Case Note & Summary
The dispute arose from a purchase order dated 24 June 2013 placed by Tata Consultancy Services Ltd. (petitioner) on Inspira IT Products Pvt. Ltd. (respondent) for supply of IT equipment, with delivery due by 20 July 2013. The respondent alleged that the petitioner failed to accept delivery, causing damages. After a demand notice on 23 March 2016 and a winding up notice on 30 March 2016, the respondent filed a winding up petition in the Bombay High Court on 18 May 2016. The petitioner opposed it, raising disputes. The parties then agreed to refer the disputes to arbitration, and by consent, the matter was referred to a sole arbitrator on 12 February 2018. Before the arbitrator, the petitioner raised a preliminary issue of limitation, arguing that the claim was barred as more than three years had elapsed from the accrual of cause of action (20 July 2013) to the date of reference (12 February 2018). The respondent contended that time spent in winding up proceedings (from 18 May 2016 to 12 February 2018) should be excluded under Section 14 of the Limitation Act, 1963, and that there were acknowledgments of liability. The arbitrator held that the claim was not barred, rejecting the petitioner's limitation plea. The petitioner challenged this interim award under Section 34 of the Arbitration and Conciliation Act, 1996. The High Court analyzed the issues: (1) the date of reference (12 February 2018) is the relevant date for limitation under Section 21 of the Act; (2) winding up proceedings are civil proceedings before a court, and the time spent therein can be excluded under Section 14 if prosecuted bona fide and with due diligence; (3) the respondent's winding up petition was bona fide and prosecuted with due diligence, as the debt was disputed but the petition was not frivolous; (4) the letters relied upon by the respondent did not constitute acknowledgments under Section 18 or part payment under Section 19 of the Limitation Act. The court held that the arbitrator's decision to exclude time under Section 14 was correct, and the claim was within limitation. The petition was dismissed, upholding the interim award.
Headnote
A) Limitation Act - Exclusion of Time - Section 14 - Bona Fide Prosecution of Civil Proceedings - Winding up petition under Companies Act is a civil proceeding before a court; time spent in such proceeding can be excluded under Section 14 if prosecuted bona fide with due diligence, even if the court lacks jurisdiction. (Paras 5-8)
B) Arbitration Act - Commencement of Arbitration - Section 21 - Date of Reference - The relevant date for determining limitation in an arbitration is the date of reference to arbitration, not the date of filing of the claim statement. (Para 4)
C) Limitation Act - Acknowledgment of Liability - Section 18 - A letter denying liability but offering to settle does not constitute an acknowledgment of liability under Section 18. (Para 9)
D) Limitation Act - Part Payment - Section 19 - Payment of part of debt must be accompanied by an acknowledgment in writing to extend limitation; mere payment without such acknowledgment is insufficient. (Para 10)
Issue of Consideration
Whether the claim of the respondent (original claimant) was barred by limitation on the date of reference to arbitration, and whether the time spent in prosecuting winding up proceedings before the High Court could be excluded under Section 14 of the Limitation Act, 1963.
Final Decision
The High Court dismissed the arbitration petition, upholding the interim award of the sole arbitrator. The court held that the claim was not barred by limitation, as the time spent in winding up proceedings was excludable under Section 14 of the Limitation Act, 1963.
Law Points
- Limitation Act
- 1963
- Section 14
- Section 18
- Section 19
- Arbitration and Conciliation Act
- 1996
- Section 21
- Section 34
- Section 16
- Winding up proceedings as civil proceedings
- Exclusion of time for bona fide prosecution of proceedings
- Date of reference as date of commencement of arbitration
- Interim award under Section 2(1)(c) challengeable under Section 34.
Case Details
Commercial Arbitration Petition No. 996 of 2018 with Notice of Motion (L) No. 1980 of 2018
Ms. Fereshte D. Sethna with Shreema Doshi and Divya Hirawat I/b. DMD Advocates for Petitioner/Applicant; Dr. Birendra Saraf with Rohan Sawant, Vishwabhushan Kamble and Samsher Garud I/b. Jaykar & Partners for Respondent.
Tata Consultancy Services Ltd.
Inspira IT Products Pvt. Ltd.
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Nature of Litigation
Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an interim award of a sole arbitrator on the issue of limitation.
Remedy Sought
Petitioner sought to set aside the arbitrator's order rejecting its preliminary objection on limitation.
Filing Reason
Petitioner contended that the respondent's claim was barred by limitation as more than three years had elapsed from the accrual of cause of action to the date of reference to arbitration.
Previous Decisions
The sole arbitrator passed an interim award holding that the claim was not barred by limitation, rejecting the petitioner's application under Section 16 of the Act.
Issues
Whether the date of reference to arbitration (12 February 2018) is the relevant date for determining limitation under Section 21 of the Arbitration and Conciliation Act, 1996.
Whether the time spent by the respondent in prosecuting a winding up petition before the High Court can be excluded under Section 14 of the Limitation Act, 1963.
Whether the letters relied upon by the respondent constitute acknowledgment of liability under Section 18 or part payment under Section 19 of the Limitation Act.
Submissions/Arguments
Petitioner argued that the cause of action accrued on 20 July 2013 (delivery date), and the reference to arbitration on 12 February 2018 was beyond three years, thus barred by limitation. It contended that winding up proceedings are not 'civil proceedings' under Section 14 of the Limitation Act, and that the respondent did not act with due diligence.
Respondent argued that the winding up petition was a bona fide civil proceeding prosecuted with due diligence, and time spent therein should be excluded under Section 14. It also relied on letters as acknowledgments of liability under Section 18 and part payment under Section 19 of the Limitation Act.
Ratio Decidendi
The date of reference to arbitration is the relevant date for determining limitation under Section 21 of the Arbitration and Conciliation Act, 1996. Winding up proceedings under the Companies Act are civil proceedings before a court, and time spent therein can be excluded under Section 14 of the Limitation Act, 1963, if the proceedings were prosecuted bona fide and with due diligence. Letters denying liability but offering to settle do not constitute acknowledgment under Section 18, and part payment without written acknowledgment does not extend limitation under Section 19.
Judgment Excerpts
The learned Arbitrator held against the Petitioner (Respondent to the reference) on the issue of limitation.
As explained by the Supreme Court in the case of Indian Farmers Fertilizer Cooperative Limited vs. Bhadra Products, the Arbitrator's order disposing of the issue of limitation finally is an interim award within the meaning of Section 2(1)(c) of the Act.
The winding up petition is a civil proceeding before a court and the time spent in such proceeding can be excluded under Section 14 of the Limitation Act.
Procedural History
The respondent filed a winding up petition in the Bombay High Court on 18 May 2016. The parties agreed to refer disputes to arbitration, and by consent, the matter was referred to a sole arbitrator on 12 February 2018. The petitioner filed an application under Section 16 of the Arbitration Act raising a preliminary issue of limitation. The arbitrator passed an interim award on 12 February 2018 rejecting the limitation plea. The petitioner challenged this interim award under Section 34 of the Act before the Bombay High Court, which dismissed the petition on 18 September 2018.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 2(1)(c), Section 16, Section 21, Section 34
- Limitation Act, 1963: Section 14, Section 18, Section 19
