Sat Pal Khanna and Another vs Smt. Lila Wati and Others

R.S. Pathak, C.J.—This appeal u/s 39 of the Arbitration Act, 1940, is directed against an order of the learned Senior Subordinate Judge, Chamba, ordering the filing of an agreement u/s 20 of the Act and referring the dispute to arbitration.

On May 18, 1963, the Appellants obtained a loan of Rs. 25,000/- from the Respondents on monthly interest and also mortgaged machinery and buildings for securing the loan. The mortgage deed contained an arbitration clause in the usual form.

On January 1, 1969, the Respondents made an application u/s 20 of the Arbitration Act alleging that a dispute had arisen between the parties on the failure of the Appellants to pay the interest due and that in breach of the agreement the mortgaged properties had been surreptitiously removed. The Appellants resisted the application and contended, inter alia, that it was barred by time having regard to Article 181 of the Limitation Act and that the Court had no jurisdiction to entertain it. The learned Senior Subordinate Judge over-ruled the objections and made the order prayed for by the Respondents.

In this appeal, the Appellants contend that (a) no dispute had arisen between the parties and therefore no order could be made in terms of Section 20 of the Arbitration Act, (b) the application was barred by limitation, and (c) the agreement between the parties did not provide for arbitration of the two matters said to be in dispute. The contentions are easily disposed of.

It is clear from the material on the record that a dispute had already arisen between the parties when the application u/s 20 was made. The Respondents alleged that the Appellants had failed to pay interest and had removed the mortgaged properties in breach of the agreement. In regard to the payment of interest, it is said, there was persistent evasion in paying it. From the material before me, I am satisfied that a dispute had arisen between the parties when the application was filed.

On the second point it was urged by the Appellants that the application u/s 20 of the Arbitration Act was governed by Article 137 of the Limitation Act, 1963 and was therefore barred by time. Now Article 137 of the Limitation Act, 1963, broadly corresponds to Article 181 of the Limitation Act, 1908. In Sha Mulchand and Co. Ltd. (In Liquidation) Vs. Jawahar Mills Ltd., the Supreme Court held that Article 181 was confined to applications under the Code of Civil Procedure. That view was affirmed by the Supreme Court in Bombay Gas Co. Ltd. Vs. Gopal Bhiva and Others, and was considered as representing well settled law. Subsequently, the view was reiterated in Wazirchand Mahajan and Another Vs. Union of India (UOI), where the Supreme Court was specifically called upon to decide whether Article 18l governed an application u/s 20 of the Arbitration Act. The Supreme Court laid down:

In dealing with an application for filing an arbitration agreement, the Court must satisfy itself about the existence of a written agreement which is valid and subsisting and which has been executed before the institution of any suit, and also that a dispute has arisen with regard to the subject-matter of the agreement which is within the jurisdiction of the Court. But the Court is not concerned in dealing (with) that application to deal with the question whether the claim of a party to the arbitration agreement is barred by the law of limitation that question falls within the province of the arbitrator to whom the dispute is referred.

Thereafter, the Supreme Court reaffirmed in Mohd. Usman Military Contractor, Jhansi Vs. Union of India (UOI), Ministry of Defence, that Article 181 was concerned with applications under the CPC only and did not govern an application u/s 20 of the Arbitration Act.

It is contended for the Appellants that the view taken by the Supreme Court of Article 181 of the Limitation Act, 1908, cannot be said to apply to Article 137 of the Limitation Act, 1963. I do not think it is open to me to accept that contention having regard to the observations of the Supreme Court in Town Municipal, Council, Athani Vs. The Presiding Officer, Labour Courts, Hubli and Others etc., where the Supreme Court observed that the view expressed by it in the cases concerning Article 181 of the Limitation Act, 1908, must be held to be applicable to Article 137 of the Limitation Act, 1963. It said:

We think that, on the same principle, it must be held that even the further alteration made in the Articles contained in the Third division of the Schedule to the new Limitation Act containing references to applications under the Code of Criminal Procedure cannot be held to have materially altered the scope of the residuary Article 137 which deals with other applications. It is not possible to hold that the intention of the legislature was to drastically alter the scope of this Article so as to include within it all applications, irrespective of the fact whether they had any reference to the Code of Civil Procedure.

This case was considered by the Supreme Court in Nityananda, M. Joshi and Others Vs. Life Insurance Corporation of India and Others, where the question was whether Article 137 of the Limitation Act, 1963, applied to applications u/s 33C(2) of the Industrial Disputes Act, 1947. The learned Judges declined to express their views on the point whether Article 137 governed applications made to courts under a statute besides the Code of Civil Procedure, but they observed it was a matter which required serious consideration. As I am bound by the view taken by the Supreme Court in Town Municipal Council Athani (supra), I must hold that Article 137 of the Limitation Act, 1963, must be confined to applications made under the CPC and cannot be extended to an application u/s 20 of the Arbitration Act.

That being so, the view must prevail that the court entertaining an application u/s 20 of the Arbitration Act is not concerned with the question whether the application is barred by time. All that it has to see is that the conditions incorporated in Section 20 of the Arbitration Act are satisfied. If they are, it will direct that the agreement be filed and refer the dispute to arbitration.

On the third point also there is no difficulty. A perusal of the arbitration clause in the agreement clearly shows that the present dispute is covered by it. Paragraph 6 of the mortgage deed reads:

The mortgagor and the mortgagees have further agreed that in the event of any dispute arising between them in regard to this deed, the same shall be referred to arbitration of two arbitrators, one to be appointed by each of the parties hereto, and in case the arbitrators do not agree the matter shall be decided by an umpire who shall be appointed in writing by the arbitrators before entering into arbitration. The decision of the arbitrators or the umpires, as the case may be, shall be final and binding on the parties hereto.

The expression "any dispute arising between them in regard to this deed" is of the widest comprehension and plainly, without anything more, the two matters of dispute can be said to arise out of the mortgage deed and to be covered by the arbitration clause. Paragraph 1 of the mortgage deed refers to the payment of interest and paragraph 4 speaks of the mortgaged properties.

None of the points raised by the Appellants have any force. The appeal is dismissed with costs.