Holding

An application under Section 20 of the Arbitration Act, 1940 is subject to the three‑year limitation period of Article 137 of the Limitation Act, 1963, which began on 30 May 1974 when the demand notice was served, rendering the 1985 application time‑barred.

Summary

The appellant, a contractor, entered into a 1966 agreement with the State of Kerala to complete work within ten months, but failed to do so and the contract was terminated in 1968. The State served a demand notice under the Revenue Recovery Act on 30 May 1974, which the appellant contested by a writ petition. In 1983 the appellant sought to refer the dispute to arbitration under the contract’s arbitration clause, but the request was refused in 1984. He then filed an application under Section 20 of the Arbitration Act, 1940 in 1985 for the appointment of an arbitrator; the Subordinate Judge directed the parties to submit panels of arbitrators. The High Court set aside that order, holding the application was barred by the three‑year limitation period under Articles 137 and 113 of the Limitation Act, 1963. On appeal, the Supreme Court affirmed that the limitation period applies to Section 20 applications, that the “right to apply” accrued on the date the demand notice was served (30 May 1974), and therefore the 1985 application was time‑barred. The Court also held that when an arbitration agreement names a specific arbitrator, the court cannot order the parties to submit panels and must refer the dispute to the named arbitrator, unless that arbitrator refuses or fails to act.

Issues considered

When does the limitation period under Article 137 of the Limitation Act, 1963 begin to run for an application under Section 20 of the Arbitration Act, 1940?
Is an application under Section 20 of the Arbitration Act, 1940 subject to the limitation provisions of the Limitation Act, 1963?
What is the court’s jurisdiction to appoint an arbitrator when the arbitration agreement already specifies a named arbitrator?

Legislation cited

Arbitration Act, 1940s. 20(1)
Limitation Act, 1963s. Article 113, s. Article 137
Revenue Recovery Act

Subjects

ArbitrationLimitation periodSection 20Arbitrator appointmentArbitration agreementCourt jurisdictionContract dispute

Judgment

S. RAJAN A
v.
STATE OF KERALA AND ANOTHER

JULY 29, 1992

[P.B. SAWANT AND B.P. JEEVAN REDDY, JJ.) B

Arbitration Act, 1940-Section 20(1) read with Articles 137 and 113,
-· -< Limitation Act, 1963-Application to appoint arbitrator-Period of limita-
tion-Three years from the date when the right to apply accrnes.
c
- Arbitration Act, 1940-Section 20(1}-Application to appoint ar-
bitrator-Court's power-Arbitration agreement specifies and names ar-
bitrator-Court's direction to submit panels for appointment of arbitrator
-Legality of.

On 19.2.1966 an agreement was entered into between the appellant- D,
contractor and the respondent-State whereunder the appellant undertook
to carry out certain work within a period of ten months. He did not
complete the work within the period prescribed, whereupon the contract
was terminated on 19.12.1968. The work was re-tendered and completed by
another contractor.
E
-~ Respondent-State took proceedings under the provisions of the
Revenue Recovery Act for recovering the loss suffered on account of the
appellant's failure to carry out the contracted work. A notice of demand
was served upon him on 30.5.1974.

The appellant challenged the notice by way of a writ petition in the
High Court, which was dismissed on 25.11.1978.

In the year 1983, the ~ppellant applied to the respondent to refer the
disputes between them to an arbitrator, which was refused in the year 1984.
G
Thereafter the appellant filed an application under Section 20 of the
Arbitration Act before the Subordinate Judge, for the appointment of an
arbitrator to decide the disputes between him and the State of Kerala.

The Subordinate Judge directed the parties "to submit their panels
of arbitrator to be appointed within ten days from the date of the order" l;I
649
650 SUPREME COURT REPORTS [1992) 3 S.C.R.

A for the purpose of the appointment of an Arbitrator to decide the disputes
and differences between the parties. y-
Against the order of the Subordinate Judge, an appeal was filed by •
the respondent-State before the High Court.

B The Division Bench of the High Court allowed the appeal on the only
ground that the very application under Section 20 was barred by Articles
137 & Article 113 of the Limitation Act, 1963.

The present appeal by special leave was filed by the contractor 'r--
against the judgment of the High Court, contending that no period of
c limitation was prescribed for making an application under Section 20 of
the Arbitration Act either by that Act or the Limitation Act and that
whenever differences or disputes arose between the parties, they could
approach the court under section 20 of the Arbitration Act; that the
-
.appellant requested the Government to refer the disputes and differences
D between them to arbitration in the year 1983 which was rejected in the
year 1984; that the application under Section 20 filed in 1985 could not be
said to be barred by limitation, even if Article 137 or 113 was held to apply;
that if the three years' period of limitation was applied, it would lead to
very serious consequences and many arbitration disputes would become
E barred by time. .,,
Dismissing the appeal, this Court, 'r

F
HELD: 1.01. According to Article 137 of the Limitation Act, 1963 the
period of three )Mrs' begins to run from the date when the "right to apply
accrues". [654F] -
1.02. According to the Sub-section(l) of Section 20 of the Arbitration
Act, the occasion for filling the application arises when a difference arises -~-
between the perties to which the agreement applies. In such a case, it is
open to a party to apply under this section instead of proceeding under
G
Chapter-II. bi other words, an application under Section 20 is an alterna-
tive to the proceedings under Chapter-II. (655 F-G]

1.03 Reading Article 137 of the Limitation Act, 1963 and sub- section )--
(1) of Section 20 of the Aribitation Act together, it must be said that the
H right to apply accrues when the difference arises or detTerences arise, as

·.
S. RAJAN v. STATE OF KERALA 651

the case may be, between the parties. It is thus a question of fact to be A
-...ii( d~termined in each case having regard to the facts of that case. [6568)

1.04. The dispute had arisen in 1974 with the service of the demand
notice. Only in the year 1983, did the appellant choose to request the
Government to refer the dispute to the arbitrator in terms of the agree-
ment which was rejected in the following year. [656E] B

1.05. The date on which notice of demand under the Revenue
Recovery Act was !>erved upon the appellant, namely, 30.5.1974 is the date
on which the right to apply accrued in terms of Article 137 read with
Section 20(1) and that therefore the application filed in the year 1984 was C

-
clearly barred by limitation .. [656H)

Inder Singh Rekhi v. Delhi Development Authority, A.I.R. 1988 S.C.
1007 and Kera/a State Electricity Board v. Amsom, [1977) 1 S.C.R. 996,
followed.
D
Town Municipal Council, Athani v. Presiding Officer, Labour Court,
[1970) 1 S.C.R. 51 over-ruled in [1977) 1 S.C.R. 996.

2.01. Only in cases wh~re the agreement does not specify the ar-
bitrator and the parties cannot also agree upon an arbitrator, does the E
Court get the jurisdiction to appoint an arbitrator. [6570)

2.02. This is a case where the agreement itself specifies and names
the arbitrator. In such a situation, it was obligatory upon the Subordinate
Judge, in case he was satisfied that the dispute ought to be referred to the ~ F
arbitrator, to refer the dispute to the arbitrator specified in the agree-
ment. It was not open to him to ignore the said clause of the agreement
and to appoint another person as an arbitrator. OJily if the arbitrator,
specified ·and named in the agreement, refuses or fails to act, the court
gets the jurisdiction to appoint another person or persons as the ar-
bitrator. [657C] G

2.03. In the present case, there was no occasion or warrant for the
·--< Subordinate Judge to call upon the parties to submit panels of arbitrators.
He was bound to refer the dispute only to the arbitrator named and
specified in the agreement. [657F] H
'
'
652 SUPREME COURT REPORTS [1992) 3 S.C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No.2683 of
1992.

From the Judgment and Order dated 2.9.1991 of the Keralli High
Court in M.F.A. No.1of1987.

B P.S. Poti and Ms. Malini Poduval for the Appellant.

G. Viswanatha Iyer and M.A. Firoz for the Respondent.

The Judgment of the Court was delivered by

C B.P. JEEVAN REDDY, J. Heard Counsel for the parties.

Leave granted.

The Civil Appeal is directed against the judgment of a Division
-
Bench of Kerala High Court allowing the appeal preferred by the State of
D Kerala and setting aside the order of the learned Subordinate Judge,
Thiruvanathapuram. On an application made under Section 20 of the
Arbitration Act by the appellant, the learned Subordinate Judge had
directed the appointment of an Arbitrator to decide the dispute and
differences between the parties. He directed both the parties "to submit
E their panels of arbitator to be appointed within ten days from the date of
the order" for that purpose. A Division Bench _set aside the said order on
the ground that the very application under Section 20 was barred by
limitation.

An agreement was entered into between the appellant and the State
F of Kerala on 19.2.1966 whereunder the appellant undertook to carry out
certain work within a period of ten montjis. He did not complete the work
within the period prescribed whereupon the contract was terminated on
19.12.1968 and the work retendered. It was completed by another contrac-
tor. State of Kerala took proceedings under the provisions of the Revenue
G Recovery Act for recovering the loss suffered by the State on account of
the appellant's failure to carry out the work in accordance with the con-
tract. A notice of demand was served upon him on 30.5.1974. The appellant
· challenged the said notice by way of a Writ petition in the High Court of ·
Kerala which was dismissed on 25.11.1978. In the year 1983, he applied to
the Government of Kerala to refer the disputes and differences between
. ff them to an arbitrator. This was refused in the year 1984, whereupon the
S. RAJAN v. STATE OF KERALA [REDDY, J.) 653

appellant filed the application under Section 20 of the Arbitration Act ~
before the learned Subordinate Judge. He prayed for the appointment. of ,
an arbitrator to decide the disputes arising between him and the State ·of
Kerala. In their written statement the State raised several objections in~
eluding limitation and resjudicata. An objection was also raised as to the
maintainability of the said application. It was submitted that according to B
clause (3) of the contract. the Saperintending Engineer, (B&R) South
Circle, Trivandrum is the named arbitrator. In that. view of the matter, it
was submitted, the appellant's request for appointing an arbitrator by the
court is inadmissible and liable to be rejected.

C

-
The learned Subordinate Judge concluded that here is a case where
certain claims were put forward by the plaintiff which were denied by the
defendants. (In the State of Kerala, an application under Section 20 is
registered as a suit). Since there is a clause in the agreement providing for
arbitration, the disputes and differences arising between the parties ought
to be referred. He rejected the various objections raised by the State. The D
operative paragraph of the judgment reads:

"In the result the disputes and differences mentioned in para
10 of the plaint are hereby ordered to be referred to an
arbitrator for arbitration. Both parties are directed to submit
their panels of Arbitrator to be appointed within 10 days from E
this date."

The State of Kerala filed an appeal which has been allowed by the
Division Bench, as stated hereinabove, on the only ground that the very
application under Section 20 was barred by Articles 137 (and also under
Article 113) of the Limitation Act, 1963. The High Court held that the F
three year's period of limitation prescribed by the said Articles commenced
on 30.5.1974 when the notice demanding the payment of loss suffered by
the Government was served upon the appellant. The present application js
filed in the year 1985, he held, was clearly barred. In this appeal the
correctness of the said view is questioned. G
Sri P.S. Poti, learned counsel for the appellant contended that no
•..-...( period of limitation is prescribed for making an application under Section
20 of the Arbitration Act either by that Act or the Limitation Act and that
whenever differences or disputes arise between the parties, they can ap-
proach the court under the said provision. He submitted that the appellant H
654 SUPREME COURT REPORTS [1992] 3 S.C.R.
I
A requested the Government to refer the disputes and differences between }---
them to arbitration only in the year 1983 which was rejected in the year
1984. The application under Section 20 filed in .1985 cannot be said to be
barred by lim1tation, even if Article 137 or 113 is held to apply. Learned
counsel submitted that if the three years' period of limitation is applied, it
. will lead to very serious consequencc;:s and many arbitration disputes would
B become barred by time.
So far as the applicability of Limitation Act to an application under
Section 20 of the Arbitration Act is concerned, it is no longer res integra.
In Inder Singh Rekhi v. Delhi Development Authority, A.l.R. 1988 S.C. 1007
it has been held by this court that Article 137 of the Limitation Act, 1963
c applied to an application under Section 20 of the Arbitration Act. It was
so held following the decision in Kera/a State Electricity Board v. Amsom,
[1977] 1 S.C.R. 996 which overruled the _earlier decision of this court in
Town Municipal Council, Athani v. Presiding Officer, Labour Court, [1970)
-
1 S.C.R. 51. It is true that under the Limitation Act; 1908, it was held that
D Article 181 of that Act does not govern and application under Section 20
of the Arbitration Act but as has been pointed out in Kera/a State Electricity
Board the new Act makes a difference to the position. By virtue of the
definitions of the words 'applicant' and 'application' contained in Sections
2(a) and 2(b) of the Limitation Act 1963, the new Act, it was held, governs
all petitions and the applications under the special laws so long as they are
E filed in a Civil Court. It was this principle which was followed in Inder Singh
and it was held that Article 137 governs the applications under Section 20.
In this view of the matter, we cannot agree with Sri Poti that no period of
limitation is prescribed for making an-application under Section 20.

According to Article 137, the period of three years' begins to run
F from the date when the "right to apply accrues". The question is when did
the right to apply under Section 20 accrue in this case. Section 20 reads as
follows:

"20. APPLICATION TO FILE IN COURT ARBITRATION
AGREEMENT.
G
(1) 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 applies, they or
H any of thein, instead of proceeding under Chapter II, may apply
S. RAJAN v. STATE OF KERALA [REDDY, J.] 655

to a Court having jurisdiction in the matter to which the ~
agreement relates, that the agreement be filed in Court.

(2) The application shall be in writing and shall be numbered
and registered as a suit between one or more of the parties
interested or claiming to be interested as plaintiff or plaintiffs
and the remaind"r as defendant or defendants, if the applica- B
tion has been presented by all the parties, or, if otherwise,
between the applicant as plaintiff and the other parties as
defendants.

(3) On such application being made, the Court shall direct C

- notice thereof to be given to all parties to the agreement other
than the applicants, requiring them to show cause within the
time specified in the notice why the agreement should not be
filed.

(4) Where no sufficient cause is shown, the Court shall order b
the agreement to be filed, and shall make an order of reference
to the arbitrator appointed by the parties, whether in the
agreement or otherwise,, or, where the parties cannot agree
upon an arbitrator, to an arbitrator appointed by the court.

(5) Thereafter the arbitration shall proceed in accordance.with, E
and shall be governed by, the other provisions of this Act so
far as they can be made applicable."

According to Sub-section (1) where an arbitratlon agreement has>
been entered into before the institution of any si.iit with respect to subject· F.
matter of such agreement, and where difference has arisen to which the
agreement applies, either or hoth the parties can apply to the Court that
the agreement be filed in Court. According to the Sub-section, the o~ion
I
for filing the application arises when a difference arise between the parties I
to which the agreement applies. In such a case, it is open to a party to
apply under this section instead of ·proceeding under Chpater-11. In other 6
words, an application under Section 20 is an alternative to the proceedings
under Chapter-II. Sub-section {2) is procedural. So is Sub-section (3).
Sub-section (4) provides that after hearing the parties and on being satis-
fied that the agreement should be filed, "the Court shall order an agree-
ment to be filed and shall make an order of reference to the arbitrator H
656 SUPREME COURT REPORTS [1992) 3 S.C.R.

A appointed by the parties, whether in the agreement or otherwise or where the
parties cannot agree upon an arbitrator, an arbitrator appointed by the Court." '>--
Reading Article 137 and Sub-section (1) of Sub-section (20) together,
it must be said that the right to apply accrues when the difference arises
or differences arise, as the case may be, between the parties. It is thus a
B question of fact to be determined in each case having regard to the facts
of that case. The question in the present case is when should the differenee
between the parties be said to have arisen. According to the High Court
the date on which notice of demand under the Revenue Recovery Act was
1
served upon the appellant namely 30.5.1974 is the date on which difference
C must be held to have arisen between the parties, if not earlier. Sri Poti,
however, says that it is not so and that it must be held to have arisen only
when the appellant applied to the Government to refer the disputes
between them to the arbitrator in terms of the agreement and the Govern-
ment refused to do so. We find it difficult to agree with the learned counsel.
The agreement was entered into in 1966. It was terminated on 19.12.1968.
D The work was re-tendered and it was completed through another contrac-
tor. The State then worked out the loss suffered by it on account of the
appellant's failure to carry out the work in accordance with the agreement
and called upon the appellant to pay the same through the demand notice
dated 30.5.1974. It is relevant to notice that this demand notice wa:s
questioned by the appellant by way of writ petition in the High Court of
E Kerala which was dismissed on 25.11.1978. Thus, the dispute had arisen in
1974 with the service of the demand notice. Only in the year 1983, did the
appellant choose to request the Government to refer the dispute to the
arbitrator in terms of the agreement which was rejected in the following
year. Nei~her the arbitration clause nor a copy of the agreement is placed
before us. Therefore, we cannot say whether the arbitration clause con-
F templates that a reference to arbitration can be made only by the Govern-
ment and not by the appellant. Assuming that such was the requirement of
the arbitration clause, even so it must be held that the very request in 1983
was very much belated and cannot, in any event, be treated as the date on
which the right to apply accrued. The differences had already arisen
G between the parties following the service of the demand notice. The
challenge to the said demand notice made by the appellant by filing a writ
petition in the Kerala High Court is the demonstrable proof of the dispute.
Accordingly, we agree with the High Court that 30.5.1974 is the date on }---
which the right to apply accrued in terms of article 137 read with Section

H
20(1) and that therefore the application filed in the year 1985 was clearly
.......
-
S. RAJAN v. STATE OF KERALA [REDDY, J.) 657

barred by limitation. A
We also think it appropriate to point out that the learned Subor-
dinate Judge was not justified in directing the parties to submit their
repective panels of arbitrator so as to enable him to appoint an arbitrator
or arbitrators, as the case may be, out of such panels. Clause (3) of the
agreement (extracted in the the Counter Affidavit filed bY,y the State . of l3
Kerala in this court, the correctness whereof is not questioned by the
learned counsel for the appellant) says that "the arbitrator for fulfilling the
duties set forth in the arbitration clause of the Standard Preliminary
Specification shall be the Superintending Engineer, Building and Roads
Circle, Trivandrum:. Thus, this is a case where the agreement itself C
specifies and names the arbitrator. It is the Superintending Engineer,
Building and Roads Circle, Trivandrum. In such a situation, it was
obligatory upon the learned Subordinate Judge, in case he was satisfied
that the dispute ought to be referred to the arbitrator, to refer the dispute
to the arbitrator specified in the agreement. It was not open to him to
ignore the said clause of' the agreement and to appoint another person as D
an arbitrator. Only if the arbitrator specified and named in the agreement
refuses or fails to act the Court, does the court get the jurisdiction to
appoint another person or persons as the arbitrator. This is the dear
purport of Sub-section (4). It says that the reference shall be to the
arbitrator appointed by the parties. Such agreed appoint111ent may be
contained in the agreement itself or may be expressed separately. To ~
repeat, only in cases where the agreement does not specify the arbitrator
and the parties cannot also agree upon an arbitrator, does the court get

- the jurisdiction to appointment an arbitrator. It must, accordingly, be said
that in the present case, there was no occasion or warrant for the learned
Surbordinate Judge to call upon the parties to submit panels of arbitrators.
He was bound to refer the dispute only to the arbitrator named and
specified in the agreement. This aspect, however, has become academic
now in view of the fact that the very application under Section 20 has been
held by us to be barred by limitation. Even so we thought it necessary to
emphasise this aspect in view of the numerous instances noticed by us
where courts ignore the arbitrator specified in the agreement and appoint d
a different person as the arbitrator.

~-· For the reasons given above, the appeal fails and is dimissed with
costs.

V.P.R .. Appeal dismissed.