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The Court while exercising jurisdiction u/s 11 is obligated to appoint an arbitrator even where the claims are ex facie time barred: High Court of Delhi

Section 37(3) of the Arbitration and Conciliation Act provides that for the purpose of the Limitation Act, an arbitration is deemed to have been commenced when one party to the arbitration agreement serves on the other party thereto, a notice requiring the appointment of an arbitrator. The Court while exercising jurisdiction under Section 11 is obligated to appoint an arbitrator even in a case where the claims are ex facie time barred and the same was upheld by High Court of Delhi through the learned bench led by JUSTICE MUKTA GUPTA in the case of GAIL (INDIA) LIMITED vs. KESAR ALLOYS & METALS PRIVATE LIMITED [ARB.P. 325/2021] on 25.03.2022.

The facts of the case are that in terms of Article 6.1 of the GSA, GAIL was bound to deliver and Kesar Alloys was bound to receive the Annual Contract Quantity of RLNG until 2028. As per Article 14 of the GSA, in case Kesar Alloys was to take delivery of quantity of RLNG lower than the quantity agreed under Article 6.1, the shortfall would still be charged to its account and Kesar Alloys would be liable to pay 90% of the agreed Annual Contract Quantity. Thereafter the petitioner raised “Pay for if not taken” claims against Kesar Alloys for the contract years 2014 to 2019 as Kesar Alloys defaulted in the obligation since 2014.

Finally, GAIL issued a notice of settlement of disputes to Kesar Alloys under Article 15.1 of the GSA to amicably resolve the disputes, however no response to the same was also received and thus, GAIL provided its list of three persons requesting Kesar Alloys to appoint a sole arbitrator from the list within 30 days, however, Kesar Alloys failed to appoint the sole arbitrator and hence the petition.

The respondent’s counsel submitted that once the period of limitation starts running, no subsequent disability or inability to institute a suit or make an application, stops the period of limitation in terms of Section 9 of the Limitation Act. Therefore, no arbitrator can be appointed under Section 11(6) of the Act for the reason the claim of the petitioner is time barred.

The petitioner’s counsel contended that the cause of action for filing a petition under Section 11 of the Act arises only after one party receives a request from the other party, for appointment of an arbitrator and this request is rejected or the party fails to reach an agreement in this regard. Hence, it cannot be said that either the claim is barred by limitation.

The Court held that the claim of GAIL is ex facie barred by limitation as the process under Article 15 of GSA was initiated after three years of the termination of GSA by Kesar Alloys and in any case the dispute between the parties cannot be referred to arbitration.

It was observed by the Court that, “Section 37(3) of the Act provides for the purpose of the Limitation Act, an arbitration is deemed to have been commenced when one party to the arbitration agreement serves on the other party thereto, a notice requiring the appointment of an arbitrator. The Court while exercising jurisdiction under Section 11 is obligated to appoint an arbitrator even in a case where the claims are ex facie time barred.”

Click here to read the Judgment

Judgment reviewed by – Shristi Suman

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