A single bench of the Delhi High Court (“Court”) in the matter between Municipal Corporation of Delhi v. Natraj Construction Company, while dealing with an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), recently held that in light of the provisions of Section 28 of the Indian Contract Act, 1872 (“Contract Act”), parties under an arbitration agreement cannot be permitted to restrict the period of limitation for invoking arbitration, in contravention to the limitation period provided by law under the Limitation Act, 1963 (“Limitation Act”).
The bench of Justice Manoj Kumar Ohri noted that the limitation period for invoking arbitration under an arbitration agreement was three years, as prescribed under Article 137 of the Limitation Act. The Court therefore held that any party to an arbitration agreement cannot be permitted to rely on the relevant clauses of an arbitration agreement in order to restrict the period of limitation for invoking arbitration to a period lesser that the statutory period of 3 years.
Factual Matrix and Submissions:
The appellant, municipal corporation of Delhi (“MCD”) had preferred an appeal against a judgment passed by the learned Additional District Magistrate, whereby the objections filed by the appellant under Section 34 of the Arbitration Act were dismissed and the Award was upheld. MCD had floated a tender for providing and fixing a retro- reflective sign board. Natraj Construction Company (Natraj / Respondent), was awarded the contract and a work order was issued in its favour. The time for completion of work was three months. Natraj had completed the work within the stipulated time.
MCD passed a sanction order clearing the bill raised by Natraj. However, the said amount was not paid since the CBI had registered an FIR with respect to the, alleged, sub-standard quality of work in relating to fixation of the sign board. In the said FIR, the officials of MCD as well as Natraj were named as accused persons. Natraj invoked the arbitration clause in the agreement between the parties for the unpaid amount. Resultantly, an arbitral award was passed in favor of Natraj towards its claim for the work done and refund of earnest money, along interest @ 15% per annum on both the amounts. MCD challenged the award under section 34 of the Arbitration Act and filed certain primary objections which came to be dismissed.
MCD’s primary contention in its appeal before the Court was that as per the terms of the contract between Natraj and MCD, any challenge / dispute was required to be raised by the counter party within 120 days, whereas the arbitration proceedings were initiated by Natraj much later and thus the claim was time barred. Taking note of MCD’s contention regarding the claim having been time barred, the Court held that the said contention is of no merit in view of amended Section 28 of the Contract Act.
Under Section 28 (a) of the Contract Act every agreement, by which any party thereto is restricted absolutely from enforcing its rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to the extent.
The Court taking into consideration the provisions of Section 28 of the Contract Act and placing reliance upon the decisions of the Hon’ble Supreme Court in Pandit Construction Company v. Delhi Development Authority & Anr and M/s. Smart Commodity Broker Pvt. Ltd. v. Beant Singh, held that MCD’s contention to restrict the period of limitation for invoking arbitration clause to 120 days as per the terms of the Contract, was meritless and bad in law. Being conscious of its scope of interference under section 37 of the Arbitration Act, the Court also emphasized that while deciding the present proceedings it must refrain from re-assessing or re-examining on the merits of the case as if it were a Court of Appeal against the award.
The present judgment and the reference to the judgments would bring about clarity towards party’s statutory rights, especially with reference to various lop-sided agreements which are usually in favor of the dominant party. It is also noteworthy that the present instance of not being able to restrict the period of limitation is one of the exceptions to the otherwise well settled concept of arbitration being driven by party autonomy, wherein parties by mutual consent may decide the entire course of their dispute settlement mechanism.