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Synopsis

The Calcutta High Court recently observed that the period of limitation for referring a dispute to arbitration would be calculated from the date of failure of settlement talks.

The Single Judge bench of Justice Shekhar B. Saraf held that the period of limitation for submitting a dispute to arbitration would be calculated from the date of the breaking point, i.e., the date of failure of settlement negotiations, when the parties attempted to resolve the dispute amicably.

The parties involved in the present matter entered into a contract in October 2010 under which Zillon Infraprojects (petitioner) was given the work to be completed in the stipulated time. Clause 2.2 of the contract contained the procedure for appointing an arbitrator. It granted the BHEL (respondent) the authority to nominate the arbitrator unilaterally.

As a result of a delay in completing the work, the project was placed on hold. There were also concerns regarding the respondent's payment delays and withholdings. Consequently, the petitioner requested payment of accrued fees against the invoices presented.

However, in an email dated January 18, 2013, the respondent placed the project on "Hold" and informed the petitioner that the contractual deadline for project completion could not be extended. In addition, the petitioner was asked to submit final invoices.

From 2014 to 2017, the parties exchanged numerous communications in which they restated their claims and arguments. On March 22, 2017, the petitioner served the respondent with a legal notice demanding the release of the overdue payment.

In response to the aforementioned notice, the respondent returned the PBGs to the petitioner and, in two subsequent letters, requested a meeting to resolve the issues. Due to the failure of settlement negotiations between the parties, the petitioner issued an arbitration notice on January 16, 2019.

Even after the petitioner invoked the arbitration notice, the respondent requested another meeting to resolve the dispute, contingent upon the petitioner withdrawing the arbitration notice.

It requested that the petitioner should submit its claims along with supporting documentation. Nonetheless, after patiently participating in the negotiation discussions and waiting for an extended period of time, the petitioner filed the petition under section 11 of the Arbitration and Conciliation Act 1996 for the appointment of the arbitrator.

The court declared the procedure outlined in Clause 2.2 of the contract null and void for the appointment of the arbitrator.

The Court held that in view of the judgments of the Supreme Court in Perkins Eastman v. HSCC (India) and TRF Ltd. v. Energo Engineering Projects, a party cannot unilaterally appoint the arbitrator, thus, the procedure contemplated in the clause was not valid in law and the court will have the power to appoint a sole independent arbitrator to decide the dispute between the parties.

The court determined that the cause of action arose in 2013 when the undertaking was suspended. When the petitioner learned that the contract had been abruptly terminated, a new cause of action accrued in its favour. The court ruled that the cause of action froze as the parties attempted to resolve their dispute amicably.

“The facts show that the present petition has been filed after the issuance of Section 21 notice invoking the arbitration clause in terms of the contract between the parties. Moreover, the amicable settlement talks between the parties have clearly broken down as they failed to make any further progress which is undeniably evident from the respondent’s reminder emails dated November 20, 2019, and January 09, 2020,” the court said.

Court held that the breaking point would be the day/date on which a party could reasonably expect that any attempt at mutual talks would only be a futile attempt and empty formality.

Court further said, “While the Court is appreciative of the parties and their efforts towards amicable settlement of disputes between them, it is natural that differences of opinion restrained the parties to be on the same page, and therefore, it is only logical for this Court to refer the matter to an arbitrator for expeditious adjudication of the said disputes. In fact, this alternative argument raised by the party with regard to amicable settlement talks taking place only reiterates the conclusion reached by me in the earlier paragraphs that the claim is not barred by limitation.”

Court reiterated that the scope of examination under Section 11 of the Arbitration and Conciliation Act is narrow and the Court can only refuse in cases of deadwood or where the claims are ex-facie barred by limitation.

Accordingly, the Court allowed the petition and appointed Justice Sahidullah Munshi, Former Judge, of Calcutta High Court as the sole arbitrator.

Case Title: Zillon Infraprojects Pvt. Ltd. vs. BHEL

Statue: Arbitration and Conciliation Act 1996