The Supreme Court of India, in its recent ruling in Arif Azim Co. Ltd. v/s Aptech Ltd, considered the issue of applicability of the law of limitation to a petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act").
Brief facts
The Petitioner and the Respondent, were both engaged in the business of providing training and education in computer education, information technology etc., and had entered into three separate franchise agreements on 21.03.2013. Thereafter, disputes had arisen between the parties in relation to the renewal and payment of royalties arising out of the said franchise agreements. After several rounds of failed communications as well as mediation, the Petitioner on 24.11.2022 issued a notice for invocation of arbitration to the Respondent. The Respondent replied to the said notice vide letter dated 05.04.2023 denying all the claims raised by the Petitioner on various grounds including that the same were barred by limitation. Hence, the Petitioner moved this Court for the appointment of an arbitrator.
Issue and observation
In the light of the facts of the matter, the Court had framed the following issues:
- Whether the Limitation Act, 1963 ("Limitation Act") is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration Act?
- Whether the court may refuse to make a reference under Section 11 of the Arbitration Act where the claims are ex-facie time barred?
While answering the first issue in the affirmative, the Court observed that a plain reading of the Section 11(6) of the Arbitration Act indicates that no time limit has been prescribed for filing an application under it, however, Section 43 of the Arbitration Act categorically provides that the Limitation Act would apply to arbitrations as it applies to proceedings in courts. Further, the Court also observed that since none of the Articles in the Schedule of the Limitation Act provide a time period for filing a Section 11 petition, the same would be covered by Article 137, i.e. a residual provision that prescribes a time period of three years starting from the date when the "right to apply accrues".
Moving forward, the Court observed that in order to decide the issue of limitation, it is crucial to ascertain when the right to file an application under Section 11(6) accrued in favor of the applicant. In this regard, the Court issued a word of caution and stated that the limitation period for making an application seeking appointment of an arbitrator must not be confused with the limitation period for raising the substantive claims which are sought to be referred to an arbitral tribunal. It clarified that the limitation for filing an application seeking appointment of arbitrator commences only after a valid notice invoking arbitration has been issued by one of the parties to the other party and there has been either a failure or refusal on part of the other party to make an appointment as per the procedure agreed upon between the parties
Before adverting to the aforementioned second issue, the Court explained that "jurisdictional" issues and "admissibility" issues, may be raised against an application for appointment of arbitrator. While jurisdictional issues pertain to the power and authority of the arbitrators to decide cases, existence of valid agreement, dispute falling outside scope of agreement etc., issues which are related to the nature of the claim and challenges to procedural requirements fall in the category of admissibility issues. Recognizing that limitation is an admissibility issue, the Court held:
"Although, limitation is an admissibility issue, yet it is the duty of the courts to prima facie examine and reject non-arbitrable or dead claims, so as to protect the other party from being drawn into a time-consuming and costly arbitration process."
Thereafter, the Court consolidated its findings and laid down a two-pronged test to be employed by courts while considering the issue of limitation in relation to Section 11(6) of the Act-: first whether the Section 11(6) petition is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and thus barred by limitation on the date of commencement of arbitration proceedings. If either of the two issues are answered in the negative, the court may refuse to appoint an arbitral tribunal.
Conclusion
Applying the aforesaid tests to the facts and circumstances of the case in hand, the Apex Court held that the arbitration petition/ appliation was not hit by the law of limitation as the same was filed within a period of 3 years from the date of refusal of the Respondent (28.12.2022) to comply with the Petitioners notice of invocation of arbitration. Further, the Court also held that as the notice of invocation of arbitration was also issued within a period of three years from the date of accrual of cause of action, the claims cannot be said to be ex-facie dead or time barred on the date of commencement of arbitration proceedings.
As a parting conclusion, the Court observed that the courts reliance on Article 137 of the Limitation Act while deciding applications under Section 11(6) is a result of a legislative vacuum. It observed that a three-year period is unduly long for filing an application under Section 11 and therefore the Parliament should step in and make suitable amendments to the Arbitration Act so as to ensure that arbitration proceedings are concluded expeditiously.
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