Arbitration Act | Referral Court Cannot Conduct Mini-Trial on Limitation Unless Claim is ‘Ex-Facie’ Dead: J&K High Court

“If there is slightest doubt with regard to arbitrability of the claim on account of it being time barred, the issue for determination in this regard should be left to the Arbitrator and the Court while exercising its power under Section 11 of Act should not venture to determine the said issue at reference stage.”— In a seminal ruling, the High Court of Jammu & Kashmir and Ladakh, comprising Justice Sanjay Dhar, has allowed a batch of petitions for the appointment of an arbitrator, clarifying that the period spent pursuing a remedy in a court lacking jurisdiction can save a claim from being classified as "deadwood" at the referral stage.

A Detour Through Wrong Jurisdiction

The dispute arose from contracts awarded to Promark Techsolutions Pvt. Ltd. (Petitioner) by the Rural Development Department, UT of J&K in 2020 for the supply of furniture. While the Petitioner delivered the goods in July 2020, the bills remained unpaid. Instead of immediately invoking arbitration, the Petitioner instituted civil suits for recovery before the Civil Judge in SAS Nagar, Mohali.

However, after years of litigation, the Mohali Court returned the plaints in September 2023, citing a lack of territorial jurisdiction. Subsequently, in March 2024, the Petitioner invoked the arbitration clause. When the Department failed to respond, the Petitioner approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996.

“The cause of action for filing a petition under Section 11 of the Act would arise when the respondent fails to respond to the notice for invocation of arbitration clause.”

The Limitation Conundrum: Distinguishing Claim vs. Petition

The Respondents vehemently opposed the petitions, arguing that the claims were hopelessly time-barred. They contended that the cause of action arose in July 2020 (upon delivery), and the arbitration clause was invoked in March 2024—beyond the three-year limitation period prescribed under the Limitation Act, 1963. They argued that the claims were "stale" and "non-arbitrable."

Justice Dhar, however, drew a sharp distinction between the limitation for filing a Section 11 petition and the limitation for the underlying claim. Relying on the Supreme Court’s ratio in J.C. Budhraja v. Orissa Mining Corporation Ltd., the Court noted that the limitation for a Section 11 petition (governed by Article 137) triggers only when the opposite party fails to appoint an arbitrator, whereas the limitation for the claim itself is calculated from the date the cause of action arose.

The ‘Eye of the Needle’ Test

The Court extensively analyzed the "pre-referral jurisdiction" scope, citing landmark Supreme Court judgments including Vidya Drolia v. Durga Trading Corporation and BSNL v. Nortel Networks. The Bench reiterated that the referral court’s scrutiny is "through the eye of the needle"—limited only to determining if a claim is ex-facie time-barred or "deadwood."

“The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral Courts must not undertake a full review of the contested facts.”

Justice Dhar observed that while the delivery occurred in 2020, the Petitioner had been pursuing civil suits in Mohali. Under Section 14 of the Limitation Act, a party may exclude the time spent prosecuting proceedings in a court which, from defect of jurisdiction, is unable to entertain it. The Court held that whether the Petitioner acted in "good faith" and is entitled to this exclusion is a mixed question of fact and law best suited for the Arbitral Tribunal, not the referral court.

The Court concluded that the claims were not "ex-facie" time-barred because the Petitioner had a plausible argument regarding the exclusion of time spent in the Mohali courts. Consequently, the Court appointed Ms. Asifa Padroo, Advocate, as the Sole Arbitrator.

The Bench directed that the Arbitrator must decide the issue of limitation as a preliminary issue before proceeding to the merits. The petitions were allowed, ensuring that the door to justice was not prematurely shut on technical grounds at the referral stage.

Date of Decision: 29/12/2025