Parliament Should Consider Amending Arbitration Act To Prescribe Limitation Period To File S.11 Application : Supreme Court

In its concluding part, the Court observed :

“ 94. … this Court while dealing with similar issues in many other matters has observed that the applicability of Section 137 to applications under Section 11(6) of the Act, 1996 is a result of legislative vacuum as there is no statutory prescription regarding the time limit. We would again like to reiterate that the period of three years is an unduly long period for filing an application under Section 11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to the Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously. We are of the considered opinion that the Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators under Section 11 of the Act, 1996…” Opined Justice Pardiwala.

The bench comprising CJI DY Chandrachud and Justices JB Pardiwala and Manoj Misra through its decision, highlighted the need to have clarity in the limitation period for the appointment of the arbitrator, and the immediate filling of the said legislative vacuum.

The present case dealt with an arbitration dispute relating to the appointment of an arbitrator under S.11(6). One of the key questions that the court was tasked to examine was - 'Whether the Limitation Act, 1963 is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996? If yes, whether the present petition is barred by limitation?'

Section 11(6) of the Arbitration and Conciliation Act, 1996 pertains to the procedure for the appointment of arbitrators. This provision outlines the steps and responsibilities when a party seeks the court's assistance in appointing an arbitrator or a panel of arbitrators. Once the applicant has completed all the necessary steps and the application satisfies judicial scrutiny, the court becomes duty-bound to appoint an arbitrator and refer the matter to the arbitral tribunal.

The Issue of Non-Prescription Of Limitation Under S.11(6) :

The limitation period for filing a petition under Section 11(6) begins once a valid notice invoking arbitration has been sent by the applicant to the other party, and there has been a failure or refusal on the part of that other party to comply with the notice.

As per the provision, The applicant must typically issue a formal notice to the other party invoking arbitration. The failure or refusal of the other party to comply with the notice is a prerequisite for approaching the court.

The court clarified that Section 11(6) of the Act, 1996 does not prescribe a time limit for filing applications, but Section 43 of the Act makes the Limitation Act, 1963 applicable to arbitrations. Since no specific time period is provided in the Limitation Act for Section 11(6) applications, the court identified Article 137 as the relevant provision, allowing a three-year limitation period from the accrual of the right to apply.

The judgment underscored the applicability of the Limitation Act, 1963 to arbitration proceedings, with Article 137 serving as the residual provision. The court then turned its attention to determining whether the specific petition in question was barred by limitation. It applied Hohfeld's analysis of jural relations to ascertain when the right to file the petition under Section 11(6) accrued.

The court clarified that the limitation period would commence only after the right to apply had accrued. It highlighted that the "right to apply" under Section 11(6) correlates with the "duty to appoint" of the court once all prescribed procedures are completed. Therefore, the limitation period begins only after the applicant has sent a valid arbitration notice to the other party, and the latter has failed or refused to comply with the notice's requirements.

The court emphasized that according to Hohfeld's framework, the conferral of a right on one entity comes with the corresponding duty vested in another. Specifically, when a party files an application under Section 11(6) without completing the prescribed mechanism, including issuing a formal notice to invoke arbitration, the court is not obligated to appoint an arbitrator. The court retains the discretion to reject such premature or non-compliant applications.

However, once the applicant fulfils the procedural requirements, and the application withstands limited judicial scrutiny, the court becomes duty-bound to appoint an arbitrator and refer the matter to an arbitral tribunal. Importantly, the court clarified that the limitation period for filing a Section 11(6) petition commences only after a valid arbitration notice has been sent, and there is a subsequent failure or refusal by the other party to comply with the notice's requirements.

“56…However, once the procedure laid down under Section 11(6) of the Act, 1996 is exhausted by the applicant and the application passes all other tests of limited judicial scrutiny as have been evolved by this Court over the years, this Court becomes duty-bound to appoint an arbitrator and refer the matter to an arbitral tribunal. Thus, the “right to apply” of the Applicant can be said to have as its jural corelative the “duty to appoint” of this Court only after all the steps required to be completed before instituting a Section 11(6) application have been duly completed. Thus, the limitation period for filing a petition under Section 11(6) of the Act, 1996 can only commence once a valid notice invoking arbitration has been sent by the applicant to the other party, and there has been a failure or refusal on part of that other party in complying with the requirements mentioned in such notice.”

This nuanced analysis provides clarity on the limitation period for filing petitions under Section 11(6) of the Act, emphasizing the need for a valid notice invoking arbitration to trigger the commencement of the limitation period.