Limitation Is An Aspect Of Public Policy For The Purpose Section 34 Of Arbitration Act : Madras High Court

The Single Bench of Justice M. Sundar held that, in view of the principle laid down by the Supreme Court in Voltas Limited versus Rolta India Limited (2014), if the counter claimant before an Arbitral Tribunal has invoked the arbitration clause, then, the date of such invocation would be the relevant date to decide the limitation period for raising the counter claim. Hence, the Court ruled that the view of the Arbitral Tribunal that the counter claim raised by the party was barred by limitation, by referring to the date on which it had filed the counter claim before the Tribunal, was incorrect.

A contract was entered into between the petitioner/Contractor- M/s. Chennai Water Desalination Ltd. and the respondent- Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB). After certain disputes arose between the parties, the petitioner invoked the Arbitration Clause and the disputes were referred to arbitration. The Arbitral Tribunal passed an award rejecting the claims made by the claimant/respondent, including a claim for Liquidated Damages, on the ground that they were barred by limitation. Also, the counter claims made by the petitioner were rejected by the Tribunal as being barred by limitation. The petitioner challenged the arbitral award before the Madras High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), on the ground that the counter claims made by it were not barred by limitation.

The respondent CMWSSB submitted before the High Court that as per Article 137 of the Limitation Act, 1963 the petitioner was required to raise the counter claims within the period of three years from when the right to raise the said counter claims accrued to the petitioner.

The High Court ruled that on 05.08.2010, when the respondent/claimant sent a communication to the petitioner alleging that it was entitled to raise the relevant claims, the right to raise the counter claims accrued to the petitioner.

The respondent CMWSSB argued that, even if 05.08.2010 was considered as a reckoning date for commuting the limitation period, however, since the counter claim was filed by the petitioner before the Arbitral Tribunal only on 12.04.2016, the said counter claim was barred by limitation since it was filed well beyond three years.

The High Court, while dealing with the issue as to when the limitation period for filing the Counter Claim could be said to be arrested, noted the law laid down by the Supreme Court in Voltas Limited versus Rolta India Limited (2014). The Court observed that as per the principle laid down in Voltas Limited (2014), if the counter claimant before an Arbitral Tribunal has invoked the arbitration clause, which is within the meaning of Section 21 of the A&C Act, then, the date of such invocation would be the relevant date to decide the limitation period. However, the Court added that if the counter claimant before an Arbitral Tribunal has not resorted to invocation of the arbitration agreement, then the date on which the counter claim was filed before the Arbitral Tribunal would be the relevant date.

Observing that it was the petitioner/ counter claimant who had invoked the Arbitration Clause, by issuing a notice on 27.04.2011, the Court further noted that as per the provisions of Section 21 of the A&C Act, the date of commencement of arbitral proceedings shall be the date on which the notice invoking the Arbitration Clause was received by the noticee, i.e., the claimant/respondent, which was on 18.05.2011.

Thus, the Court held that the limitation period qua the counter claim got arrested on 18.05.2011, in view of the principle laid down in Voltas Limited (2014) and the provisions of Section 21 of the A&C Act, and thus, the counter claim filed by the petitioner could not be rejected by the Arbitral Tribunal on the ground that it was barred by limitation.

"A careful perusal of Section 21 of A and C Act makes it clear that the date of commencement of arbitration proceedings (for the purpose of limitation) shall be the date on which 27.04.2011 notice was received by the noticee. As regards the case on hand, notice has been received by the noticee on 18.05.2011 and that is the date on which arbitration proceedings commenced within the meaning of Section 21 of A and C Act. This means that if Voltas principle is applied in the light of Section 21 of A and C Act, the limitation qua counter claim got arrested on 18.05.2011 which is well within one year irrespective of whether the starting point is 05.08.2010 or 09.07.2010. This by itself gives a closure to the bone of contention in favour of the Contractor."

The Court held that the view of the Arbitral Tribunal that the counter claim raised by the petitioner was barred by limitation, by referring to the date on which the petitioner had filed the counter claim before the Tribunal, was incorrect.

Holding that the arbitral award was incorrect qua limitation, the Court added that the arbitral award was in conflict with the public policy of India since it was in contravention of the fundamental policy of India. Hence, the Court ruled that it was hit by the vice of Section 34(2)(b)(ii), read with Clause (ii) of Explanation 1 to Section 34 (2) (b) (ii), and Section 34(2A) of the A&C Act.

"This Court is conscious of the proviso to Section 34(2A) (patent illegality) wherein two aspects of the matter are forbidden. One is re-appreciation of evidence and the other is setting aside an award on the mere ground of erroneous application of law. The case on hand is clearly outside the purview of this proviso as there is no re-appreciation of evidence and it is not a 'mere' erroneous application of law as it is incorrect qua limitation.", the Court ruled.

The Court added that since limitation is clearly founded on public policy, hence, even de hors Section 34(2A) of the A&C Act, the arbitral award was hit by Section 34(2)(b)(ii), read with Clause (ii) of Explanation 1 to Section 34 (2) (b) (ii), since it was in conflict with the public policy.

Thus, the Court allowed the petition and set aside the arbitral award insofar as it rejected the counter claim made by the petitioner. The Court ruled that the arbitral award, insofar as it rejected the claims made by the respondent, was several and would remain undisturbed.

Case Title: M/s. Chennai Water Desalination Ltd. versus Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB)

Dated: 26.07.2022 (Madras High Court)

Citation: 2022 Livelaw (Mad) 346

Counsel for the Petitioner: Ms. Hema Srinivasan along with Ms. N. Umayaparvathi

Counsel for the Respondent: Mr. P. Kumaresan Additional Advocate General for Mr. Gautam S. Raman Standing Counsel for CMWSSB

Click Here To Read/Download Order