Supreme Court: In an arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘the Act, 1996’) filed at the instance of a company based in Kabul, Afghanistan and engaged in the business of providing training to desirous students in computer education, English language, information technology, etc. praying for the appointment of an arbitrator for the adjudication of disputes and claims arising from the Contract dated 21-03-2013 entered between the petitioner and the respondent, the three Judge Bench Dr. DY. Chandrachud, CJI, J.B. Pardiwala* and Manoj Misra, JJ. has held that the present arbitration petition having been filed within a period of three years from the date when the respondent failed to comply with the notice of invocation of arbitration issued by the petitioner is not hit by limitation. Further, the notice for invocation of arbitration having been issued by the petitioner within a period of three years from the date of accrual of cause of action, the claims cannot be said to be ex-facie dead or time-barred on the date of commencement of the arbitration proceedings.
Issues:
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Whether the Limitation Act, 1963 applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996? If yes, whether the present petition is barred by limitation?
The Court said that the basic premise behind the statutes providing for a limitation period is encapsulated by the maxim “Vigilantibus non dormientibus jura subveniunt” which translates to “the law assists those who are vigilant and not those who sleep over their rights”. The object behind having a prescribed limitation period is to ensure that there is certainty and finality to litigation and assurance to the opposite party that it will not be subject to an indefinite period of liability. Another objective achieved by a fixed limitation period is to only allow those claims which are initiated before the deterioration of evidence takes place. The law of limitation does not act to extinguish the right but only bars the remedy.
After taking note of Section 11(6) of the Act, 1996, which provides for appointment of arbitrators, the Court noted that it indicates that no time-limit has been prescribed for filing an application under the said section. However, Section 43 of the Act, 1996 provides that the Limitation Act, 1963 would apply to arbitrations as it applies to proceedings in Court. Since none of the Articles in the Schedule to the Limitation Act, 1963 provide a time period for filing an application under Section 11(6) of the Act, 1996, it would be covered by Article
The Court referred to SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, wherein it was held that the issue of limitation being one of threshold importance, it must be decided at the pre-reference stage, so that the other party is not dragged through a long-drawn arbitration, which would be expensive and time consuming and Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643 , wherein it was held that the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued.
Thus, the Court held that the Limitation Act, 1963 is applicable to arbitration proceedings in general and Article 137 of the Limitation Act, 1963 is applicable to a petition under Section 11(6) of the Act, 1996.
a. When does the right to apply under Section 11(6) accrue?
The Court reiterated that the limitation period for making an application seeking appointment of arbitrator must not be conflated or confused with the limitation period for raising the substantive claims which are sought to be referred to an arbitral tribunal. The limitation period for filing an application seeking appointment of arbitrator commences only after a valid notice invoking arbitration has been issued by one of the parties to the other party and there has been either a failure or refusal on part of the other party to make an appointment as per the appointment procedure agreed upon between the parties.
The Court said that the other way of ascertaining the relevant point in time when the limitation period for making a Section 11(6) application would begin is by making use of the Hohfeld’s analysis of jural relations. It reiterated that the limitation period under Article
The Court noted that in the present case, the notice for invocation of arbitration was issued by the petitioner to the respondent on 24-11-2022, proposing the names of two arbitrators and calling upon the respondent to either release the allegedly withheld payment or nominate an arbitrator from their side within a period of 30 days from the date of receipt of the notice. As per the record, the notice was delivered to the respondent on 29-11-2022. Hence, the said period of one month from the date of receipt ended on 28-12-2022. Thus, it is only from this day that the clock of limitation for filing the present petition would start to tick. The present petition was filed by the petitioner on 19-04-2023, well within the 3 years provided by Article
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Whether the Court may refuse to make a reference under Section 11 of Act, 1996 where the claims are ex-facie and hopelessly time-barred?
The Court said that although, limitation is an admissibility issue, yet it is the duty of the courts to prima-facie examine and reject non-arbitrable or dead claims, to protect the other party from being drawn into a time-consuming and costly arbitration process.
Further, it said that the rights of the petitioner to bring a claim against the respondent were crystallised on 28-03-2018 and hence the cause of action for invocation of arbitration can also said to have arisen on this date.
The Court reiterated that mere failure to pay may not give rise to a cause of action. However, once the applicant has asserted its claim and the respondent has either denied such claim or failed to reply to it, the cause of action will arise after such denial or failure.
The Court said that in ordinary circumstances, the limitation period available to the petitioner for raising a claim would have ended after an expiry of three years, that is, on 27-03-2021. However, in March 2020, due to Covid-19 pandemic, this Court in Cognizance for Extension of Limitation, In re, (2020) 19 SCC 10, directed that the period commencing from 15-03-2020 to be excluded for the purposes of computation of limitation. This Court extended the said extension of limitation in view of the continuing pandemic. Thus, the period from 15-03-2020 to 28-02-2022 was finally determined to be excluded for the computation of limitation, and the balance period of limitation as available on 15.03.2020 would become available from 01-03-2022.
Thus, in the present case, the balance period thus comes to 1 year 13 days. This period becomes available to the petitioner from 01-03-2022, meaning that the limitation period available to the petitioner for invoking arbitration proceedings would have ended on 13-03-2023.
The Court took note of Section 21 of the Act, 1996 and said that it provides that the arbitral proceedings in relation to a dispute commence when a notice invoking arbitration is sent by the claimant to the other party.
The Court held that the notice invoking arbitration was received by the respondent on 29-11-2022, which is within the three-year period from the date on which the cause of action for the claim had arisen. Thus, the claims sought to be raised by the petitioner are not ex-facie time-barred or dead claims on the date of the commencement of arbitration.
The Bench viewed that while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the Courts should satisfy themselves on two aspects by employing a two-pronged test —
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First, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation;
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Secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings.
It added that if either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal.
Moreover, the Court said that the applicability of Section 137 to applications under Section 11(6) of the Act, 1996 is a result of legislative vacuum as there is no statutory prescription regarding the time limit. It reiterated that the period of three years is an unduly long period for filing an application under Section 11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to the Act 1996 have been made to ensure arbitration proceedings are conducted and concluded expeditiously. Thus, it opined that the Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators under Section 11 of the Act, 1996.
[Arif Azim Co. Ltd. v. Aptech Ltd., 2024 SCC OnLine SC 215, decided on 01-03-2024]
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