2022 (10) TMI 1175 - HC - Indian Laws

Court allows appeal, sets aside award, and permits arbitration referral, finding claims not time-barred.

The court found that the claims included in the Final Bill were not barred by limitation as the period for referring disputes to arbitration starts after ... Validity of Arbitral Award - Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 - Welspun had failed to explain the delay in invoking the arbitration after the dispute resolution process had failed on 21.12.2012 - whether the claims of Welspun, as included in the Final Bill dated 30.10.2010, were barred by limitation? Whether the Arbitral Tribunal (majority) erred in not appreciating that NCC had taken contradictory stands? - HELD THAT:- The Arbitral Tribunal held that it was required to independently adjudicate the question as the controversy involved jurisdictional issues. The decision of the Arbitral Tribunal, in this regard, cannot be faulted. Section 3 of the Limitation Act, 1963 expressly requires the court to reject an action instituted beyond the prescribed period notwithstanding that no such defence has been set up. By virtue of Section 43 of the A&C Act, the Limitation Act is also applicable to arbitration - the Arbitral Tribunal's decision to determine the question of limitation on merits notwithstanding the inconsistent pleas raised by NCC, cannot be faulted with. Import of the provision of the pre-arbitration dispute resolution process on the question of limitation - whether, in the context of the aforesaid dispute resolution mechanism, the period of limitation would commence prior to the parties exhausting the agreed pre-reference procedure/remedies? - HELD THAT:- Several dispute resolution clauses provide for multi-tier or water fall dispute resolution mechanisms. These require the parties to undertake mediation or to first attempt to resolve the dispute in an alternative forum before resorting to arbitration. The entire purpose is to provide the parties an opportunity to resolve the disputes in an amicable manner before resorting to adversarial proceedings. In PANCHU GOPAL BOSE VERSUS BOARD OF TRUSTEES FOR PORT OF CALCUTTA [1993 (4) TMI 302 - SUPREME COURT], the Supreme Court referred to the decision of the Queen's Bench in West Riding of Yorkshire Country Council v. Huddersfield Corporation and held that the rule of limitation would be applicable to arbitration proceedings in the same manner as it applies to litigation before courts. In that case, the party had invoked the arbitration process under the Arbitration Act, 1940 after a period of ten years from the date it had first put forward its claims. In the facts of the said case, the Supreme Court found that recourse to arbitration was not available. The Supreme Court also referred to the text, Russel on Arbitration, 19th Edn, to posit that the limitation period to commence arbitration, would start to run 'from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned'. The period of limitation would run when a party acquires a right to refer the disputes to arbitration. Clearly, if the arbitration agreement requires the parties to exhaust the dispute resolution process as a pre-condition for invoking arbitration, the right to refer the dispute to arbitration would arise only after the parties have exhausted the said procedure. The counterparty could raise a valid objection to any step taken to refer the disputes to arbitration in avoidance of the agreed pre-reference dispute resolution procedure. If the parties have agreed that they would first endeavour to resolve the disputes amicably in a particular manner, it is necessary for them to first exhaust that procedure before exercising any right to refer the disputes to arbitration. The necessary question to be addressed is whether the period of limitation for referring the disputes to arbitration commences to run prior to the parties exhausting the agreed pre-reference procedures. In our view, the answer is in the negative. If the period of limitation does not commence running till the pre-arbitration processes have been exhausted - as has been held in various decisions- there is no need for protecting the remedy of arbitration against the bar of limitation prior to completion of the pre-reference procedure. We are unable to accept that if the arbitration agreement requires a party to refer the disputes to conciliation before referring the same to arbitration, the period of limitation would commence prior to the parties exhausting the remedy to resolve the disputes through conciliation. In the facts of the present case, the Arbitration Clause expressly required the parties to attempt resolving the disputes and differences by mutual negotiations. If the efforts to resolve the disputes did not yield fruit within a period of one month from the date the same had arisen, the parties were bound to refer the disputes to their respective Chief Executives. The parties could refer the disputes to arbitration only if the Chief Executives failed to arrive at a consensus - It is not clear as and when the negotiations between the parties to amicably resolve the disputes commenced and failed. However, it is clear that Welspun had escalated resolution of the disputes to the second tier by seeking a reference to the respective Chief Executives well within the period of limitation. Clearly, Welspun could not have sought a reference to arbitration prior to referring the disputes for resolution to the respective Chief Executives. Concededly, an attempt to resolve the disputes by the Chief Executives failed on 21.12.2012. It is clear that the decision of the Arbitral Tribunal (majority) to reject the claims made by Welspun as being barred by limitation is erroneous and the impugned award is liable to be set aside - Appeal allowed. Issues Involved:1. Whether the claims included in the Final Bill dated 30.10.2010 were barred by limitation.2. Whether the period of limitation for referring disputes to arbitration commences before or after exhausting the pre-reference dispute resolution procedures.3. Whether the contradictory stands taken by NCC (claims being premature and barred by limitation) were permissible.4. The validity of the Arbitral Tribunal's decision on the claims being barred by limitation.5. The correctness of the Single Judge's decision affirming the Arbitral Tribunal's award.Issue-wise Detailed Analysis:1. Whether the claims included in the Final Bill dated 30.10.2010 were barred by limitation:The principal controversy was whether the claims of Welspun, as included in the Final Bill dated 30.10.2010, were barred by limitation. The Arbitral Tribunal (majority) concluded that the claims were barred by limitation because the arbitration notice was issued beyond three years from the due date of the Final Bill. The learned Single Judge concurred, holding that the cause of action accrued on the certification of the Final Bill on 30.10.2010, and mere correspondence did not extend the limitation period.2. Whether the period of limitation for referring disputes to arbitration commences before or after exhausting the pre-reference dispute resolution procedures:The court emphasized that the period of limitation for referring disputes to arbitration does not commence until the pre-reference dispute resolution procedures are exhausted. The Dispute Resolution Clause required mutual negotiations and, if unresolved within one month, referral to the Chief Executives of the parties. The right to refer disputes to arbitration would arise only after these steps failed. The court held that the limitation period commenced on 21.12.2012, when the Chief Executives failed to resolve the disputes, making Welspun's invocation of arbitration on 27.01.2014 within the limitation period.3. Whether the contradictory stands taken by NCC (claims being premature and barred by limitation) were permissible:The Arbitral Tribunal rejected NCC's contention that the contract was on a back-to-back basis and thus claims were premature. It concluded that such alternative pleas were impermissible as they were self-contradictory. The court upheld this view, stating that the Limitation Act requires courts to reject actions instituted beyond the prescribed period, independent of the defences raised.4. The validity of the Arbitral Tribunal's decision on the claims being barred by limitation:The court found that the Arbitral Tribunal erred in rejecting Welspun's claims as barred by limitation. The decision did not account for the pre-reference dispute resolution process. The court clarified that the period of limitation should commence from the failure of the Chief Executives' meeting on 21.12.2012, not from the date of the Final Bill's certification.5. The correctness of the Single Judge's decision affirming the Arbitral Tribunal's award:The learned Single Judge's decision was found erroneous as it did not consider the necessity of exhausting the pre-reference dispute resolution process. The court held that the learned Single Judge incorrectly concluded that Welspun did not consider the reference to Chief Executives as a precondition for arbitration. The court set aside the impugned award and the Single Judge's order, allowing Welspun to refer the disputes to arbitration afresh.Conclusion:The appeal was allowed, and the impugned award and order were set aside. The court clarified that the period of limitation for arbitration commences only after the pre-reference dispute resolution procedures are exhausted. Welspun's claims were within the limitation period, and it was entitled to refer the disputes to arbitration afresh.