02 April 2025 Arbitration Law >> Business & Commercial Law  

The Bombay High Court's order in the matter of Urban Infrastructure Real Estate Fund v/s Neelkanth Realty Private Ltd. & Ors., modifying an interim arbitral award concerning the limitation of claims has been upheld by the Supreme Court of India. The apex court, in its recent judgment, dismissed the appeals filed under Section 37 of the Arbitration and Conciliation Act, 1996 (1996 Act), thereby affirming the Single Judge's decision to allow the Arbitrator to re-examine the limitation issue based on the evidence presented.

The case arose from a dispute between a Mauritius-based private equity fund (the appellant) and an Indian private limited company along with its directors (the respondents). The dispute stemmed from a Share Subscription Agreement and Shareholders Agreement executed in 2008, wherein the appellant invested Rs. 25 crore for a project that allegedly did not materialize as per the agreed terms.

Upon the appellant's application, the Supreme Court appointed a sole Arbitrator in 2018 to adjudicate the disputes. The appellant filed its statement of claim, and the respondents submitted their statements of defense and counterclaim. The Arbitrator framed issues, with Issue No. 1 specifically addressing whether the appellant's claims were barred by the law of limitation.

Subsequently, the Arbitrator decided to treat the limitation issue as a preliminary matter based on demurrer and, through an interim award dated August 27, 2019, concluded that the appellant's entire claim was within the limitation period.

This interim award was challenged by the respondents under Section 34 of the 1996 Act before a learned Single Judge of the Bombay High Court. The Single Judge modified the interim award, holding that the Arbitrator's preliminary finding on limitation based on demurrer would not be conclusive and would not prevent the Arbitrator from examining the issue again based on the material and evidence placed on record. The Single Judge noted the Arbitrator's own observation that a different conclusion might have been reached had the limitation issue been decided after considering all the evidence.

The appellant challenged this modification before the Supreme Court, arguing that the respondents had consented to the preliminary determination of the limitation issue based on demurrer and should not be allowed to re-agitate it. The appellant also contended that the Single Judge exceeded the scope of Section 34 of the 1996 Act by reviewing the merits of the interim award, especially in the context of an international arbitration where the grounds for setting aside an award are limited to being in conflict with the public policy of India.

The Supreme Court, after considering the submissions from both sides, analyzed the scope of Section 34 and Section 37 of the 1996 Act, referring to landmark judgments like Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) and ONGC Ltd. v. Saw Pipes. The court reiterated that the scope of interference under Section 34 is limited and does not permit a review on the merits of the dispute. An award can be set aside if it is in conflict with the public policy of India, which includes contravention of the fundamental policy of Indian law or conflict with the most basic notions of morality or justice.

The apex court emphasized that the "fundamental policy of Indian law" requires any authority determining the rights of citizens to adopt a judicial approach, which includes arriving at a decision that a reasonable person would reach. While Section 19(1) of the 1996 Act states that the arbitral tribunal is not bound by the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872, it does not exempt the tribunal from adhering to the fundamental principles underlying these laws.

In its analysis of the present case, the Supreme Court noted that the Arbitrator himself, in the interim award, acknowledged that a different conclusion on the limitation issue might have been reached after considering all the evidence. The court found that the Arbitrator did not definitively establish that the issue of limitation was purely a question of law that could be decided without evidence. The respondents had also explicitly stated their preference for the limitation issue to be decided based on pleadings and admitted evidence, analogous to Order XIV Rule 2 of the CPC, rather than solely on the appellant's statement of claim (demurrer).

The Supreme Court concluded that the Arbitrator, in deciding the limitation issue solely on the basis of demurrer without a clear agreement from the respondents to this procedure and acknowledging the potential impact of evidence, had failed to adopt a judicial approach. This, the court held, amounted to a violation of the fundamental policy of Indian law, thus justifying the High Court's intervention under Section 34(2)(b)(ii) of the 1996 Act.

While acknowledging the appellant's argument that the Single Judge acted like an appellate court, the Supreme Court ultimately agreed with the Single Judge's conclusion that the Arbitrator's award needed modification due to the flawed approach in deciding the limitation issue. Consequently, the appeals were dismissed, allowing the Arbitrator to re-examine the limitation issue based on the evidence presented by both parties.

Section 34, Arbitration and Conciliation Act - 1996  

Section 37, Arbitration and Conciliation Act - 1996  

Arbitration and Conciliation Act, 1996  

Indian Evidence Act, 1872