INTRODUCTION

Period of Limitation has acquired the central stage in  legal discussions in relation to arbitration. The concept  of limitation period permeates the sphere of Arbitration  owing to Section 43 of the Arbitration & Conciliation  Act (the Act) which mandates the application of  Limitation Act to the arbitration proceedings. It is  pertinent to note that there lies a conceptual difference  between the concept of the limitation period to file an  application under section 8 of the Act and application  seeking appointment of arbitrator under section 11 of  the Act. Recently, the Supreme Court settled the law  pertaining to the starting point of limitation period  with respect to filing of applications under Section 11  of the Act, in Bharat Sanchar Nigam Ltd. vs M/s Nortel  Networks India Pvt. Ltd.1

BRIEF FACTS

Appellant (BSNL) withheld an amount of Rs.  99,70,93,031/- while claiming liquidated damages  against the Respondent (Nortel) in relation to  performance of contractual work pertaining to the  supply and engineering of GSM based cellular mobile  networks in Southern States of India. Consequently,  Nortel raised the claim for the payment of the said  amount which was outrightly rejected by the BSNL.  After a lapse of 5 ½ years Nortel invoked arbitration on  29.04.2020 and further requested the appointment of  arbitrator. As there was a failure on the part of BSNL to  appoint the arbitrator, Nortel filed application under  Section 11 of the Act for appointment of Arbitrator.  Pertinently, the dispute itself being time-barred, the  application under Section 11 of the Act, was held by the  apex court to be not maintainable.

LEGAL ISSUES & OBSERVATIONS:

WHAT IS THE PERIOD OF LIMITATION FOR FILING AN  APPLICATION UNDER SECTION 11 OF THE ACT AND  WHEN DOES IT COMMENCE?

The court ruled that a bare perusal of the Section 11 of  the Act suggests that there is no limitation period  prescribed for filing the application for the appointment  of arbitrator. Therefore, limitation period with respect  to filing of application under Section 11 hinges upon  Section 43 of the Act, which mandates the application  of the Limitation Act, 1963, to arbitration proceedings.  The court observed that none of the articles in the  Schedule of the Limitation Act, 1963 provide a time-period for filing an application for appointment of an  arbitrator under section 11, which makes it incumbent  on court to apply the residuary provision in Article 137  of the Limitation Act.

The court took note of the law settled in Consolidated  Engineering v. Principal Secretary, Irrigation2 where it  was laid down that "Section 43 of the Arbitration and  Conciliation Act, apart from making provisions of the  Limitation Act, 1963 applicable to arbitrations, reiterates  that the Limitation Act applies to proceedings in court.  Therefore, the provisions of the Limitation Act, 1963 apply  to all proceedings under Arbitration and Conciliation Act,  both in court and in arbitration, except to the extent  expressly excluded by the provisions of the Arbitration and  Conciliation Act".

The court expounded that the period of limitation for  filing an application under section 11 would start from  the failure of the parties to make the appointment of  the arbitrator or after the period of 30 days from the  issuance of notice invoking the arbitration, and the  period of limitation for such filing of Section 11 would  be governed by Article 137 of First Schedule of Limitation Act. Pertinently, in order to file an application  under Section 11, Notice of Arbitration must be served  on the other party where a request for particular claim/ dispute to be referred to arbitration is made and there  is consequent failure by the said other party to make  the appointment.

The court took note of the existing vacuum in the law  to provide a period of limitation under Section 11 of the  Act. It further noted that the Act has been amended  twice in 2015 and 2019, to provide for measures of time  limits to ensure that the arbitration proceedings are  conducted and concluded expeditiously. The court,  thus expressed concerned that the period of three  years, when the right to apply accrues, is an unduly  long period for filing an application under section 11,  since it would defeat the very object of the Act, which  provides for expeditious resolution of commercial  disputes within a time bound period. Accordingly, the  court suggested the Parliament to make suitable  amendment in the Act, to provide for specific period of  limitation for filing of Section 11 Application.

CAN THE COURT REFUSE TO MAKE THE REFERENCE  UNDER SECTION 11 WHERE CLAIMS ARE EX-FACIE TIME  BARRED?

The court analyzed the extent of permissible judicial  intervention while appointing the arbitrators by the  court. It observed that prior to 2015 Amendments by  the virtue of the law laid in SBP & Co. vs Patel  Engineering Ltd 3  and National Insurance Co. Ltd. v.  Boghara Polyfab Pvt. Ltd 4  courts exercised wide  power to decide on preliminary issues including but  not limited to issue of whether the claim is live claim or  time barred, whether the parties have approached the  right court or not, whether there is arbitration  agreement or not etc. Later on, 2015 Amendments  inserted Section 11(6A) which confined the power of  court only to determine the existence of the arbitration  agreement between the parties. This position was also  laid down in judgment of Duro Feuluera SA V.  Gangavaram Port Ltd 5

Elaborating further, the apex court highlighted the  difference between the Jurisdictional Issues and  Admissibility Issues, for being considered by the court  while entertaining Section 11 application.

  • y Jurisdictional Issues include objection to the competence of the arbitrator or tribunal to hear  a dispute, like issues pertaining to existence and  validity of agreement etc.
  • y Admissibility Issues pertain to procedural requirements such as breach of pre-arbitration  agreement, challenge to claim being time  barred etc.

Reference was made to the decision of Swisbourgh  Diamond Mines v. Kingdom of Lesotho6 , where  "tribunal versus claim" test was laid down to determine  whether the issue pertains to jurisdiction or  admissibility. Applying the aforesaid test to the facts of  this case it was concluded that the issue of limitation  goes to the essence of maintainability or admissibility  of the claim.

Further, referring to the judgment of Vidya Drolia v.  Durga Trading Corporation7  the court observed that it  is only in a very limited category of cases, where there is  not even a vestige of doubt that claim is ex facie time[1]barred, or that the dispute is non-arbitrable, that the  rule is to refer the disputes to arbitration.

In present case, the notice invoking arbitration was  issued by Nortel5 ½ years after the rejection of the  claim by BSNL on 04.08.2014, which made notice of  arbitration ex facie time barred; and thereby disputes  between the parties being time-barred, could not be  referred to arbitration.

AUTHOR'S OPINION

The aim of arbitration in Indian Law is speedy disposal  of cases. This can be discerned from the legislative  intent behind the incorporation of timelines in the Act  - to complete the pleading under Section 23(4) of the  Act and timeline for the completion of the arbitration  proceedings section 29A of the Act. In the light of these  provisions allowing time-period of three years from  expiry of 30 days from Notice of Arbitration to file  application under Section 11 runs contrary to the basic  embodiments and fundamentals of the Arbitration Law  in India. This requires an amendment by the legislature  which should be in consonance with the basic  attainable goal of timely completion of the arbitration  proceedings.

Footnotes

1 MANU/SC/0171/2021

2 MANU/SC/7460/2008.

3 MANU/SC/1787/2005.

4 MANU/SC/4056/2008.

5 MANU/SC/1352/2017

6 MANU/SGHC/0112/2017.

7 MANU/SCOR/25691/2018.

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