Mere Reply To The Notice Of Arbitration Would Not Save The Limitation Period For Filing Counter-Claims: Orissa High Court

The Court held that the date on which the counterclaim is filed before the arbitrator would be the relevant date for determining the date of stopping of the period of limitation unless the respondent had issued a separate notice of arbitration raising the counter-claims, then the limitation would be computed as on the date of that notice.

Facts

The parties entered into an agreement dated 08.06.2012. The work could not be completed within the stipulated time period, therefore, the agreement was terminated on 12.06.2014 and the respondent vacated the site on 30^th July, 2014.

Thereafter, on 17.09.2016, the petitioner sent an email to the respondent whereby both parties agreed to appoint an arbitrator for determining the amount due to the respondent.

Then on 25.03.2017, the petitioner issued the notice invoking arbitration and vide reply dated 07.04.2017, the respondent denied its liability to pay and stated that an amount of Rs. 6 Cr is due to it from the petitioner. However, it agreed that the parties have an arbitration agreement, therefore, an arbitrator was appointed.

Along with its statement of defence, the respondent filed its counter-claims on 18.09.2018. The arbitrator allowed the counter-claims of the respondent and awarded a sum of Rs. 5,21,60,618. Aggrieved by the award, the petitioner challenged the award.

The Contention Of The Parties

The petitioner challenged the award on the following grounds:

• The cause of action for the respondent arose way back in the year 2014 when the contract was terminated and the respondent vacated the side, however, the counter-claims were only raised by the respondent on 18.09.2019, therefore, the counter-claims of the respondent were barred by limitation.
• The arbitral tribunal erred in allowing the time barred counter-claims of the respondent, therefore, the arbitral award to the extent that it allows the counter-claims is liable to be set aside.

The respondent raised the following arguments to sustain the arbitral award:

• The final bill was not settled in the year 2014, therefore, the period of limitation would not begin from the date of termination of contract as contented by the petitioner but only from the date of settlement of final bill, therefore, the counter-claims were within limitation.
• The petitioner in its email dated 17.09.2016 had acknowledged its liability, therefore, even if the argument of the petitioner is to be accepted, the period of limitation was extended by that acknowledgment.
• The petitioner had notified its counter-claims vide letter dated 07.04.2017, therefore, its claims fall within the exception carved out by the Supreme Court in State of Goa v. Praveen Enterprises, (2012) 12 SCC 581 and period of limitation would stop on that date.

Analysis By The Court

The Court rejected the argument of the respondent that its case falls within the exception carved out in the judgment of Praveen Enterprises (supra) as the SC had merely held that if the respondent has any counter-claim against the petitioner and it had by a separate notice of arbitration intimated the petitioner of its claims, then the date of such notice would be relevant for the purpose of determining limitation.

The Court held that the respondent did not fulfil the twin conditions laid down in Praveen Enterprises (supra) as it neither intimated the petitioner of the particulars of its claims nor did it issue any notice of arbitration that would have stopped the period of limitation. It held that respondent's letter dated 07.04.2017 was a mere reply to the arbitration notice issued by the petitioner on 25.03.2017, therefore, it cannot save the limitation period.

The Court further held that the date of settlement of final bill is inconsequential when the agreement was terminated and the respondent vacated the work site in 2014 only. It further held that email dated 17.09.2016 cannot amount to acknowledgement of debt as the petitioner had merely agreed to the appointment of arbitrator without admitting any liability to pay.

Consequently, the held that the counter-claims preferred by the respondent on 18.08.2018 were barred by limitation.

Accordingly, the Court set aside the arbitral award to the extent it allowed the respondent's counter claims.

Case Title: Birla Institute of Management v. Fiberfill Interiors & Constructions, ARBA. No. 26 of 2022

Citation: 2022 LiveLaw (Ori) 128  

Date: 28.07.2022

Counsel for the Petitioner: Mr. P.K. Parhi, Advocate (Asst. Solicitor General of India) with Mr. D. R. Bhokta, Advocate (Central Government Counsel)

Counsel for the Respondent: Mr. T. Rana, Advocate with Mr. S. K. Dwivedy, Advocate

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