Vigilantibus non dormientibus jura subveniunt, the common rationale behind the law of limitation which means “laws serve the vigilant, not those who sleep”, is not a stranger to the arbitration proceedings.
It is not uncommon to see the claims of the parties being rejected by the Arbitral Tribunal on account of same being barred by the law of limitation. In fact, some parties are under a misconception that if they send continuous reminders seeking their pending payments, then the period of limitation gets extended or the cause of action gets delayed and as a result, their “live claims” become “stale claims”.
The applicability of the Limitation Act, 1963 to various provisions of Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”) has often been an issue before various courts in India. Time and again, the courts have given conflicting decisions; however, in March, 2021, the Supreme Court in BSNL v. Nortel Networks India (P) Ltd. (hereinafter referred to as “Nortel Networks”) has settled the law and held that Article 137 of the First Schedule of the Limitation Act will govern the limitation period for filing an application under Section 11 of the Arbitration Act, 1996 and the limitation period will trigger from the date when there is failure to appoint the arbitrator. Further, the Court held that in exceptional cases, where the claims are ex facie time barred, and it is evident that there is no subsisting dispute, the Court may refuse to appoint an arbitrator.
Statutory Regime for Applicability of Limitation to Arbitration
Section 43(1) of the Arbitration Act states that “the Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in court”. Moreover, Section 3 of the Limitation Act bars the remedy of filing of suits, appeals and applications, after a prescribed period of time. Thus, the claim for arbitration should be raised as soon as the “cause of arbitration arises” just like “cause of action arises” in a civil suit. Incidentally, Incidentally, Section 9 of the Limitation Act states that, “once time begins to run no subsequent disability or inability can stop to institute a suit or make an application”.
In Nortel Networks, it was observed that since there is no provision in the Arbitration Act specifying the period of limitation for filing an application under Section 11; however, the Limitation Act nowhere provides a time period for filing an application for appointment of an arbitrator under Section 11, thus it would be covered by the residual provision Article 137 of the Limitation Act. The Court also clarified that once the period of limitation starts, no subsequent disability or inability can stop it.
Starting Point of the Limitation Period
The period of limitation for filing an application seeking appointment of an arbitrator stands on a different footing than the period of limitation applicable to the substantive claims made in a contract. As per Article 55 of the Schedule of the Limitation Act, the limitation period for making a claim in cases pertaining to breach of contract is three years from the date of accrual of the cause of action. Furthermore, by virtue of Article 137 of the First Schedule to the Limitation Act, the limitation period for filing an application under Section 11 for appointment of an arbitrator before a court is three years from the date of refusal to appoint the arbitrator or on expiry of 30 days from receipt of notice invoking arbitration by other side, whichever is earlier.
The two-Judge Bench in Panchu Gopal Bose v. Port of Calcutta observed that the claim is “hopelessly barred” by limitation as the petitioner by his own conduct had slept over his right for more than 10 years. It was further held that the period of limitation for an application for appointment of arbitrator under the Arbitration Act, had there been no arbitration clause, commences on the date on which the “cause of arbitration” accrued.
Extension of Limitation Period: A Fresh Start
As per Section 18 (effect of acknowledgement in writing) of the Limitation Act, the period of limitation for filing a claim gets extended when there is an acknowledgement of an existing liability. The said acknowledgement shall be in writing and signed by the party against whom the claim is sought. Further, the acknowledgement shall be made before the expiry of the limitation period for raising that claim.
As per Section 19 (effect of payment of debt or interest) of the Limitation Act, where payment on account of a debt is made before the expiration of the prescribed period, a fresh period of limitation shall be computed from the time when the payment was made.
Initiation of Proceedings
Arbitration can be initiated by sending a notice of invocation to the other party as per Section 21 of the Arbitration Act or by filing an application under Section 8 or Section 11 of the Act.
Thus, the starting point of limitation for initiation of arbitration is from the date when the cause of action accrues, and the stopping point is the giving of the notice of invocation or the filing of the application under Section 11 or Section 8 of the Arbitration Act.
Time Spent in Pre-Arbitration Negotiations/Settlement Discussions
In Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. (hereinafter referred to as “Geo Miller”), the Supreme Court has held that time spent in pre-arbitration negotiations, held in good faith, may be excluded while computing the period of limitation. However, the entire negotiation history between the parties must be carefully considered and the court must find out the “breaking point” at which any reasonable party would have abandoned all efforts to arrive at the amicable settlement or reconciliation and considered referral of the dispute to arbitration. For the computation of the limitation period such “breaking point” would be treated as the date on which the cause of action arises, regardless of whether the arbitration agreement mentions a clause on pre-arbitration negotiation or not.
In Shree Ram Mills Ltd., the Supreme Court considered the history of negotiation and concluded that the limitation for arbitration purpose would be deemed to have not commenced.
No Denial, No Dispute
In some cases, the courts have taken a view that where there is no denial to the claim, the limitation period does not get triggered. In other words, the cause of action arises only when one party asserts and the other party denies any right.
In Paramjeet Singh Narula v. DDA, the Court held that since, the contract was kept alive by the respondent and the respondent had not finalised the bills of the petitioner, it cannot be said that the claims were barred by limitation. Accordingly, the petition under Section 11 was allowed and an arbitrator was appointed.
The judgment in Nortel Networks case answers many questions which were unanswered for a long time and it gives clarity to the application of Limitation Act to the Arbitration Act. Interestingly, the Court rightly opined that the period of three years, when the right to apply accrues, is an “unduly long” period for filing an application under Section 11. The author is in full agreement with the suggestion given by the Supreme Court that a limitation period for filing an application under Section 11 should be provided under the Act of 1996.
In the absence of any specific time frame for filing an application under Section 11, the purpose of the Arbitration Act, 1996 gets defeated i.e. speedy resolution of disputes. Incidentally, Section 29-A provides a total time frame of 18 months for completion of arbitral proceedings and passing of an award. Moreover, Section 11 itself provides that an endeavour shall be made to dispose of the petition within a period of 60 days from the date of service of the notice on the opposite party therefore, providing a period of 3 years for filing an application under Section 11 for appointment of an arbitrator is against the ethos of the Arbitration Act, 1996. We can only hope that in future, this issue is addressed by the legislature by introducing a limitation period of 2-3 months for filing an application under Section 11 from the date of refusal to appoint the arbitrator or on expiry of 30 days from receipt of notice invoking arbitration by other side, whichever is earlier.
† Advocate, Supreme Court of India.The author can be reached at firstname.lastname@example.org.
The author would like to thank Dikshi Arora, Third Year Student at Rajiv Gandhi National University of Law for her able assistance.