Background
Earnest Business Services Pvt. Ltd. (“Petitioner/Respondent in Arbitration”) entered into two agreements, namely the Business Centre Facility Agreement and the Support Services Agreement with the Government of the State of Israel (“Respondent/Claimant in Arbitration”), in respect of certain office units. The said agreements were entered for a period of 37 months, from 1 June 2009 to 30 June 2012.
Under the said agreements, the Respondent deposited an interest free refundable security and was also required to pay rent of Rs. 7,20,000 and Rs. 5,80,000 per month, respectively, under the two agreements. Moreover, the said agreements stipulated compensation at the rate of Rs. 58,500 per day under each agreement, in case the Respondent failed to handover vacant possession of the premises in a peaceful manner on 30 June 2012. The agreements expired on 30 June 2012, but the Respondent allegedly continued to occupy the premises without authorization from 30 June 2012 to 27 November 2012. Thereafter, the parties entered into a memorandum permitting the Respondent to use the premises till 30 March 2013.
The Petitioner, however, demanded compensation for the period from 01 July 2012 to 27 November 2012, contending that, irrespective of any subsequent agreement, the Respondent was liable to pay such compensation. The Petitioner adjusted the said amount against the security deposit. This action of the Petitioner was disputed by the Respondent, and the parties appointed a sole arbitrator on 14 September 2016, during an application under Section 9 of the Arbitration & Conciliation Act, 1996 (“the Act”)before Hon’ble Bombay High Court.
In the arbitration proceedings, the Respondent sought the release of its security deposit amounting to Rs. 1,17,00,000, while the Petitioner filed a set off for Rs. 1,17,00,000 and counter claim for the balance amount. The Ld. Arbitrator ruled in favour of the Respondent and directed the Petitioner to pay Rs. 1,17,00,000 with interest from 09 April 2013 along with costs while rejecting Petitioner’s claims as time barred.
Aggrieved by the said award, the Petitioner filed the present petition under Section 34 of the Act in the Bombay High Court.
Issues and Decision
Whether the appointment of the arbitrator is valid or not?
The Petitioner contended that the appointment of the arbitrator by the Hon’ble Bombay High Court in an application under Section 9 of the Act was ex-facie without the jurisdiction. It was argued that since Respondent is the Government of the State of Israel, the present arbitration falls under Section 2(1)(f) of the Act i.e. international commercial arbitration. Consequently, under Section 11(9) of the Act, only the Chief Justice of India could appoint an arbitrator, and not the Bombay High Court. Accordingly, the Petitioner submitted that the Bombay High Court lacked jurisdiction to appoint the arbitrator, rendering the entire arbitration proceedings void. Reliance was also placed on Roptonal Ltd. vs. Anees Bazmee 2016 SCC OnLine Bom 3555, wherein under similar facts, the Bombay High Court recalled the order appointing arbitrator in an international commercial arbitration.
ON THE CONTRARY, the Respondent, relying upon various correspondences exchanged between the parties, contended that the appointment of Ld. Arbitrator has been mutually agreed upon between the parties, which was informed to the Hon’ble Bombay High Court, which thereafter passed the order by consent. The Respondent further emphasized that the agreement specified that disputes were subject to Indian laws and the jurisdiction of Mumbai courts; hence Bombay high Court has the exclusive jurisdiction. It was further submitted that the Petitioner never raised any such objection on the appointment of the arbitrator and actively participated in the arbitration proceedings; hence, the Petitioner is precluded from raising the issue of jurisdiction for the first time in the present petition. Reliance was placed on ZEE Sports Ltd vs Nimuis Media PTE Ltd. 2018(1) MHLJ 349, wherein such belated challenge to jurisdiction was rejected.
DECIDING THE ISSUE, the court held that parties could agree on the appointment of an arbitrator in any court proceedings, including under Section 9, without filing an application under Section 11(6) or 11(9) of the Act. In this case, Section 11(9) was not applicable because the parties had already agreed on the arbitrator’s appointment through prior correspondence. It concluded that the court was empowered to appoint the arbitrator by consent of the parties, based on their prior agreement.
Whether the Petitioner’s claims of set off and counter-claim were time barred or not?
The Petitioner argued that its claim for set-off was not barred by limitation because under Section 3(2)(b)(i) of the Limitation Act, 1963, a set-off is deemed to have been filed on the date of institution of the Respondent’s Statement of Claim. They further argued that the Petitioner vide letter dated 28 May 2013 notified the Respondent that ‘large sums’ are due under the agreements. It further highlighted that the Petitioner already adjusted the refundable security deposit of ₹1.17 crore, hence, the question of limitation could not arise at all.
The Petitioner emphasized the conceptual distinction between a set-off (in the form of defense) and a counterclaim (in the form of offence) and contended that the Arbitrator, instead of appreciating this distinction, wrongly placed both on the same pedestal and rejected them together on limitation grounds without adjudicating them on merits.
To strengthen its position, the Petitioner relied on authorities such as Punjab National Bank v. Surendra Prasad Sinha 1993 Supp (1) SCC 499, where it was held that limitation bars only the remedy and not the right itself. Thus, even if a claim is time-barred, the right continues to exist and can be asserted by way of set-off or counter-claim.
ON THE CONTRARY, the Respondent pointed out that as per the Petitioner’s own case the alleged cause of action arose during the period July 2012 to November 2012 (period of overstay by Respondent), the expenses incurred on renovation and repairs were in June 2013 and the notice issued by the Petitioner were from November 2012 to July 2013, whereas, the counterclaim and set-off were filed only in December 2016, well beyond the three-year limitation period prescribed under the Limitation Act.
The Respondent accepted that Section 3(2)(b)(i) of the Limitation Act deems a set-off to have been filed on the date of the Statement of Claim but emphasized that in this case the Petitioner had never raised any ascertained or quantified claim until 2016 in arbitration proceedings. Earlier correspondence, such as the Petitioner’s letter dated 23 May 2013, merely alleged in general terms that “large sums” were due from the Respondent, without quantifying any demand. Hence, there was no valid set-off exercised within time. Moreover, the counterclaim, unlike set-off, falls under Section 3(2)(b)(ii) of the Limitation Act, which deems it to have been instituted only on the date it is lodged. Since the counterclaim was formally filed in December 2016, it was clearly beyond limitation. The Respondent also pointed out that the Petitioner attempted to argue for equitable set-off before the Arbitrator, claiming that limitation would not apply in such a case. However, this plea was never taken in the pleadings (written statement or counterclaim) and was raised only belatedly during arguments. Therefore, it could not be entertained. The Respondent emphasized that the Arbitrator had carefully considered the pleadings, correspondence, and evidence, and had rejected both the set-off and counterclaim not only on limitation grounds but also on merits.
DECIDING THE ISSUE, the Court upheld the Arbitrator’s decision that the Petitioner’s claims for set-off and counter claims were barred by limitation, as the cause of action arose in July 2012 continuing up to November 2012, as per the Petitioner’s own statements. Even if date of invocation of arbitration i.e. as 04 April 2016 is considered for stoppage of limitation, then also the claim for set-off will be barred by limitation. Furthermore, the claim for counter-claim, which is based on time barred set-off, would also be time barred and even otherwise under Section 3(2)(b)(ii) of the Limitation Act, the counterclaim, filed in December 2016, is beyond the period of three years; hence, time-barred.
Significance
The judgement clarifies that simply sending a general notice alleging that sums are due is not enough to protect one’s legal rights. To preserve a claim for set-off or counterclaim under the Limitation Act, the party must specify and quantify the exact amounts owed within the statutory limitation period. Without a clear, ascertained claim, the law does not recognize the right as having been exercised, and any attempt to raise it later, even during arbitration, may be rejected as time-barred.
Case Details
Citation Codes: 2019:BHC-OS:15299
Date of Judgement: 06 September 2019
Court: Bombay High Court
Coram: Justice R D Dhanuka
Author(s)
Nandini
Student at MNLU, Nagpur