DATE OF JUDGEMENT: 10th March, 2021
JUDGES: Hon’ble Mr. Justice Indu Malhotra, Hon’ble Mr. Justice Ajay Rastogi
PARTIES
- BHARAT SANCHAR NIGAM LTD. & ANR (Plaintiff)
- M/S NORTEL NETWORKS INDIA PVT. LTD (Respondent)
SUBJECT: The Supreme Court bench was considering the appeal filed by BSNL against the Kerala High Court judgment which allowed the application filed by Nortel under Section 11 of the Act before the Kerala High Court for appointment of an arbitrator.
AN OVERVIEW
(i) Taking the first issue: In the suit, BSNL submitted that the cause of action for invoking arbitration arose on 04.08.2014 when the claim made by Nortel was rejected by making deductions from the Final Bill. It was contended that Nortel had slept over its alleged rights for over 5 ½ years, before issuing the notice of arbitration on 29.04.2020. Consequently, the notice invoking arbitration had become legally stale, non-arbitrable and unenforceable.
(ii) 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
(iii) It was submitted by Nortel that 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 sub-section (6A) of Section 11 In view of the doctrine of kompetenz-kompetenz, 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. Consequentlty, the High Court had rightly held that the issue of limitation must be decided by the arbitral tribunal.
(iv) On deciding the issue of limitation for filing an application under Section 11, it was held that Section 11 does not prescribe any time period for filing an application under sub-section (6) for appointment of an arbitrator. This would be covered by the residual provision Article 137 of the Limitation Act, 1963.
(v) It was settled that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days’ from issuance of the notice invoking arbitration. Therefore, the effect being that the period of limitation to file an application under Section 11 is 3 years’ from the date of refusal to appoint the arbitrator, or on expiry of 30 days’, whichever is earlier.
(vi) It was decided that 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. Consequently, Section 29A mandates that the arbitral tribunal will conclude the proceedings within a period of 18 months.
IMPORTANT PROVISIONS
Arbitration & Conciliation Act
- Section 11- “Appointment of arbitrators.” — (1) a person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2) subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators
ISSUES
This Appeal raises two important issues for our consideration :
- The period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996.
- Whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred?
ANALYSIS OF THE JUDGEMENT
- Applying the aforesaid law to the facts of the present case, we find that the application under Section 11 was filed within the limitation period prescribed 11 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
- Taking on the second issue: whether the Court while exercising jurisdiction under Section 11 is obligated to appoint an arbitrator even in a case where the claims are ex facie time-barred. To answer this issue the scope of jurisdiction under Section 11 of the Act was looked into.
- The issue of limitation, in essence, goes to the maintainability 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. Consequently, the issue of limitation which concerns the “admissibility” of the claim, must be decided by the arbitral tribunal either as a preliminary issue, or at the final stage after evidence is led by the parties.
- While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere “only” when it is “manifest” that the claims are ex facie time barred and dead, or there is no subsisting dispute.
- It is clear that this is a case where the claims are ex facie time barred by over 5 ½ years, since Nortel did not take any action whatsoever after the rejection of its claim by BSNL on 04.08.2014.
- The current case is a case of deadwood / no subsisting dispute since the cause of action arose on 04.08.2014, when the claims made by Nortel were rejected by BSNL. The Respondent has not stated 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.
CONCLUSION
In this case, the period of limitation for issuing notice of arbitration would not get extended by mere exchange of letters, 20 or mere settlement discussions, where a final bill is rejected by making deductions or otherwise. In addition, 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 setting out the “particular dispute”21 (including claims / amounts) which must be received by the other party within a period of 3 years from the rejection of a final bill, failing which, the time bar would prevail.
In the current case, the notice invoking arbitration was issued 5 ½ years after rejection of the claims on 04.08.2014. Consequently, the notice invoking arbitration is ex facie time barred, and the disputes between the parties cannot be referred to arbitration in the facts of this case.
It was held by the Bench that, the period 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.
In rare cases, where the claims are ex facie time-barred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference.
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