The State of Madras vs D. Muthiah Chettiar

Ramaprasada Rao, J.—The State of Madras represented by the District Collector of Ramanathapuram at Madurai, is the Appellant. The

Respondent, Plaintiff the suit against the Appellant, Defendant for the recovery of a sum of Rs. 18,845, being the turn payable, according to the

Plaintiff, by the Defendant in relation to services rendered and work done by the Plaintiff as contractor in the matter of the construction of a bridge

on the highway at 10/5 mile from Madurai to Tondi. Under exhibit B-8, dated 25th February, 1956, a contract was entered into between the

Plaintiff and Defendant in the matter of the construction of the various projects. This contract attracted the Madras Detailed Standard Specification

Rules. The case of the Plaintiff is that the site for Construction of the after said perfect was hundred over to him only on 7th March 1956.

According to the Plaintiff the officers of the Engineering Department, who were in charge of the supervision work, took a hostile attitude against

him from the very beginning. Under exhibit A-6, dated 23rd May, 1956, the execution of the contract was stopped. Under exhibit A-8, dated 2lst

June, 1956 the Divisional Engineer asked the Plaintiff to resume work. Under exhibit A-11, dated 11th October, 1956, the Plaintiff was accused

of being slow in the matter of execution of the work. The Plaintiff''s case was that there was sufficient reason for the slow progress of the work, as

it was due to non-supply of essential materials to him for purposes of executing the work. Under exhibits A-15, A-17, A-18 and A-19, the

Plaintiff was asked to start work and expeditiously complete the same. Under exhibit A-24 the time for performance of the contract was extended

till 30th September, 1957. During the course of construction the Plaintiff brought to the notice of the higher authorities under exhibit A-27 about the

attitude of the Assistant Engineer in relation to the particular contract. The Plaintiff''s case is that he secured a copy of the contract (the agreement

exhibit B-8) which included the Madras Detailed Standard Specification Rules also, only in April 1956 and that too on a request made by him for

that purpose. Under exhibit A-29, curiously enough the work was again stopped in April, 1957 and when the Plaintiff protested, he was directed

to complete the work within 15 days. Ultimately under exhibit A-36, dated 24th June, 1957 the contract was terminated. He appealed to the

Divisional Engineer under exhibit A-38 and finally under exhibit A-52, dated 21st October, 1957 the Plaintiff appeal was rejected. In exhibit A-52,

the Superintending Engineer Highways as the appellate authority says that the request of the Plaintiff for increased rates could not be entertained by

the Department and when the contractor was asked to resume his work, he did not express his willingness to do so and it was in those

circumstances, the Plaintiff''s appeal against the order of cancellation of the contract was rejected. According to the Plaintiff the termination of the

contract as illegal and he, therefore, filed an arbitration petition on 10th April, 1958 before the Superintending Engineer, Madras on 10th June,

1959, he was informed that the Superintending Engineer, Madras, was not the authority to arbitrage over the matters touching the contract and that

the Superintending Engineer Sivaganga, was the proper authority. The Petitioner thereafter filed, an arbitration claim before the Superintending

Engineer, Sivaganga and also the Superintending Engineer, Tiruchi, and claimed moneys for work done, under the contract and also included

therein a claim for damage for premature termination of the contract. From the records, it appears that the matter was once again taken up by the

Superintending Engineer for arbitration by the Madras Division, who under exhibit A-70, dated 29th May, 1961, passed an award on the

arbitration claim made by the Petitioner as above before the various authorities already referred to. The Plaintiff was dissatisfied with the award, as

he was of the view that the award passed by the Superintending Engineer, Madras, was not in accordance with law, as the same was passed

beyond the period prescribed under the Arbitration Act. He. there fore, filed Original Petition No. 34 of 1961 on the file of the Court of the

Subordinate Judge, Sivaganga to set aside the same. Ultimately, under exhibit A-73, dated 29th November, 1965 this Court by its order set aside

the award. Whilst the proceedings to set aside the award of the Superintending Engineer Madras, were pending, the Plaintiff filed a suit on 2nd

August 1968, on the file of the Subordinate Court, Sivagarga, clearing a sum of Rs. 18,845. This amount includes a sum of Rs. 13,789, as the

amount payable by the Defendant to the Plaintiff for works already done and the balance as interest due on the same from 24th June, 1957 the

date of the termination of the contract till the date of plaint.

The Defendant in its written statement denies that the department took an unreasonable attitude towards the Plaintiff. If the Plaintiff was found

fault with, it was on legitimate grounds. It was the Plaintiff, who failed to carry out the work in spite of notices given to him to expedite the work. It

is contended that the award is a valid one and that the suit is barred by time. In the additional statement a plea that the notice u/s 80 CPC was

invalid was also taken.

On the pleadings the following issues were framed:

Whether the State of Madras could have validly terminated the suit contract ?

Has the State of Madras been in order in forfeiting the deposit ?

Is the Plaintiff entitled to claim value of work done on quantum merit basis and if so, in what amount ?

Is the Plaintiff entitled to claim damages and if so in what amount ?

Is the Plaintiff''s claim barred by limitation ?

Is the suit notice hit by Section 80 of Code of Civil Procedure?

The learned Subordinate Judge, Sivaganga, found that the notice exhibit A-1 issued u/s 80 CPC was valid and that the suit was not barred by

limitation. On the question whether the contract has been validly terminated and whether time was the essence of the contract, the trail Court held

that time was not the essence of the contract an* that the Plaintiff was not totally in fault when he did not carry out the work as contemplated and

ultimately found that the Plaintiff was willing to perform his contract.

On the issue whether the Plaintiff was entitled to claim the value of work done on the principle of quantum merit, he answered it partly in favour

of the Plaintiff and ultimately decreed the suit for a sum of Rs. 11,020.81 with proportionate costs but denied the claim for damages. It is as against

this, the present appeal has been filed.

We may at the outset make it clear that on the merits the learned Counsel for the Appellant did not and could not challenge the findings of the

trial court. We are not therefore, disturbing the findings of the Court below on the merits.

The main and the only argument of Mr. Thiagarajan learned Counsel, on behalf of the Government Pleader, is that the suit as laid is barred by

limitation. According to him the cause is governed by Article 115 of the Limitation Act and not Article 120. He would vehemently urge that Section

14(1) of the Limitation Act has no application to the facts of the case and the time taken by the Plaintiff-Respondent in seeking a decision from the

Arbitrator, who ever he may be under the contract exhibit B-8, ought not to be excluded, as the proceedings before an Arbitrator or Arbitrators

are not civil proceedings and in any event not proceedings in the Court of original or appellate jurisdiction. It is only in cases where a cause is

litigated in a wrong forum and that too in a Court duly constituted by the State that the exclusion of the time involved in such misguided proceedings

can be excluded for the purposes of reckoning the period of time within which a list can be lately brought before the appropriate and correct

forum. As Article 115 of the Act is a special article governing the situation the residuary Article 120 of the Act has no application.

No argument was addressed before us about the invalidity of the notice issued by the Plaintiff u/s 80 Code of Civil Procedure.

We have already referred to the fact that in the appeal before us no argument was addressed on merits. In a well considered judgment, the trial

Court analysed the documentary evidence and came to the conclusion that the Plaintiff was not entitled to damages for the alleged breach of the

contract but found that be was entitled to a decree in the sum awarded on the basis of quantum meruit. We have no hesitation in accepting that part

of the judgment of the Court below, on merits. It needs no modification.

The question that survives, therefore, is whether the suit is barred by limitation. We shall now refer to the appropriate sections and articles in

the first schedule of the Limitation Act, 1908. Section 14(1) of the Limitation Act 1908, with which we are concerned, runs thus:

on computing the period of limitation prescribed for any suit, the time during which the Plaintiff has been prosecuting with due diligence another civil

proceeding whether in a Court of first instance or in a Court of appeal against the Defendant, shall be excluded, where the proceeding is founded

upon the same cause of action and is prosecuted in good faith in a Court which, from defect of jurisdiction or other cause of a like nature, is unable

to entertain it.

Article 115 of the First Schedule to the Limitation Act, 1908 says that for compensation for the breach of any contract express or implied, not in

writing registered and not herein specially provided for, a suit has to be laid within a period of three years from the date when the contract is

broken or where there are successive breaches, when the breach in respect of which the suit is instituted occurs, or where the breach is continuing

when it ceases. Article 120, which is ordinarily known as the residuary article provides that a suit for which no period of limitation is provided

elsewhere in that schedule, ought to be brought within six years, when the light to sue accrues.

The relevant provision of the Arbitration Act may be referred to immediately for the purpose of ready reference. Section 37 of the Arbitration

Act, 1940, is a special provision in that Act dealing with limitations. Under Sub-section (1) of Section 37 of the Arbitration Act, all the provisions

of the Indian Limitation Act, 1908, shall apply to arbitrations as they apply to proceedings in Court. Sub-Section 5 of Section 37 of the Arbitration

Act runs as follows:

(5) Where the court orders that an award be set aside or orders, after the commencement of an arbitration, that the arbitration agreement shall

case to have effect with respect to the difference referred, the period between the 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. for the commencement of the proceedings (including

arbitration) with respect to the difference referred.

In spite of the above provisions, what is contended is that as an arbitration proceeding is not a civil proceeding and it is not certainly a

proceeding in a Court of first instance or in a Court of appeal. the exclusion of the time of such proceedings bona-fide or otherwise before an

arbitrator is not available in the instant case. Reliance is placed upon the decisions in Balasubramania and Company v. Penukonda

Radhakrishnamurlhy (1949) l M.L.J. 518 and M.K. Venkatachari and Others Vs. L.A.R. Arunachalam Pillai and Others, .

But in all fairness Mr. Thiagarajan himself referred to the decisions of the other Courts including the Privy Council and the Supreme Court and

wants to contend that the suit is out of time.

We have already seen that the contract was terminated under exhibit A-36, dated 24th June, 1957. The appeal against the order of termination

was confirmed by the appropriate authority under exhibit A-52, dated 21st October 1957. The suit was admittedly filed on 2nd August, 1963. If,

therefore, the residuary Article 120 of the Limitation Act, applies to the facts of the present case, then the suit is within time. The question is

whether that article would apply or Article 115 there to. If Article 115 is sought to be applied, then the three years rule would automatically come

into operation. The contract, according to the Plaintiff, was broken unilaterally by the act of the Defendant under exhibit A-52, dated 21st

October, 1957. The suit for compensation for breach of such a contract ought to have been filed within three years from October 1957. This was

not done. On the other hand, the Plaintiff was pursuing his remedies before certain Arbitrators, who, according to the Plaintiff, were the named

Arbitrators, under exhibit B-8, read with Madras Detailed Standard Specification Rules. Such Arbitration proceedings went on till 29th May,

1961, when the Superintending Engineer, Madras, passed an award under exhibit A-70, dated 29th May, 1961. This award was set aside by the

High Court under exhibit A-73. dated 29th November 1965. In any event when the suit was filed, the application to set aside the award was

pending before the appropriate Court, which had seisin of the matter in Original Petition No. 34 of 1961, Sub Court, Sivaganga. In this context the

suit filed in August 1963, would be in time, if the time taken by the Plaintiff by initiating arbitration proceedings before one or the other Arbitrators

referred to already is excluded for the purpose of computing the period of limitation, under Article 115 of the Limitation Act, 1908, read with

Section 14(1) of the said Act and Section 37(1) of the Arbitration Act.

In Balasubramania and Company Vs. Penukonda Radhakrishnamurthy and Others, Rajamannar, C.J., held that Arbitrators cannot be

described as the Court of first instance within the meaning of Section 110, CPC and the word Court in that section must be understood with

reference to the scheme of the Code in general end reforms to one of the Courts in the hierarchy of Civil Courts in the country as envisaged by the

Code. This principle is relied on by the learned Counsel for the Appellant, who says that the Court of first instance referred to in Section 14(1) of

the Limitation Act, should also, bear the same meaning and, therefore, it should be held that the proceedings before the Arbitartcis cannot be

equated to be proceedings before the Court of first instance. In the very decision, the learned Chief Justice expressed the view:

It may be that for the purpose of the Limitation Act proceedings before a Court may include proceedings before arbitrators.

But the division Bench in the context of events with which they were concerned. were constrained to bold that the arbitrators cannot be described

as the Court of first instance within the meaning of Section 110 of the Code of Civil Procedure. This would mean that the question whether the

proceedings before the arbitrators could be understood as proceedings before a Court of first instance or the appellate Court within the meaning of

Section 14(1) of the Limitation Act, was left open by the division Bench in that case.

The next case referred to is M.K. Venkatachari and Others Vs. L.A.R. Arunachalam Pillai and Others, Natesan, J., in that case has held that

the defence of limitation is a creature of positive law and, there fore cannot be extended to cases which do not strictly fall within the enactment and

that it is an established canon of construction of the law of limitation not to enlarge the scope of statutory provisions of limitation by analogy or

logic. In view of the ratio in this case it is seriously contended that as an arbitration proceeding is not a civil proceeding and as the right to exclude

the time taken for fighting a civil proceeding bona fide in a wrong forum can only apply to a civil proceeding as is popularly and legally understood

and as an arbitration proceeding, is not recognised or equated to a civil proceeding, the benefit u/s 14(1) of the Limitation Act cannot be availed of

by the Plaintiff. But we have ample authority for the proposition that proceedings before the arbitrator is analogous to proceedings before a civil

Court.

In Ramdutt Ramkissen Dass v. E.D. Sassoon and Co. AIR 1929 P.C. 103 which was prior to the passing of the Arbitration Act, 1940, the

Privy Council said that although the Limitation Act does not in terms apply to arbitrations in mercantile references it is an implied term of the

contract that the arbitrator must decide the dispute according to the existing law of contract,) and that every defence which would have been open

in a Court of law can be equally propounded for the arbitrator''s decision unless the parties have agreed to exclude that defence. In The

Engineering Mazdoor Sabha Representing Workmen Employed Under the Hind Cycles Ltd. and Another Vs. The Hind Cycles Ltd., Bombay, the

Supreme Court expressed the view that an arbitrator acting u/s 10-A of the Industrial Disputes Act, 1947 is not a Tribunal under Article 136 of the

Constitution of India even though some of'' the trappings of a Court"" are present in his cases. The Supreme Court made a distinction between

judicial decisions and administrative orders. While Courts of law established by the State decide cases brought before them judicially and the

decision thus recorded by them fall obviously under the category of judicial decisions, the decisions in several matters reached by administrative or

executive bodies, fall clearly under the category of administrative or executive orders and their conclusions cannot be treated as quasi-judicial

collusions. On the basis of this decision Mr. Tyagarajan would say that the principle in Section 14(1) of the Arbitration Act, even by analogy,

cannot be applied, and as an arbitrator is not equitable to a Court with the power to render a decision, the time taken by the Plaintiff in

approaching such arbitrators for decision, which is purely administrative in nature or quasi-juibial in the eye of law, cannot be excluded under the

provisions of the Limitation Act and that, therefore, Articles 115 of the Limitation Act is attracted automatically. If this is so, the suit laid in August

1963, on a cause of action which arose on the basis of the Superintending Engineer�s decision in exhibit A-52, dated 21st October, 1957,

would be out of time.

We may in passing refer to certain decisions of other Courts in India, some of which took the view that the decision of in arbitrator is a judicial

decision and the proceedings before an arbitrator could by analogy be equated to civil proceedings before a court.

In AIR 1948 334 (Nagpur) it was held that Section 3 of the Limitation Act would apply to arbitration proceedings. The Division Bench of the

Nagpur High Court held the view that the word Court in Section 14 does not mean only the statutory Courts but includes arbitrators and

proceedings before them are civil proceedings before a Court within the meaning of that section. In that light they held that the time spent in

arbitration proceedings should be excluded from computation of the period of limitation for a suit instituted subsequently in respect of the same

subject-matter provided the other requirements of Section 14 are satisfied. They applied the rule in Ramdutt Ramkissen Dass v. E.D. Sassoon and

Co. AIR 1929 P.C. 103.

Another Division Bench of the Allahabad High Court in Firm Behari Lal Baij Nath Prasad and Others Vs. Punjab Sugar Mills Co., Ltd.,

express the view that proceedings before arbitrator appointed by the parties are civil proceedings in a Court within the meaning of Section 14 and,

therefore, time spent in those proceedings must be excluded in computing limitation in subsequent suit or proceedings in the civil Court. No doubt,

this decision was rendered without reference to the Arbitration Act, 1940 and ever a subject-matter which arose before the enactment of the

Arbitration Act.

In M.K. Venkatachari and Others Vs. L.A.R. Arunachalam Pillai and Others, Natesan, J., however, was concerned with a case which arose

after the passing of the Arbitration Act, 1940. It was in that context he said that the law of limitation cannot enlarge the scope of statutory

provisions of limitation by analogy or logic.

The question, however, has not been considered earlier by our Court in the light of the specific provisions made in the Arbitration Act itself. In

view of Section 37(5) of the Arbitration Act it is not quite necessary for us to express the view whether by analogy the beneficent intention

contained in Section 14 of the Limitation Act could be extended to proceedings before an arbitrator. But we may in passing say that it would be

difficult to ignore and lightly brush aside the Court of choice of the litigant and characterise such a body, as dealing not with a civil proceeding. It

may be that it may render a quasi-judicial decision as was said by the Supreme Court in The Engineering Mazdoor Sabha Representing Workmen

Employed Under the Hind Cycles Ltd. and Another Vs. The Hind Cycles Ltd., Bombay, But nevertheless it is a binding decision as between the

parties which, unless set aside, is bound to enter into the stream of enforceability by such a decision being accepted in to by Courts of law. As all

decisions of arbitrators, unless set aside in a manner known to law, are decisions which Courts of law are bound to accept and pass a decree in

terms thereof, such a conclusion of the arbitrators in proceedings before them in which they hear parties and pass an order cannot lightly be

brushed aside as something which for all purposes has no legal force at all. Rajamannar, C.J., in Balasubramania and Company Vs. Penukonda

Radhakrishnamurthy and Others, expressed the view, though by way of obiter dicta. that for the purpose of the Limitation Act proceedings before

a Court may include proceedings before arbitrators. We respectfully adopt this opinion of an eminent jurist as the law which ought to have

prevailed even prior to the passing of the Arbitration Act, 1940. In that view. the time taken by the Plaintiff before the arbitrators ought to be

excluded. If this is done then Section 14 would come to the rescue of the Plaintiff and would make his suit filed in 1963 in time. But, as we said,

the present situation does not call for a specific pronouncement on this subject as the case is governed by Section 37 of the Arbitration Act.

Before dealing with the above aspect we may in passing say that as there is no express provision in the Limitation Act regarding the period

within which a suit could be filed after arbitration proceedings are initiated we are of the view that the residuary Article 120 would be the proper

article which would apply to the facts of this case and in this context also the suit is in time.

But we have a definite answer in Section 37(5) of the Arbitration Act to the question involved. Section 37 is a new section introduced in the

Arbitration Act, 1940. But the text of the various Sub-sections therein point out that this section has no application to statutory arbitrations. Sub-

section (5) of Section 37 runs as follows:

Where the Court orders that an award be set aside or orders after the commencement of an arbitration, that the arbitration agreement shall cease

to have effect with respect to the difference referred, the period between the 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 (IX of 1908), for the commencement of the

proceedings (including arbitration) with respect to the difference referred.

In view of the above distinct provision, the case law already referred to starting from the dicta of the Privy Council in Ramdutt Ramkissen Dass v.

E.D. Sasscon Co. AIR 1929 P.C. 103 and does not have a strict bearing on the issue under consideration Though we have expressed the view

that the their of analogical application of the provisions of the Limitation Act would apply to private arbitrations where the arbitrators being the

Court of choice of the parties ought to be considered for a limited purpose at least as a Court rendering a decision having binding force, yet in view

of the special provision as above it may not be necessary. Under Sub-section (5) a prevision very much similar to and to use the expression of the

Law Lords in the Privy Council case, analogical to Section 14 of the Limitation Act has been provided by the Arbitration Act, 1940. The period

between the commencement of the arbitration and the date of the order of Court setting aside the award has to be excluded under Sub-section (5)

of Section 37 of the Arbitration Act for the commencement of subsequent proceeding which would certainly include a civil proceeding such as a

suit with respect to the same subject matter which was also adjudicated upon by the arbitrators. In fact, under Sub-section (5) of Section 37 a

fresh arbitration proceeding also could be commenced as the word including arbitration appearing after the word proceedings would indicate. Even

then the time taken during the infructuous if such an expression can be used, arbitration proceedings undertaken by the party aggrieved it cannot be

said in the instant case that the proceeding taken by the Respondent was not a bona-fide proceeding. Undoubtedly, the word Court in Sub-section

(5) of section 37 would include not only the trial Court to which an application has been made to set aside the award, but also the appellate or

revisional Court, as the case may be, and the time taken by the unsuccessful litigant in all such proceedings upto the stage of the Court in the

highest hierarchy is certainly excludable if ultimately the award is set aside by that Court. It therefore, follows that even accepting the argument of

the learned Counsel for the Appellant that Article 115 of the Limitation Act would apply and that the suit ought to have been brought up within

three years from the date when the contract is broken or when the breach in respect of which the suit is instituted occurs or when it ceases, even

then applying the principle in station 37(5), the suit filed in the instant case in August 1963. would be in time. The award was passed by the

Superintending Engineer in exhibit A-70, dated 29th May, 1961. No doubt, the Respondent filed Original Petition No. 34 of 1961 in. the

Subordinate Judge''s Court, Sivaganga, for setting aside the said award. The Subordinate Judge''s Court did not set aside the award under exhibit

A-71, dated 7th February 1964. The Respondent however treated the award as a nullity as it was passed bay and the period within which only it

could be passed under the Arbitration Act and took proceedings concurrently in a civil Court to set aside that award which could be ignored in the

eye of law. His apprehension or anticipation that the award was a nullity ultimately proved to be will founded, because the learned Subordinate

Judge under exhibit A-71, set it aside on 7th February, 1964 and the High Court in civil Revision Petition No. 1475 of 1964 and Appeal Again

Order No. 433 of l96l confirmed the order of the learned Subordinate Judge under exhibit A-73. dated 29th November 1965. When the

Respondent therefore, entered the portals of the Civil Court by filing this suit in the same cause of action which was moated by him before the

arbitrators, he was entitled to file the suit since the award could be ignored and was a nullity in the eye of law. He filed it wall within three years

from the date of the award. Even otherwise, applying the essential rule adumbrated in Section 37(5) of the Arbitration Act, the suit is well within

time. The only contention of the learned Counsel for the Appellant is therefore not sustainable. The appeal fails and is dismissed with costs.