The Bombay High Court has clarified that the issue of limitation cannot be decided as a preliminary issue by an arbitrator unless it is first determined whether the issue involves a mixed question of law and fact that requires evidence. This significant ruling was delivered by the Division Bench of Chief Justice Alok Aradhe and Justice M.S. Karnik in the matter of Urban Infrastructure Real Estate Fund vs. Neelkanth Realty Pvt. Ltd. & Others.
The Court emphasized that if an arbitrator fails to record a finding on this aspect and still proceeds to decide the matter as a preliminary issue, the arbitral award can be challenged under Section 34 of the Arbitration and Conciliation Act, 1996. The Court held that such an approach violates the "fundamental policy of Indian law" and could lead to the award being set aside.
“An arbitrator must first decide whether the limitation issue is purely legal or a mixed question of law and fact requiring evidence. If this is not done, the award can be set aside for violating Indian legal principles.”
Case Background:
In this case, the appellant had invested ₹25 crore in the shares and debentures of the respondent’s company based on several agreements. The respondents were to develop a large-scale project over 700 acres in Pune district through respondent no. 5 company. The appellant claimed the respondents failed to follow the terms of the agreement, which resulted in disputes. The matter was then taken to arbitration.
On August 27, 2019, the Arbitrator passed an interim award holding that the appellant's entire claim was within limitation. This decision was made without considering evidence and was based only on the pleadings.
The appellant challenged this interim award under Section 34 of the Arbitration Act. On December 4, 2019, the Single Judge of the Bombay High Court ruled that the issue of limitation had been decided solely based on the statement of claim and without leading evidence. The Single Judge modified the Arbitrator’s award, allowing the limitation issue to be re-examined based on complete evidence.
This order was then challenged in the present appeals before the Division Bench.
The appellant argued that since all parties had agreed to decide the limitation issue as a preliminary issue, the respondents should not now be allowed to challenge that approach. They claimed that once the Arbitrator had given a finding, it could not be reopened.
It was also argued that the Single Judge should not have considered the merits of the matter without first concluding whether the interim award conflicted with the public policy of India.
The respondents countered that although the issue was treated as a preliminary matter, they had already submitted affidavits of evidence, which should have been considered. They claimed that the Arbitrator decided the limitation issue by only referring to the appellant's pleadings, similar to an inquiry under Order VII Rule 11 of the Civil Procedure Code.
They further submitted that the preliminary finding on limitation should not prevent them from presenting evidence to prove that the claims were barred by limitation.
The Bombay High Court carefully analyzed the matter and referred to the Supreme Court’s judgment in ONGC Ltd. v. Saw Pipes Ltd. (2003). The Supreme Court had explained that an award would violate the “public policy of India” if it is contrary to:
- The fundamental policy of Indian law,
- The interest of justice or morality,
- Or is patently illegal.
“The expression ‘fundamental policy of Indian law’ implies that a decision must be made by adopting a judicial approach based on logic, reason, and evidence.”
The High Court observed that although Section 19(1) of the Arbitration Act says arbitral tribunals are not bound by the CPC or the Indian Evidence Act, this does not mean they can ignore basic legal principles. The Arbitrator must still apply the underlying rules of natural justice and fairness.
The Court clarified that limitation is generally a mixed question of law and fact. Unless it is clear that the limitation issue can be decided without any evidence, it should not be treated as a preliminary issue.
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In this case, the Arbitrator himself had acknowledged that evidence could lead to a different outcome. Therefore, deciding the matter without allowing the parties to present evidence was not legally justified.
Case Title:Urban Infrastructure Real Estate Fund Versus Neelkanth Realty Private Ltd. & Ors.
Case Number: 2025:BHC-OS:5596-DB
Judgment Date: 02/04/2025
