2021 (3) TMI 447 - SC - Indian Laws

Time limits clarified for arbitration applications; Court may reject if time-barred

BHARAT SANCHAR NIGAM LTD. & ANR. Versus M/s NORTEL NETWORKS INDIA PVT. LTD.

The Court clarified that the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 is governed by ... Period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 - whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred? - HELD THAT:- It is now fairly well-settled that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days’ from issuance of the notice invoking arbitration. In other words, an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s) / dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment - The period of limitation for filing a petition seeking appointment of an arbitrator/s cannot be confused or conflated with the period of limitation applicable to the substantive claims made in the underlying commercial contract. The period of limitation for such claims is prescribed under various Articles of the Limitation Act, 1963. The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator. Given the vacuum in the law to provide a period of limitation under Section 11 of the Arbitration and Conciliation 1996, the Courts have taken recourse to the position that the limitation period would be governed by Article 137, which provides a period of 3 years from the date when the right to apply accrues. However, this is an unduly long period for filing an application u/S. 11, since it would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes within a time bound period - the application under Section 11 was filed within the limitation period prescribed under Article 137 of the Limitation Act. Nortel issued the notice of arbitration vide letter dated 29.04.2020, which was rejected by BSNL vide its reply dated 09.06.2020. The application under Section 11 was filed before the High Court on 24.07.2020 i.e. within the period of 3 years of rejection of the request for appointment of the arbitrator. Whether the Court while exercising jurisdiction under Section 11 is obligated to appoint an arbitrator even in a case where the claims are ex facie time-barred? - HELD THAT:- The amendment to sub-section (8) of Section 11 by the 2019 Amendment [which is also yet to be notified], provides that the arbitral institution will be empowered to : (a) seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of Section 12, to secure the appointment of an independent and impartial arbitrator; and (b) ensure that the arbitrator has the qualifications required by the arbitration agreement - The issue of limitation, in essence, goes to the maintainability or admissibility of the claim, which is to be decided by the arbitral tribunal. For instance, a challenge that a claim is time-barred, or prohibited until some precondition is fulfilled, is a challenge to the admissibility of that claim, and not a challenge to the jurisdiction of the arbitrator to decide the claim itself. The issue of limitation which concerns the “admissibility” of the claim, must be decided by the arbitral tribunal either as a preliminary issue, or at the final stage after evidence is led by the parties. This is a case where the claims are ex facie time barred by over 5 ½ years, since Nortel did not take any action whatsoever after the rejection of its claim by BSNL on 04.08.2014. The notice of arbitration was invoked on 29.04.2020. There is not even an averment either in the notice of arbitration, or the petition filed under Section 11, or before this Court, of any intervening facts which may have occurred, which would extend the period of limitation falling within Sections 5 to 20 of the Limitation Act. Unless, there is a pleaded case specifically adverting to the applicable Section, and how it extends the limitation from the date on which the cause of action originally arose, there can be no basis to save the time of limitation - In the present case, the notice invoking arbitration was issued 5 ½ years after rejection of the claims on 04.08.2014. Consequently, the notice invoking arbitration is ex facie time barred, and the disputes between the parties cannot be referred to arbitration in the facts of this case. The period of limitation for filing an application under Section 11 would be governed by Article 137 of the First Schedule of the Limitation Act, 1963. The period of limitation will begin to run from the date when there is failure to appoint the arbitrator - It has been suggested that the Parliament may consider amending Section 11 of the 1996 Act to provide a period of limitation for filing an application under this provision, which is in consonance with the object of expeditious disposal of arbitration proceedings. Issues Involved:1. The period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996.2. Whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred.Detailed Analysis:Issue 1: Period of Limitation for Filing an Application under Section 11 of the Arbitration and Conciliation Act, 1996The Court examined whether the Arbitration Act, 1996 prescribes any period for filing an application under Section 11 for the appointment of an arbitrator. It was established that Section 11 does not specify a time period, necessitating recourse to the Limitation Act, 1963, as per Section 43 of the Arbitration Act. Article 137 of the Limitation Act, 1963, which provides a three-year period from the date when the right to apply accrues, was deemed applicable. This position was supported by various High Court decisions and affirmed by the Supreme Court in Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd.The Court noted that the limitation period for filing an application under Section 11 should not be confused with the limitation applicable to the substantive claims in the underlying contract. The limitation for such claims is distinct and prescribed under various Articles of the Limitation Act, 1963.Applying this law to the present case, the Court found that the application under Section 11 was filed within the limitation period prescribed under Article 137. Nortel issued the notice of arbitration on 29.04.2020, which was rejected by BSNL on 09.06.2020. The application under Section 11 was filed on 24.07.2020, within the three-year period from the rejection of the request for appointment of the arbitrator.Issue 2: Refusal to Make Reference under Section 11 for Ex Facie Time-Barred ClaimsThe Court explored whether it is obligated to appoint an arbitrator even when the claims are ex facie time-barred. The legislative history of Section 11 was reviewed, noting the amendments by the Arbitration and Conciliation (Amendment) Act, 2015, which confined the scope of examination at the Section 11 stage to the existence of the arbitration agreement.The Court emphasized that limitation is generally a mixed question of fact and law, falling within the domain of the arbitral tribunal. However, it distinguished between jurisdictional and admissibility issues. Jurisdictional issues pertain to the tribunal's power to hear a case, while admissibility issues relate to procedural requirements, such as a claim being time-barred. The issue of limitation concerns the admissibility of the claim, which is to be decided by the arbitral tribunal.In Vidya Drolia v. Durga Trading Corporation, the Court held that at the referral stage, the Court can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. This principle was applied to the present case, where the claims were ex facie time-barred by over 5 ½ years, as Nortel did not take any action after the rejection of its claim by BSNL on 04.08.2014. The notice of arbitration was invoked on 29.04.2020, with no intervening facts extending the period of limitation. As such, the notice invoking arbitration was ex facie time-barred, and the disputes could not be referred to arbitration.Conclusion:(i) The period of limitation for filing an application under Section 11 is governed by Article 137 of the Limitation Act, 1963, starting from the date when there is a failure to appoint the arbitrator. The Parliament may consider amending Section 11 to provide a specific period of limitation.(ii) In rare and exceptional cases where claims are ex facie time-barred, and there is no subsisting dispute, the Court may refuse to make the reference.The Civil Appeals were allowed, and the impugned orders by the High Court were set aside. The application filed under Section 11 by the Respondent was dismissed. The Court appreciated the assistance of the Amicus Curiae, Mr. Arvind Datar.