Kiran Raj

The Supreme Court Division Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan held that when an arbitral tribunal decides a preliminary issue such as limitation on the basis of demurrer, that determination does not prevent the tribunal from revisiting the issue if evidence later warrants it. Upholding the Bombay High Court’s finding that a decision on demurrer is provisional and not an adjudication on merits, the Court dismissed special leave petitions filed by a Mauritius-based investment fund challenging the High Court’s order. The dispute concerned a real estate investment where the arbitral tribunal had earlier ruled that the claims were within limitation. The Court clarified that limitation, being a mixed question of fact and law, may be reassessed after evidence is led.

The petitioner is a Mauritius-based private equity fund; the first respondent is a private limited real-estate company, with certain directors and legal representatives arrayed as other respondents. The project concerned an integrated township/resort/bungalow scheme of about 700 acres near Pune, Maharashtra. The parties executed a Share Subscription Agreement (SSA) and a Shareholders’ Agreement (SHA), both dated 23.07.2008. The SSA required fulfilment of conditions precedent within 90 business days (extendable as agreed by the investor) and provided, in case of non-fulfilment, for refund with interest at 18% per annum; disputes were referable to arbitration seated at Mumbai.

Also Read: Rajasthan's Jojari River Pollution: SC Directs Registry to Seek CJI’s Orders for Joint Hearing with Related Appeals

Following correspondence from the petitioner’s side on 21.01.2009 and 14.02.2009, respondent no. 1 replied on 19.02.2009 noting ongoing without-prejudice negotiations. Mediation discussions in 2011 did not conclude. On 14.09.2016 the petitioner sought rectification of alleged breaches and an exit, and on 11.01.2017 called upon the respondents to compensate under specific SSA clauses within 15 days, failing which disputes would be referred to arbitration; an arbitrator was nominated. A petition under Section 11 of the Arbitration and Conciliation Act, 1996 was filed on 19.07.2017; by order dated 15.01.2018 a former judge was appointed as sole arbitrator. The Statement of Claim was filed on 01.10.2018. On 26.06.2019, the tribunal framed Issue No. 1 as whether the claims were barred by limitation; respondents requested it be tried preliminarily, while the petitioner sought that limitation be taken up after evidence.

At the next hearing on 27.08.2019, the arbitrator stated that if limitation was tried first it had to be decided on demurrer, recording that in such a scenario respondents would not later contest that decision; the tribunal then decided limitation on demurrer. It held, taking the Statement of Claim as correct for demurrer, that the SSA allowed extension of time for conditions precedent, creating a fresh cause of action upon breach after negotiations failed in 2016, and therefore the claims were within limitation.

The company filed petitions under Section 34. On 04.12.2019, the Single Judge interfered to the extent of recording that a preliminary finding on limitation decided on demurrer cannot be foreclosed and the tribunal could re-examine limitation based on evidence and other materials, if tendered and warranted. The Division Bench dismissed the appeals under Section 37 on 02.04.2025, noting among other aspects that limitation, generally a mixed question of law and fact, may be tried as a preliminary issue only when no evidence is required, and that the arbitrator had not adopted a judicial approach in foreclosing evidence.

The Court observed: “The plea of demurrer is an act of objecting or taking exception or a protest. It is a pleading made by one party which ‘assumes’ the truth of the matter as alleged by the opposite party, but sets up that it is insufficient in law to sustain the claim, or that there is some other defect in the pleadings which constitutes a legal reason as to why the suit must not be allowed to proceed further. In other words, that even assuming those facts as pleaded are true, the court does not have jurisdiction as a matter of law. The party raising the plea challenges legal sufficiency of a complaint/plaint/action rather than its factual accuracy.”

It stated: “At the stage of demurrer, it is only the statement of claim which is to be looked into… The respondent is not required to put forth his version of the case at this stage and there rests no burden on him. Therefore, there arises no question of deciding an issue ‘finally’ on the basis of demurrer… The question of limitation cannot be decided in such a manner, especially if there exists some disputed questions of fact.”

It recorded: “Limitation being a mixed question of fact and law, a preliminary finding of maintainability on the point of limitation decided on demurrer would not preclude a final determination of the question based on facts which may come on record through adducing of evidence, because application of law is on facts and not in a vacuum. A decision on the basis of demurrer cannot foreclose a final decision on merit.”

The Bench stated: “Therefore, there exists a positive duty upon any forum adjudicating any dispute to ensure that the claim is within limitation… If the peculiar facts of the matter are such that, the issue of limitation cannot be decided sans further evidence, then the mandate of Section 3 of the Act, 1963, must be understood to also empower the court or tribunal to require further evidence in order to adjudicate the issue.”

It further observed: “Section 43 of the Act, 1996… ‘shall’ apply to arbitrations as it applies to proceedings in court… the Arbitral Tribunal would also be bound by the statutory mandate underlying Section 3 of the Act, 1963.”

On party autonomy, the Court recorded: “The question which then arises is whether parties can adopt a procedure which may have a direct impact on this positive obligation which is cast upon the Arbitral Tribunal? In other words, can party autonomy be exercised in a manner such that the issue of limitation comes to be decided inadequately or superficially? The answer would, again, be an emphatic ‘No’.”

Referring to the jurisprudence on preliminary issues, it quoted: “The Code confers no jurisdiction upon the court to try a suit on mixed issues of law and fact as preliminary issues… not to do so, especially when the decision on issues even of law depend upon the decision of issues of fact, would result in a lopsided trial of the suit.”

It recorded the alignment with Order VII Rule 11 and prior authority: “Principles of Order VII Rule 11 would apply… and if it is found that adjudication of such motion involves mixed question of fact and law, then adjudication of that question would stand deferred, and those points would be left to be determined on trial.”

Addressing the arbitrator’s approach, it stated: “The learned arbitrator seems to have directly adopted the approach followed in the U.S. and England… Even assuming that such an approach could have been directly imported, the arbitrator ought to have taken note of the fact that it is a well-settled position even in the U.S. that questions of fact cannot be adjudicated by way of a decision on demurrer. With such an apprehension weighing on his mind, the arbitrator should not have foreclosed the issue of limitation permanently.”

Also Read: Uttarakhand High Court Grants Bail After Victim Pleads for Release of Accused Convicted of Kidnapping and Sexual Assault

It recorded: “the arbitrator’s decision that the finding on the question of limitation by way demurrer would be ‘final’ and hence, the issue would be ‘foreclosed’, has offended the most basic notions of justice and must be set-aside. However, we must clarify that the remaining portion of award would remain intact.”

“For all the foregoing reasons, we have reached the conclusion that the interim award dated 27.08.2019 warranted interference under Section 34 of the Act, 1996 and it was rightly held that the preliminary issue of limitation decided on the basis of demurrer could be further examined by the Arbitral Tribunal on the basis of evidence and other materials on record, if tendered and if so warranted.”

“The Registry shall forward one copy each of this judgment to all the High Courts.”

Advocates Representing the Parties

For the Petitioners: Senior Advocate Neeraj Kishan Kaul, Advocates Amarjit Singh Bedi, Aditya Bapat, Surekha Raman, Shreyash Kumar, Sidharth Nair, Harshit Singh, Yashwant Sanjenbam, and Ira Mahajan

Case Title: Urban Infrastructure Real Estate Fund v. Neelkanth Realty Pvt. Ltd. & Ors.
Neutral Citation: 2025 INSC 1255
Case Number: Special Leave Petition (Civil) Nos. 26660–26662 of 2025
Bench: Justice J.B. Pardiwala and Justice K.V. Viswanathan