2007 (3) TMI 673 - SC - Companies Law

Supreme Court Upholds Arbitrator Appointment Order, Leaves Limitation Issue to Tribunal

The Supreme Court upheld the order appointing arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996, finding a live issue between ... Arbitration and Conciliation Act, 1996 - Section 11(6) - existence of a live arbitration issue - scope of Chief Justice/Designate under Section 11 - limitation as a bar to arbitration - remand to Arbitral Tribunal for determination of limitation and contractual effectArbitration and Conciliation Act, 1996 - Section 11(6) - existence of a live arbitration issue - scope of Chief Justice/Designate under Section 11 - Validity of the Designate Judge's order under Section 11(6) appointing arbitrators - HELD THAT: - The Court held that the Chief Justice or his Designate, when approached under Section 11, must satisfy himself that an arbitration agreement exists, that the applicant is a party thereto, and that there remains a live dispute such that arbitration proceedings should be set in motion. That satisfaction may involve a prima facie enquiry into territorial jurisdiction, existence of the arbitration clause, whether the claim is a dead one, or whether the parties have recorded satisfaction of their reciprocal rights. The Designate Judge in the present case recorded satisfaction that the parties had not concluded their claims: the history of agreements, cancellations, Section 9 and AAIFR proceedings, the undertaking before the Delhi High Court, and the subsequent MoU showed the dispute in respect of the 1,20,000 sq.ft. FSI continued to haunt the parties. The Court emphasised that the enquiry at Section 11(6) is for putting the arbitral procedure in motion and need only be sufficient to record that a live issue exists between the parties. [Paras 27, 28, 32]The Designate Judge correctly exercised his power under Section 11(6) and the appointment of the Arbitrator was valid.Limitation as a bar to arbitration - remand to Arbitral Tribunal for determination of limitation and contractual effect - Whether the respondent's claim was barred by limitation or precluded by the MoU - HELD THAT: - The Court held that questions of limitation and the legal effect of the MoU are mixed questions of law and fact appropriately considered by the Arbitral Tribunal. While the Designate Judge must be satisfied prima facie that the claim is not a dead one or time-barred before appointing arbitrators, the ultimate determination of whether limitation bars the claim or what effect the MoU has (including whether it constituted a final settlement) was left to the Arbitral Tribunal to decide on evidence. The Court further noted that ongoing negotiations or settlement talks can suspend the running of limitation, and that the present factual matrix (negotiations, undertakings, MoU and its repudiation) warranted leaving limitation and the consequences of the MoU for the Tribunal rather than being finally decided in the Section 11 proceedings. [Paras 29, 31]Questions of limitation and the effect of the MoU were not finally determined by the Court and are to be decided by the Arbitral Tribunal.Final Conclusion: The appeal is dismissed; the appointment of the Arbitrator under Section 11(6) is upheld. Issues as to limitation and the legal effect of the MoU are left to the Arbitral Tribunal for decision. Issues Involved:1. Existence of a live issue between the parties.2. Whether the claim was barred by limitation.Detailed Analysis:1. Existence of a Live Issue Between the Parties:The appellant challenged the order appointing arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996, on the grounds that there was no live issue between the parties and that the claim was barred by limitation. The appellant argued that the issue regarding the 1.20 lakh sq.ft. of FSI was settled by a Memorandum of Understanding (MoU) dated 19.1.2005, where the respondent agreed to restrict its claim to 86725 sq.ft. of FSI. The appellant contended that the respondent could not unilaterally cancel the MoU and revert to the original agreement dated 27.4.1994.The respondent countered that the issue regarding the 1.20 lakh sq.ft. of FSI was never closed, as evidenced by continued negotiations and legal actions, including an undertaking given by the appellant before the Delhi High Court. The respondent argued that the MoU was not a final settlement and that the issue remained unresolved.The court held that the Designate Judge was correct in finding a live issue between the parties. The court noted that the issue of 1.20 lakh sq.ft. of FSI had been a point of contention in various agreements and legal proceedings, indicating that it was not conclusively settled. The necessity for the MoU itself suggested that the issue was still alive. The court emphasized that it was not within its jurisdiction to decide the validity of the MoU but to determine whether a live issue existed, which it concluded did.2. Whether the Claim was Barred by Limitation:The appellant argued that the claim was barred by limitation, asserting that the arbitration notice served in 2005 was too late to revive the agreement dated 27.4.1994. The appellant suggested that the claim for specific performance of the agreement would be time-barred, thus making arbitration on that agreement impossible.The respondent argued that the issue of limitation should be left to the Arbitral Tribunal to decide under Section 16 of the Act. The respondent cited ongoing negotiations and legal actions as evidence that the limitation period had not expired, as the clock of limitation does not start ticking when parties are still in dialogue.The court agreed with the respondent, holding that the issue of limitation is a mixed question of law and fact that should be decided by the Arbitral Tribunal. The court referred to the precedent set in Hari Shankar Singhania & Ors. Vs. Gaur Hari Singhania & Ors., which held that ongoing negotiations prevent the limitation period from commencing. The court concluded that the claim was not dead due to limitation and that the Arbitral Tribunal should decide the effect of the MoU and the validity of the respondent's repudiation of it.Conclusion:The Supreme Court upheld the order appointing arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996, finding that there was a live issue between the parties and that the question of limitation should be decided by the Arbitral Tribunal. The appeal was dismissed with no order as to costs.