In a recent decision, the Delhi High Court addressed the limitations of the referral court's role during the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act (A&C Act). The bench, led by Justice Manoj Kumar Ohri, clarified that the referral court should only assess whether the petition has been filed within the three-year limitation period. The question of whether the claims are barred due to time limitations should be left to the arbitral tribunal for final determination.
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Case Background
The case revolves around a petition filed by a firm that had purchased scrap material auctioned by Northern Railway on 16.05.2001. The amount involved was ₹19,26,400, with a dispute emerging over the quantity of scrap supplied. The firm claimed that it was supplied significantly less than expected, resulting in an excess payment of ₹7,60,020, which remained unrefunded despite repeated requests.
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An arbitration clause was found in the contract between the firm and the railway department, specifically Clause 2905(a) of the Indian Railways Standard Conditions Contract. However, after years of back-and-forth, the respondent (Northern Railway) denied the request for an arbitrator, claiming the matter was time-barred.
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The petitioner contended that its claims were not time-barred, pointing to continuous efforts to resolve the issue over the years, including numerous communications with the railway department. The petitioner also highlighted that the respondent had acknowledged the possibility of arbitration in a letter dated 20.10.2021, where they sought a waiver of Section 12(5) of the A&C Act.
On the other hand, the respondent firmly opposed the petition, arguing that the claims were hopelessly time-barred, with the purchase made in 2001 and the petition for arbitration filed in 2024. They also contended that the arbitration clause did not apply to the 2001 dispute, as the clause itself had been revised only in 2018.
The Delhi High Court noted two significant issues in the case: the applicability of the arbitration clause and the limitation of the claims. In response to the respondent’s argument that there was no arbitration clause, the court pointed out that the respondent had failed to challenge the clause’s applicability in their communications.
The court then turned its attention to the limitation issue. It highlighted that the matter was governed by the Limitation Act, 1963, which specifies a three-year period for filing arbitration petitions. The court clarified that the referral court's role should be limited to determining whether the petition was filed within the limitation period and not to assess whether the claims were time-barred.
In referring to a Supreme Court ruling, the Delhi High Court reaffirmed that only the arbitral tribunal could examine the merits of whether the claims were ex-facie time-barred. The referral court, at this stage, should not delve into the substance of the claims.
The court referenced several decisions, including the Supreme Court’s ruling in SBI General Insurance Co. Ltd. V. Krish Spinning, where the court emphasized that the referral court’s role is restricted to a prima facie examination of the existence of the arbitration agreement and the petition's timeliness. It was clarified that matters like the admissibility of claims and whether they are time-barred should be decided by the arbitrator.
The court’s stance was also supported by a 2024 ruling in In Re: Interplay between Arbitration Agreements under the Arbitration Act, 1996 & Stamp Act, 1899, where it was held that disputes about the merits of claims should not be prematurely decided by the referral court.
Accordingly, the Court allow the present petition and appointed Mr. Vaibhav Tomar, Advocate as the Sole Arbitrator.
Case Title – M/s Pavan Metal Refiners v. Union of India
Case No. – ARB. P. 1097/2024
Appearance-
For Petitioner - Mr. Umesh Kumar Shukla, Mr. S. Mukharjee and Mr. Avinash Shukla, Advocates.
For Respondent - Ms. Radhika Biswajit Dubey, CGSC for UOI with Mr.Devvrat Yadav, Advocate
Date – 28.03.2025
