LIMITATION FOR FILING APPLICATION FOR APPOINTMENT OF ARBITRATOR

[Mr. M. GOVINDARAJAN]

Limitation

The term ‘limitation’ in regard to law is defined as a legally specified period beyond which an action may be defeated or a property right does not continue.  The Limitation Act, 1963 has been enacted to describe various limitation periods for various causes of action.  When there is no limitation prescribed in any Act then the limitation period will be three years which comes under the residuary provision of Article 137 of the Limitation Act.

Limitation in Arbitration Act

Various time lines have been provided in the Arbitration and Conciliation Act, 1963 (‘Act’ for short)-

• Section 8 – an application for reference of disputes to arbitration shall be filed not later than submitting the first statement on the substance of the dispute;
• Section 9(2) – where a court passes an order for any interim measure of protection, the arbitral proceedings shall be commenced within a period of 90 days from the date of such order;
• Section 13 – where a challenge is made against an arbitrator, the same must be raised within 15 days from the constitution of the tribunal, or after becoming aware of any circumstances mentioned in section 12(3);
• Section 16(2) – a plea that the tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence;
• Section 34(3) – a maximum period of 120 days is provided after the receipt of the signed award to file objections before the Court.

Appointment of Arbitrator

Section 11 of the Act provides the procedure for appointment of arbitrators.  Section 11(6) provides that where, under an appointment procedure agreed upon by the parties,-

•  a party fails to act as required under that procedure; or
•  the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
• a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

Section 11(9) of the Act provides that in the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

Thus Section 11 does not prescribe the time limit for filing an application under section 11(6) for appointment of arbitrator.

Section 43 of the Act provides that the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings in Court.

Case laws

In ‘CONSOLIDATED ENGG. ENTERPRISES VERSUS PRINCIPAL SECY. IRRIGATION DEPTT. & ORS. [2008 (4) TMI 668 - SUPREME COURT] the appellant contended that section 43 of the Act makes applicable to the provisions of the Limitation Act only to arbitrations, thereby expressing an intent to exclude the application by any proceedings relating to arbitration in a Court. The Supreme Court held that section 43 of the Act, apart from making the provisions of Limitation Act, 1963 applicable to arbitration, reiterates that the Limitation Act applies to proceedings in Court.  Therefore the provisions of the Limitation Act, 1963 apply tall proceedings in Court and in arbitration, except to the extent expressly excluded by the provisions of the Act.

In ‘Deepdharshan Builders Private Limited v. Saroj’ – [2019] 1 Bom R 249,  [22-11-2018] the Bombay High Court held that since the proceedings under Section 11(6) or section 11(9) of the Act for seeking appointment of arbitral tribunal are also now required to be filed before the High Court or the Supreme Court, as the case may be, Article 137 of the Schedule to the Limitation Act, 1963 would apply.  It is not in dispute that no other article of Schedule to the Limitation Act, 1963 provides for any other period of limitation for filing an arbitration application filed under section 11(6) or section 11(9) of the Act, respectively.

In ‘BHARAT SANCHAR NIGAM LTD. & ANR. VERSUS M/S NORTEL NETWORKS INDIA PVT. LTD. [2021 (3) TMI 447 - SUPREME COURT], the appellant BSNL issued tender notification inviting bids for planning, engineering, supply, insulation, testing and commissioning of GSM based cellular mobile network in the Southern region.  The respondent company was awarded the purchase order.  On completion of the projects the appellant withheld an amount of ₹ 99.70 crores towards liquidated damages and other levies.

The respondent raised a claim on 13.05.2014 for payment of the above said amount from the appellant who rejected the claim on 04.08.2014. 

The respondent, after a period of over 5.5 years invoked the arbitration clause and requested for the appointment of an independent arbitrator on 29.04.2020.  It was also contended that the dispute of withholding the said amount, would fall within the ambit of arbitrable disputes under the agreement.  The appellant on 09.06.2020 replied that the request for appointment of an arbitrator could not be entertained since the case has already been closed and the notice invoking arbitration was time barred.

The respondent filed an application before High Court of Kerala for appointment of arbitrator.  The High Court vide their order dated 13.10.2020 referred the disputes to arbitration.  The appellant filed a review petition before the High Court against the order dated 13.10.2020 which was dismissed by the Court vide their order dated 14.01.2021.

Therefore the appellant filed the present Civil Appeal before the Supreme Court.  The appellant submitted the following before the Supreme Court-

• The cause of action for invoking arbitration arose on 04.08.2014when the claim made by the respondent was rejected by making deductions from the final bill.
• The respondent slept over its alleged rights for over 5.5 years, before issuing the notice of arbitration on 29.04.2020.
• The respondent did not take any action in between the period and therefore the notice invoking arbitration has become legally stale, non arbitrable and unenforceable. 
• The High Court has 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.
• 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 is at par with a civil action and would be covered under Article 137 of 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.

The respondent submitted the following-

• The amendment to Section 11 by the Arbitration and Conciliation (Amendment) Act, 2015 provides for a limited scope of enquiry at the pre-reference stage which is restricted only to the ‘existence; of an arbitration agreement under section 11(6A).
• The objection with respect to the claims being allegedly time barred, could be decided by the arbitral tribunal.
• The High Court rightly limited the enquiry at the pre-reference stage to the ‘existence’ of the arbitration agreement.
• The starting point of limitation for initiating a proceeding under section 11 is the expiry of 30 days’ from the date of issuing notice of arbitration on 29.04.2020.  The cause of action was, therefore, a continuing one.  The High Court had rightly held that the issue of limitation must be decided by the arbitral tribunal.

The Supreme Court considered the following issues for consideration-

• The period of limitation for filing an application under section 11 of the Act; and
• Whether the Court may refused to make the reference under section 11 where the claims are ex facie time barred?

The Supreme Court observed that the Act has been framed for expeditious resolution of disputes and various provisions have been incorporated in the Act to ensure that the arbitral proceedings are conducted in a time bound manner.  The Act does not prescribe any time period for filing an application under section 11(6).  Since there is no provision in the Act specifying the period of limitation for filing an application under section 11, one would have to take recourse to the Limitation Act, 1963, as per Section 43 of the Act which provides that the Limitation Act shall apply to arbitrations, as it applies to proceedings in Court.

Since none of the articles in Schedule to the Limitation Act provide a time period for filing an application for appointment of arbitrator under section 11, it would be covered by the residual provision under article 137 of the Limitation Act which provides that the period of limitation is three years for any other application for which no period of limitation is provided elsewhere in the division.  The time limit starts from the period when the right to apply accrues.

The Supreme Court relied on various judgments of High Courts and Supreme Court.  The Supreme Court held that an application under Section 11 is to be filed in a Court of Law, and since no specific article of the Limitation Act, 1963 applies, the residual article would become applicable.  The effect being that the period of limitation to file an application under section 11 is three years from the date of refusal to appoint the arbitrator or on expiry of 30 days whichever is earlier.

In the present case the respondent issued the notice of arbitration on 29.04.2020 which was rejected by the appellant on 09.06.2020.  The respondent filed an application under section 11 before the High Court on 24.07.2020, i.e., within the period of three years of rejection of the request for appointment of arbitrator.

The Supreme Court dismissed the appeal filed by BSNL.

Amendment required

However the Supreme Court in the above said case observed that since there is vacuum in the law to provide a period of limitation under Section 11 of the Act the Courts have taken recourse to the position that the limitation period would be governed by Article 137 of the Limitation Act, 1963 which provides a period of three years from the date when the right to apply accrues.  The Supreme Court considered it this is an unduly long period for filing an application under section 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 Act has been amended in 2015and 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.

The Supreme Court, therefore, considered it necessary for Parliament to effect an amendment to section 11 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of the arbitration under Section 11 of the Act.