Orissa High Court: A simple response to the Notice of Arbitration would not extend the deadline for submitting counterclaims.

In the case of Birla Institute of Management v. Fiberfill Interiors & Constructions (ARBA. No. 26 of 2022, Date: 28.07.2022), according to the Orissa High Court, merely responding to the notice of arbitration would not extend the deadline for submitting counterclaims. Unless the respondent had issued a separate notice of arbitration raising the counterclaims, in which case the limitation would be computed as of the date of that notice, the Court held that the date on which the counterclaim is filed before the arbitrator would be the relevant date for determining the date of stopping the period of limitation.

Facts: The parties signed a contract on June 8, 2012. The agreement was terminated on June 12, 2014, and the respondent left the location on July 30, 2014, because the work could not be finished in the allotted time frame. The parties then agreed to appoint an arbitrator to determine the amount owed to the respondent in an email written by the petitioner to the respondent on September 17, 2016. The petitioner then gave notice of the arbitration request on March 25, 2017, and in a response dated April 7, 2017, the respondent denied having any obligation to pay and claimed that the petitioner owed it money in the sum of Rs. 6 Cr. The parties’ arbitration agreement was acknowledged, nonetheless, and an arbitrator was chosen as a result. On September 18, 2018, the respondent submitted its counterclaims together with its statement of defence. The arbitrator granted the respondent’s counterclaims and granted an amount of Rs. 5,21,60,618. The petitioner contested the award because they were offended by it.

Judgement: The SC had merely held that if the respondent has any counter-claims against the petitioner and it has separately informed the petitioner of its claims through a notice of arbitration, then the date of such notice would be relevant for the purpose of determining limitation. The Court rejected the respondent’s argument that its case falls within the exception carved out in the judgement of Praveen Enterprises (supra). The Court determined that the respondent did not meet the two requirements outlined in Praveen Enterprises (above) because it did not inform the petitioner of the specifics of its claims or issue a notice of arbitration, either of which would have terminated the statute of limitations. It was decided that the respondent’s letter, dated April 7, 2017, could not extend the statute of limitations because it was merely a reply to the petitioner’s arbitration notice, sent on March 25, 2017. The Court also ruled that since the contract was cancelled and the respondent left the job site only in 2014, the date of settlement of the final bill is irrelevant. It further ruled that the email sent on September 17, 2016, cannot be interpreted as an acknowledgment of a debt because the petitioner had only consented to the appointment of an arbitrator, not that she was obligated to pay anything. As a result, the court determined that the respondent’s counterclaims, which were filed on August 18, 2018, were time-barred. Therefore, to the extent that the arbitral verdict permitted the respondent’s counterclaims, the Court set aside the arbitral award.

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