Clarifying Legal Boundaries: Key Takeaways On Arbitration Limitation Periods In Current Practice

The Indian Arbitration and Conciliation Act, 1996 (“Arbitration Act”) provides that the Limitation Act, 1963 (“Limitation Act”) shall apply to arbitrations as it applies to court proceedings.

In recent years, the Courts, through judicial decisions, have attempted to clarify the limitation period in several aspects related to arbitration. The interplay between the Arbitration Act and the Limitation Act is important, considering arbitration is preferred for expeditious dispute resolution. In this article, the authors discuss the various clarifications provided by Courts regarding the limitation period in the arbitration process.

The limitation period for filing a petition for appointment of an arbitrator under S.11 of the Arbitration Act:

Section 11(6) of the Arbitration Act discusses the appointment of an arbitrator in cases where parties have failed to make such an appointment. The underlying section does not provide any limitation period.

The roots of the limitation period are found in the maxim “Vigilantibus non dormientibus jura subveniunt”  which means the law assists those who are vigilant and not those who sleep over their rights. The issue of applicability of limitation arises at the stage of filling a petition under Section 11, Arbitration Act.

Recently, the Supreme Court of India held that Article 137 of the First Schedule, Limitation Act, applies to filing a petition under Section 11(6) of the Act. Thus, the limitation period for a petition to appoint the arbitrator is three years from when the right to apply accrues. The limitation period for filing an application seeking an appointment of an arbitrator commences only after one of the parties issues a valid notice invoking arbitration to the other party and the other party fails or refuses to make an appointment as per the appointment procedure agreed upon between the parties.

Examining whether the claim falls within the limitation period is significantly distinct from filing a petition for the appointment of the arbitrator. In Geo Miller and Company Private Limited v. Chairman Rajasthan Vidyut Utpadan Nigam Limited, the Court refused to appoint an arbitrator since the claim was barred by limitation.

The period of limitation for filing a petition seeking the appointment of an arbitrator should not be confused or conflated with the period of limitation applicable to the substantive claims made in the underlying commercial contract. In  2023,  the same was further clarified-  that while examining a Section 11 petition, the Court has the power to reject non-arbitrable claims.

These decisions clarify that the Courts in India, when dealing with the petition for appointment of an arbitrator, have the power to prima facie examine and reject the claims barred by limitation to protect the other party from being drawn into a time-consuming and costly arbitration process.  
The point in time, when the cause of action arose, is pertinent to deciding the applicability of the limitation period. Determining the “Breaking point” is essential for this purpose.

In M/s B and T AG v. Ministry of Defence, the Hon’ble Supreme Court of India held that the “Breaking Point” is the point at which any reasonable party would have abandoned the efforts at arriving at a settlement and contemplated referral of the dispute to arbitration. Such breaking point would then become the date on which the cause of action could be said to have commenced.

In the aforesaid decision, it was also mentioned that the Courts may exclude the period during which the parties were bona fide negotiating towards an amicable settlement to compute the limitation period for reference to arbitration.

It is essential that all negotiation records between the parties be specifically pleaded and placed on the record to determine the “breaking point”  at which the party abandoned its efforts at arriving at a settlement and contemplated referring the dispute for arbitration.

Limitation period for Completion of Pleadings and for passing an Award under the  Arbitration Act:

The introduction of Section 29A in the Arbitration Act is essential in resolving the issue of delays affecting the arbitral process, by setting forth a specific time limit for rendering arbitral awards. 
An arbitral award shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings. The pleadings are required to be completed within a period of six months from the date arbitrators received notice of their appointment.

The Delhi High Court in Raj Chawla and Co. Stock and Share Brokers v. Nine Media and Information Services Ltd.  held that completion of pleadings within six months prescribed in Section 23(4), Arbitration Act, is necessary and failure to abide leads to inevitable consequences. The Court referred to Section 25 of the Arbitration Act, which prescribes that where a claimant fails to communicate his statement of claim within the time prescribed by Section 23(4) of the Arbitration Act, the Arbitral Tribunal shall terminate proceedings.

Under the Arbitration Act , parties are allowed to file an application seeking an extension of time for the Arbitral Tribunal to pass an arbitral award. However, the Act also provides that extension will be granted only for sufficient cause and on terms and conditions imposed by Court.

In Wadia Techno–Engineering Services Limited. v. Director General of Married Accommodation Project, the Delhi High Court, while extending the mandate of the Arbitral Tribunal, imposed costs on Respondents for their egregious conduct in the arbitration process.

Similarly, the Delhi High Court in Barasat Krishnagar Expressways Limited vs National Highways Authority of India   substituted the Presiding Arbitrator on the basis that the proceedings have not progressed much despite the timeline for making the arbitral award was completed.
Also, an inordinate delay in making the award after reserving the same is against public policy and a valid ground for setting aside an award under Section 34 of the Act.

Recent judicial decisions have clarified the legal boundaries and limitation periods. The courts have, via repeated judgements, upheld the timely completion of arbitral proceedings and the passing of Arbitration Awards. These decisions, in addition to clarifying, also restore the faith of the stakeholders in the arbitration process for expeditious dispute resolution.