Case: Indian Drugs &amp; Pharmaceuticals Vs. Indo Swiss Synthetic Gem Mfg. Co.

2. The appellant entered into an agreement with respondent No.2 (which was subsequently amalgamated with the first respondent and became one of its division) on 13.8.1982 whereunder the respondent was to undertake filling of vials with medicines. The agreement was for the period from 1.4.1982 to 31.3.1984, subject to renewal by mutual agreement thereafter. It was also subject to termination by either party by giving three months notice to thea notice was given by the appellant on 28.12.1983 stating that the agreement would stand terminated with effect from 1.4.1984. During the subsistence of the agreement, the respondent undertook some work which, according to the appellant, was not in terms of the agreement. After the defect came to the notice of the appellant, which was sometime in the second half of 1985, it called upon the respondent, by its letter of 10.11.1987, to reimburse the loss which was stated to be a sum of Rs.161.82 lacs. The respondent disputed the claim by its letter 27.11.1987, whereupon by invoking clause 19 of the agreement, the appellant referred the dispute to respondent No.3 who ha d been appointed by the Chairman and Managing Director of the appellant in exercise of power conferred by clause 19. The appointment was challenged by respondent No.2 by filing an application under s.33 of the Arbitration Act, 1940, read with certain provisions of the code of Civil Procedure, before the Court of Sub-ordinate Judge, Coimbatore, stating, inter alia, that clause 19 of the agreement could not be invoked to refer the matter to arbitration. In any case clause 19 d id not permit resolution of the dispute of the type raised by the appellant. The Sub-ordinate Judge decided main issues in favour of the respondent, which order was challenged by the appellant in the High Court of Judicature at Madras. The High Court upheld the order of Sub-ordinate Judge. Hence this appeal under Article 136 of the Constitution.

Court's reasoning:
8. So, an arbitration clause, howsoever comprehensive in terms, can be operative only if the contract is in existence (vide point (2) above). Under point No.6, however, it has been stated that when a question of breach of contract, inter alia, is raised after the termination of the contract, it is the performance of the contract that comes to an end on termination of the contract, but the same remains in existence for certain purposes in respect of disputes arising under it or in connection with it. It was, therefore, stated under this point that as the contract subsist for certain purposes, the arbitration clause operates in respect of these purposes.This shows that the arbitration clause would perish in case where either there is substitution of a new contract, or rescission or alteration of the original contract. The present is apparently and admittedly not such a case. Therefore, what has been stated in this decision cannot assist the respondents. On the other hand, the ratio of Kishorilal Gupta squarely applies. We, therefore, hold that clause 19 dealing with arbitration did survive despite the contract having come to an end with effect fromdo not propose to express any opinion on this aspect of the matter. Suffice to say in this proceeding that if the case of the appellant be correct the arbitration clause would getthe question of jurisdiction being raised by the appellant, a queer view was taken inasmuch as the court stated that the petitioner before him (who is respondent herein) having business at Coimbatore, the court there had jurisdiction. This has really put section 20 of the Code of Civil Procedure on its head, as it permits assumption of jurisdiction by that court where the opposite party carries o n business, and not the petitioner or plaintiff. The other point urged to sustain jurisdiction was that the respondents letter dated 27.11.1987 had been issued from Coimbatore. This fact could not have conferred jurisdiction because the fact of mere reply to the notice of the appellant did not give rise to any part of "cause of action" within the jurisdiction of Coimbatore court. We are, therefore, of the view that Coimbatore court had noplea of limitation had not been urged earlier. That, however, is not material as a plea of limitation can be raised virtually at any point of time because it is relatable to jurisdiction to entertain a matter. According to Shri Desai as the appellant had for the first time required the respondent to reimburse the supposed loss by its letter of 10.11.1987, which was after about 4 years of the supply, the invocation of arbitration clause was apparently barred by limitation, which period could at best at three years as provided by Article 137 of the Limitation Act, 1963. We are referred in this connection to a Bench decision of this Court to which one of us (K.Ramaswamy, J.) was a party- the same being in the case of Panchu Gopal Bose vs. Board of Trustees for Port of Calcutta, 1993 (4) SCC 338.  This decision has held the Limitation Act applies to arbitration proceedings and the period visualised by different provisions of the Limitation Act would decide the question of limitation in an arbitration proceeding.Thus, the complaint from the customers, particularly Defence Department, came to be known by the appellant in early 1985 whereafter the matter was taken up with the respondent and the tests ultimately were done in July, 1985. If these facts be correct, it has to be held that the cause of action to claim damages really accrued by July, 1985 which was thereafter made by a letter of November, 1987 followed by appointment of arbitrator in May, 1988. The arbitration was thus not "manifestly barred" as contended by Shri Desai. We do not propose to say anything more on this aspect at this stage.16. In the aforesaid premises, we do not find any threshold infirmity in the invocation of clause 19 and to the reference of the dispute to respondent No.3. Shri Desai submits that respondent No.3 may not be required to arbitrate inasmuch as he being an appointee of the Chairman and Managing Director of the appellant himself, respondents case may not be fairly examined. He prays that any retired High Court Judge may be appointed as an arbitrator by us. We have not felt inclined to accept this submission, because arbitration clause states categorically that the difference/dispute shall be referred "to an arbitrator appointed by the Chairman and Managing Director of IPDL" (Indian Drugs &Pharmaceutical Limited) who is the appellant. This provision in the arbitration clause cannot be given a go-bye merely at the askance of the respondent unless he challenged its binding nature in an appropriate proceeding which he did not do.