Introduction
The Arbitration and Conciliation Act, 1996 (hereinafter, ‘the Act’) was enacted in India with the objective of providing an efficient alternative dispute resolution mechanism. One of its key features is the process of appointing an arbitrator under Section 11 of the Act, which allows parties to select a neutral third party to resolve their disputes without going to court. Recently, the Supreme Court of India delivered a significant ruling concerning the application of the limitation period for appointing an arbitrator under Section 11 of the Act. This article aims to delve into the interpretation of this provision, analyze the recent judgment, and its implications on arbitration proceedings in India.
Section 11 of the Arbitration and Conciliation Act, 1996
Section 11 of the Act provides for the appointment of arbitrators. It outlines the process for the parties to an arbitration agreement to appoint an arbitrator mutually. If they fail to do so within the stipulated time, either party can approach the Chief Justice for the appointment of an arbitrator.
The Supreme Court’s Interpretation of Section 11
In a recent case, M/s B and T AG v Ministry of Defence, the Supreme Court clarified the application of the limitation period for filing an application under Section 11(6) of the Act for appointment of an arbitrator. The Court held that the limitation period of three years for filing such an application would commence from the date when the cause of action arose. Subsequent negotiations between the parties, which take place after the cause of action has arisen, will not postpone the cause of action for the purpose of limitation computation.
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Background Facts
In 2009, the Ministry of Defence, Government of India, floated a tender for procurement of Sub Machine Guns. M/s B and T AG, a Swiss company, was declared as the successful bidder and a contract was executed in 2012. However, the Ministry alleged a delay in the supply of goods by the company. As a result, the Ministry instructed the Bank to encash the Bank Guarantee submitted by the company to recover Liquidated Damages. This led to disputes between the parties, and the company issued a Notice invoking Arbitration to the Ministry in 2021. The company then filed a petition under Section 11(6) of the Arbitration Act, seeking appointment of Arbitrator for adjudication of disputes arising out of the contract executed with the Ministry of Defence in 2023.
The Ministry opposed the petition arguing that the cause of action to appoint an Arbitrator arose on 26.09.2016 when the amount was deducted and credited to the Government’s account. Therefore, the limitation period of three years expired way back on 25.09.2019. On the other hand, the company argued that since bi-lateral negotiations continued till 2019, the cause of action was postponed.
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Supreme Court Verdict
The Supreme Court, after examining the arguments of both parties, held that the Arbitration Act does not prescribe any time period for filing an application under Section 11(6) for appointment of Arbitrator. Thus, the limitation of three years provided under Article 137 of the Limitation Act, 1963 would apply to such proceedings. The time limit of three years would commence from the period when the right to apply accrues. The court emphasized that mere negotiations will not postpone the “cause of action” for the purpose of limitation. The Court also rejected the company’s contention that the limitation period stood extended as it continued to negotiate till 2019. The Bench was of the view that disputes between the parties had cropped up in 2014 itself, and the cause of action arose on 26.09.2016 when the Ministry deducted amount towards liquidated damages and credited it into the account of Government of India. This was considered the end of the matter. According to the Court, the fact that the petitioner continued negotiating with the respondent in anticipation of some amicable settlement would not save the period of limitation. Consequently, the Bench rejected the arbitration petition for being hopelessly barred by time. .
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Implications of the Verdict
This judgment has significant implications for arbitration proceedings in India. Parties involved in a dispute must be vigilant about the limitation period for filing an application for the appointment of an arbitrator. It is clear from this judgment that the period of limitation will not be extended due to ongoing negotiations between the parties. This decision reinforces the principle that the limitation period begins when the cause of action arises, and it is not affected by subsequent events unless stipulated by law.
Conclusion
The Supreme Court’s interpretation of Section 11 of the Arbitration and Conciliation Act, 1996 in the case of M/s B and T AG v Ministry of Defence serves as an important precedent for future arbitration proceedings in India. It underscores the importance of adhering to the limitation period for filing applications for the appointment of an arbitrator. Parties to an arbitration must be cautious and take timely action to avoid their claims from being barred by limitation. Further, this decision highlights the importance of understanding the legal framework surrounding arbitration proceedings and the consequences of non-compliance with the same.
written by Parthvi Patel, United World School of Law
Citations
- Supreme Court Arbitration Act Section 11 Limitation Period Cause of Action Negotiation – LiveLaw
