Section 11(6), Arbitration Act and its limitation as per Limitation Act: A legislative vacuum

In a judgment decided on 01.03.2024 titled M/s Arif Azim Co Ltd v. M/S Aptech Ltd, the Hon’ble Supreme Court has dwelled into the aspect of limitation regarding appointment of Arbitrator.

 

The basic premise behind statutes providing for a limitation period is encapsulated by the maxim “Vigilantibus non dormientibus jura subveniunt” which translates to “the law assists those who are vigilant and not those who sleep over their rights”. The object behind having a prescribed limitation period is to ensure that there is certainty and finality to litigation and assurance to the opposite party that it will not be subject to an indefinite period of liability. Another object achieved by a fixed limitation period is to only allow those claims which are initiated before the deterioration of evidence takes place. The law of limitation does not act to extinguish the right but only bars the remedy.

 

The plain reading of Section 11(6) of the Act, 1996, which provides for the appointment of arbitrators, indicates that no time-limit has been prescribed for filing an application under the said section. However, Section 43 of the Act, 1996 provides that the Limitation Act, 1963 would apply to arbitrations as it applies to proceedings in court.

 

In view of the same, the Supreme Court held that since none of the Articles in the Schedule to the Limitation Act, 1963 provide a time period for filing an application under Section 11(6) of the Act, 1996, it would be covered by Article 137 of the Limitation Act, 1963 which is the residual provision and thus, the limitation period for making an application under Section 11(6) of the Act, 1996 is three years from the date when the right to apply accrues.

 

  1. When does the right to apply under Section 11(6) accrue?

 

The Hon’ble Supreme Court relied on Hohfeld’s scheme of jural relations to hold that the “right to apply” of the Applicant can be said to have as its jural corelative the “duty to appoint “of this Court only after all the steps required to be completed before instituting a Section 11(6) application have been duly completed. Thus, the limitation period for filing a petition under Section 11(6) of the Act, 1996 can only commence once a valid notice invoking arbitration has been sent by the applicant to the other party, and there has been a failure or refusal on part of that other party in complying with the requirements mentioned in such notice.

 

  1. When is Arbitration deemed to have commenced?

 

Section 21 of the Act, 1996 provides that the arbitral proceedings in relation to a dispute commence when a notice invoking arbitration is sent by the claimant to the other party.

 

  1. When does the cause of action arise?

 

The position of law is settled that mere failure to pay may not give rise to a cause of action. However, once the applicant has asserted its claim and the respondent has either denied such claim or failed to reply to it, the cause of action will arise after such denial or failure.

  1. What is the limitation for commencement of arbitral proceedings?

 

The notice for invocation of arbitration under Section 21 of the Arbitration Act should be issued by the Applicant within a period of three years from the date of accrual of cause of action.

 

However, in this judgment the Hon’ble Supreme Court has expressed its dissatisfaction regarding the legislative vacuum on limitations in appointment of arbitrators by observing that:

 

“We would again like to reiterate that the period of three years is an unduly long period for filing an application under Section 11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to the Act, 1996 have been made over the years to ensure that arbitration proceedings are conducted and concluded expeditiously. We are of the considered opinion that the Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators under Section 11 of the Act, 1996.”