IMPORTANT POINTS
(1) Arbitration petition – Initiation of arbitration and criminal proceedings under Section 138 of Negotiable Instruments Act, 1881 are separate and independent proceedings that arise from two separate causes of action – Institution of proceedings under Section 138 does not imply a ‘continuing cause of action’ for the purpose of initiating arbitration.
(2) It is duty of court to protect parties from being compelled to arbitrate when claim is demonstrably barred by limitation.

ORDER :

ARBITRATION PETITION (CIVIL) NO. 15 OF 2023

1. The petitioner, an entity incorporated in the United Arab Emirates, was purportedly approached by the respondents to finance a telecommunication project undertaken by Telesuprecon Nigeria Limited (TNL). Accordingly, the Memorandum of Understanding (MoU) which forms the basis of the petition under Section 11(6) of the Arbitration and Conciliation Act 1996,¹[“Act”] was executed on 1 June 2004. TNL was represented by the second respondent, who is also a director of the first respondent – a company incorporated in India. Pursuant to the terms of the MoU, the petitioners claim to have disbursed funds on various occasions. On 2 August 2006, a supplementary MoU was executed, setting out the terms of repayment and settlement of the petitioners’ dues. The respondents agreed to lien their property as comfort and issue cheques in support of their finances.

2. It has been stated that cheques were given to the petitioner from time to time during the course of meetings between the parties to negotiate repayment. On 7 May 2011, fifteen cheques which had been furnished to the petitioner for a consolidated amount of Rs. 7.30 crores were presented for payment but allegedly dishonoured. Accordingly, on 2 June 2011, the petitioners issued a legal notice to the respondents to implement the MoU and make the necessary payment.

3. Eleven years thereafter, on 4 July 2022, the petitioners invoked arbitration in terms of clause 19 of the MoU. The respondent failed to reply to the notice invoking arbitration. Therefore, the petitioner issued a fresh notice dated 27 October 2022 calling upon the respondent to refer the dispute to arbitration. The petitioner did not receive a response to the second notice and instituted the present petition before this court for the appointment of an arbitrator.

4. According to the petitioner, in the interregnum, proceedings under Section 138 of the Negotiable Instruments Act 1881 were instituted against the respondents. An order of acquittal was passed by the Magistrate on 23 July 2018. Proceedings are pending before the High Court of Bombay in appeal.

5. The respondents contend that the claims of the petitioner are barred by limitation and urge this Court to dismiss the petition. Whether a claim is barred by limitation lies ordinarily within the domain of the arbitral tribunal. However, a court exercising jurisdiction under Section 11(6) of the Act may reject ex facie non-arbitrable or dead claims, to protect the other party from being drawn into a protracted arbitration process,²[Arif Azim Co. Ltd. v. Aptech Ltd., (2024) 5 SCC 313, para 68.] that is bound to eventually fail. The court must ‘cut the deadwood’ by refraining from appointing an arbitrator when claims are ex facie time-barred and dead, or there is no subsisting dispute.,³[Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, para 154.4; BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5 SCC 738, para 45.1.]

6. This examination does not involve a full review of contested facts but only a primary review, where uncontested facts speak for themselves.,⁴[NTPC Ltd. v. SPML Infra Ltd., (2023) 9 SCC 385, para 27.] Such limited scrutiny is necessary as it is the duty of the court to protect the parties from being compelled to arbitrate when the claim is demonstrably barred by limitation. If courts do not intervene within this limited compass and mechanically refer every dispute to arbitration, it may undermine the effectiveness of the arbitration process itself.,⁵[Ibid, para 28.]

7. The above principles that have been affirmed in a consistent line of precedent, flow from the following observations in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1:

“139. … Undertaking a detailed full review or a long-drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to interv