Limitation Qua Counter-Claim Stops On The Date Of Notice Of Arbitration: Madras High Court

The bench of Justice M. Sundar further held that limitation is a facet of 'public policy' and an error in limitation clearly leaves an award hit by Section 34(2)(b)(ii) read with Clause (ii) of Explanation 1 thereat.

The Court further held that if the agreement includes pre-arbitration reference to Dispute Resolution Board (DRB) or Dispute Resolution Panel (DRP), the period of limitation for initiating arbitration commences only after dispute resolution fails before these panels.

Facts

The parties entered into an agreement dated 13.09.2005 which is described as 'Bulk Water Purchase Agreement' ('BWPA). Clause 17 of the agreement is the dispute resolution clause. A dispute arose between the parties which was first referred to DRB as provided under the agreement.

The respondent sent a letter dated 05.08.2010 disagreeing with the findings of DRB. Accordingly, the petitioner issued a notice of arbitration dated 27.04.2011 by which it nominated its arbitrator and requested the respondent to nominate its arbitrator. However, the respondent was sitting over the request of the petitioner for 3 long years and it is on 25.11.2014 that the respondent appointed its nominee and referred the dispute to the tribunal.

The respondent filed its statement of claims and claimed damages to the tune of Rs. 106 Crores. The petitioner filed its counter-claims on 12.04.2016. The tribunal dismissed both the claims and counter-claims as barred by limitation. The respondent accepted the arbitral award, however, aggrieved by the award, the petitioner challenged it to the extent it rejected its counter-claims.

Grounds of Challenge

The petitioner challenged the arbitral award on the following grounds:

• The tribunal erred in rejecting the counter-claims of the petitioner on the ground of limitation.
• The tribunal erred in not appreciating the fact that the petitioner had issued a notice of arbitration on 27.04.2011, therefore, the period of limitation for its claims got arrested on the said date.
• The tribunal also erred in holding that the period of limitation for counter-claims got arrested only on the date of filing such claims, therefore, rejecting the claims as time-barred.

Analysis by the Court

The Court held that the tribunal erred in rejecting the counter-claims of the petitioner on ground of limitation. It held that the petitioner had given a notice of arbitration on 27.04.2011 by which it had nominated its arbitrator.

The Court held if the respondent has issued a notice of arbitration for its claims, then the limitation period for those counter-claims in arbitration would be arrested on the date on the date of said notice which in the present case is 27.04.2011 and the date of filing counter-claim in such cases would be irrelevant.

It further held that limitation is a facet of 'public policy' and an error in limitation clearly leaves an award hit by Section 34(2)(b)(ii) read with Clause (ii) of Explanation 1 thereat.

Accordingly, it set aside the arbitral award as being patently illegal and against public policy.

Case Title: Chennai Water Desalination Ltd. v. Chennai Metropolitan Water Supply and Sewerage Board, O.P. No. 298 of 2019

Citation: 2022 LiveLaw (Mad) 433

Date: 26.07.2022

Counsel for the Petitioner: Ms.Hema Srinivasan along with Ms.N.Umayaparvathi

Counsel for the Respondent: Mr.P.Kumaresan Additional Advocate General for Mr.Gautam S. Raman Standing Counsel for CMWSSB

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