2023 (5) TMI 852 - HC - Indian Laws

Court appoints arbitrator for Letter of Intent disputes, stresses independence.

The court appointed a sole arbitrator to adjudicate disputes arising from a Letter of Intent, emphasizing the importance of independence and neutrality. ... Appointment of a sole arbitrator to adjudicate the disputes which have arisen between the parties - disputes arose between the parties with regard to, among other causes, execution of the project and contractual obligations of the parties - whether the claims here are ex-facie time barred, and therefore, fall under the restrictive category of deadwood? HELD 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. From the facts in hand, it is palpably evident that the cause of action first arose on March 18, 2013 when the project was kept on 'Hold' by the respondent. Subsequently, on May 16, 2015, a fresh cause of action arose when the respondent informed the petitioner about short closure of the contract. Post issuance of legal notice dated March 22, 2017 by the petitioner, the respondent called for meetings between the parties to sort out the issues. The said meetings were held in April 2017, and on perusal of the minutes of the meetings, I am of the view that the discussions between the parties were exhaustive wherein both the sides made certain specific commitments in relation to the pending work at site and bill payments. Therefore, even though the respondent had unilaterally short closed the contract, the resolution recorded in the said meetings indicated their intent to have the pending work completed with set timelines. The limitation period will not be operative against the petitioner from February 05, 2019 onwards, and hence, the present petition is well within time and not barred by limitation. Ultimately, the scope of judicial interference under section 11 finds its genesis in VIDYA DROLIA AND OTHERS VERSUS DURGA TRADING CORPORATION [2020 (12) TMI 1227 - SUPREME COURT], as extremely limited, and only in those cases, where no iota of doubt regarding a claim being ex-facie time-barred is present. If and when the Court is in doubt, it has to refer the matter to the arbitral tribunal for adjudication. Justice Sahidullah Munshi, Former Judge, Calcutta High Court, appointed as a sole arbitrator to arbitrate upon the disputes which have arisen between the parties - petition disposed off. Issues Involved:1. Appointment of Sole Arbitrator2. Limitation Period for Arbitration Claims3. Continuous Nature of Cause of Action4. Prematurity of PetitionSummary:1. Appointment of Sole Arbitrator:The petitioner, M/s Zillion Infraprojects Pvt. Ltd., filed an application under Section 11 of the Arbitration & Conciliation Act, 1996, seeking the appointment of a sole arbitrator to adjudicate disputes arising from a Letter of Intent dated May 26, 2011. The court emphasized the importance of the independence and neutrality of the arbitral tribunal, citing Perkins Eastman Architects DPC & Another v. HSCC (India) Ltd. and TRF Ltd. v. Energo Engineering Projects Ltd. The court concluded that the appointment procedure in clause 2.21 of the contract could not be sustained as it contravened these principles.2. Limitation Period for Arbitration Claims:The respondent argued that the claims were time-barred, while the petitioner contended that limitation is a mixed question of facts and law to be decided by the arbitrator. The court, referencing Supreme Court rulings such as Vidya Drolia and Ors v. Durga Trading Corporation and Bharat Sanchar Nigam Ltd. & Anr. v. M/S Nortel Networks India Pvt. Ltd., held that if claims are manifestly time-barred, the court can intervene. The court rejected the petitioner's argument and decided to examine whether the claims were ex-facie time-barred.3. Continuous Nature of Cause of Action:The court reviewed the negotiation history between the parties to determine the 'breaking point' when settlement efforts were abandoned. It found that the cause of action first arose on March 18, 2013, when the project was put on 'Hold.' The court concluded that the cause of action was of a 'continuous' nature, with claims remaining 'live' due to ongoing mutual discussions. The court noted that the arbitration petition was filed within a reasonable time frame, considering the continuous nature of the cause of action and the moratorium period under the Insolvency and Bankruptcy Code, 2016.4. Prematurity of Petition:The court rejected the respondent's argument that the petition was premature due to ongoing settlement talks. It found that the petition was filed after issuing a Section 21 notice invoking the arbitration clause, and the settlement talks had clearly broken down. The court emphasized that the scope of judicial interference under Section 11 is extremely limited, as affirmed in Vidya Drolia and Others v. Durga Trading Corporation and Bharat Broadband Network Ltd. v. United Telecoms Ltd.Conclusion:The court appointed Justice Sahidullah Munshi, Former Judge, Calcutta High Court, as the sole arbitrator to arbitrate the disputes. The appointment is subject to the arbitrator's declaration under Section 12(1) of the Arbitration and Conciliation Act, 1996. The petition was disposed of with no order as to costs.