Topic: Dr.E.Muralidharan vs M/S.Venkataraman And Company

Dr.E.Muralidharan vs M/S.Venkataraman And Company
Madras High Court - Coram: The Honourable Mr.Justice M.Chockalingam And The Honourable Mr.Justice M.Venugopal - O.S.A.No.345 of 2006 – Date of Judgment: 25-9-2008

JUDGMENT

(Judgment of the Court was delivered by M.CHOCKALINGAM, J.)

This appeal has arisen from an order of the learned Single Judge of this Court whereby an application seeking extension of time made by the appellant herein in Application No.3693 of 2004, was dismissed.

2.The said application under Sections 9 and 43(3) of the Arbitration and Conciliation Act, 1996, came to be filed under the following circumstances:

(a) The appellant trading in shares through the first respondent, a share and stock-broking company, found that the first respondent was acting detrimental and prejudicial to the interest of the appellant by committing fraudulent acts in refusing to sell the appellant's shares despite the request to do so in view of the highest level of share prices in the market. Consequent upon the same, the appellant made a complaint to the second respondent on 9.4.2001, which brought forth a reply on 30.4.2001 from the first respondent denying the allegations. The same was followed by a rejoinder by the appellant and also a reply by the opposite party. The second respondent informed the appellant that the complaint was referred to the Investor Grievance Cell (IGC) of the NSC for resolution. By a communication dated 9.8.2001, the appellant was advised to refer the matter to arbitration. Accordingly, the arbitral proceedings were initiated at the instance of the appellant by filing an application on 24.9.2001 claiming a sum of Rs.35 lakhs and also paying an arbitration fee of Rs.12,000/-. A counter was filed by the first respondent. After taking into consideration the relevant documents and oral submissions, the Arbitrators made an order on 25.2.2002 relying upon the Bye-laws and regulations of the second respondent. The claim of the appellant was dismissed on the ground that it was barred by limitation. (b)Pursuant to the instructions given by the Grievance Cell to move the Court for extension of limitation period stipulated under the arbitration agreement, the appellant filed the said application seeking extension of time. An ex-parte order of extension of time was made on 27.9.2004 granting four weeks time for submitting the dispute to the arbitrator. On appearance, the first respondent made an Application No.4908 of 2004 seeking to set aside the ex-parte order made in Application No.3693 of 2004. Accordingly, the order passed in Application No.3693 of 2004 was set aside with an observation that the matter has got to be decided only while hearing Application No.3693/2004. Thereafter, Application No.3693 of 2004 was taken up for consideration. The learned Single Judge heard the submissions put forth by both sides both factual and legal and took the view that the application required an order of dismissal, and accordingly dismissed. Hence, this appeal at the instance of the applicant.

3.The only question that would arise for consideration in this appeal is whether the extension of time as asked for by the appellant/applicant in the said application could be ordered.

4.Advancing arguments on behalf of the appellant, the learned Counsel Mr.P.V.S.Giridhar made the following submissions:

(i)It was not an award, but only a return of the papers recording that it was barred by time.

(ii)The application seeking extension of time under Sec.43(3) of the Arbitration and Conciliation Act, 1996, should have been ordered. But, the said application has been dismissed without proper appreciation of the legal position in that regard. (iii)The second respondent referred the appellant's complaint to SEBI for resolution. By a letter dated 9.8.2001, the SEBI advised the appellant to initiate arbitral proceedings. Accordingly, arbitral proceedings were initiated on 24.9.2001 without delay. The same was dismissed by the award dated 25.2.2002, on the sole ground of bar of period of limitation without any pronouncement on merits. Hence the appellant was constrained to file an application under Sec.43(3) of the said Act seeking extension of time, which should have been allowed. (iv)The findings of the learned Single Judge that the order of the arbitrators holding the claim to be barred would be binding on the appellant if no step was taken to set aside the award; that the last transaction having taken place in July 2000 and the application for arbitration having been made on 24.9.2001, the same was barred under NSC Bye-laws, and the applicant has not made out a case for granting extension of time are not correct in view of Sec.43(3) of the Act. (v)The petition for setting aside the award under Sec.34 of the Act would not lie in as much as the award was not rendered on merits and the application was only on account of the time bar clause. Even assuming that the instant award could be set aside under Sec.34 of the Act, the appellant has an alternative remedy under Sec.43(3) of the Act for seeking extension of time, and the same cannot be rendered otiose. (vi)Even assuming that the dispute arose on the date of last transaction namely July 2000, the appellant could file an application for arbitration on 24.9.2001 inasmuch as SEBI directed the initiation of arbitral proceedings only on 9.8.2001. As such, the dismissal of the application on that basis was erroneous. (vii)The NSC, the principal nodal agency, which regulates the contract between the appellant and the first respondent having itself directed the appellant to approach a Court of law for obtaining extension of time, the application ought to have been allowed in the absence of any specific bar therein. (viii)Sec.43(3) of the Act empowers the Court to extend time for referring the dispute for arbitration even in such cases where the earlier application was rejected on the ground of time bar clause incorporated in the agreement.

5.Added further the learned Counsel that the provisions of Sec.43(3) of the Act cannot be read in isolation but ought to be read along with the contract between the parties governing the arbitration; that in the instant case, the bye-laws framed by the NSE incorporating the arbitration clause inter alia provides for the submission of application for arbitration within 6 months of the claim/dispute; that subsequently, NSE construing the time bar clause set out in the agreement to be amenable to extension by the Court, directed the appellant to approach the Court for obtaining extension of time; that as such, this situation should have been taken into consideration by the learned Single Judge, and hence the application should have been ordered.

6.It is further submitted by the learned Counsel that Sec.43(3) of the Act imports all the provisions of the Limitation Act 1963; that assuming that the dispute between the parties arose as on the date of the last transaction namely July 2000 as found by the learned Single Judge, the appellant's application for arbitration dated 24.9.2001, was well within three year period of limitation set forth under the agreement; that having regard to this, the appellant's rights under the Limitation Act cannot be stultified; that the remedy to seek extension of time under Sec.43(3) of the Act being a special one, the same should be construed in such a manner that it would advance the remedy and not defeat it; that in the case on hand, if the application under Sec.43(3) of the Act was held to be not maintainable, the appellant would be left without any remedy whatsoever; that this would even frustrate the underlying object of Section 43(3) of the Act; that apart from that, taking into consideration the interest of justice, liberal, purposive and beneficial construction of Sec.43(3) of the Act has got to be taken; that the ratio underlying the judgment reported in 2004(8) SCC 312 was squarely applicable to the present facts of the case, and under the circumstances, the appeal has got to be ordered.

7.In support of his contentions, the learned Counsel relied on the following decisions:

(i)AIR 1964 PUNJAB 61 (V51 C 12) (LAL CHAND V. GOPIN CHAND);

(ii)AIR 1975 SUPREME COURT 415 (STERLING GENERAL INSURANCE CO. LTD. V. PLANTERS AIRWAYS PVT. LTD.) and

(iii)AIR 1996 BOMBAY 167 (INTERNATIONAL AIRPORTS AUTHORITY OF INDIA V. M/S.MOHINDER SINGH).

8.The Court heard the learned Senior Counsel for the first respondent Mr.R.Krishnasamy, according to whom the period stipulated under the agreement for initiation of the arbitration proceedings was only 6 months; that the application was filed subsequent to that period, and thus the arbitral tribunal after taking into consideration the first question whether the claim was maintainable in view of the period of limitation, has made an award holding that the application was barred by time; that Sec.43(3) of the Act could be applied to a case where extension of time was sought for even before the commencement of the arbitral proceedings, but not at the time either when the arbitral proceedings were pending or after the award was made; that it is also not a case where the appellant could seek for setting aside the award under Sec.34 of the Act since no one ground is made out; that an application to set aside the award could be made under Sec.34 of the Act only on the grounds mentioned therein; but, in the instant case, since the award was passed rejecting the application on the question of limitation, no question of applying Sec.34 would arise; that at the same time, it cannot be stated that the appellant is without remedy available to him; and that he would have first filed a suit in respect of the same.

9.Added further the learned Senior Counsel that the respondent filed a suit against the appellant before the City Civil Court, Madras, and a decree has also been passed, which remained unchallenged; that in the instant case, the award was passed on 11.3.2002; that the application for extension was filed only on 1.7.2004; that it would be indicative of the fact that the extension application was filed after a period of 2 years even after the award was made; that under the circumstances, it has lacked bonafide, and hence the learned Single Judge was perfectly correct in dismissing the application, which order has got to be sustained.

10.The Court paid its anxious consideration on the submissions made.

11.It is not in controversy that the claim was made by making an application for arbitral proceedings on 24.9.2001. From the award in question, it would be quite clear that the application was taken up for consideration, and the first respondent was given an opportunity to file its counter. Both the parties have made their submissions. After doing so, an award was passed on 11.3.2002 which runs as follows: "ARBITRATOR'S REASONING AND AWARD.

The Applicant was doing the share trading business with the Respondent since 1997. The dispute arose on the share trading transactions carried out during 1999 and 2000. The last transaction done by the Applicant with the Respondent was in July 2000. However the Application to NSE was made by the Applicant on 24th September 2001. As per the Arbitration Bye-laws and Regulation of NSE (Chapter XI Clause (3) all claims, differences or disputes shall be submitted to NSE for arbitration within six months from the date on which the claim, difference or dispute arose or shall be deemed to have arisen. Therefore the Applicant should have filed his Application for arbitration in Form I before February 2001. Since it was done much later, the Limitation period for reference of claims, differences or disputes for arbitration takes effect. In view of this, the Panel of Arbitrators dismiss the claim made by the Applicant."

12.From the very reading of the above part of the award made after following all procedural formalities and hearing the submissions, it would be quite clear that it was an award as defined under the Act. Hence, the first contention put forth by the learned Counsel for the appellant that it was not an award, but only a return recording that the claim was barred by time has got to be discarded. From the reading of the award, it would be quite clear that the question as to the limitation was taken into consideration, and it was recorded that the claim should have been made within six months from the date on which the difference or dispute arose, and hence, it was out of time. On that ground, it was rejected. Thus, it would be quite clear that it was a dismissal of the claim on the ground of limitation. Hence that contention cannot be accepted.

13.After the award was passed on 11.3.2002, an application was filed seeking extension of time on 1.7.2004 after a lapse of more than two years. Though an award has been passed, unless and until the appellant is able to show any one of the grounds as stipulated under Sec.34 of the Arbitration and Conciliation Act, 1996, he could not seek the award to be set aside under Sec.34 of the Act. The rejection or the dismissal of the claim on the point of limitation as time barred, is not one of the grounds under which an award could be set aside under Sec.34 of the Act. Hence the remedy is not open to the appellant under Sec.34 of the Act.

14.The only controversy between both the parties is whether an application seeking extension of time under Sec.43(3) of the Act could be filed. The stand taken by the appellant is that an application for extension of time under Sec.43(3) of the Act is maintainable, and the Court has got its powers to do so. Contrarily, the learned Senior Counsel for the first respondent would submit that such an application cannot be filed under Sec.43(3) of the Act since the same could be entertained only before the commencement of the arbitral proceedings. In order to resolve the controversy, this Court is of the considered opinion that it would be more apt and appropriate to reproduce Sec.43(3) of the Arbitration and Conciliation Act, 1996, as follows: "43.Limitations:-(1)...

(2)...

(3)Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper."

15.The very reading of the above provision would clearly indicate that the application for extension could be filed only before the commencement of the arbitral proceedings and not subsequently which would be very clear from the employment of the words "unless some step to commence arbitral proceedings is taken within a time fixed by the agreement". The learned Counsel for the appellant laid emphasis on the words "notwithstanding that the time so fixed has expired" and also "in the circumstances of the case undue hardship would otherwise be caused". This Court is of the considered opinion that the legislative intent was so clear that an application for extension of time under Sec.43(3) of the Act could be made even if the time stipulated under the agreement to refer the matter for arbitration was over, but the filing of the application should be before making any steps to commence arbitiral proceedings and not thereafter. The Court, when an application for extension of time is filed, after the period for referring the matter to arbitration as per the agreement is over and before the commencement of the arbitral proceedings, for the purpose of extension of time has to consider, if not time extended, whether it would cause undue hardship and to grant time or refuse time taking into consideration the circumstances in that case. Hence no question of consideration of undue hardship would arise when an application was made after the commencement of the arbitral proceedings, and that too, in a case where the award has actually been passed. It can be well stated that after making a claim before the arbitral tribunal and being a party to the proceedings and obtaining an award on the question of limitation, at no stretch of imagination, the appellant could be allowed to make an application seeking extension of time to refer the matter to arbitration.

16.The contention put forth by the learned Counsel for the appellant that originally advice was sought for before the NSE; that the NSE gave instructions to him to approach the Court; that only on that ground, the application has been filed, and hence the application has got to be allowed cannot be countenanced in view of the provision of law that the Court cannot exercise its powers by extending time after the commencement of the arbitral proceedings. Merely because the instruction or advice was given by NSE, such an extension cannot be ordered. Having lost his right for arbitration due to the delay caused, the appellant cannot be allowed to make an application under Sec.43(3) of the Act seeking extension of time. In a given case like this where he could not either make the remedy seeking to set aside the award made on the question of limitation, under Sec.34 of the Act or seek the extension of time under Sec.43(3) of the Act in view of the fact that he did not seek extension of time before the commencement of the arbitral proceedings, the only remedy open to him is to knock the doors of the Court of civil law. Though the award was passed on 11.3.2002, he has filed the application seeking extension of time only on 1.7.2007 which itself would cast a doubt on the bonafide of the appellant seeking extension of time after a lapse of two years when the application is not at all maintainable in accordance with law. Hence, the order of the learned Single Judge has got to be affirmed.

17.In the result, this original side appeal is dismissed confirming the order of the learned Single Judge. The parties will bear their costs.

(M.C.,J.)     (M.V.,J.)

25-9-2008

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nsv/

M.CHOCKALINGAM, J. AND  M.VENUGOPAL, J.

nsv/OSA No.345 of 2006