Section 11 Application Barred By Limitation; Parties Cannot Be Referred To Arbitration: Punjab and Haryana High Court

The Single Bench of Chief Justice Ravi Shanker Jha was dealing with an application filed under Section 11 of the A&C Act six years after the limitation period for filing an application for appointment of an arbitrator commenced. The Court held that in view of Article 137 of the Limitation Act, 1963, the application filed by the applicant before the High Court was barred by limitation, since it was filed well beyond three years.

The applicant M/s Garg Construction Company entered into an agreement with the respondent State of Haryana for the widening and strengthening of a particular road. After a dispute arose between the parties, the payment of the applicant under the agreement was withheld.

The applicant issued a legal notice to the respondents in 2011, seeking appointment of an arbitrator.

The respondents, in their reply to the legal notice, asked the applicant to deposit 10% of the claim amount before the limitation period so that the arbitrator could be appointed.

Thereafter, several correspondences took place between the parties, whereby the respondents continued to reiterate their stand on the deposit of 10% of the claim amount, which was not deposited by the applicant.

The applicant filed an application before the Punjab and Haryana High Court under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) in 2017, seeking appointment of an arbitrator.

The respondent State of Haryana submitted before the High Court that the application filed by the applicant seeking appointment of an arbitrator was not maintainable since it was barred by limitation on account of delay and laches.

The applicant M/s Garg Construction Company averred that the question regarding the staleness of the claim and whether the claim made by the applicant was barred by limitation or not, cannot be decided in Section 11 proceedings and that the said issue should be left to be decided by the arbitrator.

The Court observed that the Supreme Court in the case of Secunderabad Cantonment Board versus M/s B. Ramachandraiah & Sons (2021) had ruled that only in very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, can the court decline to make the reference. However, the Supreme Court had held that if there was even a slightest doubt, the Court must refer the disputes to arbitration, otherwise it would encroach upon a matter that must essentially be determined by the arbitral tribunal.

The Court noted that the Supreme Court in Secunderabad Cantonment Board (2021) had observed that where a legal notice demanding appointment of an arbitrator within 30 days was made to the opposite party; and after the 30-day period if no arbitrator was appointed, the cause of action for appointment of an arbitrator would accrue to the said party, and the limitation period for the purpose of Article 137 of the Limitation Act, 1963 would begin running from that day.

The Supreme Court had ruled that once the limitation period had started running, any final rejection to the request for appointment of an arbitrator by a party would not give any fresh start to the limitation period which had already begun running, following the mandate of Section 9 of the Limitation Act. Hence, the Supreme Court had held that since the application under Section 11 of the A&C Act was hopelessly time-barred, no arbitrator could have been appointed by the High Court.

The High Court observed that the dispute between the parties arose in 2007 and that the applicant, for the first time, sent a legal notice to the respondents for the appointment of an arbitrator in 2011. The Court noted that the respondents, in their reply dated 28.04.2011 to the legal notice, had asked the applicant to deposit 10% of the claim amount. Thus, the Court held that the limitation period for filing the application under Section 11 of the A&C Act had started running and, therefore, the application filed by the applicant before the High Court in 2017 was barred by limitation, since it was filed beyond three years.

The Court thus, dismissed the application.

Case Title: M/s Garg Construction Company versus State of Haryana and Ors.

Dated: 08.07.2022 (Punjab and Haryana High Court)

Citation: 2022 LiveLaw (PH) 185 

Counsel for the Applicant: Mr. Vivek Khatri, Advocate

Counsel for the Respondent: Mr. Deepak Balyan, Additional Advocate General, Haryana

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