Period of limitation for filing petition under Sec 11 Arbitration and Conciliation Act, 1996 is governed by Article 137 of the Limitation Act, 1963.

Bharat Sanchar Nigam Ltd. (BSNL) and Anr. v. Nortel Networks India Pvt. Ltd. decided on 10.03.2021

FACTS: In the instant matter, the respondent Nortel Networks India Pvt. Ltd. (Nortel) was awarded a purchase order for works related to mobile networks by the appellant, Bharat Sanchar Nigam Limited (BSNL). Post completion of work by Nortel, BSNL deducted an amount of INR 99,70,93,031 towards liquidated damages and other levies. Nortel raised a claim for payment of the amount deducted, which BSNL rejected on 04.08.2014. After over five years, Nortel invoked the arbitration clause in a letter dated 29.04.2020 and sought an arbitrator’s appointment. BSNL rejected the invocation of arbitration, holding the same to be time-barred, under Section 43 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) since Nortel’s claims were rejected on 04.08.2014.
Aggrieved by BSNL’s response, Nortel filed an application under Section 11 of the Arbitration Act before the High Court of Kerala (High Court). The High Court referred the parties to arbitration through an order dated 13 October 2020. BSNL preferred a review petition against the said order, which came to be dismissed by the High Court on 14 January 2021. Aggrieved by the decision of the High Court, BSNL approached the Hon’ble Supreme Court in the present matter.

ISSUE:The Hon’ble Supreme Court outlined following two issues for consideration.
Firstly, what is the period of limitation for filing an application under Section 11 of the Arbitration Act.

Secondly, whether the court can refuse to refer under Section 11 when a party’s claims are time-barred.

HELD: Regarding the first issue, the Apex Court held that in the absence of a specific provision prescribing the limitation period, the residual provision under Article 137 of the Limitation Act, 1963 would apply. Thus, the limitation for filing an application under Section 11 was held to be three years from the date of refusal to make the appointment of an arbitrator or on expiry of 30 (thirty) days from the issuance of the notice invoking arbitration as contemplated under Section 21 of the Arbitration Act, whichever is earlier. However, it was also observed that the period of limitation for filing a petition seeking an arbitrator’s appointment should not be confused with the period of limitation applicable to claims made in the underlying contract. The period of limitation applicable to the respective claims sought to be referred to arbitration would be guided solely by the Articles of the Limitation Act, applicable in this regard.

Commenting on the second issue, the Hon’ble Supreme Court held that although issue of limitation is a mixed question of facts and law and in essence, goes to the maintainability or admissibility of the claim, which is to be decided by the arbitral tribunal itself however, while exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere “only” when it is “manifest” that the claims are ex facie time barred and dead, or there is no subsisting dispute.

Relying upon Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, it was again cautioned that it was only in very limited category of cases, where there was not even a vestige of doubt that the claim is ex-facie time barred or the dispute is non-arbitrable that the court may decline a reference. However, even if there is the slightest doubt, the rule is to refer the disputes to arbitration.

In the present case, the Hon’ble Supreme Court noted that the notice invoking arbitration was issued five and a half years after the rejection of the claims. Consequently, the notice invoking arbitration was held to be ex facie time-barred, and the disputes between the parties were not referred to arbitration in the facts of this case.