Law Of Limitation Is Applicable To Appointment Of Arbitrator: Supreme Court

The Supreme Court of India, on March 1, held that Courts may refuse to allow application under Section 11(6) of the Arbitration and Conciliation Act 1996 in case the claim, on the date of commencement of Arbitration proceedings, was barred by the law of limitation.

Bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra held that while that while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test.

The two pronged test, as per the Court is:

1. First, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation.

2. Secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings.

If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal.

In the instant case, the arbitration petition having been filed within a period of three years from the date when the respondent failed to comply with the notice of invocation of arbitration issued by the petitioner was held not hit by limitation.

The Court said that the notice for invocation of arbitration having been issued by the petitioner within a period of three years from the date of accrual of cause of action, the claims could not be said to be ex-facie dead or time-barred on the date of commencement of the arbitration proceedings.  

The Court allowed the instant petition and appointed Justice Sanjay Kishan Kaul, Former Judge of the Supreme Court of India, to act as the sole arbitrator. The Court said that the fees of the arbitrator including other modalities shall be fixed in consultation with the parties.

The Court also mentioned that while dealing with similar issues in many other matters it was observed that the applicability of Section 137 to applications under Section 11(6) of the Act, 1996 was a result of legislative vacuum as there was no statutory prescription regarding the time limit.

"We would again like to reiterate that the period of three years is an unduly long period for filing an application under Section 11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to the Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously," the Bench added.

The Court opined that the Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators under Section 11 of the Act, 1996.