Arbitration In IndiaThe issue of Limitation is a mixed question of fact and law and should be left for determination by the Arbitral Tribunal

The  Bombay High Court in Vedanta Limited through authorized sign Benecio Menezes vs. Prowess International Pvt Ltd [2023 SCC OnLine Bom 2714] held that the Arbitral Tribunal has the jurisdiction to decide the issue of limitation, as it is a mixed question of fact and law.

FACTS

 Vedanta Limited (hereinafter referred to as the “Applicant”) and Prowess International Private Limited (hereinafter referred to as the “Respondent”) entered into EPC Contract dated 02.06.2018 (hereinafter referred to as the “Contract”) for a De-Dusting System for Blast Furnace 2 Cast House, Ladle Dumping Chamber, Coal Handling Plant and Coke Screening Plant 1 and 2.

The Contract specified a timeline for completion of the work, and the Respondent was obligated to perform within the stipulated period. The Applicant notified the Respondent of their failure to adhere to the timeline through several correspondences.

The Applicant issued a notice of termination on 08.12.2018, in response to the termination notice. Subsequently, the Respondent acknowledged their fault and agreed to complete the work by 09.01.2019.  The Respondent further failed to adhere to the updated timeline.

Therefore, the Applicant again issued a notice dated 22.05.2019, communicating their intention to terminate the contract. In response to the same, the Respondent acknowledged their fault and failure to rectify the same.

The Applicant had to appoint another agency to complete the work and incurred additional expense amounting to Rs.4 Crores. The Applicant sent a Notice on 19.09.2022 to the Respondent for recovery of Rs. 4 Crores along with applicable interest within 15 days of receipt of notice. However, the Respondent did not reply to the Notice.

The Applicant as per the Dispute Resolution Clause in the Contract, sent another notice on 01.12.2022 to the Respondent to settle the dispute amicably through mediation. But the Respondent did not pay any heed to the Notice.

Therefore, the Applicant invoked the Arbitration Clause envisaged in the Clause 16 of the Contract and sent a notice of invocation of Arbitration on 11.01.2023.

Hence, the Applicant has filed the present application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”), seeking the appointment of an Arbitral Tribunal consisting of three Arbitrators.

ISSUE BEFORE THE HIGH COURT

Whether the present Application filed under Section 11 of A&C Act is maintainable or barred by limitation?

CONTENTIONS OF THE PARTIES

The Applicant contended that the present Application was within limitation as per the extension of limitation by the Supreme Court. The Applicant argued that the limitation would commence from the date of invocation of the Arbitration Clause i.e., 11.01.2023. Moreover, the question of limitation being a mixed question of fact and law, ought to be decided by the Arbitral Tribunal.

The Respondent contended that the substantive cause of action arose in 2018 when the notice of termination was issued by the Applicant. Hence, the cause of action accrued on 08.12.2018 and expired on 17.12.2021. Therefore, it is barred by limitation.

DECISION AND FINDINGS

The Bombay High Court considered the clauses of the Contract and the documents placed on record by both parties. The High Court observed that the time period for completion of the work by the Respondent was extended and hence, it cannot be conclusive said that the cause of action accrued on 08.01.2018.

Further, the Respondent failed to respond to the mediation notice and notice invoking Arbitration. The High Court relied on Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited [(2020) 2 SCC 455] and held that Court has to only ascertain whether an Arbitration Agreement exists while deciding an Application under Section 11  of the A&C Act.

The High Court further relied on TLG India Pvt. Ltd. v. Rebel Foods Pvt. Ltd. [2021) 5 SCC 738] and held that the Respondent had neither disputed the existence of the Arbitration Agreement nor arbitrability of the disputes. Hence, an Arbitral Tribunal shall be appointed to adjudicate the disputes between the parties.

The High Court appointed Justice UV Bakre (Retired) as a sole arbitrator with the consent of both parties to appoint a sole arbitrator instead of an Arbitral Tribunal consisting of three Arbitrators to adjudicate upon the disputes.

AMLEGALS REMARKS

The Bombay High Court upheld that the question of limitation of invoking an Arbitration Clause is a mixed question of fact and law. Therefore,  the Arbitral Tribunal should decide the question on jurisdiction as per Section 16 of the A&C Act. Thus, the legislative intent of minimal judicial intervention of the A&C Act has been upheld.

Hence, from the present judgment, it becomes apparent that the Courts are only empowered to ascertain the existence of an Arbitration Agreement and arbitrability of the dispute for application under Section 11 of the A&C Act.

-Team AMLEGALS, assisted by Mr. Sharuya Pandey (Intern)

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