Web Overseas Limited v. Universal Industrial Plants Manufacturing Company Private Limited

16. At the outset, it is relevant to note that the material facts necessary to address the controversy in this appeal are not disputed.

17. The Arbitral Tribunal had found that “the contract was snapped by the Original Claimant vide its letter dated 30.7.2013. Thus 30.7.2013 is the date when cause of action allegedly accrued in favour of the Original Respondent to file counter claim for arbitration….” and the period of limitation for filing the counter-claim was three years from that date. The Arbitral Tribunal referred to Section 3(b)(ii) of the Limitation Act and observed that for the purposes of the Limitation Act, the counter-claim has to be considered as instituted on the date when it is filed. According to the Arbitral Tribunal, since the counter-claim was filed on 07.07.2018 – which was more than three years after 30.07.2013 – prima facie, it was barred by time. However, the period spent by the respondent in pursuing its application under Section 8 of the A&C Act was required to be excluded by virtue of Section 14 of the Limitation Act. Consequently, the counter-claim was filed within the period of limitation.

18. The respondent does not dispute that the period of limitation for filing a counter-claim is three years from the date of cause of action and the same would start to run from 30.07.2013; however, the respondent disputes that the counter-claim would be deemed to be instituted on the date it is filed before the Arbitral Tribunal. It claims that it had issued two notices (as also referred to in the impugned judgment), being notices dated 18.10.2013 and 05.02.2014, which are required to be construed as notices under Section 21 of the A&C Act. Therefore, in terms of Section 21 of the A&C Act, the period of limitation would stop running on the dates when the said notices were received, and not on 07.07.2018, which was the date of filing the counter-claim. In the alternative, the respondent claims that it is entitled to the benefit of Section 14 of the Limitation Act, as held by the Arbitral Tribunal.

19. It is material to note that the Arbitral Tribunal did not accept that the notices issued by the respondent could be construed as notices under Section 21 of the A&C Act. The Arbitral Tribunal accepted that the counter-claim was filed within the period of limitation solely for the reason that the respondent was entitled – by virtue of Section 14 of the Limitation Act – to exclude the time spent by it in pursuing its application under Section 8 of the A&C Act, for calculating the period of limitation.

20. However, the learned Commercial Court found in favour of the respondent on both counts: that the notices issued by the respondent were notices under Section 21 of the A&C Act, and that the respondent was entitled to the benefit of Section 14 of the Limitation Act.

21. Thus, the first and foremost question to be addressed is whether the decision of the Arbitral Tribunal to extend the benefit of Section 14 of the Limitation Act is, ex facie, untenable.

22. At this stage, it would be relevant to refer to Section 14 of the Limitation Act, which is set out below:- “14. Exclusion of time of proceeding bona fide in court without jurisdiction.—(1) In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the defendant shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it. (2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it. (3) Notwithstanding anything contained in rule 2 of Order XXIII of the Code of Civil Procedure, 1908 (5 of 1908), the provisions of sub-section (1) shall apply in relation to a fresh suit instituted on permission granted by the court under rule 1 of that Order, where such permission is granted on the ground that the first suit must fail by reason of a defect in the jurisdiction of the court or other cause of a like nature. Explanation.—For the purposes of this section,— (a) in excluding the time during which a former civil proceeding was pending, the day on which that proceeding was instituted and the day on which it ended shall both be counted; (b) a plaintiff or an applicant resisting an appeal shall be deemed to be prosecuting a proceeding;

(c) misjoinder of parties or of causes of action shall be deemed to be a cause of a like nature with defect of jurisdiction.”

23. A plain reading of Sub-section (1) of Section 14 of the Limitation Act indicates that the benefit of the said provision is available to the plaintiff who has been prosecuting civil proceedings against the defendant if the following conditions are met:-

(i) the proceedings relate to the same matter in issue;

(ii) it is prosecuted diligently and in good faith;

(iii) the court in the proceedings are prosecuted is unable to entertain it on account of defect in jurisdiction or other cause of like nature.

24. In terms of Sub-section (1) of Section 14(1) of the Limitation Act, it is available to the plaintiff and not the defendant.

25. In terms of Sub-section (2) of Section 14 of the Limitation Act, the time spent by an applicant, in prosecuting any civil proceedings against the same party for the same relief, can be excluded if the civil proceedings are executed in good faith in a court, which is unable to entertain it on account of defect of jurisdiction or other cause of like nature.

26. The counter-claim is in the nature of an original action; it is not an application as contemplated under Section 14(2) of the Limitation Act. Concededly, provisions of Section 14(2) of the Limitation Act are inapplicable. The controversy is confined to ascertaining whether the respondent is entitled to benefit of Section 14(1) of the Limitation Act.

27. The assumption that by filing an application under Section 8 of the A&C Act, the respondent was prosecuting civil proceedings relating to the same matter in issue as its counter-claim, is fundamentally flawed. The matter in issue in a counter-claim necessarily relates to the defendant’s entitlement to its claim. An application under Section 8 of the A&C Act is an application for referring the parties to arbitration. It seeks to terminate the action instituted by the plaintiff and cannot be considered as civil proceedings relating to the same matter in issue as the subsequent counter-claim, that may be preferred by the applicant in an arbitral proceeding. In an application under Section 8 of the A&C Act, the courts examination is confined to considering whether the subject matter of action is covered by an arbitration agreement.

28. The Arbitral Tribunal had proceeded on the basis that the respondent was “contesting the matter with due diligence and ultimately succeeded in getting the parties referred for arbitration”, and since Section 14 of the Limitation Act applies to arbitration proceedings, the period of two years and five months is to be excluded from computing the period of limitation. The said conclusion is, ex facie, erroneous.

29. As noted above, the benefit of Section 14(1) of the Limitation Act is available to a plaintiff who is diligently pursuing his claim before a Court of first instance or of appeal or revision. And, the Court is unable to entertain the same on account of a defect of jurisdiction or other cause of a like nature. The said provision is obviously not available to a defendant who is resisting a claim. A counter-claim is like a suit and thus a defendant may be construed as a plaintiff in the context of a counter-claim. However, in order to claim the benefit of Section 14(1) of the Limitation Act, it is essential that the party claiming the benefit of Section 14(1) of the Limitation Act has been diligently pursuing its claim in the court. And, the proceeding cannot be entertained by that court for want of jurisdiction and/or for like reasons; and not for want of an effective claim. The subsequent action in the court of competent jurisdiction, must be in respect of the same matter in issue as in the civil proceedings that could not be entertained by a court for want of jurisdiction.

30. The filing of an application under Section 8 of the A&C Act cannot be construed as a party pursuing his claim before a Court.

31. It is also relevant to refer to the respondent’s application under Section 8 of the A&C Act. A plain reading of that application indicates that the respondent had not made any reference to a counter-claim. It had neither quantified its claim nor mentioned that it intended to proceed against the respondent. The respondent had referred to its notices in the following manner:- “the applicant inter alia dated 18 October 2013 and 05 February 2014 already bought about the relevant facts and the applicant has time and again vide our Notices asserted the arbitration clause….”.

32. A reference to such notices cannot, by any stretch, be read to mean that the respondent was seeking to assert a counter claim or that the gravamen of its application was the same matter in issue as its counter-claim filed before the Arbitral Tribunal.

33. It is also relevant to note that the respondent had not filed a written statement in response to the plaint and had sought leave of the court to file the same. Subject to outcome of its application, even at that stage, the appellant had not reserved any rights to file a counter claim.

34. In Consolidated Engineering Enterprises v. Irrigation Department: (2008) 7 SCC 169, the Supreme Court had analyzed Section 14 of the Limitation Act and culled out the following essential conditions for applicability of the said Section: - “(1) Both the prior and subsequent proceedings are civil proceedings prosecuted by the same party; (2) The prior proceeding had been prosecuted with due diligence and in good faith; (3) The failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature; (4) The earlier proceeding and the latter proceeding must relate to the same matter in issue and; (5) Both the proceedings are in a court.”

35. The learned Commercial Court had also alluded to the following passage from the said decision:-

36. There is no cavil with the proposition that the provisions of Section 14 of the Limitation Act must be liberally interpreted. However, it would be erroneous to extend the benefit of Section 14 of the Limitation Act on a mere presumption that it would enhance the cause of justice.

37. As stated above, one of the important conditions for applicability of Section 14 of the Limitation Act is that matters in issue in both the proceedings – the matter in issue in proceedings being pursued diligently before a Court lacking jurisdiction and the matter in issue in proceedings in the correct forum – should be identical. In Ramadhar Shrivas v. Bhagwandas: (2005) 13 SCC 1, the Supreme Court had explained that the expression ‘matter in issue’ means a matter which is strictly and substantially in issue. The relevant extract of the said decision is set out below:-

38. An application under Section 8, which essentially seeks that the parties be relegated to arbitration in respect of the subject matter of the action so instituted, cannot be construed directly and substantially the subject matter of a counter-claim that was neither raised nor indicated in the said application.

39. It is also relevant to refer to Sub-Section (3) of Section 8 of the A&C Act which reads as under:-

40. It is clear from the above that the respondent was not precluded to commence an arbitral proceeding for the reason that it had filed an application under Section 8 of the A&C Act in the suit filed by the appellant. According to the respondent, an arbitration agreement existed between the parties and there was thus, no acceptable reason for the respondent to have withheld institution of an action in respect of its counter-claims.

41. It was contended by the learned counsel for the respondent that the appellant had disputed the existence of the contract and therefore, would not have consented to the disputes relating to the counter-claim being referred to arbitration. Therefore, the respondent would have to necessarily file an application under Section 11 of the A&C Act and the issue as to existence of the contract would arise in those proceedings as well. In order to avoid multiplicity of the proceedings, the respondent had confined itself to filing an application under Section 8 of the A&C Act.

42. The aforesaid contention is unpersuasive. The question to be considered is not why the appellant did not pursue the remedies as available, but whether it was diligently pursuing the proceedings involving the same matter in issue before a court that lacked the jurisdiction to entertain the proceedings. Once it is found that pursuing an application under Section 8 of the A&C Act does not amount to pursuing civil proceedings involving the same matter in issue as an arbitral claim, the respondent would not be entitled to any benefit under Section 14(1) of the Limitation Act.

43. It was next contended that the period of limitation would stop running on the date when the respondent filed an application under Section 8 of the A&C Act. The said contention is not well founded. The period of limitation in the context of a counter-claim would stop running on the date when the counter-claim is filed, as is expressly provided under Section 3(2)(b) of the Limitation Act. The only exception is a case where the party raising the counter-claim has commenced the arbitral proceedings in terms of Section 21 of the A&C Act. This has been authoritatively settled by the decision of the Supreme Court in State of Goa v. Praveen Enterprises: (2012) 12 SCC 581. The relevant extract of the said decision is set out below:-

44. It is relevant to refer to Sub-section (3) of Section 37 of the Arbitration Act, 1940 (since repealed) which is reproduced below: - “(3) For the purposes of this section and of the Indian Limitation Act, 1908, an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement, requiring that the difference to be submitted to the person so named or designated.”

45. In terms of the said provision, an arbitration is deemed to have commenced when one party, serves on the other party, a notice requiring appointment of an arbitrator or that the disputes be referred to the named or the designated person.

46. Under the A&C Act, Section 21 is relevant for the purposes of determining whether the claims have been raised within the period of limitation. Section 21 of the A&C Act reads as under:-

47. Section 43(2) of the A&C Act expressly states that for the purpose of the Limitation Act, the arbitration would be deemed to have commenced on the date referred to in Section 21 of the A&C Act. As noted above, Section 21 of the A&C Act expressly provides that the disputes would commence on the date on which the request for that dispute to be referred to arbitration is received by the respondent.

48. In Milkfood Ltd. v. M/s GMC Ice Cream (P) Ltd: (2004) 7 SCC 288, the Supreme Court had observed as under:-

49. The Supreme Court had also held that the expression ‘shall be deemed to be commenced’ as used in Section 37(3) of the Arbitration Act, 1940 indicates that the provision is not exhaustive. Therefore, it was possible to conceive the cases where an arbitration can be said to have commenced under circumstances not contemplated by that Section. There is material change in the language of Section 21 of the A&C Act as compared to the language of Section 37(3) of the 1940 Act. It does not use the word ‘deemed’; it expressly provides that arbitral proceedings in respect of a particular dispute would commence on the date on which the request for that dispute to be referred to arbitration is received by the respondent. However, the deeming provision is contained in Section 43(2) of the A&C Act which reads as under:- “(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred to in section 21.”

50. Thus, for the purpose of the Limitation Act, the date on which the arbitral proceedings are commenced under Section 21 of the A&C Act is, by legal fiction, also the relevant date for application of the provision of the Limitation Act.

51. Given the statutory scheme of the A&C Act, 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. As stated above, 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.

52. In State of Goa v. Praveen Enterprises (supra), the Supreme Court had authoritatively held as under:-

53. It was also contended on behalf of the respondent that an application under Section 8 of the A&C Act is also required to be construed as a notice under Section 21 of the A&C Act. The respondent relied on the following observations made by the learned Single Judge of this Court in Five Square Agro Gold Pvt. Ltd. v. Mayank Mohan Agarwal: 2019 SCC OnLine Del 6503:

54. For addressing this contention, it is relevant to note that neither the Arbitral Tribunal nor the learned Commercial Court had proceeded on the basis that an application under Section 8 of the A&C Act is required to be construed as a notice under Section 21 of the A&C Act. Thus, stricto sensu, the question whether an application under Section 8 of the A&C Act is required to be construed as a notice invoking arbitration in terms of Section 21 of the A&C Act does not arise. However, since the question does not involve any disputed questions of fact, we consider it apposite to address the said contention as well.

55. In terms of Section 21 of the A&C Act, in the absence of a contrary agreement between the parties, the arbitral proceedings “in respect of a particular dispute” would commence on the date on which the request for the dispute to be referred to arbitration is received by the respondent. Section 8 of the A&C Act, on the other hand, is an application to a judicial authority before which an action is brought, to refer the parties to arbitration. This is premised on the basis that the action is brought in a matter, which is subject to an arbitration agreement.

56. 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.

57. 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.

58. In State of Goa v. Praveen Enterprises (supra), the Supreme Court had explained the scope of Section 8 of the A&C Act in following words.:-

59. It is also relevant to refer to Section 34 of the Arbitration Act,

1940. In terms of the said Section, if an action is instituted by a party in respect of a subject matter covered under an arbitration agreement, the counter-party could, before taking any step in the proceedings, apply under Section 34 of the said Act for stay of the proceedings. In this context, the Supreme Court in Milkfood Ltd. v. M/s GMC Ice Cream (P) Ltd (supra) had observed that “although under Section 34 of 1940 Act the court itself does not make any reference to the arbitration but the very purpose for which the suit is stayed is that the parties may take recourse to the provisions contained in the Arbitration Agreement.”

60. The purpose of Section 8 of the A&C Act is somewhat similar. It is to ensure that the parties to an arbitration agreement are held to their bargain. This enables a party to prevent the other party from seeking recourse to courts or judicial authorities in respect of disputes that are covered under the arbitration agreement.

61. In view of the statutory scheme, we cannot accept that an application under Section 8 of the A&C Act can be construed as a request for reference of the disputes to be referred to arbitration under Section 21 of the A&C Act.

62. There is a material difference between reference of parties to arbitration and reference of disputes to arbitration. A request to refer the parties to arbitration in terms of Section 8 of the A&C Act, which is made to a judicial authority, cannot be construed as a request for the dispute to be referred to arbitration.

63. In any view of the matter, even if it is accepted – which we do not – that an application under Section 8 of the A&C Act can be construed as a request to refer the disputes to arbitration, in terms of Section 21 of the A&C Act; the scope would necessarily be limited to the disputes that are in issue before the judicial authority. Section 21 of the A&C Act expressly provides that arbitral proceedings in respect of “a particular dispute” would commence on the date when the request for “that dispute” to be referred to arbitration is received by the respondent. Although it is not necessary that a notice under Section 21 of the A&C Act sets out all claims but it must be in the context of a particular extant dispute.

64. The dispute that was placed before the learned Commercial Court was confined to the claims made by the appellant as the respondent had not set out any dispute relating to its counter-claim, including in its application filed under Section 8 of the A&C Act.

65. We are not in agreement with the observation made by the learned Single Judge of this Court in Five Square Agro Gold Pvt. Ltd. v. Mayank Mohan Agarwal (supra) to the effect that an application under Section 8 of the A&C Act would amount to invoking the arbitration clause and therefore, the period of limitation will stop running from the date of filing the said application. However, it is material to note that the said observation was made in the context of the question whether the claim that was the subject matter of the suit, filed before the judicial authority by the claimant, was within the period of limitation and not a counter-claim that may be preferred by the party filing the application under Section 8 of the A&C Act.

66. The last question to be examined is whether the notices dated 18.10.2013 & 05.02.2014 issued by the respondent could be accepted as notices under Section 21 of the A&C Act.

67. The communication dated 18.10.2013, issued at the instance of the respondent, was in response to the various communications sent by the appellant. The respondent had disputed the appellant’s demands for refund of the amount of ₹20 lacs and also claimed that the appellant was entitled to pay 25% of the plant’s cost quantified at USD 235,000 in addition to ₹50 lacs as damages for loss. However, the said notice did not call upon the appellant to pay the said amount. The concluding part of the said notice reads as under:- “Under the circumstances, my aforesaid client finally client call upon you to take note all above facts and to refrain from resorting to illegal and unwarranted correspondence which are baseless and misconceived and also desist from advancing illegal threats in the form of correspondent/email henceforth, failing which my aforesaid client shall be constrained to initiate appropriate legal proceedings against you in the competent court of jurisdiction, entirely at your cost, risk and consequences. Copy retained.”

68. It is apparent from the above that the respondent had not called upon the appellant to refer his counter-claim to arbitration. It had merely stated that in the event the appellant did not desist from advancing illegal threats in the form of correspondence, the respondent would be constrained to initiate appropriate legal proceedings in “the competent court of jurisdiction.”

69. The notice dated 05.02.2014 was in a similar tone except that the respondent now claimed that the appellant was liable to pay a sum of ₹85 lacs towards the cost incurred for manufacturing the plant as well as the compensation for the loss suffered. Further, the appellant was also called upon to pay the said amount within a period of 15 days of the said notice, failing which the respondent would initiate legal proceedings.

70. It is material to note that none of the two notices referred to above included a request that the disputes, relating to the claims mentioned by the respondent, be referred to arbitration. Plainly, none of the two notices can be considered as a request to refer the disputes to arbitration. The contents of the said communication do not comply with the fundamental requirement of Section 21 of the A&C Act. The conclusion of the learned Commercial Court that the said notices/communications could be considered as notices under Section 21 of the A&C Act is, ex-facie, erroneous.

71. In view of the above, the appeal is allowed. The impugned award as well as the impugned order are set aside.

72. The parties are left to bear their own costs.

VIBHU BAKHRU, J AMIT MAHAJAN, J NOVEMBER 28, 2022 RK/gsr