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A “dead cause of action” barred by a law of limitations cannot be subject to the appointment of an arbitrator: Gujarat High Court

The Gujarat High Court on 5th August 2022 ruled that a party cannot seek the appointment of an arbitrator over a “dead” cause of action or revive a claim that is barred by the Law of Limitation, through the single bench of Chief Justice Aravind Kumar in the case of Dipakkumar Nathabhai Patel vs Narmadaben Dhirajlal Radadia & 2 other (s) (Petition under Arbitration Act No. 173 of 2018).

 

FACTS OF THE CASE:

The present petition was filed under section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’.) seeking the appointment of an arbitrator, in which it was contended that the petitioner and respondents had entered into a partnership agreement on 02.03.1994, and one of the partners, Rameshbhai Ishwarbhai Patel, was relieved from the partnership, and a new partnership agreement came to be executed on 01.07.1998. The petitioner- applicant and respondent Nos. 1 to 3 became partners in the firm under the new partnership agreement, with the applicant acquiring 25% of the share.

The Petitioner contended that he and the Respondents had entered an agreement of partnership in 1994. Following the departure of a former partner, a new partnership agreement was entered into under which the Petitioner and Respondents 1-3 became partners, with the Petitioner obtaining 25% of the share.

The Petitioner had filed Regular Civil Suits seeking various reliefs due to certain disputes. The Petitioner then issued notices to the Respondents requesting permission for the appointment of a sole arbitrator, which was opposed. As a result, the present petition was filed.

The Respondent contested the Petitioner’s facts and stated that the partnership was dissolved in 2005. After a meeting, all of the partners agreed that the Petitioner would be removed from the firm. In addition, the Petitioner did not sign the dissolution deed. In 2013, one of the Regular Civil Suits was disposed of. As a result. The respondent stated that Petitioner’s claim was “hopelessly barred by limitation.”

JUDGEMENT:

The court remarked that the firm was unregistered and that the Petitioner had not signed the dissolution deed. Furthermore, the Petitioner had accepted the orders arising from the Regular Civil Suits, but he was attempting to ‘take umbrage’ with a 2018 order arising out of a 2005 Civil Suit for the appointment of an Arbitrator.

The Bench further observed that the Petitioner was aware of his removal since 2005, but he did not seek arbitration for reasons best “known to him”. In two of the cases, the trial court stopped the proceedings in 2007, stating the existence of an arbitration clause in the deed. Even so, the Petitioner had failed to approach the High Court for the appointment of the Arbitrator. The Petitioner had erroneously failed to invoke the arbitration clause and had instead filed civil suits. Thus, even if the suit had begun in March 2010, the cause of action to sue had expired after three years.

The Bench also reviewed Section 43(1) of the Limitation Act, concluding that the Court might opt not to exercise powers in an arbitration dispute where it is clear that the claims are ex-facie time-barred, dead, or there is no ongoing dispute.

The case of Bharat Sanchar Nigam Limited and Others v. Nortel Networds India Private Limited [(2021) 5 SCC 738] was referred by the bench wherein it was reiterated that the Court must conduct a preliminary first review to filter out plainly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes.

Accordingly, the present petition was dismissed.

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JUDGEMENT REVIEWED BY NIDHI KUMAR

 

 

Read the full judgement.

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