Libertatem Magazine

Article 137 of Limitation Act Governs the Limitation Period for Filing Application Seeking Appointment of Arbitrator: Supreme Court

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The Supreme Court in a judgment on 10 March 2021 observed that Article 137 of the First Schedule of the Limitation Act would govern the time of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, and it would begin on the day the arbitrator was not appointed.

Facts of the Case

In this case, the Appellant company was BSNL, who had issued tender notification for inviting bids for various purposes in the southern region. The Respondent company “Nortel” was awarded the purchase order in the process of tender. On completion of the work under the purchase order, the Appellant company withheld the amount of approx. 99 Crores towards liquidated damages and other levies. Later, when Nortel Company claimed for the payment, the BSNL rejected the claim. 

After a duration of five and a half years, the Respondent company exercised the arbitration clause and demanded the appointment of an independent arbitrator, arguing that the conflict over the withholding of the aforementioned sums fell within the scope of arbitrable conflicts under the agreement. This request was opposed by the Appellant company claiming that the case had already been closed and according to the provisions of Arbitration and Conciliation Act, the notice for invoking arbitration was time barred.

The Kerala High Court, after receiving the application under Section 11 for the appointment of the arbitrator, referred the dispute to the arbitrator. It also dismissed the review petition filed by the Appellant company. As a consequence, the present appeal was filed.

Pleadings before the Court

The learned Counsel on behalf of the Appellant submitted that on the date when BSNL rejected the claim made by the Respondents, the cause of action arose for arbitration and the Respondent company slept over its alleged rights for a period of five and the half years before issuing the notice of arbitration. It was also submitted that the process of invoking arbitration and seeking for the appointment of independent arbitrator was time barred and in cases where the request for arbitration was prima facie time barred, the Court must reject the same.

On the other hand, the learned Counsel on behalf of the Respondent submitted that according to the doctrine of kompetenz-kompetenz, the objection of the Appellant of being the issue time barred could only be decided by the Arbitral tribunal. It was further submitted that after the amendment of the Act in the year 2015, the existing distinction between the limitation for filing an application under Section 11 and the application regarding the underlying claims no longer existed. Also, the cause of action was a continuing one in this case. 

Court’s Observation

The bench of the Supreme Court comprising Justices Indu Malhotra and Ajay Rastogi, observed that since the Arbitration Act made no provision for a time limit for filing an appeal under Section 11, one must depend on the Limitation Act, which specifies that the Limitation Act applies to arbitrations in the same manner that it does to Court proceedings. 

It was further observed that the arbitral tribunal was required by Section 29A to complete the proceedings in 18 months. The three-year time limit for filing an application under Section 11 would be in violation of the Act’s scheme, given the legislative intent. It would be appropriate for Parliament to amend Section 11 of the 1996 Act to set a time limit for a party to apply to the Court for the appointment of an arbitrator.

Court’s Judgment

It was held by the Court that it can refuse to make the reference in rare and unusual circumstances, such as when the claims were ex facie time barred and no conflict exists. They also suggested that Section 11 of the Act should be amended to provide a time limit for filing an application under this section, in keeping with the objective of expeditious arbitration proceedings.

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