This article is written by Srishti Sinha, a student of the Institute of Law, Nirma University, Ahmedabad. This is an exhaustive article which deals with the ambit of Section 11 of the Arbitration and Conciliation Act of 1996 in the light of the case of Bharat Sanchar Nigam Ltd and Anr. v M/S Nortel Networks Pvt. Ltd.
Table of Contents
Introduction
Alternative Dispute Resolution (ADR) includes arbitration. ADR techniques provide several advantages, including cheaper costs, more procedural flexibility, increased secrecy, increased chance of settlement, choice of forum, choice of remedies, and so on. Arbitration, on the other hand, is one of the most well-known and extensively used types of ADR. Since its establishment in 1940, India’s arbitration law has been on the rise. The Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937, and the Foreign Awards (Recognition and Enforcement) Act, 1961 were the three enactments that included the previous statutory provisions of arbitration in India. However, these three acts were later repealed by the Arbitration and Conciliation Act, 1996. This legislation was enacted to bring together the laws governing local and international arbitration, as well as their enforcement. To promote arbitration as a preferred method of resolving business disputes, and to establish India as a centre for international commercial arbitration. However, several significant changes were made in 2015, 2019, and 2021.
The case of Bharat Sanchar Nigam Ltd & Anr. v. M/S Nortel Networks Pvt. Ltd. (2021) is concerned with the application of Article 137 of the Limitation Act, 1963 (hereinafter referred to as the Limitation Act) on Section 11 application under the Arbitration Act, 1996 (hereinafter referred to as the Arbitration Act). The Supreme Court has set the path for quick and efficient resolution of business disputes with this decision.
Section 11 of the Arbitration Act
While the Arbitration Act is based on party autonomy, the Parliament has ensured that the Act provides appropriate measures to deal with events and circumstances that need judicial involvement when necessary. Section 11 of the Act, for example, specifies the scope and the function of courts in the nomination of arbitrators, in addition to allowing parties the freedom to create their method for appointing arbitrator(s) (subject to the Arbitration Act’s requirements).
When the Arbitration Act was first enacted, Section 11 provided that if one of the parties failed to appoint an arbitrator following the parties’ agreement (or within 30 days of receiving a request to do so from the other party, if there is no agreement), the requesting party could approach the Chief Justice of India and request that the Chief Justice appoint the arbitrator. The appointment would thereafter be made by the Chief Justice, or by any person or organization, he designates for that purpose.
Section 6 of the Arbitration and Conciliation (Amendment) Act, 2015 (“the 2015 Amendment Act”), which took effect on October 23, 2015, modified parts of Section 11 of the Arbitration Act. The Supreme Court, or any person or institution selected by it, was effectively entrusted with the task of choosing the arbitrator by the 2015 Amendment Act. Sub-section (13) of the 2015 Amendment Act established a timetable for the disposition of a Section 11 application. Notably, the sixty-day timeframe from the date of delivery of notice on the opposing party is merely a guideline, and the Supreme Court or the person or institution selected by it is obligated to try to stick to it.
The Arbitration and Conciliation (Amendment) Act, 2019 (the 2019 Amendment Act) has made significant changes to Section 11 of the Arbitration Act. The Supreme Court has identified arbitral institutions to which the arbitrator would be appointed under the revised Section 11. The Arbitration Council of India (“ACI”) (a body to be established by the Central Government under Section 43-B of the 2019 Amendment Act) is responsible for grading these arbitral institutes but because the ACI has yet to be constituted, the procedure for appointing an arbitrator under Section 11 remains intact. Despite the creation of the ACI, the 2019 Amendment Act does not clarify the norms or procedures that arbitral institutions must follow when making appointments under Section 11.
An overview of the case of Bharat Sanchar Nigam Ltd v. M/S Nortel Networks Pvt. Ltd. (2021)
Facts of the case
Through a bidding procedure, Bharat Sanchar Nigam Ltd. (BSNL) granted Nortel Networks (Nortel) a purchase order. BSNL deducted a portion of the payment to account for liquidated damages and levies. Nortel submitted a payment claim, which was denied by BSNL. Nortel exercised the arbitration clause in their agreement five and a half years later, requesting the appointment of an arbitrator to resolve the disagreement over the payment reduction. The matter had already been concluded, according to BSNL, and such a request could not be granted at this late date since Nortel had slept on its rights.
Nortel filed a Section 11 application with the Kerala High Court.
Kerala High Court judgment
The High Court of Kerala, citing the reasoning of other High Courts in the same case, held that the Section 11 application under the Arbitration Act must be filed within three years of the expiration of the 30 days following receipt of the notice invoking arbitration. The High Court then issued an order referring the case to arbitration.
It was held that since the application for Section 11 was filed just a month after the Respondent received a letter from the Appellant, therefore the current request is not prohibited by limitation. The parties were referred to arbitration by the court. The Appellant filed a review petition contesting the aforementioned order, which was rejected by the Kerala High Court. So, accordingly, the appellant (BSNL) moved to the Apex court.
Issues Raised
The Appellant, who was dissatisfied by the High Court of Kerala’s judgment, filed an appeal with the Supreme Court.
The following two issues were framed by the Supreme Court:
- What is the period of limitation for applying Section 11 of the Arbitration Act, 1996?
- Where the claims are ex facie time-barred, can the court refuse to make an appointment under Section 11 of the Arbitration Act, 1996?
Judgment of the case
Judgment on the first issue
Several parts of the Act, including Sections 8, 9(2), 13, 16(2), 34(3), and others, have been recognized as having different timeframes. The Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) also included Sub-section (13), which requires as per Section 11 for the court to dispose of petitions as quickly as feasible and sets a 60-day deadline from the date of serving of notice on the opposite party. In light of this, it is apparent that expediency is essential in arbitration. Section 11 does not, however, provide a time limit for applying.
The Court pointed out that Section 43 of the Act expressly states that the Limitation Act of 1963 applies (Limitation Act). The Apex Court previously held in the case of M/S. Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department and others (2008), that according to Section 43, the Limitation Act applies to all procedures (court and arbitration) under the Act, except when it has been explicitly excluded.
Article 137 of the Limitation Act applies to all residual matters. It specifies a three-year restriction term, beginning on the day the right to apply accrues. In the absence of a clause establishing a time limit for Section 11 applications, it was decided that the Limitation Act’s residual provision, namely Article 137, would apply. The High Court of Bombay in the case of Leaf Biotech Pvt. Ltd. v. The Municipal Corporation (2010) and the High Court of Delhi in the case of Golden Chariot Recreations Pvt. Ltd. v. Mukesh Panika & Anr. (2018), both confirmed the applicability of Article 137 to Section 11 applications.
The Supreme Court concluded that Article 137 of the Limitation Act would apply to a Section 11 application under the Arbitration Act, 1996, based on the same logic as the High Courts’ earlier rulings. Surprisingly. The court also stated that a three-year limitation period for bringing a Section 11 application is excessively long. The Act has been modified twice, in 2015 and 2019, to guarantee that the process is expedited, and as a result, this long duration is contradictory to the Act’s design. The Court has recommended the Parliament that Section 11 be amended to include a limitation period.
Judgment on the second issue
The Supreme Court began its consideration in this respect by examining Section 11’s legislative history. The Supreme Court noted that the current legislative policy was to minimize judicial intervention at the appointment stage, citing its decisions in Duro Felguera SA v. Gangavaram Port Ltd. (Duro Felguera) (2017), Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman (Mayavati Trading) (2019), and Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited (2019) following the 2015 Amendments. In contrast to the situation before the 2015 Amendment, the only thing the court had to look into after the 2015 Amendment was whether or not an arbitration agreement existed. According to the kompetenz-kompetenz concept, any additional preliminary or threshold problems were to be decided by the arbitrator under Section 16.
SC assessed its powers to accept claims of limitation at the level of Section 11 after establishing its area of inquiry under Section 11 as follows:
- The terms “jurisdictional” and “admissibility” are not interchangeable. Jurisdictional problems concern the arbitrators’ power and authority to hear and determine a dispute. Admissibility concerns, on the other hand, were procedural in nature.
- The SC ruled that the “tribunal versus claim” test should be used to determine whether an issue is related to admissibility or jurisdiction, citing Swissborough Diamond Mines (Pty) Ltd. v. Kingdom of Lesotho (2018) and the following judgment of BBA v. BAZ (2020). The “tribunal versus claim” test determines if the objection is directed at the tribunal (i.e., whether the claim should not be arbitrated because of a flaw or failure to submit to arbitration) or the claim itself (i.e. whether the claim itself is defective).
- According to the SC, the limitation is a question of “admissibility” that must be determined by the arbitral tribunal either as a preliminary issue or at the end of the process.
The court, based on the decision in Vidya Drolia v. Durga Trading Corporation (2020), ruled that the court can intervene at the referral stage of an application only when it is “clear” that the claim is prima facie time-barred, to cut off the dead wood claims. The court did emphasize, however, that this rule would only apply when there is no dispute that the matter is prima facie time-barred or non-arbitrable.
The rule, however, stated that the issue will be sent to arbitration if there is even the smallest uncertainty. In this instance, it was determined that the Respondent’s claim is ex facie time-barred since it did not take any action after the Appellant rejected its claim. When the claim was denied, the Respondent was required to provide the arbitration notification within three years of the claim’s denial.
Analysis
The Supreme Court has supported the essential principles of arbitral proceedings, namely, quick resolution of the dispute and minimal judicial involvement, in this decision. The application of Article 137 of the Limitation Act would guarantee that parties did not sleep on their rights and claims, as the law does not have the authority to grant relief to those who do so. One of the major goals of the Arbitration Act, as mentioned in the Preamble, is to reduce the role of courts as supervisors in the arbitral process.
When the Supreme Court handed down its decision in SBP & Co. v. Patel Engineering (2005), this goal was neglected. Fortunately, the Supreme Court overturned this decision in Duro Felguera SA v. Gangavaram Port Ltd (2017), recognizing the legislative intent underlying the Arbitration Act and limiting judicial participation at the referral stage. The norm established in Duro Felguera (above) was reaffirmed in this decision, and the court’s authority to intervene in arbitral proceedings at the referral stage was limited. This will undoubtedly assist in streamlining the arbitration procedure and projecting India as an arbitration-friendly nation.
Nortel emphasized in its Notice of Arbitration that the limitation period will be extended in light of the parties’ discussions regarding the dispute. In light of exchanges of communication or even settlement negotiations, the Supreme Court dismissed Nortel’s claim of an extended limitation period. Furthermore, no pleadings on any intervening facts that might extend the limitation period under the Limitation Act were filed. Nortel’s claims are ex facie barred, according to the Supreme Court, because the notice of arbitration was filed over 5 years after Nortel’s claims were rejected by BSNL.
Conclusion
The parties’ primary motivation for referring a matter to arbitration is to resolve a disagreement quickly. It is critical that a limitation period for submitting an application for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act be given to make the arbitration proceeding a faster procedure of conflict settlement. By establishing a three-year time limit for submitting an application under Section 11 of the Arbitration and Conciliation Act in Bharat Sanchar Nigam Ltd, & ANR. Versus M/S Nortel Networks India Pvt. Ltd., the Supreme Court has furthered the goal of speedy arbitration proceedings. As a result, the arbitration process becomes a more expeditious and efficient means of resolving disputes.
References
- https://www.nishithdesai.com/information/news-storage/news-details/newsid/6513/html/1.html
- https://elplaw.in/wp-content/uploads/2021/04/ELP-Arbitration-weekly-update-Bharat-Sanchar-Nigam-Ltd.-and-Anr.-v-Nortel-Networks-India-Pvt.-Ltd.pdf
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA
Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.
