SC: Non-operation Of An Arbitration Clause Due To Subsequent Amendment In Statutory Provisions Cannot Render The Arbitration Mechanism Nugatory

The Supreme Court ("Court") on October 7, 2025, in the case of Offshore Infrastructures Limited v. Bharat Petroleum Corporation Limited, Special Leave Petition (Civil) Nos. 22105-22106 of 2024, has observed that non-operation of an arbitration clause for appointment of arbitrator due to subsequent statutory amendments cannot vitiate the entire dispute resolution mechanism agreed between the parties. In doing so, the Court held that the statutory disqualification of a named arbitrator due to an amendment in the provisions of the Arbitration and Conciliation Act, 1996 ("Act") cannot disentitle a party to file an application under Section 11 of the Act.

Brief Facts

Offshore Infrastructures Limited ("Appellant") and Bharat Oman Refineries Limited (merged into Messrs. Bharat Petroleum Corporation Limited) ("Respondent") entered into an agreement for the execution of works by the Appellant. The agreement had an arbitration clause whereby the parties named the Managing Director of the Respondent, alternatively, an officer nominated by him, as arbitrator. The Appellant completed the works under the agreement and raised a final bill with the Respondent on March 20, 2018, due within thirty days. Subsequently, the Respondent issued a 'No Claim Certificate' on October 3, 2018, and released part payment towards the final bill on June 11, 2019.

Disputes arose between the parties, and the Appellant issued notice under the arbitration clause to the Respondent on June 14, 2021. Since the arbitrator named in the arbitration clause was disqualified as per Section 12(5) of the Act (as amended in 2015), the Appellant asked the Respondent to suggest names of unconnected persons for appointment as sole arbitrator. Upon failure of the Respondent to cooperate, the Appellant filed an application before the Madhya Pradesh High Court ("High Court") under Section 11 of the Act for the appointment of a sole arbitrator.

The High Court on December 19, 2023, passed an order in Arbitration Case No. 23/ 2022 ("Arbitration Order") whereby the High Court refused to appoint an arbitrator on the ground that the Appellant's application was filed beyond the prescribed period of limitation. The High Court opined that the cause of action accrued on the date of issuance of the 'No Claim Certificate', i.e., October 3, 2018, and the Appellant ought to have filed an application within three years from the said date. The Appellant filed Review Petition No. 76 of 2024 before the High Court seeking review of the Arbitration Order. The High Court dismissed the review petition on April 10, 2024 ("Review Order") on the ground of limitation.

Aggrieved by the High Court's decision in the Arbitration Order and Review Order, the Appellant preferred an appeal before the Supreme Court.

Issue

The main issues before the Court were:

1. Whether the court has power to appoint an arbitrator when the clause providing the arbitration mechanism has become bad in law pertaining to certain statutory amendments and

2. Whether the application under Section 11(6) of the Act filed by the Appellant is within the period of limitation.

Contentions raised by the Party

Placing reliance on the long line of precedents, the Appellant contended that the Appellant's application was filed well within the prescribed limitation period. The Appellant argued that the period for filing a Section 11 application commences on the issuance of notice invoking arbitration. Further, relying on In Re: Cognisance for Extension of Limitation, (2022) 3 SCC 117 ("Limitation Case"), the Appellant submitted that even if the cause of action is assumed to accrue on October 3, 2018, the COVID-19 pandemic period stood excluded for the purpose of computing limitation. The Appellant also placed reliance on Perkins Eastman Architects DPC v. HSCC (India) Limited, (2020) 20 SCC 760 ("Perkins"), whereby the court dealt with a similar arbitration clause and appointed arbitrators upholding the validity of the arbitration agreement.

On the contrary, the Respondent supported the reasoning of the High Court and submitted that the Appellant's application was filed beyond the limitation period, which is three years from the date of the final bill raised by the Appellant. It was further contended that the Appellant cannot invoke arbitration as the arbitration clause was rendered inoperative due to a subsequent amendment to Section 12(5) of the Act in 2015. By virtue of the 2015 amendment, the arbitration mechanism stipulated in the agreement itself stood nullified.

Decision of the Court

Relying on previous decisions of the Court, the Court underscored the legislative intent behind the amendment of Section 12(5) of the Act in 2015. The Court reiterated that the intention of the legislature to introduce such an amendment was to secure the neutrality of the arbitrators. The Court opined that the non-obstante clause in the section makes it clear that the Court has the power to appoint an independent arbitrator in cases where the arbitration clauses fall foul of Section 12(5) of the Act.

With respect to the case at hand, the Court held that the existence of the arbitration clause in the agreement fortified the intention of the parties to refer disputes to arbitration, which cannot be vitiated due to a subsequent statutory amendment. The Court observed that the arbitration agreement shall be interpreted not literally, but in a purposive manner so as to give effect to the intention of the parties. The Court thus held that the non-operation of an arbitration clause for appointment of arbitrator will not vitiate the entire arbitration mechanism provided in the agreement.

Regarding the issue of limitation, the Court referred to its decision in Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited, (2020) 14 SCC 643, and held that the period of limitation to file an application under Section 11 begins from the date when the amount payable in the final bill becomes due. In the present case, although the payment became due on April 21, 2018, and the three-year period from that date expired on April 21, 2021, the Court opined that the Appellant cannot be deprived of the exclusion of the COVID-19 pandemic period as provided in the Limitation Case. Upon excluding this period, the Court held that the Appellant's application was filed well within the limitation period.

In view of the above observations, the Court allowed the appeals in the instant case, referred the matter to the Delhi International Arbitration Centre, and set aside the Arbitration Order and the Review Order passed by the High Court.

Please find attached a copy of the judgement.

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