A Letter Of Correspondence Between The Two Parties Cannot Extend The Period Of Limitation For The Appointment Of The Arbitrator.

SUCENDRABAD CANTONMENT BOARD

 Versus.

B. RAMCHANDRAIHAH

SLP Civil No. 27960-62 of 2019 decided on March 15, 2021

Judges: R.F. Nariman and B.R.Garvai, JJ.

Facts: 

Secunderabad Cantonment Board (‘the board’) floated a tender notice for an annual term contract for repairs. The board entered into three agreements with M/s Ramchandraiah and Sons (‘the contractor’). Clause 5 of all these three agreements related to the contractor’s final bill, and Clause 17 dealt with the arbitration clause. The contractor failed to complete the work within the stipulated time, and the board granted an extension. Later on, the board issued the final contract certificate and made the final payment to the contractor. However, after six months, the contractor demanded reimbursements of variation in the price of the material used. When the demands were not responded to, two years later, the contractor issued a letter requesting to refer the matter in arbitration claiming reimbursement for price variation. The letter required the board to take steps within 15 days; however, it received no reply. The contractor then issued another letter claiming breach of contractual obligation demanding rescinding the contract through the arbitrator’s appointment. As there was no concrete reply to the contractor’s letter, the contractor served the board with a legal notice stating its claims, followed by a rejoinder notice. The board rejected this and informed the contractor that the Secunderabad Cantonment Board had dismissed the application for an arbitrator’s appointment.

The contractor then applied Section 11 of the Arbitration Act. The court allowed the application as it was within three years from the Appellant’s letter rejecting the request to appoint an arbitrator. The court-appointed an arbitrator to adjudicate the dispute, leaving the arbitrator’s question of limitation open for consideration.A brief timeline of communications in this case is compiled as under:

Issue: Whether the correspondence letters between the parties extends the limitation period for the appointment of the arbitrator?

Held: The court held that a letter of regular communication between two parties cannot extend the limitation period for the appointment of the arbitrator. In the instant case, a letter dated 13.01.2007 reiterated the demand for arbitration, informing the board that an arbitrator has to be appointed within 30 days. The thirty-day time period ended on 12.02.2007, the court held that since this day, the limitation period should be calculated. The court also stated that once the time has started running, and later rejection by the board would not give any fresh start to a limitation period that has already begun running, following the mandate of Section 9 of the Limitation Act.

The court held that the High Court was in error in stating that since the applications under Section 11 of the Arbitration Act were filed on 06.11.2013, they were within the limitation period of three years starting from 10.11.2020. On this count, the applications under Section 11 of the Arbitration Act, being time-barred, no arbitrator could have been appointed by the High Court.

The court also held that the claims of the contractor are ex facie time-barred. Even if the date on which the final rejection was made, i.e., 16.02.2010, is taken as the starting point for limitation on merits, a period of three years having elapsed by February 2013, the claim made on merits is also hopelessly time-barred.