The Madhya Pradesh High Court has clarified that a party’s claim under an arbitration agreement cannot be summarily dismissed at the stage of arbitrator appointment merely on grounds of limitation or contractual bar. The court emphasized that such issues are substantive and must be adjudicated by the arbitrator, not pre-judged by the court under Section 11(6) of the Arbitration and Conciliation Act.
Background & Facts
The Dispute
The petitioner, M/s Goyala Infra Projects Pvt Ltd, entered into a contract with the respondent, the Engineer-in-Chief, Military Engineering Service, for the construction of a "Security Wall for Paharpur MIL Station at Gaya" in the year 2013-14. The work was completed and a final bill was submitted by the petitioner in 2021. The final bill amount was paid on 22.08.2022, but the petitioner alleged that the payment was incomplete and did not cover the full entitlement under the contract.
Key Facts
- Contract executed in 2013-14 for construction of security wall at Paharpur MIL Station, Gaya
- Final bill submitted by petitioner in 2021
- Final payment of Rs. [amount unspecified] made on 22.08.2022
- Petitioner contended that the payment was partial and did not settle all dues
- Petitioner issued a legal notice invoking the arbitration clause after the payment
- No prior arbitration proceedings were initiated
Procedural History
- 22.08.2022: Final bill paid by respondent
- After 22.08.2022: Petitioner issued notice invoking arbitration clause
- Arbitration Case No. 17 of 2025: Filed under Section 11(6) of the Arbitration and Conciliation Act before the Madhya Pradesh High Court, Jabalpur, seeking appointment of arbitrator
- 20 April 2026: Hearing before Justice Vivek Jain
The Parties' Positions
Petitioner: Argued that the payment received on 22.08.2022 was partial and that the shortfall constitutes a recoverable claim under the contract. The notice invoking arbitration was issued within three years of payment, thus not barred by limitation. The dispute involves factual and legal questions regarding the scope of the final bill and the applicability of Clause 65.
Respondent: Contended that (i) the claim is barred by limitation as the final bill was submitted in 2021 and no claim was raised within three years; and (ii) Clause 65 of the General Conditions of Contract extinguishes all claims after submission of the final bill, regardless of payment status.
Relief Sought
The petitioner sought appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act to adjudicate the dispute regarding the unpaid balance under the final bill.
The Legal Issue
Can a court under Section 11(6) of the Arbitration and Conciliation Act refuse appointment of an arbitrator on the grounds that the claim is prima facie barred by limitation or extinguished by Clause 65 of the contract?
Arguments Presented
For the Petitioner
The petitioner relied on the principle that under Section 11(6), the court’s role is limited to examining the existence of an arbitration agreement and the prima facie validity of the claim. The court is not to decide the merits of the dispute, including questions of limitation or contractual bars. The notice invoking arbitration was issued within three years of the last payment on 22.08.2022, making the claim timely. Clause 65 cannot bar a claim for non-payment of the final bill itself.
For the Respondent
The respondent argued that the claim was time-barred since the final bill was submitted in 2021 and no arbitration notice was issued until after 2022. Further, Clause 65 of the contract explicitly states that all claims not included in the final bill are deemed waived and extinguished. The respondent contended that the court should not appoint an arbitrator where the claim is legally unsustainable on its face.
The Court's Analysis
The court rejected the respondent’s contention that limitation or Clause 65 could justify refusal to appoint an arbitrator at the Section 11(6) stage. It held that the question of limitation is a mixed question of law and fact requiring examination of documents, correspondence, and payment records - matters beyond the limited scope of Section 11(6). The court observed:
"It cannot be said at the outset that on the face of it, the claim of the petitioner is barred by limitation. It may be a mixed question of fact and law and may require consideration after going through all the documents and evidences in possession of the parties."
Regarding Clause 65, the court distinguished between claims over and above the final bill and claims challenging the inadequacy of payment of the final bill. The clause cannot operate as an estoppel against a claim for the unpaid portion of the bill already submitted. The court stated:
"The aforesaid clause seeks about extinguishment of all further claims over and above what has been submitted by the contractor in the final bill, but it does not create any estoppel that if the final bill is not fully paid, then for the shortfall in payment of final bill, the contractor cannot agitate the matter."
The court emphasized that the extent of payment due, the interpretation of Clause 65, and the applicability of limitation are all issues that fall squarely within the arbitrator’s domain. The court’s role under Section 11(6) is procedural, not adjudicatory.
The Verdict
The court appointed Shri Justice Ravi Malimath, Former Chief Justice of the Madhya Pradesh High Court, as sole arbitrator. The Registrar Judicial-I was directed to obtain consent and disclosure from the arbitrator by 06.05.2026. If not completed, the matter was to be listed for directions on 07.05.2026. The parties were directed to appear before the arbitrator on 11.05.2026 and on such further dates as required.
What This Means For Similar Cases
Limitation Is for the Arbitrator, Not the Appointing Court
- Practitioners may now confidently invoke Section 11(6) even if limitation is raised as a defense - the court must appoint the arbitrator and leave limitation for adjudication
- A claim is not "prima facie barred" merely because the cause of action appears old; the court must assess whether the limitation issue is arguable on facts
Clause 65 Does Not Bar Claims for Underpayment of Final Bill
- Contractual clauses extinguishing "further claims" after final bill submission do not preclude claims for unpaid portions of the bill already submitted
- Practitioners should argue that such clauses apply only to additional claims not included in the final bill, not to disputes over the accuracy or completeness of payment
Section 11(6) Is Procedural, Not Substantive
- Courts must avoid deciding merits at the appointment stage - even if the claim appears weak
- The threshold for appointment is low: existence of arbitration agreement + prima facie dispute
- This reinforces the pro-arbitration stance under the Arbitration and Conciliation Act, 1996
