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: Time Spent in Arbitration Excludable Under Section 14 Limitation Act
In a significant ruling on limitation in arbitration matters, the has clarified that time spent pursuing an earlier arbitration proceeding can be excluded under , even if the resulting award was later declared by an execution court. Justice S. Manu allowed a for non-banking financial company in a ₹75 lakh loan dispute, holding that the company had acted and with throughout the initial arbitration and .
The Dispute: A Loan Gone Sour
The case originated from a loan agreement executed on , between and the first respondent, Bijitha Shajan, with her husband Shajan C.S. standing as guarantor. The agreement contained an arbitration clause naming a specific arbitrator. After the borrowers defaulted on the loan, KLM Axiva invoked the arbitration clause in and proceeded before the named arbitrator. The respondents failed to appear, and the arbitrator passed an award on .
When the finance company sought to execute the award before the , the execution court in held that the of the arbitrator was illegal following the law laid down in Hedge Finance Private Limited v. Bijish Joseph [2022 KHC 591], and consequently declared the award . KLM Axiva then approached the High Court for a . Its first attempt (AR No.148/2025) was rejected as premature in , prompting the company to issue a fresh notice under , before filing the present request.
The Core Legal Question: Can Time Be Excluded?
The central issue was whether the period spent in the initial arbitration and could be excluded while computing limitation for the fresh arbitration. KLM Axiva had calculated that 3,764 days had elapsed between the default date and the fresh arbitration notice, but argued that 2,689 days spent in the earlier proceedings should be excluded, leaving only 1,075 days—well within the three-year limitation period under .
The company primarily relied on , which excludes the period between commencement of arbitration and a court order setting aside the award. Alternatively, it invoked Section 14 of the Limitation Act, which excludes time spent in proceedings before a court lacking jurisdiction.
Section 43(4): A Narrow Door
Justice S. Manu firmly rejected the argument that an execution court's finding of unenforceability could be equated with an order setting aside the award under Section 34 or 37 of the Act.
"On a literal reading, the phrase 'an arbitral award be set aside' used in sub-section (4) of Section 43 does not allow for the inclusion of any other circumstance within the purview of the clause."
The court observed that Parliament consciously used specific language in Section 43(4), and judicial interpretation cannot substitute broader expressions. The execution court's declaration of nullity, the court held, cannot trigger the limitation exclusion provided under Section 43(4).
Section 14 to the Rescue
However, the court found merit in the alternative argument under Section 14 of the Limitation Act. The respondents had argued that the company could not claim bona fides because it had pursued arbitration through a unilaterally appointed arbitrator, which was illegal. But the court noted that the arbitrator was specifically named in the agreement, and the respondents had not objected at the time of execution or during the arbitration.
"Proceedings before the arbitrator named in the agreement and also before the execution court cannot be held as pursued without bonafides by the petitioner."
The court held that the conditions for applying Section 14 were satisfied: the prior proceedings were civil in nature, prosecuted with and , and failed due to a —the unilateral appointment later held illegal.
"Section 14 of the Limitation Act would come to the rescue if the arbitral proceedings were prosecuted diligently and bonafidely before an , even though it was later held as incompetent by a competent court."
The court relied on a line of Supreme Court precedents including , , and , all of which affirmed that Section 14 applies to arbitration proceedings under the 1996 Act.
Limitation: Not for the to Decide Finally
While the respondents vehemently argued that the claims were hopelessly , the court declined to make a final determination at this stage. Citing the three-judge bench decision in , the court held that into limitation is best left to the .
" , it appears that the contention of the learned counsel for the petitioner deserves to be accepted. Moreover, no intricate inquiry into the issue of limitation is within the province of the ."
The Final Order
The court allowed the arbitration request and directed the Arbitration Centre to nominate a sole arbitrator from Panel II to resolve all disputes arising under the loan agreement. The arbitrator is empowered to consider all issues, including questions of jurisdiction and limitation. The court also directed that the fees of the arbitrator shall be governed by the (Arbitration Centre) Rules, 2025.
This ruling provides crucial guidance for parties who find themselves in a after an arbitration award is declared . By affirming the applicability of Section 14 of the Limitation Act, the court has opened a pathway for fresh arbitration where the earlier proceedings were pursued in , even if they ultimately failed on .
