In a recent judgement, the Hon’ble Supreme Court of India’s has delved deeply into the intricacies of the arbitration process in India, particularly focusing on the applicability of the Limitation Act, 1963 (“Limitation Act”) to arbitration proceedings under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”). The decision was passed by a three- member bench of the Hon’ble Supreme Court in the case of M/S Arif Azim Co. Ltd. v. M/S Aptech Ltd. [2024] 3 S.C.R.. This case touches upon fundamental issues related to the timing of arbitration requests, the applicability of limitation periods, and the judicial approach to time-barred claims. The Hon’ble Supreme Court has also noted that the Act itself is silent on the limitation periods for Section 11 and observed that the legislature ought to take steps. Briefly, the dispute at hand arose between M/S Arif Azim Co. Ltd., the petitioner, and M/S Aptech Ltd., the respondent, over a franchise agreement of 2004 involving the establishment of an IT training and English speech coaching center in Kabul. The agreement stipulated various obligations, including royalty fees and contingencies that were not adhered to. A particular point of contention was a training course conducted in Kabul on behalf of the Indian Embassy, where non-payment of dues to the petitioner for carrying out the work led to a breakdown in the relationship between the parties. The petitioner, slept over their rights for over 11 years and after several failed mediation attempts, sought to invoke arbitration sometime in the year 2022. The matter was heavily contested by the respondent, who vehemently argued that the claim was time-barred and that the agreement itself did not contain a valid arbitration clause, thus challenging the jurisdiction of the arbitration process.
The primary question that faced the Hon’ble Supreme court was whether the Limitation Act applies to applications made under Section 11(6) of the Act. Section 11 (6) of the Act deals with the appointment of arbitrators when the parties cannot agree on an arbitrator and provides for reference of a matter to the appropriate court. No time limit for the appointment of an arbitrator has been set out under the provisions of Section 11 of the Act. It is pertinent to note that Section 43 of the Act states that the provisions of the Limitation Act apply to arbitrations in a similar manner as it does to civil proceedings, however, there was no provision for specific application to Section 11(6) petitions and the same required clarification.
The Hon’ble Supreme Court in its analysis, reaffirmed that the Limitation Act applies to Section 11(6) applications as well. This means that any application for the appointment of an arbitrator must be made within the limitation period prescribed by the Limitation Act. As there is no specific provision in the Limitation Act or its schedule for the appointment of an arbitrator, the Hon’ble Supreme Court relied on Article 137 of the Schedule of the Limitation Act, which prescribes a 3 year period of limitation for any other application for which no period of limitation is provided elsewhere in the Limitation Act. It was however observed that even this was an excessively long period for a party to sit over their rights post invocation of the provisions of Section 11 of the Act and not in keeping with the spirit of the Act.
Another key issue faced by the Hon’ble Supreme Court was determining whether the limitation period begins from the date of the cause of action or from the date of issuing the notice invoking arbitration. After analysing various past precedents on the subject, the Hon’ble Supreme Court clarified that the limitation period for filing a petition under Section 11(6) begins not from the date when the cause of action arises but from the date when a valid notice invoking arbitration is issued, and the opposing party fails to agree to the appointment of an arbitrator as per the agreed procedure. This interpretation aligns with the purpose of the Act, which aims to facilitate swift resolution of disputes while ensuring that parties do not unduly delay the arbitration process. The court also highlighted that the issuance of the arbitration notice is a crucial trigger point for the limitation period. If a party fails to appoint an arbitrator within the agreed timeframe of 30days from the date of receiving the invocation notice, the other party’s right to apply to the court under Section 11(6) arises. Hence, it seems just and necessary to the Hon’ble Court that the limitation period ought to start from the date of issuing the invocation notice.
The above principle laid out by the Hon’ble Supreme Court ensures that the parties do not delay the arbitration process, and that disputes are resolved within a reasonable timeframe. The Hon’ble Supreme Court reiterated the popular legal maxim, ‘Vigilantibus non dormientibus jura subveniunt’, meaning that the courts/ law only assists those who do not sleep over their own rights. The Hon’ble Supreme Court’s interpretation that the limitation period begins from the date of issuing a notice invoking arbitration ensures that parties are not prematurely barred from seeking arbitration. This approach aligns with the intent of the Act to facilitate the swift resolution of disputes while minimizing judicial interference at the pre-arbitral stage. Thus, a court hearing an application under Section 11 of the Act would only be required to look into whether the application was filed within 3 years of invoking the arbitration clause in an arbitration agreement, and would leave more complex queries on the limitation period of the cause of action for determination by the arbitral tribunal itself under the provisions of Section 16 of the Act. The Hon’ble Supreme Court recognized that there needs to always be a delicate balance between expediting dispute resolution and preventing frivolous claims from clogging the arbitration process. Hence it was of the view that the courts ought to reject claims that are manifestly and undoubtedly time-barred before they proceed to arbitration rather than mechanically referring every single matter to an arbitral tribunal for determination. This approach ensures that only deserving claims proceed to arbitration, preserving the efficiency of the process.
In its conclusion, the Hon’ble Supreme Court also noted the lack of statutory clarity regarding limitation periods for Section 11(6) applications. It suggested that legislature ought to rectify this issue by amending the Act and specifying a clear limitation period for such applications to avoid ambiguity in future arbitration proceedings. It was further noted that the limitation period ought to be less than 3 years even, as that was also an excessively long time for a party to file a section 11 application post invocation.
The judgment in Arif Azim Co. vs Aptech (Supra) is a critical contribution to arbitration law in India and lays down an important precedent. It clarifies the applicability of the Limitation Act to Section 11(6) applications and sets the precedent for how courts should handle time- barred claims in arbitration proceedings. The Hon’ble Supreme Court’s nuanced approach balances the need for timely dispute resolution with the protection of parties rights to arbitration. This judgment will likely influence future arbitration cases in India, promoting more timely and efficient arbitration practices while ensuring that only deserving claims proceed to arbitration.
– Purazar Fouzdar, Partner
Declan Fernandez, Associate
