[This guest post is authored by Paridhi Galundia. She is currently studying in the 4^th Year of her B.A.LLB (Hons.) at Institute of Law, Nirma University]

BSNL v. Nortel: Supreme Court on Limitation Period for Section 11 Applications and Refusal of Ex-facie Time Barred Claims

In one of her last judgments, Bharat Sanchar Nigam Ltd. v.  Nortel Networks India Pvt. Ltd.[1], Justice Indu Malhotra, along with Justice Ajay Rastogi, settled the law on applicability of limitation to filing an application under Section 11 (Section 11 Application) under the Arbitration and Conciliation Act, 1996 (the Act).

The limitation period, it was held, will be 3 years from the date of the parties’ failure to mutually appoint an arbitrator. The Supreme Court also clarified that a Section 11 Application may be refused where the underlying claims are ex-facie time barred.

Factual Background

Bharat Sanchar Nigam Ltd. (BSNL) awarded a purchase order to Nortel Networks (Nortel) through a tender process. Keeping in mind some liquidated damages and levies, BSNL deducted an amount from the payment. Nortel raised a claim for the payment which was rejected by BSNL. 

5 ½ years later, Nortel invoked the arbitration clause in their agreement, and requested for appointment of an arbitrator to determine the dispute related to the deduction in payment. BSNL pointed out that the case had already been closed and such a request cannot be entertained at such a belated stage; for Nortel had slept over its rights.

Nortel approached the Kerala High Court with a Section 11 Application; based on which the dispute was referred to arbitration. BSNL unsuccessfully sought a review of this decision.

Accordingly, BSNL appealed to the Apex Court.

Supreme Court’s decision

The Court was required to decide two main issues.

1. What is the limitation period for filing a Section 11 Application, and when does it commence?; and
2. Whether the Section 11 Court can refuse to appoint an arbitrator on grounds that the underlying claim(s) is ex-facie time barred?

On Limitation Period

The Court highlighted that various timelines have been identified in several provisions of the Act, e.g. Sections 8, 9(2), 13, 16(2), 34(3), etc. Further, Section 11 has been amended by the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) to add sub-section (13), requiring the Section 11 court to dispose of applications as expeditiously as possible and prescribing a 60 day time limit from the date of service of notice on the other party. In this backdrop, it is clear that expediency is core to arbitration.

However, Section 11 does not identify any limitation period for filing of an application.

The Court noted that Section 43 of the Act clearly provides for applicability of Limitation Act 1963 (Limitation Act).

The Apex Court had previously held that by the virtue of Section 43, the Limitation Act applies to all proceedings (court and arbitration) under the Act, except where it has been specifically excluded. 

Article 137 of the Limitation Act applies to all residual matters. It provides for a limitation period of 3 years, commencing from the day the right to apply accrues. In absence of a provision prescribing a time period for Section 11 Applications, it was held that residual provision of the Limitation Act, i.e. Article 137, will apply. The applicability of Article 137 to Section 11 Applications had also been upheld by the High Courts of Bombay and Delhi.

The Supreme Court reiterated that the limitation period applicable to substantive claims, arising out of contracts, is distinct from the one applicable to filing of a Section 11 Application. The limitation period for the latter commences from the date of refusal of request to appoint an arbitrator, sent from one party to another, or on expiry of 30 days from such request, whichever is earlier.

Interestingly, the Court also noted that a limitation period of 3 years is an unduly long period for filing a Section 11 application. The Act has been amended twice, in 2015 and 2019, to ensure expediency of the process and for that reason this long period runs contrary to the scheme of the Act. An amendment in Section 11 prescribing a limitation period has been suggested by the Court to the Parliament.

As for the case before it, the Court held that Nortel’s Section 11 Application was filed within limitation.

On ex facie time-barred claims

This issue required the Court to look at the perennial question of the extent of the Court’s jurisdiction under Section 11. The Court discussed the scope of a Section 11 court’s jurisdiction under three periods – (i) before the 2015 Amendment; (ii) after the 2015 Amendment; (iii) the Arbitration & Conciliation (Amendment) Act, 2019(2019 Amendment).

Prior to the 2015 Amendment, by virtue of its decision in SBP v. Patel Engineering (SBP) (2005) and National Insurance v. Boghara Polyfab (2008), the Court exercised judicial power (as opposed to administrative power) in appointing an arbitrator. The scope of inquiry was far beyond mere existence of the arbitration agreement.

This changed with the 2015 Amendment’s insertion of sub-sections (6A) and (6B) in Section 11. The scope of inquiry was strictly confined to the existence of an arbitration agreement. In other words, as long as the existence of an agreement could not be disputed, all other issues were to be determined by the tribunal. The Apex Court has also held in several decisions that the scope of enquiry under sub-section (6A) is narrow.

This was in line with two out of 3 pillars of arbitration, the kompetenz-kompetenz principle and minimum judicial intervention – with the third being party autonomy. The 2015 Amendment legislatively overruled SBP, as observed in Mayavti Trading Pvt. Ltd. Vs. Pradyuat Deb Burman (2019) [Mayavti Trading].

At present, sub-section (6A) governs the scope of the Section 11 court’s power. However, Section 11(6A) will be omitted after Section 3(v) of the 2019 Amendment is notified. It is being done in the interest of arbitral institutions designated by the Supreme Court, who will be empowered to exercise the default power.

The Court observed that limitation is a mixed question of law and fact. As such, a determination of limitation lies within the domain of an arbitral tribunal. The Court also highlighted the distinction between:-

• Jurisdictional issues, pertaining to the authority of the arbitral tribunal to decide the case; and
• Admissibility issues, pertaining to the nature of claim or related circumstances such as mandatory requirements prior to arbitration, claim being time-barred or prohibited, etc. but not a challenge to the jurisdiction of the tribunal.

The Court also referred to judgments on the Singapore Court of Appeals in Swisbourgh Diamond Mines v. Kingdom of Lesotho (2018) and BBA v BAZ (2020) to highlighted the “tribunal versus claim” test. It asks whether the objection is directed towards the tribunal, jurisdictional, or the claim, admissibility. Applying this test, a distinction can be made between issues of jurisdiction and admissibility.

The Court also referred to its recent and landmark decision in Vidya Drolia v. Durga Trading Corporation (2020). It was observed here that only where the court is certain that the subject matter is not arbitrable or that no arbitration agreement exists, it may refuse to refer the case to arbitration. This was not to be taken as a resurrection of the pre-amendment position; but done only to cut the deadwood.

Since there was a delay of 5 ½ years after BSNL’s rejection, it was held that Nortel’s claim was ex-facie time barred. The Section 11 Application was therefore rejected.  

Comment

This is yet another judgment which furthers the goal of expediency and minimal intervention of courts in matters of arbitration. Nonetheless, the Court has taken a practical and balanced approach where it has created scope refusing reference to those cases which ex-facie appear to be time barred, and it is evident that it is a dead claim. In absence of such an approach, the process will only become more costly and lengthy. Therefore, laches on Nortel’s part has been correctly dealt with by the Court.

The Court proactively identified a void in Section 11 and settled the position for the time being. Concurrently, the Court has suggested the Parliament to bring about an amendment to the section for a shorter period of limitation, keeping in mind the goal of efficiency and expediency surrounding the process.

Interestingly, the Court perhaps missed discussing a recent judgment of the United States Supreme Court in Henry Schein v. Archer & White Sales (2019). The 9-judge bench unanimously held here that where the parties have explicitly delegated the jurisdiction to determine the arbitrability to an arbitrator then, even if the argument for arbitration appears to be frivolous or wholly groundless, the court has to honour this delegation.

However, it should be noted that the word “may” has been used in Section 11 to leave some scope for discretion for of the court. This is perhaps with a view to respecting kompetenz-kompetenz and party autonomy. The Section 11 court therefore has enough leeway to honour valid delegations, as in Henry Schein.

The Court also referred to the 2019 Amendment in terms of how it is aimed at making India an attractive seat for international commercial arbitrations. The Court also discussed the omission of sub-section (6A) of Section 11. This omission will truly lead to minimal interference of the courts as the default power will be designated to the arbitral institution by the Supreme Court under Section 11(6B).

Therefore, we can perhaps expect additional clarity in the scope of a Section 11 court’s intervention after the 2019 Amendment comes into full force.

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[1] Civil Appeal Nos. 843-844 of 2021, Decided on 10 March 2021.