Supreme Court Clarifies Scope of Section 11 of the Arbitration Act on Limitation: Uttarakhand Purv Sainik Kalyan Nigam Ltd. vs. Northern Coal Field Ltd. (27 November 2019)

Date of the Judgment: 27 November 2019
Citation: [Not available in the provided text]
Judges: Indu Malhotra, J., Ajay Rastogi, J.

Can a court refuse to appoint an arbitrator if it believes the claim is time-barred? The Supreme Court of India addressed this crucial question in a recent case concerning the scope of judicial intervention under Section 11 of the Arbitration and Conciliation Act, 1996. This judgment clarifies that the issue of limitation should be decided by the arbitral tribunal itself, not by the court at the pre-reference stage. The bench comprised Justices Indu Malhotra and Ajay Rastogi, with the opinion authored by Justice Indu Malhotra.

Case Background

The case arose from an agreement dated 21 December 2010, between M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited (the Petitioner), a contractor, and Northern Coal Field Limited (the Respondent), a company. The Petitioner was to provide security services to the Respondent on a need basis as per agreed contractual rates. The agreement included an arbitration clause for dispute resolution.

Disputes arose concerning the payment of dues to the Petitioner and deductions made by the Respondent from the running bills. The Petitioner issued a legal notice on 29 May 2013, demanding payment of Rs. 1,43,69,309 along with interest.

On 9 March 2016, the Petitioner issued a notice of arbitration, requesting the Respondent to nominate a sole arbitrator. The Respondent did not respond. A further notice was sent on 30 May 2016, proposing the name of a retired Additional District Judge as the sole arbitrator. The Respondent failed to respond to this notice as well.

Subsequently, the Petitioner filed an application on 20 September 2016, under Section 11 of the Arbitration and Conciliation Act, 1996, requesting the High Court to appoint an arbitrator. The High Court rejected the application, holding that the claims were barred by limitation.

Timeline

Course of Proceedings

The High Court rejected the Petitioner’s application under Section 11 of the Arbitration and Conciliation Act, 1996, stating that the claims were barred by limitation. Aggrieved by this order dated 11 January 2018, the Petitioner filed a Special Leave Petition before the Supreme Court.

Legal Framework

The Supreme Court referred to several key provisions of the Arbitration and Conciliation Act, 1996:

• Section 11 of the Arbitration and Conciliation Act, 1996, deals with the appointment of arbitrators. Sub-section (6A), introduced by the 2015 Amendment Act, confines the court’s examination to the existence of an arbitration agreement.
  The provision reads as follows:
  
  “The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”
• Section 16 of the Arbitration and Conciliation Act, 1996, embodies the principle of “Kompetenz-Kompetenz,” which empowers the arbitral tribunal to rule on its own jurisdiction.
  
  “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement…”
• Section 21 of the Arbitration and Conciliation Act, 1996, specifies that arbitral proceedings commence when a request for disputes to be referred to arbitration is received by the respondent.

Arguments

The arguments presented before the Supreme Court were as follows:

• Petitioner’s Submission:
  • The Petitioner contended that the High Court erred in rejecting the application under Section 11 of the Arbitration and Conciliation Act, 1996, on the ground of limitation.
  • The Petitioner argued that the issue of limitation should be decided by the arbitral tribunal as per Section 16 of the Arbitration and Conciliation Act, 1996 and not by the High Court at the pre-reference stage.
• Respondent’s Submission:
  • The Respondent argued that the High Court was correct in holding that the claims were barred by limitation, and therefore, an arbitrator could not be appointed.

The Petitioner’s arguments were primarily based on the amended Section 11(6A) of the Arbitration and Conciliation Act, 1996, which confines the court’s role to examining the existence of the arbitration agreement. The Petitioner also relied on the principle of “Kompetenz-Kompetenz” enshrined in Section 16, asserting that the arbitral tribunal has the power to decide on its own jurisdiction, including the issue of limitation.

The Respondent’s arguments were based on the premise that the claims were time-barred and hence, there was no valid claim to be adjudicated by the arbitrator.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the High Court was justified in rejecting the application filed under Section 11 of the Arbitration and Conciliation Act, 1996, on the ground that it was barred by limitation.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court’s view on the authorities is as follows:

• The Court held that the judgments in SBP & Co. v. Patel Engineering Ltd. [2005] 8 SCC 618, National Insurance Co. v. Boghara Polyfab (P) Ltd. [2009] 1 SCC 267, and Union of India & Ors. v. Master Construction Co. [2011] 12 SCC 349, which allowed the Chief Justice to decide on issues like limitation at the pre-reference stage, were legislatively overruled by the 2015 Amendment Act.
• The Court relied on Duro Felguera S.A. v. Gangavaram Port Limited [2017] 9 SCC 729 to emphasize that the court’s role under Section 11(6A) is limited to examining the existence of an arbitration agreement.
• The Court referred to ITW Signode India Ltd. v. Collector of Central Excise [2004] 3 SCC 48, NTPC v. Siemens Atkein Gesell Schaft [2007] 4 SCC 451, and M/s. Indian Farmers Fertilizers Cooperative Ltd. v. Bhadra Products [2018] 2 SCC 534 to support its view that the issue of limitation is a jurisdictional issue to be decided by the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.

What weighed in the mind of the Court?

The Supreme Court emphasized the legislative intent behind the 2015 Amendment to the Arbitration and Conciliation Act, 1996, which was to minimize judicial intervention at the pre-reference stage and to reinforce the “Kompetenz-Kompetenz” principle. The Court noted that the amended Section 11(6A) confines the court’s examination to the existence of an arbitration agreement, and all other preliminary or threshold issues, including limitation, are to be decided by the arbitrator under Section 16.

The court’s reasoning can be summarized as follows:

The Court rejected the interpretation that the High Court could decide on the issue of limitation at the pre-reference stage, emphasizing that this would undermine the principle of “Kompetenz-Kompetenz” and the legislative intent behind the 2015 Amendment.

The Supreme Court held that the issue of limitation is a jurisdictional issue that must be decided by the arbitral tribunal. The court stated that, “Limitation is a mixed question of fact and law…The findings on the issue of limitation would be a jurisdictional issue. Such a jurisdictional issue is to be determined having regard to the facts and the law.”

The Court also noted that, “In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator.”

The Court further clarified that, “Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.”

Key Takeaways

• The scope of judicial intervention under Section 11 of the Arbitration and Conciliation Act, 1996, is limited to examining the existence of an arbitration agreement.
• The issue of limitation is a jurisdictional issue that must be decided by the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.
• The principle of “Kompetenz-Kompetenz” empowers the arbitral tribunal to rule on its own jurisdiction, including issues of limitation.
• Courts should not decide on issues of limitation at the pre-reference stage.

Directions

The Supreme Court set aside the impugned judgment and order of the High Court and directed that the issue of limitation be decided by the arbitral tribunal. The Court also appointed Mr. Justice (Retd.) A. M. Sapre as the sole arbitrator.

Development of Law

The Supreme Court clarified that the 2015 Amendment to the Arbitration and Conciliation Act, 1996, has legislatively overruled the earlier judgments, such as SBP & Co. v. Patel Engineering Ltd., which allowed the court to decide on issues like limitation at the pre-reference stage. The ratio decidendi of this case is that the issue of limitation is a jurisdictional issue that must be decided by the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996, and not by the court at the pre-reference stage.

Conclusion

The Supreme Court’s judgment in M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited vs. Northern Coal Field Limited clarifies that the issue of limitation is to be decided by the arbitral tribunal and not by the court at the pre-reference stage. This decision reinforces the principle of “Kompetenz-Kompetenz” and reduces judicial intervention in the arbitration process, aligning with the legislative intent of the Arbitration and Conciliation Act, 1996, as amended in 2015.