TMI Blog2021 (3) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - CIVIL APPEAL NOS. 843-844 OF 2021 ( ARISING OUT OF SLP (C) NO. 1531-32/ 2021 ) - - - Dated:- 10-3-2021 - Indu Malhotra And Ajay Rastogi , JJ. JUDGMENT INDU MALHOTRA , J. Leave granted. 1. The present Appeals raise two important issues for our consideration : (i) the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 ( the 1996 Act ); and (ii) whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred? 2. (a) The factual matrix in which the present issues have arisen for our consideration is the issuance of a tender notification by the Appellant- Company [hereinafter referred to as BSNL ] inviting bids for planning, engineering, supply, insulation, testing and commissioning of GSM based cellular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, the notice invoking arbitration had become legally stale, non-arbitrable and unenforceable. The High Court had erroneously proceeded on the premise of mere existence of a valid arbitration agreement, without considering that such an agreement was inextricably connected with the existence of a live dispute. Even though limitation was a mixed question of fact and law, and is ordinarily to be decided by the arbitral tribunal, in cases where the invocation of the arbitration agreement is ex facie time barred, the Court must reject the request for appointment of an arbitrator. The limitation for invoking arbitration, and seeking appointment of an arbitrator is at par with a civil action, and would be covered by Article 137 of the Schedule to the Limitation Act, 1963. An action taken by a claimant must necessarily fall within the statutory period of 3 years from the date on which the right to apply accrues. Section 11(6A) uses the phrase examination of the existence of an arbitration agreement , which would imply that the power conferred upon the Court is not a formal exercise, but requires a certain degree of examination before making the reference. 5. Submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd, to file objections before the Court- Dakshin Haryana Bijli Vitran Nigam Ltd. v. M/s Navigant Technologies Pvt. Ltd., C.A. No. 791 / 2021 decided on 02.03.2021. 7. The 1996 Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015 to incorporate further provisions for expeditious disposal of arbitral proceedings : (i) Section 11 has been amended to insert sub-section (13) which provides that an application made either before the Supreme Court, or the High Court, or person or institution designated by such Court, shall be disposed of as expeditiously as possible, and an endeavour shall be made to dispose of the petition within a period of 60 days from the date of service of the notice on the opposite party; (ii) Section 29A mandates that the arbitral proceedings must be completed within a period of 12 months from the date of completion of pleadings; (iii) Section 34 was amended to insert sub-section (6) which provides that an application under Section 34 shall be disposed of expeditiously within a period of 1 year from the date on which the notice of filing objections is served upon the other party. Some of these provisions have been held to be mandatory, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings in court. The purpose of Section 43 of the AC Act is not to make the Limitation Act inapplicable to proceedings before court, but on the other hand, make the Limitation Act applicable to arbitrations. As already noticed, the Limitation Act applies only to proceedings in court, and but for the express provision in Section 43, the Limitation Act would not have applied to arbitration, as arbitrators are private tribunals and not courts. Section 43 of the AC 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 the Limitation Act, 1963 apply to all proceedings under the AC Act, both in court and in arbitration, except to the extent expressly excluded by the provisions of the AC Act. (emphasis supplied) 10. Since none of the Articles in the Schedule to the Limitation Act, 1963 provide a time period for filing an application for appointment of an arbitrator under Section 11, it would be covered by the residual provision Article 137 of the Limitation Act, 1963. Article 137 of the Limitation Act, 1963 provides : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-6-1980, it follows that the claims had to be rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of limitation for filing a petition under Section 8(2) of the Act. Insofar as a petition under Section 8(2) is concerned, the cause of action would arise when the other party fails to comply with the notice invoking arbitration. Therefore, the period of limitation for filing a petition under Section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2 SCC 338] , Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [(1993) 4 SCC 338] and Utkal Commercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCC 571] also make this position clear. 13. Various High Courts have taken the view that Article 137 of the Limitation Act would be applicable to an application under Section 11 of the Arbitration Act. The question of the applicability of Article 137 to applications under Section 11 of the 1996 Act came up for consideration before the Bombay High Court in Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(9) of the Arbitration Act respectively. 47. It is not in dispute that Article 137 of the Schedule to the Limitation Act, 1963, such application has to be filed within three years from the date when the right to apply accrues. In my view, under Article 137 of the Limitation Act, 1963, application for appointment of an arbitrator under Section 11(6) or Section 11(9) of the Arbitration Act before the High Court or the Hon'ble Supreme Court would apply from the date when a notice invoking an arbitration agreement is received by other side and other side refuses to the name suggested by the opponent or refusing to suggest any other name in accordance with the provisions of Section 11 or the agreed procedure prescribed in the arbitration agreement within the time contemplated therein or specifically refuses to appoint any arbitrator in the event of such other party being an appointing authority. 48. In my view, the limitation prescribed under Article 137 of the Schedule to the Limitation Act, 1963 which applies to an application under Section 11(6) or Section 11(9) of the Arbitration Act filed before the High Court or before the Hon'ble Supreme Court cannot be mixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65 : (2018) 4 SCC (Civ) 612] ) is three years from the date on which the cause of action or the claim which is sought to be arbitrated first arises. 17. 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 1996 Act has been amended twice over in 2015 and 2019, to provide for further time limits to ensure that the arbitration proceedings are conducted and concluded expeditiously. Section 29A mandates that the arbitral tribunal will conclude the proceedings within a period of 18 months. In view of the legislative intent, the period of 3 years for filing an application under Section 11 would run contrary to the scheme of the Act. It would be necessary for Parliament to effect an amendment to Section 11, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the Arbitration Act, 1940 enabled the court when approached in that behalf to supply an omission. Section 20 of that Act enabled the court to compel the parties to produce the arbitration agreement and then to appoint an arbitrator for adjudicating on the disputes. It may be possible to say that Section 11(6) of the Act combines both the powers. May be, it is more in consonance with Section 8 of the old Act. But to call the power merely as an administrative one, does not appear to be warranted in the context of the relevant provisions of the Act. First of all, the power is conferred not on an administrative authority, but on a judicial authority, the highest judicial authority in the State or in the country. No doubt, such authorities also perform administrative functions. An appointment of an Arbitral Tribunal in terms of Section 11 of the Act, is based on a power derived from a statute and the statute itself prescribes the conditions that should exist for the exercise of that power. In the process of exercise of that power, obviously the parties would have the right of being heard and when the existence of the conditions for the exercise of the power are found on accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. 21. Subsequently, in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267 the Court classified the preliminary issues to be decided by the Chief Justice of India, / Chief Justice of a High Court, as the case may be, under Section 11, and those which must be decided by the arbitrator, into three categories : (i) issues which the Chief Justice, or his designate are bound to decide are whether the party making the application has approached the appropriate High Court; whether there is an arbitration agreement; and whether the party who has made the application, is a party to the agreement; (ii) issues which the Chief Justice may decide at the threshold are : as to whether the claim is a dead or long-barred claim, or a live claim; whether the parties have concluded the contract / transaction by recording satisfaction of their mutual rights and obligations, or the party has received the final payment without objection; (iii) issues which must be left to the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause provided that notwithstanding any judgment, decree or order of any court, the scope of examination at the Section 11 stage, would be confined to the existence of the arbitration agreement. The effect of the amendment was that if the existence of the arbitration agreement was not in dispute, all other issues would be left for the arbitral tribunal to decide. This was in reinforcement 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 the arbitration agreement; and thereby minimize judicial intervention at the pre-reference stage. (iii) Sub-section (6B) was inserted to provide that the designation of any person or institution, by either the Supreme Court or High Court, as the appointing authority under Section 11, would not be regarded as a delegation of judicial power. The amendments to Section 11 were brought in to legislatively overrule the line of judgments including SBP Co., Boghara Polyfab, Master Construction, etc., which had enlarged the scope of power of the appointing authority to decide various issues at the pre-reference stage. 24. Sub-section (6A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785] , as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729 26. In Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited, (2020) 2 SCC 455 this Court took note of the recommendations of the Law Commission in its 246th Report, the relevant extract of which reads as : 7.6. The Law Commission in the 246th Report [ Amendments to the Arbitration and Conciliation Act, 1996, Report No. 246, Law Commission of India (August 2014), p. 20.] recommended that: 33. the Commission has recommended amendments to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.O. 3154(E). - In the exercise of the powers conferred by sub-section (2) of section 1 of the Arbitration and Conciliation (Amendment) Act, 2019 (33 of 2019), the Central Government hereby appoints the 30th August, 2019 as the date on which the provisions of the following sections of the said Act shall come into force:- (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 Notification dated 30.08.2019 pertains to Section 11 of the Amendment Act [and not the principal Act of 1996]. The amendment to Section 11 in the 2019 Amendment Act finds place in Section 3 of the 2019 Amendment Act, which reads as : 3. Amendment of section 11. In section 11 of the principal Act, - (i) . (ii) . (iii) . (iv) . (v) sub-sections (6A) and (7) shall be omitted 29. After the amendment by the 2019 Amendment to Section 11 is notified, it will result in the deletion of sub-section (6A), and the default power wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity 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. 33. In Swisbourgh Diamond Mines (Pty) Ltd. Ors. v. Kingdom of Lesotho [2019] 1 SLR 263, the Singapore Court of Appeal distinguished between jurisdiction and admissibility in paragraphs 207 and 208, which read as : 207. Jurisdiction is commonly defined to refer to the power of the tribunal to hear a case , whereas admissibility refers to whether it is appropriate for the tribunal to hear it : Waste Management, Inc. v. United Mexican States ICSID Case No. ARB (AF) / 98 / 2, Dissenting Opinion of Keith Highet ( 8 May 2000) at [58]. To this, Zachary Douglas adds clarity to this discussion by referring to jurisdiction as a concept that deals with the existence of [the] adjudicative power of an arbitral tribunal, and to admissibility as a concept dealing with the exercise of that power and the suitability of the claim brought pursuant to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s led by the parties. 36. In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 , on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused. In paragraph 144, the Court observed that the judgment in Mayavati Trading had rightly held that the judgment in Patel Engineering had been legislatively overruled. Paragraph 144 reads as : 144. As observed earlier, Patel Engg. Ltd. explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen. In paragraph 154.4, it has been concluded that : 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably non-arbitrable and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for cases pertaining to breach of contract) immediately after the rejection of the Final Bill by making deductions. In the notice invoking arbitration dated 29.04.2020, it has been averred that: Various communications have been exchanged between the Petitioner and the Respondents ever since and a dispute has arisen between the Petitioner and the Respondents, regarding non payment of the amounts due under the Tender Document. The period of limitation for issuing notice of arbitration would not get extended by mere exchange of letters, 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 SCC 185 or mere settlement discussions, where a final bill is rejected by making deductions or otherwise. Sections 5 to 20 of the Limitation Act do not exclude the time taken on account of settlement discussions. Section 9 of the Limitation Act makes it clear that : where once the time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it. There must be a clear notice invoking arbitration setti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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