Delhi HC Refuses Arbitration Over Builder’s Undelivered Unit, Says Monthly Compensation Clause Didn’t Save Buyers’ Time-Barred Claims

The Petitioners sought appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, in disputes arising from an Agreement to Sell dated 7 April 2014 for a commercial unit.

They had paid ₹4,82,123 against a total sale consideration of ₹2,38,68,000. The Agreement stipulated possession by 31 December 2017 and provided for monthly compensation for delay.

The Petitioners claimed possession and ₹1,85,43,600 as delay compensation. They issued a legal notice on 4 May 2026, received the Respondent’s rejection on 20 May 2026, and invoked arbitration on 18 June 2026. The Respondent opposed reference on the ground that the claims were time-barred. The parties did not dispute the Agreement or the arbitration clause.

Section 43(1) of the Arbitration and Conciliation Act, 1996 applies the Limitation Act, 1963 to arbitral proceedings, and Section 43(2), read with Section 21, deems proceedings to commence when the request for arbitration is received by the other party.

Article 137 provides a three-year limitation period for a Section 11 application; Article 54 prescribes three years for specific performance where a date for performance is fixed; and Article 55 prescribes three years for compensation for breach, subject to its provisions on successive or continuing breaches.

Under Sections 11(6) and 18 of the Limitation Act, a referral court may refuse reference where the underlying claims are demonstrably dead on the admitted material, but should not conduct an intricate evidentiary inquiry; a post-expiry communication cannot revive a time-barred claim, and an acknowledgment must be written, signed, and made before limitation expires.

The Court applied Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd., Arif Azim Co. Ltd. v. Aptech Ltd., SBI General Insurance Co. Ltd. v. Krish Spinning, and State of W.B. v. B.B.M. Enterprises on the scope of limitation review at the referral stage.

It also relied on Ahmadsahab Abdul Mulla (2) v. Bibijan and Usha Devi v. Ram Kumar Singh concerning accrual under Article 54 where a performance date is fixed.

The Court treated 31 December 2017—the contractual possession deadline—as the date on which the alleged breach occurred and the claims accrued. It held that the later legal notice and arbitration notice could not postpone limitation where the Agreement itself fixed the performance date.

Although Clause 14 calculated compensation monthly, the Court construed that provision as prescribing the measure of compensation and its adjustment at conveyance, not as keeping the primary obligation or cause of action alive indefinitely. Continued non-delivery and its accumulating financial consequences did not, without more, constitute successive independent breaches.

The Court distinguished Samruddhi Co-operative Housing Society Ltd. v. Mumbai Mahalaxmi Construction (P) Ltd. and Lata Construction v. Dr. Rameshchandra Ramniklal Shah because this case involved neither a comparable continuing statutory obligation nor a subsequent agreement preserving the obligation.

It further held that the 2026 correspondence, the Respondent’s refund offer, and the separate proceedings between the Respondent and the landowners did not extend or revive limitation.

Because the relevant dates and contractual terms were apparent and no intricate evidentiary inquiry was required, the Court considered the claims ex facie time-barred at the referral stage.

It sustained the Respondent’s objection and dismissed the petition for appointment of an arbitrator; pending applications were also disposed of, with no order as to costs.