BHARAT SANCHAR NIGAM LTD. & ANR. Vs M/S NORTEL NETWORKS INDIA PVT. LTD.

CITATION : CIVIL APPEAL Nos. 843-844 OF 2021

JUDGMENT PRONOUNCED BY : Justice Indu Malhotra

JUDGMENT PRONOUNCED ON : 10.03.2021

LAW POINT : The period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act would be governed by Article 137 of the First Schedule of the Limitation Act, and will begin to run from the date when there is failure to appoint the arbitrator.

FACTS : The bench was considering the appeal filed by BSNL against the Kerala High Court judgment which allowed the application filed by Nortel under Section 11 of the Act before the Kerala High Court for appointment of an arbitrator.

ISSUE : The bench considered two issues:

(i) The period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”)

(ii) Whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred.

OBSERVATIONS OF THE SUPREME COURT : The bench noted that, 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 Arbitration Act specifying the period of limitation for filing an application under Section 11, one would have to take recourse to the Limitation Act, 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. Referring to various judgments on this issue, the bench observed that 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.

The court, further observed that this three year period 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. The 1996 Act has been amended twice over in 2015 and 2019, to provide for further time limits to ensure that the arbitration proceedings are conducted and concluded expeditiously. Section 29A mandates that the arbitral tribunal will conclude the proceedings within a period of 18 months. 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. Taking note of the facts of the case, the court observed that 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.

Where there is not even a vestige of doubt that the claim is ex facie time- barred, or that the dispute is non-arbitrable, that the court may decline to make the reference However, the court observed that the notice invoking arbitration was issued 5 ½ years after rejection of the claims on 04.08.2014 and therefore it is ex facie time barred, and the disputes between the parties cannot be referred to arbitration in the facts of this case. Answering the second issue, The Court observed that 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[1]reference stage, so that the arbitral process is not thwarted at the threshold when a preliminary objection is raised by the parties.

In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation, (2021 SC), on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out “manifestly ex facie non-existent and invalid arbitration agreements, or non[1]arbitrable disputes.” The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused.

The bench observed that while exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. 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 there is no subsisting dispute. 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 non-arbitrable, 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.

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