Arbitration In IndiaAn Arbitration Clause cannot override the Law of Limitation

The Delhi High Court in M/s G.S. Express Private Limited v. NTPC Limited [Arbitration Petition No. 374 of 2023 dated 16.08.2023] held that restriction on the right to invocation under an arbitration is invalid. The right to invoke arbitration cannot be restricted to a period lesser than that provided by the law of limitation.

Facts

M/s G.S. Express Private Limited (hereinafter referred to as “Petitioner”) had moved an application on 02.09.2022 along with NTPC Limited (hereinafter referred to as the “Respondent”) for mutual consultation, but there was no response on part of the Respondent.

The Petitioner again sent another letter on 02.10.2022 to the Respondent for referring the matter to an expert settlement council, but again the Respondent failed to respond.

The Petitioner sent a notice to the Respondent for invocation of Arbitration on 15.11.2022. The Respondent vide e-mail dated 09.12.2022, asked the Petitioner to attend the meeting dated 19.12.2022, wherein the Respondent offered to refer the matter to Expert Settlement Council, which was refused by the Petitioner.

The Petitioner filed the present Petition for appointment of Sole Arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A & C Act”)   to adjudicate the dispute arisen between the parties..

Issue

Whether an arbitration clause can restrain time period for the invocation of arbitration?

Contentions

The Respondent contended that the invocation of the Arbitration Clause was time barred as it specifically provides for invocation within 6 months of completion of work order. The work order was completed on 30.06.2022, whereas, the arbitration was invoked on 02.09.2022. Therefore, the present petition was also time barred.

The Respondent relied on United India Insurance Company and Anr v. Hyundai Engineering and Construction Company Limited and Others [(2018) 17 SCC 607] and Harsha Constructions v Union of India and Others [(2014) 9 SCC 246] and submitted that when a condition in the Arbitration Clause, renders the dispute to be unarbitral in nature, it cannot be referred for Arbitration.

Decision and Findings

The  Delhi High Court relied on  Municipal Corporation of Delhi v. Natraj Contruction Company [FAO 432/2010 decided on 22.03.2023] , Grasim Industries Limited v. State of Kerala [(2018) 14 SCC 265] ,  Sagar Construction v. Govt. of NCT of Delhi [2021 SCCOnLine Delhi 4648]  and Shanti Prasad Goenka v. Mahanagar Telephone Nigam Ltd. [2016 SCC OnLine Delhi 5256] held that invocation of arbitration after the time stipulated in the Arbitration Clause does not mean waiver on the part of the Petitioner for the invocation of Section 11 of A&C Act.

The Court held that such a stipulation of limiting the time period of invocation of arbitration grossly violates Section 28 of the Indian Contract Act, 1872 and such a stipulation is invalid in law. Further, any stipulation in the Agreement that is in violation of law is invalid. The High Court appointed Justice (Retd.) Mukta Gupta as the sole arbitrator.

AMLEGALS Remarks:

It is a matter of common prudence that an Arbitration Clause in a contractual agreement needs to be strictly construed. Any expression in any clause must unequivocally express the intent of an arbitration. It must postulate the circumstances where the arbitration clause cannot be given effect to. If a clause stipulates that under certain situations there can be no possibility of arbitration, it must demonstrate it clearly without any stance of controversy pertaining to the appointment of Arbitrator, considering our present matter in concern.

A significant perspective is highlighted in the judgment that  an agreement cannot seek to limit the time for exercising of the right to invocation of arbitration. Such a clause in the agreement would be violative of Section 28 of the Indian Contract Act..

There is no doubt to hold that invoking arbitration clause after 6 months would not waive the right of the petition to approach this Court under Section 11 of the A & C Act, and an Arbitration Clause cannot override any law.

-Team AMLEGALS, assisted by Ms. Nitya Joshi (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com