[Arbitration Act] Pre-Referral Jurisdiction Of Court U/S 11(6) Includes Inquiry On Whether Claims Are Ex-Facie & Hopelessly Time Barred: Calcutta HC

Background Facts

The agreement between the parties was entered into on December 31, 2004 and the work order was issued sometime in 2006. It is contended by the Petitioner that the work was completed and the bill was submitted on October 12, 2007 which is supported by a certificate of completion issued on that date. The Petitioner further contended that it requested the authority to pay up the long outstanding bill amounting to Rs. 1,96,548/- vide letter dated February 18, 2009 which was followed up by a reminder dated May 18, 2012. However, the Respondents did not take any step. Reminders were sent by letters dated December 2, 2013, November 4, 2015, December 1, 2015, April 26, 2016, September 6, 2016, February 28, 2017, November 2, 2017 and December 21, 2023. Finally, the last notice was sent on February 2, 2024. In some of these notices, the arbitration clause was involved, but the Petitioner did not approach the Court for appointment of an arbitrator.

Contentions

The Counsel for Respondent submitted that the claim of the Petitioner is ex-facie barred and the application for appointment of arbitrator should be rejected. As per the decision of the Apex Court in Arif Azim Company Limited v. Aptech Limited (2024) 5 SCC 313 (“Arif Azim”), the period of limitation for making an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 was three years from the date when the right to apply accrued i.e. when the Respondents failed to take steps despite receiving a notice invoking arbitration.

However, the Counsel for the Petitioner submitted that the decision of the Apex Court in Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr. (2025) 1 SCC 502 (“Aslam Ismail”), clarified the position of law in Arif Azim and overruled the ratio therein.

Observations

The Court observed that the scope of adjudication by a referral court is undoubtedly limited however, some parties might take undue advantage of such a limited scope of judicial interference of the referral court and force other parties to the agreement to participate in a time consuming and costly arbitration process, for settlement of dead claims.

The Court further observed that in Aslam Ismail, the Apex Court laid down the scope of interference of a referral court, inter alia, holding that at the stage of Section 11, the referral court needs to only examine whether the arbitration agreement exists, nothing more, nothing less. However, such limited interference by the referral court does not preclude the referral court from examining whether the claim is 'deadwood' or ex facie barred.

The Court referred to the decision of the Apex Court in SBI General Insurance v. Krish Spinning 2024 SCC Online SC 1754 wherein the court clarified the dictum laid down in Arif Azim to prevent any conflict between the decision in Arif Azim and Aslam Ismail. The Court held as follows-

“We are of the view that while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test - first, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings.”

Applying the settled position of law to the facts of the case, the court found that the claim of the Petitioner is ex-facie barred. The bill was submitted on October 12, 2007 and the certificate of completion was issued in 2007. From the record it was evident that some the letters issued by the Petitioner disclosed the intention to go for arbitration yet the Petitioner waited upto 2025, to approach the Court.

The Court observed that the conduct of the petitioner and the documents annexed to the present application, have convinced this Court that the claim is ex facie time barred. The right to sue accrued when the bill of 2007 was not paid. The notice invoking arbitration should have been issued within three years from accrual of such cause of action. This court should have been moved within three years from the issuance of notice invoking arbitration. There is nothing on record to show that, within the period of limitation, the Respondents had acknowledged even a part of the claim, by making payment or by communicating with the petitioner. Letters were sent between 2009 to 2024. However, they will not enlarge the period of limitation. There is nothing on record to show that the respondents had acknowledged the debt at any time. No amount of attempts at amicable settlement, will extend the period of limitation applicable.

The Court concluded that from the record it is evident that the Petitioner's claim is ex facie a dead claim, stale and long barred by limitation. It should be nipped at the bud as the same is demonstrably non-arbitrable.

Therefore, the present application for appointment of arbitrator was dismissed.

Case Title: M/s N.C. Construction v. Union of India

Case Number: AP-COM/144/2025

Appearance:

For Petitioner – Mr. Anupam Acharyya, Advocate, Ms. Alivia Bhattacharjee, Advocate

For Respondent- Mr. M. S. Tiwari, Advocate, Mr. Sushil Kr. Mishra, Advocate

Date: 26.02.2025

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