[Arbitration Act] Referral Courts Can't Indulge In Enquiry Into Whether Claims Are Time-Barred: Calcutta High Court

“Courts, at the referral stage, can interfere only when it is manifest that the claims are expressly time barred and dead or when there are no subsisting disputes. In all other cases, the matter should be referred to the arbitral tribunal for decision on merits.”, the court observed.

Background Facts

Kalpataru Projects International Limited (Petitioner) filed the application for appointment of an Arbitrator in terms of the Work Order issued to the predecessor-in-interest of the petitioner, JMC Projects (India) Limited.

JMC Projects (India) Limited along with Simplex Projects Limited had formed a consortium and participated in the tender floated by Bharat Heavy Electrical Limited (respondent). The petitioner merged with the predecessor company. The petitioner submitted a bill in July 2020 that went unpaid. The petitioner raised certain disputes. The respondent sought that the petitioner appear before the concerned authority for an amicable settlement. The petitioner invoked the arbitration clause on 27.10.2023.

Contentions

Ms.Pritha Bhaumik, Counsel for the Petitioner submitted that although an amicable settlement was attempted, no progress was made and accordingly, the petitioner invoked arbitration by issuing a notice u/s. 21 of the 1996 Act.

Mr. Aniruddha Bhattacharya, Counsel for the respondent raised two objections: (i) the claim and application before the court was barred by limitation; (ii) Simplex Projects Limited had not been impleaded as a respondent in the proceeding.

He submitted that the time spent during amicable settlement should not be counted to exclude the limitation. He submitted that in terms of Article 137 of the Limitation Act, the section 11 application should have been filed within three years from July 2020. With regard to non-joinder of parties, he urged that the work order was awarded to the consortium.

Observations

The court noted that JMC Projects (India) Limited merged with Kalpataru Power Transmission Limited, which was later renamed Kalpataru Projects International Limited. JMC had entered into a consortium agreement with Simplex Projects Limited. JMC was the lead member responsible for executing works. The petitioner stepped into the shoes of JMC as the 'lead member'.

The court noted all communications and settlements were conducted with the petitioner. It held that objections as to non-joinder of parties can be raised before the Arbitrator.

The court referred to the decision in 'Aslam Isamil Khan Deshmukh vs. ASAP Fluids Private Limited and anr.' which clarified that the referral court must only conduct a limited enquiry to examine whether the application under section 11(6) had been filed within three years or not.

The court held that at this stage, it would not be proper for the referral court to indulge in an evidentiary enquiry into whether the claims raised by the petitioner were time-barred or not.

“Courts, at the referral stage, can interfere only when it is manifest that the claims are expressly time barred and dead or when there are no subsisting disputes. In all other cases, the matter should be referred to the arbitral tribunal for decision on merits.”, the court stated.

The court referred to 'Arif Azeem Co. Ltd. vs. Aptech Ltd.' where it was observed that the limitation period to file an application u/s. 11(6) of the 1996 Act would be covered by Article 137 of the Limitation Act, which prescribed three years from the date when the right to apply accrued. The limitation period for filing an application seeking appointment of an arbitrator was held to commence only after a valid notice invoking arbitration had been issued by one of the parties to the other party and there had been either a failure or refusal on the part of the other party to comply with the requirements of the said notice. The court held that the claim was not 'deadwood' since the notice invoking arbitration was issued on 27.10.2023.

The Court held that the issue of limitation could be raised before the Arbitrator at appropriate stage. It noted that in 'SBI General Insurance Co. Ltd. vs. Krish Spinning', it was clarified that the scope of enquiry at the stage of appointment of an arbitrator is limited to the scrutiny of prima facie existence of an arbitration agreement and nothing else. “By referring the disputes to arbitration, the referral court upholds and gives effect to the original understanding of the contracting parties that, all disputes and differences shall be resolved by arbitration”, the court observed.

The court held that the procedure prescribed under the dispute resolution clause with regard to appointment of an arbitrator by the officer of BHEL was no longer good law in view of the decision of 'Central Organization for Railway Electrification vs. ECI SPIC SMO MCML (JV) A Joint Venture Company'.

The Court appointed Justice Bhaskar Bhattacharya, former Chief Justice of Gujarat High Court as the Arbitrator.

Case Title: Kalpataru Projects International Limited vs. Bharat Heavy Electrical Limited (BHEL)

Case Number: AP-COM/94/2025

Appearance: Mr. Amit Kumar Nag, Adv. Ms. Pritha Bhaumik, Adv. for the petitioner.

Mr. Aniruddha Bhattacharya, Adv. Mr. Arnab Roy, Adv. for the respondent.

Date: 17.02.2025