Elfit Arabia & Anr. v. Concept Hotel Barons Limited & Ors.
Order
ARBITRATION PETITION (CIVIL) NO. 15 OF 2023
1 The petitioner, an entity incorporated in the United Arab Emirates,
was purportedly approached by the respondents to finance a
telecommunication project undertaken by Telesuprecon Nigeria Limited
(TNL). Accordingly, the Memorandum of Understanding (MoU) which
forms the basis of the petition under Section 11(6) of the Arbitration
and Conciliation Act 19961 was executed on 1 June 2004. TNL was
represented by the second respondent, who is also a director of the
first respondent – a company incorporated in India. Pursuant to the
terms of the MoU, the petitioners claim to have disbursed funds on
various occasions. On 2 August 2006, a supplementary MoU was
executed, setting out the terms of repayment and settlement of the
petitioners’ dues. The respondents agreed to lien their property as
comfort and issue cheques in support of their finances.
2 It has been stated that cheques were given to the petitioner from time
to time during the course of meetings between the parties to negotiate
repayment. On 7 May 2011, fifteen cheques which had been furnished
to the petitioner for a consolidated amount of Rs. 7.30 crores were
presented for payment but allegedly dishonoured. Accordingly, on 2
June 2011, the petitioners issued a legal notice to the respondents
to implement the MoU and make the necessary payment.
3 Eleven years thereafter, on 4 July 2022, the petitioners invoked
arbitration in terms of clause 19 of the MoU. The respondent failed to
reply to the notice invoking arbitration. Therefore, the petitioner issued
a fresh notice dated 27 October 2022 calling upon the respondent
to refer the dispute to arbitration. The petitioner did not receive a
response to the second notice and instituted the present petition
before this court for the appointment of an arbitrator.
4 According to the petitioner, in the interregnum, proceedings under
Section 138 of the Negotiable Instruments Act 1881 were instituted
1 “Act”
Elfit Arabia & Anr. v. Concept Hotel BARONS Limited & Ors.
against the respondents. An order of acquittal was passed by the
Magistrate on 23 July 2018. Proceedings are pending before the
High Court of Bombay in appeal.
5 The respondents contend that the claims of the petitioner are barred
by limitation and urge this Court to dismiss the petition. Whether a
claim is barred by limitation lies ordinarily within the domain of the
arbitral tribunal. However, a court exercising jurisdiction under Section
11(6) of the Act may reject ex-facie non-arbitrable or dead claims, to
protect the other party from being drawn into a protracted arbitration
process,2 that is bound to eventually fail. The court must ‘cut the
deadwood’ by refraining from appointing an arbitrator when claims
are ex-facie time-barred and dead, or there is no subsisting dispute.3
6 This examination does not involve a full review of contested facts but
only a primary review, where uncontested facts speak for themselves.4
Such limited scrutiny is necessary as it is the duty of the court to
protect the parties from being compelled to arbitrate when the claim is
demonstrably barred by limitation. If courts do not intervene within this
limited compass and mechanically refer every dispute to arbitration,
it may undermine the effectiveness of the arbitration process itself. 5
7 The above principles that have been affirmed in a consistent line of
precedent, flow from the following observations in Vidya Drolia v.
Durga Trading Corporation6:
“139. … Undertaking a detailed full review or a long-
drawn review at the referral stage would obstruct and
cause delay undermining the integrity and efficacy of
arbitration as a dispute resolution mechanism. Conversely,
if the court becomes too reluctant to intervene, it may
undermine effectiveness of both the arbitration and the
court. There are certain cases where the prima facie
examination may require a deeper consideration. The
court’s challenge is to find the right amount of and the
2 Arif Azim Co. Ltd. v. Aptech Ltd. (2024) 5 SCC 313, para 68.
3 Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, para 154.4; BSNL v. Nortel Networks (India)
(P) Ltd. (2021) 5 SCC 738, para 45.1.
4 NTPC Ltd. v. SPML Infra Ltd. (2023) 9 SCC 385, para 27.
5 Ibid, para 28.
6 [2020] 11 SCR 1001 : (2021) 2 SCC 1
1234 [2024] 7 S.C.R.
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context when it would examine the prima facie case or
exercise restraint. The legal order needs a right balance
between avoiding arbitration obstructing tactics at referral
stage and protecting parties from being forced to arbitrate
when the matter is clearly non-arbitrable.
…
148. Section 43(1) of the Arbitration Act states that the
Limitation Act, 1963 shall apply to arbitrations as it applies
to court proceedings. Sub-section (2) states that for the
purposes of the Arbitration Act and Limitation Act, arbitration
shall be deemed to have commenced on the date referred
to in Section 21. Limitation law is procedural and normally
disputes, being factual, would be for the arbitrator to decide
guided by the facts found and the law applicable. The court
at the referral stage can interfere only when it is manifest
that the claims are ex facie time-barred and dead, or there
is no subsisting dispute. All other cases should be referred
to the Arbitral Tribunal for decision on merits. …
…
154.4. Rarely as a demurrer the court may interfere at
Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non-existent, invalid
or the disputes are non-arbitrable, though the nature and
facet of non-arbitrability would, to some extent, determine
the level and nature of judicial scrutiny. The restricted
and limited review is to check and protect parties from
being forced to arbitrate when the matter is demonstrably
“non-arbitrable” and to cut off the deadwood. The court by
default would refer the matter when contentions relating to
non-arbitrability are plainly arguable; when consideration
in summary proceedings would be insufficient and
inconclusive; when facts are contested; when the party
opposing arbitration adopts delaying tactics or impairs
conduct of arbitration proceedings. … ”
(emphasis supplied)
8 Having regard to the uncontested chronology of events detailed
in paragraphs 1 to 4 above, it is abundantly clear that the notices
invoking arbitration dated 4 July 2022 and 27 October 2022 were
Elfit Arabia & Anr. v. Concept Hotel BARONS Limited & Ors.
issued eleven years after the cause of action arose in 2011.7 This is
well beyond the limitation period of three years,8 and the claim which
is sought to be raised is hopelessly barred by limitation.
9 The initiation of arbitration and criminal proceedings under Section
138 of the Negotiable Instruments Act 1881 are separate and
independent proceedings that arise from two separate causes of
action.9 Therefore, the institution of the proceedings under Section
138 does not imply a ‘continuing cause of action’ for the purpose
of initiating arbitration, as erroneously contended by the petitioner.
10 The facts of the present case undoubtedly fall within the narrow
compass of interference that courts must exercise at this stage. If
this Court were to refer the dispute to arbitration, it would amount
to compelling the parties to arbitrate a ‘deadwood’ claim that is ex-
facie time-barred.
11 We, therefore, decline to entertain the Arbitration Petition.
12 The Arbitration Petition is accordingly dismissed.
13 Pending applications, if any, stand disposed of.
ARBITRATION PETITION (CIVIL) NO. 10 OF 2023
14 The companion Arbitration Petition, namely (Arbitration Petition No.
15 of 2023) has been dismissed by the above order. Save and except
for the date of the MoU which is 26 May 2004 in the present case,
the facts are similar.
15 For the reasons already indicated, we arrive at the conclusion that
the claim is ex-facie barred by limitation.
16 The Arbitration Petition is accordingly dismissed.
17 Pending applications, if any, stand disposed of.
Result of the case: Arbitration Petitions dismissed.
†