Objections Regarding Time-Barred Claims Under Section 11 Petition Should Be Left For Arbitral Tribunal: Delhi High Court

Brief Facts:

Capri Global Capital Limited (Petitioner) approached the Delhi High Court and filed a petition under Section 11 of the Arbitration & Conciliation Act 1996 for the appointment of a Sole Arbitrator to adjudicate disputes arising from the Facility Agreement with Ms Kiran (Respondent). The Petitioner highlighted clause 13.15 of the agreement, which outlined the arbitration agreement and stipulated that arbitration proceedings be conducted in Mumbai or Delhi, as elected by the lender. Additionally, clause 13.14 of the agreement specified that the jurisdiction of competent courts shall be in Mumbai or Delhi, as chosen by the lender.

The arbitration agreement also stipulated that a sole arbitrator was to be nominated by the Lender/Capri Global Capital Limited. However, this provision was untenable in law following the Supreme Court decision in Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. The Petitioner invoked arbitration via a Notice to which the Respondent did not reply. The Respondent's primary objection was that the Invocation Notice which initiated the first arbitral proceedings, was faulty because it did not set out the Petitioner's claim against the Respondent, thus failing to meet the requirements of section 21 of the Arbitation Act.

The first round of arbitral proceedings resulted in an ex-parte Arbitral Award which was set aside by the District Judge, Saket. The judgment noted that the arbitrator unilaterally appointed by the Petitioner was invalid per Supreme Court precedents. Following the setting aside of the award, the Petitioner issued a fresh Invocation Notice claiming Rs. 6,13,562/- and nominating an arbitrator while seeking the Respondent's consent. This second notice formed the basis of the petition under section 11 of the Arbitration Act. The Respondent argued that the Petitioner's claim was time-barred due to the alleged defects in the initial Invocation Notice. The Petitioner countered that the second invocation notice was valid.

Observations by the High Court:

The High Court referred to the provision in Section 43(4) of the Arbitration Act, which mandates the exclusion of the period between the commencement of arbitration and the date of setting aside of an arbitral award for computing the time prescribed under the Limitation Act for initiating arbitral proceedings related to the disputed matters. The High Court held that this provision is crucial in determining the applicability of limitation to the Petitioner's claims subsequent to the setting aside of the earlier arbitral award.

Furthermore, the High Court held that for the purposes of proceedings under Section 11 of the Arbitration Act, where the appointment of an arbitrator is sought, the question of whether the claims are time-barred should ideally be left for determination by the arbitral tribunal. It held that courts should refrain from deciding complex issues such as limitation in summary proceedings under Section 11, instead deferring such matters to the arbitration process where the tribunal can thoroughly examine and adjudicate upon them.

The High Court held that a valid and enforceable arbitration agreement existed between the Petitioner and the Respondent. Consequently, the High Court appointed Mr. Amer Vaid, Advocate, as the Sole Arbitrator to resolve the disputes between the parties.

Case Title: Capri Global Capital Limited Vs Ms Kiran

Case Number: ARB.P. 870/2023 and I.A. 16066/2023

Advocate for the Petitioner: Ms Shweta Kapoor, Advocate.

Advocate for the Respondent: Mr Surender Gupta, Mr Deepak Rana, Mr Binod Kr. and Mr Nagender Singh, Advocates.

Date of Judgment: 21.05.2024

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