Arbitration- Limitation Starts From Failure Of Settlement Talks: Calcutta High Court

The High Court of Calcutta has held that the period of limitation will only begin to run when the talks of amicable settlement between the parties fail.

The bench of Justice Shekhar B. Saraf held that the period of limitation for referring a dispute to arbitration would be calculated from the date of the breaking point i.e., the date of failure of settlement talks, when the parties were trying to amicably settle the dispute.

Facts

The parties entered into a contract dated 28.10.2010 by which the petitioner was awarded the work by the respondent. The work was to be completed within a stipulated time. Clause 2.2. of the contract stipulated the procedure for the appointment of the arbitrator. It conferred the respondent with the right to unilaterally appoint the arbitrator.

There was a delay in the completion of the project work, and it was put on hold. There were also concerns regarding the delay and withholding of payments by the respondent. Accordingly, the petitioner requested for payments of long-standing dues against the bills raised.

However, the respondent vide email dated January 18, 2013 put the project on ‘Hold’ and further informed the petitioner that the contractual period of completion of project cannot be extended. It also asked the petitioner to submit final bills.

During the period from 2014-2017, the parties exchanged several communications reiterating their claims and contentions. On 22.03.2017, the petitioner finally issued a legal notice upon the respondent for the release of the due payment. In response to the said notice, the respondent retuned the PBGs to the petitioner and by two subsequent letters called a meeting between the parties to sort out the issues. On failure of the talks of settlements between the parties, the petitioner issued the notice of arbitration dated 16.01.2019.

Even after the invocation of the arbitration notice, the respondent called for another meeting to resolve the matter subject to the petitioner withdrawing the notice of arbitration. It requested the petitioner to submit its claims along with the relevant documents backing its claims. However, after patiently participating in the negotiation talks and waiting for a considerable time period, the petitioner filed the petition under Section 11 for the appointment of the arbitrator.

Contention of the Parties

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

• The claims of the petitioner are ex-facie barred by limitation.
• In terms of A. 137 of the Schedule to the Limitation Act, the period of limitation is only 3 years, however, the claims of the petitioner are long time barred as the cause of action for the same arose back in the year 2013.
• The mere exchange of communication between the parties cannot extend the period of limitation.
• Even otherwise, the invocation is pre-mature as the parties are attempting amicable settlement amongst themselves.

Analysis by the Court

At the outset, the Court invalidated the procedure for the appointment of the arbitrator stipulated under Clause 2.2 of the contract. The Court held that in view of the judgments of the Hon’ble Supreme Court in Perkins Eastman v. HSCC (India) [2019] 17 S.C.R. 275 and TRF Ltd. v. Energo Engineering Projects [2017] 7 S.C.R. 409, a party cannot unilaterally appoint the arbitrator, thus, the procedure contemplated in the clause in not valid in law and the Court will have the power to appoint a sole independent arbitrator to decide the dispute between the parties.

The Court observed that the cause of action first arose in the year 2013 when the project was put on hold. A fresh cause of action arose in favour of the petitioner when it was informed of the short closure of the contract. The Court held that the cause of action froze as the parties were attempting to amicably settle the dispute.

The Court relied on the Supreme Court judgment in Geo Miller & Company Private Ltd. -v- Rajasthan Vidyut Utpadan Nigam Ltd., 2019 SCC OnLine SC 1137 to hold that the period of limitation for referring a dispute to arbitration would begin from the date of the breaking point i.e., the date of failure of the settlement.

The Court held that the breaking point would be the day/date on which a party could reasonably expect that any attempt at mutual talks would only be a futile attempt and empty formality.

The Court further held that since the petitioner was admitted to insolvency and in terms of Section 60(6) of the Insolvency and Bankruptcy Code, 2016, the period of moratorium would be excluded in computing limitation in respect of proceedings in respect of proceedings at the hands of the corporate debtor. It also held that the argument of the respondent that the arbitration has been prematurely invoked does not further its case as.

Lastly, the Court reiterates that the scope of examination under Section 11 of the Act is narrow and the Court can only refuse arbitration in cases of deadwood or where the claims are ex-facie barred by limitation.

Accordingly, the Court allowed the petition and appointed Justice Sahidullah Munshi, Former Judge, Calcutta High Court as the sole arbitrator.

Case Title: Zillon Infraprojects Pvt. Ltd. v. BHEL, AP 312 of 2021

Citation: 2023 LiveLaw (Cal) 98

Date: 29.03.2023

Counsel for the Petitioner: Mr. Sumit Kumar, Adv. Mr. Soumen Das, Adv Mr. Altamash Alim, Adv

Counsel for the Respondent: Mr. Anirudh Bhattacharya, Adv.

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