Time Spent On Application under Section 8 of A&C Act, Not Excludable For Computation of Limitation for Counter Claim: Delhi High Court

CASE TITLE:
Web Overseas Limited v. Universal Industries Plants Manufacturing Company Private Limited.

DATE OF ORDER:
28thNovember 2022.

JUDGE(S):
Hon’ble Justice Mr.Vibhu Bakhru, Justice Mr. Amit Mahajan.

PARTIES:
Petitioner: Union of India.
Respondent: Reliance Industries Limited and Ors.

SUBJECT

The present case was related to the provisions of Section 8 and Section 21 of the A&C Act wherein the petitioner was aggrieved by the order passed by the Commercial Court.

IMPORTANT PROVISIONS

The Arbitration and Conciliation Act, 1996.

• Section 8-Power to refer parties to arbitration where there is an arbitration agreement.
• Section 14- Resignation/ Termination of the appointed arbitrator.

BRIEF FACTS

• The petitioner and the respondent company entered into negotiations for the purchase of an Oxygen Nitrogen Plant wherein the respondent company agreed to manufacture and supply the same with “Bochi, Italian Brand Oxygen Nitrogen Plant Model UBT- 100”.
• The respondent company brought it for Rs. 2, 37, 51, 000 at the material time and issued a performa invoice for supplying the said plant on 5 November 2012.
• According to the terms and conditions, the appellant was required to pay 25% of the invoiced amount with a certain amount as advance followed by four cheques. 75% of the balance was required to be paid before the dispatch of the goods.
• The appellant is alleged to have paid only a sum of Rs. 20, 00, 000 and sought extension for paying the remaining balance amount. But no such extension was granted.
• Thereafter the appellant claimed that both of the parties entered into discussions where the respondent issued a revised offer superseding the previous offer by an email on 4 May 2013.
• The revised performa invoice was issued on 5 May 2013 which had materially different terms and conditions. Here the price of the Oxygen Plant was increased and now the respondent required 50% of the consideration to be paid in advance.
• The appellant submitted that it entered into the contract for one of its customer in Iraq who failed to pay the advance amount that was required. Correspondently, the appellant was also unable to pay the entire advance amount. In the present situation, the appellant said that the initial offer had automatically lapsed since the advance amount was not paid. Thereafter, he rejected the revised performa as he was not interested to accept the revised terms in it and thereby, sent a letter stating the same and sought a refund of the advanced amount that was paid initially in a letter dated 30 July 2013.
• The appellant claimed that he has sent three emails dated 29 August, 23 September and 28 September 2013 reiterating his rejection and requesting for the refund of the advanced amount. However, the amount was not refunded.
• The respondent sent a legal notice to the appellant on 18 October 2013, inter alia, stating that the advanced amount was non-refundable and he also mentioned that the appellant was liable to pay the outstanding amount (i.e 25% of the consideration) which was to be paid in advance according to the revised performa including Rs. 50, 00, 000 as damages. The notice also directed the appellant to refrain from resorting to any unwarranted and illegal correspondence and illegal threats failing to which he can initiate appropriate legal proceedings.
• Thereafter, legal notices were sent to the respondent by the appellant to pay the advanced amount along with interest at the rate of 18% per annum from 30 July 2013 till the date of realization.
• The respondent sent a legal notice to the appellant on 5 February 2014 reiterating that the advanced amount was non-refundable and claiming to pay a sum of Rs. 85, 00, 000 for manufacturing the plant and further compensation of the losses incurred.
• A suit was instituted by the appellant on 13 May 2014 for recovering the advanced amount which were subsequently transferred to the District Court for which summons were issued.
• The respondent thereby filed an application under Section 8 of the A&C Act on 28 August 2014 in response to the suit filed by the appellant and urged for arbitration among the two parties. This application was allowed by the Hon’ble District Court, Saket on 27 January 2017.
• In response, the appellant filed an application under Section 11 of the A&C Act before the Court seeking for an arbitrator. The application was granted and the Court directed the Delhi International Arbitration Centre to appoint an arbitrator following their Rules.
• The appellant filed its Statement of Claims before the Arbitral Tribunal seeking for a refund of its advanced amount along with interest on 25 March 2017. The respondent filed its Statement of Defence contesting the claims made by the appellant on 17 May 2018. The respondent also filed a counter claim on 7 July 2018 over a certain sum of money.
• The appellant thereby filed an application to dismiss the counter claim as being barred by limitation. The said application was rejected by the Arbitral Tribunal by the impugned award.

 QUESTIONS RAISED

• Whether the time consumed by the respondent in pursuing its application under Section 8 of the A&C Act is required to be excluded for computing the period of limitation by virtue of Section 14 of the Limitation Act?
• Whether the legal notices issued by the respondent can be construed as notices commencing arbitral proceedings in terms of Section 21 of the A&C Act?
• Whether the decision of the Arbitral Tribunal to extend the benefit of Section 14 of the Limitation Act is, ex facie, untenable?
• Whether the appellant was diligently pursuing the proceedings involving the same matter in issue before a court that lacked the jurisdiction to entertain the proceedings?
• Whether the notices dated 18 October 2013 and 5 February 2014 issued by the respondent could be accepted as notices under Section 21 of the A&C Act

ARGUMENTS ADVANCED BY THE APPELLANT

• The appellant has filed the present appeal u/s 37(1)(c) of the A&C Act,1996 against the order passed by the learned Commercial Court who rejected its application u/s 34 of the A&C Act.
• The petitioner’s counsel also filed this appeal against the interim order passed by the Arbitral Tribunal on 1 October 2018 whereby, the counsel contended the counter-claim which was given by the respondent.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The respondent claimed that it had issued two notices which were required to be construed as notices under Section 21 of the A&C Act. Therefore, according to the provisions of Section 21, the period of limitation would stop running on the dates when the said notices were received rather than the date of filing the counter-claim. Also, the counter-claim need to be instituted on the date when it was filed before the Arbitral Tribunal.
• The respondent claimed that it is entitled to the benefit of Section 14 of the Limitation Act which was held by the Arbitral Tribunal as well as the favoured by the learned Commercial Court.
• The respondent said that an arbitration agreement existed between the parties and there was no proper reason to invalidate the counter-claims raised. Also, it is very clear from the application filed by the respondent u/s 8 of the A&C Act against the suit filed by the petitioner as he did not wanted to preclude the commencement of the arbitral proceeding.
• The respondent contended that the appellant disputed the existence of the contract and had not consented to counter-claim being referred to arbitration.
• The respondent also contended that an application u/s 8 of the A&C Act is also required to be construed u/s 21 of the Act and thereby, relied upon Five Square Agro Gold Pvt. Ltd. v. Mayank Mohan Agarwal (2019 SCC OnLine Del 6503).

ANALYSIS OF THE COURT

• The Court held that the respondent did not call upon the appellant to refer his counter-claim to the arbitration.
• The Court also submitted that the contents of the said communication by the respondent does not comply with the fundamental requirement of Section 21 of the A&C Act and hence termed the said notices to be erroneous.
• The Court granted the appeal of the petitioner.

CONCLUSION

The Arbitration and the Conciliation Act is a very well structured document to solve dispute among the parties in a fair and equitable way so that both the parties get justice. But the parties need to respect the decision taken by the arbitrator and hence do not question his authority. But if an arbitrator is bias, then the aggrieved party can always approach the Court to seek consideration.

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