Delhi High Court: Limitation period for filing an application for appointment of an arbitrator, Does reply to first notice of arbitration gives a fresh cause of action to issue a fresh notice invoking arbitration?

Delhi-High-Court

In the case of Golden Chariot Recreations Pvt. Ltd. v. Mukesh Panika & Anr., Arb. P. No. 143 of 2018, (decided on 23 July 2018), while dealing with an application to appoint an arbitrator, the Delhi High Court addressed the issue of whether a reply to the arbitration notice can be treated as giving fresh cause of action to issue second arbitration notice? Further, the Court had to decide which of the following two arbitration notices would be considered as a reference point to compute the three year limitation period stipulated to file an application to appoint arbitrator by the Court under Section 11 of the Indian Arbitration Act (the Act). It is pertinent to note that Section 43(1) of the Act expressly mandates that the Indian Limitation Act, 1963 (the Limitation Act) applies to arbitration as it applies to the proceedings in Indian Courts. As per Article 137 of the Limitation Act, an application to appoint an arbitrator in Court is required to be filed within a period of three years from the expiry of 30 days from the receipt of arbitration notice. Detailed analysis given below:

Factual Matrix

The parties were partners in a partnership firm which had purchased the property in question in the given case. Upon retirement of the original partners of the firm, they entered into a supplementary partnership deed which had an arbitration clause. Thereafter, dispute arisen between the parties and the petitioner filed an application for interim measures (under Section 9 of the Act) before the Court which was followed by issuing a notice of arbitration. This was responded by a letter by the responded. The application for interim measure was disposed off. But the petitioner issued second notice of arbitration considering the response letter of the respondent as a fresh cause of action to issue a fresh notice of arbitration. This fresh notice was followed by another application for interim measures. Now, the question before the Court was to decide whether this second application for interim measure is time barred or not?

Arbitration Clause

“13. In the event of any dispute or difference in relation to or arising out of the present Deed, the same shall be settled through arbitration to be conducted in accordance with the Arbitration and Conciliation Act, 1996. All parties will jointly and mutually nominate and appoint a sole arbitrator. The arbitration shall be conducted in accordance with the Arbitration and Conciliation Act, 1996 and the venue of arbitration shall be New Delhi.”

Applicable Legal Principle

Section 11(4) & (6) of the Act

“11 Appointment of arbitrators. —

………….

(4) If the appointment procedure in sub-section (3) applies and—

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

……………

(6) Where, under an appointment procedure agreed upon by the parties,—

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”

Parties’ Contentions

The petitioner contended that the cause of action had arisen on and from the date when the petitioner had received the response to the first notice and therefore, the application to appoint arbitrator before the Court was not barred by limitation since the petitioner had issued the notice invoking the arbitration within a period of three years on from that date.

Analysis

The Court held that the contention that the response to the first notice gave a fresh cause of action to issue a fresh notice invoking the arbitration is wholly unmerited. The Court refuted petitioner’s argument citing its earlier dictum of Prasar Bharti v. Maa Communication: AIR 2011 (Delhi) 26 wherein the Court held as under:

“5. We find that the limitation for filing a petition under Section 8 of the 1940 Act has been the subject matter in Utkal Commercial Corporation v. Central Coal Fields Ltd. AIR 1999 SC 801 where it was held that in a case under Section 8 (2) of the 1940 Act, Article 137 of the Limitation Act, providing limitation of three years, applies and the time for the purpose of limitation begins to run from the date when the right to make an application under Section 8 accrues i.e. upon the failure of the other party to concur in the appointment of the arbitrator within 15 days inspite of notice. It was held by the Supreme Court that in order to be entitled to ask for a reference there must be a notice contemplated under Section 8 and no compliance thereof.

6 .The position under the 1996 Act in Section 11 is akin to that under Section 8 and not to that under Section 20 of the 1940 Act. In fact, the procedure as prescribed under Section 20 of the 1940 Act has been totally done away with in the 1996 Act. Under the 1996 Act, a party to an arbitration agreement cannot straightaway approach the court for appointment of the arbitrator, as a party to an arbitration agreement was entitled to under Section 20 of the old Act. Under Section 11 of the new Act, even if there is no named arbitrator, the party is not entitled to approach the court straightaway and is required to first issue notice to the other party proposing the names of the arbitrators and is to approach the court only upon the failure of  consensus within 30 days of such notice. The procedure prescribed in Section 11 is mandatory…………Thus, the limitation for filing an application under Section 11(4) or 11(6) of the Act cannot but accrue only upon the failure of the procedure prescribed and can possibly have nothing to do with the limitation for preferring the claim. The Supreme Court in J.C. Budhraja Vs. Chairman, Orissa Mining Corporation Ltd. (2008) 2 SCC 444, relied by the counsel for the petitioner, has clearly held that the period of limitation for filing a petition under Section 8(2) of the 1940 Act seeking appointment of an arbitrator cannot be confused with the period of limitation for making the claim.

7 .We therefore find that the limitation for filing an application under Section 11(4) would commence running only from the expiry of 30 days from the receipt of request mentioned in Section 11(4) (a) or (b) and the limitation for an application under Section 11(6) would commence running from the happening of the contingencies mentioned in sub-clause (a) or (b) or (c) thereof.

The Court observed that the petitioner had raised a dispute by issuing first notice of arbitration and had accordingly, invoked the arbitration clause. The respondents had unequivocally denied its averments or that any arbitration agreement existed between the parties. Disputes were crystallized at that stage. There was no requirement for the petitioner to issue a fresh notice for resolution of the said disputes. It was open for the petitioner to file an application for appointment of an arbitrator at that stage.

Conclusion

The Court held that the petitioner was required to file the application to appoint an arbitrator before the Court within a period of three years from the expiry of 30 days of first notice. However, the petitioner had filed such application more than three years after the Court had disposed of the petitioner’s petition for interim measures. In view of the above, the application to appoint an arbitrator is barred under the provisions of the Limitation Act.

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