Party Can’t Restrict Limitation Period For Invoking Arbitration Contrary To Limitation Act : Delhi High Court

While dealing with an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act), the Court dismissed the contention of the appellant/award debtor that the claims raised by the claimant were time-barred.

Noting that the limitation period for invoking arbitration under the A&C Act is three years, as prescribed under Article 137 of the Limitation Act, 1963, the bench of Justice Manoj Kumar Ohri remarked that the appellant cannot be permitted to rely on the relevant clause of the Contract and restrict the period of limitation for invoking arbitration to 120 days.

As per Section 28 (b) of the Contract Act, any agreement which extinguishes the rights of any party, or discharges any party, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict it from enforcing its rights, is void to the extent.

The appellant, Municipal Corporation of Delhi (MCD), floated a tender for providing and fixing a Retro- Reflective Sign Board. The respondent, Natraj Construction Company, was awarded the contract and a work order was issued in its favour.

The MCD passed a sanction order clearing the bill raised by the respondent. However, the said amount was not paid since the CBI had registered an FIR with respect to the, alleged, sub-standard quality of work in relating to fixation of the Sign Board. In the said FIR, the officials of MCD as well as the respondent were named as accused persons.

Thereafter, the respondent, Natraj Construction Company, invoked the arbitration clause contained in the agreement executed between the parties. The Arbitral Tribunal allowed the claim raised by the respondent and passed an award in its favour, awarding an amount, along with interest, for the work done by it under the work order. MCD filed a petition under Section 34 of the A&C Act before the District Court, challenging the arbitral award. The District Court dismissed the petition and upheld the award.

Challenging the District Court’s order, MCD filed an appeal under Section 37 of the A&C Act before the Delhi High Court.

The MCD submitted before the High Court that since the matter was under investigation by the CBI, the Trial Court ought to have interfered with the award in terms of Section 34(2)(b) of the A&C Act.

It added that as per the relevant clause contained in the Contract Agreement between the parties, any challenge made by the respondent was required to be raised within 120 days from the date the MCD cleared the bill raised by the respondent. Since the arbitration proceedings were initiated much later, the claim was time barred, it averred.

The Court, while referring to the amended provisions of Section 28 of the Contract Act, dismissed MCD’s contention that the claims were time barred.

The bench referred to the decision of the Delhi High Court in M/s. Smart Commodity Broker Pvt Ltd. vs. Beant Singh (2017), where the High Court had ruled that, in view of Section 28 of the Contract Act, as amended by the Amendment Act of 1996, a party by contract cannot limit the limitation period which is otherwise provided by law. Therefore, a lesser period of limitation provided under the Contract would be hit by Section 28 of the Contract Act, the Court had ruled.

While noting that the limitation period for invoking arbitration under the A&C Act is as prescribed under Article 137 of the Limitation Act, i.e., a period of three years, the bench remarked that in view of Section 28 of the Contract Act, MCD cannot be permitted to rely on the relevant Clause of the Contract Agreement and restrict the period of limitation for invoking arbitration to 120 days.

Perusing the chargesheet filed by the CBI, the Court further reckoned that, “A perusal of the chargesheet would show that though during investigation, the CBI seized a number of documents, the chargesheet was filed only in relation to Work Order bearing No.850 dated 09.02.2004. Pertinently, the Work Order in the present case being Work Order No.933/EE/RD1/RZ/TC/03- 04/31/11 dated 09.03.2004 was seized during investigation but was neither made part of the chargesheet nor relied upon.”

Concluding that the chargesheet filed by the CBI was not in relation to the Work Order under consideration, and that the pendency of CBI proceedings were in relation to a different Work Order, the Court dismissed the appellant’s contention that the award was in conflict with the public policy of India.

The Court also referred to the Supreme Court’s decision in Swiss Timing Limited vs. Commonwealth Games 2010 Organizing Committee (2014), where it was held that there is no inherent risk of prejudice to the parties in permitting arbitration to proceed simultaneously with the criminal proceedings.

The Court thus dismissed the appeal.

Case Title: Municipal Corporation of Delhi vs. Natraj Construction Company

Citation: 2023 LiveLaw (Del) 263

Counsel for the Appellant: Ms. Tanu Priya Gupta, Advocate

Counsel for the Respondent: Mr. Rajeev Kumar and Mr. Mohd. Sarfaraj, Advocates

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