Bharat Sanchar Nigam Ltd. & Anr. vs M/s Nortel Networks India Pvt. Ltd.

HELD: 1.1 Period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996. The Arbitration and Conciliation Act, 1996 has been framed for expeditious resolution of disputes, and various provisions have been incorporated in the Act to ensure that the arbitral proceedings are conducted in a time-bound manner. Various time lines have been provided in the 1996 Act. The 1996 Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015 to incorporate further provisions for expeditious disposal of arbitral proceedings. Section 11 does not prescribe any time period for filing an application under sub-section (6) for appointment of an arbitrator. Since there is no provision in the 1996 Act specifying the period of limitation for filing an application under Section 11, one would have to take recourse to the Limitation Act, 1963, as per Section 43 of the Arbitration Act, which provides that the Limitation Act shall apply to arbitrations, as it applies to proceedings in Court. Since none of the Articles in the Schedule to the Limitation Act, 1963 provide a time period for filing an application for appointment of an arbitrator under Section 11, it would be covered by the residual provision Article

137 of the Limitation Act, 1963. The limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days’ from issuance of the notice invoking arbitration. In other words, an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s) / dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment. The period of limitation for filing a petition seeking appointment of an arbitrator/s cannot be confused or conflated with the period of limitation applicable to the substantive claims made in the underlying commercial contract. The period of limitation for such claims is prescribed under various Articles of the Limitation Act, 1963. The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator. [Paras 6, 7, 9-12][654-E-F; 655-C; 656-B-D; 657-B-C, D-G]

1.2 Given the vacuum in the law to provide a period of limitation under Section 11 of the Arbitration and Conciliation 1996, the Courts have taken recourse to the position that the limitation period would be governed by Article 137, which provides a period of 3 years from the date when the right to apply accrues. However, this is an unduly long period for filing an application u/s. 11, since it would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes within a time bound period. In view of the legislative intent, the period of 3 years for filing an application under Section

11 would run contrary to the scheme of the Act. It would be necessary for Parliament to effect an amendment to Section 11, prescribing a specific period of limitation within which a party may move the court for making an application for appointment of the arbitration under Section 11 of the 1996 Act. In the present case, it is found that the application under Section 11 was filed within the limitation period prescribed under Article 137 of the Limitation Act. Nortel issued the notice of arbitration vide letter dated 29.04.2020, which was rejected by BSNL vide its reply dated 09.06.2020. The application under Section 11 was filed before the High Court on 24.07.2020 i.e. within the period of 3 years of rejection of the request for appointment of the arbitrator. [Paras 17, 18][661-C-H]

2.1 Whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred Legislative History of Section 11

Pre-amendment position

Under the principal Act, the legislative scheme under Section 11 was that if the parties had agreed on a procedure for appointment of the arbitrator, the appointment had to be made in accordance with that procedure. Absent an agreement between the parties, the default power of appointment in a domestic arbitration would be exercised by the Chief Justice of the High Court, or person, or institution, designated by him. In the case of an international commercial arbitration, the default power would be exercised by the Chief Justice of India, or the person, or institution, designated by him. The object of conferring the power of appointment on the highest judicial authority was to give credibility to the procedure of appointment. [Para 19][662-A-E]

Post-amendment position

The 1996 Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015 which came into force with effect from 23.10.2015. The 2015 Amendment Act replaced the Chief Justice of the High Court as the appointing authority for exercising the default power of appointment in the case of domestic arbitrations, by the concerned High Court; and, in respect of international commercial arbitrations, the default power would be exercised by the Supreme Court, in place of the Chief Justice of India. It inserted Sub-section (6A) and (6B) in Section

11. The effect of the amendment was that if the existence of the arbitration agreement was not in dispute, all other issues would be left for the arbitral tribunal to decide. This was in reinforcement of the doctrine of kompetenz-kompetenz, which empowers the tribunal to rule on its own jurisdiction, including any objections with respect to the validity of the arbitration agreement; and thereby minimize judicial intervention at the pre-reference stage. In view of the legislative mandate contained in the amended Section 11(6A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz- komptenz principle. The doctrine of kompetenz-komptenz implies that the arbitral tribunal is empowered, and has the competence to rule on its own jurisdiction, including determination of all jurisdictional issues. This was intended to minimise judicial intervention at the pre-reference stage, so that the arbitral process is not thwarted at the threshold when a preliminary objection is raised by the parties. [Paras 23, 26][665-C-F; 666-B-C; 668-E-G]

2.2 Issue of Limitation

Limitation is normally a mixed question of fact and law, and would lie within the domain of the arbitral tribunal. There is, however, a distinction between jurisdictional and admissibility issues. An issue of ‘jurisdiction’ pertains to the power and authority of the arbitrators to hear and decide a case. Jurisdictional issues include objections to the competence of the arbitrator or tribunal to hear a dispute, such as lack of consent, or a dispute falling outside the scope of the arbitration agreement. Issues with respect to the existence, scope and validity of the arbitration agreement are invariably regarded as jurisdictional issues, since these issues pertain to the jurisdiction of the tribunal. Admissibility issues however relate to procedural requirements, such as a breach of pre-arbitration requirements, for instance, a mandatory requirement for mediation before the commencement of arbitration, or a challenge to a claim or a part of the claim being either time-barred, or prohibited, until some pre-condition has been fulfilled. Admissibility relates to the nature of the claim or the circumstances connected therewith. An admissibility issue is not a challenge to the jurisdiction of the arbitrator to decide the claim. The issue of limitation, in essence, goes 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 some pre- condition is 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. Applying the “tribunal versus claim” test, a plea of statutory time bar goes towards admissibility as it attacks the claim. It makes no difference whether the applicable statute of limitations is classified as substantive (extinguishing the claim) or procedural (barring the remedy) in the private international law sense. The issue of limitation which concerns the “admissibility” of the claim, must be decided by the arbitral tribunal either as a preliminary issue, or at the final stage after evidence is led by the parties. It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is nonarbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal. [Paras 30-32, 34, 35 and 37][670-D-H; 671-A-B; 672-C-E; 675-A-B]

Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1; Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman (2019) 8 SCC 714: [2019] 12 SCR 123; Duro Felguera SA v. Gangavaram Port Ltd. (2017) 9 SCC 729] : [2017] 10 SCR 285 – relied on. Swisbourgh Diamond Mines (Pty) Ltd. & Ors. v.

Kingdom of Lesotho [2019] 1 SLR 263; BBA & Ors. v. BAZ & Anr. [2020] SGCA 53 – referred to.

2.3 Applying the law to the facts of the present case, it is clear that this is a case where the claims are ex facie time barred by over 5 ½ years, since Nortel did not take any action whatsoever after the rejection of its claim by BSNL on 04.08.2014. The notice of arbitration was invoked on 29.04.2020. There is not even an averment either in the notice of arbitration, or the petition filed under Section 11, or before this Court, of any intervening facts which may have occurred, which would extend the period of limitation falling within Sections 5 to 20 of the Limitation Act. Unless, there is a pleaded case specifically adverting to the applicable Section, and how it extends the limitation from the date on which the cause of action originally arose, there can be no basis to save the time of limitation. The present case is a case of deadwood / no subsisting dispute since the cause of action arose on 04.08.2014, when the claims made by Nortel were rejected by BSNL. The Respondent has not stated any event which would extend the period of limitation, which commenced as per Article 55 of the Schedule of the Limitation Act (which provides the limitation for cases pertaining to breach of contract) immediately after the rejection of the Final Bill by making deductions. The notice invoking arbitration is ex facie time barred, and the disputes between the parties cannot be referred to arbitration in the facts of this case. [Paras 38, 39][675-B-F; 676-B-C]

3. Conclusion

(i) The period of limitation for filing an application under Section 11 would be governed by Article 137 of the First Schedule of the Limitation Act, 1963. The period of limitation will begin to run from the date when there is failure to appoint the arbitrator; It has been suggested that the Parliament may consider amending Section 11 of the 1996 Act to provide a period of limitation for filing an application under this provision, which is in consonance with the object of expeditious disposal of arbitration proceedings;

(ii) In rare and exceptional cases, where the claims are ex facie time- barred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference.

The impugned orders dated 13.10.2020 and 14.01.2021 passed by the High Court are set aside. The application filed under Section 11 by the Respondent before the High Court is consequently dismissed. [Paras 40, 41][676-C-G] S.S.Rathore v. State of Madhya Pradesh (1989) 4 SCC 582; Union of India & Ors. v. Har Dayal (2010) 1 SCC 394; CLP India Private Limited v. Gujarat Urja Vikas Nigam limited & Anr. (2020) 5 SCC 185 – relied on. Dakshin Haryana Bijli Vitran Nigam Ltd. v. M/s Navigant Technologies Pvt. Ltd. Decision of Supreme Court dtd. 02.03.2021 in C.A. No. 791 of 2021; State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti (2018) 9 SCC 472 : [2018] 7 SCR 1147; Consolidated

Engineering v. Principal Secretary, Irrigation (2008) 7 SCC 169 : [2008] 5 SCR 1108; C. Budhraja v.

Chairman, Orissa Mining Corporation Ltd. (2008) 2 SCC 444 : [2008] 1 SCR 821; Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. (2020) 14 SCC 643 : [2019] 11 SCR 1108; SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688; National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267 : [2008]

13 SCR 638; Union of India & Ors. v. Master

Construction Co. (2011) 12 SCC 349: [2011] 5

SCR 853; Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited (2020) 2 SCC 455 – referred to.

Leaf Biotech v. Municipal Corporation Nashik 2010

(6) Mh LJ 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. Mukesh Panika 2018 SCC OnLine Del

10050 – referred to.