JUDICIAL UPDATES -
DELHI HIGH COURT
LIMITATION PERIOD CANNOT BE RESTRICTED FOR INVOKING ARBITRATION CONTRARY TO LIMITATION ACT, 1963.
In the case of Municipal Corporation of Delhi v. Natraj Construction Company, [2023 SCC OnLine Del 1709], the Appellant was awarded a Project through a tender process to provide and install a Retro-Reflective Sign Board. Subsequently, the work was completed within the agreed time limit and the Respondent raised a bill for the work undertaken. The Appellant sanctioned the bill of the Respondent however, the amount was left unpaid as an FIR was registered by the Central Bureau of Investigation concerning the alleged sub-standard quality of work. In the said FIR, the officials of the Appellant as well as the Respondent were named as accused persons. The Respondent then invoked the arbitration clause as per the agreement executed between the parties. The claims as raised were accepted by the Arbitral Tribunal and an award was passed in favor of the Respondent.
Thereafter, the Appellant challenged the said Award by filing Petition u/s 34 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Ld. District Court however, no relief was granted. Aggrieved by the decision of the Ld. District Court, the Appellant filed an appeal before the Delhi High Court u/s 37 of the Act.
The Hon’ble High Court of Delhi. after analysing the charge sheet presented by the CBI, relied upon the Delhi High Court's decision in M/s. Smart Commodity Broker Pvt. Ltd. vs Beant Singh[2017 SCC OnLine Del 10591] wherein it was ruled that he Delhi High Court ruled that a party cannot limit the limitation period provided by law through a Contract, as Section 28 of the Indian Contract Act, 1872 (as amended by the Amendment Act of 1996) prohibits such an agreement. As per the Court's decision, Section 28 of the Contract Act applies to any shorter limitation period specified in a contract. Therefore, the Appellant cannot rely on the relevant clause of the Contract Agreement to limit the period of limitation for invoking arbitration to 120 days. The period for invoking arbitration under the Act is prescribed by Article 137 of the Limitation Act, 1963 which is set at three years. In summary, the High Court decided that the contractual clause restricting the period for invoking arbitration is void, and the limitation period as prescribed by the law will apply.
Therefore, the Court rejected the Appellant's claim that the award violated public policy because the CBI's chargesheet did not pertain to the Work Order under consideration and the CBI's proceedings were pending on a different Work Order. In addition, the Court cited the Supreme Court's decision in Swiss Timing Limited vs Commonwealth Games 2010 Organizing Committee [(2014) 6 SCC 677], in which it was determined that allowing arbitration to take place concurrently with criminal proceedings does not necessarily pose a risk of causing harm to the parties. Accordingly, the Delhi High Court dismissed the appeal.