P L D 1973 Lahore 131 (PLP)

The only ground on which this finding was challenged in arguments by the learned counsel for the petitioner is that the time limit of one month in clause 28‑A was repugnant to Article 181 of the Limitation Act and if allowed to have its course would defeat the above provisions of the Act. It was, therefore, contended that this clause was void under section 23 of the Contract Act. Section 23 of the Contract Act, inter alia, provides that the consideration or object of an agreement is not lawful if it is of such a nature that it would defeat the provisions of any law and the section declares such agreement is void. But there is nothing in the Limitation Act which may be inconsistent with clause 28‑A of the agreements in this case. Schedule I of the Limitation Act makes provision for period of limitation for various type of suits, appeals and applications and for the time from which such period begins to run. Section 3 of the Act provides that subject to the provisions of sections 4 to 25 every suit instituted, appeal preferred, and application made after the period of limitation prescribed therefore by the First Schedule shall be dismissed although limitation has not been set up as a defence. A plain reading of section 3 of the Limitation Act and section 23 of the Contract Act will show that an agreement to enhance the period of limitation or a promise by the defendant not to raise the plea of limitation is in effect a covenant to defeat the provision of the Limitation Act. It will be contracting oneself out of the statute of limitation and such agreement will be void. There is, however, a marked distinction between a condition which shortens or limits the time within which a suit may be brought. There is nothing in the above provisions to justify the inference that a stipulation allowing curtailment of period of limitation in an agreement is void. There is however, another provision in section 28 of the Contract Act which declares agreement in restraint of legal proceedings void. This section is as follows :‑ "Section 28.‑Every agreement, by which any party thereto is restricted absolutely from enforcing his right under or in respect of any contract, by the usual proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Exception 1.‑This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subjects or class of subjects shall be referred to arbitration, and that only the amount awarded 1n such arbitration shall be recoverable in respect of the dispute so referred. Exception 2.‑Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration." This section lays down that every agreement which limits the time within which a party to the agreement may enforce his rights is void to that extent. But this section makes void only agreements which restrict a party to the Contract from enforcing the right under that Contract either by specific condition or impliedly (by curtailing the period of limitation) in an ordinary tribunal, i.e., tribunal in which ordinarily a suit may be tried. Accordingly an agreement stipulating a period of parties' own choice for reference to arbitration is not B covered by section

28. Section 28 very clearly distinguishes between an ordinary tribunal and an arbitrator and applies to those agreements only which prohibit, either wholly or partially the parties from having recourse to a Court of Law. Clause 28‑A is not a bar to a suit in a Court of Law and in no way is repugnant to section

28. All it comes to is that the dispute will primarily be settled by arbitration if an arbitrator Is appointed within one month otherwise the law will take its course and a suit can be filed. The learned counsel then relied upon section 37 of the Arbitration Act which is also reproduced here :‑ Section 37.‑(1) All the provisions of the Limitation Act, 1908, shall apply to arbitrations as they apply to proceedings in Court. (2) Notwithstanding any term in an arbitration agreement to the effect that no cause of action shall accrue in respect of any matter required by the agreement to be referred until an award is made under the agreement, a cause of action shall, for the purpose of limitation, be deemed to have accrued in respect of any such matter at the time when it would have accrued but for that term in the agreement. (3) For the purposes of this section and of the Limitation Act, 1908, an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement, requiring that the difference be submitted to the person so named or designated. (4) Where the terms of an agreement to refer future differences to arbitration provide that any claims to which the agreement applies shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings is taken within a time fixed by the agreement, and a difference arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardships would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such term, if any, as the justice of the case may require, extend the time for such period as it thinks proper. (5) 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 commence ment of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1908, for the commencement of the proceedings (including arbitration) with respect to the difference referred." Subsection (1) only is relevant and extends the provisions of the Limitation Act to arbitration as they apply to proceedings in Court. But this subsection has been enacted to set at rest a doubt whether a defence of limitation could be raised in arbitration proceedings. In Remudutt Ramkissen Dass v. E. D. Sasson & Company (ILR 56 Cal.1048=115PC713), their Lordships of the Privy Council observed that section

3. Limitation Act has In view primarily suits, appeals and applica tions made in the Law Courts and makes no reference to arbitration proceedings but held that the Limitation Act applied to arbitration proceedings also and every defence which would have been open in a Court of Law can be equally proposed for arbitrator's decision unless the parties have agreed to exclude the defence. The underlined portion is In consonance with the decision of the case of In re : An arbitration between the Astley and Tyldesley Coal Co. and the Tyldesley Coal Co. ((1899) 68 L T Q B 252 =80 L T 116) referred to in the above Privy Council case. It was held there that "submission to arbitration does not per se exclude the right of either party to raise the defence of the statute of Limitations; but If it be intended to exclude such a defence, an express term to that effect must be imported into the agreement of submissions". In view of subsection (1) of section 37, it is no longer possible to agree to exclude the defence of limitation and such an agreement would be void under section 23, Contract Act. But this subsection does not forbid the agreement fixing time for reference to arbitration, though if the reference is once C made, the arbitrator would be bound to decide the matter according to the provisions of the Limitation Act. An agreement fixing time during which reference may be made to arbitration is impliedly considered valid by subsection (4) of section 37 which vests the Court with a discretion to extend such time. In Atlantic Shipping & Trading Co. Ltd. v. Louis Dreyfus & Co. ((1922) 2 A C 250) where there was a clause in a contract that the claim must be made in writing and claimants' arbitrator appointed with three months of final discharge, it was held that the arbitration clause was not open to objection although the question before the House of Lords was whether the clause ousted the jurisdiction of the Court. One term of the Contract in Pompe v. Funch.s ((1876) 34 L T 800) was that a fair allowance was to be made for inferior quality, but no complaint about quality could be entertained, and no allowance was to be made unless the reference to arbitration be demanded within 14 days of the landing of the jute: It was held that this was not an unreasonable mode of determining a dispute about quality, and able mode of determining a dispute about quality, and was good answer to the action. Even section 28 of the Contract Act has sometimes been construed strictly. Conditions in insurance policies that if a suit is not brought within a period fixed by agreement all benefits under the policy shall be forfeited, have been considered in a number of cases and it was held that such conditions (which related to a suit before an ordinary tribunal and not to arbitration) did not offend against provisions of section 28 of the Contract Act. In the words of Batchelor, J., in Baroda Spinning & Weaving Company Ltd. v. Satyanarayan Marine & Fire Insurance Company Ltd. (I L R 38 Bom. 344) "what the plaintiff was forbidden to do was to limit the time within which he was to enforce his rights; what he has done is to limit the time within which he has any right to enforce; and that appears to me to be a very different thing". See Hirabai v. Manufacturers Life Insurance Co. (16 I C 1001), Girdhari Lal Honuman Bux v. Eagle Star & British Dominions Insurance Co. Ltd. (A I R 1924 Cal. 186), G. Rainey and another v. The Burma Fire & Marine Insurance Co. Limited (A I R 1924 Rang. 351) and A. N. Ghose v. Reliance Insurance Co. and another (A I R 1934 Rang. 15). In view of the above discussion, it is not necessary to decide whether an application under section 20 of the Arbitration Act is governed by the residuary Article 181 of the Limitation Act. But I cannot part with this case before making a reference to two authorities. It was no doubt held in West Pakistan WAPDA v. Omar Sons Ltd. (P L D 1970 Lah. 398), that Art. 181 applies to application under section 8 of the Arbitration Act. The ratio of the case was that it was no longer possible to say that the 3rd division of Schedule I was confined to application under C. P. C. But the authority of this case is shaken by the latest pronouncement of the Supreme Court, in Naeem Finance Ltd. v. Bashir Ahmad Rafiqui in which their Lordships of the Supreme Court have held that Art. 181 is not applicable to applications other than those falling under the Civil Procedure Code. The revision petition has no force and is dismissed. There will be no order as to costs. K.B.A. Petition dismissed.