Period Of Bonafide Negotiations May Be Excluded For Computing Period Of Limitation For Reference: Delhi High Court

The bench held that in such cases, the entire negotiation history between the parties must be specifically pleaded and placed on record.

Brief Facts:

The matter pertained to an agreement wherein the Respondent was obligated to pay the Petitioner a Minimum Guaranteed Amount of Rs. 3,00,000/- per month from 01.03.2019 until the expiry of the Agreement or 5% of the monthly revenue, whichever was higher. The Petitioner claimed that although the Respondent initially made payments as per the BO Revenue Share, the Respondent sent a notice to terminate the Agreement effective 18.05.2019. The Petitioner argued that this was in violation of Clause 7 of the Agreement which stated a Lock-in Period of three years for the Respondent and six years for the Petitioner.

The Petitioner argued that after receiving the termination notice, it reached out to the Respondent which resulted in discussions and a settlement where the Respondent withdrew its termination notice. Despite this, the Respondent failed to respond satisfactorily which led to the Petitioner sending a Legal Notice. Subsequently, the Petitioner invoked the Arbitration Clause and proposed a Senior Advocate as the Sole Arbitrator, but the Respondent rejected this proposal.

Further efforts to resolve the dispute amicably included a virtual meeting which resulted in the Respondent making an offer which the Petitioner declined. The Petitioner then warned that it would take recourse under the Arbitration Clause if a mutually agreeable offer was not proposed. Eventually, the Petitioner issued a Notice under Section 21 of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) and proposed another Advocate as the Sole Arbitrator, which the Respondent again rejected. Feeling aggrieved, the Petitioner approached the Delhi High Court (“High Court”) and filed an application for the appointment of the arbitrator.

The Respondent objected to the petition on the grounds of limitation. The Respondent argued that the Agreement was effectively terminated by the notice sent on 18.02.2020 and that the Petitioner acknowledged the obligation to pay the minimum guaranteed amount until the expiry of the Lock-in Period. After a counteroffer by the Petitioner on 23.06.2020 and continued negotiations, the Respondent withdrew the termination notice but ceased settlement talks on 13.07.2020. The Respondent contended that the legal and arbitration notices served by the Petitioner were barred by limitation and argued that the second Notice of Invocation under Section 21 issued on 31.01.2024 was clearly beyond the allowable period.

Observations by the High Court:

The High Court held that there is a distinction between the claims being barred by time and the application for referral of disputes to arbitration itself being barred by time. It referred to the decision of the Supreme Court in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd. and Another (2008) 2 SCC 444 where the SC held that while the limitation period for the claims should be calculated similarly to the limitation for filing a suit, the limitation period for filing an application under Section 11 of the Arbitration Act should be determined based on the date when arbitration is deemed to have commenced.

The High Court held that there is no specific provision stipulating the limitation period for filing an application for arbitration under Section 11 after the notice of invocation. Therefore, it held that since no specific article in the Limitation Act, 1963, applies to such an application, the residual Article 137 of the Schedule to the Limitation Act, 1963, becomes applicable. Consequently, it held that the limitation period begins when the right to apply accrues, generally three years from the date of refusal to appoint the arbitrator, calculated from 30 days post the notice of invocation, whichever is earlier.

The High Court noted that the email exchanges from February to June 2020 evidenced attempts at settlement. These negotiations extended until July 22, 2020, when a legal notice was issued, followed by a notice of invocation on November 8, 2020. Even after these notices, negotiations continued until March 2021

The High Court held that the period of bona fide negotiations could be excluded from the limitation period for referring a dispute to arbitration, provided the entire negotiation history is well-documented and presented (referred to Geo Miller And Company Private Limited).

Therefore, the High Court appointed J.P. Sengh, Senior Advocate as the arbitrator to adjudicate the disputes between the parties.

Case Title: M/S Blooming Orchid Vs Fp Life Education Foundation

Citation: 2024 LiveLaw (Del) 658

Case Number: ARB. P. 630/2024 & I.A. 10843/202

Advocate for the Petitioner: Mr. Devashish Chauhan, Mr. Tushar Tyagi & Mr. Paras Mithal, Advocates.

Advocate for the Respondent: Mr. Varnik Kundaliay, Advocate.

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