Calcutta High Court Dismisses Plea For Appointing Arbitrator, Says Time-Barred Claim Cannot Be Resurrected By S.43(4) Of A&C Act

The Calcutta High Court has recently held that Section 43(4) of the Arbitration & Conciliation Act, 1996, (1996 Act) must defer to the provisions of the Limitation Act and that the period of limitation cannot be extended to create a new window after the expiry of the limitation.

In dismissing a plea for appointment of an arbitrator under Section 11 of the Act as time-barred, a single bench of Justice Moushumi Bhattacharya held:

Section 43(4), simply put, excludes the time from commencement of arbitration to the date of setting aside of the arbitral award...the petitioner's recourse to section 43(4) of the 1996 Act, even if applied to the facts, does not come to the petitioner's rescue since the petitioner would lag behind the limitation period by 4 years 3 months. The question of limitation must also be decided on the underlying principles of the Limitation Act and discounting the existence of an arbitration clause.

Brief facts

The Court was seized of a Section 11(6) application for the appointment of an arbitrator, which was opposed by the respondent on the ground that the application was not maintainable for being barred under the laws of limitation. 

It was submitted that both parties had entered into a Memorandum of Understanding (MoU) on 28.3.2011 whereby the petitioner was to resign from the respondent's business and was entitled to receive Rs. 1.50 crores from the respondent.

Disputes arose as the petitioner did not receive this money and concerning the properties of the parties. On 11.3.2014 the petitioner issued a notice invoking the arbitration clause in the MoU after which he was served with an award in 2015, that he challenged under Section 34 of the 1996 Act.

Such an application was allowed on 28.9.2022, and the award was set aside by the Alipore Court. Since the respondent disagreed with the petitioner's choice of arbitrators, the petitioner preferred an initial section 11 application which was dismissed for default, leading to the present application under Section 11 of the 1996 Act.

Petitioners relied on Section 43(4) of the Act to argue that the entire period from 11.3.2014 (when the petitioner issued the first notice of invocation) to 28.9.2022 (when the petitioner's section 34 application was allowed) would be excluded for calculating limitation.

It was submitted that the first invocation was done within the limitation period, and the entire period till the award was set aside would be extended since the respondent also expressed willingness to refer the dispute to arbitration. 

Respondent's counsel on the other hand argued that the present application was not maintainable since both the application and the petitioner's claims were time-barred.

It was argued that the Section 21 notice was only served in 2023, 12 years after the right to sue accrued, and that even if the Section 43(4) argument were to be accepted, the petitioner's application would still be 4 years 3 months delayed from when the cause of action arose. 

It was submitted according to Section 137 of the Limitation Act, that the period of limitation began on 27.6.2011 and ended on 26.6.2014.

Findings of the Court

In adjudicating the dispute, the major question before the court was whether the petitioner's cause of action could be given a new lease of life due to the award being set aside in 2022. To better understand the application of Section 43(4) to the present facts, the Court perused a detailed list of dates in the current proceedings. 

It was found that the cause of action would have arisen on 27.06.2011, and under Section 137 of the Limitation Act, the period of limitation would end on 26.06.2014.

Court found that the petitioner had invoked the arbitration agreement on 10.7.2023, 12 years after the right to sue accrued, since the earlier invocation notice from 2014 would be irrelevant due to the present application being founded on the invocation dated 10.7.2023.

In perusing Section 43(4) of the Arbitration Act, the Court noted that the petitioner wished to rely on the provision to exclude the time from the invocation of the arbitration agreement in 2014 to the decree of setting aside in 2022 from the period of limitation.

It found that such a period would be 7 years and 9 months and that even if the petitioner's argument on Section 43(4) was accepted, the present application would still be delayed by 4 years and 3 days from the date when the right to apply accrued under the limitation act. It held:

The petitioner's notice of invocation was sent on 10.7.2023 which is 12 Years after the petitioner's right to apply accrued on 27.6.2011. Section 43 of the 1996 Act embraces the Limitation Act and is not in conflict with the latter. Section 43(4) must hence be read in the context of Article 137 of the Limitation Act which clearly provides for 3 years from the day when the right to apply accrues. Therefore, even if 7 years 9 months is excluded from 12 years, the petitioner would still have exhausted the limitation period by 4 years and 3 months.

Finally, in looking at Section 43(4) in the backdrop of Sections 18 and 137 of the Limitation Act, the Court found that a time-barred claim, could not be resuscitated under Section 18 or 19 of the Limitation Act.

It held that limitation in such cases must be construed under the limitation act as if there were no arbitration agreement, and that Section 43(4) which was a special provision which made the principles of limitation uniformly applicable to arbitrations as they were to courts of law, was not in derogation to the limitation act. 

An application for appointment of an arbitrator under section 11 of the 1996 Act is governed by Article 137 of the Schedule to the Limitation Act and must be made within 3 years from the day when the right to apply first accrues, it concluded.

Accordingly, the plea was dismissed as not maintainable. 

Citation: 2023 LiveLaw (Cal) 341

Case: Manish Todi vs Pawan Agarwal

Case No: AP 555 of 2023

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