Summary
In an arbitration over partnership accounts referred by the Madras High Court in 1997 at the instance of an outgoing partner, the surviving partner filed no claim but a counter-claim in December 1997 alleging over-invoicing and diversion of diamonds; the sole arbitrator, taking accounts for twenty-one years, awarded about Rs. 53.87 lakhs with 18 per cent interest. A Single Judge upheld the award but the Division Bench set it aside as contrary to public policy. The Supreme Court dismissed the surviving partner's appeal: the respondent ceased to function as a partner in December 1993 and reconciliation was demanded in February 1994, so the counter-claim was made beyond three years from knowledge of the alleged fraud; Section 17 of the Limitation Act, 1963 only postpones the start of limitation to the date of knowledge and requires specific pleading of fraud, which the counter-claim lacked.
Issues
- Whether a counter-claim in arbitration alleging fraud by an outgoing partner, filed more than three years after the surviving partner's knowledge of the alleged malpractices, is saved by Section 17 of the Limitation Act, 1963, and whether an award founded on it could be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Provisions considered
- Section 17, Limitation Act, 1963Where fraud is specifically pleaded and proved, limitation begins from the date of the plaintiff's knowledge; following Vallabh Glass Works, Auriaya Chambers of Commerce and R. Radha Bai, the section postpones rather than extends limitation, and the counter-claim was filed beyond three years from knowledge. (¶¶ 6, 8, 10, 11)
- Section 34, Arbitration and Conciliation Act, 1996The Division Bench set aside the award as contrary to public policy for crystallising liabilities on accounts worked over twenty-one years on a time-barred counter-claim; that conclusion, though reached in appeal, disclosed no error of law. (¶¶ 4, 9, 11)
Held
- The record showed the respondent stopped functioning as partner in December 1993 and the parties parted in early 1994, yet the appellant made no attempt to enforce any claim until the counter-claim of December 1997; the counter-claim's pleadings of fraud were not specific, alleging only that the respondent set up a firm within six months of leaving, so the claim was beyond limitation and the award to that extent could not stand. (¶¶ 7, 8, 9, 10, 11)
Result
Appeal dismissed; Madras High Court Division Bench order dated 29.09.2008 in OSA No. 67 of 2007 setting aside the arbitral award and appointing a fresh arbitrator affirmed; pending applications disposed of.