Supreme Court: While considering the present appeal challenging Madhya Pradesh High Court’s refusal to appoint an arbitrator and dismissal of the Application under section 11 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) by the Appellant on the ground of limitation; the Division Bench of Dipankar Datta and A.G. Masih*, JJ., perusing the arbitration mechanism between the parties, held that merely because the procedure to appoint an arbitrator provided in the arbitration clause has become inoperative due to subsequent changes in statutory provisions, the same would not mean that the core of the contract referring the dispute for adjudication to arbitrator would be rendered nugatory.
Background:
Bharat Oman Refineries Limited (the respondent now merged with merged to Bharat Petroleum Corporation Limited) had invited tenders for execution of composite works pertaining to the establishment of a new Modular Penex Unit along with associated works required for the revamp and capacity enhancement at the Bina Refinery. Upon completion of the tendering process, the work was awarded to Offshore Infrastructures Limited (the appellant) vide letter of acceptance dated 31-12-2016. The work was to be completed within 30-05-2017; however, the work could not be completed within the stipulated time, and ultimately the work came to be completed on 31-01-2018.
The Appellant raised the final Bill on 20-03-2018 and thereafter a “No Claim Certificate” was issued by the Appellant on 03-10-2018. The completion certificate was issued on 05-02-2019 and the final bill was released on 26-03-2019. The Respondent released part payment to the Appellant on 11-06-2019 and liquidated damages of 5% was deducted on account of delay. The Appellant on 26-04-2021, issued a consolidated claim of all its outstanding dues.
Subsequently, on 14-06-2021 the Appellant issued a notice to Managing Director (MD) of the Respondent for appointment of Arbitrator as per Clause 8.6 of General Conditions of the Contract (“GCC”) stating that as per Clause 8.6 the Arbitrator named is Managing Director of the Respondent company or an officer of the Respondent company who may be nominated by the MD; the Appellant stated that since in view of the provisions of the 1996 Act (as amended by Act 3 of 2016, w.e.f. 23-10-2015), neither the Managing Director nor an officer is entitled to act as an Arbitrator in the matter, the Respondent therefore, suggest names of 4 qualified persons unconnected with either party to be selected as Sole Arbitrator in the matter. The Respondent refused to entertain the claims via communication dated 02-07-2021.
Aggrieved with the Respondent’s response, the Appellant filed application Section 11(6) of the 1996 Act before the High Court seeking appointment of sole arbitrator. The Court however dismissed the case holding that the time from which the period of limitation starts has to be taken as the date on which accounts in writing were signed by the Appellant and also from the date of execution of reconciliation statement of foreclosure and settlement agreement. Since the final Bill was raised on 20-03-2018 and further the “No Claim Certificate” was issued on 03-10-2018, the limitation would run from the date of issuance of “No Claim Certificate”. Therefore, the period of 3 years had lapsed on 02-10-2021 and the application for appointment of Arbitrator has been filed by the Appellant on 14-03-2022, which is much beyond the period of limitation. A review petition filed against this judgment was also dismissed by the High Court.
Counsel for the Appellant contended that even if it is assumed that the cause of action accrued earlier on 03-10-2018, the part payment made by the Respondent on 11-06-2019 had extended the period of limitation under Section 19 of the Limitation Act, 1963. Relying upon Cognizance for Extension of Limitation, In Re, (2022) 3 SCC 117, the Appellant submitted that the limitation is covered by the COVID-19 extension Order dated 10-01-2022 passed by the Supreme Court, which excluded the period from 15-03-2020 to 28-02-2022 from computation of limitation.
Per contra, the Respondent argued that categorial stipulation contained in Clause 8.6 (a) of GCC empowered the Managing Director or his nominee alone to act as Sole Arbitrator, as subsequent legislative changes in the 1996 Act through amendments renders such a contractual provision otiose and inoperative, thereby such arbitration clause ought to be deemed to have ceased to exist. Therefore, the arbitration mechanism itself stands effaced, disentitling the Appellant to invoke arbitration.
Issues for Consideration:
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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.
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Whether the application under Section 11(6) of the Arbitration and Conciliation Act, 1996 filed by the Appellant is within the period of limitation.
Court’s Assessment:
Examining the issues, the Court referring to Perkins Eastman Architects DPC v. HSCC (India) Limited, (2020) 20 SCC 760, pointed out that the Supreme Court therein had appointed an independent sole arbitrator holding that jurisdiction under Section 11(6) of the 1996 Act is not ousted merely because an appointment has already been made by the respondent if such appointment is ex facie invalid or contrary to the agreed procedure. Further the Bench referred to Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665, wherein it was stated that if any arbitration clause runs contrary to the mandate provided in Section 12(5) of the 1996 Act, the power to appoint an independent arbitrator is vested with the court under Section 11 of the 1996 Act.
Perusing the Clause 8.6 of GCC governing the arbitration mechanism between the parties in the present case, the Court noted that the arbitrator named in this Clause was MD of Bharat Oman Refineries Limited or an officer of Bharat Oman Refineries Limited who may be nominated by the Managing Director. Subsequent amendments in the 1996 Act, made such clause bad in law and Managing Director or officer nominated by the Managing Director became ineligible by the operation of law to be appointed as Arbitrator.
The Court could not be persuaded by the Respondent’s contention that amendment in the 1996 Act which made the GCC clause non-operative, will also render the entire arbitration mechanism as non-existent. The Court explained that the very existence of the arbitration clause in the GCC referring to all disputes to arbitrator is the core part of contract.
The Court stated that amendment in the 1996 Act has been enacted with the legislative intent to enforce neutrality of the arbitrator and bring impartiality in arbitration proceedings by virtue of Section 12(5) of the 1996 Act. It cannot be justified to literally interpret the clause in the contract in a manner or at the cost of the entire arbitration mechanism itself being abandoned. The arbitration agreement must be interpreted in a purposive manner, but not literally so as to enable the parties to pursue the intended dispute redressal mechanism of contract.
Therefore, it cannot be said that non-operation of arbitration clause in GCC will result into forgoing of entire arbitration mechanism and rendering the Appellant disentitled for seeking appointment of arbitrator. The Appellant, therefore, is entitled to file application under Section 11(6) of the 1996 Act for appointment of arbitrator and thereby the power is vested with the court to appoint an arbitrator upon filing of such application.
Examining the issue regarding the calculation for period of limitation, the Court took into account Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited, (2020) 14 SCC 643 where the Court dealt with similar issue, and held that the cause of action in respect of arbitration application arises when the final bill handed over to the respondent becomes due, and further correspondences between the parties subsequent to the due date of bill would not extend the time of limitation. In the present case, the final bill was raised by the Appellant on 20-03-2018 and the amount became due on 21-04-2018 i.e. 30 days from the date of submission of bill. The period of limitation to file an application under section 11 (6) 1996 Act would start from 21.04.2018 and an application for appointment of arbitration ought to be filed within three years from such date. However, the Appellant had filed its application on 15-03-2022 which was beyond the period of three years.
The Court however pointed out that in the normal course, the Appellant’s application would be hit by limitation; but, in view of Cognizance for Extension of Limitation, In re (supra) wherein Court held that in view of COVID-19 pandemic, period from 15-03-2020 till 28-02-2022 shall stand excluded for the purpose of limitation, it would be unjust and detrimental to not consider this while deciding upon the period of limitation in the present case. Therefore, Court opined that the benefit of the period from 15-03-2020 to 28-02-2022 must be given to the Appellant and this period need to be excluded while counting the period of limitation for filing application for appointment of arbitrator. Once, this period is excluded, it can be concluded that the Appellant’s application for appointment of arbitrator under section 11 (6) of the 1996 Act before the High Court was moved within the period of limitation.
Therefore, the Court set aside the impugned orders of the High Court and directed that the matter be referred to the Delhi International Arbitration Centre, which shall proceed to appoint an arbitrator, who shall decide the matter in accordance with law and rules, as applicable.
[Offshore Infrastructures Limited v. Bharat Petroleum Corporation Limited, SLP (C) NO. 22105-22106 OF 2024, decided on 7-10-2025]
*Judgment authored by Justice Augustine George Masih
Advocates who appeared in this case:
For Petitioner(s): Mr. Gaurav Dudeja, Adv. Mr. Akarsh Garg, Adv. Mr. Kaushik Choudhury, AOR Mr. Dhruval Singh, Adv. Mr. Archit Gupta, Adv. Mr. Abhijit Debnath, Adv. Mr. Subhan Shankar Gogoi, Adv.
For Respondent(s): Senior Advocate Balbir Singh; Mr. Parijat Sinha, AOR, Divyam Dhyani, Reshmi Rea Sinha, Deepak Joshi, Sanjay Sharma and Naman Tandon.
Buy Arbitration and Conciliation Act, 1996 HERE
