Limitation Cannot Be Decided As Preliminary Issue Without Recording Whether It Is A Mixed Question Of Law And Fact: Bombay High Court

The Bombay High Court bench of Chief Justice Alok Aradhe and Justice M.S. Karnik has held that an arbitrator is not permitted to decide the issue of limitation as a preliminary issue without first recording a finding as to whether it is a mixed question of law and fact that requires evidence to be led. It further held that if such a finding is not recorded and the issue is nonetheless decided as a preliminary issue, the award can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) on the ground of violation of the fundamental policy of Indian law. Brief Facts: The appellant invested a sum of Rs.25,00,00,000/- (Rs. Twenty-Five Crores) in shares and debentures of respondent No.5 company on the basis of agreements and the respondents were required to put up a project on 700 acres in Pune district through respondent No.5 company. According to the appellant, the respondents failed to comply with the terms and conditions of the agreement and committed various breaches of the agreement. Disputes arose between the parties and the matter went to the Arbitrator. The Arbitrator, by an interim award dated 27th August 2019 held that the entire claim of the appellant was within limitation. The interim award passed by the Arbitrator was challenged under Section 34 of the Arbitration Act. By order dated 4th December 2019, the Single Judge held that the limitation issue was decided as a preliminary issue based solely on the statement of claim. Since the finding was on demurrer, it would remain preliminary and subject to modification based on evidence presented. The court thus modified the interim award and held that the Arbitrator could re-examine the limitation issue based on evidence and material on record, if presented. Against this order, the present appeals have been filed. Contentions: The Appellant submitted that having consented to the procedure of determination of preliminary issue of demurrer, it is not open for the respondents to approbate and reprobate and it is estopped from raising contention to the contrary. It was further contended that without recording a finding whether the interim award is in conflict with public policy of India, the Single Judge erred in dealing with the merits of the matter and in recording a finding that the Arbitrator was in error in deciding an issue of limitation on the basis of demurrer. Per contra, the Respondents submitted that on reading the interim award in its entirety, it is evident that respondents were agreeable to preliminary issue being decided even after the affidavit of evidence was filed as they legitimately believed that while deciding the preliminary issue the Arbitrator would consider the defence of the respondent as well. It was further contended that the Arbitrator had decided the issue of limitation while conducting an Order VII Rule 11 like inquiry by looking into the pleadings of appellant only. Lastly, it was submitted that therefore, such preliminary finding cannot foreclose the right of respondents from establishing that claim is barred by limitation on consideration of pleadings and evidence of both the parties. Observations: The court noted that in the present case, the interim award passed by the Arbitrator was challenged on the ground mentioned under Section 34(2)(b)(ii) of the Arbitration Act i.e. the same was in contravention of fundamental policy of Indian law. The Supreme Court in ONGC Ltd. Vs. Saw Pipes (2003) dealt with the scope and ambit of expression 'public policy of India'. It was held that if the award is contrary to 'fundamental policy of Indian law', or interest of justice or morality or patently illegal, the same would be contrary to 'public policy of India'. The Court observed that an award shall be treated to be in conflict with public policy of India if it is in contravention of fundamental policy of Indian law or is in conflict with most basic notions of morality or justice. The phrase 'fundamental policy of Indian law' requires a Court or other authority determining the rights of citizens to adopt a judicial approach. It further added that the expression 'fundamental policy of Indian law' would include within its ambit a decision which is so perverse or irrational that no reasonable person would arrive at the same. Thus, the Arbitrator, while deciding the issue of limitation is required to adopt a judicial approach. Based on the above, the court held that even though Section 19(1) of the Arbitration Act provides that arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (CPC) or by the Indian Evidence Act, 1872 (Evidence Act) however, Section 19(1) does not prohibit the arbitral tribunal from following the fundamental principles underlying the CPC and Evidence Act. The court further opined that a court or authority deciding the rights...

Limitation Cannot Be Decided As Preliminary Issue Without Recording Whether It Is A Mixed Question Of Law And Fact: Bombay High Court

Mohd Malik Chauhan

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