Elfit Arabia & Anr    [Petitioners] Vs.  Hotel BARONS Limited & Ors   [Respondents]

ARBITRATION PETITION (CIVIL) NO. 15 OF 2023

(3JB, DY Chandrachud, J B Pardiwala and Manoj Misra JJ.)

Facts: 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. 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.

Issue: Whether the claims of the petitioner are barred by limitation?

Arguments on behalf of counsel for petitioners:

According to the petitioner, in the interregnum, proceedings under Section 138 of the Negotiable Instruments Act 1881 were instituted 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.

Arguments on behalf of counsel for respondents:

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, 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.

Held: The court dismissed the present petition and held that, “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. 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. 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.”