2024 Supreme(SC) 174

SUPREME COURT OF INDIA
Dhananjaya Y. Chandrachud, CJI., J.B. Pardiwala, Manoj Misra, JJ.
M/S Arif Azim Co. Ltd. - Petitioner
Versus
M/S Aptech Ltd. – Respondent
Arbitration Petition No. 29 of 2023
Decided On : 01-03-2024

IMPORTANT POINTS
(1) Limitation Act, 1963 would apply to arbitrations as it applies to proceedings in court.
(2) Appointment of Arbitrator – Limitation period for making an application seeking appointment of Arbitrator must not be conflated or confused with limitation period for raising substantive claims which are sought to be referred to an arbitral tribunal – Limitation period for filing application seeking appointment of Arbitrator commences only after a valid notice invoking arbitration has been issued by one of parties to other party and there has been either a failure or refusal on part of other party to make an appointment as per appointment procedure agreed upon between parties.
(3) Arbitration petition – Period of limitation – Period of three years is an unduly long period for filing an application under Section 11 of Act, 1996 and goes against very spirit of Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner.

Headnote:

(A) Limitation Act, 1963 – Section 43 and Article 137 – Arbitration and Conciliation Act, 1996 – Section 11(6) – Arbitration petition – Period of limitation – Object behind having a prescribed limitation period is to ensure that there is certainty and finality to litigation and assurance to opposite party that it will not be subject to an indefinite period of liability – Another object achieved by a fixed limitation period is to only allow those claims which are initiated before deterioration of evidence takes place – Law of limitation does not act to extinguish right but only bars remedy – Limitation Act, 1963 would apply to arbitrations as it applies to proceedings in court – There is no doubt as to applicability of Limitation Act, 1963 to arbitration proceedings in general and that of Article 137 of Limitation Act, 1963 to a petition under Section 11(6) of Act, 1996 in particular. (Paras 44, 45 and 50)

(B)Arbitration and Conciliation Act, 1996 – Section 11(6) – Limitation Act, 1963 – Section Article 137 – Appointment of Arbitrator – Period of limitation – Limitation period under Article 137 of Limitation Act, 1963 will commence only after right to apply has accrued in favour of applicant – Limitation period for making an application seeking appointment of Arbitrator must not be conflated or confused with limitation period for raising substantive claims which are sought to be referred to an arbitral tribunal – Limitation period for filing application seeking appointment of Arbitrator commences only after a valid notice invoking arbitration has been issued by one of parties to other party and there has been either a failure or refusal on part of other party to make an appointment as per appointment procedure agreed upon between parties – Limitation period for filing petition under Section 11(6) of Act, 1996 can only commence once a valid notice invoking arbitration has been sent by applicant to other party, and there has been a failure or refusal on part of that other party in complying with requirements mentioned in such notice – As per Hohfeld’s scheme of jural relations, conferring of a right on one entity must entail vesting of a corresponding duty in another – When an application under Section 11(6) of Act, 1996 is made before this Court without exhausting mechanism prescribed under said sub-section, including that of invoking arbitration by issuance of a formal notice to other party, Court is not duty bound to appoint Arbitrator and can reject application for being premature and non-compliant with statutory mandate. (Paras 52 and 56)

(C) Arbitration and Conciliation Act, 1996 – Sections 11(6) and 21 – Limitation Act, 1963 – Section 43 and Article 137 – Appointment of Arbitrator – Time-barred claims – Issue of limitation is essentially an admissibility issue and is not a challenge to jurisdiction of Arbitrator to decide claim – Although, limitation is an admissibility issue, yet it is duty of courts to prima-facie examine and reject non-arbitrable or dead claims so as to protect other party from being drawn into a time-consuming and costly arbitration process – In ordinary circumstances, limitation period available to petitioner for raising a claim would have come to an end after an expiry of three years, that is, on 27.03.2021 – However, in March 2020, entire world was taken under grip of deadly Covid-19 pandemic bringing everyday life and commercial activity to a complete halt across the globe – Taking cognisance of this unfortunate turn of events, this Court vide order dated 23.03.2020 passed in Suo Motu Civil Writ Petition No. 03/2020 directed period commencing from 15.03.2020 to be excluded for the purposes of computation of limitation – Said extension of limitation was extended from time to time by this Court in view of continuing pandemic – As a result, period from 15.03.2020 to 28.02.2022 was finally determined to be excluded for computation of limitation – It was provided that balance period of limitation as available on 15.03.2020 would become available from 01.03.2022 – Limitation period available to petitioner for invoking arbitration proceedings would have come to an end on 13.03.2023 – Notice invoking arbitration was received by respondent on 29.11.2022, which is within three-year period from the date on which cause of action for claim had arisen – It cannot be said that claims sought to be raised by petitioner are ex-facie time-barred or dead claims on date of commencement of arbitration – Former Judge of Supreme Court of India, appointed to act as sole Arbitrator. (Paras 66, 67, 82, 84, 88 and 92)

(D) Arbitration and Conciliation Act, 1996 – Section 11(6) – Arbitration petition – Period of limitation – While considering issue of limitation in relation to a petition under Section 11(6) of Act, 1996, courts should satisfy themselves on two aspects by employing a two-pronged test – first, whether petition under Section 11(6) of Act, 1996 is barred by limitation; and secondly, whether claims sought to be arbitrated are ex-facie dead claims and are barred by limitation on the date of commencement of arbitration proceedings – If either of these issues are answered against party seeking referral of disputes to arbitration, court may refuse to appoint an arbitral tribunal. (Para 89)

Facts of the case:

This is a petition under Section 11(6) of Arbitration and Conciliation Act, 1996 filed at instance of a company based in Kabul, Afghanistan and engaged in the business of providing training to desirous students in computer education, English language, information technology, etc. praying for appointment of an Arbitrator for adjudication of disputes and claims arising from Contract dated 21.03.2013 entered into between petitioner and respondent.

Findings of Court:

Applicability of Section 137 to applications under Section 11(6) of Act, 1996 is a result of legislative vacuum as there is no statutory prescription regarding time limit. Period of three years is an unduly long period for filing an application under Section 11 of Act, 1996 and goes against very spirit of Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously. Parliament should consider bringing an amendment to Act, 1996 prescribing a specific period of limitation within which a party may move court for making an application for appointment of Arbitrators under Section 11 of Act, 1996.

Result : Petition allowed.