Wednesday, 6 February 2019

Whether Article 137 of limitation Act is applicable for appointment of arbitrator?

 It is not in dispute between the parties that Article 137 would apply to application filed under Section 11 of Act, 1996. In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, (1998) 2 SCC 338, Supreme Court held that in application for appointment of Arbitrator Article 137 of the Limitation Act will apply.

5. Article 137 of the Limitation Act, 1963 is applicable to applications both under the Civil Procedure Code and under the Special Acts. Article 137 constitutes the residuary Article in regard to applications. The starting point of limitation under Article 137 is the date when "the right to apply arises". Article 137 being a residuary Article to be adopted to different classes of applications, the expression "the right to apply" is expression of a broad common law principle and it has to be interpreted according to the circumstances of each case. In Ramanna v. Nallaparaju, 1995 (2) SCR 936, Supreme Court has held that "the right to apply" means "the right to apply first arises".

6. Under the Arbitration and Conciliation Act, 1996, right to apply to the court having jurisdiction would arise from the date such controversy arises between the parties.

IN THE HIGH COURT OF ALLAHABAD

Arbitration Application No. 69 of 2017

Decided On: 14.09.2017

 Central Electronics Limited Vs.  Friends Cable Industries

Hon'ble Judges/Coram:
Suneet Kumar, J.

Citation: 2017 (125) ALR 588.


1. Heard learned counsel for the parties. It is not in dispute between the parties that pursuant to tender notice dated 14th February, 2012, contract for purchase and supply of cables was entered between the parties on 11th July, 2012 and 12th July, 2012, respectively. The applicant-company vide communication dated 26th November, 2013 informed the opposite party that the products supplied pursuant to the contract was defective. However, it is contended that no response was received from the opposite party, consequently, vide communication dated 16th June, 2014 applicant requested opposite party to replace the cables, but in vain. Thereafter, by a subsequent communication dated 27th September, 2015, it was requested that material supplied be tested for its suitability. In response, opposite party vide communication dated 29th September, 2014 sought details of the defect in the materials from the applicant company.

2. It appears that the opposite party, thereafter, did not respond, consequently, vide notice dated 16th September, 2016, objections were raised formally relating to the defective cables supplied against purchase- order No. 36051 dated 22nd May, 2012. The defects was detailed in the notice. In response thereto no reply was received from the opposite party, therefore, finally, on 30th January, 2017, a formal application was communicated to the opposite party invoking arbitration clause.

3. Learned counsel appearing for the opposite party would submit that application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short 'Act, 1996') is barred in view of Article 137 of the Limitation Act, 1963 (for short 'Limitation Act').

4. It is not in dispute between the parties that Article 137 would apply to application filed under Section 11 of Act, 1996. In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, (1998) 2 SCC 338, Supreme Court held that in application for appointment of Arbitrator Article 137 of the Limitation Act will apply.

5. Article 137 of the Limitation Act, 1963 is applicable to applications both under the Civil Procedure Code and under the Special Acts. Article 137 constitutes the residuary Article in regard to applications. The starting point of limitation under Article 137 is the date when "the right to apply arises". Article 137 being a residuary Article to be adopted to different classes of applications, the expression "the right to apply" is expression of a broad common law principle and it has to be interpreted according to the circumstances of each case. In Ramanna v. Nallaparaju, 1995 (2) SCR 936, Supreme Court has held that "the right to apply" means "the right to apply first arises".

6. Under the Arbitration and Conciliation Act, 1996, right to apply to the court having jurisdiction would arise from the date such controversy arises between the parties.

7. In my considered opinion, the dispute accrued upon serving notice on 16th September, 2016, thereafter, on 30th January, 2017 when applicant formally invoked arbitration clause against the purchase order. On 23rd May, 2017, applicant approached this Court under Section 11 (6) of the Arbitration and Conciliation Act, 1996, therefore, I am of the view that application is not barred by limitation. The supply of cables pursuant to contract was made which according to the applicant was defective, consequently, several correspondence was undertaken between the parties and finally on 29th September, 2014 opposite party sought details of the defective materials from the applicant. However, it appears that they did not respond nor were interested in redressing the apprehension of the applicant with regard to the defective material supplied by the opposite party. Consequently, formal notice was given on 16th September, 2016 raising all objections relating to the defective cables, the "right to apply" arose after the formal notice. Therefore, application under Section 11 is within the limitation prescribed under Article 137.

8. In counter-affidavit, Clause 21 of the agreement is not in dispute. Clause 21 is extracted :

"In case of a dispute related to the contract, Chairman cum Managing Director of Central Electronics Limited, Sahibabad, India, shall be sole arbitrator. Arbitration proceedings for this will be conducted in terms of relevant laws prevailing in India."
9. Learned counsel for the applicant would submit that the (Amendment) Act, 2015 [3 of 2016], has incorporated sub-section (5) of Section 12, whereby, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator.

10. Act of 1996 has been exhaustively amended vide Act 3 of 2016. Insertion of Seventh Schedule as well as amendment in Sections 11 and 12 are legislative recognition of need to have impartial person to act as arbitrator. The apparent object is to secure appointment of an independent and impartial arbitrator. The prohibition imposed in appointing arbitrator viz-à-viz arbitrator's relationship with the parties or counsel has been enumerated. Subsection (5) of Section 12 begins with a non-obstante clause and provides that a person falling in the prohibited category shall be ineligible to be appointed as an arbitrator, even if any prior agreement provides to the contrary, unless parties waive its applicability by an express agreement in writing. Section 12 enumerates grounds for challenge to appointment of arbitrator.

11. Sub-section (5) provides that notwithstanding any prior agreement to the contrary, any person falling under the category specified in Seventh Schedule shall be ineligible to be appointed as an arbitrator.

12. This Court in M/s. Aargee Engineers and Co. and another v. Era Infra Engineering Ltd. and others, MANU/UP/0466/2017 : 2017 (4) ADJ 513, has held as follows :

"In all pending arbitral proceedings appointment of arbitrator can be challenged on the grounds available by virtue of amended Section 12, in light of sub-section (2). The arbitrations already concluded, however, would not be open to challenge on account of amendments introduced vide Act 3 of 2016. All pending applications under Section 11 would have to be dealt with in accordance with amended Act."
13. Learned counsel for the respondent would not dispute that the Chairman-cum-Managing Director is an interested party to the dispute, therefore, in view of Section 12 (5) would be ineligible to be appointed Arbitrator.

14. Clause 21 does not provide for any qualification, but merely refers to the designated officer who can be appointed Arbitrator, therefore, submission of the learned counsel for the applicant has merit that an independent Arbitrator be appointed. It is always open for the Arbitrator to take opinion of technical expert during the course of arbitration proceedings if need so arise.

15. Agreement between the parties is not in dispute and dispute having arisen between the parties needs to be settled in terms of the arbitration clause.

16. Let Mr. Virendra Kumar Agrawal, a retired District Judge, R/o 1229, Sector 37, NOIDA, Mob. No. 9971853518, 9716848598, be appointed as an arbitrator to resolve the dispute, subject to his consent in terms of Section 11 (8) of the Arbitration and Conciliation Act.

17. The registry is directed to obtain consent of the proposed arbitrator in terms of Section 11 (8) of the Act within six weeks. List after six weeks.


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