Limitation and appointment of arbitrators

Shutham Electric Ltd. vs Vaibhav Raheja & Anr. on 10 September, 2024 (Delhi High Court) case involves an appeal under Section 37(1)(c) of the Arbitration & Conciliation Act, 1996, challenging a judgment by the Delhi High Court upholding an arbitral award dated 2nd May, 2023. The key issues revolve around limitation, appointment of arbitrators, and the application of Order XII Rule 6 of the CPC for admissions made by the appellant.

Key Legal Issues and Arguments

a. Bar of Limitation

The appellant contends that the arbitration claim is barred by limitation. The loan agreement was dated 14th June 2013, and the last admission was made on 2nd February 2017, while the arbitration was invoked on 18th November 2019. As per the appellant, the time for invoking arbitration expired before the notice was issued.

However, the High Court refuted this argument by highlighting that the appellant’s letter dated 2nd February 2017 constituted a clear admission of liability. The letter sought an extension for repayment until March 31, 2017, thus extending the acknowledgment of debt. Moreover, the invocation of arbitration, despite being challenged for being sent to an incorrect address, was found to have been validly served as per the General Clauses Act, Section 27. This doctrine presumes that a notice properly addressed and dispatched is served unless proven otherwise.

This decision is in line with the intent of the limitation law, which recognizes the extension of the limitation period when there are unequivocal admissions of liability within the limitation period.

b. Appointment of Sole Arbitrator

The appellant argued that the arbitration agreement (Clause 13.3 of the loan agreement) stipulated a panel of three arbitrators, and thus, the appointment of a sole arbitrator was contrary to the agreed terms. The High Court rejected this argument, noting that the appellant failed to adhere to the provisions of the arbitration clause and had not raised this objection when the sole arbitrator was appointed by the Court. Since no timely objections were raised, the appellant effectively waived its right to challenge the composition of the tribunal later.

This highlights the principle that parties must raise objections to procedural irregularities at the earliest opportunity or risk being precluded from raising them later. Such waiver of rights is recognized under the Arbitration & Conciliation Act, 1996 and is aimed at preventing undue delays.

c. Application of Order XII Rule 6 CPC (Admission of Liability)

The arbitrator relied on Order XII Rule 6 of the CPC, which allows judgment based on admissions made by a party. In this case, the appellant had admitted its liability for the loan amount in its correspondence, particularly in the letter dated 2nd February 2017, where it acknowledged the loan and sought an extension for repayment. The arbitrator, and later the High Court, correctly applied Order XII Rule 6 to grant relief to the respondent based on these admissions.

This decision is significant in promoting the objective of Order XII Rule 6, which aims to expedite proceedings where there is no dispute over facts. By emphasizing the need for swift resolution in cases of admitted claims, the Court underscores the legislative intent to avoid unnecessary litigation when liability is not contested.

d. Interest on Outstanding Amount

The appellant argued that the arbitrator erred in awarding interest on the outstanding amount. The cause of action for the demand of interest arose on 18th May 2016, and the arbitration notice was issued on 18th November 2019, implying that the interest claim was also barred by limitation. The Court, however, upheld the award of interest, reasoning that the admissions by the appellant extended the timeline for both the principal amount and the interest due.

The Court’s position aligns with the well-established legal principle that a debtor who acknowledges a debt implicitly acknowledges the accruing interest, unless otherwise stated.

Judicial Precedent

The Court referenced the Supreme Court’s judgment in Uttam Singh Duggal & Co. Ltd. v. United Bank of India (2000), which clarified the purpose of Order XII Rule 6 CPC: to expedite the judicial process where claims are admitted. The Delhi High Court’s decision conforms with this precedent, as it determined that the appellant's admissions sufficed to uphold the arbitral award without requiring a detailed inquiry into the merits.

Moreover, the Court emphasized that proceedings under Section 37 of the Act are limited in scope. They are not meant for reappraisal of evidence or re-examination of findings by the arbitrator. This is reinforced by the Supreme Court's judgment in Reliance Infrastructure Ltd. v. State of Goa (2023), which stated that Section 37 appeals are more limited than those under Section 34, focusing primarily on jurisdictional and procedural issues.

Conclusion

The Delhi High Court’s dismissal of the appeal is legally sound. The appellant’s challenge on grounds of limitation, appointment of the arbitrator, and the award of interest lacked merit. The decision underscores the importance of timely objections to procedural irregularities, adherence to arbitration clauses, and the consequences of making admissions in correspondence. Furthermore, the case highlights the restricted scope of appeals under Section 37 of the Arbitration & Conciliation Act, 1996, thereby promoting the finality of arbitral awards and the expeditious resolution of disputes.

In conclusion, the judgment not only upholds the arbitral process but also reinforces the need for parties to raise objections promptly and act in good faith during arbitration proceedings.

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