Participation In Arbitration Does Not Waive Government's Right To Challenge Limitation: J&K High Court

On 6 October, the High Court of Jammu & Kashmir and Ladakh held that the government does not waive its right to challenge stale claims merely by participating in arbitration or failing to raise limitation during proceedings for appointment of an arbitrator.

A Division Bench comprising Justices Rajnesh Oswal and Rahul Bharti dismissed a contractor's appeal against the setting aside of most of an arbitral award concerning work on the Wangat Weir at the Upper Sindh Hydel Project-II in Kangan, holding that the claims entertained by the arbitrator were barred by limitation. It observed:

“Pursuant to Section 43 of the Act, the Limitation Act applies directly to arbitration proceedings. Consequently, entertaining a time-barred claim violates statutory mandate, rendering the resulting award vulnerable to being set aside for violating Public Policy. In the present case, the learned Arbitrator erred by entertaining a claim expressly barred by limitation.”

The dispute arose from a contract awarded to Chibber on 30 June 1988 for completing the balance work of Wangat Weir at USHP-II, Kangan. The stipulated completion date was 30 November 1989, which was later extended until 1992. The department terminated the contract on 5 May 1998 after the work remained incomplete. Against the contract value of Rs. 199.06 lakh, work worth about Rs. 113 lakh had been completed by 1 April 1994.

Chibber thereafter made several representations between 2000 and 2011 seeking settlement of his claims. A departmental communication dated 12 September 2000 rejected his claims concerning restoration of flood-damaged works and diversion bunds, while stating that the final bill would be entertained after civil litigation involving his erstwhile attorney holder ended.

After receiving no settlement, Chibber approached the High Court in 2013 under Section 11 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997.

G.M. Dar, retired District and Sessions Judge, was appointed sole arbitrator on 4 November 2013 and entered reference on 15 April 2014. Chibber raised claims towards flood restoration work, earnest money, security deposit, escalation and the final bill.

The arbitrator granted Rs. 21,43,536 towards escalation through an interim award, which later attained finality. In the subsequent final award, he also granted amounts towards restoration work, earnest money, security deposit and the final bill, along with interest. The government then approached the High Court under Section 34.

On 4 July 2024, the Single Bench set aside the final award, except to the extent already preserved, holding that the claims were barred by limitation.

Chibber challenged the decision under Section 37, arguing that the 12 September 2000 communication deferred his cause of action until the civil suit was dismissed in February 2011 and that preparation of the final bill in 2011 amounted to an acknowledgment of liability.

The government argued that the claims had already been rejected and that nothing prevented Chibber from invoking arbitration after he learnt in August 2005 that no court order restrained payment.

The Division Bench agreed with the government, holding that the September 2000 communication had rejected the claims relating to flood restoration and diversion bunds and had not deferred all the claims. It further held that Chibber knew by August 2005 that there was no restraint on payment, yet waited until 2013 to invoke arbitration.

Further, the judges held that preparation of the final bill in February 2011, without approval of the competent authority, could not amount to an acknowledgment of liability or revive limitation. On the issue of waiver, they observed:

“...we are of the considered view that there is no force in the contention of the appellant that the respondents had waived their right to object to the claims of the appellant by participating in the arbitral proceedings and not raising any objection with regard to the stale claims during the proceedings under Section 11 of the Act, as such, the same is rejected.”

Accordingly, the High Court dismissed Chibber's Section 37 appeal without costs. It clarified that limitation concerns admissibility, not jurisdiction, and found no error in the Single Bench's decision.

Appearances for appellant (Kamal Krishan Chibber): Advocate M. A. Dar.

Appearances for respondents (UT of J&K & Ors.): Senior Advocate M. A. Chashoo with Advocate Hikma.