Calcutta High Court: Period of Limitation Starts When the talks of Amicable Settlement Between the Parties Fail

Calcutta High Court: Period of Limitation Starts When the talks of Amicable Settlement Between the Parties Fail

The Calcutta High Court while adjudicating a suit filed in the matter of M/S. Zillon Infraprojects Pvt. Ltd. vs Bharat Heavy Electricals Limited, by its single judge, Justice Shekhar B. Saraf, held that the period of limitation for referring a dispute to arbitration would be calculated from the date of the breaking point i.e., the date of failure of settlement talks, when the parties were trying to amicably settle the dispute.

In the present case, the parties had signed a contract on 28 October, 2010, under which the respondent awarded the work to the petitioner. The task had to be completed within a certain amount of time. The project work was put on hold due to a delay in completion.

However, in an email dated 18 January, 2013, the respondent placed the project on ‘Hold’ and informed the petitioner that the contractual period of completion of the project could not be extended.

It also asked the petitioner to submit final bills. After much back and forth between the parties, the petitioner finally served the respondent with a legal notice demanding the release of the overdue payment.

On failure of the talks of settlements between the parties, the petitioner issued the notice of arbitration.

Thereafter, the petitioner filed an Arbitration Petition before the Delhi High Court and subsequently withdrew it with the liberty to approach the Calcutta High Court.

The Calcutta High Court at the outset invalidated the procedure for appointing the arbitrator outlined in the contract’s Clause 2.2.

The Court while referring to Apex Court’s pronouncements in Perkins Eastman Architects DPC & Another vs. HSCC (India) Ltd. (2019) and TRF Ltd. vs. Energo Engineering Projects Ltd. (2017) held that, a party cannot unilaterally appoint the arbitrator, thus, the procedure contemplated in the clause in not valid in law and the Court will have the power to appoint a sole independent arbitrator to decide the dispute between the parties.

In this regard, the judge expressed his view, “for arbitration to be seen as a viable dispute resolution mechanism and as an alternate recourse to litigation, the independence of arbitration process outside the purview of undue influence and favor needs to be ensured in both letter and spirit. And in case of non-adherence to such principles, the courts must step in. If one takes a careful look, the very basic essence of the principle laid down in the above-mentioned case laws is the natural justice principle of nemo judex in causa sua that is ‘no one should be made a judge in his own case.”

The next issue was whether the claims were ex-facie time barred, and therefore, fall under the restrictive category of deadwood.

The Court emphasized that, it is a settle principle of law that the limitation period in a Section 11 application is governed by Article 137 of the Limitation Act, 1963 which provides for three years from the date when the right to apply first accrues.

The Court opined that in order to determine whether the claims were time barred, it was judicious on to revisit the entire negotiation history between the parties starting with the day when the cause of action first arose, and thus, attempt to ascertain the ‘breaking point’, if any, in the settlement discussions.

In this regard, the Court held that the period of limitation for referring a dispute to arbitration would begin from the date of failure of settlement.

The Court further noted that the petitioner company was undergoing Corporate Insolvency Resolution Process (CIRP) proceedings before the Ld. National Company Law Tribunal, Principal Bench, New Delhi wherein an order of moratorium was passed on 5 February, 2019 the moratorium period would be excluded from the computation of limitation in proceedings at the hands of the corporate debtor, reckoned the judge.

It also ruled that the respondent’s claim that the arbitration was called too soon did not help its case. Finally, the Court stressed that the scope of examination under Section 11 of the Act is limited, and the Court can only refuse arbitration in cases of deadwood or claims that are ex-facie barred by limitation.

As a result, the Court disposed the petition and appointed Justice Sahidullah Munshi, a former Calcutta High Court judge, as the sole arbitrator.