Summary
Deciding petitions under Section 11(6) of the Arbitration and Conciliation Act, 1996 in an international commercial arbitration over shares under a shareholders agreement, the Supreme Court held that on limitation a referral court only checks whether the Section 11(6) petition itself is within three years; whether the substantive claims are time-barred is for the arbitral tribunal. The petitions were allowed and the sole arbitrator already hearing a related dispute between the parties was appointed.
Issues
- Whether the referral court should decline a reference under Section 11(6) by examining whether the petitioner's substantive claims are ex facie and hopelessly time-barred.
- Whether the Section 11(6) petitions themselves were filed within limitation.
- What the scope of judicial scrutiny at the Section 11 stage is after Section 11(6-A) and In Re: Interplay.
Provisions considered
- Section 11(6) and Section 11(6-A), Arbitration and Conciliation Act, 1996Read with In Re: Interplay and SBI General Insurance v. Krish Spinning, the referral court's role is confined to whether an arbitration agreement exists; on limitation it examines only whether the Section 11(6) application is within time, and must not hold an evidentiary inquiry into whether the claims are time-barred. (¶¶ 31, 37, 38, 39, 40, 44)
- Article 137 of the Schedule, Limitation Act, 1963A Section 11(6) petition is governed by the three-year period in Article 137, running from the other party's failure or refusal to comply with a valid notice invoking arbitration (Arif Azim, as clarified in Krish Spinning). Here time ran from 23.02.2017 and the petitions filed on 09.04.2019 were within limitation. (¶¶ 35, 38, 39, 41)
- Section 43, Arbitration and Conciliation Act, 1996Noted, through Vidya Drolia, that the Limitation Act applies to arbitrations and that limitation is an admissibility issue normally for the arbitrator; the respondents' plea that the claims were time-barred was left to the tribunal. (¶¶ 30, 32, 33, 42)
Held
- When deciding limitation under Section 11(6), the referral court must limit itself to whether the Section 11(6) application was filed within three years; it should not conduct an intricate evidentiary inquiry into whether the underlying claims are time-barred, which is for the arbitrator. The broader prima facie scrutiny suggested in Vidya Drolia and Arif Azim stands clarified by Krish Spinning in light of In Re: Interplay. (¶¶ 37, 38, 39)
- Restraint at the referral stage is reinforced because no appeal lies against an order under Section 11 appointing or refusing to appoint an arbitrator, so wrongly rejecting a claim could leave the claimant without a remedy, whereas the award remains open to later challenge before the courts. (¶ 40)
- Limitation for the Section 11(6) petitions ran from 23.02.2017, when the respondents failed to respond within 30 days to the notice invoking arbitration delivered on 24.01.2017; the petitions filed on 09.04.2019 were within limitation, even counting the time spent before the Bombay High Court, which held its own Section 11 applications not maintainable. (¶¶ 15, 41)
- The competing cases on when the cause of action arose (resignation in 2013, the letter of 22.09.2011, the last legal notice of 15.10.2015, or a continuing breach) and the petitioner's entitlement to the shares go to limitation and merits, which must be left to the arbitral tribunal. (¶¶ 42, 43)
- Because the limited referral scrutiny may be misused to force parties into arbitrating ex facie time-barred or otherwise untenable claims, the arbitral tribunal may make the party it finds to have abused the process bear the costs of arbitration; here, if the claims are ultimately found time-barred, the tribunal may direct the petitioner alone to bear the costs relating to them. (¶¶ 44, 47)
Result
Petitions allowed; the existing sole arbitrator in the parties' dispute under the Service Agreement (Mr. Mayur Khandeparkar, Advocate, Bombay High Court) appointed for the disputes under the Shareholders Agreement; fees to be fixed in consultation with the parties; limitation may be taken up as a preliminary issue; costs may be imposed on the petitioner if the claims are found time-barred; all other contentions left open.