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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