{"id":363615,"date":"2025-10-13T11:00:43","date_gmt":"2025-10-13T05:30:43","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=363615"},"modified":"2025-10-14T14:33:27","modified_gmt":"2025-10-14T09:03:27","slug":"whether-non-operation-of-arbitration-clause-due-to-statutory-amendments-would-negate-the-entire-arbitration-mechanism-supreme-court-explores","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/10\/13\/whether-non-operation-of-arbitration-clause-due-to-statutory-amendments-would-negate-the-entire-arbitration-mechanism-supreme-court-explores\/","title":{"rendered":"Whether non-operation of arbitration clause due to statutory amendments would negate the entire arbitration mechanism? Supreme Court explores"},"content":{"rendered":"
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Supreme Court:<\/span> While considering the present appeal challenging Madhya Pradesh High Court’s refusal to appoint an arbitrator and dismissal of the Application under section 11<\/a> of the Arbitration and Conciliation Act, 1996<\/a> (“1996 Act”) by the Appellant on the ground of limitation; the Division Bench of Dipankar Datta and A.G. Masih*<\/span>, JJ., perusing the arbitration mechanism between the parties, held that merely because the procedure to appoint an arbitrator<\/span> 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.<\/p>\n

Background:<\/h3>\n

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.<\/p>\n

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.<\/p>\n

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”)<\/span> 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.<\/p>\n

Aggrieved with the Respondent’s response, the Appellant filed application Section 11(6)<\/a> of the 1996 Act<\/a> 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.<\/p>\n

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<\/a> of the Limitation Act, 1963<\/a>. Relying upon Cognizance for Extension of Limitation, In Re<\/span>, (2022) 3 SCC 117<\/a>, 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.<\/p>\n

Per contra<\/span>, 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.<\/p>\n

Issues for Consideration:<\/h3>\n