Citation codes: 2023:DHC:576 ; 2023 SCC OnLine Del 4925
Date of Judgment: 16 August 2023
Court: Delhi High Court
Judge: Justice Yogesh Khanna
Facts of the case
The petitioner and respondent entered into a contract, which provided for a multi-tiered dispute resolution clause. The clause provided, first, for mutual consultation, second, for resolution through Expert Settlement Council, then, resolution through Arbitration. The dispute arose due to the arbitration clause which provided that either party can invoke arbitration only within six months of completion of execution of work or Termination of the contract.
The work was completed on 30 June 2021, thereby meaning that arbitration could be invoked till 30 December 2021. However, the petitioner initiated communication on 9 February 2022, seeking mutual consultation, but received no reply. Subsequently, on 2 October 2022, the petitioner made another attempt to involve the respondent in referring the matter to an expert settlement council, yet again with no response. Following this, on 15 November 2022, the petitioner notified the respondent to commence arbitration proceedings. However, it wasn’t until 9 December, 2022, that the respondent responded proposing a meeting on 19 December 2022 and offered to refer the dispute to an expert settlement council. The petitioner declined this offer and proceeded to file the petition under Section 11 of Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator.
Issue involved in the case
Whether an arbitration proceeding can be time-barred via the insertion of a time frame limiting clause in light of statutory protections under the Indian Contract Act and the Limitation Act?
Arguments Advanced
The respondent argued that arbitration could only be invoked by 30 December 2021, however, the petitioner approached for mutual consultation beyond this date, thus the petition is time barred.
The respondent also relied on several cases like United India Insurance Company and Harsha Constructions, to argue that conditions in the arbitration agreement, like making disputes unarbitrable or restricting arbitration to only particular disputes have been held valid. They also relied on the case of Pandit Construction company, wherein it was held that a clause curtailing period of limitation is invalid under Section 28 of the Indian Contract Act, however a clause which extinct a right if not enforced within provided time is permissible and valid.
Judgment and Reasoning
The Delhi High Court cited cases such as Natraj Construction , Grasim Industries , Sagar Construction and Mahanagar Telephone Nigam Ltd. wherein the courts observed such time limiting clause to be ultra vires of amended Section 28(1)(b) of India Contract Act. The court allowed the petition and observed that the invocation of arbitration clause beyond the specified time in the arbitration clause does not indicate waiver by the petitioner for invoking Section 11 of the Arbitration & Conciliation act.
Author(s)
Pragya Swaraj
Student at CNLU, Patna