Whether period between filling and deciding section 8 Arbitration application is excluded from limitation period for filling counter-claim?

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Whether period between filling and deciding section 8 Arbitration application is excluded from limitation period for filling counter-claim?[1]





Shubham Budhiraja[2]

 

Mr. A and Mr. B entered into a transaction to buy nitrogen oxygen plant for which Mr. A paid advance sum of Rs.20 lacs. Because the consumer of Mr. A defaulted in payment, Mr. A asked Mr. B to cancel the transaction and refund the advance. On denial of same, Mr. A filed recovery suit against Mr. B. Mr. B filed section 8 arbitration and get the matter referred to the arbitration. Mr. A filed statement of claim and Mr. B filed statement of defence. Mr. B thereafter filed counter claim. Mr. A opposed the same as barred by limitation because 3 years from cause of action has lapsed. The Ld. Arbitrator allowed the counter claim for reason due to filling of section 8 application; Mr. B is entitled to the benefit of section 14 limitation act and such period shall be excluded. The commercial court set aside the findings of arbitrator. The Division bench confirmed the single judge order and held that the date on which the application is filed under Section 8 of the A&C Act (or for that matter when it is disposed of) is not relevant for determining whether any claim is within the period of limitation. In terms of Section 43(2) of the A&C Act, the date on which the arbitral proceedings commence, in terms of Section 21 of the A&C Act, is material for the purposes of considering whether the claim has been raised within the period of limitation.

 

(i)                    If an application under Section 8 of the A&C Act is allowed and the parties are referred to arbitration, the action before the judicial authority referring the parties to arbitration, stands terminated. The parties are thus left to their recourse to commence the arbitral proceedings and to refer their disputes to arbitration. It is possible that neither the party, which has instituted the proceedings before the judicial authority nor the counter-party, which has filed an application under Section 8 of the A&C Act take any further steps for resolution of disputes by arbitration. It would be incorrect to assume that in such a case the Arbitral proceedings have commenced.

 

(ii)                   The import of Section 8 of the A&C Act is to secure termination of the proceedings before a judicial authority in respect of a dispute that is covered under an arbitration agreement. An application under Section 8 of the A&C Act does not commence arbitral proceedings; it is not a substitute of a notice under Section 21 of the A&C Act. Sections 8 and 21 of the A&C Act operate in separate areas. If an application under Section 8 of the A&C Act is allowed and the parties are referred to arbitration, the action before the judicial authority referring the parties to arbitration, stands terminated. The parties are thus left to their recourse to commence the arbitral proceedings and to refer their disputes to arbitration. It is possible that neither the party, which has instituted the proceedings before the judicial authority nor the counter-party, which has filed an application under Section 8 of the A&C Act take any further steps for resolution of disputes by arbitration. It would be incorrect to assume that in such a case the Arbitral proceedings have commenced.

 

 

(iii)                 It is important to note that the scope of Section 8 of the A&C Act is limited to referring the parties to arbitration. The court, while deciding the application under Section 8 of the A&C Act, neither has the power to appoint an arbitrator nor to refer the disputes to arbitration. If the judicial authority, before which an action is instituted, allows an application under Section 8 of the A&C Act, it merely refers the parties to arbitration. After termination of the proceedings before the judicial authority, it would be essential for either party to take effective steps for appointment of the arbitrator, constitution of the arbitral tribunal and for reference of the disputes to arbitration.

 

 


[1] Web overseas Limited v. Universal Industrial Plants Manufacturing Co. Pvt. Ltd., FAO (Comm) 8/2021, Judgment dated 28/11/2022, Neutral citation, 2022/DHC/005184

[2] Advocate, Delhi High Court [LLB, ACS, BCOM(H)], Budhirajalawchambers@gmail.com , +91-9654055315

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