Mere Negotiations Do Not Delay Cause Of Action For Purpose Of Limitation, Telangana High Court Dismisses Application For Appointment Of Arbitrator

Brief Facts:

Athelli Mallikarjun (“Applicant”) entered into development agreements-cum-General Power of Attorney with S.S.B Constructions (“Respondent”) for two properties located in Secunderabad. The Respondent failed to adhere to the agreed-upon construction timelines, resulting in a delay of twelve months for one property and an ongoing absence of an Occupancy Certificate after eight years. Furthermore, the Applicant alleged that the Respondent used subpar materials and failed to fulfill specified amenities, causing financial loss and mental distress. Despite repeated requests for resolution, the Respondent evaded responsibility, prompting the Applicants to initiate arbitration proceedings as per the agreement's clause. The Applicant approached the Telangana High Court (“High Court”) and filed application under Section 11(5) & (6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) read with Para (3)(i)(d) of Scheme of Appointment of Arbitrators, 1996.

Conversely, the Respondent asserted that they completed construction according to agreed specifications by 2014-2015, providing all amenities such as lifts and water connections. It claimed to have handed over 50% of the constructed portion to the Applicant in 2015 without objection. Additionally, it argued that the Applicant remained silent for seven years, enjoying the provided amenities peacefully, rendering the application for appointment of the arbitrator as time-barred under the Limitation Act, 1963.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in Bharat Sanchar Nigam Limited and another v. Nortel Networks (India) Private Limited, wherein the Supreme Court articulated the principle that claims must adhere to statutory limitations. The High Court held that the mere exchange of communications or settlement discussions does not suffice to extend the limitation period. It held that once the time begins to run, no subsequent disability or inability to institute a suit or make an application stops it. Therefore, in the absence of a clear notice invoking arbitration within three years from the rejection of a final bill, the time bar prevails.

The High Court held that since the Arbitration Act does not specify the limitation period for filing an application under Section 11, recourse must be taken to the Limitation Act, 1963. The High Court noted that the notice invoking arbitration issued by the Applicants was over five years after the rejection of their claims by the Respondent. It noted that the period of limitation for such notices begins immediately after the rejection of final bills, pursuant to Article 55 of the Schedule of the Limitation Act. It highlighted the necessity for a clear notice invoking arbitration, setting out the particular dispute within three years from the rejection of a final bill.

Consequently, the High Court found the notice invoking arbitration to be ex facie time-barred. It referred to Article 137 of the Limitation Act, 1963, which governs the period of limitation for applications under Section 11, highlighting the need for adherence to statutory timeframes for initiating arbitration proceedings. The High Court dismissed the application for appointment of arbitrator accordingly.

Case Title: Athelli Mallikarjun and others vs S.S.B Constructions, Registered Partnership Firm, Secunderabad and another.

Case Number: ARBITRATION APPLICATION No.169 OF 2022

Advocate for the Applicant: Prabhakar Sripada

Advocate for the Respondent: Vijay B. Paropakari

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