Limitation period u/S 11 of Arbitration Act governed by Art.137 of the Limitation Act: SC reiterates

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

Civil Appeal Nos. 843-844 OF 2021 (Arising out of SLP (C) No. 1531-32/ 2021)

Decided on March 10, 2021

Counsel for the appellants: R.D. Agrawala

Counsel for the Respondent: Mr.Neeraj Kumar Jain

A division judge bench of the Supreme Court consisting of Justice Indu Malhotra and Justice Ajay Rastogi heard the present appeal questioning the limitation period to invoke the right to arbitration resolution in cases of dispute among parties to the contract. The appeal was allowed and modifications to the prevailing law were suggested by the Court.

The Appellant company BSNL invited bids for constructing GSM based cellular mobile network in certain specific regions. The Respondent (hereby “Nortel”) was awarded the tender. On completion of the work under the purchase order, BSNL omitted a payment of Rs. 99,70,93,031 on the grounds of liquidated damages and other levies. On 13.05.201, Nortel raised a claim seeking the payment of said amount which was further rejected by BSNL through a letter dated 04.08.2014. After a period of five and a half years, Nortel sought the invocation of the arbitration clause through a letter dated 20.04.2020. BSNL rejected such an invocation with a reply on 09.06.2020, stating that the period of limitation had elapsed on 04.08.2014 as under Section 43 of the the Arbitration and Conciliation Act, 1996.

Nortel appealed the cause on the basis of Section 11 of the 1996 Act before the Kerala High Court that appointed an independent arbitrator via an order dated 13.10.2020. BSNL filed a review petition before the same Court; this appeal was dismissed on 14.01.2021. The current appeal challenges the orders issued on 13.10.2020 and order dated 14.01.2021. The Court appointed Mr. Arvind Datar as amicus curiae.

The present Appeals raise two important issues for our 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 where the claims are ex facie time-barred? (Para 1)

BSNL submitted that the cause of action occurred on 04.08.2014 when the claim made by Nortel was rejected. It contended that Nortel has slept over its alleged rights and failed to do anything for a period of five and a half years. It was further submitted that the High Court was erroneous in appointing an arbitrator solely on the grounds that an arbitration clause existed in the purchase contract. BSNL further contended that irrespective of the mixed question of law, the admissibility of the cause is to be decided by the arbitration tribunal and in cases where the invocation of the arbitration agreement is ex facie time barred, the Court must reject the appeal.

Nortel submitted that under the Section 11(6A) of the 1996 Act, the Court has limited scope and that only exists in the pre-reference stages; the judicial authorities are restricted to look into the existence of an arbitration clause in the contract and do not have the authority to determine the admissibility. The Respondent also urged that the limitation for initiating a proceeding under Section 11 is the expiry of 30 days from the date of issuing notice of arbitration on 29.04.2020. It was submitted that the High Court had rightly held that the issue of limitation must be decided by the arbitral tribunal.

The Court heard the Counsels appearing for the parties.

The Court stated that it would be necessary for Parliament to effect an amendment to Section 11 prescribing a specific period of limitation, providing the reason 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. 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. (Para 17)

The Court held:

Applying the aforesaid law to the facts of the present case, we find 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. (Para 18)

With respect to the second issue, the Court stated:

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. (Para 32)

The Court noted:

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. (Para 39)

The Court held:

In the present case, the notice invoking arbitration was issued 5 ½ years after rejection of the claims on 04.08.2014. Consequently, 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. (Para 39)

The Court allowed the appeal and set aside the impugned orders of the High Court.

View/Download Judgment: Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks India Pvt. Ltd

Shreya Shetty