2024 (3) TMI 121 - SC - Indian Laws

Appointment of an arbitrator for the adjudication of disputes - Applicability of time limitation - Section 11(6) of the Arbitration and Conciliation Act, 1996 - agreement entered into between the parties for the AELA- failure of the respondent in nominating an arbitrator as per the mutually agreed upon procedure in response to notice for invocation of arbitration. Whether the Limitation Act, 1963 is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996? If yes, whether the present petition is barred by limitation? - HELD THAT - There is no doubt as to the applicability of the Limitation Act, 1963 to arbitration proceedings in general and that of Article 137 of the Limitation Act, 1963 to a petition under Section 11(6) of the Act, 1996 in particular. Having held thus, the next question that falls for determination is whether the present petition seeking appointment of an arbitrator is barred by limitation. The determination of the aforesaid question is an exercise involving both law and facts. As is evident from Article 137 of the Limitation Act, 1963, the limitation period for making an application under Section 11(6) of the Act, 1996 is three years from the date when the right to apply accrues. Thus, to determine whether the present petition is barred by limitation, it is necessary to ascertain when the right to file the present petition under Section 11(6) of the Act, 1996 accrued in favour of the petitioner. When does the right to apply under Section 11(6) accrue? - HELD THAT - The request for appointment of an arbitrator was first made by the petitioner vide notice dated 24.11.2022 and a time of one month from the date of receipt of notice was given to the respondent to comply with the said notice. The notice was delivered to the respondent on 29.11.2022. Hence, the said period of one month from the date of receipt came to an end on 28.12.2022. Thus, it is only from this day that the clock of limitation for filing the present petition would start to tick. The present petition was filed by the petitioner on 19.04.2023, which is well within the time period of 3 years provided by Article 137 of the Limitation Act, 1963. Thus, the present petition under Section 11(6) of the Act, 1996 cannot be said to be barred by limitation. Whether the court may refuse to make a reference under Section 11 of Act, 1996 where the claims are ex-facie and hopelessly time-barred? - HELD THAT - The present petition filed by the petitioner is not barred by limitation. Whether the claims sought to be arbitrated by the petitioner are ex-facie barred by limitation, and if so, whether the court may refuse to refer them to arbitration? - Jurisdiction versus Admissibility - HELD THAT - From the email communications placed on record, it appears that due to the pre-existing disputes between the parties in relation to the franchise agreements, the respondent sent a demand notice to the petitioner seeking payment of royalty and renewal fees from the petitioner. It appears that in reply to the said notice dated 23.03.2018, the petitioner raised the issue of payment of dues relating to the ICCR project. Some more emails were exchanged between the parties on the issue however it can be seen that vide email dated 28.03.2018, the respondent clearly showed unwillingness to continue further discussions regarding payments related to the ICCR project. Thus, it can be said that the rights of the petitioner to bring a claim against the respondent were crystallised on 28.03.2018 and hence the cause of action for invocation of arbitration can also said to have arisen on this date. When does the Cause of Action arise? - HELD THAT - The balance limitation left on 15.03.2020 would become available w.e.f. 01.03.2022. The balance period of limitation remaining on 15.03.2020 can be calculated by computing the number of days between 15.03.2020 and 27.03.2021, which is the day when the limitation period would have come to an end under ordinary circumstances. The balance period thus comes to 1 year 13 days. This period of 1 year 13 days becomes available to the petitioner from 01.03.2022, thereby meaning that the limitation period available to the petitioner for invoking arbitration proceedings would have come to an end on 13.03.2023. When is Arbitration deemed to have commenced? - HELD THAT - In the present case, the notice invoking arbitration was received by the respondent on 29.11.2022, which is within the three-year period from the date on which the cause of action for the claim had arisen. Thus, it cannot be said that the claims sought to be raised by the petitioner are ex-facie time-barred or dead claims on the date of the commencement of arbitration - from an exhaustive analysis of the position of law on the issues, while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test first, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings. If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal. The present arbitration petition having been filed within a period of three years from the date when the respondent failed to comply with the notice of invocation of arbitration issued by the petitioner is not hit by limitation - The notice for invocation of arbitration having been issued by the petitioner within a period of three years from the date of accrual of cause of action, the claims cannot be said to be ex-facie dead or time-barred on the date of commencement of the arbitration proceedings. Shri Justice Sanjay Kishan Kaul, Former Judge of the Supreme Court of India, appointed to act as the sole arbitrator - petition allowed.

Summary

Issues Involved:

1. Whether the Limitation Act, 1963 is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996? If yes, whether the present petition is barred by limitation?
2. Whether the court may refuse to make a reference under Section 11 of the Arbitration and Conciliation Act, 1996 where the claims are ex-facie and hopelessly time-barred?

Summary:

Issue 1: Applicability of Limitation Act, 1963

The court examined whether the Limitation Act, 1963 applies to an application for the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. It was established that the Limitation Act, 1963 indeed applies to arbitration proceedings. Article 137 of the Limitation Act, which provides a three-year limitation period for applications where no specific period is provided, is applicable to Section 11(6) petitions. The limitation period begins when the right to apply accrues, which is typically after a valid notice invoking arbitration has been issued and the other party fails or refuses to appoint an arbitrator within the stipulated time.

In this case, the notice invoking arbitration was issued on 24.11.2022, and the respondent received it on 29.11.2022. The court determined that the limitation period for filing the petition started on 28.12.2022 (one month after the notice receipt) and the petition filed on 19.04.2023 was within the three-year period, thus not barred by limitation.

Issue 2: Refusal to Make a Reference When Claims are Ex-Facie Time-Barred

The court considered whether it should refuse to refer the dispute to arbitration if the claims are ex-facie and hopelessly time-barred. It distinguished between "jurisdictional issues" (affecting the arbitrator's authority) and "admissibility issues" (related to the nature of the claim, such as being time-barred). The court emphasized that it should prima facie examine and reject claims that are clearly time-barred to avoid unnecessary arbitration proceedings.

In this case, the cause of action for the petitioner arose on 28.03.2018 when the respondent denied the petitioner's claim for payment. Considering the exclusion of the period from 15.03.2020 to 28.02.2022 due to the COVID-19 pandemic, the limitation period was extended. The notice invoking arbitration was issued within the extended limitation period, making the claims not ex-facie time-barred on the date of arbitration commencement.

Conclusion:

The petition was allowed, and Shri Justice Sanjay Kishan Kaul, Former Judge of the Supreme Court of India, was appointed as the sole arbitrator. The court also suggested that the Parliament should consider amending the Act, 1996 to prescribe a specific period of limitation for filing applications under Section 11 to ensure expeditious resolution of disputes.