S.11 A&C Act | Respondent's Letter Seeking Petitioner To Give Up Interest On Outstanding Amount Indicates Ongoing Dispute: Allahabad HC

Factual Matrix:

The parties entered an agreement dated 28.03.2008 to supply electrically operated Dental Chair Mount units. The Petitioner made the supplies and installed the equipment. The Respondent made a part payment of ₹2.23 crores, and there was an outstanding amount of ₹3.59 crores. The Respondent did not pay the Petitioner the balance. Furthermore, they wrote two letters to the Petitioner stating they would make the balance payment if the Petitioner forgoes its interest. In light of the non-clearance of the balance amount, the Petitioner invoked the arbitration clause in the agreement dated 28.03.2008 vide notice dated 14.11.2024. The Respondent did not reply to the notice. The Petition was thereafter filed in the present Petition u/s 11 of the A&C Act for the appointment of an arbitrator.

Submissions:

The Counsel for the Respondent made the following submissions:

• The Petitioner's claims are time-barred, and the Section 11 petition in respect of a dead claim cannot be entertained and is liable to be set aside.

The Counsel for the Petitioner made the following submissions:

• The Respondent has not denied the existence of the outstanding amount as late as on 04.10.2021 and 15.03.2023; therefore, the claims cannot be termed as dead claims or being barred by limitation.
• Whether the claims are time-barred has to be considered by the Arbitral Tribunal u/s 16 of the A&C Act. The Section 11 Court cannot enter into this controversy.

Analysis of the Court

The bench at the outset observed that the scope of the Section 11 Court is extremely narrow. The Section 11 Court is only required to demonstrate a valid arbitration agreement; secondly, the parties have approached the High Court having jurisdiction; thirdly, the arbitration clause has been properly invoked; fourthly, the claims are prima facie live.

The bench observed that, after the government report and complete scrutiny of the equipment delivered and assembled by the contractor, it declared the same to be of substandard quality. Subsequently, the Respondent issued a show cause notice (“SCN”) dated 28.02.2013. The Petitioner replied to the SCN denying the alleged allegation of supplying substandard equipment. Thereafter, the matter was pending with the department.

The parties had exchanged multiple letters concerning the release of the payment. The correspondence continued till June 2023, after which the Petitioner issued the notice dated 14.11.2024 invoking arbitration. The present Petition u/s 11(6) of the A&C was filed on 13.02.2025. Since August 2008, when a part payment was made to the Petitioner, till 2021, there has not been much communication between the parties. However, since October 2021, the Respondent has required the Petitioner to furnish an affidavit to give up the interim claim on the outstanding amount. The letter indicates that the Petitioner's claim is still under consideration.

The bench observed that the Section 11 petition is within the limitation period. The objection concerning the claims being time-barred relates to the case's merits, and the Section 11 Court is not required to examine the same. In light of the above discussion, the Court allowed the Section 11 petition and appointed HMJ O.P. Srivastava (Retd.) as the sole arbitrator to adjudicate the dispute.

Case Name: M/S Assam Dental Supply Co. Through Its Proprietor Sr Manoj Jhingren v. Director General, Medical And Health Services, Uttar Pradesh Swasthya Bhawan, Lucknow And Another

Case Number: Civil Misc. Arbitration Application No. - 17 Of 2025

Counsels for the Petitioner: Brijesh Kumar Shukla, Amit Kumar Gaur, Neelam Shukla