Time Spent In Mediation Would Be Excluded For The Purpose Of Calculating The Period Of Limitation For Invoking Arbitration: Delhi HC

The Single Bench of Justice C. Hari Shankar held that the notice invoking arbitration as well as the substantive claims of a party would not become time-barred if the parties were undergoing the mediation process contemplated in the arbitration clause and the time consumed in an unfruitful mediation process shall be excluded for the purpose of calculating the limitation period.

The Court further observed that the breaking point at which any reasonable party would have abandoned efforts in arriving at the settlement and contemplated referral of the dispute to arbitration would be the date when the mediation fails and the period of limitation would begin from that day only.

Facts

The present dispute revolved around the issue of determining the effect of contractual mediation on the Limitation Period provided for the purpose of notice under S. 21 of the Arbitration Act.

The parties entered into an agreement in the year 2015. The Petitioner terminated the contract on 16.09.2016, on 21.09.2016 the termination letter was delivered to the Respondent and the Respondent on the same day disputed the validity of the termination letter.

Clause 29 of the agreement provided that in event of any dispute, the parties shall first refer the dispute to mediation under the rules of ICC-ADR and no party shall be allowed to directly apply for arbitration unless the efforts at amicable settlement fail.

On 22.09.2016, the Respondent initiated mediation under ICC-ADR rules. The mediation finally culminated on 07.09.2020, parties were unable to bring the mediation to a fruitful conclusion.

On 24.03.2021 the Respondent invoked the notice under S.21 of the Arbitration Act. By an order dated 29.10.2021, the tribunal rejected the application of the Petitioner seeking dismissal of Respondent's case as being time-barred. Hence, the present S. 34 application.

Grounds For Challenge

The Petitioner challenged the order of the tribunal on the ground that the case of the Respondent was time barred for the following reasons:

• That the cause of action for the present matter arose on 21.09.2016, the date when the termination letter was issued to the Respondent.
• That once the limitation period of three years began to run, it could not be halted merely because some mediation proceedings were pending and the period of three years limitation expired on 20.09.2019.
• That the Supreme Court in Geo Miller v. Chaiman, (2020) 14 SCC 643 and BSNL v. Nortel, (2021) 5 SCC 738, has specifically held that once the period of limitation has begun to run, the same cannot be halted merely because were negotiating on few things.
• That Article 10 of ICC Meditation Rules also did not proscribe a party from commencing the arbitral proceedings during the pendency of the mediation.
• That at best, the period would commence from the date when the first round of mediation failed.

Analysis By The Court

The Court held that a bare perusal of Clause 29 of the agreement between the parties would make it clear that the process of mediation was mandatory and the parties were precluded from referring the dispute to arbitration unless the mediation fails. Therefore, the occasion to give a S.21 notice only arose after the mediation failed.

The Court relied on the judgment of the Apex Court in Geo Miller (supra) to hold that when the parties were bona fide negotiating towards an amicable settlement, the tribunal is required to determine the "breaking point" at which the parties could reasonably assume that an amicable settlement is an impossibility. The period of limitation would only begin to run from the breaking point.

The Court held that in view of Clause 29 of the agreement, the breaking point could not arise before the efforts at mediation failed on 07.09.2020, therefore, both the reference to arbitration as well as the claims of the Respondent were within the limitation period of 3 years.

The Court further distinguished the judgment in BSNL (supra) on the ground that the parties therein did not have a similar covenant specifically proscribing resort to the arbitral process, till efforts at mediation failed.

The Court further referred to Article 10 of the ICC-ADR Mediation Rules which provides that parties can refer the dispute to arbitration regardless of any pending mediation unless an agreement to the contrary and observed that Clause 29 which forecloses the remedy to arbitration unless mediation failed would be an agreement within the Article 10. It is further observed that Article 10 itself provides for excluding the time consumed in mediation for the purpose of limitation.

Accordingly, the Court dismissed the petition.

Case Title: Alstom Systems India Pvt. Ltd. v. Zillion Infraprojeccts Pvt. Ltd., O.M.P.(COMM.) 351/2021.

Citation: 2022 LiveLaw (Del) 311

Date: 31/01/2022

Counsel for the Petitioner: Mr. Sandeep Sethi, Senior Advocate, Mr. Dinesh Pardasani, Mr. Aishwary Kumar and Ms. Shania Elias.

Counsel for the Respondent: N/A

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