Provide limitation period for filing application under Section 11, Arbitration Act for appointment of arbitrator: Supreme Court to Parliament

The Parliament should effect an amendment to Section 11 of the Arbitration Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for the appointment of an arbitrator, the Supreme Court said on Wednesday (Bharat Sanchar Nigam Ltd and and v. M/S Nortel Networks Pvt Ltd)..Such limitation period should be in consonance with the object of expeditious disposal of arbitration proceedings, a Bench of Justices Indu Malhotra and Ajay Rastogi observed..“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,” the judgment said..The Bench observed that due to a vacuum in law in this area, courts have had to laid down that the period of limitation for filing an application under Section 11 is governed by Article 137 of the First Schedule of the Limitation Act, 1963. Article 137 deals with applications “for which no period of limitation is provided elsewhere”. The limitation period under this provision is 3 years from the date on which the “right to apply accrues.”.However, this is an unduly long period for filing an application under Section 11 of the Arbitration Act, the top court said. This would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes, the Court added..It, therefore, urged the Parliament to make necessary changes to the law so that Section 11 applications are made in a time-bound manner..“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. It would be 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 1996 Act,” the Court opined..The Court was dealing with an appeal moved by Bharat Sanchar Nigam Limited (BSNL) challenging the Kerala High Court’s decision to refer a dispute between BSNL and Nortel for arbitration. The dispute dated back to August 2014..A notice invoking arbitration was served by Nortel on BSNL in April 2020. Subsequently, Nortel moved a Section 11, Arbitration Act application in the Kerala High Court. The High Court referred the matter to arbitration. This ruling was confirmed after a review plea moved by BSNL was dismissed by the High Court last January, prompting BSNL to move the Supreme Court..On the one hand, the Court found that since Article 137 of the Limitation Act applies, the period of limitation for filing a Section 11, Arbitration Act had not run out in this case..Referring to various case laws, the Court noted that the limitation period would start to run after the failure to appoint an arbitrator within 30 days of the issuance of notice invoking arbitration..“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 the substantive claims made in the underlying commercial contract. The period of limitation for such claims is prescribed under various Articles of the Limitation Act, 1963. The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator,” the Court explained..In this case, the Section 11 application was found to have been filed within the limitation period prescribed 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”, the Court recounted..However, since the claims made by Nortel were, ex-facie time-barred, the Bench ruled that the Court can refuse to refer the dispute for arbitration. Such power, however, can only be exercised in a very limited category of cases, where there is not even a vestige of doubt that the claim is ex-facie time-barred or the dispute is non-arbitrable, the Supreme Court cautioned..“If there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal”, the Court added..In this case, the Court found that Nortel’s claims were clearly time-barred given that there was over 5.5 years’ delay in agitating the issue. The limitation period applicable to the substantive claims made by Nortel was three years’ from the cause of action, as per Article 55 of the Limitation Act (which provides the limitation for cases pertaining to breach of contract). This limitation period started running when BSNL rejected Nortel’s claim in 2014, the Court found..“There is not even an averment either in the notice of arbitration, or the petition filed under Section 11, or before this Court, of any intervening facts which may have occurred, which would extend the period of limitation falling within Sections 5 to 20 of the Limitation Act,” the Court held.It, therefore, allowed BSNL’s appeals and set aside the Kerala High Court’s orders which had allowed the disputes to be referred to arbitration. “In the present 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,” the Court concluded. .[Read Judgment]