Parties Cannot Be Said To Be Negotiating When The Respondent Did Not Reply ; Period Of Limitation Cannot Be Extended On That Basis: Telangana High Court

The Single Bench of Justice K. Lakshman held that the period of limitation would begin to run when the liability to pay is disputed by a party and mere writing of letters and correspondences will not extend the limitation period.

The Court further held that merely because a party has appointed its nominee arbitrator it does not amount to accepting that there is an arbitral dispute when the appointment was made without prejudice to its right to object to the limitation of the applicant claims.

Facts

NCC (respondent) and IL&FS Engineering Company formed a consortium and entered into an agreement with NHAI for the construction of a four-lane expressway program for Pondicherry. The Consortium formed a Special Purpose Vehicle namely Pondicherry Tindivanam Tollway Private Limited (PTTPL) for the execution of the project work.

Due to financial issues with IL&FS Engineering Company, the respondent terminated the contract with it and awarded it to Terra Infra Development Limited (Applicant).

There was a delay in the completion of the project work. Accordingly, the applicant wrote a letter dated 05.02.2013 to the respondent claiming compensation for the delay. In reply to this, the trespondent sent a letter dated 18.05.2013 disputing its liability to pay the claimed amount.

Thereafter, the applicant sent various letters to the respondent which were not replied to by the respondent. Again on 24.07.2019, the applicant addressed an email to the respondent requesting the release of the amount. Respondent vide an email dated 21.10.2019 replied to the applicant and reiterated that the applicant is not entitled to the full amount as claimed by it.

Ultimately, the respondent vide letter deter 02.01.2021 invoked the arbitration clause and appointed its nominee arbitrator and requested respondent to nominate its arbitrator. Respondent vide letter dated 03.04.2021 appointed its nominee arbitrator and stated that the claims of the applicant are barred by limitation and the arbitrator is appointed without prejudice to its rights.

The two arbitrators failed to appoint the presiding arbitrator. Accordingly, the applicant filed the application under Section 11(5) of the A&C Act.

Submissions Of The Parties

The applicant sought the appointment of the arbitrator on the following grounds:

• The question of limitation is a mixed question of law and facts, therefore, it cannot be decided at the stage of appointment of the arbitrator.
• The period of limitation has been extended as the respondent has never denied its liability to pay.
• The period of limitation would also stand extended as the parties were negotiating the dispute.
• The respondent has already appointed the presiding arbitrator; therefore, it cannot object to the appointment of the presiding arbitrator.

The respondent objected to the maintainability of the application on the following grounds:

• The issue of limitation can be decided at the stage of appointment of the arbitrator in certain circumstances.
• The claims of the applicant are ex-facie barred by limitation as they relate to the year 2013 and the applicant had invoked arbitration after a lapse of 7 years.
• The period of limitation was never extended in terms of Section 18 of the Limitation Act, 1963.
• The respondent has never acknowledged its liability to pay the applicant.

Findings Of The Court

The Court held that at the stage of appointment of an arbitrator the court can refuse the appointment when the claims of the applicant appears to be ex-facie barred by limitation.

The Court held that the period of limitation begins to run on the date on which the right to initiate the arbitral proceedings accrues and mere exchange of communication between the parties would not extend the limitation period.

The Court held that the period of limitation began to run on 18.05.2013 when the respondent denied the claims of the applicant.

The Court rejected the contention of the applicant that the period of limitation would be extended as the parties were negotiating before the invocation of arbitration. The Court held that there was no negotiation between the parties and only the applicant had addressed several letters to the respondent to which it did not reply, therefore, the respondent never negotiated with the applicant.

The Court held that the silence of the respondent amounted to a denial of the claims of the applicant, therefore, there was no reason for the respondent to wait 7 years before invoking the arbitration.

The Court held that merely because the applicant sent a few letters to the respondent it would not amount to a negotiation between the parties to extend the limitation period.

The Court further rejected the argument of the applicant that the respondent had acknowledged its liability to pay, therefore, the period of limitation stands extended. It held that even if the latter dated 21.10.2019 amounts to an acknowledgment of the liability, the same is not in terms of Section 18 of the Limitation Act for having been issued after the expiry of the limitation period which expired on 18.05.2016.

The Court also rejected the argument of the applicant that the respondent having appointed the nominee arbitrator cannot object to the appointment of the presiding arbitrator. The Court held that the respondent had appointed the arbitrator without prejudice to its right to object to the limitation of the applicant's claims.

Accordingly, the Court rejected the application.

Case: Terra Infra Development Ltd. v. NCC Ltd. Arb. Application No. 113 of 2021

Citation : 2022 LiveLaw (Tel) 53

Date: 20.06.2022

Counsel for the Applicant: Mr. B. Chandrasen Reddy, Senior Advocate with Mr. Pasham Mohit

Counsel for the Respondent: Mr. Avinash Desai

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