This guest post is authored by Saurish Shetye. Saurish works with a Mumbai-based law firm. He can be reached at saurish.shetye@gmail.com

The Bombay High Court has recently confirmed in Deepdharshan Builders Pvt. Ltd. vs. Saroj that provisions of the Limitation Act, 1963 (Limitation Act) are applicable to applications filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for seeking appointment of an arbitrator.

The Court also clarified, as discussed below, that the period of limitation for filing such application will be three years from the date on which a counterparty refuses the proposal for appointment of any particular arbitrator(s).

Factual Background

The dispute arose from an agreement for transfer of certain property (the Agreement). The existence of an arbitration agreement was not disputed. Following differences between the parties, the Applicant issued an arbitration notice (Arbitration Notice) , followed by another letter calling upon the Respondents to concur with the appointment of the arbitrator suggested by the Applicant within a period of 30 days. The Respondents refused. Accordingly, the Applicant filed an application under Section 11(6) of the Arbitration Act, requesting the Hon’ble Court to appoint an arbitrator (Section 11 Application).

Interim Impediments

Meanwhile, the Applicant had also filed a petition under Section 9 of the Arbitration Act seeking interim reliefs. As the Agreement was insufficiently stamped, it was impounded by the Court hearing the petition for interim reliefs. This led to a further round of litigation before the stamping authority which determined the stamp duty and the penalty thereon. The Section 9 Petition was eventually rejected on account of the Applicant’s failure to pay stamp duty (Dismissal Order).

The Dismissal Order was set aside on appeal, and the Applicant was directed to pay the applicable stamp duty penalty. The said order was duly complied with by the Applicant; following which the stamping authority returned the original Agreement to the Applicant. Immediately thereafter, the Applicant filed the Section 11 Application along with a separate  application seeking a condonation of delay.

Justifying the Delay

In the Section 11 proceedings, the Applicant attempted to justify the delay on the ground that as the arbitral proceedings had commenced prior to 23^rd October, 2015 (the date on which the 2015 arbitration amendments came into force) and that the Applicant therefore had a vested right to initiate these proceedings before the Chief Justice of this Court as a persona designata and not before the Court and thus the provisions of the Limitation Act, 1963 (Limitation Act) were not applicable to the proceedings under Section 11(6) of the Arbitration Act. It was further submitted that the post-amendment requirement of filing an application under Section 11(6) of the Arbitration Act before the Court cannot be made applicable to arbitral proceedings which had commenced prior to 23^rd October, 2015.

It was alternatively argued that if the Section 11 Application is to be treated as an application before the Court under the amended Section 11(6) of the Arbitration Act, then the delay in filing the Section 11 Application can be condoned under Section 5 of the Limitation Act. Lastly, the Applicant submitted that the question as to whether the said application is barred by limitation or not, in any case falls within the exclusive domain of the arbitral tribunal.

The Respondents submitted that the said Application is ex facie barred by limitation since it was not filed within three years from the date of accrual of the right to apply. It was also argued that the Limitation Act would be applicable since the said Application was admittedly filed after 23rd October 2015 in the Court – and not before the Chief Justice.

In this backdrop, the Court was required to decide the applicability of the Limitation Act to the Section 11 Application. If applicable, the Court was then required to decide if the Applicant had sufficient cause for not filing the said application within the period prescribed by under the Limitation Act.

Findings and Analysis

The Hon’ble Court observed that in view of the 2015 Arbitration Amendments, proceedings under Section 11(6) are required to be filed before the High Court having jurisdiction; not before its Chief Justice. Instead, it was observed the Hon’ble Chief Justice in fact ceased to be persona designate for deciding applications under Section 11(6) with effect from 23^rd October, 2015. Accordingly, the Hon’ble Court rejected the Applicant’s contention that the said Application could have been filed before the Hon’ble Chief Justice on grounds that the Applicant had invoked arbitration before the 2015 Amendments came into force.

Limitation Act applies to proceedings under Section 11(6) of the Arbitration Act

For any application which is not specifically dealt with under the Limitation Act, Article 137 provides that the period of limitation for filing such an application will be three years from the date on which the right to apply accrues.

The Hon’ble Court relied upon the Delhi High Court’s decision in Yogesh Kumar Gupta vs. Anuradha Rangarajan[1] to observe that Article 137 was indeed applicable to proceedings under Sections 11(6) and 11(9) of the Arbitration Act because the applications for the same are required to be filed before the Court. In Yogesh Kumar Gupta, the Delhi High Court held that Section 5 of the Limitation Act would apply to an application under Section 11(5) of the Arbitration Act. Consequently, it was held that Section 5 of the Limitation Act – which permits extension of time for filing an application on justified grounds of delay – would also be applicable to applications under Section 11(6) of the Arbitration Act.

In holding so, the Hon’ble Court also drew an analogy from Section 20 of the Arbitration Act, 1940 (1940 Act); which provided for  a mechanism for making an arbitral reference after a party had made  an application for taking the arbitration agreement on record. Since an application under Section 20 had to be filed before an appropriate Court – and not the Chief Justice of the High Court – the Apex Court had previously observed in Hari Shankar Singhania & Ors. Vs. Gauri Hari Singhania & Ors.[2] that Article 137 of the Limitation Act will be applicable to an application filed under Section 20 of the 1940 Act.

Separately, the Court clarified that the limitation period for filing a Section 11(6) would commence from the date on which the other side receives the Arbitration Notice was received and then objects to appointment of the arbitrator proposed in the Arbitration Notice.  It has further clarified that limitation period for filing an application under Section 11(6) should not be  be mixed up with the limitation provisions applicable to the filing of the actual claim.

Courts retain the jurisdiction to decide the question of limitation even for an application filed under Section 11(6) of the Arbitration Act

The Applicant relied on Section 11(6A) of the Arbitration Act and the Supreme Court’s judgment in M/s. Duro Felgeura SA Vs. M/s. Gangavaram Port Limited[3]  to submit that the Court’s jurisdiction in the said Application was confined to the examination of existence of an arbitration agreement. Accordingly, the Applicant argued that the issue of limitation must be decided by the arbitral tribunal and not by the Court.

While rejecting the aforesaid submission, the Hon’ble Court held that the issue of existence of arbitration agreement – which Court has to consider before appointing any arbitrator in an arbitration application filed under Section 11(6) – is totally different from the issue as to whether the application under Section 11(6) is filed within the period of limitation or not. The Court also observed thus:

“Though the powers of Court under Section 11(6) in view of Section 11(6-A) are confined to the examination of existence of the arbitration agreement, the issue as to whether the application under Section 11(6) is filed within the time prescribed under Article 137 of the Schedule to the Limitation Act or not has to be decided by the Court itself while considering such application under Section 11(6) of the Arbitration Act and such issue cannot be left open to be decided by the arbitral tribunal.”

Time spent in stamp duty adjudication can excluded

The Hon’ble Court noted that the said Application had been filed after the expiry of three years from the Respondents’ receipt of the Arbitration Notice. The Respondents argued that the period of time spent in the Applicant’s stamp duty proceedings should not be excluded while computing the limitation elapsed since the Applicant got embroiled in the Stamp Duty Proceedings on account of its own default.

Relying on the Supreme Court’s decision in SMS Tea Estates v. Chandmari Tea Company[4] (2011), it was observed that the Hon’ble Court could not have acted on the Agreement as long as it remained insufficiently stamped and the Applicant’s rights thereunder could not have been considered. Accordingly, the Hon’ble Court acknowledged that the Applicant could not have relied upon the said Agreement even for the purpose of filing of the application under Section 11 of the Arbitration Act. Thus, the Applicant was allowed to take the benefit of Section 14[5] of the Limitation Act, which provides for excluding time whilecomputing the limitation period.

Conclusion

Eventually, given the prevailing circumstances, the Hon’ble Court allowed the said Application and appointed an arbitrator each on behalf of the Applicant and the Respondent group. The appointed arbitrators were directed to provide the requisite disclosures as per Section 12(1) of the Arbitration Act. Subject to their compliance with the disclosure requirements, the Court appointed arbitrators were required to appoint the presiding arbitrator in accordance with the provisions of the Act.

 

[1] (2007) 2 Arb.LR 446

[2] 2006(2) Arb.LR 1.

[3] 2017 (9) SCC 729.

[4] (2011) 14 SCC 66

[5] Exclusion of time of proceeding bona fide in court without jurisdiction. —

• In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the defendant shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.

 

• In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.

• Notwithstanding anything contained in rule 2 of Order XXIII of the Code of Civil Procedure, 1908 (5 of 1908), the provisions of sub-section (1) shall apply in relation to a fresh suit instituted on permission granted by the court under rule 1 of that Order where such permission is granted on the ground that the first suit must fail by reason of a defect in the jurisdiction of the court or other cause of a like nature. Explanation.— For the purposes of this section,—

1. a) in excluding the time during which a former civil proceeding was pending, the day on which that proceeding was instituted and the day on which it ended shall both be counted;

(b) a plaintiff or an applicant resisting an appeal shall be deemed to be prosecuting a proceeding;

(c) misjoinder of parties or of causes of action shall be deemed to be a cause of a like nature with defect of jurisdiction.