(Prayer: This commercial appeal is filed under Section 13 (1) (a) of the Commercial Courts Act, 2015 praying to set aside the order dated 11.07.2025, passed by the lxxxvi additional city civil and sessions judge, Bengaluru, (cch-87), in com. a.p.no.31/2025 (old no. as 35/2015), refusing to set aside the arbitral award dated 12.02.2015 etc.)

Cav Judgment:

Vibhu Bakhru, C. J.

1. The appellant has filed the present appeal under Section 37(1)(c) of the Arbitration & Conciliation Act, 1996 ['the A&C Act'] impugning an order dated 11.07.2025 [impugned order] passed by the Court of the LXXXVI Additional City Civil & Sessions Judge, Commercial Court, Bengaluru (CCH-87) [Commercial Court] in Com.A.P.No.31/2025.

2. The appellant had preferred the said petition under Section 34 of the A&C Act impugning an arbitral award dated 12.02.2015 [impugned award] passed by the Arbitral Tribunal constituted by a sole Arbitrator [Arbitral Tribunal]. The learned Commercial Court had dismissed the petition to set aside the impugned award. Aggrieved by the same, the appellant has preferred the present appeal.

3. The Arbitral Tribunal had awarded a sum of Rs.19,30,000/- along with interest at the rate of 18% per annum from 22.09.2009 till the date of payment, in favour of the respondent [HDFC]. In addition, the appellant was also directed to pay costs of Rs.15,000/-. The appellant claims that the claims made by HDFC were time barred and therefore, the impugned award was required to be set aside.

4. The principal dispute to be addressed in the present appeal is, whether the impugned award was vitiated by patent illegality, as the claims made by HDFC [claimant before the Arbitral Tribunal], were barred by limitation.

Prefatory facts

5. HDFC is a successor-in-title of the erstwhile Centurion Bank of Punjab Limited [Centurion Bank] by virtue of a scheme of amalgamation as confirmed by the Reserve Bank of India.

6. Centurion Bank and the appellant had entered into a Leave and Licence Agreement dated 01.01.2007 [the Lease Agreement] in respect of the property described as Ground Floor of the building in the premises bearing Old No.165, New No.165/6, RVS Paradise, 36th 'D' Cross, IV T Block, Jayanagar, Bengaluru-560 041, admeasuring 1800 sq.ft. with two car parking spaces and two- wheeler parking spaces [the demised premises]. The term of the lease was 11 (eleven) months with an option to renew the same by mutual agreement.

7. HDFC claimed that on the same date, that is on 01.01.2007, the appellant and erstwhile Centurion Bank had entered into a Memorandum of Understanding [MOU] to extend the term of Lease Agreement for further eight terms of eleven months each on the same terms and conditions, subject to escalation in the licence fee.

8. Centurion Bank had paid the appellant an amount of Rs.17,80,000/- (Rupees seventeen lakhs eighty thousand only) towards interest free refundable security deposit. Additionally, Centurion Bank had paid a sum of Rs.1,50,000/- (Rupees one lakh fifty thousand only) also interest free towards 15 KVA of power supply to the demised premises.  Thus, in aggregate, the Centurion Bank had paid a sum of Rs.19,30,000/- (Rupees nineteen lakhs thirty thousand only), which was acknowledged by the appellant as interest free security deposit. As noted above, Centurion Bank merged with HDFC and thus, HDFC as the successor-in-interest, is entitled to all assets of the erstwhile Centurion Bank with effect from 23.05.2008.

9. HDFC stated that it decided to vacate the demised premises and on 22.04.2009, issued a termination notice [first termination notice] as required under the lease agreement. HDFC alleges that the appellant evaded receiving the said notice and the postal cover was returned as unclaimed on 19.05.2009. On 25.05.2009, HDFC sent another termination notice [second termination notice], which was delivered to the appellant on 08.06.2009. HDFC called upon the appellant to treat the second termination notice as a two month written notice of termination of the lease agreement and to return the security deposit of Rs.19,30,000/-.

10. HDFC stated that after more than ninety days of the receipt of the second termination notice dated 08.06.2009, it vacated the demised premises as on 22.09.2009 and approached the appellant to hand over the keys. However, the appellant declined to accept the keys of the demised premises.

11. HDFC claims that thereafter on several occasions, it called upon the appellant to take back the possession of the demised premises and to return the security deposit of Rs.19,30,000/-. But the appellant avoided repayment of the amount by making claims, which according to the HDFC, were frivolous. It is to be noted that the claims made by the appellant were towards arrears of rent, maintenance charges and service tax. However, according to the HDFC, no such amounts were payable.

12. The appellant sent a letter dated 07.11.2012, whereby it acknowledged that the amount of Rs.19,30,000/- was payable. However, claimed a set off of Rs.4,01,031.57/- against arrears of rent, towards service tax, and maintenance of the demised premises. Additionally, the appellant requested HDFC to convert a sum of Rs.10,00,000/- as a housing loan, which according to HDFC was an untenable demand.

13. HDFC issued a legal notice dated 03.12.2012 calling upon the appellant to pay a sum of Rs.34,91,720/- out of which Rs.19,30,000/- was towards security deposit; Rs.15,51,720/- was towards interest on the aforesaid amount at the rate of 18% per annum from 22.09.2009 till 10.03.2014; and Rs.10,000/- was the cost of the notice. HDFC also claimed future interest at the rate of 18% per annum.

14. The appellant did not respond to the notice dated 03.12.2012 but sent a notice dated 24.12.2012 demanding reimbursement of expenses purportedly incurred by her for bringing the demised premises to its original condition. According to HDFC, the said claim was an afterthought and was untenable.

15. HDFC invoked the arbitration agreement as per (Clause 26 of the lease agreement), by issuing a notice dated 22.02.2013. The appellant did not agree for appointment of an Arbitrator as suggested by HDFC. In response to the said notice, she issued a reply notice dated 04.03.2013, disputing that she had received the first or second termination notices.

16. In the given circumstances, HDFC filed an application under Section 11 of the A&C Act, being CMP No.124/2013, for appointment of an Arbitrator, before this Court. Pursuant to the said application, this Court passed an order dated 12.02.2014 appointing the sole Arbitrator and constituting the Arbitral Tribunal.

17. HDFC filed its statement of claims before the Arbitral Tribunal and the appellant filed her statement of defence.  The appellant claimed that HDFC had damaged the subject premises and she had undertaken extensive repairs for restoration of the demised premises to its original condition. She claimed that she incurred an expenditure of Rs.8,00,000/- for the said purposes. And appellant also made additional claims of arrears of rent.

18. The parties led their evidence before the Arbitral Tribunal. The HDFC examined its Project Manager, Shri Sandeep Ramadas in support of its claims. He submitted his affidavit in lieu of examination-in-chief, essentially affirming the contents of the statement of claims. He was also cross-examined. In his cross- examination, he affirmed that HDFC had vacated the demised premises on 22.09.2009 and had approached the appellant to hand over the keys.

19. In his cross-examination, he deposed that HDFC had also taken a letter from the appellant somewhere in September or October 2009 for having handed over possession of the demised premises.

20. The Arbitral Tribunal delivered the impugned award on 12.02.2015. Arbitral Tribunal found that a sum of Rs.19,30,000/- was payable to HDFC as the same was acknowledged by the appellant by a letter dated 07.11.2012. The Arbitral Tribunal also rejected the appellant's contention that the claim was not maintainable on the ground that the appellant had failed to make out a case to the said effect. The Arbitral Tribunal accepted the HDFC's claim that it had vacated the premises on 22.09.2009 and in terms of Clause 22(a) (ii) of the Lease Agreement, HDFC was entitled for refund of the amount of Rs.19,30,000/- along with interest at the rate of 18% per annum from 22.09.2009. Insofar as the claims made by the appellant are concerned, the Arbitral Tribunal rejected the same on the ground that they were not established and that the appellant had not paid any administrative fees as required in terms of the rules in respect of the said claims.

21. The petition filed by the appellant to set aside the impugned award, was rejected in terms of the impugned order.

22. It is also material to note that during the arbitral proceedings, the appellant had filed application I.A.No.1 for recalling of the order dated 10.06.2014 passed by the Arbitral Tribunal and to permit her to file a counter claim / set-off. She had also filed other applications I.A.No.2 styled as an application under Order VIII Rule 6 of Code of Civil Procedure, 1908 to claim set-off and counter claim and application I.A.3 filed under Order VI Rule 17 of Code of Civil Procedure, 1908 to carry out amendment as proposed. The Arbitral Tribunal rejected the said applications by an order dated 15.12.2014. The appellant had challenged the same by filing writ petitions being, W.P.No.586/2015 and W.P.No.587/2015. However, the said writ petitions were rejected, inter alia on the ground that the counter claim would be barred by limitation. This Court had held that the Bank had vacated the premises in August 2010. The operative part of the order dated 22.01.2015 passed by this Court, as set out by the learned Commercial Court in the impugned order, is reproduced below:

                  "9. Having heard the learned counsel appearing for the petitioner, we do not see any reasons to entertain this petition because the respondent bank has vacated the premises in August' 2010 itself. If the writ petitioner is entitled to recover the arrears of rent /damages said to have been caused by the respondent-bank while using the premises or on any other grounds, the period of limitation is only 3 years from the date of cause of action i.e., from August' 2010. If the bank has vacated the premises in August' 2010, the period of limitation would commence from the date on which the respondent bank has vacated the premises. If the counter claim is made within 3 years from the date of vacating the premises, we could have appreciated the arguments advanced by the learned counsel for the petitioner.

                  10. Since counter claim has not been filed within a period of 3 years, we do not see any merits in this petition. According to us the learned Arbitrator is justified in rejecting the applications as the same is barred by limitation.

                  11. Accordingly, the writ petitions are dismissed."

 Reasons & Conclusions

23. The learned counsel appearing for the appellant focused her arguments on the contention that HDFC's claims were barred by limitation. The learned counsel for HDFC had earnestly countered the said submissions. He contended that in the letter dated 07.11.2012, the appellant had expressly acknowledged the amount of Rs.19,30,000/- payable to the HDFC and therefore, the period of limitation stood extended. He referred to Section 18 of the Limitation Act, 1963, in support of his contention.

24. Undisputedly, the period of limitation would commence from the date of the cause of action. The statement of claims filed by HDFC articulated that the cause of action had commenced on 22.09.2009. Paragraph 21 of the statement of claim is set out below:

                  "21. The claimant submits that the claim is not barred by limitation and the cause of action for the claim arose on 22.09.2009 when the claimant delivered vacant possession to the respondent, on 07.11.2012, when the respondent admitted the claim of the respondent and on 03.12.2012 when the claimant demanded the return of the security deposit amount from the respondent."

25.    We may also note the terms of the Lease Agreement which refers to the obligation of the appellant to refund the security deposit. Clause 21(a) and 22 of the Lease Agreement, are set out below:

                  "21. TERMINATION:

                  (a) This agreement may be terminated by the Licensee at any time by giving a written notice of 90 days to the Licensor during which period, all the clauses contained in this agreement shall apply or in the alternative, will give Licensee Fee for 90 days in lieu of the notice period. Notwithstanding, the payment made in lieu of the notice period, the Licensor shall refund the security deposit to the Licensee on or before expiry of 90 days notice period Upon termination or earlier revocation of the license, the Licensee shall remove all fittings, fixtures, and other paraphernalia brought into the Said Premises by the ( Licensee, without causing any exceptional damage to the structure.

                  ***     ***     ***     ***

22. CONSEQUENCES OF EXPIRY OR TERMINATION:

                  (a)      Notwithstanding anything to the contrary contained if on expiry or termination of the License in terms of this Leave and License Agreement, if the Licensee is ready and willing to give peaceful possession of the Said Premises to the Licensor but the Licensor does not refund the Security Deposit for any reason whatsoever, despite the written notice being received from the Licensee then in such event without prejudice to any other right/remedy available:-

                  (I) The Licensee shall be entitled to retain and use the Said Premises without being liable to pay the compensation effective from that date till the time the Licensor refunds the said Security Deposit in full to the Licensee.

                  (II) The Licensor shall become liable to pay interest to the Licensee on the said Becurity Deposit at the rate of 18% per annum from the date the Licensee Is ready and willing to give vacant and peaceful possession of the Said Premises as aforesaid up to the date of the refund of the said Security Deposit by the Licensor to the Licensee together with the accrued interest.

                  (b)      On the expiration or sooner, determination of the License hereby granted or the renewal thereof if granted the Licensee shall remove itself from the premises and all its employees, servants and all its belongings and except for such alteration as were permitted by the Licensor (reasonable wear and tear and loss or damage by fire, accident, irresistible force or act of God excepted) and shall not claim any alternate premises."

26. A plain reading of the aforesaid clause indicates that in terms of clause 21(a) of the lease agreement, the appellant was liable to refund the security deposit to HDFC on or before expiry of the ninety-day notice period. In terms of clause 22(a)(II), the appellant was also liable to pay interest on the security deposit at the rate of 18% per annum from the date HDFC was ready and willing to give vacant and peaceful possession of the demised premises.

27. As noted above, according to HDFC, it had issued the first termination notice on 22.04.2009 and the second termination notice on 25.05.2009. HDFC claimed that the second termination notice was received by the appellant on 08.06.2009. The termination notice dated 22.04.2009 expressly stated that possession of the premises occupied by the Bank would be handed over on 21.06.2009 and called upon the appellant to refund the security deposit of Rs.19,30,000/-.

28. As noted above, the contents of the second termination notice was also to the similar effect. In view of the above, the limitation for seeking refund of the security deposit commenced from 22.09.2009.

29. HDFC had issued the notice invoking arbitration on 22.02.2013. Indisputably, the notice issued under Section 21 of the A&C Act commencing arbitral proceedings, was issued beyond the period of three years from the date of cause of action, the same being the date on which the HDFC became entitled to receive the security deposit of Rs.19,30,000/- in terms of the Lease Agreement. Sub-section (2) of Section 43 of the A&C Act provides that for the purpose of Limitation Act, 1963 – which is expressly applicable by virtue of sub-section (1) of Section 43 of the A&C Act – the arbitration shall be deemed to have commenced on the date referred to in Section 21 of the A&C Act, that is, the date on which the notice invoking arbitration is received by the respondent.

30. As noted above, it is HDFC's case that the period of limitation stood extended by virtue of the letter dated 07.11.2012 issued by the appellant. According to the learned counsel for the HDFC, a fresh period of limitation would begin from 07.11.2012. However, we do not find any merit in the said contention.

31. It is relevant to refer to Section 18 of the Limitation Act, 1963, which is set out below:

                  "18. Effect of acknowledgment in writing.—

                  (1)      Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

                  (2)      Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

                  Explanation.—

                  For the purposes of this section,—

                  (a)      an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

                  (b)      the word “signed” means signed either personally or by an agent duly authorised in this behalf; and

                  (c)      an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right."

 32. The opening sentence of sub-section (1) of Section 18 expressly indicates that the said sub-section would be operative where the acknowledgement of liability is issued before the expiration of the prescribed period for a suit or application in respect of any property or right. The benefit of Section 18 is thus available only if the acknowledgement of liability was issued prior to the expiry of the limitation period. However, in this case, the period of limitation of three years for instituting proceedings for recovery of the security deposit expired on 21.09.2012.

33. The appellant's letter ‒ which is construed as an acknowledgement of liability – was issued thereafter on 07.11.2012. In view of the above, HDFC's claim for refund is barred by limitation.

34. Before concluding, we may also note that the appellant had urged the ground of limitation before the learned Commercial Court, albeit, in a different manner. The impugned order indicates that it was the appellant's contention before the learned Commercial Court that the appellant had received the notice of termination on 09.10.2009 and therefore was entitled to arrears of rent till 09.01.2010. It was contended on behalf of the appellant that the statutory period of three years limitation for filing a suit or approaching the Arbitral Tribunal thus expired on 08.01.2013. But the statement of claim was filed on 18.03.2014, which according to the appellant was beyond the period of limitation. The said contention is clearly flawed for the reason that the period of limitation would start running on the date on which the request for referring the dispute to arbitration is received by the respondent and not the date on which the statement of claims was filed. In the present case, it is noticed that the notice under Section 21 of the A&C Act was issued on 22.02.2013. Thus, the period of limitation for the claim stopped running on this date.

35. Further, the question as to whether the arbitration proceedings had commenced within the limitation period, is required to be construed on the facts set out by the claimant (HDFC).

36.  In view of the above, we find merit in the contention that the claim made by HDFC is barred by limitation.

37. Section 43 of the A&C Act provides that Limitation Act, 1963 would apply to "arbitrations as it applies to proceedings". In terms of Section 3 of the Limitation Act, 1963, the Arbitral Tribunal was required to reject the claim notwithstanding that the limitation had not been set up as a defence. The bar of limitation excluded the remedy available to HDFC. The failure of the Arbitral Tribunal to reject the claim on the said ground, is foundational and vitiates the impugned award by patent illegality on the face of the record.

38. The impugned order and the impugned award are accordingly set aside. Parties are left to bear their own costs.