Court Allows Fresh Arbitration Despite Earlier Award Being Declared Unenforceable, Excluding Time Spent in Prior Proceedings under Section 14 of Limitation Act, 1963
In a significant judgment dated September 9, 2026, the Kerala High Court in the case of M/s. KLM Axiva Finvest Limited v. Bijitha Shajan and Ors. (AR No. 53 of 2026) has clarified the applicability of Section 14 of the Limitation Act, 1963, to arbitration proceedings under the Arbitration and Conciliation Act, 1996. The Court also distinguished between an arbitral award being set aside under Section 34 of the Arbitration Act and an award being declared unenforceable or a nullity by an execution court.
The petitioner, a non-banking financial institution, had extended a loan of Rs. 75 lakhs to the first respondent, with the second respondent acting as guarantor. Upon default in repayment, the petitioner invoked the arbitration clause in the loan agreement and initiated arbitral proceedings. An arbitrator was nominated unilaterally by the petitioner, and an award was passed in December 2018 in favor of the petitioner after the respondents failed to appear.
However, during execution proceedings initiated to enforce the award, the third Additional District Court, Thrissur, relying on a precedent judgment from this Court (Hedge Finance Private Limited v. Bijish Joseph, 2022 KHC 591), held that the unilateral appointment of the arbitrator was illegal. Consequently, the award was declared unenforceable, and the execution petition was dismissed in September 2024.
The petitioner then filed a fresh arbitration request in 2025, which was initially rejected for want of a fresh notice under Section 21 of the Arbitration Act. After issuing fresh notices in January 2026, the petitioner filed the instant arbitration request.
The respondents contended that the claims and arbitration request were barred by limitation, arguing that the earlier award’s unenforceability cannot be equated with the award being set aside under Section 34, and thus, the exclusion of time under Section 43(4) of the Arbitration Act would not apply.
The Kerala High Court, presided by Justice S. Manu, undertook a detailed analysis of Sections 14 and 43 of the Limitation Act and the Arbitration and Conciliation Act, 1996. The Court reiterated the well-settled legal position from Supreme Court precedents that Section 14 of the Limitation Act applies to arbitration proceedings. This section excludes the period during which a party has been prosecuting a proceeding bona fide and with due diligence before a court that lacked jurisdiction or for other similar reasons.
Importantly, the Court held that the expression "where the court orders that an arbitral award be set aside" in Section 43(4) of the Arbitration Act is to be narrowly interpreted, and applies only when the award is set aside under Section 34 or Section 37 of the Act. An execution court declaring an award unenforceable or a nullity is a distinct situation and cannot be equated with setting aside an award. Hence, the petitioner is not entitled to the benefit of exclusion of time under Section 43(4) on that ground.
Nonetheless, the Court accepted the petitioner’s alternate contention that the period spent prosecuting the initial arbitral proceedings before the arbitrator named in the agreement and the subsequent execution proceedings should be excluded from the limitation period calculation under Section 14 of the Limitation Act. The Court found that the petitioner had prosecuted the prior proceedings diligently and in good faith. The legal position regarding unilateral appointment of arbitrators had evolved after the initial proceedings were conducted, and the arbitrator was named in the original agreement. Therefore, the petitioner was entitled to the benefit of Section 14.
On the issue of limitation of claims, the Court emphasized that the referral Court’s jurisdiction under Section 11(6) of the Arbitration Act is limited to a prima facie check of whether the application is within the three-year limitation period. Detailed adjudication of limitation and merits of claims is to be left to the arbitral tribunal.
Accordingly, the Court allowed the arbitration request and directed the Kerala High Court Arbitration Centre to nominate a sole arbitrator to adjudicate the disputes, leaving all contentions including jurisdiction and limitation open for the arbitral tribunal’s consideration.
This judgment reinforces the principle that arbitration proceedings are subject to the Limitation Act, 1963, including the protective provisions of Section 14 for bona fide prosecution of claims before an incompetent forum. It also clarifies the narrow scope of Section 43(4) of the Arbitration Act regarding exclusion of time upon setting aside of awards, distinguishing it from situations where awards are held unenforceable by execution courts.
Bottom Line:
The provisions of Section 14 of the Limitation Act, 1963, are applicable to arbitration proceedings under the Arbitration and Conciliation Act, 1996. If arbitral proceedings are prosecuted diligently and in good faith before an arbitral tribunal, even if later held as incompetent by a competent court, the period spent in such proceedings can be excluded in calculating the limitation period.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 11(6), 21, 34, 37, 43(1), 43(4); Limitation Act, 1963 Section 14
M/s. KLM Axiva Finvest Limited v. Bijitha Shajan, (Kerala) : Law Finder Doc Id # 2975979
