Mere Passage Of Time Does Not Bar Arbitration If Arbitration Clause Remains Valid & Enforceable: Telangana High Court

Brief Facts:

This application has been filed under Section - 11 (5) & (6) of the Arbitration and Conciliation Act, 1996 ('Arbitration Act'), to appoint a sole Arbitrator to adjudicate the disputes/claims between the applicant and the respondents.

The applicant participated in a tender issued by the S&T Department, South Central Railway, under Tender Notice dated 22.06.2012. Declared the successful bidder, he was awarded the contract via LOA dated 11.12.2012 for Rs. 59,11,058/-, with a completion period of six months ending on 10.06.2013.

The applicant alleged that the S&T authorities prematurely issued the tender before completing engineering work which caused significant delays. Due to pending track renewal, work could not begin, and despite notifying the authorities in 2012, the agreement was executed only on 10.04.2015. The applicant continued extending the performance guarantee.

Notices of slow progress were issued despite no work-front being provided, and the contract was eventually terminated on 04.01.2017—after its expiry on 10.06.2015—which the applicant claims was illegal. Arbitration was sought via notices dated 30.06.2017, 10.05.2022, and 29.06.2022, but was denied, prompting the present Section 11 application under the Arbitration and Conciliation Act, 1996.

Contentions:

The Applicant submitted that the termination of the contract is illegal as the agreement had already expired on 10.06.2015. The subsequent notices of slow progress, 7-day notice, and 48-hour notice were all issued without legal validity. The applicant is entitled to a refund of the Earnest Money Deposit (EMD) and the performance guarantee since the contract was terminated without fault on his part.

It was further submitted that the arbitration clause is still enforceable and due to the inaction of the Respondent, there was a delay in referring the matter to arbitration.

Per contra, the Respondents submitted that the present application is not maintainable as it has been filed after 120 days which is the time period within which the application seeking appointment of an arbitrator has to be filed.

Lastly, it was submitted that the arbitration claim was made beyond the statutory limitation period of three years, as prescribed under Section 21 of the Arbitration Act and the Limitation Act, 1963.

Observations:

The court noted that the Andhra Pradesh High Court in Alliance Enterprises v. Andhra Pradesh State Fiber Net Limited (APSFL) held that mere passage of time does not bar arbitration if the arbitration clause remains valid.

It further observed that in Aslam Ismail Khan Deshmukh v. ASAP Fluids Pvt. Ltd., the Supreme Court held that the limitation period for initiating arbitration commences from the date of rejection of the arbitration request. As the respondents rejected the applicant's request on 25.07.2022, the present petition is well within the limitation period.

The court held that as the referral court at the referral stage, this Court must assess the existence of an agreement and arbitration clause. While a claim that is clearly time-barred may justify rejection, in the present case, both the agreement and arbitration clause exist, and the claim is not ex-facie barred by limitation. As held in Vidya Drolia v. Durga Trading Corporation, unless the claim is manifestly time-barred, the Court cannot deny the appointment of an arbitrator. Accordingly, no such bar arises in the present matter.

Accordingly, the present application was allowed.

Case Title: Ch. Punyamurthy vs Union of India

Case Number: ARBITRATION APPLICATION No.180 OF 2024

Judgment Date: 09/06/2025

Mr. J. Srinadh Reddy, counsel for the applicant

Mr. K. Mohan, counsel for the respondents.

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