUJA & CO.

APRIL 5, 1988
B A
[SABYASACHI MUKHARJI AND S. RANGANATIIAN, JJ.)

Arbitration Act, 1940-Whether application for appointment of
Arbitrator under Section 20-0f-Is barred by limitation-Whether the
trial Court is right in dismissing that application as such.

c Four agreements were entered into between the respondent and
the appellant Union of India through the Executive Engineer, Northern
'f:
Railway, followed by a supplementary agreement. All the four con-
tracts were executed and completed by the respondent on diverse dates.
The respondent accepted four final bills and gave no-claim declaration
D in respect of the four contracts. Thereafter, the respondent wrote to the
Additional Chief Engineer, R.E.N.R., that Rs.1,91,137 were due on
account of work executed and asked for a reference of the dispute to the
Arbitrator. A reply was sent to the respondent that there was no dispute
between the parties and no question of appointment of any Arbitrator
arose. The respondent then filed an application in the Court of Civil )..
E Judge for the appointment of an Arbitrator under Section 20 of the
Arbitration Act, 1940 ('the Act'). The application was dismissed as
being barred by limitation. An appeal from the decision of Civil Judge
was allowed by the High Court. The appellants then moved this Court
for relief by this appeal.
'
F Dismissing the appeal, the Court,

HELD: The sole question involved in this appeal was whether the
Civil Judge was right in dismissing the application and whether the
·~
application under section 20 was within time. l404H)

G It is well-settled in view of the decision of this Court in Kera/a
State Electricity Board, Trivendrum v. T.P.K.K. Amsom and Besom, ,l
Kera/a, [1977] l SCR 996 that Article 137 would apply to any petition or
application filed under any Act in a Civil Court. The words "any other
application", this Court held under Article 137, cannot be read on the
principle of ejusdem generis to be applications under the Civil Proce-
H du re Code other than those mentioned in Part Iof the third division. l405A-B I

402
U.0.1. v. L.K. AHUJA 403

There are two aspects of the matte. One is whether the claim A
made in the arbitration is barred by limitation under the relevant provi-
sions of the limitation Act, and secondly, whether the claim made for
application under section 20 is barred. To be a valid claim for reference
under section 20 of the Arbitration Act, 1940, it is necessary that there
should be an arbitration agreement and secondly, differences must
B
--~ .
/ arise to which the agreement in question applied, and thirdly, that must
be within time as stipulated in section 20 of the Act. In this case, there
was an arbitration agreement as found by the High Court, covering the
disputes. It was also obvious that differences had existed. There was
assertion of claim and denial of it. As such, the dispute was liable to be
referred to arbitration in terms of the agreements between the parties.
The question was whether there was a valid claim under section 20 of c
the Act to be referred iu accordance with law. [407C-E, G-H]

Jn view of the well-settled principles, it would be entirely wrong to
mix up the two aspects, namely, whether there was any valid claim for
reference under Section 20 of the Act and, secondly, whether the claim
D
to be adjudicated by the arbitrator was barred by lapse of time. The
second is a matter which the arbitrator would decide unless on admitted
facts a claim is found at the time of making an order under Section 20 of
the Act, to be barred by time. To be entitled to ask for a reference under
section 20 of the Act, there must be entitlement to money and a differ-
ence or a dispute in respect of the same. It is true that on completion of E
work the right to get payment would normally arise and it is also true
that on settlement of the final bill, the right to get further payment gets
weakened but the claim subsists, and whether it does subsist.is a matter
which is arbitrable. In this case, the claim for reference was made
within three years commencing from April 16, 1976, and the applica-
tion was filed on December 18, 1976. [408A-D I
F
The High Court was right in this case. See in this connection the
observations of this Court in Major (Retd.) Inder Singh Rekhi v.
D.D.A., [1988] 3SCR35J. The appeal failed_. [4080]

Kera/a State Electricity Board, Trivandrum v. T.P.K. K. Amsom
G
and Besom, Kera/a, [1977] l SCR 996; Wa:drchand Mahajan & Anr. v.
Union of India, [1967] l SCR 303; Mohd. Usman Military Contractor,
Jhansi v. Union of India, Ministry of Defence, [1969] 2 SCR 233;
Jiwnani Engineering Works P. Ltd. v. .Union of India, [1978] AIR Cal.
228 and Major (Retd.) Inder Singh Rekhi v. D.D.A., [1988] 3 SCR 351
referred to.
H
404 SUPREME COURT REPORTS [1988] 3 S.C.R.

CIVIL APPELLA1E JURISDICTION: Civil Appeal No 757 of
A
1988.

From the Judgment and Order dated 14.8.1986 of the Allahabad
High Court in F.A. No. 448of1978.

B G. Ramaswamy, Additional Solicitor General, Pramod Swamp ~
and P. Parmeshwaran for the Appellants.

R.P. Gupta for the Respondent.

The Judgment of the Court was delivered by
c SABYASACHI MUKHARJI, J. Special leave granted. The
appeal is disposed of by the judgment hereunder.

It appears that on or about 18th September, 1969, four agree-
ments were entered into between M/s. L.K. Ahuja & Co. and Union of
D India, represented by the Executive Engineer, Northern Railway,
Allahabad, for the construction of certain quarters. It was followed by
supplementary ~greement entered into sometime in 1972. It is stated
that all the fou~ contracts were executed and completed by the first
respondent on <liverse dates. The last one was on 30th May, 1971. ),.
Between 29th J0ay, 1972 to 19th June, 1972, the respondent accepted
E the four final bills and gave no claim declaration in respect of the four
contracts. The i respondent wrote a letter to the Additional Chief
1
Engineer, R.E. N.R. Allahabad, stating that Rs.1,91,137 were due on
account of the vvork executed and requested him to refer the dispute to
the Arbitrator. On 4th June, 1976 a reply was sent to the above letter ·
~
1
stating that there was no dispute between the parties and, hence, no
F question of appointment of any Arbitrator arose. On 13th December,
1976, an application was filed by the respondeni-in the Court of Civil .
Judge, Allahabad, for appointment of an Arbitrator under Section 20 ,
of the Arbitration Act, 19.40 (hereinafter called 'the Act'). That appli-
cation was dismissed on 10th February, 1978 as being barred by limita-
tion. There was an appeal from the said decision to the High Court of
G Allahabad and the High Court by its inipugned Judgment and Order
dated 14th August, 1986 allowed the appeal. Hence, this appeal. )...._~
The sole question, involved in this appeal, is whether the High
Court was right in dismissing the application. In matters of this nature,
the main question is whether the application under Section 20 was
H within time. Though there was some doubt before but now it is well-
U.0.1. v. L.K. AHUJA [MUKHARJI, J.J 405

settled in view of the decision of this Court in Kera/a State Electricity
A
Board, Trivandrum v. T.P.K.K. Amson & Beson, Kera/a, l 19771 I SCR
996 that Article 137 would apply to any petition or application filed
under any Act to a Civil Court. The Words "any other application"
this Court held under Article 137, cannot be read on the principle of
ejusdem generis to be applications under the Civil Procedure Code
other than those mentioned in part I of the third division. B

The aforesaid view has to be harmonised with the view of this
Court in Wazirchand Mahajan & Anr. v. Union of India, [!9671 I SCR
303. There this Court found that the second appellant had purchased
from the Himachal Pradesh Government the right to extract and col-
lect certain medicinal herbs from the forests of Chamba District. The
period of agreement was one year from September 1, 1960. Under an c
arbitration clause in the agreement all disputes between the parties
were to be referred to the Deputy Commissioner, Mandi District
Himachal Pradesh. The second appellant transferred all his rights
under the agreement to the first appellant with the consent of the State
of Himachal Pradesh. Disputes arose between tbe parties in October, D
1950. On May 30, 1952 the appellants addressed a letter to the Chief
Conservator of Forests, Himachal Pradesh requiring that officer to
submit the matters in difference to the arbitration of the Deputy Com-
missioner, Mandi Distt. By a letter dated June 23, 1952, the Chief
Conservator declined to agree to a reference contending that the mat-
ters desired to be referred were outside the arbitration clause. On June E
22, 1955 the appellants applied to the District Court of Chamba for an

- order that the agreement be filed in Court and the disputes between
them and the State be referred to the sole arbitration of the Deputy
Commissioner of Mandi Dist!. The State of Himachal Pradesh con-
tended, inter alia that the application for filing the arbitration agree-
~! ment was barred by law of limitation as the right to apply if any arose in F
1950 and not in June, 1952 as alleged. The Court of First Instance held
in favour of the appellants. In appeal the Judicial Commissioner
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 tbe Act was governed by Article 181 of the Limitation
:Act, 1908 and since the period of three years prescribed thereby com- G
I menced to run from the date on which the differences arose between
~ the parties from the month of September, 1950 and in any case on
September l, 1951, the application of the appellants was held to be
barred. The Judicial Commissioner was in error, hence, according to
this Court in rejecting the application of the appellants for filing the
arbitration agreement as barred under Article 181 of the Limitation H
406 SUPREME COURT REPORTS I1988] 3 S.C.R.
A Act. It was reiterated that the terms of Article 181, though general and
apparently not restricted to applications under the Code of Civil Pro-
cedure have always been interpreted as so restricted. In the aforesaid
background this Court directed the arbitration agreement to be filed.

This question was again considered by tbis Court in Mohd.
B Usman Military Contractor, Jhansi v. Union of India, Ministry of
Defence, I1969] 2 SCR 233. There the appellant had entered into a
contract with the Government of India. The contract contained an
arbitration clause. For certain supplies made under the contract the
appellant made representations to the Government for payment and
for arbitration of disputes. On or about July 10, 1958 Government
refused to refer the matter for arbitration. On July 11, 1961 the appel-
c lant filed an application in the Court of District Judge under Sections 8
& 20 of the Act, for filing the arbitration agreement and for an order of
reference of the disputes to an arbitrator appointed by the Court. The
respondent contended that the application was barred by Limitation.
The learned District Judge allowed the application, holding that there
D was no limitation for making an application under Sections 8 & 20 of
the Act. The defendant's appeal was dismissed by the High Court as
incompetent insofar as it challenged the order under Section 8 but was
allowed insofar as it ~hallenged the order under Section 20 of the Act.
The High Court held that an application under Section 20 was gover-
ned by Article 181 of tbe Indian Limitation Act,-1908. In coming to
E this conclusion the High Court took into account the settled judicial
view that the operation of Article 181 was limited to applications
under the Code of Civil Procedure and reasoned that Article 181
should be construed as if the words 'under the Code' were added in it.
The Arbitration Act, 1940 repealed para 17 of the second schedule to
the Code and re-enacted it in Section 70 with minor modifications.
That being so Section 8(1) of the General Clauses Act, 1897 applied
and the implied reference in Article 181 to para 17 of the second
schedule to the Code should be construed as a reference to Section 20
of the Act. In the appeal by certificate this Court held that by the
Arbitration Act, 1940 the Legislature amended Articies 158 and 178 of
the Limitation Act and made them applicable to the relevant proceed-
G ings under the Arbitration Act but no similar change was made in
Article 181. lt was manifest that save as provided in Articles 158 & 178
there would not be any limitation for other application. In the cir-
cumstances the Court found it impossible to construe the implied
reference in Article 181 as a reference to the Arbitration Act, or to
hold that Article 181 applied to applications under that Act. In the
H premises the Court held that an application under Sections 8 & 20 of
U.0.J. v. L.K. AHUJA [MUKHARJ!, J.[ 407

the Arbitration Act, 1940 was not governed by Article 181 of the
A
Limitation Act. In that view of the matter the application was held to
be barred by limitation. The question is now concluded as mentioned
hereinbefore vide this Court's decision in Kera/a State Electricity
Board, Tr(vandrum v. T.P.K.K. Amsom & Besom, (supra).

It appears that these questions were discussed in the decision of B
the Calcutta High Court in Jiwnani Engineering Works P. Ltd. v. Union
of India, I1978] AIR Cal. 228 where (one of us-Sabyasachi Mukharji)
was a party and which held after discussing all. these .authorities the
question whether the claim sought to be raised was barred by limita-
tion or not, was not relevant for an Order under Section 20 of the Act.
Therefore, there are two aspects. One is whether the claim made in the
arbitration is barred by limitation under the relevant provisions of the c
Limitation Act and secondly, whether the claim made for application
under Section 20 is barred. In order to be a valid claim for reference
under Section 20 of the Arbitration Act, 1940, it is necessary that there
should be an arbitration agreement and secondly differences must
arise to which the agreement in question applied and, thirdly, that D
must be within time as stipulated in Section 20 of the Act.

In the instant case it appears that there was an arbitration agree-
ment as found by the High Court covering the disputes. It is also
obvious that differences existed. There was an assertion of claim and
denial of the same. It is stated in the judgment of the High Court that E
under the agreement the appellants had claimed a sum of Rs.1,91,636
and, as such, the dispute was liable to be referred to arbitration in
terms of the agreements entered into between the parties. Further, for
the purpose of getting an arbitrator appointed, a letter dated June 4,
1976 was sent by. the appellant to the Additional Chief Engineer,
Allahabad. The respondent did not take any step in time. The appel- F
!ant filed an application on 4.6.1976 under Section 20 of the Act. It was
contended before the learned Trial Judge that the work under all the
four contracts had been fully executed by the appellant on different
dates and the respondents claimed that the appellant had accepted full
and final payment of the agreements which had been executed by it
and no claim declaration in respect of the same had been given by the G
..,J appellant. It was, therefore, submitted that since there was no dispute,
\ the application filed under Section 20 of the Act, was misconceived.
The Trial.Court held that the Court had no jurisdiction under Section
20 of the Act. The respondent came up in appeal before the High
Court. The question, therefore; was whether there was a valid claim
under section 20 of the Act to be referred in accordance with law. H
•

408 SUPREME COURT REPORTS [19881 3 S.C.R.

A In view of the well-settled principles we are of the view that it
will be entirely a wrong to mix-up the two aspects, namely,. whether
there was any valid claim for reference under Section 20 of the Act
and, secondly, whether the claim to be adjudicated by the arbitrator,
was barred by lapse of time. The second is a matter which the
arbitrator would decide unless, however, if on admitted facts a claim is
B
found at the time of making an Order under Section 20 of the Arbitra-
tion Act, to be barred by limitation. In order to be entitled to ask for a
reference under Section 20 of the Act, there must be an entitlement to
money and a difference or dispute in respect of the same. It is true that
on completion of the work, right to get payment would normally arise
and it is also true that on settlement of the final bill, the right to get
c further payment gets weakened-but the claim subsists and whether it
does subsist, is a matter which is arbitrable. In this case the claim for
reference was made within three years commencing ftom April 16,
1976 and the application was filed on December 18, 1976. We are,
therefore, of the view that the High Court was right in this case. See in
this connection the observations of this Court in Major (Retd.) Inder
D
SinghRekhiv. D.D.A., [1988] 3 SCR351.

In the aforesaid view of the matter this appeal must fail and is
accordingly dismissed. The costs of this appeal would be the costs in
the arbitration proceedings.

S.L. ' Appeal dismissed.

-