Karnataka HC Rejects HDFC’s Claim to Arbitral Award for Refunding ₹19L Security Deposit due to Limitation [Read Order]

The Karnataka HighCourt recently set aside an arbitral award that had directed the appellant to refund a security deposit of ₹19,30,000 to HDFC Bank Ltd., holding that the bank’s claim was barred by limitation.

The dispute originated from a lease agreement executed in 2007 between Centurion Bank of Punjab (later merged with HDFC Bank) and the appellant, Rashmi, for commercial premises at Hiriyur. The bank had paid a refundable security deposit of ₹17,80,000 along with an additional ₹1,50,000 towards power requirements.

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Subsequently, HDFC issued termination notices in April and May 2009, with the latter being received by the appellant on 8 June 2009. Under the lease, the appellant was required to refund the deposit within ninety days of termination, i.e., by 22 September 2009. HDFC vacated the premises on the same date and issued follow-up communications seeking refund of the security deposit.

The appellant abstained from refunding the amount, and on 7 November 2012, she acknowledged the security deposit in correspondence but asserted that various amounts towards rent, service tax and maintenance charges were deductible.

Thereafter, HDFC invoked arbitration on 22 February 2013 seeking refund of ₹19,30,000 along with interest at 18% per annum. The arbitrator passed an award on 12 February 2015 directing the appellant to refund the deposit with interest. The Commercial Court dismissed the appellant’s challenge under Section 34 of the Arbitration and Conciliation Act, leading to the present appeal under Section 37(1)(c) of the Arbitration & Conciliation Act, 1996.

Anagha Jayaprakash appeared for the appellant and limited their arguments towards the bar by limitation to try the present case.

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B.C. Thiruvengadam, Monika Juliet and Manik B.T. appeared for HDFC and contended that in the letter dated 7 November 2012m the appellant had expressed their acknowledgment of the outstanding ₹19,30,000 payable to HDFC and therefore, the period of limitation stood extended. He referred to Section 18 of the Limitation Act, 1963 in support of his contention.

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