Delhi High Court Restores Suit Challenging Illegal Termination of Contract and Wrongful Invocation of Bank Guarantee — Suit Restored as Remedy Lies Elsewhere; Arbitration Not Applicable

Court’s Decision:

The Delhi High Court restored the original suit filed by the plaintiff under Section 151 of the CPC, 1908, seeking recovery of Rs. 1,79,92,366/- against the defendant due to unpaid dues and damages suffered from the illegal termination of the contract and wrongful invocation of the bank guarantee. The Court concluded that the application was filed within the limitation period, taking into account the exclusion of time due to COVID-19 as prescribed by the Supreme Court. The court emphasized that the arbitral award will not bar the plaintiff from seeking remedies in law for their claims.

Facts:

The plaintiff filed a suit on 06.11.2008, seeking recovery for unpaid dues and damages due to the alleged illegal termination of a contract and wrongful invocation of a bank guarantee by the defendant. The court, through its order dated 10.01.2011, referred the disputes to arbitration following the defendant’s application. The plaintiff’s challenge against the referral was dismissed, granting the plaintiff liberty to contest the arbitrability before the arbitral tribunal.

The arbitral tribunal disallowed the claims of the plaintiff through an award dated 29.07.2015, which was then challenged by the plaintiff under Section 34 of the Arbitration and Conciliation Act, 1996. The court ruled that the claims were not arbitrable as they constituted “excepted matters” outside the scope of arbitration. This decision was upheld by the Division Bench on 01.08.2019, clarifying that the award would not prevent the plaintiff from seeking other legal remedies.

Issues:

1. Whether the original suit should be restored after the conclusion that the claims are not arbitrable.
2. Whether the application for restoration is within the prescribed period of limitation.

Petitioner’s Arguments:

1. Limitation Period: The petitioner argued that the limitation period for filing the restoration application started only on 01.08.2019, when the Division Bench clarified that the claims were not arbitrable, and therefore the remedy lay elsewhere.
2. Impact of COVID-19 Orders: The petitioner cited the Supreme Court’s orders regarding the exclusion of time from 15.03.2020 to 28.02.2022 for computing the limitation period, contending that the suit’s restoration application, filed on 01.06.2023, was well within the limitation period.
3. Wrong Forum Argument: The plaintiff emphasized that the dispute was initially referred to arbitration under a prima facie view that was subsequently held incorrect by the High Court, and thus the suit should be restored to its original position.

Respondent’s Arguments:

1. Barred by Limitation: The respondent argued that the limitation period began from 28.05.2018 when the court first ruled that the claims were not arbitrable. Thus, even after considering the exclusion of time due to COVID-19, the application was barred by 1367 days.
2. Calculation of Limitation Period: The respondent provided a detailed computation, arguing that even under the most favorable interpretation, the period for filing the restoration had lapsed, making the present application hopelessly barred.

Analysis of the Law:

The court examined the applicability of Article 137 of the Limitation Act, 1963, which prescribes a three-year limitation period for applications where no specific provision exists. The Supreme Court’s orders in Suo Moto Writ Petition No. 3/2020 were considered to determine the impact of COVID-19 on the computation of the limitation period. The period from 15.03.2020 to 28.02.2022 was excluded, leading to the conclusion that the restoration application was filed within the permissible period.

Precedent Analysis:

The court relied on the Supreme Court’s decision in Arif Azim Company Limited vs. Aptech Limited, 2024 (5) SCC 313, and Prakash Corporates vs. Dee Vee Projects Limited, (2022) 5 SCC 112. These precedents clarified the interpretation of limitation during the COVID-19 period, emphasizing the necessity to exclude the period and consequently enlarge the available time for filing.

Court’s Reasoning:

The court reasoned that the reference to arbitration did not constitute a dismissal of the suit, and upon realization that the claims were not arbitrable, the plaintiff’s right to pursue remedies under the original suit was preserved. The final determination of the arbitral award’s inapplicability by the Division Bench on 01.08.2019 signified the starting point of the limitation period. The pandemic’s impact, as recognized by the Supreme Court, warranted the exclusion of the period from 15.03.2020 to 28.02.2022, making the application timely.

Conclusion:

The Delhi High Court restored the original suit, noting that the limitation period was calculated correctly, and the application was within the prescribed period. The suit was restored to its original number, and the court clarified that the dismissal of the arbitral award would not bar the plaintiff from seeking appropriate legal remedies.

Implications:

This decision reaffirms the principle that misdirected referrals to arbitration should not prejudice a party’s rights to seek appropriate remedies under the law. The case sets a precedent for interpreting the limitation period, especially in light of pandemic-induced delays, ensuring litigants are not unfairly disadvantaged due to procedural complexities.

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