The Arbitration and Conciliation Act, 1996 (the 1996 Act) is the cardinal law for arbitration in India and resolves disputes with minimum judicial interference. The 1996 Act follows the principle of "Party Autonomy", which also includes the appointment of the arbitrator(s) to settle disputes between the parties. However, suppose parties do not agree on the nomination of the arbitrators. In that case, the aggrieved party can file an application under Section 11 (6) of the 1996Act before the relevant Court to appoint arbitrators. However, the 1996 Act does not provide any time limitation regarding making the application under Section 11(6) of the 1996 Act. Therefore, this Article analyses the judicial trends regarding the time limitation for filing applications under Section 11(6) of the 1996 Act for appointing arbitrator(s) to settle disputes through arbitration and the way forward.
I. Appointment of Arbitrator
Parties can determine the number of arbitrators for the constitution of the Arbitral tribunal.1. However, the number of the Arbitrators should not be an even number2. If parties fail to determine the number of Arbitrators, the arbitral tribunal would consist of a sole arbitrator.3.
The parties could agree on the process of appointing arbitrators4However, if the parties have not agreed to appoint the arbitrators, then in the case of a sole arbitrator, unless otherwise agreed, parties must agree on the arbitrator within thirty days of receiving a request from a party.5. Further, in the case of three arbitrators, both parties would appoint one arbitrator within thirty days of receipt of a request from a party, and the appointed arbitrators would appoint the third and presiding arbitrator within thirty days of their appointment6.
If parties disagree on a sole arbitrator7 or appoint the arbitrator on their side or the appointed arbitrators fail to appoint the third and presiding arbitrator8 or parties or the appointed arbitrators fail to abide by the agreed procedure within the time limit of 30 days9, then on an application of the party, the respective appointment shall be made by the High Court in cases of domestic arbitration. In the case of International commercial arbitration, the appointment shall be made by the Supreme Court of India10.
II. The interface between the Arbitration Act and Limitation
The 1996 Act has incorporated the time limit for most of the stages of the arbitral proceedings such as filing a response to notice invoking arbitration11, the appointment of the arbitrator if the parties do not agree upon the procedure12, filing of a pleading13, the pronouncement of the award14, challenging the award15, etc. However, there is no specific timeline under the 1996 Act for filing an application under Section 11(6) for the appointment of an arbitrator in case the parties fail to do so.
The Limitation Act 1963 is also applicable in arbitration proceedings, which ensures efficient, expeditious and time-bound dispute resolution16. Therefore, if the timeline for any event is not in the 1996 Act, the same would be handled under the Limitation Act. The Limitation Act 1963 doesnotexplicitly provide the time limit for the appointments of arbitrators. Therefore, the same would be governed by the residual provision of the Limitation Act. Section 137 of the Limitation Act 1963 deals with the residuary clauses not explicitly mentioned in the 1963 Act and prescribes a three-year limitation period for those events from the date of "Cause of Action".
III. Judicial Approach on Commencement of Limitation Period
The determination of period is one limb of limitations, and the point at which that period commences is the other. The Court has two views on the issue of when the period begins for computation of limitation.
a. Principle of "Breaking Point"
Under this principle, accrual of "Cause of action" is considered the commencement of the period for computation of limitation for appointment of an arbitrator under Section 11 (6) of the 1996 Act. The Court uses a legal fiction named "Breaking Point" to determine the commencement of the limitation period for appointing an arbitrator under Section 11 (6) of the 1996 Act. The Hon'ble Supreme Court inGeo Miller Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd.17 stated that a "breaking point" is the stage at which the party would give up on reaching a settlement and consider sending the matter to arbitration. The Court opined that the cause of action arises when a "breaking point" is reached.
The Apex Court is in again inM/s. B and T AG v. Ministry of Defence18, applied the principle of "Breaking Point" to determine the commencement of the limitation period for the appointment of an arbitrator under Section 11 (6) of the 1996 Act and observed that the "Breaking Point" occurs when the bank guarantee was encashed. The Court refused to omit the time consumed in the pre-arbitral stage for computing limitation for filing an application under Section 11 (6) of the 1996 Act.
Under this principle, the commencement of the limitation period for making an application for appointment of an arbitrator under Section 11 (6) of the 1996 Act would arise of "Cause of action" for the dispute, i.e. "breaking point" for which notice would be invoked for arbitration. Therefore, the limitation period for raising the substantive claims and making an application for the appointment of an arbitrator under Section 11 (6) of the 1996 Act would be identical.
b. Mandatory requirement of Notice Invoking Arbitration
The Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd.19, Court has observed that the limitation period for raising the substantive claims and making an application for appointment of an arbitrator under Section 11 (6) of the 1996 Act should not be merged with each other. Further, the limitation period for raising the substantive claims would be decided by the arbitrator, whereas the limitation period for making an application for the appointment of an arbitrator under Section 11 (6) of the 1996 Act would be decided before the appointment of the arbitrator.
The Court observed that the limitation period for filing an application for appointment of arbitrator under Section 11 (6) of the 1996 Act would start from when the right to file such application accrues. The right to apply for accrues only when notice invoking arbitration is filed under Section 21 of the 1996 Act and the party receiving the notice fails/refuses to appoint the arbitrator as per the procedure agreed upon between the parties. Therefore, filing a notice invoking arbitration filed under Section 21 of the 1996 Act is mandatory for making an application for the appointment of an arbitrator under Section 11 (6) of the 1996 Act.
From above, it can deduced that there would be a limitation period of three years for filing a notice invoking arbitration filed under Section 21 of the 1996 Act from the date of "cause of action" and there would be further a limitation period of three years for making an application for appointment of arbitrator under Section 11 (6) of the 1996 Act from the date of failure of a party to appoint arbitrator by notice issued under Section 21 of the 1996 Act.20. If Section 21 of the 1996 Act is barred due to not filing the same within three years from the first accrual of cause of action, then the application filed under Section 11 (6) of the 1996 Act would not be maintainable21.
IV. Judicial Approach to the limitation period of three years
The option to appoint the arbitrator and make another party wait up to three years before starting is against the spirit of arbitration i.e. to provide a quicker, effective and efficient resolution to disputes. The Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd.22, has observed that a three-year limitation period for making an application for appointment of arbitrator under Section 11 (6) of the 1996 Act is long due to legislative loopholes and the provision in this regard is required. The Court has observed as follows:
"17. Given the vacuum in the law to provide a period of limitation under Section 11 of the Arbitration and Conciliation 1996, the Courts have taken recourse to the position that the limitation period would be governed by Article 137, which provides a period of 3 years from the date when the right to apply accrues. However,this is an unduly long period for filing an application u/S. 11, since it would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes within a time-bound period... In view of the legislative intent, the period of 3 years for filing an application under Section 11 would run contrary to the scheme of the Act.It would be necessary for Parliament to effect an amendment to Section 11, prescribing a specific period of limitation within which a party may move the Court for making an application for appointment of the arbitration under Section 11 of the 1996 Act."
The necessity for an amendment in the 1996 Act to provide a shorter limitation period for making Section 11(6) application was also opined by the Hon'ble Apex Court in M/s B And T Ag vs Ministry of Defence.23.
V. Conclusion and Way Forward
In order to avoid delays in filing the application under Section 11 (6) of the 1996 Act for the appointment of the arbitrator, an amendment in the 1996 Act is required to incorporate a timeline for filing an application under Section 11(6) for the appointment of the Arbitrator.
The English Arbitration Act 1996 provides 7 days to file an application for the appointment of an arbitrator in case the party fails to appoint an arbitrator as per the Act, or term Agreed24. Further, a timeline of 21 days is provided under the rules framed by the Singapore International Arbitration Centre (SIAC) for making an application towards the appointment of the arbitrator if a party fails to appoint an arbitrator as per the agreed term.
To address this concern regarding the timeline for filing an application under Section 11 of the 1996 Act as also deliberated by the Supreme Court in Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd.25 and M/s B And T Ag vs Ministry of Defence26, an amendment has been proposed in the 1996 Act in the draft Arbitration and Conciliation (Amendment) Bill, 2024. The Draft bill proposed that after sub-section (6), the following sub-section shall be inserted:" (6A) An application under sub-section (4) or subsection (5) or sub-section (6) shall be filed within 60 days from the failure or refusal of appointment of arbitrator or arbitrators, as the case may be."
The 1996 Act provides timelines for various facets of the arbitral proceeding in the range of 15 days27 to 12 months28. Therefore, the proposed Amendment to the 1996 Act to introduce 60 60-day timeline for filing an application for the appointment of an arbitrator aligns with the existing provisions of the 1996 Act. Until the aforesaid Amendment in the 1996 Act is introduced, it is recommended that the parties should exercise their rights to file an application to the Court under Section 11 of the 1996 Act for the appointment of an arbitrator as soon as there is a failure or refusal of appointment of arbitrator or arbitrators under the arbitration agreement.
Footnotes
1 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 10(1)
2 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 10(1) Proviso
3 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 10(2)
4 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(2)
5 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(5)
6 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(3)
7 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(5)
8 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(4)
9 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(6)
10 The Arbitration & Conciliation Amendment Act 2019 has amended Section 11. The Amendment has strengthened Institutional arbitration and provides that the arbitrator shall be appointed by the arbitral institution designated by the High Court in domestic arbitration cases. In the case of International commercial arbitration, the appointment shall be made by the arbitral institution designated by the Supreme Court. However, the provision has not been enforced.
11 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 21
12 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 11(4) and Section 11(5)
13 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 23(4)
14 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 29A
15 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 34
16 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 43
17 Geo Miller Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643
18 M/s. B and T AG v. Ministry of Defence, 2023 SCC OnLine SC 657
19 Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd., 5 SCC 738 (2021)
20 M/S Arif Azim Co. Ltd. v. M/S Aptech Ltd., 2024 SCC OnLine SC 215 (2024)
21 M/S B And T Ag vs. Ministry of Defence, 2023 SCC OnLine SC 657
22 Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd., 5 SCC 738 (2021)
23 M/S B And T Ag vs. Ministry of Defence, 2023 SCC OnLine SC 657
24 The Arbitration Act 1996, Section 17(2)
25 Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd., 5 SCC 738 (2021)
26 M/S B And T Ag vs. Ministry of Defence, 2023 SCC OnLine SC 657
27 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 13(2)
28 The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 29A(1), (3) and (4)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
