Supreme Court dismisses arbitration appeal due to limitation: Vishram Varu & Co. vs. Union of India (2022)

Date of the Judgment: April 21, 2022

Citation: (2022) INSC 403

Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can a party invoke arbitration after a delay of over three decades? The Supreme Court of India recently addressed this critical question of limitation in arbitration proceedings. This case examines whether a claim for arbitration can be entertained when the request for arbitration is made many years after the completion of work and the accrual of the alleged dues. The bench, comprising Justices M.R. Shah and B.V. Nagarathna, dismissed the appeal, upholding the High Court’s decision that the arbitration petition was time-barred.

Case Background

The appellant, Vishram Varu & Co., was issued a work order in 1982. The work was executed by 1986. The appellant claimed to have executed excess work beyond the scheduled quantity and was therefore entitled to additional payment. Despite several correspondences, the payment was not released. The appellant, through a letter dated 31.05.2018, requested the General Manager of South Eastern Railway to release the due amount or refer the dispute to arbitration under clauses 63 & 64 of the General Conditions of Contract (GCC). Further requests were made on 22.10.2018, 11.01.2019, and 11.03.2019. The appellant then sent a Statement of Claim, asserting a total due of Rs. 1,19,46,297/- for work done under work orders dated 7.4.1982 and 15.01.1984, executed up to 11.05.1986 and 26.08.1985, respectively.

Subsequently, on 31.07.2019, the appellant sent a legal notice invoking the arbitration clause and seeking the appointment of an arbitrator. As the arbitrator was not appointed, the appellant filed an arbitration petition before the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve the dispute.

Timeline:

Course of Proceedings

The Calcutta High Court dismissed the arbitration petition filed by the appellant under Section 11(6) of the Arbitration and Conciliation Act, 1996, on the ground that it was hopelessly barred by limitation. The High Court held that the claim was a stale one, given the significant delay between the completion of work (1986) and the invocation of arbitration (2019). The appellant then appealed to the Supreme Court against this dismissal.

Legal Framework

The case primarily revolves around Section 11(6) of the Arbitration and Conciliation Act, 1996, which deals with the appointment of arbitrators by the court when parties fail to do so. The relevant provision states:

“11(6) Where, under an appointment procedure agreed upon by the parties,—
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”

The court also considered Article 137 of the Limitation Act, 1963, which is a residual provision for applications where no specific period of limitation is provided. It prescribes a limitation period of three years from the date when the right to apply accrues. The relevant provision states:

“Article 137: Any other application for which no period of limitation is provided elsewhere in this division – Three years – When the right to apply accrues.”

Arguments

Appellant’s Arguments:

• The appellant argued that the cause of action to file an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, arose after the completion of 30 days from the service of the legal notice invoking the arbitration clause and the request to appoint an arbitrator.
• The appellant contended that the limitation period for filing an application under Section 11(6) should be three years, as per Article 137 of the Limitation Act, 1963, starting from the date the right to apply accrues, which they argued was 30 days after the legal notice.
• The appellant relied on the Supreme Court’s decision in Bharat Sanchar Nigam Limited v. Nortel Networks India Private Limited, (2021) 5 SCC 738, to support their argument that Article 137 applies to Section 11(6) applications.

Respondent’s Arguments:

• The respondent argued that the appellant’s claim was stale, as the work was completed in 1986, and the legal notice invoking arbitration was served only in 2018/2019, after a delay of approximately thirty-two years.
• The respondent contended that the cause of action arose in 1985/1986 when the work was completed, and the claim became time-barred long before the legal notice was issued.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the High Court was right in dismissing the application under Section 11(6) of the Arbitration and Conciliation Act, 1996 on the ground that it was barred by limitation.

Treatment of the Issue by the Court

Authorities

Cases:

• Bharat Sanchar Nigam Limited v. Nortel Networks India Private Limited, (2021) 5 SCC 738 – The appellant relied on this case to argue that Article 137 of the Limitation Act, 1963, applies to applications under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Supreme Court of India distinguished this case, stating that it did not deal with a situation where the legal notice was issued after a delay of thirty-two years.

Legal Provisions:

• Section 11(6) of the Arbitration and Conciliation Act, 1996: This section deals with the procedure for appointing an arbitrator when parties fail to do so.
• Article 137 of the Limitation Act, 1963: This is a residual provision prescribing a limitation period of three years for applications where no specific period is provided.

Judgment

How each authority was viewed by the Court?

• Bharat Sanchar Nigam Limited v. Nortel Networks India Private Limited, (2021) 5 SCC 738: The Court distinguished this case, stating that it did not apply to situations where the legal notice invoking arbitration was issued after an inordinate delay of approximately thirty-two years. The court noted that the case did not state that an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 could be entertained even if the legal notice was issued after 20-30 years.

The Supreme Court agreed with the High Court’s decision that the application under Section 11(6) of the Arbitration and Conciliation Act, 1996, was barred by limitation. The Court emphasized that the legal notice invoking the arbitration clause was served approximately thirty-two years after the completion of the work, making the claim a stale one. The Court observed that the right to claim the amount accrued in 1985/1986, and the correspondences under the RTI Act from 2012 onwards did not extend the limitation period. The Court stated that “Merely because for the claim/alleged dues of 1985/1986, the legal notice calling upon the respondent to pay the amount due and payable or to refer the dispute to the arbitrator is made after a period of approximately thirty-two years, the appellant cannot be permitted to say that the cause of action to file the application under Section 11(6) of the 1996 Act had accrued in the year 2018/2019.” The Court further added that “the appellant, who served the legal notice invoking the arbitration clause and requesting for appointment of an arbitrator after a period of approximately thirty-two years, cannot contend that still his application under Section 11(6) of the 1996 Act be considered as the limitation would start from the date of serving the legal notice and after completion of 30 days from the date of service of the legal notice and invoking arbitration clause.” The Court concluded that “in the facts and circumstances of the case, narrated hereinabove, the High Court has not committed any error in dismissing the application under Section 11(6) of the 1996 Act on the ground that it is hopelessly barred by limitation and is a stale claim.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the legal notice invoking the arbitration clause was served approximately thirty-two years after the completion of the work. This significant delay made the claim stale and barred by limitation. The Court emphasized that the right to claim the amount, if any, accrued in 1985/1986 and that the appellant could not claim that the cause of action arose after the legal notice was served in 2018/2019. The Court also distinguished the case of Bharat Sanchar Nigam Limited v. Nortel Networks India Private Limited, (2021) 5 SCC 738, clarifying that the said case did not apply to situations where the legal notice was issued after such a long delay.

Logical Reasoning:

Key Takeaways

• The Supreme Court emphasized the importance of adhering to the limitation period for invoking arbitration.
• A delay of approximately thirty-two years in invoking the arbitration clause is deemed unreasonable and will not be condoned.
• The cause of action for arbitration arises when the right to claim accrues, not when a legal notice is served after a significant delay.
• Parties cannot circumvent the law of limitation by issuing a legal notice after an inordinate delay.

Directions

No specific directions were issued by the Supreme Court in this case.

Specific Amendments Analysis

Not Applicable

Development of Law

The ratio decidendi of this case is that an arbitration petition filed after a delay of approximately thirty-two years from the date of completion of work and accrual of dues is barred by limitation. The Supreme Court clarified that the limitation period cannot be extended by issuing a legal notice after such a significant delay. This ruling reinforces the importance of timely action in pursuing legal remedies and clarifies that the cause of action for arbitration arises when the right to claim accrues, not when a legal notice is served after an inordinate delay.

Conclusion

The Supreme Court dismissed the appeal, affirming the Calcutta High Court’s decision that the arbitration petition was barred by limitation. The Court held that the appellant’s claim was stale due to the significant delay of approximately thirty-two years between the completion of work and the invocation of arbitration. This judgment underscores the importance of adhering to limitation periods and highlights that a party cannot circumvent the law of limitation by issuing a legal notice after an inordinate delay.

Category

Parent Category: Arbitration Law

Child Categories:

• Limitation Act, 1963
• Section 11(6), Arbitration and Conciliation Act, 1996
• Time-barred claims
• Stale Claims

Parent Category: Limitation Act, 1963

Child Categories:

• Article 137, Limitation Act, 1963

FAQ

Q: What is the limitation period for filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996?

A: The limitation period for filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, is three years from the date when the right to apply accrues, as per Article 137 of the Limitation Act, 1963.

Q: When does the right to apply accrue in the context of arbitration?

A: The right to apply accrues when the cause of action arises, typically when the work is completed or when the payment becomes due, not when a legal notice is served after a significant delay.

Q: Can a legal notice extend the limitation period for arbitration?

A: No, a legal notice cannot extend the limitation period if the cause of action arose long before the notice was issued. The limitation period starts from when the right to apply accrues.

Q: What happens if there is a delay in invoking the arbitration clause?

A: If there is a significant delay in invoking the arbitration clause, the claim may become time-barred, and the court may refuse to appoint an arbitrator. In this case, a delay of 32 years was deemed to be unreasonable.

Q: What does it mean for a claim to be “stale”?

A: A claim is considered “stale” when it is brought after an unreasonable delay, making it difficult to ascertain the facts due to the passage of time, and is therefore barred by limitation.