If No Bonafide Negotiations Occur After Arbitration Notice, Period Cannot Be Excluded From Limitation: Delhi High Court

Brief Facts:

The disputes between the parties have arisen in the context of a letter dated 24.10.2005, whereby Tirupati Constwell Private Limited (Petitioner) was awarded the tender for “Civil, Sanitary, and Electrical works (including both internal and external electrification), along with External Development works for 131 Dwelling Units of the D.S.N.E.F. Cooperative Group Housing Society Ltd. at Plot No. 1, Sector 19, Dwarka, Phase-I, New Delhi” ( “the project”) by Delhi States Employees Federation CGHS Ltd (Respondent).

The disputes between the parties have arisen on account of alleged failure of the respondent to clear petitioner's running account bills amounting to Rs. 80,92,26,992/-. It is stated that as per the agreement, the respondent was obligated to clear the outstanding dues within a month from receiving running bills from the petitioner.

It is further submitted that the respondent during the subsistence of the agreement never disputed the aforesaid outstanding payment and time and again reassured the petitioner that the said outstanding amount will be duly paid.

Since the disputes between the parties persisted, the petitioner vide a notice dated 22.02.2019, sought to invoke arbitration as per clause 39.1 of the agreement, for adjudication of disputes between the parties.

Contentions:

The Petitioner submitted that the period that was spent between 27.03.2019 (date on which the first communication was issued by the Architect) to 24.08.2019 is to be excluded for the purpose of reckoning whether the present petition has been filed within the period of limitation.

It was further submitted that if the aforesaid period is not excluded, then the present petition is time barred for having been instituted beyond the prescribed period of limitation, which began to run upon issuance of the notice invoking arbitration.

Per contra, the Respondent submitted that the period between 27.03.2019 to 24.08.2019 cannot be excluded for reckoning whether the present petition has been filed within the period of limitation; it is squarely denied that any mediation proceedings took place between the parties.

Lastly, it was submitted that the judgment of the Supreme Court SBI General Insurance Co. Ltd. v. Krish Spinning does not preclude this Court from weeding out claims which are deadwood even at a stage of adjudging an application under Section 11 of the Arbitration Act.

Observations:

The court noted that communications do not contain any reference to any request from either of the parties requesting the Architect to act as a mediator or conciliator in the matter.

It further noted that in each of the “proceedings”, the concerned Architect describes himself as an Arbitrator. The said proceedings clearly do not reflect that the concerned Architect was asked by either of the parties to act as a mediator at any point of time. In fact, in the final “proceedings” dated 24.08.2019, the Architect records that the respondent herein had “questioned his impartiality to act as Arbitrator”.

Based on the above, the court held that in these circumstances, it cannot be said that any bona fide negotiations took place after the issuance of the arbitration notice, nor was the Architect authorized to mediate. It is well established that the limitation under Section 11 of the Arbitration Act begins only upon the issuance of a valid arbitration notice and the other party's failure or refusal to comply with its terms.

It further said that the petitioner issued a notice invoking arbitration, which was unequivocally rejected by the respondent in its reply dated 16.03.2019. This reply clearly amounts to a refusal to comply with the notice, and accordingly, the limitation period commenced on 16.03.2019 under Section 9 of the Limitation Act, 1963, and continued uninterrupted thereafter.

The court noted that in Geo Miller & Company Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd., (2020), the Supreme Court held that although the limitation period may have commenced, the time spent in bonafide negotiations for an amicable settlement would be excluded when determining whether a petition under Section 11(6) of the Arbitration Act was filed within the limitation period.

The court held that however, in the present case, the communications from the Architect were, at best, inchoate and cannot be construed as bonafide negotiations. Neither party authorized the Architect to mediate or facilitate any amicable settlement.

It further added that on the contrary, the Architect appeared to act as an arbitrator without the constitution of an Arbitral Tribunal. Therefore, the period from 27.03.2019 to 24.08.2019 cannot be excluded for limitation purposes on the ground of ongoing bonafide negotiations.

The court noted that in Unisys Infosolutions Pvt. Ltd. v. Gurbani Media Pvt. Ltd., the respondent objected to the initial notice dated 29.07.2016, arguing that the contractual requirement of amicable settlement had not been fulfilled. It was, however, admitted that both parties subsequently engaged in active settlement discussions. The Court found that, owing to these mutual discussions, the period during which the parties pursued settlement was liable to be excluded for limitation purposes.

The Supreme Court in Arif Azim Co. v. M/s Aptech Ltd., 2024 held that courts must apply a two-pronged test when considering limitation for a Section 11(6) petition under the Arbitration Act: (1) whether the petition itself is time-barred, and (2) whether the claims to be arbitrated are clearly barred by limitation at the start of arbitration. If either is established, the court may refuse to appoint an arbitral tribunal.

The court concluded that “in the present case, there is nothing whatsoever on record from which it can be discerned that any “mediation” or “bonafide negotiations” took place after the notice of invocation of arbitration was issued on 22.02.2019. Moreover, the said notice vide communication dated 16.03.2019 was promptly denied by the respondent.”

Accordingly, the present petition was dismissed.

Case Title: Tirupati Constwell Private Limited Versus Delhi States Employees Federation CGHS Ltd

Citation: 2025 LiveLaw (Del) 582

Case Number: ARB.P. 1029/2024 & IA No.41353/2024

Judgment Date: 13/05/2025

For Petitioner: Mr. Tanmay Mehta, Mr. Vijay Kasana, Ms. Chetna Singh and Mr. Chirag Verma, Advocates.

For Respondent: Mr. Shashank Garg, Mr. Aman Garg, Ms. Nishtha Garg and Mr. Akarsh Pandey, Advocates.