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2022 (10) TMI 1175 - HC - Indian LawsValidity of Arbitral Award - Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 - Welspun had failed to explain the delay in invoking the arbitration after the dispute resolution process had failed on 21.12.2012 - whether the claims of Welspun, as included in the Final Bill dated 30.10.2010, were barred by limitation? Whether the Arbitral Tribunal (majority) erred in not appreciating that NCC had taken contradictory stands? - HELD THAT:- The Arbitral Tribunal held that it was required to independently adjudicate the question as the controversy involved jurisdictional issues. The decision of the Arbitral Tribunal, in this regard, cannot be faulted. Section 3 of the Limitation Act, 1963 expressly requires the court to reject an action instituted beyond the prescribed period notwithstanding that no such defence has been set up. By virtue of Section 43 of the A&C Act, the Limitation Act is also applicable to arbitration - the Arbitral Tribunal's decision to determine the question of limitation on merits notwithstanding the inconsistent pleas raised by NCC, cannot be faulted with. Import of the provision of the pre-arbitration dispute resolution process on the question of limitation - whether, in the context of the aforesaid dispute resolution mechanism, the period of limitation would commence prior to the parties exhausting the agreed pre-reference procedure/remedies? - HELD THAT:- Several dispute resolution clauses provide for multi-tier or water fall dispute resolution mechanisms. These require the parties to undertake mediation or to first attempt to resolve the dispute in an alternative forum before resorting to arbitration. The entire purpose is to provide the parties an opportunity to resolve the disputes in an amicable manner before resorting to adversarial proceedings. In PANCHU GOPAL BOSE VERSUS BOARD OF TRUSTEES FOR PORT OF CALCUTTA [1993 (4) TMI 302 - SUPREME COURT], the Supreme Court referred to the decision of the Queen's Bench in West Riding of Yorkshire Country Council v. Huddersfield Corporation and held that the rule of limitation would be applicable to arbitration proceedings in the same manner as it applies to litigation before courts. In that case, the party had invoked the arbitration process under the Arbitration Act, 1940 after a period of ten years from the date it had first put forward its claims. In the facts of the said case, the Supreme Court found that recourse to arbitration was not available. The Supreme Court also referred to the text, Russel on Arbitration, 19th Edn, to posit that the limitation period to commence arbitration, would start to run "from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned". The period of limitation would run when a party acquires a right to refer the disputes to arbitration. Clearly, if the arbitration agreement requires the parties to exhaust the dispute resolution process as a pre-condition for invoking arbitration, the right to refer the dispute to arbitration would arise only after the parties have exhausted the said procedure. The counterparty could raise a valid objection to any step taken to refer the disputes to arbitration in avoidance of the agreed pre-reference dispute resolution procedure. If the parties have agreed that they would first endeavour to resolve the disputes amicably in a particular manner, it is necessary for them to first exhaust that procedure before exercising any right to refer the disputes to arbitration. The necessary question to be addressed is whether the period of limitation for referring the disputes to arbitration commences to run prior to the parties exhausting the agreed pre-reference procedures. In our view, the answer is in the negative. If the period of limitation does not commence running till the pre-arbitration processes have been exhausted - as has been held in various decisions- there is no need for protecting the remedy of arbitration against the bar of limitation prior to completion of the pre-reference procedure. We are unable to accept that if the arbitration agreement requires a party to refer the disputes to conciliation before referring the same to arbitration, the period of limitation would commence prior to the parties exhausting the remedy to resolve the disputes through conciliation. In the facts of the present case, the Arbitration Clause expressly required the parties to attempt resolving the disputes and differences by mutual negotiations. If the efforts to resolve the disputes did not yield fruit within a period of one month from the date the same had arisen, the parties were bound to refer the disputes to their respective Chief Executives. The parties could refer the disputes to arbitration only if the Chief Executives failed to arrive at a consensus - It is not clear as and when the negotiations between the parties to amicably resolve the disputes commenced and failed. However, it is clear that Welspun had escalated resolution of the disputes to the second tier by seeking a reference to the respective Chief Executives well within the period of limitation. Clearly, Welspun could not have sought a reference to arbitration prior to referring the disputes for resolution to the respective Chief Executives. Concededly, an attempt to resolve the disputes by the Chief Executives failed on 21.12.2012. It is clear that the decision of the Arbitral Tribunal (majority) to reject the claims made by Welspun as being barred by limitation is erroneous and the impugned award is liable to be set aside - Appeal allowed.
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