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TMI Blog2024 (11) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a restricted and limited review was considered necessary to check and protect parties from being forced to arbitrate when the matter is demonstrably non-arbitrable and to cut off the deadwood. In Bharat Sanchar Nigam Limited and Another v. Nortel Networks India Private Limited [ 2021 (3) TMI 447 - SUPREME COURT] , the notice invoking arbitration was issued 5 years after the cause of action arose, i.e., rejection of the claims of Nortel by BSNL and the claim was therefore held to be ex facie time-barred. This Court clarified that the period of limitation for filing a petition seeking appointment of an arbitrator(s) cannot be confused or conflated with the period of limitation applicable to substantive claims made in the underlying commercial contract. The substantive claims of the petitioner are ex-facie time barred and therefore, incapable of being referred to arbitration. The respondents contend that, with respect to the issue relating to the 2,00,010 equity shares, the petitioner has sought enforcement of the letter dated 22.09.2011 but has however, served a notice invoking arbitration 6 years later on 23.01.2017. Further, with respect to the 4,00,000 equity shares, it was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was executed by and among the petitioner, respondent no.1, respondent no.2, Mr. Robert Wayne Pantermuehl, and Mr. Sunil B. Shitole. In terms of the said Shareholders Agreement, the petitioner was to hold 4,00,000 equity shares of respondent no. 1 and also participate in the management of respondent no.1 company. The relevant clauses from the same are reproduced hereinbelow: 4. RIGHT OF PRE-EMPTION FOR ISSUE OF NEW DILUTION INSTRUMENTS OR DILUTION OF SHAREHOLDING Present issued, subscribed and paid up share capital of the Company is Rs. 2,64,00.000/- divided into 26,40,000 equity shares of INR 10 each which is held by the members as mentioned below: a. Gumpro holding 18,00,000 equity shares of Rs. 10/- each in the Company. b. Bob currently holding only 40,000 equity shares of Rs. 10/- each and shall be allotted additional 360,000 equity shares subject to getting the approval of Foreign Investment Promotion Board (FIPB). Ministry of' Finance and Reserve Bank of India or such other approval as may be required as per Indian Law. c. Aslam Khan holding 400,000 equity shares of Rs. 10/- each in the Company and d. Sunil Shitole holding 400,000 equity shares of Rs. 10/- each in the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company in whatever form, or any legal or beneficial interest therein, until the earlier of: (a) Gumpro ceasing to hold a minimum of two percent (2%) of its shareholding in the Company and (b) the completion of a Qualified Public Offering, except in compliance with this Shareholders' Agreement, particularly Section 6. Without prejudice to the generality of the foregoing. The Other Shareholder shall not Transfer any part of their individual shareholding until the expiry of three (03) years from the date of issue of such shares. It has been clearly understood and agreed that the shares of the Other Shareholder are locked-in for a period of three years from the date of its issuance or conversion of it into equity shares. xxx xxx xxx 6. RIGHT OF FIRST REFUSAL AND RIGHT OF CO-SALE 6.1 General. Subject to the provisions of Section 5, the Other Shareholder (for this Section Selling Shareholder ) hereby unconditionally and irrevocably grants to Gumpro a right (the Right of First Refusal ) to purchase all or a portion of the Shares that such Selling Shareholder may propose to Transfer ( Sale Shares ). 6. Mr. Anand Gupta, the Managing Director of respondent no.2 informed the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g approvals from the government, and handling administrative and legal aspects of the business to respondent no. 1. In return, respondent no. 1 agreed to issue 4,00,000 equity shares of Rs. 10/- each to the petitioner for consideration other than cash. The relevant recitals and clauses from the same are reproduced herein below: WHEREAS [ ] 3. The Parties have agreed before starting this venture that the Transferor shall transfer all his commercial expertise knowledge and experience in the field of getting the approvals of government. handling administrative and legal aspects of the Business ( Commercial Expertise ') to the Transferee and the Transferee shall issue him 400,000 equity shares of Rs. 10/- each in the Transferee Company for the consideration other than cash for transferring such Commercial Expertise to the Transferee and continuing with the transferee Company for minimum period of three (3) years and the such shares allotted to him shall be under lock in for three years. xxx xxx xxx 3. TRANSFER OF COMMERCIAL EXPERTISE AND ISSUE OF SHARES 3.1 It is hereby agreed by and between the parties hereto that all the Commercial Expertise of the Transferor pertaining to or ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner despite confirmation of the same vide letter dated 22.09.2011 and also the non-issuance of the share certificates evidencing allotment of additional 2,00,010 shares in the name of the petitioner by respondent no. 1. The petitioner further contended that despite holding 4,00,000 equity shares in respondent no.1 as per the Shareholders Agreement, respondent no.1 failed to issue duly stamped, signed and sealed share certificates evidencing such an allotment to the petitioner. 11. It is the case of the petitioner that he had requested respondent no.1 on several occasions to either issue the share certificates evidencing allotment of 4,00,000 equity shares or in the alternate, return the amount equivalent to such shares. The petitioner alleged that, since the share certificates were not issued to him, he was unable to send an offer notice to sell his portion of equity shares to respondent no.2 who has the Right of First Refusal under Clause 6 of the Shareholders Agreement. 12. The petitioner stated that since the respondents were not paying heed to his repeated requests for issuance of share certificates, the petitioner sent a Common Notice dated 23.01.2017 (hereinafter referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement. 15. The High Court of Bombay vide Judgment and final order dated 22.02.2019 held that the petitioner is a Non-Resident Indian who habitually resides and works in Dubai. The proceedings would constitute an international commercial arbitration and therefore, the Section 11 applications filed before it were not maintainable. 16. In light of the above and upon the dismissal of the Section 11 applications by the High Court, the petitioner has filed the present petitions before this Court i.e., Arbitration Petition No.20 and Arbitration Petition No. 22 under Section 11(6), for appointment of an arbitral tribunal, to adjudicate the disputes under the Shareholders Agreement pertaining to 2,00,010 shares and 4,00,000 shares respectively. II. SUBMISSIONS ON BEHALF OF THE PETITIONER 17. Mr. Kunal Cheema, the learned counsel appearing for the petitioner, submitted that both the arbitration petitions arise out of disputes under the Shareholders Agreement. Clause 13.10 of the agreement provides for the arbitration clause and the same has not been disputed by the parties. 18. It was submitted that the petitioner was entitled to be allotted 4,00,000 equity shares of Rs. 10 each in responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction had arisen at any specific point of time, there is a continuing breach of contract since the respondents failed to provide the share certificates and abide by the Shareholders Agreement and the letter dated 22.09.2011. Therefore, in view of Section 22 of the Limitation Act, 1963, a fresh period of limitation would begin to run at every moment of time during which the breach continues. 23. Another submission of the counsel was that the respondents, on 07.11.2017 had sent a reply to the Arbitration Notice dated 23.01.2017 wherein they appointed two arbitrators as per Clause 13.10 of the Shareholders Agreement. The same was sent after the applications under Section 11(6) were filed before the High Court of Bombay. In the said letter, the respondents have not contended that the claim is time barred. 24. It was further submitted that, in reply to the Arbitration Notice, the only case of the respondents is that the issue regarding the 2,00,010 shares cannot be referred to arbitration under clause 13.10 of the Shareholders Agreement and that the scope of arbitration should be confined only to the issue of the 4,00,000 shares. However, the letter dated 22.09.2011 clearly states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.07.2013, he is not entitled to these shares. In any case, any claim regarding the 4,00,000 equity shares, howsoever misconceived, can arise only upon the date of resignation i.e., 18.07.2013 and the Arbitration Notice being issued on 23.01.2017 was clearly outside of limitation. Therefore, the present petition is stale, belated and misconceived. 30. The counsel, in the last, submitted that Section 43 of the Act, 1996 lays down that the Limitation Act, 1963 is applicable to arbitrations. An arbitration commences upon issuing the notice of invocation of arbitration in accordance with the arbitral clause i.e., Clause 13.10 of the Shareholders Agreement. Accordingly, where the petitioner seeks enforcement of the letter dated 22.09.2011, the Notice for Invocation of Arbitration was served 6 years later i.e., on 23.01.2017 and is hopelessly outside of limitation. For the sake of argument and without admitting, even if limitation for the claim of the petitioner with respect to the 2,00,010 shares is calculated from the date when he ceased to be in employment, i.e., from 18.07.2013, the claim is still clearly time-barred. IV. ANALYSIS 31. Having heard the learned counsel appearing for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fere 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 into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism. (Emphasis supplied) 33. In Bharat Sanchar Nigam Limited and Another v. Nortel Networks India Private Limited reported in (2021) 5 SCC 738, the notice invoki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any event which would extend the period of limitation, which commenced as per Article 55 of the Schedule of the Limitation Act (which provides the limitation for cases pertaining to breach of contract) immediately after the rejection of the final bill by making deductions. (Emphasis supplied) 34. This very Bench in Arif Azim Company Limited v. Aptech Limited reported in (2024) 5 SCC 313 was concerned with the following two issues while deciding an application for the appointment of an arbitrator under Section 11(6) of the Act, 1996 first, whether the Limitation Act, 1963 is applicable to an application for appointment of arbitrator under Section 11(6) of the Act, 1996?; and second, whether the Court may decline to make a reference under Section 11 of the Act, 1996 where the claims are ex-facie and hopelessly time barred. 35. On the first issue in Arif Azim (supra), it was observed that Section 11(6) of the Act, 1996 would be covered by Article 137 of the Limitation Act, 1963 which prescribes a limitation period of 3 years from the date when the right to apply accrues. The limitation period for filing an application seeking appointment of an arbitrator was held to commence only af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment Act are as follows: (iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of sixty days. (iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues. 209. The above extract indicates that the Supreme Court or High Court at the stage of the appointment of an arbitrator shall examine the existence of a prima facie arbitration agreement and not other issues . These other issues not only pertain to the validity of the arbitration agreement, but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings. Accordingly, the other issues also include examination and impounding of an unstamped instrument by the referral court at the Section 8 or Section 11 stage [ ] (Emphasis supplied) 38. In light of the aforesaid observations, the ratio of Arif Azim (supra) was reconsidered by this very Bench in SB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time barred and should leave that question for determination by the arbitrator. Such an approach gives true meaning to the legislative intention underlying Section 11(6-A) of the Act, and also to the view taken in In Re : Interplay (supra) . 134. The observations made by us in Arif Azim (supra) are accordingly clarified. We need not mention that the effect of the aforesaid clarification is only to streamline the position of law, so as to bring it in conformity with the evolving principles of modern-day arbitration, and further to avoid the possibility of any conflict between the two decisions that may arise in future. These clarifications shall not be construed as affecting the verdict given by us in the facts of Arif Azim (supra), which shall be given full effect to notwithstanding the observations made herein. (Emphasis supplied) 39. Therefore, while determining the issue of limitation in the exercise of powers under Section 11(6) of the Act, 1996, the referral court must only conduct a limited enquiry for the purpose of examining whether the Section 11(6) application has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which the parties proceeded before the Bombay High Court which ultimately held that the applications before it were not maintainable i.e., 03.03.2017 to 22.02.2019, these petitions are well within the bounds of limitation. 42. The primary issue that has been canvassed by the respondents is that the substantive claims of the petitioner are ex-facie time barred and therefore, incapable of being referred to arbitration. The respondents contend that, with respect to the issue relating to the 2,00,010 equity shares, the petitioner has sought enforcement of the letter dated 22.09.2011 but has however, served a notice invoking arbitration 6 years later on 23.01.2017. Further, with respect to the 4,00,000 equity shares, it was contended that the claim can only arise upon the date of resignation i.e., 18.07.2013 and the claim would, therefore, again be time-barred. Conversely, the case of the petitioners is that the date of 15.10.2015 i.e., the date of the last legal notice sent by the respondents to the petitioner, can be considered as the date of cause of action for the purposes of limitation. In the alternative, they assert that there is no specific date or day on which it can be ascer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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