Findings On Limitation, During Section 16 Proceedings, Can't Be Challenged Under Sec. 34 Of A&C Act: Gujarat High Court

The Gujarat High Court has ruled that the findings of the Arbitrator relating to the issue of limitation, arrived at while dealing with an application filed under Section 16 of the Arbitration and Conciliation Act, 1996 (A&C Act), challenging the jurisdiction of the Arbitrator on the ground that the claims raised by the claimant were barred by limitation, do not constitute an 'interim award'. The bench of Justices Sonia Gokani and Nisha M. Thakore held that the Arbitrator's findings on limitation, while dealing with the Section 16 application, cannot be held as giving finality to the issue of limitation so as to permit its challenge under Section 34 of the A&C Act. The Court noted that there may be certain challenges to be made by the parties against the findings and observations arrived at by the Arbitrator on the issue of limitation. The Court reiterated that only when an issue of limitation is decided by the Arbitrator finally, can it be said to be an interim award and only then such an interim award can be set aside under Section 34 of the A&C Act. The petitioner- M/s Karan Paper Mills, supplied certain goods to the respondent- M/s Shah Paper Pack Industries, who allegedly failed to make payment for the same. The petitioner filed an application before the Micro and Small Enterprise Facilitation Council under the Micro, Small and Medium Enterprise Development Act, 2006 (MSMED Act). Subsequently, the Facilitation Council referred the matter for arbitration under Section 18(3) of the MSMED Act. Before the Sole Arbitrator, the respondent filed an application under Section 16 of the A&C Act, challenging the jurisdiction of the Sole Arbitrator on the ground that the claims of the petitioner were barred by limitation, which was rejected by the Arbitrator. The Arbitrator ruled that though the claims raised by the petitioner were barred by limitation, however, since the arbitration proceeding were initiated under the MSMED Act, it was a statutory arbitration. Thus, the Arbitrator concluded that in view of Section 2(4) read with Section 43 of the A&C Act, the period of limitation was inapplicable to the statutory arbitration and therefore, it rejected the respondent's application under Section 16. Against this, the respondent filed an application under Section 34 of the A&C Act before the Commercial Court, who granted an ex-parte interim stay on the arbitral proceedings initiated by the petitioner. The petitioner challenged the said order by filing a petition under Article 226 of the Constitution of India before the Gujarat High Court. The petitioner- M/s Karan Paper Mills, submitted before the High Court that jurisdiction under Section 34 of the A&C Act cannot be invoked to challenge the rejection of an application filed under Section 16. It contended that the only remedy available to the respondent was to challenge the final arbitral award under Section 34 of the A&C Act. The Court noted that the question regarding the applicability of law of limitation to statutory arbitration under the MSMED Act needs to be adjudicate between the parties by the Arbitrator. When questioned by the bench as to whether there was any scope to adjudicate on the issue of limitation which also related to the jurisdiction of arbitrator, the petitioner/ claimant submitted that the findings on the issue of limitation were arrived at by the Arbitrator without either side adducing any evidence and that it sought to challenge the reasoning of the Arbitrator. Thus, the Court reckoned that there may be certain challenges to be made by the parties against the findings and observations arrived at by the Arbitrator on the issue of limitation. "What can be deciphered, therefore, at this juncture is that there may require certain challenges to the findings and observations on the issue of limitation by the parties to the Arbitration and that initiative would need to come from the claimant/petitioner and yet, no challenge before the Appellate Court would be permissible much less any interference on the part of the Appellate forum as the finality is yet be attached to the issue of limitation linked with the jurisdiction of the learned Arbitrator.", the Court said. Referring to the judgment of the Apex Court in Indian Farmers Fertilizer Co-operative Limited versus Bhadra Products (2018), the bench reiterated that only when an issue of limitation is decided by the Arbitrator finally, can it be said to be an interim award and only then such an interim award can be set aside under Section 34 of the A&C Act. The Supreme Court in Indian Farmers Fertilizer Co-operative Limited (2018) had ruled that an interim final award which does not relate to the Arbitral Tribunal's own jurisdiction under Section 16, need not follow the drill of Sections 16(5) and 16(6) of the A&C Act. The Supreme Court had held that such final interim award could be ...

Findings On Limitation, During Section 16 Proceedings, Can't Be Challenged Under Sec. 34 Of A&C Act: Gujarat High Court

Parina Katyal

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