Issue of Limitation Could Not Be Closed Without Evidence: Bombay High Court Upholds Modification of Arbitrator’s Interim Award for Violating Fundamental Policy of Law

“An Arbitrator Cannot Deny Parties the Right to Lead Evidence on a Mixed Question of Law and 
Fact” — Bombay High Court upheld the decision of the learned Single Judge, modifying an interim award passed by an Arbitral Tribunal. The Court held that the Arbitrator’s decision to finally rule on the issue of limitation at the preliminary stage, without allowing the parties to lead evidence, violated the fundamental policy of Indian law and contravened the minimum judicial standards expected under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996. 
 
The Division Bench, led by Chief Justice Alok Aradhe and Justice M.S. Karnik, declared that, “the Arbitrator, while passing the impugned award has failed to adopt a judicial approach and has arrived at a decision which no reasonable person would have arrived at.” The Court emphasized that limitation, being a mixed question of law and fact, should not have been finally decided merely on demurrer. 
 
The dispute arose out of a Rs. 25 crore investment by the appellant in a real estate project through a share subscription and shareholder agreement. Alleging breach of contract, the appellant invoked arbitration. During the proceedings, the Arbitrator framed the issue of limitation as a preliminary issue and proceeded to decide it finally through an interim award dated August 27, 2019, solely based on the statement of claim and without recording evidence. 
 
The Single Judge, while entertaining a challenge under Section 34, had already pointed out that the Arbitrator himself admitted in para 37 of the interim award that, “had this issue been answered after all evidence had been recorded, this Tribunal may have been inclined to accept some of the submissions of the respondents.” The High Court, relying on this candid admission, observed that such an approach directly infringes the settled requirement that a tribunal must apply a judicial approach, especially when dealing with a defence like limitation which is fact-dependent. 
 
Rejecting the argument that the respondents had waived their right to lead evidence, the Court clarified, “If paragraphs 2, 3, 4, 8, 10 and 11 are read together, the contention that the respondents had agreed to the decision of the issue without recording evidence does not deserve acceptance.” The Bench further stated, “Section 19(1) of the Arbitration Act may exempt the tribunal from strict adherence to the Code of Civil Procedure or the Indian Evidence Act, but it does not authorise the abandonment of fundamental procedural safeguards or judicial approach.” The Court cited the Supreme Court’s judgment in SSangyong Engineering & Construction Co. Ltd. V. NHAI, reaffirming that the principle of fairness, natural justice, and opportunity to present the case is embedded in the public policy of India. 
 
Addressing the limitation of judicial review under Section 34, the Court acknowledged, “Even though we find substance in the submissions made by learned senior counsel that the learned Single Judge has acted like a court of appeal… we agree with the conclusion that the award passed by the Arbitrator was required to be modified.” 
In conclusion, the Division Bench upheld the Single Judge’s direction that the issue of limitation must remain open for determination after the completion of evidence by both parties. 

Date of Decision: 02 April 2025