Arbitrator Cannot Be Appointed Over A 'Dead Cause Of Action' Barred By Law Of Limitation: Gujarat High Court
The Gujarat High Court has held that a party cannot be allowed to seek appointment of arbitrator over a "dead" cause of action or to revive a claim which is barred by the Law of Limitation. "Normally the issue of limitation being question of fact/s and the Law governing the same would be procedural, it would always be open for the Arbitral Tribunal to decide based on the facts that may...
The Gujarat High Court has held that a party cannot be allowed to seek appointment of arbitrator over a "dead" cause of action or to revive a claim which is barred by the Law of Limitation.
"Normally the issue of limitation being question of fact/s and the Law governing the same would be procedural, it would always be open for the Arbitral Tribunal to decide based on the facts that may be unfolded in a given case. However, this Court exercising the power of referring the dispute to arbitration, would refuse to do so when it is manifest that claims are ex-facie time barred and dead or there is no subsisting dispute," Chief Justice Aravind Kumar observed.
The Court was considering an application under Section 11(6) of the Arbitration Act for appointment of arbitrator to resolve a partnership dispute.
The Petitioner stated that he and the Respondents had entered into a partnership agreement in 1994. Subsequently, due to the departure of a former partner, a new partnership agreement was entered into where the Petitioner and Respondents 1-3 became partners, where the Petitioner was granted 25% of the share.
On account of certain disputes, the Petitioner had filed Regular Civil Suits for various reliefs. The Petitioner then issued notices to the Respondents for giving consent regarding appointment of a sole arbitrator which was objected to. Hence, the instant petition was filed.
The Respondent opposed the facts presented by the Petitioner and stated that the partnership was dissolved in 2005. Subsequent to a meeting, it was agreed by all the partners that the Petitioner would be removed from the firm. The Petitioner also did not affix his signature to the dissolution deed. One of the Regular Civil Suits was disposed of in 2013. Hence, the claim of the Petitioner was 'hopelessly barred by limitation.'
The court noted that the firm was unregistered, and that the Petitioner had not signed the deed of dissolution of the firm. Further, the Petitioner had accepted the orders arising from the Regular Civil Suits but he was trying to 'take umbrage' under a 2018 order of a 2005 Civil Suit for seeking appointment of an Arbitrator.
The Bench found that the Petitioner had knowledge of his removal since 2005, yet he did not take recourse to arbitration 'for reasons best known to him.' The trial court in two of the suits had stopped the proceedings in 2007 while pointing out the existence of an arbitration clause in the deed. However, the Petitioner had failed to approach the High Court for appointment of the Arbitrator even then. The Petitioner had wrongly not invoked the arbitration clause and instead had resorted to filing Civil Suits. Thus, the cause of action to sue had stood extinguished on the expiry of three years, even if it had commenced from March 2010.
The Bench perused Sec 43(1) of the Limitation Act, as well, to conclude that the Court can choose not to exercise powers in an arbitration disputed when it is manifest that the claims are ex-facie time barred, dead or there is no subsisting dispute.
Reference was made to Bharat Sanchar Nigam Limited and Another versus Nortel Networds India Private Limited to reiterate:
"…it has been held that the Court must undertake a primary first review to weed out "manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes." The prima facie review at the reference stage is to cut the deadwood, where dismissal is barefaced and pellucid, and when on the facts and law, the litigation must stop at the first stage."
Accordingly, the petition was dismissed.
Case No.: C/IAAP/173/2018
Case Title: DIPAKKUMAR NATHABHAI PATEL v/s NARMADABEN DHIRAJLAL RADADIA & 2 other(s)
Citation: 2022 LiveLaw (Guj) 325