In its 10 March 2021 judgment in Bharat Sanchar Nigam Ltd v M/s Nortel Networks India Ltd,(1) the Supreme Court decided two issues:
- the limitation period for filing an application under Section 11of the Arbitration and Conciliation Act 1996 (first issue); and
- whether the court can refuse to refer a dispute to arbitration under Section 11 where the claims are ex facie time barred (second issue).
The appellant, Bharat Sanchar Nigam Ltd, issued a tender inviting bids for the planning, engineering, supply, insulation, testing and commissioning of a global system for mobile communications-based cellular mobile network in southern India, covering:
- Tamil Nadu; and
- Andhra Pradesh.
The respondent, M/s Nortel Networks India Ltd, was awarded the purchase order. On completion of the work, the appellant withheld amounts towards liquidated damages and other levies. On 13 May 2014 the respondent raised a claim for payment of said amount. The appellant rejected the claim via a letter dated 4 August 2014.
After five-and-a-half years, the respondent invoked the arbitration clause, which was not entertained by the appellant on the ground of being time barred as per Section 43 of the Arbitration and Conciliation Act 1996. The respondent filed an application under Section 11 of the act for the appointment of an arbitrator before the Kerala High Court. The Kerala High Court referred the dispute to arbitration. The appellant filed a review petition before the high court, which was dismissed (impugned order). The appellant challenged the impugned order before the Supreme Court.
After hearing both parties' arguments, the Supreme Court proceeded to decide on the first issue. The Supreme Court took note of various provisions of the Arbitration and Conciliation Act 1996 (including amendments) and noted that the act was framed to accommodate the expeditious resolution of disputes and that various provisions have been incorporated into the act to ensure that arbitral proceedings are conducted in a time-bound manner.
Further, in relation to Section 11 of the act, the court observed that since there is no provision in the act specifying the limitation period for filing an application under Section 11, a party would have to take recourse to the Limitation Act 1963, as per Section 43 of the Arbitration and Conciliation Act 1996, which provides that the Limitation Act 1963 applies to arbitration as it applies to courts proceedings. The court also observed that since none of the articles in the schedule to the Limitation Act 1963 provide a period for filing an application for the appointment of an arbitrator under Section 11, it is covered by the residual provision of Article 137 of the Limitation Act 1963.
Upon due consideration of the various provisions of the concerned statutes and various judicial precedents, the Supreme Court observed that the limitation period for filing an application under Section 11 is three years from the date of refusal to appoint the arbitrator or on the expiry of 30 days, whichever is earlier. However, the court also observed that in view of the legislative intent, the three-year period for filing an application under Section 11 contravenes the scheme of the Arbitration and Conciliation Act 1996. Therefore, it is necessary for Parliament to effect an amendment to Section 11 prescribing a specific limitation period within which a party may file an application before the court for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act 1996.
In relation to the second issue, the Supreme Court observed that the issue of limitation, in essence, speaks to the maintainability or admissibility of the claim, which is to be decided by the arbitral tribunal. For instance, a challenge that a claim is time barred or prohibited until a certain condition has been fulfilled is a challenge to the admissibility of that claim and not a challenge to the jurisdiction of the arbitrator to decide the claim itself. The issue of the admissibility of the claim must be decided by the arbitral tribunal either as a preliminary issue or at the final stage after evidence has been presented by the parties.
The court further opined that while exercising jurisdiction as the judicial forum under Section 11 of the Arbitration and Conciliation Act 1996, the court may exercise the prima facie test to screen and dismiss ex facie meritless, frivolous and dishonest litigations. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the court can interfere only when it is manifest that the claims are ex facie time barred and dead or that there is no subsisting dispute. Therefore, in rare and exceptional cases, where the claim is ex facie time barred and it is manifest that there is no subsisting dispute, the court may refuse to refer the dispute to arbitration.
Applying the aforementioned principles to the facts of the present case, the Supreme Court allowed the appeal and dismissed the Section 11 application filed by the respondent.
For further information on this topic please contact Shwetabh Sinha or Ashmi Mohan at Clasis Law by telephone (+91 11 4213 0000) or email ([email protected] or [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.