Time Spent On Application Under Section 8 Of A&C Act, Not Excludable For Computation Of Limitation For Counter Claim: Delhi High Court

The bench of Justices Vibhu Bakhru and Amit Mahajan held that the benefit of Section 14 (1) of the Limitation Act, 1963 is available only to the plaintiff who has been prosecuting civil proceedings against the defendant, and not to the defendant who is resisting a claim.

The Court added that filing of an application under Section 8 of the A&C Act cannot be construed as a party pursuing his claim before a Court so as to avail the benefit of Section 14(1) of the Limitation Act.

The appellant- Web Overseas Ltd., and the respondent- Universal Industrial Plants Manufacturing Company Pvt. Ltd., entered into an Agreement, which was subsequently terminated by the appellant. The appellant filed a suit for recovery against the respondent before the District Court, averring that the respondent had failed to refund the advances paid under the said agreement executed between the parties. In the suit filed by the appellant, the respondent filed an application under Section 8 of the A&C Act, seeking reference of the dispute to arbitration. After the said application was allowed by the District Court, the appellant filed an application under Section 11 of the A&C Act before the Delhi High Court, seeking appointment of an arbitrator. Thereafter, the parties were referred to arbitration.

During the arbitral proceedings, the appellant/claimant filed an application before the Arbitral Tribunal contending that the counter-claims filed by the respondent before the Arbitral Tribunal were barred by limitation.

The Arbitral Tribunal ruled that the period of limitation for filing the counter-claims was three years from the date when the Agreement was terminated by the appellant. Further, it noted that the counter-claims must be considered as instituted on the date when they are filed before the Tribunal. The Tribunal held that since the counter-claims were filed by the respondent more than three years after the agreement was terminated by the appellant, the counter-claim was prima facie barred by time. However, the Tribunal opined that by virtue of Section 14 of the Limitation Act, 1963, the period spent by the respondent in pursuing its application under Section 8 of the A&C Act was required to be excluded. Thus, it concluded that the counter-claim was filed by the respondent within the period of limitation.

Therefore, the Arbitral Tribunal passed an interim award rejecting the application filed by the appellant seeking dismissal of the counter-claims. The appellant challenged the said interim award by filing an application under Section 34 of the A&C Act before the Commercial Court, who dismissed the application. Against this, the appellant filed an appeal under Section 37(1)(c) of the A&C Act before the Delhi High Court.

Section 14(1) of the Limitation Act, 1963 provides for exclusion of the time spent by the plaintiff in prosecuting another civil proceeding against the defendant in a court which is unable to entertain it due to defect of jurisdiction or other cause of a like nature, for computation of the limitation period for filing a suit.

Section 14(2) of the Limitation Act, provides for exclusion of the time spent by an applicant in prosecuting another civil proceeding against the same party for the same relief, in a court which is unable to entertain it due to defect of jurisdiction or other cause of a like nature

While holding that the counter-claim is in the nature of an original action and that it is not an application as contemplated under Section 14(2) of the Limitation Act, the High Court ruled that the benefit of Section 14(2) of the Limitation Act was not available to the respondent.

Referring to Section 14 (1) of the Limitation Act, the Court observed that the benefit of the said provision is available only to the plaintiff who has been prosecuting civil proceedings against the defendant, and not to the defendant. It added that the provisions of Section 14(1) are not available to a defendant who is resisting a claim.

The bench ruled that though a counter-claim is like a suit and thus, a defendant may be construed as a plaintiff in the context of a counter-claim. However, it added that in order to claim the benefit of Section 14(1), the party must be diligently pursuing its claim in the court, which cannot entertain the proceedings for want of jurisdiction, and not for want of an effective claim.

The Court held that the filing of an application under Section 8 of the A&C Act cannot be construed as a party pursuing his claim before a Court so as to avail the benefit of Section 14(1) of the Limitation Act.

Referring to the application under Section 8 of the A&C Act, as filed by the respondent, the bench noted that the respondent had not made any reference to a counter-claim. Further, it had neither quantified its claim, nor had it mentioned its intention to proceed against the appellant.

Holding that though the provisions of Section 14 of the Limitation Act must be liberally interpreted, the Court added that the benefit of Section 14 cannot be extended on a mere presumption that it would enhance the cause of justice.

Th Court noted that one of the important conditions for the applicability of Section 14 of the Limitation Act is that the matters in issue in both the proceedings, i.e., the proceedings before a Court lacking jurisdiction and the proceedings in the correct forum, should be identical.

It further observed that in Ramadhar Shrivas versus Bhagwandas (2005), the Supreme Court had laid down that the expression "matter in issue" under Section 11 of the Code of Civil Procedure, 1908 connotes the matter which is directly and substantially in issue, actually or constructively.

Thus, the bench concluded that an application under Section 8 of the A&C Act, seeking reference of a dispute to arbitration, cannot be construed, directly and substantially, as the subject matter of a counter-claim, which was neither raised nor indicated in the said Section 8 application filed by the respondent.

"The question to be considered is not why the appellant did not pursue the remedies as available, but whether it was diligently pursuing the proceedings involving the same matter in issue before a court that lacked the jurisdiction to entertain the proceedings. Once it is found that pursuing an application under Section 8 of the A&C Act does not amount to pursuing civil proceedings involving the same matter in issue as an arbitral claim, the respondent would not be entitled to any benefit under Section 14(1) of the Limitation Act", the Court said.

Rejecting the contention raised by the respondent that the period of limitation for filing the counter-claim would stop running on the date when the respondent had filed an application under Section 8 of the A&C Act, the Court held that the period of limitation for filing a counter-claim would stop running on the date when the counter-claim is filed, as provided under Section 3(2)(b) of the Limitation Act. The Court ruled that the only exception to this is a case where the party raising the counter-claim has commenced the arbitral proceedings in terms of Section 21 of the A&C Act.

The Court referred to Section 43(2) of the A&C Act, which provides that for the purpose of the Limitation Act, 1963, the date on which the arbitral proceedings are commenced under Section 21 of the A&C Act is also, by legal fiction, the relevant date for application of the provisions of the Limitation Act.

"Given the statutory scheme of the A&C Act, the date on which the application is filed under Section 8 of the A&C Act (or for that matter when it is disposed of) is not relevant for determining whether any claim is within the period of limitation. As stated above, in terms of Section 43(2) of the A&C Act, the date on which the arbitral proceedings commence, in terms of Section 21 of the A&C Act, is material for the purposes of considering whether the claim has been raised within the period of limitation", the Court said.

The respondent- Universal Industrial Plants, argued before the High Court that an application under Section 8 of the A&C Act is also required to be construed as a notice under Section 21 of the A&C Act.

Rejecting the contention of the respondent, the Court observed that an application under Section 8 of the A&C Act does not commence arbitral proceedings and that it is not a substitute for a notice under Section 21 of the A&C Act. The bench added that Sections 8 and 21 of the A&C Act operate in separate areas.

"There is a material difference between reference of parties to arbitration and reference of disputes to arbitration. A request to refer the parties to arbitration in terms of Section 8 of the A&C Act, which is made to a judicial authority, cannot be construed as a request for the dispute to be referred to arbitration."

Therefore, the bench ruled that an application under Section 8 of the A&C Act cannot be construed as a request for reference of the disputes to arbitration under Section 21 of the A&C Act.

The Court thus allowed the appeal and set aside the interim award of the Arbitral Tribunal and the order passed by the Commercial Court.

Case Title: Web Overseas Limited versus Universal Industrial Plants Manufacturing Company Private Limited

Citation: 2022 LiveLaw (Del) 1137

Counsel for the Appellant: Mr Vivek Kohli, Senior Advocate with Mr Nalin Talwar, Mr Sandeep Bhuraria, Ms Yeshi Rinchhen, Mr Akash Yadav and Mr Juvas Rawal, Advocates.

Counsel for the Respondent: Mr Ranjeev Kumar and Mr Anshul Goel, Advocates.

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