Holding

The application under section 20 was filed within the limitation period because the dispute, and thus the cause of action, arose on 28 February 1983 when the appellant first asserted his claim.

Summary

Major (Retd.) Inder Singh Rekhi constructed 240 Janta houses for the Delhi Development Authority, completing the work on 2 April 1980. After the work was finished, he repeatedly requested the Authority to finalise the bills, sending the first letter on 28 February 1983 and a final notice on 4 September 1985, and thereafter filed an application under section 20 of the Arbitration Act, 1940 in January 1986 seeking a court‑ordered reference to arbitration. The Delhi High Court dismissed the application as time‑barred, a decision upheld by its Division Bench. On appeal, the Supreme Court held that Article 137 of the Limitation Act, 1963 applies to such applications and that the cause of action – and hence the limitation period – accrued on 28 February 1983, when the appellant first asserted his claim, not on the date of completion of the work. Since the application was filed within three years of that date, it was timely. The Court set aside the High Court’s order and directed the court to make an order under section 20 for arbitration, allowing the appeal.

Issues considered

Whether Article 137 of the Limitation Act, 1963 applies to applications filed under section 20 of the Arbitration Act, 1940.
When does the cause of action for a reference to arbitration accrue – i.e., when does a ‘dispute’ arise for limitation purposes?
Whether a dispute existed between the parties sufficient to invoke section 20 of the Arbitration Act.
Whether the appellant’s application was filed within the prescribed limitation period.

Legislation cited

Arbitration Act, 1940s. 20, s. 8
Limitation Act, 1963s. Article 137

Subjects

ArbitrationSection 20Limitation ActCause of actionDisputeConstruction contractPayment of bills

Judgment

\' MAJOR (RETD.) INDER SINGH REKHI
A
v.
DELHI DEVELOPMENT AUTHORITY

MARCH 24, 1988

[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.J B

Arbitration Act, 1940: Sections 8 and 20-Dispute-Existence
of-Essential for appointment of arbitrator-What constitutes a dis-
- pute-Whether a dispute has arisen or not-Depends on facts and
circumstances of a case.

Limitation Act, 1963: Article 137-Petition/app/ication filed in a c
civil court-Applicability to-Application under s. 20 of the Arbitration
Act-Period of limitation-What is-Accrual of cause of action-When
arises.

The appellant undertook construction of certain houses for the D
respondent-Development Authority and completed the same on 2nd
April, 1980.

The appellant sent several letters to the ·respondent requesting for
finalisation of the bills; the first one on 28th February, 1983 and the last
on 4th September, 1985. Ultimately, the appellant served notice, E
through his counsel requesting the respondent to release the security
amount and refer the dispute to arbitration. On respondent's failure to

- do so, the appellant tiled an application in the Co)lrt, under section 20
of the Arbitration'Act, 1940 seeking a direction for tiling the arbitration
agreement in the court .and referring the dispute to arbitration. A
Single Judge of the High Court dismissed the application as barred by F
time. This decision was upheld by the Division Bench.

Allowing the appeal,

HELD: 1.1 Article 137 ot' the Limitation Act, 1963 would apply to
any petition or application tiled in a civil court. [:i53E-FI G
'
Kerala State Electricity Board, Trivandrum v. T.P.K.K. Amsom
and Bensom, Kerala, [1977] lS.C.R. 996reliedon.

1.2 In or.der to be entitled to an order of reference under s. 20, it H
351
352 SUPREME COURT REPORTS (1988] 3 S.C.R.

A is necessary that there should be an arbitration agr•ement and sec-
ondly, difference must arise to which this agreement aiip!id. T~.~ exist-
ence or a dispute is, therefore, essential for appo~:tmeat vi an Arbi-
trator under s. 8 or a reference under s. 20 of the Act. [353H, 354A]

B ·' 1.3 Dispute entails a positive element and assertion in denying,
not merely inaction to accede to a claim or a request. Whether in a
particular case, a dispute has arisen or not has to be found out from the
facts-and circumstances of the case. [354F]

. 1.4 .A right to get payment would normally arise on completion of
the work and a party cannot postpone accrual of cause of action by~
c writing reminders or sending reminders. But where a bill had not been ·
finally prepared, the claim made by the clalmant is the accrual of the .- .
cause of action. [354C-D I '

. . In the instant case there was an arbitration agreement. There has
0 been an assertion of claim by the appellant and silence as well as refusal
in res[lfl:t or the same by the respondent. Therefore, a dispute has
arisen regarding non-payment or the alleged dues or the appellant.
Since rmaI bills had not been prepared, .and there was assertion of cla1m
on 28th February, 1983 and there was non-paymenr, the caiise of action
arose on that date._[354A-B, DI /
E
:s.
The application under 20 of the Act having been r.Jed in the
Court in January,-1986, i.e. within the period of three years from the
date of causln>f action, it was withhi time and the High Court was in
error in dismissing it on the"ground or limitation. [354G I

F CIVIL APPELLAlE JURISDICTION: Civil Appeal No. 1178
of 1988.

From the Judgment and Order dated 5.11.1986 of the Delhi High
CourtinF.A.O. (OS) No. 231of1986.

G Hardev Singh and Miss Madho Moolchandani for the Appellant.

S.B. Saharya, V.B. Saharya and Ratna Nair for the Respondent.

The Judgment of the Court was delivered by

.H SABYASA CHI MUKHARJI, J. Special Leave granted .
1

MAJOR I.S. REKHI v. D.D.A. [MUKHARJI, J.[ 353
~-
' The Delhi Development Authority vide its letter dated 5th
A
October, 1976 accepted the tender of the appellant for construction of
240 Janta Houses at the estimated cost of Rs.24,49,262. The work was
to commence on 15th October, 1976 and was required to be completed
by 14th July, 1977. By a subsequent extension of time the work was
finally completed on 2nd April, 1980 and the houses so constructed
have been allotted to several people. Between' February 1983 to B
~\ December 1985 the appellant sent several letters to the respondent
requesting them to finalise the bills. It appears, however, that the first
' of such letters was written on 28th February, 1983. Thereafter the
appellant wrote several letters and finally on 4th September, 1985 to
the respondent to finalise the bills and ultimately served the notice
through his counsel requesting it to release the security of Rs.1 lakh
~
I
and refer the dispute to arbitration. The respondent failed to do so. In
January, 1986 the appellant filed an application under section 20 of the
c
Arbitration Act, 1940 (hereinafter called 'the Act') seeking a direction
from the Court that the respondent be directed to file the arbitration
agreement in the Court and the dispute be referred to the arbitration.
The learned Single Judge of the High Court of Delhi dismissed the D
application as barred by time. There was an appeal to the Division
Bench of the High Court of Delhi. The Division Bench upheld the
decision of the learned Single Judge. Hence this appeal to this Court.

-f The question is, whether the High Court was right in upholding
that the application under section 20 of the Act was barred by limita- E
· tion. In view of the decision of this Court in Kera/a State Electricity
- Board, Trivandrum v. T.P.K.K. Amsom and Bensom, Kera/a, [19771
1 S.C.R. 996, it is now well-settled that Article 137 of the Limitation
Act, 1963 would apply to any petition or application filed in a Civil
-i Court. Sub-section ( 1) of section 20 of the Act provides as follows:
F

"Application to file in Court arbitration agreement:
Where any persons have entered into an arbitration agree-
ment before the institution of any suit with respect to the
subject-matter of the agreement or any part of it, and
where a difference has arisen to which the agreement G
I
_......,, applies, they or any of them, instead of proceeding under
\
Chapter II, may apply to a court having jurisdiction in the
mat.ter to which the agreement relates, that the agreement
be filed in Court."

Therefore, in order to be entitleci to order of reference under H
354 [1988) 3 S.C.R.

"'-;
SUPREME COURT REPORTS

section 20, it is necessary that there should be an arbitration agree- \
A
ment and secondly, difference must arise to which this agreement
applied., In this case, there is no dispute that there was an arbitration
agreement. There has been an assertion of claim by the appellant and
silence as well as refusal in respect of the same by respondent. There-
fore, a dispute has arisen regarding non-payment of the alleged dues of
B the appellant. The question is for the present case when did such
dispute arise. The High Court proceeded on the basis that the work
was completedin 1980 and, therefore, the appellant became entitled to
the payment from that date and the cause of action under article 137
arose from that date. But in order to be entitled to ask for a reference
under section 20 of the Act there must not only be an entitlement to
C money but there must be a difference or dispute must arise. It is true
t!iat on completion of the work a right to get payment would normally
arise but where the final bills as in this case have not been prepared as
appears from the record and when the assertion of the claim was made
on 28th February, 1983 and there was non-payment, the cause of ac-
tion arose from that date, that is to say, 28th of February, 1983. It is
D also true that a party cannot postpone the accrual of cause of action by
writing reminders or sending .reminders but where the bill had not
been finally prepared, the claim made by a claimant is the accrual of
the cause of action. A dispute arises where there is a claim and a denial
and repudiation of the claim. The existence of dispute is essential for
appointment of an arbitrator under section 8 or a reference under
E section 20 of the Act. See Law ofArbitration by R.S. Bachawat, 1st
Edition, page 354. There should be dispute and there can only be a
dispute when a claim is asserted by one party and denied by the other
on whatever grounds. Mere fitilure or inaction to pay does not lead to
/
the inference of the existence of dispute. Dispute entails a positive
element and assertion in denying, not merely inaction to accede to a
F claim or a request. Whether in a particular case a dispute has arisen or
not has to be found out frbm the facts and circumstances of the case.
The application under section,20 of the Act was filed in Court in
January, 1986, that is to say, within the period of three years; therefore
the application was within time. The High Court was in error in dismis-
sing the application on the ground of limitation. The judgment and
G order of the High Court are, therefore, set aside. The .High Court is
directed to make an .order under section 20 of the Act and give conse-
quential directions in respect of the same. The costs of this appeal
would be eosts in the arbitration proceeding. The appeal is thus al-
lowed and disposed of as aforesaid.
H N.P.V. Appeal allowed.