Mahanagar Telephone Nigam Ltd. loses appeal; court affirms arbitrator's decision against time-bar clause under amended Contract Act
In a significant ruling, the Delhi High Court has dismissed an appeal by Mahanagar Telephone Nigam Ltd. (MTNL) and upheld an arbitral award favoring M/s Rukma Decor and Construction Co. The court, in its judgment dated July 16, 2026, declared the 90-day arbitration invocation clause in MTNL's contract void, citing it as contrary to Section 28(b) of the Indian Contract Act, 1872, as amended in 1997.
The dispute arose from a contract between MTNL and Rukma Decor concerning the construction of residential quarters in New Delhi. MTNL contended that Rukma Decor's claims were extinguished due to their failure to invoke arbitration within 90 days of the final bill's readiness, as stipulated in Clause 53 of their agreement. However, Rukma Decor challenged the clause's validity, arguing it violated the amended Section 28, which prohibits clauses that extinguish substantive rights upon a specified period's expiration.
The learned Arbitrator had previously held this clause void and adjudicated the claims on merits. This decision was challenged by MTNL under Section 34 of the Arbitration and Conciliation Act, 1996, but the petition was dismissed by the District Court. MTNL's subsequent appeal under Section 37 also failed, with the Division Bench of the Delhi High Court affirming the lower court's decision.
The court relied on a consistent line of judgments from the Delhi High Court, which have uniformly held similar contractual clauses void post-amendment. Additionally, the court rejected MTNL's argument that Section 43(3) of the Arbitration Act validated such clauses, clarifying that this provision does not override the statutory mandate of the Contract Act.
The ruling underscores the judiciary's stance against contractual provisions that seek to limit parties' rights to legal recourse, reinforcing the protections afforded by the amended Contract Act. The verdict not only supports the arbitral process but also emphasizes the importance of adhering to statutory amendments that ensure fair and equitable dispute resolution.
Bottom line:-
Arbitration clause prescribing a period of 90 days for invocation of arbitration and extinguishing claims thereafter is void under Section 28(b) of the Indian Contract Act, 1872 as amended in 1997.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 34, 37, 43(3); Indian Contract Act, 1872 Section 28(b); Limitation Act, 1963 Article 137
