IMPORTANT POINTS
1. An application under Section 20 of the Arbitration Act for filing the arbitration agreement in Court and for reference of disputes to arbitration in accordance therewith is required to be filed within a period of three years when the right to apply accrues. The right to apply accrues when difference or dispute arises between the parties to the arbitration agreement.
2. Technical considerations should give way to peace and harmony in enforcement of family arrangements or settlements.

Headnote:(i) Arbitration Act, 1940—Section 20—Limitation Act, 1963—Article 137—Application u/s 20 of Arbitration Act for filing arbitration agreement in Court and for reference of disputes to arbitration— Limitation period—Right to file application u/s 20 accrues when difference or dispute arises between the parties to the arbitration agreement—When difference arises between parties is a question of fact and should be determined in each case having regard to the facts of the case—When negotiations were taking place between the parties, members of one family, by way of various letters written by both parties—Right to apply can be said to accrue when a dispute in fact arose—Technical considerations should give way to peace and harmony in enforcement of family arrangements are settlements.
       Held : The period of three years prescribed in Art. 137 of the Limitation Act, 1963 is applicable to file an application under section 20 of the Arbitration Act, 1940.(Para 28)
       It is now well settled that Article 137 of the Limitation Act, 1963 applies to an application under Section 20 of the Arbitration Act, 1940. Accordingly, an application under Section 20 of the Act for filing the arbitration agreement in Court and for reference of disputes to arbitration in accordance therewith is required to be filed within a period of three years when the right to apply accrues. The right to apply accrues when difference or dispute arise between the parties to the arbitration agreement. In the facts of the case, it is therefore necessary to find out as to when the right to apply accrued.(Para 10)
       Where a settlement with or without conciliation is not possible, then comes the stage of adjudication by way of arbitration. Article 137, as construed in this sense, then as long as parties are in dialogue and even the differences would have surfaced it cannot be asserted that a limitation under Article 137 has commenced. Such an interpretation will compel the parties to resort to litigation/arbitration even where there is serious hope of the parties themselves resolving the issues.(Para 24)
       It is also pertinent to note that under the new Act, namely the Arbitration and Conciliation Act, 1996 that came into force in 1996, the intervention of the Court in the matter of arbitration proceedings has been minimized to a great extent. Further, there is no provision in the Arbitration and Conciliation Act, 1996 that is similar to section 8 (power of court to appoint arbitrator), section 20 (application to file in Court the Arbitration Agreement) and section 33 (Arbitration agreement or award to be contested by application), which were present in the Arbitration Act of 1940.(Para 39)
       The concept of ‘family arrangement or settlement’ and the present one in hand, in our opinion, should be treated differently. Technicalities of limitation etc. should not be put at risk of the implementation of a settlement drawn by a family, which is essential for maintaining peace and harmony in a family. Also it can be seen from decided cases of this Court that, any such arrangement would be upheld if family settlements were entered into ally disputes existing or apprehended and even any dispute or difference apart, if it was entered into bona fide to maintain peace or to bring about harmony in the family. Even a semblance of a claim or some other ground, as say affection, may suffice as observed by this Court in the case of Ram Charan v. Girija Nandini AIR 1966 SC 323.(Para 43)
       (ii) Limitation Act, 1963—Section 137—Arbitration Act, 1940—Section 20—Arbitration suit u/s 20—Commencement of period of limitation for filing application—Family disputes—There were efforts made to amicably settle the dispute between the parties—Partnership firm was dissolved by consent of parties—In 1988, nominees were appointed for distribution of properties of the dissolved firm—Several correspondences exchanged between the heads of three branches regarding amicable distribution of assets—Respondents 1-9 being in enjoyment of properties—Dispute is deemed to have arisen only after the last communication between the parties dated 29.9.1989—Application u/s 20 of the Act filed by appellants on 8.5.1992—Whether High Court was justified in dismissing the application as barred by limitation—(No)—Appointment of Hon’ble Mr. Justice S.N. Variava, a retired Judge of the Supreme Court as a single Arbitrator and decide the dispute between parties within 6 months.
       Held : An examination of the correspondence can give us valuable insight as to the “differences” if any among the parties. The first such communication was made on 16 September, 1988 from Shri Hari Shankar Singhania [appellant] to Gaur Hari Singhania [Respondent] requesting the respondent to make all attempts to expedite distribution of the immovable properties. In reply to this was the communication relied on by the respondents from Dr. Gaur Hari Singhania [Respondent] to Shri Hari Shankar Singhania [appellant No.1] dated 4th October, 1988. This communication also does not reveal either hostility or dispute and only exposes an effort “to expedite the distribution”. The last sentence of the above mentioned communication reads : “I am equally anxious that this matter should be amicably sorted out as early as possible.” Therefore, we observe that the right to apply under section 20 of the Arbitration Act, 1940 accrued to the appellants only on the date of the last correspondence between the parties and the period of limitation commences from the date of the last communication between the parties. Therefore, the finding of the High Court that the application under section 20 of the Arbitration Act, 1940, is beyond the period of limitation is erroneous.(Paras 36 & 37)
       In the instant case, the partnership firm was dissolved w.e.f. March, 1987 by consent of parties. The Deed of Dissolution was also entered into between the parties on March 26, 1987. In 1988, the three groups each appointed a nominee to work out an arrangement whereby the distribution of the properties of the dissolved firm could be made and effected. The nominees held several meetings but no agreement of distribution could be arrived at. Meeting of the partners took place on various occasions in regard to the issue of distribution of assets which has been considerably delayed. Several correspondences exchanged between the heads of three branches regarding amicable distribution of all the immovable properties in specie. It is stated that 14 properties are situated in Kanpur and 1 property in Bombay which are very valuable. Respondents 1-9 being in enjoyment were simply delaying distribution in specie. In the circumstances, appellant No.1 herein and the other members of the branch of Lakshmipat Singhania wanted to take recourse to due process of law for getting distribution and allotment in specie of their one-third share in those 15 immovable properties. Hence, application under Section 20 of the Arbitration Act, 1940 was filed in the High Court of Bombay on 08.05.1992. Other group opposed the application on the ground of limitation and the lack of jurisdiction. Single Judge rejected the plea of the lack of jurisdiction but upheld the plea of limitation on the basis that disputes and differences arose on 18.03.1989 whereas the application was filed on 08.05.1992 i.e. to say 50 days beyond the period of 3 years. The Division Bench also dismissed the appeal filed by the appellant on the ground of limitation. It is an admitted fact that the three branches of Singhania family are each entitled to one-third share in immovable properties. It is stated that the rents of the properties situated at Kanpur from family companies and other in whose favour tenancy had been shown at nominal rents long time back after the dissolution of the partnership firm are being collected by the branch of Padam pat Singhania and deposited in the bank account titled J.K. Bankers (since dissolved).(Paras 59 and 60)
       Parties have to settle their disputes one day or the other. In our opinion, the time has now come to nominate a single Arbitrator as provided under clause 13 of the agreement. It was argued that in case this Court allows the appeal, the matter may be remitted to the High Court for appointment of a single Arbitrator and in case the parties are unable to agree upon a single Arbitrator a panel of three Arbitrators shall be appointed as provided in the said agreement. We feel that such a course, if adopted, would only enable the contesting respondent Nos. 1-9 to squat on the property and enjoy the benefits, income etc. arising therefrom. We, therefore, appoint Hon’ble Mr. Justice S.N. Variava, a retired Judge of this Court as a single Arbitrator and decide the dispute between the parties within 6 months from the date of entering upon the reference.(Paras 63, 64)
       (iii) Arbitration Act, 1940—Section 20—Family settlement—Application filed u/s 20 of the Act—Plea of bar of limitation—A family arrangement or settlement should be treated differently—Technicalities of limitation etc. should not be put at risk of implementation of the settlement.
       Held : A family settlement is treated differently from any other formal commercial settlement as such settlement in the eyes of law ensures peace and goodwill among the family members. Such family settlements generally meet with approval of the Courts. Such settlements are governed by a special equity principle where the terms are fair and bona fide, taking into account the well being of a family.(Para 42)

Judgement Key Points

Certainly. Based on the provided legal document, here are the key points:

An application under Section 20 of the Arbitration Act must be filed within three years from the date when the dispute or difference between the parties arises. The right to apply accrues at the moment the dispute in fact arises, which is a question of fact to be determined based on the circumstances of each case (!) (!) .
In family arrangements or settlements, technical considerations such as limitation periods should be secondary to the goal of maintaining peace and harmony. Such settlements are often upheld if entered into bona fide and with the intent of fostering family goodwill (!) (!) .
The period of limitation prescribed by law applies to applications under Section 20, and the limitation begins when the dispute in fact arises, not necessarily when negotiations or discussions are ongoing. Correspondence exchanged between parties can be indicative of when a dispute has actually arisen (!) (!) .
The right to file an application under Section 20 of the Arbitration Act is deemed to accrue at the time when a dispute or difference becomes apparent, which can be evidenced by correspondence or other acts indicating disagreement. The last communication or act that shows the dispute is critical in determining the start of limitation (!) (!) .
In family disputes, the courts tend to adopt a broader and more flexible approach, emphasizing the importance of settling disputes amicably to preserve peace and harmony. Technical rules of limitation are often relaxed or viewed with leniency in such contexts (!) (!) .
The interpretation of when a dispute arises should consider the nature of negotiations and correspondence. If parties are still attempting to resolve issues amicably, the dispute is not deemed to have fully arisen, and the limitation period may not have commenced (!) (!) .
It is recognized that family settlements or arrangements are governed by a special equity, and courts generally favor upholding such arrangements, especially when entered into bona fide and with the objective of maintaining familial harmony (!) (!) .
The enforcement of family settlements should not be hindered by trivial technicalities of limitation, as doing so could undermine the purpose of such arrangements, which is to promote peace and goodwill among family members (!) (!) .
When a dispute is ongoing and parties are engaged in negotiations or efforts to settle, the limitation period does not necessarily start. It begins only when a clear dispute or disagreement has been established, often evidenced by correspondence indicating an impasse or assertion of rights (!) (!) .
The appointment of arbitrators and the conduct of arbitration proceedings are governed by the arbitration agreement, and courts generally prefer arbitration as a means of dispute resolution, especially in family and commercial contexts where maintaining relationships is valued (!) (!) .

Please let me know if you need further elaboration or assistance regarding specific aspects of this case.

JUDGMENT

Dr. A.R. Lakshmanan, J.—This appeal was directed against the final judgment and order dated 8/9th June, 2004 passed by the Division Bench of the High Court of Judicature at Bombay in Appeal No. 440 of 1996 in Arbitration Suit No. 1904 of 1992 whereby the High Court dismissed the appellants’ appeal and upheld the order of the learned single Judge dismissing the appellants’ application under Section 20 of the Arbitration Act, 1940 as being barred by the law of limitation.

2. The short facts of the case are as follows :

A partnership firm was formed by three brothers of the Singhania family. The family owned considerable amount of immovable property, which was brought into the firm’s business. In 1987, the partnership firm was dissolved by way of dissolution deed as a family settlement. Under the dissolution deed, clause 13 which enabled the parties or any party to go for arbitration in case there was a dispute between them reads as follows :

“13. That if at any time any dispute, doubt or question shall arise between the parties hereto or their respective legal representative, either on the construction of interpretation of these presents or respecting the accounts, transactions, profit or loss of business or their respective rights and obligations of the parties hereto or otherwise in relation to the winding up of the partnership, then any such dispute, doubt or question shall be referred to the arbitration of a single Arbitrator. In case, however, the parties are unable to agree upon a single Arbitrator, a panel of three Arbitrators shall be appointed, one of them to be appointed by Shri Hari Shankar Singhania or failing him by the Sixth Party, or failing the Sixth Party by the Seventh Party, or failing the Seventh party, by the Eighth party and the second to be appointed by Dr. Gaur Hari Singhania and failing him by the second party and failing the second party by the ninth party and the third to be appointed by Shri Vijaypat Singhania and failing him by the fourth party, provided always that the decision and/or award by the said panel of the arbitrators shall have to be unanimous and in the event of unanimity not being reached by the panel of arbitrators, they shall appoint an Umpire whose decision shall be final. All the proceedings, before the sole arbitrator and/or panel of arbitrators shall be governed by the provisions contained in the Arbitration Act, 1940 or by any statutory modification or re-enactment thereof.”

3. Disagreement between the parties took place as to the division of the assets involved in the partnership firm. Therefore, the distribution of the said immoveable properties could not be effected by 31st May 1987 as contemplated by the Deed of Dissolution. Ultimately in February 1988, the three groups each appointed a nominee to work out an arrangement whereby distribution of the said immoveable properties of the said dissolved firm could be made and effected in the manner acceptable to all. The nominees held several meetings but no agreement of distribution could be arrived at. Further it can be observed that there were numerous letters written by both parties to find a way to settle the dispute pertaining to the division of assets involved in the partnership firm which was dissolved. The last letter that was exchanged in this regard was a letter dated 29 September, 1989.

4. On May 8, 1992, a plaint under section 20 of the Arbitration Act, 1940 was filed before the High Court of Judicature at Bombay by the appellants (1-7 ousted group). On September 19, 1992, respondent No.1 herein, Dr. Gaur Hari Singhania group (contesting respondent Nos. 1-9) filed an affidavit in opposition stating and submitting that, the suit filed by the appellant in the High Court is barred by limitation and that the High Court had no jurisdiction to entertain the suit and, therefore, the same is liable to be dismissed.

5. It is pertinent to notice that respondent Nos. 10-20 supported the claim made by the appellants. A learned Sin

Click Here to Read the rest of this document

2006 Supreme(SC) 315

Cases Referred (12)