Holding

The cause of action arose on 17 May 1990, rendering the Section 20 petition time‑barred, but the delay was condoned on condition of payment of Rs.20,000 costs.

Summary

Asia Resorts Ltd. contracted Usha Breco Ltd. to install a ropeway system which failed to meet specifications. Asia Resorts issued a notice on 17 April 1990 and received a definitive denial on 17 May 1990, after which it filed a petition under Section 20 of the Arbitration Act on 30 November 1993. The Supreme Court held that the cause of action for filing the arbitration petition arose on 17 May 1990, making the petition time‑barred under the Limitation Act, 1963, as no acknowledgment under Section 18 was found in the later correspondence. Article 137 of the Limitation Act was held applicable to Section 20 applications. However, the Court exercised its power under Section 5 of the Limitation Act to condone the delay, conditioning condonation on payment of Rs.20,000 costs to the respondent. The appeal was allowed and the matter remitted to the High Court for further proceedings.

Issues considered

When does the cause of action arise for filing an application under Section 20 of the Arbitration Act, 1940?
Whether the petition filed on 30 November 1993 is barred by the limitation period under the Limitation Act, 1963?
Do the letters exchanged in 1993 constitute mutual consultation or an acknowledgment under Section 18, thereby extending the limitation period?
Does Article 137 of the Limitation Act, 1963 apply to applications under Section 20 of the Arbitration Act?
Can the delay in filing the Section 20 application be condoned under Section 5 of the Limitation Act, and on what terms?

Legislation cited

Arbitration Act, 1940s. 20
Limitation Act, 1963s. 18, s. 5, s. Article 137

Subjects

ArbitrationLimitation periodSection 20 Arbitration ActArticle 137 Limitation ActCondonation of delayCause of actionMutual consultationSection 5 Limitation Act

Judgment

A ASIA RESORTS LTD.
v.
USHA BRECO LTD.

OCTOBER 30, 2001

B [D.P. MOHAPATRA AND K.G. BALAKRISHNAN, JJ.]

Arbitration Act 1940/Limitation Act, 1963-Seciion 20/SectiOns 5 and
18 and Article 137.

Reference o.farbitration~Limitation period-Contract between parties-
c Difference arose on 17.4.1990-Notice-De.finite reply given on 17.5.1990-
Notice intimating initiation o.f arbitration proceedings given in 1993-No
indicatiun in notices that mutual consultatiQn for resolution of differences
continued upto 1993-Arbitration applicationfiled-:Held, the application was
time barred since cause o.faction had arisen on 17.5.1990-Yet the delay could
D be condoned if it was not wilfitl.

Applicability of Article 137-Petition filed u/s. 20 o.f Arbitration Act-
Held, applicable-Article 137 is applicable on any petition or application filed '-
under any Act to a Civil Court, including special laws, for which no period o.f
E limitation is provided elsewhere.

Words and Phrases: 'applicant' and 'application'-Meaning of in the
context of Limitation Act, 1963. .

/ App~llant entered into contract with respondent to complete the
F work of ropeway system. After completion of work, since the system did
not function properly and was for lesser capacity than agreed for, appel·
lant sent notice on 17.4.1990 to respondent which was replied by the
respondent on 17.5.1990. On 24.3.1993 appellant had sent letter to re·
spondent to which respondent replied on 6.4.1993 making complaint therein
G that the minutes of the discussion held on certain dates were not properly
recorded. Thereafter appellant sent another notice dated 16.6.1993 inti·
mating the respondent of initiation of arbitration proceedings.

On 30.11.1993 appellant filed petition under Section 20 of Arbitra-
tion Act, 1940. Respondent objected that the petition was barred by limita·
H tion. Single Judge of the High Court held the petition to be within limita-
564
ASIA RESORTS LTD. v. USHA BRECO LTD. 565
tion period since the parties had made correspondence regarding the dis- A
putes till 1993 and that the letter dated 6.4.1993 by the respondent would
amount to acknowledgement under Section 18 of the Limitation Act. In
appeal Division Bench held that the petition was barred by limitation and
there was no acknowledgement on the part of the respondent to extend the
period of limitation. B
In appeal to this court appellant contended that the petition was not
barred by limitation since in view of the arbitration clause contained in the
agreement the petition should be filed only after making a bona fide at-
tempt to resolve the differences by mutual consultations and since the
mutual consultations continued even after 17.4.1990 and the agreement C
between the parties was terminated on 16.6.1993, cause of action arose
thereafter. It was also contended that the notice dated 17.4.1990 was not
sent with intention to initiate arbitration proceedings.

Respondent contended that the petition was barred by limitation as D
definite reply was given on 17.5.1990 to the notice dated 17.4.1990.

- Disposing of the appeal, the Court

HELD : 1.1. Under Section 20 of the Arbitration Act, 1940 the cause
of action for filing an application may arise whenever "a difference has E
arisen to which the agreement applies". Regard must be had to the rel-
evant arbitration clause in the agreement. H any specific terms are used in
the arbitration clause, that would govern the parties as to when a petition
for reference of arbitration shall be filed in Court. [572-F]

1.2. In the present case, cause of action for filing the application had F
arisen, the moment the appellant received the reply notice denying the
claims made by the appellant. Thereafter, the Division Bench has rightly
held that the application was barred by time. Though from the arbitration
clause it is clear that parties should have made an effort to settle the ·
differences by mutual consultations and only on failure of such attempt G
steps could have been taken by the parties for making a reference to the
arbitrator, but the notices issued between the parties hardly give any
indication that these mutual consultations for resolution of differences
continued upto 1993. A perusal of the notice sent by the appellant on
17.4.1990 to the respondent and the reply received from the latter would H
566 SUPREME COURT REPORTS (2001] SUPP. 4 S.C.R.
A show that the cause of action had arisen for filing of a petition under
Section 20 of the Arbitration Act, 1940 as early as on 17.5.1990. The
contention of the appellant that the notice sent by the a'ppellant was not as
a prelude to filing of a petition under Section 20 of the Arbitration Act but
only to initiate criminal action, is belied by the absence of such a warning
B in that notice. The tenor of the notice dated 17.4.1990 is that the appellant
wanted the respondent to give a final reply in the matter and to settle all
claims of the appellant. [572-H; 571-A]

1.3. In the absence of any other material, it is difficult to discern
whether the correspondence dated 24.3.1993 and .6.4.1993 would amount
C to any effective mutual consuitations between the parties. The Division
Bench has rightly held that these letters hardly make any acknowledg·
ment under Section 18 of the Limitation Act. [571-G]

1.4. Residuary Article 137 of the Limitation Act, 1963 applies so far
as the period of limitation is concerned for an application under Section 20
D of the Arbitration Act. By insertion of Article 137, it casts a wider net so as
to include any application for which no period of limitation was provided
elsewhere in that division. The third _division of the Limitation Act, 1963
deals with various applications to be filed under various special statutes.
The definitions of 'applicant' and 'application' are also inserted in the
E Limitation Act. Therefore, it is clear that the intention of the legislature
was to provide a residuary article prescribing period of limitation for filing
petitions and applications under the various special laws. Article 137 would
apply to any petition or application filed under any Act to a civil court and
it cannot be confined to applications contemplated by or under the Code of
F Civil Procedure. [571-H; 572-A-C]

2. Going by the provision contained in Section 20 of the Arbitration
Act in an appropriate case the court can extend the benefit of the said
Section. Having regard to the nature of disputes between the parties, the
delay caused in filing the application by the appellant was not wilful and
G hence is liable to be condoned. However, in the facts and circumstances of
the case, the delay shall be liable to be condoned only upon payment of
costs. Accordingly, the delay in filing the application under Section 20 of
the Arbitration Act, 1940 is condoned on condition that the appellant pays
a sum of Rs. 20,000 to the respondent within a period of one month.
H , [573-H; 574-A] \
ASIA RESORTS LTD. v. USHA BRECO LTD. [BALAKRISHNAN, J.] 567
Union of India v. Mis. Vijay Construction Co., AIR (1981) Delhi 193, A
approved.

CNIL APPELLATE JURISDICTION : Civil Appeal No. 7391 of 2001.

From the Judgment and Order dated 9.11.98 of the Himachal Pradesh
High Court in O.S.A. No. 14 of 1997. B

R.F. Nariman, Arvind Kumar, Manish Sharma and Ms. Sujata Kurdukar
for the Appellant.

Dr. A.M. Singhvi, Jaideep Gupta and Suman Jyoti Khaitan for the
Respondent.
c
The Judgment of the Court was delivered by

BALAKRISHNAN, J. Leave granted.
D
The appellant constructed a hotel resort by name "Timber Trail Heights"
at Bansaar in Himachal Pradesh. This place is at a high altitude of 5000 feet
from sea level and in order to ensure a quick access for the visiting tourists to
this resort, the appellant wanted to have a passenger ropeway system and for
that purpose, the appellant entered into a contract with the respondent, by
name, Usha Breco Limited. The respondent completed the work relating to E
ropeway system and handed over the same to the appellant on 27.4.1988.
Initially, the ropeway system was being operated and maintained by the em-
ployees of the respondent, but later on the appellant absorbed those workers
as its own employees. According to the appellant, right from the beginning,
the ropeway system was not functioning well and it did not meet the speci- F
fication required by the appellant. The appellant had been making a request
to the respondent to rectify the defects but the latter failed to rectify the same.
The appellant also alleged that the respondent did not cooperate with the
appellant for getting clearance from the Himachal Pradesh Ropeway Inspector.
The Inspector did not approve the ropeway system for the installed capacity. G
.-'' The appellant alleged that the works undertaken by the respondent were <;le-
fined in the annexure to the agreement and as per the agreement, the ropeway
system must have a capacity for carrying on 150 passengers per hour and it
was further stipulated that within 8 hours of operation per day, the total capacity
of passengers must be 1200 per day and according to the appeliant, based on H
568 SUPREME COURT REPORTS [2001] SUPP. 4 S.<;:.R.

A such representation, assurance and agreement, the appellant invested huge
amount for the ropeway system. The appellant later realized that only 800
passengers would be able to reach the destination through the ropeway system
per day and this, according to the appellant, caused heavy financial loss. The
appellant issued a notice to the respondent but the latter did not accede to their
B request. Ultimately, on 16.6.1993, the appellant issued a notice to the respond-
ent intimating that it would be constrained to file a petition under Section 20
of the Arbitration Act, 1940 (for.short "the Act"). Clause 15 of the agreement
provided for arbitration and the appellant filed a petition under Section 20 of
·the Act on 30.11.1993.

c The respondent filed a reply contending that the petition filed by the
appellant was barred by limitation. The respondent contended that the appel-
lant had issued notice on 17.4.1990 through its advocate intimating the re-
spondent that they would take legal action against them. It was contended by
the respondent that the petition filed under Section 20 of the Act on 30.11.1993
D was more than 3 years after the issuance of notice. The respondent alleged that
the subsequent notice on 16.6.1993 was issued beyond the period of 3 years
from the earlier notice. The respondent also contended that there was no
subsisting agreement between the parties and all matters relating to the contract
were concluded and the minutes also were recorded on 12.4.1988.
E
The learned Single Judge before whom the application under Section 20
was filed rejected the contention urged by the respondent herein and held that
the petition under Section 20 was filed in time. The learned Single Jildge was
of the view that parties had made correspondence regarding the disputes till
1993 and therefore, the petition under Section 20 of the Act was within
F
limitation. The learned Single Judge also observed that a letter written on
6.4.1993 by the respondent to the appellant would amount to acknowledgement
under Section 18 of the Limitation Act and on that basis also, the petition for
arbitration was held to have been filed within time.

G This order was challenged before the Division Bench. After an elaborate
consideration of the whole matter, the Division Bench came to the conclusion
that the petition filed by the appellant under Section 20 of the Act was barred
by limitation and there was no acknowledgement on the part of the respondent
to extend the period of limitation. This judgment of the Division Bench is
H challenged before us.
ASIA RESORTS LTD. v. USHA BRECO LTD. [BALAKRISHNAN, J.] 569
We heard Mr. R.F. Nariman, learned senior Counsel for the appellant and A
Dr. A.M. Singhvi, learned senior Counsel for the respondent.

The Counsel for the appellant submitted that the appellant gave notice
on 17.4.1990 to the respondent informing them of the difficulties encountered
by the ropeway system and making a.request to rectify the same. The disputes
and differences between the parties arose after 17.4.1990. Thereafter, there
B
was mutual consultation, which lasted up to 1993 until it ultimately failed and
then alone the cause of action arose for filing petition under Section 20 of the
Act. It was also argued that the notice sent on 17.4.1990 was not sent with
the intention of initiating arbitration proceedings, rather the appellant wanted
to intimate that they would initiate criminal action against the respondent. c
The Counsel for the respondent, on the other hand, contended that the
appellant issued notice on 17.4.1990 for which a definite reply was given on
17.5.1990 and, therefore, the cause of action, if any, had arisen and the
petition filed after a period of 3 years from that date was barred by limitation. D
The counsel for the appellant argued that in view of the arbitration
clause contained in the agreement, the petition under section 20 of the Act
could be filed only after making a bona fide attempt to resolve the differences
by mutual consultations and according to the appellant, these mutual consul-
tations continued even after the notice dated 17.4.1990 and by the notice sent
E
on 16.6.1993 the agreement between the parties was terminated and the cause
of action arose for filing of a petition under Section 20 of the Act.

The arbitration clause contained in the agreement is as follows :
F
"If at any time any question, dispute and difference whatsoever shall
arise between ARL and UBL in relation to or in connection with this
Agreement, both parties agree to resolve such differences by mutual
consultation failing which either party may give to the other notice in
writing of the existence of such question, dispute or difference and the
G
same shall be referred for the final determination of a single arbitrator,
if agreed upon or to two arbitrators one to be appointed by ARL and
another by UBL; or in case of disagreement betwc:<en the said two
arbitrators to the final arbitration of an Umpire to be appointed by the
said two arbitrators and that the award of the sole arbitrator or the said
H
\
570 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A Umpire as the case may be shall be final and binding on both the
parties and the said arbitration proceedings shall be governed by the
provisions of the Indian Arbitration Act, 1940 and the rules thereun-
der, to be read together with all statutory amendments or modifications
of the said Act."
B It is true that from the above .arbitration clause it is clear that parties
shoQld have made an effort to settle the differences by mutual consultations and
only on failure of such attempt steps could ha~ been taken by the parties for
making a reference to the arbitrator, but the notices issued between the parties
hardly give any indication that these mutual consultations for resolution of
c differences conti~ued upto 1993. A perusal of the notice sent by the appellant
on 17.4.1990 to the respondent and the reply received from the latter would
show that the cause of action had arisen for filing of a petition under section
20 of the Act as early as on 17.5 .1990. The material portion of the notice sent
by the· appellant has been extracted in the impugned judgment. Suffice it to
D say that in the notice dated 17.4.1990, it is made out in unmistakable terms that
the appellant was of the view that the respondent had committed a serious
breach of the agreement ~d therefore the respondent was called upon to do
the needful within 30 days from the date of that notice, failing which the
appellant would take legal action against the respondent in court of law. In the
notice, it was stated that the performance of the passenger ropeway was not to
E
the satisfaction of the appellant and the respondent had supplied the equip-
ment which was capable of working up to sixty per cent capacity and that
the respondent had charged hundred per cent money. It was also stated that the
appellant had spent Rs.70 lakhs and due to the delay in delivery of the equip-
ment, the appellant had suffered liquidated damage to the tune of Rs.3.50
F lakhs. The appellant further stated that the project costing Rs.206 lakhs should
have been completed in the month of March, 1987, but it was not ready even
in April, 1988 and on that account the appellant had suffered damage to the
extent of Rs.37 lakhs at the construction stage. In the notice, it was mentioned
that the respondent committed the · offence of cheating punishable under
G section 420 IPC as there was dishonest intention on the part of the respondent
· from the very inception of the contract and that the respondent committed
extortion by putting the appellant in fear of not completing the project. It is,
however, pertinent to note that the appellant did not specifically state in the
notice that it would initiate criminal prosecution against the respondent. The
H contention of the appellant's counsel that the notice sent by the appellant was
ASIA RESORTS LTD. v. USHA BRECO LTD. [BALAKRISHNAN, J.] 571

not as a prelude to filing of a petition under section 20 of the Arbitration Act A
but only to initiate criminal action, is belied by the absence of such a warning
in that notice. The tenor of the notice dated 17 .4.1990 is that the appellant
wanted the respondent to give a final reply in the matter and to settle all claims
of the appellant.
B
The respondent sent a detailed reply to the notice sent by the appellant
wherein all the allegations were denied. The respondent denied the claim made
by the appellant in its entirety and it was stated that the appellant issued the
notice with a view to delay the payment of about Rs.6 lakhs which was due
to the respondent. The appellant was told in clear terms that the respondent was
not prepared to accede to the claim made by the appellant.
c
The crucial question is whether any mutual consultation between the
parties to resolve the differences as envisaged under the arbitration clause had
taken place even after the reply sent by the respondent on 17.5.1990. The
appellant would contend that there was further correspondence between the D
parties during this interregnum. To substantiate this contention, the appellant
relies on the letter written by the appellant on 24.3.1993 to Usha Martin
Industries Ltd. and also a letter written by the respondent to the appellant on
6.4.1993. In the letter dated 24.3.1993, it is stated that "We are looking
forward for the implementation of your decision to increase the capacity of our E
passenger ropeway system and we assure you that we will release the payment
in your favour as agreed immediately." This Jetter was, in fact, not sent to the
respondent, but probably to a sister concern of tjle respondent. We would
assume that it was sent to the respondent as we see a reply by the respondent
on 6.4.1993 on record. In the letter dated 6.4.1993, the respondent makes a
F
complaint that the minutes of the discussion held on 19th and 20th March, 1993
with the Executive Director of M/s Usha Martin Industries Ltd. were not
properly recorded.

In the absence of any other material, it is difficult to discern whether this
correspondence would amount to any effective mutual consultations between G
the parties. The Division Bench has rightly held that these letters hardly make'
any acknowledgement under Section 18 of the Limitation Act.

There is not much controversy that the residuary Article 137 of the
Limitation Act applies so far as the period of limitation is concerned for an H
572 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A application under Section 20 of the Arbitration Act, 1940. The residuary
Article 181 of the Limitation Act, 1908 was replaced by Article 137 in the
Limitation Act, 1963. Earlier, Article 18i was applicable only in respect of
application to be filed under the Civil Procedure Code. This Article was
replaced by Article 137 in the Limitation Act, 1963 in a modified form. By
B insertion of Article 137, it casts a wider net so as to include any application
for which no period of limitation was provided elsewhere in that division.
The third division of the Limitation Act, 1963 deals with various applications
to be filed under various special statutes. The definitions of 'applicant' and
'application' are also inserted in the Limitation Act, 1963. Therefore, it is clear
that the intention of the legislature was to provide a residuary article prescrib-
c ing period of limitation for filing petitions and applications under the various
special laws. This Court in Kera/a St(l.te Electricity Board v. T.P. Kunhaliumma,
AIR (1997) SC 282 held that Article 137 would apply to any petition or
application filed under any Act to a civil court and it cannot be confined to·
applications contemplated by or under the Code of Civil Procedure. In Major
D (Retd.) Inder Singh Rekhi v. Delhi Development Authority, [1998] 2 SCC 338;
Union of India and Am: v. Mis. L.K. Ahuja and Co., [1988] 3 SCC 76; Steel
Authority of India Ltd. v. J.C. Budharaja, Government and Mining Contractor,
[1999] 8 SCC 122 and Union of India and Am: v. Mis. Vijay Construction Co.,
AIR (1981) Delhi 193, this Court held that the period of limitation for filing
E application under Section 20 of the Arbitration Act, 1940, is as prescribed
under Article 137 of the Limitation Act.

Under Section 20 of the Act, the cause of action for filing an appli-
cation may arise whenever "a difference has arisen to which the agreement
F applies". Regard must be had to the relevant arbitration clause in the agree-
ment. If any specific terms are used in the arbitration clause, that would govern
the parties as to when a petition for reference of arbitration shall be filed in
Court.

In the instant case, the arbitration clause states that all parties would
G resolve such differences by mutual consultation failing which either party must
give to the other notice in writing of the existence of such question, dispute
or difference and the same shall be referred for the final determination. The
appellant issued notice to the respondent and a definite reply was received by
the appellant. It is clear that cause of action for filing had arisen, the moment
H the appellant received the reply notice denying the claims made by the appel-
ASIA RESORTS LTD. v. USHA BRECO LTD. [BALAKRISHNAN, J.] 573
lant. Therefore, the Division Bench has rightly held that the application was A
barred by time.

The appellant herein has filed an application under Section 5 of the
Limitation Act praying that the delay in filing the application under Section 20
of the Act be condoned. Section 5 of the Limitation Act says any appeal or any B
application, other than application under any of the provisions of Order XXI
of the Code of Civil Procedure, 1908, may be admitted after the prescribed
period, if the appellant or the applicant satisfies the court that he had sufficient .....
cause for not preferring the appeal or making the application within such
period. The applicant can show sufficient cause for not filing the application C
in time. It appears that this Court had no occasion to consider whether Section
5 of the Limitation Act, 1963 could be applied in the case of an application
to be filed under Section 20 of the Arbitration Act, 1940. The Division Bench
of the High Court of Delhi in Union of India and Anr. v. Mis. Vijay Construc-
tion Co., AIR (1981) Delhi 193 held that the benefit of Section 5 of the
Limitation Act can be availed by the applicant for an application under Section D
20 of the Arbitration Act. Going by the provision contained in Section 5 of the
Act, we are also of the view that in an appropriate case the court can extend
the benefit of the said Section.

The counsel for the appellant contended that a prayer was made before
E
the High Court for condoning the delay, if any, but the same was rejected. As
per the Arbitration clause, the disputes between the parties could be referred
to a single arbitrator if agreed to by both the parties but in case of disagreement
both the parties can appoint one arbitrator each and in case of disagreement
between the said two arbitrators there is a provision that an umpire also could
be appointed by the two arbitrators. In the instant case, the learned Single Judge F
straightaway appointed the arbitrator. Though there was a cause of action for
the appellant to initiate proceedings under the Arbitration Act for appointment
of an arbitrator, the appellant failed to do, so. The letter written by the
respondent on 6.4.1993 indicates that the respondent had some proposal for
consideration. G

Having regard to the nature of disputes between the parties, we are of
the view that the delay caused in filing the application by the appellant was not
willful and hence is liable to be condoned. However, in the facts and circum-
stances of the case we are also of the view that the delay shall be liable to be
H
574 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A condoned only upon payment of costs. Accordingly, the delay in filing the
application under Section 20 of the Arbitration Act is condoned on condition
that the appellant pays a sum of Rs.20,000 to the respondent within a period
of one month. The said sum of Rs.20,000 shall be deposited with the Registrar
General of this Court on or before lst December, 2001 and on such deposit
B the respondent would be at liberty to withdraw the same. For payment of cost
as stated above, .the. appeal would stand allowed and the matter would be
remitted to the High Court to be proceeded with in accordance with the
provisions of the Arbitration Act, 1940, read with relevant arbitration clause
in the agreement between the parties. In case the appellant fails to deposit the
said amount of Rs.20,000 within the stipulated period, the appeal woul~ be
c deemed to have been dismissed .without further reference to the Court.

I.A. Nos. 1 to 4 would stand allowed.

The appeal is disposed of in the aforesaid terms.

K.K.T. Appeal disposed of.

.("