Limitation Period For Invoking Arbitration Cannot Be Extended By Consent: Delhi High Court

The Single Bench of Justice Anup Jairam Bhambhani held that the limitation period for invoking a legal remedy cannot be extended even by consent. The Court ruled that a party may concede a claim at any time, however, it cannot concede the availability of a legal remedy beyond the prescribed period of limitation.

The respondents, who run the Shri Ram School, entered into an agreement with the petitioner- Extramarks Education India Pvt. Ltd., for the sale and installation of certain software and hardware equipment for the purpose of setting up Smart Learning Classes in the school. After the respondents allegedly failed to clear the monetary dues of the petitioner under the agreement, the petitioner terminated the agreement between the parties. Thereafter, the petitioner invoked the arbitration clause and filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court, seeking appointment of an arbitrator to adjudicate the disputes between the parties.

The respondent- Shri Ram School, submitted before the High Court that the petition under Section 11 of the A&C Act was barred by limitation since it was filed well beyond the 3-year limitation period, as prescribed by law.

The petitioner- Extramarks Education, in support of its petition, placed reliance upon the statement made by the respondents in their reply to the notice invoking the arbitration clause. The petitioner contended that the respondents, in their reply to the said notice, had given their consent to the appointment of an arbitrator, as proposed by the petitioner, if it was situated near to their locality. Hence, the petitioner argued that the dispute must be referred to arbitration.

To this, the respondents submitted that in their reply to the notice invoking the arbitration clause, the respondents had denied and disputed the claims made by the petitioner. The respondents added that though in the said reply, they had given their consent to the appointment of an arbitrator if it was situated near to their locality, however, the said statement would not extend the period of limitation available to the petitioner to seek the remedy for recovery of its alleged dues.

The Court observed that the petitioner, claiming that the respondents had failed to pay the monies due to it under the agreement, had terminated the agreement between the parties vide a notice issued in January, 2017. However, the Court noted that the petitioner issued the notice invoking the arbitration clause in July, 2021, which was evidently beyond the limitation period of 3 years, as prescribed under Article 137 of the Limitation Act, 1963.

Refuting the contentions made by the petitioner, the Court held that if the claims made by a party are ex-facie time-barred, the limitation for invoking a legal remedy cannot be extended even by consent.

"Conceptually, limitation bars a legal remedy and not a legal right, the legal policy being to ensure that legal remedies are not available endlessly but only up-to a certain point in time. Needless to add however, that if the respondents are conceding the petitioner's claim itself, and are ready and willing to pay-up, such payment would not be illegal and there could not be any legal impediment in doing so. A party may concede a claim at any time; but cannot concede availability of a legal remedy beyond the prescribed period of limitation", the Court said.

The Court referred to the decision of the Apex Court in BSNL & Anr. versus Nortel Networks India Pvt. Ltd. (2021), where the Supreme Court had ruled that the Court may decline to refer a dispute to arbitration where there is not even a vestige of doubt that the claim is ex facie time-barred. Further, the Supreme Court had ruled that where a final bill issued by a claimant is rejected by the opposite party, the period of limitation for issuing a notice of arbitration would not get extended by mere exchange of letters or by mere discussions for settlement.

Thus, the High Court ruled that the petitioner's claim against the respondents was ex-facie time barred and hence, the dispute involved was a 'deadwood'; therefore, the dispute cannot be referred to arbitration.

The Court thus dismissed the petition.

Case Title: Extramarks Education India Private Limited versus Shri Ram School & Anr.

Citation: 2022 LiveLaw (Del) 935

Counsel for the Petitioner: Mr. Zeeshan Hashmi, Advocate with Ms. A. Chaudhary, Advocate, Mr. Ankit Parashar, Advocate.

Counsel for the Respondents: Mr. Siddharth Batra, Advocate with Mr. Chinmay Dubey, Advocate, Ms. Shivani Chawla, Advocate and Ms. Archna Yadav, Advocate.

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