Delay In Approaching Appointing Authority For Constitution Of Tribunal, Won’t Render Claims Time Barred: Delhi High Court

The bench of Justices Vibhu Bakhru and Amit Mahajan also remarked that once the negotiations between the parties had come to a breaking point, and the claimant had issued the arbitration notice, the fact that the arbitral proceedings did not commence on account of non-receipt of the said notice, would not defer the accrual of cause of action or extend the limitation period for raising the claims.

Certain disputes arose between the appellant/ Contractor, Kidde India Ltd, and the respondent, National Thermal Power Corporation Ltd (NTPC), in respect to the Bill raised by the appellant for the work executed by it. Thereafter, the appellant invoked the arbitration clause and the matter was referred to arbitration.

The Arbitral Tribunal passed an award, awarding certain amount in favour of the appellant. Before the Delhi High Court, the respondent, NTPC, raised objections against the arbitral award on the ground that the claims raised by the appellant/claimant were barred by limitation.

The Single Judge opined that once the arbitration clause was invoked, the appellant/claimant was required to approach the appointing authority specified in the arbitration clause, i.e., Institute of Engineers, within a period of sixty days, seeking appointment of the arbitrator. Since the claimant had approached the appointing authority after the said period, its claims were barred by limitation.

Against the order of the Single Judge, the appellant, Kidde India, filed an appeal before the Division Bench.

The High Court reckoned that as per Section 37(3) of the Arbitration Act, 1940, the arbitration shall be deemed to be commenced when one party serves a notice requiring the appointment of an arbitrator, on the other party. Further, Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act) also provides that unless the parties have agreed otherwise, the arbitral proceedings would commence on the date on which the request to refer a dispute to arbitration is “received by the respondent”.

Thus, the bench concluded that the question whether the claims are barred by limitation has to be determined with reference to the date on which the arbitral proceedings are deemed to commence, either in terms of Section 37(3) of the Arbitration Act or Section 21 of the A&C Act. Once a notice invoking arbitration is served on the respondent, the period of limitation for making the claims stops running, it added.

Holding that the provisions of the Limitation Act, 1963 would apply to the arbitral proceedings, and while referring to the facts of the case, the Court ruled that the claims raised by the appellant were within the limitation period on the date the 1989 notice invoking arbitration was issued by it.

While disagreeing with the reasoning adopted by the Single Judge, the Court said, “Undisputedly, the party invoking arbitration is also required to take further steps for constitution of an arbitral tribunal and reference of disputes to the said tribunal. However, any delay in doing so does not render the party’s substantive claims barred by limitation; it would deprive the party any recourse to courts to seek appointment of the arbitral tribunal pursuant to the arbitration agreement.”

Reiterating that the statute of limitation only bars recourse for remedy to the courts and it does not extinguish the obligations, the bench added: “The period of limitation within which a party is required to approach the court for seeking constitution of the arbitral tribunal cannot be conflated with the period of limitation for invoking the arbitration agreement and commencing the arbitral proceedings. This period within which the party must avail of legal remedy to ensure constitution of the arbitral tribunal would commence once the party has invoked the arbitration agreement and not prior to that.”

The respondent, NTPC, argued before the High Court that the first notice invoking arbitration, issued in the year 1989, was not received by it. It averred that it was only the subsequent arbitration notice, issued in 1994, which was received by the respondent. Thus, it pleaded that the claims made by the Contractor/ appellant were barred by limitation.

While taking into account that a Final Bill was issued by the appellant/claimant in 1989, the Court observed that the Arbitral Tribunal had accepted that NTPC had not received the 1989 arbitration notice and therefore, the arbitral proceedings had not commenced on the said date. “Notwithstanding the above, the Arbitral Tribunal concluded that the claims were not barred by limitation,” the Court said.

While holding that the arbitral proceedings had commenced on the date the second notice invoking arbitration was received by NTPC in 1994, the Court held that the conclusion drawn by the Arbitral Tribunal that the claims were within limitation period was, ex facie, erroneous.

The bench added that once the negotiations between the parties had come to a breaking point, the communications issued unilaterally by the appellant, seeking settlement of claims, would not extend the period of limitation or defer the accrual of cause of action.

“In the present case, the contents of the letter dated 09.12.1989 clearly indicate that the negotiations, if any, had finally come to a breaking point and the Contractor had, in fact, elected to commence arbitral proceedings. The fact that the arbitral proceedings did not commence on account of non-receipt of the said notice would not defer the accrual of a cause of action. We are unable to agree that negotiations, if any, after 09.12.1989 or letters sent by the Contractor after 09.12.1989, would defer the accrual of cause of action,” the Court said.

“In view of the above, it is clear that the claims raised by the Contractor/appellant were, ex facie, barred by limitation as on the date of commencement of the arbitral proceedings, that is, on 10.05.1994,” the Court concluded.

The bench thus dismissed the appeal.

Case Title: Kidde India Ltd versus National Thermal Power Corporation Ltd

Citation: 2023 LiveLaw (Del) 133

Counsel for the Appellant: Mr Chandan Kumar with Ms Kirti Atri, Advocates

Counsel for the Respondent: Mr Puneet Taneja, Ms Laxmi Kumari and Mr Manmohan Singh Narula, Advocates

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