Holding

The period spent in the improper arbitration cannot be excluded from the limitation period; the suit is barred and the appeal is dismissed.

Summary

M/S Jupitor Chit Fund (P) Ltd, a chit fund company, sued the legal representatives of Shiv Narain Mehta for recovery of Rs.10,000 after a dispute over non‑payment of instalments. The dispute was referred to an arbitrator, but the award was set aside because the reference to arbitration was improper – no notice was given to the subscriber. The company then filed a civil suit, which the trial court held barred by limitation. The appellant argued that, under Section 37(3) and (5) of the Arbitration Act, 1940 read with Section 14 of the Limitation Act, 1908, the entire period from the commencement of arbitration to the award’s setting aside should be excluded from the limitation period. The Supreme Court held that the two subsections must be read together; only the period up to the court’s order setting aside the award can be excluded, and since the arbitration was not properly commenced, no exclusion applied. Consequently, the suit was time‑barred and the appeal was dismissed.

Issues considered

Whether the period spent pursuing an arbitration that was improperly commenced can be excluded from the limitation period for filing a civil suit under Section 14 of the Limitation Act, 1908.
Whether Sections 37(3) and 37(5) of the Arbitration Act, 1940, when read together, permit exclusion of the entire arbitration period from limitation computation.

Legislation cited

Arbitration Act, 1940s. 37(3), s. 37(5)
Limitation Act, 1908s. 14

Subjects

ArbitrationLimitation periodExclusion of timeImproper reference to arbitrationChit fundCivil suitAward set aside

Judgment

\,- M/S. JUPITOR CHIT FUND (P) LTD. A
v.
SRI SHIV NARAIN MEHTA (DEAD) BY LRS. AND ORS.

FEBRUARY 10, 2()C{)

(S. SAGHlR AHMAD AND S.N. PHUKAN, JJ.) B

'"!" Arbitration Ac~ 1940 :

Sections 37(3) and ~Scope and interpretation of.

Indian limitation Act, 1908 : c
Section 14-Applicability to proceedings under Arbitration Act.

Suit for recovery of amount-Limitation period-Computation of-Dis-
pute between chit fu11d company a11d subscribei-Matter referred to ar-
bitrator-Award passed by arbitrator-Award set aside on the ground there D
cannot be a unilateral reference by chit fund company without notice to
subscriber--171ereafter recovery suit filed by chit fund compan~Suit held
j . barred by time-Appeal before Supreme Cou~eld period from the date on
~- ~
which arbitration commenced to the date when award was set aside cannot
be excluded while computing the limitation period for suit for recovery of E
money-Sub-section(5) and sub-section (3) of section 37 of the Arbitration
Act 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.

Pandit Daya Shankar v. Shea Ram, (1956) Allahabad Law Journal 40,
approved. F
CIVIL APPELLATE JURISDICTION : tivil Appeal No. 1288 of
1982.

From the Judgment and Order dated 15.11.79 of the Allahabad High
Court in C.R. No. 1284 of 1977. G
Jitendra Sharma, Ms. Minakshi Vij, P.N. Jha and Parmanand Gaur
for the Appellant.

Arvind Kumar, Ms. Laxmi Arvind and R.A. Mishra, for the Respon-
~- H
767
768 SUPREME COURT REPORTS [2000] 1 S.C.R.
A The following Order of the Court was delivered :

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. lOGO which was to be repaid in instalments.
Respondent Nos. 2 and 3 were the sureties for Respondent No. 1. On a
B dispute having arisen between the parties for non-payment of instalments,
the matter was referred by the appellant to the 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 cold not be a unilateral
C reference without notice to the respondents.

On the award being s1~t aside, the appellant filed a civil suit which
was held to be barred by time.

Learned counsel for the appellant has placed reliance upon the
D provisions of Section 37 of the Arbitration Act, 1940 and has contended
that the entire period taken by it is pursuing the matter before the ar-
bitrator 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 arc quoted below :

E "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.

xxx xxx xxx

F (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 agree-
G
ment requiring that the difference be submitted to the persons so
named or designated.

xxx xxx xxx

H (5) Where the Court orders that an award be set aside or
JVPITOR CHIT FL'ND (P) LTD. v. SHIV NARAIN MEIITA (DEAD) BY LRS. 769

orders, after the commencement of an arbitration, that the arbitra- A
tion 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 (in-
cluding arbitration) with respect to the difference referred."
B

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 c
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.

D
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 E
the proceedings in a court with respect to the sub.iect 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 p
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.

Admittedly, in the instant case, notice was not issued by the appellant G
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 fmal 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 H
770 SUPREME COURT REPORTS [2000) 1 S.C.R.
A ground that the reference to arbitration itself was bad. We approve the
decision of the Allahabad High Court in Pandit Daya Shankar v. Sheo Ram,
(1956) Allahabad Law Journal 40, 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.

B T.N.A. Appeal dismissed.