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Bharat Sanchar Nigam Limited vs M/S Nortel Networks India Pvt. Ltd. - (Supreme Court) (10 Mar 2021)

Limitation Period for filing application seeking appointment of arbitrator is governed by Article 137 of Limitation Act, 1963



The present appeal is against impugned orders allowing Application for appointment of Arbitrator. Appeals raise two important issues for consideration : (i) the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”); and (ii) whether the Court may refuse to make the reference under Section 11 of the 1996 Act where the claims are ex facie time-barred?

BSNL submitted that, the cause of action for invoking arbitration arose on 4th August, 2014 when the claim made by Nortel was rejected by making deductions from the Final Bill. It was contended that, Nortel had slept over its alleged rights for over 5 ½ years, before issuing the notice of arbitration on 29th April, 2020. From 4th August, 2014 till 29th April, 2020, Nortel did not take any action whatsoever. Consequently, the notice invoking arbitration had become legally stale, non-arbitrable and unenforceable. The High Court had erroneously proceeded on the premise of mere existence of a valid arbitration agreement, without considering that such an agreement was inextricably connected with the existence of a live dispute.

Even though limitation was a mixed question of fact and law, and is ordinarily to be decided by the arbitral tribunal, in cases where the invocation of the arbitration agreement is ex facie time barred, the Court must reject the request for appointment of an arbitrator. The limitation for invoking arbitration, and seeking appointment of an arbitrator is at par with a civil action, and would be covered by Article 137 of the Schedule to the Limitation Act, 1963. An action taken by a claimant must necessarily fall within the statutory period of 3 years from the date on which the right to apply accrues. Section 11(6A) of 1996 Act uses the phrase “examination of the existence of an arbitration agreement”, which would imply that, the power conferred upon the Court is not a formal exercise, but requires a certain degree of examination before making the reference.

Present 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 4th August, 2014. The notice of arbitration was invoked on 29th April, 2020. There is not even an averment either in the notice of arbitration, or the petition filed under Section 11 of 1996 Act, 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 4th August, 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 period of limitation for filing an application under Section 11 of 1996 Act would be governed by Article 137 of the First Schedule of the Limitation Act. The period of limitation will begin to run from the date, when there is failure to appoint the arbitrator. 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 passed by the High Court are set aside. Appeals allowed.


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