Application for appointment of Arbitrator under Section 11 to be filed within three years from the date when the cause of action arises i.e. after a notice of arbitration in respect of the particular claim(s)/dispute(s) be referred to arbitration is made, and there is failure to make such appointment.

Bharat Sanchar Nigam Ltd &Anr.

v.

M/S Nortel Networks India Pvt. Ltd.

CIVIL APPEAL NO. 843-844 OF 2021 as decided on March 10, 2021

Judge: Indu Malhotra & Ajay Rastogi, JJ.

Facts: Bharat Sanchar Nigam Limited (BSNL) invited bids for a GSM-based cellular mobile network. Nortel Networks India Pvt. Ltd. (Nortel) was awarded the purchase order through the tender process. On completion of the works under the purchase order, BSNL withheld an amount of Rs. 997,093,031/- towards liquidated damages and other levies. Nortel raised a claim on May 13, 2014, which BSNL rejected on August 04, 2014.

On April 29, 2020, Nortel invoked the arbitration clause and requested an arbitrator’s appointment. BSNL rejected the claims as the claims were time-barred, raised after five years. Nortel applied Section 11 of the Arbitration Act before the Kerala High Court, which referred to arbitration disputes. The order of the Kerala HC was taken up in review and dismissed.

Issues:

1.      What is the limitation period for applying for appointment of Arbitrator under Section 11 of the Arbitration Act?

Held:

The Supreme Court held that there is no provision prescribing a limitation period to file a Section 11 application for appointment of Arbitrator. Therefore, the Limitation Act, 1963 (“Limitation Act”) would be applicable in such a situation. The court referred to various precedents in the cases of Leaf Biotech v. Municipal Corporation Nashik (2010 (6) MhLJ 316); Deepdharshan Builders Pvt. Ltd. v. Saroj [(2019) 1 AIR Bom R 249]; Prasar Bharti v. Maa Communication [2010 (115) DRJ 438 (DB)]; Golden Chariot v. MukeshPanika [2018 SCC OnLine Del 10050]. The judgments upheld Article 137, prescribing a three-year limitation period for computing the limitation period for a Section 11 application.

The Supreme Court also distinguished between the limitation period for filing a Section 11 application and the limitation period applicable to the underlying contract’s substantive claims. It noted that a period of three years for a Section 11 application(as per Article 137) is unduly prolonged and defeats the very objective of providing expeditious resolution of commercial disputes. It stated that there is a need for Parliament to amend the Act to prescribe a specific limitation period for a Section 11 application.

2. Can a court refuse to make a reference under Section 11, where the claims are ex facie time-barred?

The Supreme Court held that the courts can refuse to refer a dispute to arbitration under Section 11 only cases where there is not even a vestige of doubt that the claim is ex facie time-barred or that the dispute is non-arbitrable. While discussing the Arbitration and Conciliation (Amendment) Act, 2015, the Supreme Court held that the intention behind introducing the amendments in 2015 was to minimize judicial intervention at the appointment stage. The role of the courts was limited to examine the ‘existence’ of the arbitration agreement. Other issues arising out of the matter were for the arbitral tribunal to decide in line with the kompetenz-kompetenz principle. To answer the question of refusal to refer, the court discussed the distinction between ‘jurisdictional’ and ‘admissibility.’ It stated that while jurisdictional issues include objections to the competence of the arbitral tribunal to hear a dispute, admissibility issues relate to the nature of the claim. Therefore, jurisdictional issues include (i) lack of consent to arbitrate, (ii) dispute falling outside the scope of the arbitration agreement, (iii) existence, scope, and validity of the arbitration agreement, etc. In comparison, admissibility issues include the breach of a mandate to indulge in mediation before arbitration, etc.

The court relied on Swisbourgh Diamond Mines (Pty) Ltd. &Ors. v. Kingdom of Lesotho, [2019] 1 SLR 263; BBA &Ors. v. BAZ&Anr., [2020] SGCA 53, a decision by the Singapore Court of Appeal. noted that the ‘tribunal versus claim’ test finds out whether an issue refers to the power of the arbitral tribunal to hear the claim or the issue refers to the propriety of the claim to be heard by the tribunal. The court held that on applying the ‘tribunal versus claim’ test in the present case, an issue of limitation is an admissibility issue that must be decided by the arbitral tribunal as a preliminary issue or at the final stage after evidence is led by the parties.

The Supreme Court settled by concluding that a court may interfere ‘only’ when it is ‘manifest’ that the claims are ex facie time-barred and dead, or there is no subsisting dispute. It referred to Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1.]. It noted that the courts should refuse to refer a dispute to arbitration under Section 11 only cases where there is not even a vestige of doubt that the claim is ex facie time-barred or that the dispute is non-arbitrable.