Unfair To Presume That Plea Of Limitation Can't Be Adjudicated By Arbitrator, Court U/S 11 Must Not Conduct Roving Inquiry: Telangana High Court

The Telangana High Court bench of Justice K. Lakshman has held that in a scenario where the referral court can discern the frivolity of the dispute from the bare minimum pleadings, it would be incorrect to presume that the arbitral tribunal, equipped to undertake a detailed examination of the pleadings and evidence, would be unable to reach the same conclusion. Therefore, it is better that the plea of limitation should be left to be decided by the Arbitrator. Brief Facts: The 1st Respondent issued Tender No. E121800072 dated 13.05.2016 for selective coal extraction at Koyagudem OC-II, Yellandu, using Surface Miner Technology, to be completed in 36 months. The Applicant was declared the successful bidder. Subsequently, the Respondents, through letters dated 20.04.2024 and 25.06.2024, demanded Rs. 1,83,64,150/- from the Applicant towards the settlement of the final bill, warning that failure to pay would result in encashment of the Bank Guarantee and recovery from other ongoing contracts. Respondents also informed the Applicant that if the Applicant fails to pay the said amount, it will invoke Bank Guarantee and recover the bills pertaining to other works executed by the Applicant. Respondents also demanded for extending validity of the Performance of Bank Guarantee. The Applicant objected via letter dated 22.04.2024 and, on 22.06.2024, requested the General Manager, Bellampally Area, SCCL, not to recover the amount from its running bills for the Khairagura Project. Despite this, the 3rd Respondent, via letter dated 23.06.2024, requested recovery of Rs. 1,83,64,150/- from running bills, along with Rs. 32,78,390/- towards explosive costs for the period from 09.06.2019 to 30.06.2019. Facing imminent encashment of its Rs. 79 lakh Bank Guarantee, the Applicant filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) , resulting in an interim injunction by the Commercial Court, Ranga Reddy, restraining such encashment. However, since no stay was granted on recoveries from running bills, the Applicant paid the entire demanded amount under protest, reserving the right to initiate arbitration proceedings to challenge the alleged illegal recoveries. Therefore, invoking the arbitration clause of the said purchase order, the Applicant had issued notice dated 13.08.2024 nominating Sri Y.Govinda Reddy, Retired District Judge to act as sole arbitrator/its nominee Arbitrator to adjudicate the disputes between them in terms of Clause No.1.21 of the order dated 19.06.2016. Despite receiving and acknowledging the said notice, there was no response from the respondents. Contentions: The Respondent submitted that the present application filed by the Applicant is barred by limitation, as the Applicant failed to adhere to the procedure prescribed under Clause 1.21 of the Purchase Order dated 19.06.2016. It was further submitted that as per the said clause, if a dispute or difference is not resolved through negotiations, either party may initiate arbitration within 120 days of the dispute arising. The Applicant failed to invoke arbitration within the stipulated period, rendering the application time-barred. Lastly, it was submitted that the Applicant having paid disputed amount cannot seek appointment of arbitrator to adjudicate the disputes. Observations: The court at the outset observed that it is relevant to note that following the amendment to the Arbitration Act effective from 23.10.2015, and in light of the principles laid down by the Supreme Court in Vidya Drolia v. Durga Trading Corporation, this Court, acting as the referral court under Section 11 of the Act, is bound to refer the matter to arbitration unless the dispute is manifestly non-arbitrable. Based on the above, it held that the limitation objection raised by the respondents involves factual determination, which falls within the domain of the Arbitral Tribunal. This Court is not required to undertake a detailed factual inquiry at this stage, and it is for the arbitrator to decide the issue of limitation. Similarly, the Supreme Court in Aslam Ismail Khan Deshmukh vs. ASAP Fluids Pvt.Ltd, 2025 held that while determining the issue of limitation in the exercise of powers under Section 11(6) of the Arbitration Act, the referral court must only conduct a limited enquiry for the purpose of examining whether the Section 11(6) application has been filed within the limitation period of three years or not. Based on the above, the court noted that there was an exchange of correspondence between the Applicant and the respondents, including the letter dated 06.06.2024 from the 2nd respondent providing a breakup of the claim amounting to ₹1,53,64,150/-. It further noted that subsequent letters reflected a threat of encashment of the Bank Guarantee, prompting the Applicant to file an application under Section 9 of...

Unfair To Presume That Plea Of Limitation Can't Be Adjudicated By Arbitrator, Court U/S 11 Must Not Conduct Roving Inquiry: Telangana High Court

Mohd Malik Chauhan

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