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22 December 2023

Legal Standoff: Calcutta High Court Nixes Arbitration Plea, Declares Time Limitation Paramount

Calcutta High Court recently addressed a plea seeking the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act. In this comprehensive legal analysis, we delve into the intricacies of the case, where a Memorandum of Understanding (MoU) signed in 2011 became the epicenter of disputes between the parties. The petitioner faced challenges in receiving the agreed-upon Rs. 1.50 crores and grappled with issues related to the construction of residential flats.
Background of the Dispute

The MoU, executed on 28-03-2011, delineated the disassociation of the involved parties from each other's businesses. The disagreements surfaced when the petitioner did not receive the stipulated amount, leading to conflicts over residential flat construction. The arbitration clause was invoked on 11-03-2014, initiating a series of legal proceedings. The petitioner, dissatisfied with the award, challenged it under Section 34 of the Act, resulting in the award's set aside on 28-09-2022.

Section 43(4) Invocation and Respondent's Counter

Relying on Section 43(4) of the Arbitration and Conciliation Act, the petitioner sought to exclude the period from 11-03-2014 to 28-09-2022. However, the respondent contested the application, asserting the bar of limitation. The respondent emphasized that the notice under Section 21 was issued on 10-07-2023, a staggering 12 years after the alleged right to sue had accrued.

Debating Limitation: A Contested Point?

The crux of the matter rested on whether the application was barred by limitation, considering the petitioner's reliance on Section 43(4) of the Act.

Court's Legal Analysis

The court referred to Article 137 of the Limitation Act, 1963, setting the limitation period at 3 years from the accrual of the right to apply (27-06-2011 to 26-06-2014). Dismissing the petitioner's notices from 11-03-2014 to 08-05-2023 as irrelevant, the court noted that the arbitration was invoked on 10-07-2023, surpassing the limitation by 4 years and 3 months.

The court emphasized, "...the cause of action arises when the claimant acquires the right to require arbitration. An application for the appointment of an arbitrator under Section 11 of the 1996 Act is governed by Article 137 of the Schedule to the Limitation Act and must be made within 3 years from the day when the right to apply first accrues."

Rejecting Sections 18 and 19

The court rejected the petitioner's reliance on Sections 18 and 19 of the Act, as they presume the subsistence of the limitation period. Section 43(4) was deemed to exclude the period between arbitration commencement and award set aside from the Limitation Act. Despite the exclusion, the application was deemed beyond the limitation period as per Article 137.

"...the right to apply can only arise when such right is unequivocally denied by the respondent. The claim for arbitration must therefore be raised, without delay, as soon as the cause for arbitration arises similar to a civil action."

Clear Ruling on Limitation

The court held that the question of limitation was clear and did not necessitate the arbitrator's determination. It further opined that arbitrators intervene only when the delay is not patently obvious.

Court's Final Decision

In its final decision, the court dismissed the present application as not maintainable, ruling that the petitioner's claims are barred by the laws of limitation. No costs were awarded in this legal standoff.

The Calcutta High Court's meticulous legal analysis and decisive ruling underscore the importance of adhering to limitation periods in arbitration cases. The court's emphasis on the unequivocal denial by the respondent and the timely initiation of arbitration proceedings serves as a benchmark for future disputes. This case sets a precedent for practitioners and arbitrators alike, emphasizing the critical nature of timely action in the realm of arbitration law.