BHARAT SANCHAR NIGAM LTD. & ANR. versus M/S NORTEL NETWORKS INDIA PVT. LTD.

[2021] 2 S.C.R.

ABHARAT SANCHAR NIGAM LTD. & ANR.

M/S NORTEL NETWORKS INDIA PVT. LTD.

(Civil Appeal Nos. 843-844 of 2021)

BMARCH 10, 2021

[INDU MALHOTRA AND AJAY RASTOGI, JJ.]

Arbitration and Conciliation Act, 1996 – s.11 – Applicationunder – Period of limitation – Tender issued by appellant –Respondent awarded the purchase order – On completion of theCworks, appellant withheld certain amount towards liquidateddamages/other levies – Respondent raised claim for payment of thesame in May 2014 – Rejected by appellant in August 2014 – In2020, respondent invoked the arbitration clause for appointmentof arbitrator – Rejected by appellant – Respondent filed applicationDu/s.11 – High Court referred the disputes to arbitration – Reviewpetition – Dismissed – On appeal, held: Period of limitation forfiling an application u/s.11 would be governed by Article 137 ofthe First Schedule, 1963 Act – It will begin to run from the datewhen there is failure to appoint the arbitrator – In exceptional cases,where claims are ex facie time- barred, the Court may refuse to makeEreference – In the present case, cause of action arose on 04.08.14,when the claims made by respondent were rejected by appellant –Notice of arbitration invoked on 29.04.20 was rejected by appellanton 09.06.20 – Thus, application u/s.11 filed before High Court on24.07.20 was within limitation period prescribed u/Article 137 i.e.Fwithin 3 years of rejection of the request for appointment of thearbitrator – However, claims are ex-facie time barred by over 5½years – Disputes between the parties cannot be referred to arbitration– Impugned orders set aside – Application filed by respondent u/s.11, dismissed – Limitation Act, 1963 – First Schedule- Article 137– Arbitration and Conciliation (Amendment) Act, 2015 – ss.11(13),G29A, 34(6) – Arbitration and Conciliation (Amendment) Act, 2019– s.11(6A), (8) – Commercial Courts Act, 2015 – s.13, 14 – Maxims.

Arbitration and Conciliation Act, 1996 – Scheme & object ofthe Act – ss.8, 9(2), 11, 13, 116(2), 34(3) – Amendment to s.11 –Held: Parliament may consider amending s.11 to provide periodH

BHARAT SANCHAR NIGAM LTD. v. M/S NORTEL NETWORKSINDIA PVT. LTD.

of limitation for filing an application under this provision inconsonance with the object of expeditious disposal of arbitrationproceedings.

Arbitration and Conciliation Act, 1996 – s.11 – Jurisdictionunder – Scope of – Pre & post amendment position – Discussed.

Arbitration and Conciliation Act, 1996 – Limitation –Jurisdictional issue or admissibility issue – Discussed.

Allowing the appeals, the Court

HELD: 1.1 Period of limitation for filing an application underSection 11 of the Arbitration and Conciliation Act, 1996.

The Arbitration and Conciliation Act, 1996 has been framedfor expeditious resolution of disputes, and various provisions havebeen incorporated in the Act to ensure that the arbitralproceedings are conducted in time-bound manner. Various timelines have been provided in the 1996 Act. The 1996 Act wasamended by the Arbitration and Conciliation (Amendment) Act,2015 to incorporate further provisions for expeditious disposalof arbitral proceedings. Section 11 does not prescribe any timeperiod for filing an application under sub-section (6) forappointment of an arbitrator. Since there is no provision in the1996 Act specifying the period of limitation for filing an applicationunder Section 11, one would have to take recourse to theLimitation Act, 1963, as per Section 43 of the Arbitration Act,which provides that the Limitation Act shall apply to arbitrations,as it applies to proceedings in Court. Since none of the Articlesin the Schedule to the Limitation Act, 1963 provide time periodfor filing an application for appointment of an arbitrator underSection 11, it would be covered by the residual provision Article137 of the Limitation Act, 1963. The limitation for filing anapplication under Section 11 would arise upon the failure to makethe appointment of the arbitrator within period of 30 days’ fromissuance of the notice invoking arbitration. In other words, anapplication under Section 11 can be filed only after notice ofarbitration in respect of the particular claim(s) / dispute(s) to bereferred to arbitration [as contemplated by Section 21 of the Act]

DEFG

Ais made, and there is failure to make the appointment. The periodof limitation for filing petition seeking appointment of anarbitrator/s cannot be confused or conflated with the period oflimitation applicable to the substantive claims made in theunderlying commercial contract. The period of limitation for suchclaims is prescribed under various Articles of the Limitation Act,B1963. The limitation for deciding the underlying substantivedisputes is necessarily distinct from that of filing an applicationfor appointment of an arbitrator. [Paras 6, 7, 9-12][654-E-F;655-C; 656-B-D; 657-B-C, D-G]

1.2 Given the vacuum in the law to provide period ofClimitation under Section 11 of the Arbitration and Conciliation1996, the Courts have taken recourse to the position that thelimitation period would be governed by Article 137, whichprovides period of 3 years from the date when the right to applyaccrues. However, this is an unduly long period for filing an

Dapplication u/s. 11, since it would defeat the very object of theAct, which provides for expeditious resolution of commercialdisputes within time bound period. In view of the legislativeintent, the period of 3 years for filing an application under Section11 would run contrary to the scheme of the Act. It would benecessary for Parliament to effect an amendment to Section 11,Eprescribing specific period of limitation within which partymay move the court for making an application for appointment ofthe arbitration under Section 11 of the 1996 Act. In the presentcase, it is found that the application under Section 11 was filedwithin the limitation period prescribed under Article 137 of theLimitation Act. Nortel issued the notice of arbitration vide letterFdated 29.04.2020, which was rejected by BSNL vide its reply dated09.06.2020. The application under Section 11 was filed beforethe High Court on 24.07.2020 i.e. within the period of 3 years ofrejection of the request for appointment of the arbitrator. [Paras17, 18][661-C-H]G2.1 Whether the Court may refuse to make the referenceunder Section 11 where the claims are ex facie time-barredLegislative History of Section 11

Pre-amendment position

Under the principal Act, the legislative scheme underHSection 11 was that if the parties had agreed on procedure for

appointment of the arbitrator, the appointment had to be made inaccordance with that procedure. Absent an agreement betweenthe parties, the default power of appointment in domesticarbitration would be exercised by the Chief Justice of the HighCourt, or person, or institution, designated by him. In the case ofan international commercial arbitration, the default power wouldbe exercised by the Chief Justice of India, or the person, orinstitution, designated by him. The object of conferring the powerof appointment on the highest judicial authority was to givecredibility to the procedure of appointment. [Para 19][662-A-E]

Post-amendment position

The 1996 Act was amended by the Arbitration andConciliation (Amendment) Act, 2015 which came into force witheffect from 23.10.2015. The 2015 Amendment Act replaced theChief Justice of the High Court as the appointing authority forexercising the default power of appointment in the case ofdomestic arbitrations, by the concerned High Court; and, inrespect of international commercial arbitrations, the default powerwould be exercised by the Supreme Court, in place of the ChiefJustice of India. It inserted Sub-section (6A) and (6B) in Section11. The effect of the amendment was that if the existence of thearbitration agreement was not in dispute, all other issues wouldbe left for the arbitral tribunal to decide. This was in reinforcementof the doctrine of kompetenz-kompetenz, which empowers thetribunal to rule on its own jurisdiction, including any objectionswith respect to the validity of the arbitration agreement; andthereby minimize judicial intervention at the pre-reference stage.In view of the legislative mandate contained in the amendedSection 11(6A), the Court is now required only to examine theexistence of the arbitration agreement. All other preliminary orthreshold issues are left to be decided by the arbitrator underSection 16, which enshrines the kompetenz- komptenz principle.The doctrine of kompetenz-komptenz implies that the arbitraltribunal is empowered, and has the competence to rule on itsown jurisdiction, including determination of all jurisdictionalissues. This was intended to minimise judicial intervention atthe pre-reference stage, so that the arbitral process is not

Athwarted at the threshold when preliminary objection is raisedby the parties. [Paras 23, 26][665-C-F; 666-B-C; 668-E-G]

2.2 Issue of Limitation

Limitation is normally mixed question of fact and law, andwould lie within the domain of the arbitral tribunal. There is,Bhowever, distinction between jurisdictional and admissibilityissues. An issue of ‘jurisdiction’ pertains to the power andauthority of the arbitrators to hear and decide case.Jurisdictional issues include objections to the competence of thearbitrator or tribunal to hear dispute, such as lack of consent,Cor dispute falling outside the scope of the arbitration agreement.Issues with respect to the existence, scope and validity of thearbitration agreement are invariably regarded as jurisdictionalissues, since these issues pertain to the jurisdiction of thetribunal. Admissibility issues however relate to proceduralrequirements, such as breach of pre-arbitration requirements,Dfor instance, mandatory requirement for mediation before thecommencement of arbitration, or challenge to claim or partof the claim being either time-barred, or prohibited, until somepre-condition has been fulfilled. Admissibility relates to the natureof the claim or the circumstances connected therewith. AnEadmissibility issue is not challenge to the jurisdiction of thearbitrator to decide the claim. The issue of limitation, in essence,goes to the maintainability or admissibility of the claim, which isto be decided by the arbitral tribunal. For instance, challengethat claim is time-barred, or prohibited until some pre- conditionis fulfilled, is challenge to the admissibility of that claim, andFnot challenge to the jurisdiction of the arbitrator to decide theclaim itself. Applying the “tribunal versus claim” test, plea ofstatutory time bar goes towards admissibility as it attacks theclaim. It makes no difference whether the applicable statute oflimitations is classified as substantive (extinguishing theGclaim) or procedural (barring the remedy) in the privateinternational law sense. The issue of limitation which concernsthe “admissibility” of the claim, must be decided by the arbitraltribunal either as preliminary issue, or at the final stage afterevidence is led by the parties. It is only in the very limited

category of cases, where there is not even vestige of doubt thatthe claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference.However, if there is even the slightest doubt, the rule is to referthe disputes to arbitration, otherwise it would encroach uponwhat is essentially matter to be determined by the tribunal.[Paras 30-32, 34, 35 and 37][670-D-H; 671-A-B; 672-C-E;675-A-B]

Vidya Drolia v. Durga Trading Corporation (2021) 2SCC 1; Mayavati Trading Company Private Ltd. v.Pradyut Dev Burman (2019) 8 SCC 714: [2019] 12SCR 123; Duro Felguera SA v. Gangavaram Port Ltd.(2017) 9 SCC 729] : [2017] 10 SCR 285 – relied on.

Swisbourgh Diamond Mines (Pty) Ltd. & Ors. v.Kingdom of Lesotho [2019] 1 SLR 263; BBA & Ors. v.BAZ & Anr. [2020] SGCA 53 – referred to.

2.3 Applying the law to the facts of the present case, it isclear that this is case where the claims are ex facie time barredby over 5 ½ years, since Nortel did not take any action whatsoeverafter the rejection of its claim by BSNL on 04.08.2014. The noticeof arbitration was invoked on 29.04.2020. There is not even anaverment either in the notice of arbitration, or the petition filedunder Section 11, or before this Court, of any intervening factswhich may have occurred, which would extend the period oflimitation falling within Sections 5 to 20 of the Limitation Act.Unless, there is pleaded case specifically adverting to theapplicable Section, and how it extends the limitation from thedate on which the cause of action originally arose, there can beno basis to save the time of limitation. The present case is caseof deadwood / no subsisting dispute since the cause of actionarose on 04.08.2014, when the claims made by Nortel wererejected by BSNL. The Respondent has not stated any eventwhich would extend the period of limitation, which commencedas per Article 55 of the Schedule of the Limitation Act (whichprovides the limitation for cases pertaining to breach of contract)immediately after the rejection of the Final Bill by makingdeductions. The notice invoking arbitration is ex facie time barred,

Aand the disputes between the parties cannot be referred toarbitration in the facts of this case. [Paras 38, 39][675-B-F;676-B-C]

3. Conclusion

(i) The period of limitation for filing an application underBSection 11 would be governed by Article 137 of the First Scheduleof the Limitation Act, 1963. The period of limitation will begin torun from the date when there is failure to appoint the arbitrator;It has been suggested that the Parliament may consider amendingSection 11 of the 1996 Act to provide period of limitation forCfiling an application under this provision, which is in consonancewith the object of expeditious disposal of arbitration proceedings;(ii) In rare and exceptional cases, where the claims are ex facietime- barred, and it is manifest that there is no subsisting dispute,the Court may refuse to make the reference.

DThe impugned orders dated 13.10.2020 and 14.01.2021passed by the High Court are set aside. The application filedunder Section 11 by the Respondent before the High Court isconsequently dismissed. [Paras 40, 41][676-C-G]

S.S.Rathore v. State of Madhya Pradesh (1989) 4 SCCE582; Union of India & Ors. v. Har Dayal (2010) 1 SCC394; CLP India Private Limited v. Gujarat Urja VikasNigam limited & Anr. (2020) 5 SCC 185 – relied on.

Dakshin Haryana Bijli Vitran Nigam Ltd. v. M/s NavigantTechnologies Pvt. Ltd. Decision of Supreme Court dtd.F02.03.2021 in C.A. No. 791 of 2021; State of Bihar &Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti (2018) 9SCC 472 : [2018] 7 SCR 1147;ConsolidatedEngineering v. Principal Secretary, Irrigation (2008) 7SCC 169 : [2008] 5 SCR 1108; C. Budhraja v.Chairman, Orissa Mining Corporation Ltd. (2008) 2GSCC 444 : [2008] 1 SCR 821; Geo Miller & Co. Pvt.Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd.(2020) 14 SCC 643 : [2019] 11 SCR 1108; SBP & Co.v. Patel Engineering Ltd. (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688; National Insurance Co. Ltd. v.Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267 : [2008]H

BHARAT SANCHAR NIGAM LTD. v. M/S NORTEL NETWORKSINDIA PVT. LTD.

13 SCR 638; Union of India & Ors. v. MasterConstruction Co. (2011) 12 SCC 349: [2011] 5SCR 853; Uttarakhand Purv Sainik Kalyan Nigam v.Northern Coal Field Limited (2020) 2 SCC 455 –referred to.

Leaf Biotech v. Municipal Corporation Nashik 2010(6) Mh LJ 316; Deepdharshan Builders Pvt. Ltd. v.Saroj (2019) 1 AIR Bom R 249; Prasar Bharti v. MaaCommunication 2010 (115) DRJ 438 (DB); GoldenChariot v. Mukesh Panika 2018 SCC OnLine Del10050 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 843-844 of 2021

From the Judgment and Order dated 13.10.2020 of the High Courtof Kerala at Ernakulam in petition under Section 11 of Arbitration &Conciliation Act, 1996 AR No. 55 of 2020 Order dated 14.01.21 inReview Petition RP No. 9 of 2021.

AArvind Datar, R. D. Agrawala, Sr. Advs., Pradeep Kumar Mathur,Sameer Agrawal, Chiranjeev Johri, Advs. for the Appellants.

Neeraj Kumar Jain, Sr. Adv. Bharat Singh, Ashish Pandey, RajeshKumar Singh, Amit Pawan, Advs. for the Respondent.

The Judgment of the Court was delivered byB

INDU MALHOTRA, J.

Leave granted.

1. The present Appeals raise two important issues for ourconsideration : (i) the period of limitation for filing an application underCSection 11 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”);and (ii) whether the Court may refuse to make the reference underSection 11 where the claims are ex facie time-barred?

2. (a) The factual matrix in which the present issues have arisenfor our consideration is the issuance of tender notification by theDAppellant-Company [hereinafter referred to as “BSNL”] inviting bidsfor planning, engineering, supply, insulation, testing and commissioningof GSM based cellular mobile network in the southern region coveringthe Kerala, Karnataka, Tamil Nadu, Andhra Pradesh Circles, and theChennai telephone district. In the tender process, the Respondent-Company [hereinafter referred to as “Nortel”] was awarded theEpurchase order. On completion of the Works under the purchase order,BSNL deducted / withheld an amount of Rs.99,70,93,031 towardsliquidated damages and other levies.(b) Nortel vide communication dated 13.05.2014 raised claimfor payment of the said amount.F

BSNL vide letter dated 04.08.2014 rejected the claim of Nortel.

(c) After period of over 5 ½ years, Nortel vide letter dated29.04.2020 invoked the arbitration clause, and requested for appointmentof an independent arbitrator, wherein it was contended that the disputeGof withholding the aforesaid amounts, would fall within the ambit ofarbitrable disputes under the agreement.

(d) BSNL vide reply dated 09.06.2020 contended that the requestfor appointment of an arbitrator could not be entertained, since the casehad already been closed on 04.08.2014, and as per Section 43 of theH1996 Act, the notice invoking arbitration was time barred.

(e) Nortel filed an application under Section 11 of the 1996 Actbefore the Kerala High Court for appointment of an arbitrator. The HighCourt vide Order dated 13.10.2020 referred the disputes to arbitration.

(f) BSNL filed review petition before the High Court, whichwas dismissed vide Order dated 14.01.2021.

(g) The present Civil Appeal has been filed by BSNL to challengethe Orders dated 13.10.2020 and 14.01.2021 respectively.

(h) This Court appointed Mr. Arvind Datar, Senior Advocate asAmicus Curiae to assist the Court on the legal issues which have arisenfor consideration.

3. We have heard Mr. R.D. Agrawala, Senior Advocate for theAppellants, Mr. Neeraj Kumar Jain, Senior Advocate for the Respondent,and the learned Amicus Curiae, Mr. Arvind Datar, Senior Advocate.

4. Submissions on behalf of BSNL

BSNL submitted that the cause of action for invoking arbitrationarose on 04.08.2014 when the claim made by Nortel was rejected bymaking deductions from the Final Bill. It was contended that Nortel hadslept over its alleged rights for over 5 ½ years, before issuing the noticeof arbitration on 29.04.2020. From 04.08.2014 till 29.04.2020, Nortel didnot take any action whatsoever. Consequently, the notice invokingarbitration had become legally stale, non-arbitrable and unenforceable.The High Court had erroneously proceeded on the premise of mereexistence of valid arbitration agreement, without considering that suchan agreement was inextricably connected with the existence of livedispute.

Even though limitation was mixed question of fact and law, andis ordinarily to be decided by the arbitral tribunal, in cases where theinvocation of the arbitration agreement is ex facie time barred, the Courtmust reject the request for appointment of an arbitrator. The limitationfor invoking arbitration, and seeking appointment of an arbitrator is atpar with civil action, and would be covered by Article 137 of the Scheduleto the Limitation Act, 1963. An action taken by claimant must necessarilyfall within the statutory period of 3 years from the date on which theright to apply accrues.

Section 11(6A) uses the phrase “examination of the existence ofan arbitration agreement”, which would imply that the power conferred

Aupon the Court is not formal exercise, but requires certain degree ofexamination before making the reference.

5. Submissions on behalf of Nortel

It was submitted that the amendment to Section 11 by theArbitration and Conciliation (Amendment) Act, 2015 provides for limitedBscope of enquiry at the pre-reference stage which is restricted only tothe “existence” of an arbitration agreement under sub-section (6A) ofSection 11. In view of the doctrine of kompetenz-kompetenz, theobjection with respect to the claims being allegedly time barred, could bedecided by the arbitral tribunal. The High Court rightly limited the enquiryCat the pre-reference stage to the “existence” of the arbitration agreement.

The distinction between the limitation for filing an application u/S.11, and with respect to the underlying claims does not survive post the2015 Amendment, since the role of the Court is only limited to examinethe existence of the arbitration agreement between the parties.

The starting point of limitation for initiating proceeding underSection 11 is the expiry of 30 days’ from the date of issuing notice ofarbitration on 29.04.2020. The cause of action was, therefore, continuingone. The High Court had rightly held that the issue of limitation must bedecided by the arbitral tribunal.

E6. Discussion on First issue

The 1996 Act has been framed for expeditious resolution ofdisputes, and various provisions have been incorporated in the Act toensure that the arbitral proceedings are conducted in time-bound manner.Various time lines have been provided in the 1996 Act such as :

(i)Section 8 provides that an application for reference of disputesto arbitration, shall be filed not later than submitting the firststatement on the substance of the dispute;

(ii)Section 9(2) provides that where Court passes an orderfor any interim measure of protection, the arbitral proceedingsGshall be commenced within period of 90 days’ from thedate of such order;

(iii)Section 13 provides that where challenge is made againstan arbitrator, the same must be raised within 15 days’ fromthe constitution of the tribunal, or after becoming aware ofH

any circumstances mentioned in sub-section (3) of Section12;

(iv)Section 16 (2) provides that plea that the tribunal does nothave jurisdiction, shall be raised not later than the submissionof the statement of defence;

(v)Section 34(3) provides maximum period of 120 days’ afterthe receipt of the signed award, to file objections before theCourt[1]

7. The 1996 Act was amended by the Arbitration and Conciliation(Amendment) Act, 2015 to incorporate further provisions for expeditiousdisposal of arbitral proceedings : (i) Section 11 has been amended toinsert sub-section (13) which provides that an application made eitherbefore the Supreme Court, or the High Court, or person or institutiondesignated by such Court, shall be disposed of as expeditiously as possible,and an endeavour shall be made to dispose of the petition within periodof 60 days’ from the date of service of the notice on the opposite party;(ii) Section 29A mandates that the arbitral proceedings must be completedwithin period of 12 months from the date of completion of pleadings;(iii) Section 34 was amended to insert sub-section (6) which providesthat an application under Section 34 shall be disposed of expeditiouslywithin period of 1 year from the date on which the notice of filingobjections is served upon the other party.

Some of these provisions have been held to be mandatory, suchas Sections 8 and 34(3); while others like Section 34(6) have been heldto be directory[2].

8. Contemporaneous with the 2015 amendments to the ArbitrationAct 1996, the Commercial Courts Act, 2015 was enacted to provide forspeedy disposal of high value commercial disputes, which provided forsetting up Commercial Divisions or Commercial Appellate Division inHigh Courts, and Commercial Courts at the district level.

Section 13 of the Commercial Courts Act provides that an appealunder Section 37 of the Arbitration Act, 1996 shall be filed before theCommercial Appellate Court or Commercial Appellate Division, as thecase may be within period of 60 days’ from the date of judgment.

1 Dakshin Haryana Bijli Vitran Nigam Ltd. v. M/s Navigant Technologies Pvt. Ltd.,C.A. No. 791 / 2021 decided on 02.03.2021.

2 State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti (2018) 9 SCC 472.

ASection 14 further provides that the Commercial Appellate Courtor Commercial Appellate Division shall endeavour to decide the appealswithin period of 6 months’ from the date of filing of such appeal.

9. To decide the issue of limitation for filing an application underSection 11, we must first examine whether the Arbitration Act, 1996Bprescribes any period for the same.

Section 11 does not prescribe any time period for filing anapplication under sub-section (6) for appointment of an arbitrator. Sincethere is no provision in the 1996 Act specifying the period of limitationfor filing an application under Section 11, one would have to take recourseCto the Limitation Act, 1963, as per Section 43 of the Arbitration Act,which provides that the Limitation Act shall apply to arbitrations, as itapplies to proceedings in Court.

“43. – Limitations

(1) The Limitation Act, 1963 (36 of 1963) shall apply to arbitrations,Das it applies to proceedings in Court.”

In Consolidated Engineering v. Principal Secretary,Irrigation,[3]this Court held that :

“45. Learned counsel for the appellant contended that Section43 of the AC Act makes applicable the provisions of the LimitationEAct only to arbitrations, thereby expressing an intent to excludethe application to any proceedings relating to arbitration in court.The contention of the appellant ignores and overlooks Section29(2) of the Limitation Act and Section 43(1) of the AC Act. Sub-section (1) of Section 43 of the Act provides that the LimitationFAct shall apply to arbitrations as it applies to proceedings incourt. The purpose of Section 43 of the AC Act is not to makethe Limitation Act inapplicable to proceedings before court, buton the other hand, make the Limitation Act applicable toarbitrations. As already noticed, the Limitation Act applies only toproceedings in court, and but for the express provision in SectionG43, the Limitation Act would not have applied to arbitration, asarbitrators are private tribunals and not courts. Section 43 of theAC Act, apart from making the provisions of the Limitation Act,1963 applicable to arbitrations, reiterates that the Limitation Act

applies to proceedings in court. Therefore, the provisions of theLimitation Act, 1963 apply to all proceedings under the AC Act,both in court and in arbitration, except to the extent expresslyexcluded by the provisions of the AC Act.”

(emphasis supplied)

10. Since none of the Articles in the Schedule to the LimitationAct, 1963 provide time period for filing an application for appointmentof an arbitrator under Section 11, it would be covered by the residualprovision Article 137 of the Limitation Act, 1963.

Article 137 of the Limitation Act, 1963 provides :

11. It is now fairly well-settled that the limitation for filing anapplication under Section 11 would arise upon the failure to make theappointment of the arbitrator within period of 30 days’ from issuanceof the notice invoking arbitration. In other words, an application underSection 11 can be filed only after notice of arbitration in respect of theparticular claim(s) / dispute(s) to be referred to arbitration [ascontemplated by Section 21 of the Act] is made, and there is failure tomake the appointment.

12. The period of limitation for filing petition seeking appointmentof an arbitrator/s cannot be confused or conflated with the period oflimitation applicable to the substantive claims made in the underlyingcommercial contract. The period of limitation for such claims is prescribedunder various Articles of the Limitation Act, 1963. The limitation fordeciding the underlying substantive disputes is necessarily distinct fromthat of filing an application for appointment of an arbitrator. This positionwas recognized even under Section 20 of the Arbitration Act 1940.Reference may be made to the judgment of this Court in C. Budhrajav. Chairman, Orissa Mining Corporation Ltd.[4]wherein it was heldthat Section 37(3) of the 1940 Act provides that for the purpose of theLimitation Act, an arbitration is deemed to have commenced when one

Aparty to the arbitration agreement serves on the other party, noticerequiring the appointment of an arbitrator. Paragraph 26 of this judgmentreads as follows :

“26. Section 37(3) of the Act provides that for the purpose of theLimitation Act, an arbitration is deemed to have been commencedBwhen one party to the arbitration agreement serves on the otherparty thereto, notice requiring the appointment of an arbitrator.Such notice having been served on 4-6-1980, it has to be seenwhether the claims were in time as on that date. If the claimswere barred on 4-6-1980, it follows that the claims had to berejected by the arbitrator on the ground that the claims were barredCby limitation. The said period has nothing to do with the period oflimitation for filing petition under Section 8(2) of the Act. Insofaras petition under Section 8(2) is concerned, the cause of actionwould arise when the other party fails to comply with the noticeinvoking arbitration. Therefore, the period of limitation for filing aDpetition under Section 8(2) seeking appointment of an arbitratorcannot be confused with the period of limitation for making aclaim. The decisions of this Court in Major (Retd.) Inder SinghRekhi v. DDA [(1988) 2 SCC 338] , Panchu Gopal Bose v. Boardof Trustees for Port of Calcutta [(1993) 4 SCC 338] and UtkalCommercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCCE571] also make this position clear.”13. Various High Courts have taken the view that Article 137 ofthe Limitation Act would be applicable to an application under Section11 of the Arbitration Act.

The question of the applicability of Article 137 to applications underFSection 11 of the 1996 Act came up for consideration before the BombayHigh Court in Leaf Biotech v. Municipal Corporation Nashik[5]whereinit was held that the period of limitation for an application u/S. 11 wouldbe governed by Article 137 of the Limitation Act.

Subsequently, in Deepdharshan Builders Pvt. Ltd. v. Saroj[6]Gthe Bombay High Court framed the following issue :

“(ii) Whether Article 137 of the Schedule to the Limitation Act,1963 would apply to the arbitration application filed under Section11(6) of the Arbitration Act and if applies whether Section 5 of

5 2010 (6) Mh LJ 316.H6 (2019) 1 AIR Bom R 249.

the Limitation Act, 1963 would be applicable to this arbitrationapplication and if Section 5 applies to this arbitration application,whether the applicant has made out sufficient cause forcondonation of delay in filing this arbitration application?”

The Bombay High Court held that :

“42. In my view, since the proceedings under Section 11(6) of theArbitration Act are required to be filed before the High Court,Article 137 of the Schedule to the Limitation Act, 1963 wouldapply to such application filed under Section 11(6) of the ArbitrationAct.In my view, since Article 137 of the Schedule to the LimitationAct, 1963 would apply to the arbitration application under Section11(6) of the Arbitration Act, Section 5 of the Limitation Act, 1963would also apply to the arbitration application filed under Section11(6) of Arbitration Act46. It is not in dispute that under Section 20 of the ArbitrationAct, 1940, an application was required for taking the arbitrationagreement on record and for appointment of an arbitrator inaccordance with the arbitration agreement before Court. Sincethe said proceedings under Section 20 were required to be filedbefore an appropriate Court, the provisions of Article 137 of theLimitation Act, 1963 were applicable to such proceedings filedbefore such appropriate Court. In my view, since the proceedingsunder Section 11(6) or Section 11(9) of the Arbitration Act forseeking appointment of arbitral tribunal are also now required tobe filed before the High Court or the Hon’ble Supreme Court, asthe case may be. Article 137 of the Schedule to the LimitationAct, 1963 would apply. It is not in dispute that no other Article ofSchedule to the Limitation Act, 1963 provides for any other periodof limitation for filing an arbitration application filed under Section11(6) or Section 11(9) of the Arbitration Act respectively.

47. It is not in dispute that Article 137 of the Schedule to theLimitation Act, 1963, such application has to be filed within threeyears from the date when the right to apply accrues. In my view,under Article 137 of the Limitation Act, 1963, application forappointment of an arbitrator under Section 11(6) or Section 11(9)of the Arbitration Act before the High Court or the Hon’bleSupreme Court would apply from the date when notice invokingan arbitration agreement is received by other side and other side

Arefuses to the name suggested by the opponent or refusing tosuggest any other name in accordance with the provisions ofSection 11 or the agreed procedure prescribed in the arbitrationagreement within the time contemplated therein or specificallyrefuses to appoint any arbitrator in the event of such other partybeing an appointing authority.B48.In my view, the limitation prescribed under Article 137 of theSchedule to the Limitation Act, 1963 which applies to an applicationunder Section 11(6) or Section 11(9) of the Arbitration Act filedbefore the High Court or before the Hon’ble Supreme Court cannotbe mixed up with the period of limitation applicable to the claimsCprescribed in various other Articles of the Schedule to the LimitationAct, 1963. Both these periods of limitation i.e. one applicable tothe claims being made and another being applicable to theapplication under Section 11(6) or Section 11(9) of the ArbitrationAct to which Article 137 of the Schedule to the Limitation Act,1963 applies, are two different periods of limitation and cannot beD”made applicable to each other.The special leave petition (SLP (C) No. 305 / 2019) against thesaid Judgment was dismissed vide Order dated 16.02.2019.

14. Other decisions of High Courts on the applicability of Article137 are Prasar Bharti v. Maa Communication[7]and Golden ChariotEv. Mukesh Panika[8]passed by the Delhi High Court. The SLP filed inthe case of Golden Chariot was dismissed vide Order dated 31.01.2019in SLP(C) No. 3658 / 2019.

15. The reasoning in all these judgments seems to be that since anapplication under Section 11 is to be filed in court of law, and since noFspecific Article of the Limitation Act, 1963 applies, the residual Articlewould become applicable. The effect being that the period of limitationto file an application under Section 11 is 3 years’ from the date of refusalto appoint the arbitrator, or on expiry of 30 days’, whichever is earlier.

16. In Geo Miller & Co. Pvt. Ltd. v. Chairman, RajasthanGVidyut Utpadan Nigam Ltd.,[9] three-judge bench held that on readingof sub-sections (1) and (3) of Section 43 of the 1996 Act, the provisionsof the Limitation Act, 1963 would be applicable to the Arbitration Act.

7 2010 (115) DRJ 438 (DB).8 2018 SCC OnLine Del 10050, SLP (C) No. 40627 / 2018 against this decision wasdismissed on 31.01.2019.H9 (2020) 14 SCC 643, 649.

Paragraph 14 of this judgment reads as :

“14. Sections 43(1) and (3) of the 1996 Act are in pari materiawith Sections 37(1) and (4) of the 1940 Act. It is well-settled thatby virtue of Article 137 of the First Schedule to the LimitationAct, 1963 the limitation period for reference of dispute toarbitration or for seeking appointment of an arbitrator before acourt under the 1940 Act (see State of Orissa v. Damodar Das[State of Orissa v. Damodar Das, (1996) 2 SCC 216] ) as well asthe 1996 Act (see Grasim Industries Ltd. v. State of Kerala [GrasimIndustries Ltd. v. State of Kerala, (2018) 14 SCC 265 : (2018) 4SCC (Civ) 612] ) is three years from the date on which the causeof action or the claim which is sought to be arbitrated first arises.”

17. Given the vacuum in the law to provide period of limitationunder Section 11 of the Arbitration and Conciliation 1996, the Courtshave taken recourse to the position that the limitation period would begoverned by Article 137, which provides period of 3 years from thedate when the right to apply accrues. However, this is an unduly longperiod for filing an application u/S. 11, since it would defeat the veryobject of the Act, which provides for expeditious resolution of commercialdisputes within time bound period. The 1996 Act has been amendedtwice over in 2015 and 2019, to provide for further time limits to ensurethat the arbitration proceedings are conducted and concludedexpeditiously. Section 29A mandates that the arbitral tribunal will concludethe proceedings within period of 18 months. In view of the legislativeintent, the period of 3 years for filing an application under Section 11would run contrary to the scheme of the Act.

It would be necessary for Parliament to effect an amendmentto Section 11, prescribing specific period of limitation within which aparty may move the court for making an application for appointment ofthe arbitration under Section 11 of the 1996 Act.

18. Applying the aforesaid law to the facts of the present case,we find that the application under Section 11 was filed within the limitationperiod prescribed under Article 137 of the Limitation Act. Nortel issuedthe notice of arbitration vide letter dated 29.04.2020, which was rejectedby BSNL vide its reply dated 09.06.2020. The application under Section11 was filed before the High Court on 24.07.2020 i.e. within the periodof 3 years of rejection of the request for appointment of the arbitrator.

ADiscussion on Second issue

19. We will now discuss the second issue which has arisen forconsideration i.e. whether the Court while exercising jurisdiction underSection 11 is obligated to appoint an arbitrator even in case where theclaims are ex facie time-barred.

To determine this issue, we would have to examine the scope ofjurisdiction under Section 11 of the Act.

Legislative History of Section 11

Pre-amendment positionC

Under the principal Act, the legislative scheme under Section 11was that if the parties had agreed on procedure for appointment of thearbitrator, the appointment had to be made in accordance with thatprocedure. Absent an agreement between the parties, the default powerof appointment in domestic arbitration would be exercised by the ChiefDJustice of the High Court, or person, or institution, designated by him. Inthe case of an international commercial arbitration, the default powerwould be exercised by the Chief Justice of India, or the person, orinstitution, designated by him[10].The object of conferring the power of appointment on the highestjudicial authority was to give credibility to the procedure of appointment.E

20. In SBP & Co. v. Patel Engineering Ltd.,[11]a seven-Judgeconstitution bench of this Court considered the scope of Section 11 ofthe 1996 Act, and held that the scheme of the Act required the ChiefJustice, or his designate, to decide whether there is an arbitrationagreement in terms of Section 7, before exercising the default power forFmaking the appointment of the arbitrator. The scope of power at thepre-reference stage would be as follows:

“33. Section 8 of the Arbitration Act, 1940 enabled the court whenapproached in that behalf to supply an omission. Section 20 ofthat Act enabled the court to compel the parties to produce theGarbitration agreement and then to appoint an arbitrator foradjudicating on the disputes. It may be possible to say that Section11(6) of the Act combines both the powers. May be, it is more inconsonance with Section 8 of the old Act. But to call the power

10 Section 11(9) of the 1996 Act.H11 (2005) 8 SCC 618.

merely as an administrative one, does not appear to be warrantedin the context of the relevant provisions of the Act. First of all, thepower is conferred not on an administrative authority, but on ajudicial authority, the highest judicial authority in the State or in thecountry. No doubt, such authorities also perform administrativefunctions. An appointment of an Arbitral Tribunal in terms of Section11 of the Act, is based on power derived from statute and thestatute itself prescribes the conditions that should exist for theexercise of that power. In the process of exercise of that power,obviously the parties would have the right of being heard andwhen the existence of the conditions for the exercise of the powerare found on accepting or overruling the contentions of one of theparties it necessarily amounts to an order, judicial in nature, havingfinality subject to any available judicial challenge as envisaged bythe Act or any other statute or the Constitution. Looked at fromthat point of view also, it seems to be appropriate to hold that theChief Justice exercises judicial power while appointing anarbitrator.

39. It is necessary to define what exactly the Chief Justice,approached with an application under Section 11 of the Act, is todecide at that stage. Obviously, he has to decide his own jurisdictionin the sense whether the party making the motion has approachedthe right High Court. He has to decide whether there is anarbitration agreement, as defined in the Act and whether the personwho has made the request before him, is party to such anagreement. It is necessary to indicate that he can also decide thequestion whether the claim was dead one; or long-barredclaim that was sought to be resurrected and whether the partieshave concluded the transaction by recording satisfaction of theirmutual rights and obligations or by receiving the final paymentwithout objection. It may not be possible at that stage, to decidewhether live claim made, is one which comes within the purviewof the arbitration clause. It will be appropriate to leave that questionto be decided by the Arbitral Tribunal on taking evidence, alongwith the merits of the claims involved in the arbitration. The ChiefJustice has to decide whether the applicant has satisfied theconditions for appointing an arbitrator under Section 11(6) of theAct. For the purpose of taking decision on these aspects, the

AChief Justice can either proceed on the basis of affidavits and thedocuments produced or take such evidence or get such evidencerecorded, as may be necessary. We think that adoption of thisprocedure in the context of the Act would best serve the purposesought to be achieved by the Act of expediting the process ofarbitration, without too many approaches to the court at variousBstages of the proceedings before the Arbitral Tribunal.

47. (iv) The Chief Justice or the Designated Judge will have theright to decide the preliminary aspects as indicated in the earlierCpart of this judgment. These will be his own jurisdiction to entertainthe request, the existence of valid arbitration agreement, theexistence or otherwise of live claim, the existence of the conditionfor the exercise of his power and on the qualifications of thearbitrator or arbitrators.”

21. Subsequently, in National Insurance Co. Ltd. v. BogharaDPolyfab Pvt. Ltd.,[12] the Court classified the preliminary issues to bedecided by the Chief Justice of India, / Chief Justice of High Court, asthe case may be, under Section 11, and those which must be decided bythe arbitrator, into three categories :

(i)issues which the Chief Justice, or his designate are bound toEdecide are whether the party making the application hasapproached the appropriate High Court; whether there is anarbitration agreement; and whether the party who has madethe application, is party to the agreement;

(ii)issues which the Chief Justice may decide at the thresholdFare : as to whether the claim is dead or long-barred claim,or live claim; whether the parties have concluded thecontract / transaction by recording satisfaction of their mutualrights and obligations, or the party has received the finalpayment without objection;

G(iii)issues which must be left to the arbitral tribunal to decideare whether the claim made falls within the arbitration clause(for example, matter which is reserved for final decisionpf departmental authority, and is “excepted” or excludedfrom arbitration); merits of the claims involved.

H12 (2009) 1 SCC 267.

22. In Union of India & Ors. v. Master Construction Co.[13] thisCourt held that the issue whether discharge voucher, or no claimscertificate, or settlement agreement had been obtained by fraud, coercion,duress, or undue influence, must be determined by the appointing authorityat the Section 11 stage, when prima facie determination as to whethersuch dispute was raised bonafide and genuine must be made. If thedispute prima facie appears to be lacking in credibility, the matter wouldnot be referred to arbitration. bald plea of fraud, coercion, duress, orundue influence was not sufficient, unless the party who sets up such aplea was able to prima facie establish it, by placing material on record.

23. Post-amendment position

The 1996 Act was amended by the Arbitration and Conciliation(Amendment) Act, 2015 which came into force with effect from23.10.2015. The said amendment was based on the recommendationsof the 246[th] Report of the Law Commission of India.

The 2015 Amendment Act made three significant changes :

(i)It replaced the Chief Justice of the High Court as theappointing authority for exercising the default power ofappointment in the case of domestic arbitrations, by theconcerned High Court; and, in respect of internationalcommercial arbitrations, the default power would be exercisedby the Supreme Court, in place of the Chief Justice of India.E

(ii)It inserted sub-section (6A) and (6B) in Section 11, whichreads as :

“11. Appointment of arbitrators.–

(6A) The Supreme Court, as the case may be, the High Court,while considering any application under sub-section (4) orsub-section (5) or sub-section (6), shall, notwithstanding anyjudgment, decree or order of any Court, confine to theexamination of the existence of an arbitration agreement.

(6B) The designation of any person or institution by theSupreme Court, or, as the case may be, the High Court, forthe purposes of this section shall not be regarded as adelegation of judicial power by the Supreme Court or theHigh Court.”

Sub-section (6A) by non-obstante clause provided thatnotwithstanding any judgment, decree or order of any court,the scope of examination at the Section 11 stage, would beconfined to the existence of the arbitration agreement.

The effect of the amendment was that if the existence ofBthe arbitration agreement was not in dispute, all other issueswould be left for the arbitral tribunal to decide. This was inreinforcement of the doctrine of kompetenz-kompetenz,which empowers the tribunal to rule on its own jurisdiction,including any objections with respect to the validity of thearbitration agreement; and thereby minimize judicialCintervention at the pre-reference stage.

(iii)Sub-section (6B) was inserted to provide that the designationof any person or institution, by either the Supreme Court orHigh Court, as the appointing authority under Section 11,would not be regarded as delegation of judicial power.DThe amendments to Section 11 were brought in to legislativelyoverrule the line of judgments including SBP & Co., Boghara Polyfab,Master Construction, etc., which had enlarged the scope of power ofthe appointing authority to decide various issues at the pre-referencestage.

E24. Sub-section (6A) came up for consideration in the case ofDuro Felguera SA v. Gangavaram Port Ltd.[14], wherein this Courtheld that the legislative policy was to minimize judicial intervention at theappointment stage. In an application under Section 11, the Court shouldonly look into the existence of the arbitration agreement, before makingthe reference. Post the 2015 amendments, all that the courts are requiredFto examine is whether an arbitration agreement is in existence —nothingmore, nothing less.

“48. Section 11(6-A) added by the 2015 Amendment, reads asfollows:

“11. (6-A) The Supreme Court or, as the case may be, the HighGCourt, while considering any application under sub-section (4) orsub-section (5) or sub-section (6), shall, notwithstanding anyjudgment, decree or order of any court, confine to theexamination of the existence of an arbitration agreement.”

(emphasis supplied)

From reading of Section 11(6-A), the intention of the legislatureis crystal clear i.e. the court should and need only look into oneaspect—the existence of an arbitration agreement. What are thefactors for deciding as to whether there is an arbitration agreementis the next question. The resolution to that is simple—it needs tobe seen if the agreement contains clause which provides forarbitration pertaining to the disputes which have arisen betweenthe parties to the agreement.

59. The scope of the power under Section 11(6) of the 1996 Actwas considerably wide in view of the decisions in SBP and Co.[SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and BogharaPolyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.,(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] . This positioncontinued till the amendment brought about in 2015. After theamendment, all that the courts need to see is whether an arbitrationagreement exists—nothing more, nothing less. The legislative policyand purpose is essentially to minimise the Court’s intervention atthe stage of appointing the arbitrator and this intention asincorporated in Section 11(6-A) ought to be respected.”25. In Mayavati Trading Company Private Ltd. v. PradyutDev Burman[15], three-judge bench held that the scope of power of theCourt under Section 11 (6A) had to be construed in the narrow sense. Inparagraph 10, it was opined as under :

“10. This being the position, it is clear that the law prior to the2015 Amendment that has been laid down by this Court, whichwould have included going into whether accord and satisfactionhas taken place, has now been legislatively overruled. This beingthe position, it is difficult to agree with the reasoning contained inthe aforesaid judgment [United India Insurance Co. Ltd. v. AntiqueArt Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ)785] , as Section 11(6-A) is confined to the examination of theexistence of an arbitration agreement and is to be understood inthe narrow sense as has been laid down in the judgment in DuroFelguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017)9 SCC 729”

A26. In Uttarakhand Purv Sainik Kalyan Nigam v. NorthernCoal Field Limited,[16]this Court took note of the recommendations ofthe Law Commission in its 246[th] Report, the relevant extract of whichreads as :

“7.6. The Law Commission in the 246th Report [ Amendments toBthe Arbitration and Conciliation Act, 1996, Report No. 246, LawCommission of India (August 2014), p. 20.] recommended that:

“33. … the Commission has recommended amendments toSections 8 and 11 of the Arbitration and Conciliation Act, 1996.The scope of the judicial intervention is only restricted tosituations where the court/judicial authority finds that theCarbitration agreement does not exist or is null and void. Insofaras the nature of intervention is concerned, it is recommendedthat in the event the court/judicial authority is prima faciesatisfied against the argument challenging the arbitrationagreement, it shall appoint the arbitrator and/or refer the partiesDto arbitration, as the case may be. The amendment envisagesthat the judicial authority shall not refer the parties to arbitrationonly if it finds that there does not exist an arbitration agreementor that it is null and void. If the judicial authority is of the opinionthat prima facie the arbitration agreement exists, then it shallrefer the dispute to arbitration, and leave the existence of theEarbitration agreement to be finally determined by the ArbitralTribunal.”

In view of the legislative mandate contained in the amendedSection 11(6A), the Court is now required only to examine the existenceof the arbitration agreement. All other preliminary or threshold issuesFare left to be decided by the arbitrator under Section 16, which enshrinesthe kompetenz-komptenz principle. The doctrine of kompetenz-komptenz implies that the arbitral tribunal is empowered, and has thecompetence to rule on its own jurisdiction, including determination of alljurisdictional issues. This was intended to minimise judicial interventionat the pre-reference stage, so that the arbitral process is not thwarted atGthe threshold when preliminary objection is raised by the parties.

27. The 2019 Amendment to Section 11

Section 11 has been further amended by the Arbitration andConciliation (Amendment) Act, 2019 to promote institutionalization ofH16 (2020) 2 SCC 455.

arbitration in India. The 2019 Amendment Act has deleted sub-section(6A) in Section 11.

However, the amended to Section 11 is yet to be notified.Consequently, sub-section (6A) continues to remain on the statute book,and governs the scope of power under Section 11 for the present.

The notification giving effect to the provisions of the 2019Amendment Act which have been brought into force, reads as :

“MINISTRY OF LAW AND JUSTICE

(Department of Legal Affairs)

NOTIFICATION

New Delhi, the 30th August, 2019

S.O. 3154(E). — In the exercise of the powers conferred bysub-section (2) of section 1 of the Arbitration and Conciliation(Amendment) Act, 2019 (33 of 2019), the Central GovernmentDhereby appoints the 30th August, 2019 as the date on which theprovisions of the following sections of the said Act shall come intoforce:—

(1) section 1;(2) section 4 to section 9 [both inclusive];

(3) section 11 to section 13 [both inclusive];(4) section 15.

[F.No. H-11018/2/2017-Admn.-III(LA)]

Dr. RAJIV MANI, Jt. Secy. and Legal Adviser”

28. The reference to “Section 11” in clause (3) of the Notificationdated 30.08.2019 pertains to Section 11 of the Amendment Act [and notthe principal Act of 1996]. The amendment to Section 11 in the 2019Amendment Act finds place in Section 3 of the 2019 Amendment Act,which reads as :

“3. Amendment of section 11. – In section 11 of the principalAct, -(i)….(ii)….(iii)….(iv)….(v)sub-sections (6A) and (7) shall be omitted”

670SUPREME COURT REPORTS

A29. After the amendment by the 2019 Amendment to Section 11is notified, it will result in the deletion of sub-section (6A), and the defaultpower will be exercised by arbitral institutions designated by the SupremeCourt, or the High Court, as the case may be.

It is relevant to note that sub-section (6B) in Section 11, has notBbeen amended by the 2019 Amendment Act. Sub-section (6B) providesthat the designation of any person, or institution by the Court, shall not beregarded as delegation of “judicial power”. Consequently, it would notbe open for the person or institution designated by the Court to exerciseany judicial power, and adjudicate on any issue, including the issue ofvalidity of the agreement, or the arbitrability of disputes.C

The amendment to sub-section (8) of Section 11 by the 2019Amendment [which is also yet to be notified], provides that the arbitralinstitution will be empowered to : (a) seek disclosure in writing fromthe prospective arbitrator in terms of sub-section (1) of Section 12, tosecure the appointment of an independent and impartial arbitrator; andD(b) ensure that the arbitrator has the qualifications required by thearbitration agreement.

30. Issue of Limitation

Limitation is normally mixed question of fact and law, and wouldElie within the domain of the arbitral tribunal. There is, however, distinctionbetween jurisdictional and admissibility issues. An issue of ‘jurisdiction’pertains to the power and authority of the arbitrators to hear and decidea case. Jurisdictional issues include objections to the competence of thearbitrator or tribunal to hear dispute, such as lack of consent, or adispute falling outside the scope of the arbitration agreement. IssuesFwith respect to the existence, scope and validity of the arbitrationagreement are invariably regarded as jurisdictional issues, since theseissues pertain to the jurisdiction of the tribunal.

31. Admissibility issues however relate to procedural requirements,such as breach of pre-arbitration requirements, for instance, mandatoryGrequirement for mediation before the commencement of arbitration, or achallenge to claim or part of the claim being either time-barred, orprohibited, until some pre-condition has been fulfilled. Admissibility relatesto the nature of the claim or the circumstances connected therewith. Anadmissibility issue is not challenge to the jurisdiction of the arbitrator todecide the claim.H32. The issue of limitation, in essence, goes to the maintainabilityor admissibility of the claim, which is to be decided by the arbitral tribunal.For instance, challenge that claim is time-barred, or prohibited untilsome pre-condition is fulfilled, is challenge to the admissibility of thatclaim, and not challenge to the jurisdiction of the arbitrator to decidethe claim itself.

33. In Swisbourgh Diamond Mines (Pty) Ltd. & Ors. v.Kingdom of Lesotho[17], the Singapore Court of Appeal distinguishedbetween “jurisdiction” and “admissibility” in paragraphs 207 and 208,which read as :

“207. Jurisdiction is commonly defined to refer to the “power ofthe tribunal to hear case”, whereas admissibility refers to“whether it is appropriate for the tribunal to hear it” : WasteManagement, Inc. v. United Mexican States ICSID Case No.ARB (AF) / 98 / 2, Dissenting Opinion of Keith Highet ( 8 May2000) at [58]. To this, Zachary Douglas adds clarity to thisdiscussion by referring to “jurisdiction” as concept that dealswith “the existence of [the] adjudicative power” of an arbitraltribunal, and to “admissibility” as concept dealing with “theexercise of that power” and the suitability of the claim broughtpursuant to that power for adjudication] : [Zachary Douglas, ThePress, 2009] at paras 291 and 310.

208. The conceptual distinction between jurisdiction andadmissibility is not merely an exercise in linguistic hygiene pursuantto pedantic hair-spitting endeavour. This distinction has significantpractical import in investment treaty arbitration because decisionof the tribunal in respect of jurisdiction is reviewable by thesupervisory courts at the seat of the arbitration (for non-ICSIDarbitrations) or before an ICSID ad hoc committee pursuant toArt 52 of the ICSID Convention (for ICSID arbitrations,) whereasa decision of the tribunal on admissibility is not reviewable : seeJan Paulsson, “Jurisdiction and Admissibility” in Global Reflectionson International Law, Commerce and Dispute Resolution, LiberAmicorum in honour of Robert Briner (Gerald Aksen et al, eds)(ICC Publishing, 2005) at p 601, Douglas at para 307, Waibel at p1277, paras 257 and 257 and 258, Hanno Wehland, “Jurisdictionand Admissibility in Proceedings under the ICSID Convention and

Athe ICSID Additional Facility Rules” in ICSID Convention after50 Tears : Unsettled Issues (Crina Baltag, ed) (Kluwer LawInternational, 2016) at pp 233-234, and Chin Leng at p 124.”

34. The judgment in Lesotho (supra) was followed by in BBA &Ors. v. BAZ & Anr.,[18] wherein the Court of Appeal held that statutoryBtime bars go towards admissibility. The Court held that the “tribunalversus claim” test should be applied for purposes of distinguishing whetheran issue goes towards jurisdiction or admissibility. The “tribunal versusclaim” test asks whether the objection is targeted at the tribunal (in thesense that the claim should not be arbitrated due to defect in or omissionto consent to arbitration), or at the claim (in that the claim itself isCdefective and should not be raised at all).

Applying the “tribunal versus claim” test, plea of statutory timebar goes towards admissibility as it attacks the claim. It makes nodifference whether the applicable statute of limitations is classified assubstantive (extinguishing the claim) or procedural (barring the remedy)Din the private international law sense.

35. The issue of limitation which concerns the “admissibility” ofthe claim, must be decided by the arbitral tribunal either as preliminaryissue, or at the final stage after evidence is led by the parties.

E36. In recent judgment delivered by three-judge bench in VidyaDrolia v. Durga Trading Corporation[19], on the scope of power underSections 8 and 11, it has been held that the Court must undertake aprimary first review to weed out “manifestly ex facie non-existent andinvalid arbitration agreements, or non-arbitrable disputes.” The primafacie review at the reference stage is to cut the deadwood, whereFdismissal is bare faced and pellucid, and when on the facts and law, thelitigation must stop at the first stage. Only when the Court is certain thatno valid arbitration agreement exists, or that the subject matter is notarbitrable, that reference may be refused.

In paragraph 144, the Court observed that the judgment inGMayavati Trading had rightly held that the judgment in PatelEngineering had been legislatively overruled.

Paragraph 144 reads as :

18 [2020] SGCA 53.H19 (2021) 2 SCC 1.

“144. As observed earlier, Patel Engg. Ltd. explains and holdsthat Sections 8 and 11 are complementary in nature as both relateto reference to arbitration. Section 8 applies when judicialproceeding is pending and an application is filed for stay of judicialproceeding and for reference to arbitration. Amendments to Section8 vide Act 3 of 2016 have not been omitted. Section 11 covers thesituation where the parties approach court for appointment ofan arbitrator. Mayavati Trading (P) Ltd., in our humble opinion,rightly holds that Patel Engg. Ltd. has been legislatively overruled--and hence would not apply even post omission of subsection (6A) to Section 11 of the Arbitration Act. Mayavati Trading (P)Ltd. has elaborated upon the object and purposes and history of--the amendment to Section 11, with reference to subsection (6A) to elucidate that the section, as originally enacted, was facsimilewith Article 11 of the Uncitral Model of law of arbitration onwhich the Arbitration Act was drafted and enacted.”

(emphasis supplied)

While exercising jurisdiction under Section 11 as the judicial forum,the court may exercise the prima facie test to screen and knockdownex facie meritless, frivolous, and dishonest litigation. Limited jurisdictionof the Courts would ensure expeditious and efficient disposal at thereferral stage. At the referral stage, the Court can interfere “only” whenit is “manifest” that the claims are ex facie time barred and dead, orthere is no subsisting dispute.

Paragraph 148 of the judgment reads as follows :

“148. Section 43(1) of the Arbitration Act states that the LimitationAct, 1963 shall apply to arbitrations as it applies to courtproceedings. Sub-section (2) states that for the purposes of theArbitration Act and Limitation Act, arbitration shall be deemed tohave commenced on the date referred to in Section 21. Limitationlaw is procedural and normally disputes, being factual, would befor the arbitrator to decide guided by the facts found and the lawapplicable. The court at the referral stage can interfere only whenit is manifest that the claims are ex facie time-barred and dead, orthere is no subsisting dispute. All other cases should be referredto the Arbitral Tribunal for decision on merits. Similar would bethe position in case of disputed “no-claim certificate” or defenceon the plea of novation and “accord and satisfaction”. As observed

Ain Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. PremiumNafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)], it is not to be expected that commercial men while enteringtransactions inter se would knowingly create system which wouldrequire that the court should first decide whether the contractshould be rectified or avoided or rescinded, as the case may be,Band then if the contract is held to be valid, it would require thearbitrator to resolve the issues that have arisen.”

In paragraph 154.4, it has been concluded that :

“154.4. Rarely as demurrer the court may interfere at SectionC8 or 11 stage when it is manifestly and ex facie certain that the-arbitration agreement is nonexistent, invalid or the disputes arenon-arbitrable, though the nature and facet of non-arbitrabilitywould, to some extent, determine the level and nature of judicialscrutiny. The restricted and limited review is to check and protectparties from being forced to arbitrate when the matter isDdemonstrably “non-arbitrable” and to cut off the deadwood.Thecourt by default would refer the matter when contentions relatingto non-arbitrability are plainly arguable; when consideration insummary proceedings would be insufficient and inconclusive; whenfacts are contested; when the party opposing arbitration adoptsEdelaying tactics or impairs conduct of arbitration proceedings. Thisis not the stage for the court to enter into mini trial or elaboratereview so as to usurp the jurisdiction of the Arbitral Tribunal butto affirm and uphold integrity and efficacy of arbitration as analternative dispute resolution mechanism.”

(emphasis supplied)

In paragraph 244.4 it was concluded that :

“244.4. The court should refer matter if the validity of thearbitration agreement cannot be determined on prima facie basis,“”as laid down above i.e.when in doubt, do refer.

37. The upshot of the judgment in Vidya Drolia is affirmation ofthe position of law expounded in Duro Felguera and Mayavati Trading,which continue to hold the field. It must be understood clearly that VidyaDrolia has not re-surrected the pre-amendment position on the scope ofpower as held in SBP & Co. v. Patel Engineering (supra).

It is only in the very limited category of cases, where there is noteven vestige of doubt that the claim is ex facie time-barred, or that thedispute is non-arbitrable, that the court may decline to make the reference.However, if there is even the slightest doubt, the rule is to refer thedisputes to arbitration, otherwise it would encroach upon what isessentially matter to be determined by the tribunal.

38. Applying the law to the facts of the present case, it is clearthat this is case where the claims are ex facie time barred by over 5 ½years, since Nortel did not take any action whatsoever after the rejectionof its claim by BSNL on 04.08.2014. The notice of arbitration was invokedon 29.04.2020. There is not even an averment either in the notice ofarbitration, or the petition filed under Section 11, or before this Court, ofany intervening facts which may have occurred, which would extendthe period of limitation falling within Sections 5 to 20 of the LimitationAct. Unless, there is pleaded case specifically adverting to the applicableSection, and how it extends the limitation from the date on which thecause of action originally arose, there can be no basis to save the time oflimitation.

39. The present case is case of deadwood / no subsisting disputesince the cause of action arose on 04.08.2014, when the claims made byNortel were rejected by BSNL. The Respondent has not stated anyevent which would extend the period of limitation, which commenced asper Article 55 of the Schedule of the Limitation Act (which provides thelimitation for cases pertaining to breach of contract) immediately afterthe rejection of the Final Bill by making deductions.

In the notice invoking arbitration dated 29.04.2020, it has beenaverred that:

“Various communications have been exchanged between thePetitioner and the Respondents ever since and dispute has arisen

between the Petitioner and the Respondents, regarding nonpayment of the amounts due under the Tender Document.”

The period of limitation for issuing notice of arbitration would notget extended by mere exchange of letters,[20 ]or mere settlementdiscussions, where final bill is rejected by making deductions orotherwise. Sections 5 to 20 of the Limitation Act do not exclude the time

20 S.S.Rathore v. State of Madhya Pradesh (1989) 4 SCC 582.Union of India & Ors. v. Har Dayal (2010) 1 SCC 394.

CLP India Private Limited v. Gujarat Urja Vikas Nigam Limited & Anr. (2020) 5 SCC185.

Ataken on account of settlement discussions. Section 9 of the LimitationAct makes it clear that : “where once the time has begun to run, nosubsequent disability or inability to institute suit or make an applicationstops it.” There must be clear notice invoking arbitration setting outthe “particular dispute”[21] (including claims / amounts) which must bereceived by the other party within period of 3 years from the rejectionBof final bill, failing which, the time bar would prevail.

In the present case, the notice invoking arbitration was issued 5 ½years after rejection of the claims on 04.08.2014. Consequently, the noticeinvoking arbitration is ex facie time barred, and the disputes betweenthe parties cannot be referred to arbitration in the facts of this case.

C40. Conclusion

Accordingly, we hold that :

(i)The period of limitation for filing an application under Section11 would be governed by Article 137 of the First Schedule ofthe Limitation Act, 1963. The period of limitation will beginDto run from the date when there is failure to appoint thearbitrator;

It has been suggested that the Parliament may consideramending Section 11 of the 1996 Act to provide period oflimitation for filing an application under this provision, whichEis in consonance with the object of expeditious disposal ofarbitration proceedings;

(ii)In rare and exceptional cases, where the claims are ex facietime-barred, and it is manifest that there is no subsistingdispute, the Court may refuse to make the reference.

F41. In view of the aforesaid, the present Civil Appeals are allowed,and the impugned orders dated 13.10.2020 and 14.01.2021 passed bythe High Court are set aside. The application filed under Section 11 bythe Respondent before the High Court is consequently dismissed.

We record our appreciation and gratitude to Mr. Arvind Datar,GSenior Advocate, for having rendered his valuable assistance as Amicusat short notice.

Divya Pandey

Appeals allowed.

H21 Section 21 of the Arbitration and Conciliation Act, 1996.