Supreme Court clarifies limitation for arbitration applications and rejects time-barred claims: Bharat Sanchar Nigam Ltd. vs. Nortel Networks India Pvt. Ltd. (2021)

Date of the Judgment: March 10, 2021

Citation: (2021) INSC 154

Judges: Indu Malhotra, J. and Ajay Rastogi, J.

Can a party invoke arbitration after a significant delay? The Supreme Court of India addressed this critical question in a recent judgment, clarifying the limitation period for filing applications under Section 11 of the Arbitration and Conciliation Act, 1996. The court also examined whether it can refuse to appoint an arbitrator when the claims are clearly time-barred. This case involved a dispute between Bharat Sanchar Nigam Ltd. (BSNL) and Nortel Networks India Pvt. Ltd. concerning withheld payments, which ultimately led to a significant ruling on the interplay between limitation and arbitration proceedings. The judgment was authored by Justice Indu Malhotra, with Justice Ajay Rastogi concurring.

Case Background

The dispute arose from a tender issued by BSNL for the planning, engineering, supply, insulation, testing, and commissioning of a GSM-based cellular mobile network in the southern region of India. Nortel was awarded the purchase order. After completing the work, BSNL withheld ₹99,70,93,031 as liquidated damages and other levies.

On May 13, 2014, Nortel raised a claim for the withheld amount. BSNL rejected this claim on August 4, 2014. After a delay of over five and a half years, on April 29, 2020, Nortel invoked the arbitration clause, requesting the appointment of an independent arbitrator. BSNL rejected this request on June 9, 2020, citing that the case was closed and the arbitration notice was time-barred under Section 43 of the Arbitration and Conciliation Act, 1996.

Nortel then filed an application under Section 11 of the Arbitration and Conciliation Act, 1996, before the Kerala High Court for the appointment of an arbitrator. The High Court allowed the application on October 13, 2020, and referred the disputes to arbitration. BSNL filed a review petition, which was dismissed on January 14, 2021. BSNL then appealed to the Supreme Court.

Timeline:

Legal Framework

The Supreme Court considered several key legal provisions:

• Section 11 of the Arbitration and Conciliation Act, 1996: This section deals with the appointment of arbitrators. The Court noted that this section does not prescribe a specific time limit for filing an application for the appointment of an arbitrator.
• Section 43 of the Arbitration and Conciliation Act, 1996: This section states that the Limitation Act, 1963, applies to arbitrations as it applies to proceedings in court.
• Article 137 of the Limitation Act, 1963: This is a residual provision that applies to applications for which no specific limitation period is provided elsewhere. It prescribes a limitation period of three years from when the right to apply accrues.
• Section 21 of the Arbitration and Conciliation Act, 1996: This section specifies that arbitration commences when a request to refer a dispute to arbitration is received by the respondent.
• Section 29A of the Arbitration and Conciliation Act, 1996: This section mandates that arbitral proceedings must be completed within 12 months from the date of completion of pleadings.
• Section 16 of the Arbitration and Conciliation Act, 1996: This section embodies the principle of ‘kompetenz-kompetenz’ which empowers the arbitral tribunal to rule on its own jurisdiction.

The Court emphasized that the Arbitration and Conciliation Act, 1996, aims for the expeditious resolution of disputes, with various provisions designed to ensure time-bound proceedings.

Arguments

Submissions on behalf of BSNL:

• BSNL argued that the cause of action arose on August 4, 2014, when Nortel’s claim was rejected.
• Nortel’s arbitration notice on April 29, 2020, was filed after a delay of over five and a half years and was therefore time-barred.
• The limitation for invoking arbitration should be the same as a civil action, which is three years under Article 137 of the Limitation Act, 1963.
• The court should reject the request for arbitration if the invocation is clearly time-barred, even if limitation is usually decided by the tribunal.
• Section 11(6A) of the Arbitration and Conciliation Act, 1996, requires a degree of examination by the court before making a reference.

Submissions on behalf of Nortel:

• The 2015 amendment to Section 11 limits the court’s inquiry to the “existence” of an arbitration agreement.
• The issue of claims being time-barred should be decided by the arbitral tribunal, in line with the principle of kompetenz-kompetenz.
• The limitation for filing an application under Section 11 is different from the limitation for the underlying claims.
• The starting point of limitation for initiating a proceeding under Section 11 is the expiry of 30 days from the date of issuing the notice of arbitration.
• The cause of action is a continuing one, and the issue of limitation should be decided by the arbitral tribunal.

Submissions [TABLE]

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. What is the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996?
2. Whether the Court may refuse to make a reference under Section 11 where the claims are ex facie time-barred?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Consolidated Engineering v. Principal Secretary, Irrigation [(2008) 7 SCC 169]: The Supreme Court held that the Limitation Act applies to both court proceedings and arbitrations, except where expressly excluded by the Arbitration Act.
• C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. [(2008) 2 SCC 444]: The Supreme Court clarified that the limitation for filing a petition seeking appointment of an arbitrator is distinct from the limitation for the substantive claims.
• Leaf Biotech v. Municipal Corporation Nashik [2010 (6) Mh LJ 316]: The Bombay High Court held that Article 137 of the Limitation Act applies to applications under Section 11 of the Arbitration Act.
• Deepdharshan Builders Pvt. Ltd. v. Saroj [(2019) 1 AIR Bom R 249]: The Bombay High Court reiterated that Article 137 applies to Section 11 applications and that the limitation period is three years from when the right to apply accrues.
• Prasar Bharti v. Maa Communication [2010 (115) DRJ 438 (DB)]: The Delhi High Court held that Article 137 applies to applications under Section 11.
• Golden Chariot v. Mukesh Panika [2018 SCC OnLine Del 10050]: The Delhi High Court held that Article 137 applies to applications under Section 11.
• Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. [(2020) 14 SCC 643]: The Supreme Court held that the Limitation Act applies to the Arbitration Act and that the limitation period is three years from when the cause of action arises.
• SBP & Co. v. Patel Engineering Ltd. [(2005) 8 SCC 618]: The Supreme Court discussed the scope of Section 11 of the Arbitration Act, holding that the Chief Justice must decide if an arbitration agreement exists before appointing an arbitrator.
• National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. [(2009) 1 SCC 267]: The Supreme Court categorized the issues to be decided by the Chief Justice under Section 11.
• Union of India & Ors. v. Master Construction Co. [(2011) 12 SCC 349]: The Supreme Court held that the appointing authority must determine if a dispute is genuine at the Section 11 stage.
• Duro Felguera SA v. Gangavaram Port Ltd. [(2017) 9 SCC 729]: The Supreme Court held that the court should only look into the existence of an arbitration agreement under Section 11(6A).
• Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman [(2019) 8 SCC 714]: The Supreme Court held that Section 11(6A) is confined to the examination of the existence of an arbitration agreement.
• Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited [(2020) 2 SCC 455]: The Supreme Court discussed the legislative intent behind the 2015 amendment to Section 11.
• Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1]: The Supreme Court held that the court should undertake a primary review to weed out manifestly non-existent or invalid arbitration agreements.
• Swisbourgh Diamond Mines (Pty) Ltd. & Ors. v. Kingdom of Lesotho [2019] 1 SLR 263: The Singapore Court of Appeal distinguished between “jurisdiction” and “admissibility” in the context of arbitration.
• BBA & Ors. v. BAZ & Anr. [2020] SGCA 53: The Singapore Court of Appeal held that statutory time bars go towards admissibility.
• S.S.Rathore v. State of Madhya Pradesh [(1989) 4 SCC 582]: The Supreme Court held that mere exchange of letters does not extend the period of limitation.
• Union of India & Ors. v. Har Dayal [(2010) 1 SCC 394]: The Supreme Court held that mere settlement discussions do not extend the period of limitation.
• CLP India Private Limited v. Gujarat Urja Vikas Nigam Limited & Anr. [(2020) 5 SCC 185]: The Supreme Court held that there must be a clear notice invoking arbitration setting out the particular dispute.

Legal Provisions:

• Section 11 of the Arbitration and Conciliation Act, 1996: Appointment of arbitrators.
• Section 43 of the Arbitration and Conciliation Act, 1996: Application of the Limitation Act to arbitrations.
• Article 137 of the Limitation Act, 1963: Residual provision for applications with no specific limitation period.
• Section 21 of the Arbitration and Conciliation Act, 1996: Commencement of arbitration.
• Section 29A of the Arbitration and Conciliation Act, 1996: Time limit for completion of arbitral proceedings.
• Section 16 of the Arbitration and Conciliation Act, 1996: Competence of arbitral tribunal to rule on its own jurisdiction.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Consolidated Engineering v. Principal Secretary, Irrigation [(2008) 7 SCC 169]: *Cited* to establish that the Limitation Act applies to both court proceedings and arbitrations.
• C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. [(2008) 2 SCC 444]: *Cited* to differentiate between the limitation for filing a petition seeking appointment of an arbitrator and the limitation for the substantive claims.
• Leaf Biotech v. Municipal Corporation Nashik [2010 (6) Mh LJ 316]: *Cited* as an example of a High Court holding that Article 137 applies to Section 11 applications.
• Deepdharshan Builders Pvt. Ltd. v. Saroj [(2019) 1 AIR Bom R 249]: *Cited* as another example of a High Court holding that Article 137 applies to Section 11 applications.
• Prasar Bharti v. Maa Communication [2010 (115) DRJ 438 (DB)]: *Cited* as an example of a High Court holding that Article 137 applies to Section 11 applications.
• Golden Chariot v. Mukesh Panika [2018 SCC OnLine Del 10050]: *Cited* as an example of a High Court holding that Article 137 applies to Section 11 applications.
• Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. [(2020) 14 SCC 643]: *Cited* to support the view that the Limitation Act applies to the Arbitration Act and that the limitation period is three years from when the cause of action arises.
• SBP & Co. v. Patel Engineering Ltd. [(2005) 8 SCC 618]: *Overruled* to the extent that it expanded the scope of inquiry under Section 11. The court clarified that the 2015 amendment had legislatively overruled this position.
• National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. [(2009) 1 SCC 267]: *Overruled* to the extent that it expanded the scope of inquiry under Section 11. The court clarified that the 2015 amendment had legislatively overruled this position.
• Union of India & Ors. v. Master Construction Co. [(2011) 12 SCC 349]: *Overruled* to the extent that it expanded the scope of inquiry under Section 11. The court clarified that the 2015 amendment had legislatively overruled this position.
• Duro Felguera SA v. Gangavaram Port Ltd. [(2017) 9 SCC 729]: *Followed* to support the position that the court should only look into the existence of an arbitration agreement under Section 11(6A).
• Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman [(2019) 8 SCC 714]: *Followed* to support that Section 11(6A) is confined to the examination of the existence of an arbitration agreement.
• Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited [(2020) 2 SCC 455]: *Cited* to discuss the legislative intent behind the 2015 amendment to Section 11.
• Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1]: *Followed* to support the position that the court should undertake a primary review to weed out manifestly non-existent or invalid arbitration agreements and to affirm that SBP & Co. v. Patel Engineering has been legislatively overruled.
• Swisbourgh Diamond Mines (Pty) Ltd. & Ors. v. Kingdom of Lesotho [2019] 1 SLR 263: *Cited* to distinguish between “jurisdiction” and “admissibility” in the context of arbitration.
• BBA & Ors. v. BAZ & Anr. [2020] SGCA 53: *Cited* to support the view that statutory time bars go towards admissibility.
• S.S.Rathore v. State of Madhya Pradesh [(1989) 4 SCC 582]: *Cited* to support that mere exchange of letters does not extend the period of limitation.
• Union of India & Ors. v. Har Dayal [(2010) 1 SCC 394]: *Cited* to support that mere settlement discussions do not extend the period of limitation.
• CLP India Private Limited v. Gujarat Urja Vikas Nigam Limited & Anr. [(2020) 5 SCC 185]: *Cited* to support the view that there must be a clear notice invoking arbitration setting out the particular dispute.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to balance the principle of minimal judicial interference in arbitration with the necessity of preventing abuse of the arbitral process. The court emphasized the legislative intent behind the Arbitration and Conciliation Act, 1996, which aims for the expeditious resolution of disputes. The court noted that allowing time-barred claims to proceed to arbitration would defeat this purpose. The court also considered the doctrine of kompetenz-kompetenz, which empowers the arbitral tribunal to rule on its own jurisdiction, but clarified that this does not preclude the court from rejecting claims that are manifestly time-barred.

The Court also considered the legislative intent behind the 2015 amendment to Section 11, which was to minimize judicial intervention at the appointment stage. However, the court clarified that this does not prevent the court from rejecting ex facie time-barred claims. The court also considered the recommendations of the Law Commission in its 246th Report, which emphasized that the court should not refer parties to arbitration if the arbitration agreement is non-existent or null and void.

Sentiment Analysis of Reasons Given by the Supreme Court

Ratio of Fact:Law

Logical Reasoning

The Court considered that while the 2015 Amendment to Section 11 aimed to minimize judicial intervention, it does not prevent the court from rejecting claims that are manifestly time-barred. The court emphasized that the Arbitration Act aims for the expeditious resolution of disputes, and allowing time-barred claims would defeat this purpose. The court also considered the principle of kompetenz-kompetenz, but clarified that it does not preclude the court from rejecting manifestly time-barred claims.

The Court’s reasoning was also influenced by the need to prevent abuse of the arbitral process. The court noted that allowing parties to invoke arbitration after a significant delay would undermine the integrity of the arbitration system. The court also emphasized that the court should not refer parties to arbitration if the arbitration agreement is non-existent or null and void.

The Court also considered the legislative intent behind the 2015 amendment to Section 11, which was to minimize judicial intervention at the appointment stage. However, the court clarified that this does not prevent the court from rejecting ex facie time-barred claims. The court also considered the recommendations of the Law Commission in its 246th Report, which emphasized that the court should not refer parties to arbitration if the arbitration agreement is non-existent or null and void.

The court also considered the principle of kompetenz-kompetenz, but clarified that it does not preclude the court from rejecting manifestly time-barred claims. The court noted that the issue of limitation is generally an issue for the tribunal, but the court can intervene in cases of manifestly time-barred claims.

The Court quoted the following from the judgment:

• “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 legislative policy and purpose is essentially to minimise the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”
• “The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute.”

There was no minority opinion in this case. Both the judges on the bench, Justice Indu Malhotra and Justice Ajay Rastogi, concurred with the decision.

Key Takeaways

• The limitation period for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996, is three years from the date when the right to apply accrues, as perArticle 137 of the Limitation Act, 1963.
• A court can refuse to appoint an arbitrator if the claims are manifestly time-barred. This is to prevent abuse of the arbitral process and ensure efficient dispute resolution.
• The 2015 amendment to Section 11 of the Arbitration Act, which limits the court’s role to examining the existence of an arbitration agreement, does not prevent the court from rejecting ex facie time-barred claims.
• The principle of kompetenz-kompetenz, which empowers the arbitral tribunal to rule on its own jurisdiction, does not preclude the court from rejecting claims that are manifestly time-barred.
• The judgment emphasizes the need for parties to act diligently and invoke arbitration within the prescribed limitation period.
• The court’s role is to ensure that the arbitration process is not used to revive dead claims.

Conclusion

The Supreme Court’s judgment in Bharat Sanchar Nigam Ltd. vs. Nortel Networks India Pvt. Ltd. provides much-needed clarity on the limitation period for filing applications under Section 11 of the Arbitration and Conciliation Act, 1996. The court has clarified that while the 2015 amendment to Section 11 limits the court’s role to examining the existence of an arbitration agreement, it does not prevent the court from rejecting claims that are manifestly time-barred. This judgment reinforces the principle that the arbitration process should be used for the expeditious resolution of genuine disputes and not for reviving time-barred claims. The judgment also emphasizes the need for parties to act diligently and invoke arbitration within the prescribed limitation period. The court’s decision is a significant step towards ensuring the integrity and efficiency of the arbitration process in India.