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This article is written by Shivam Gupta, a student of Maharashtra National Law University Aurangabad. This article seeks to highlight the issue of judicial intervention by courts at the pre-arbitral stage when the issue is related to time-barred debts.

Introduction

The question of limitation essentially pertains to the claim’s maintainability or admissibility and is determined by the arbitral tribunal. For example, a challenge to the admissibility of a claim that is time-barred or prohibited before a precondition is met will be considered as a challenge to the claim’s admissibility, not to the arbitrator’s jurisdiction to determine the claim.

The issue before the courts is always that the court can decide on a claim which is ex facie time-barred or an arbitral tribunal is only the competent authority to decide the maintainability of the claim. This article will analyse the position of the judiciary before and after the 2015 amendment of the Arbitration Act.

Issue of Limitation

The limitation is usually a question based upon facts and law, and an arbitral tribunal can only determine it when the case is to be solved by arbitration. However, a distinction can be made between jurisdictional and admissibility issues. Because the power and competence of the arbitrators to hear and resolve a case is referred to as ‘jurisdiction’. Objections to the arbitrator’s or tribunal’s competence to hear a case, such as lack of consent or a dispute that is beyond the reach of the arbitration agreement are examples of jurisdictional problems. Issues that are based upon the existence, validity and scope of the arbitration agreement are usually considered jurisdictional issues.

Admissibility issues on the other hand revolve around procedural conditions which can be in the form of violation of pre-arbitration requirements. If a case arises where mediation is put as a mandatory condition before arbitration can be commenced or where to make any claim specific condition is required to be fulfilled. Admissibility is determined by the essence of the argument or the facts surrounding it. The arbitrator’s jurisdiction to determine the claim is not challenged by an admissibility question.

Singapore Court of Appeal in the case of Swissborough Diamond Mines (Pty) Ltd. & Ors. v. Kingdom of Lesotho (2018) distinguished between “jurisdiction” and “admissibility” and opined that jurisdiction can be defined as the power of the tribunal to decide the case, whereas admissibility can be commonly understood as whether it will be feasible for the tribunal to decide a case and jurisdiction refers to the presence of an arbitral tribunal’s adjudicative capacity, as well as admissibility, which refers to the exercise of such power and the appropriateness of the claim filed pursuant to that power for adjudication. These views were further taken into consideration in the case of BBA & Ors. v. BAZ & Anr. (2020) in which Singapore Court of Appeal applied the “tribunal versus claim” test to decide whether the issue is related to admissibility or jurisdiction and opined that the tribunal versus claim test is used to determine whether the objections are directed at the tribunal (as the claim should not be allowed to be arbitrated because of some kind of a flaw in or neglect to consent to arbitration) or the claim itself (in a sense that claim should not be raised at all as it is defective). Therefore according to the tribunal versus claim test if the claim in itself is defective then there is no need to set up the arbitral tribunal to decide over that claim.  

Position before the 2015 Amendment

The pre-amendment law does not anywhere state that the Chief Justice of the High Court while hearing the application for appointment of an arbitrator can also decide on whether the claim is dead/time-barred and needs arbitration or not. But with time, the Supreme Court through its judgements stated that arbitration should be done only for live claims. In the case of S.B.P. and Co v. Patel Engineering Ltd. and Ors. (2005), Supreme Court while defining the powers of the Chief Justice when dealing with the applications under Section 11 of the Act observed that the Chief Justice can also decide on whether the claim is dead or live claim and the arbitral tribunal should decide it or not. The reasoning behind this observation given was that a party cannot seek the appointment of an arbitrator after for resurrection of a claim which is already dead or time-barred because there have been cases where the party wants the appointment of an arbitrator after the contract ended many years ago and in some cases decades ago. In another case of National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2008), the Court considered the view of Patel Engineering and observed that whether the claim is a dead claim or live claim is one of the preliminary issues and can be decided by the Chief Justice.   

Position after the 2015 Amendment

The post-amendment law introduced Section 11(6A) in the Act which confined the High Courts to only examine the existence of an arbitration agreement which means that in the cases of appointment of an arbitrator under Section 11. As a consequence of this amendment, High Courts can only decide the issues related to the existence of the arbitration agreement. The amendment shows the importance of the doctrine of the Kompetenz-Kompetenz which says that the tribunal is competent enough to decide on its own all the disputes. As a result, court intervention at the pre-reference stage is minimized. Amendment also overruled the rulings given in Patel Engineering and National Co. Ltd. 

arbitration

Jurisprudential analysis 

Konkan Railway Corporation Ltd. v. Mehul Construction Co. (2000)

In this case, the Supreme Court held that the powers of the Chief Justice under Section 11(6) of the 1996 Act are administrative in nature and that the Chief Justice or his designate does not act as a judicial authority while appointing an arbitrator. This judgement was overruled by the judgement of Patel Engineering and the Supreme court held that power under Section 11 of 1996 Act is judicial and not administrative but after the insertion of Section 11(6B) through the 2015 amendment, it was made clear by the legislature that appointment of arbitrator under Section 11 is not to be considered as the delegation of judicial power.

Duro Felguera SA v. Gangavaram Port Ltd. (2017)

In this case, the Supreme Court considered an application under Section 11(6A) and observed that the legislature’s objective is very obvious in the Section, which states that the court should and must only look into one aspect—the presence of an arbitration agreement. The second question is what considerations should be considered when assessing whether or not an arbitration agreement exists. The remedy is simple: look to see if the agreement has a section that provides for arbitration in the event of a dispute between the parties. From this observation, it can be concluded that courts are only required to determine the existence of the arbitration agreement at the pre-reference stage. The views were followed in the case of Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman (2019) and the Supreme Court further opined that the powers under Section 11(6A) are to be construed in the narrow sense.

Vidya Drolia v. Durga Trading Corporation (2020)

In this case, the three-judge bench of the Supreme Court observed that the Limitation Act, 1963, applies to arbitrations in the same way as it does to court proceedings, according to Section 43(1) of the Arbitration Act and Sub-Section (2) says that arbitration shall be assumed to have begun on the date specified in Section 21 for the purposes of the Limitation Act and the Arbitration Act. Limitation legislation is procedural, and most disagreements are factual, requiring the arbitrator to make a decision based on the facts discovered and the relevant law. Only when in all forms it is clear that the claims are ex facie time-barred and obsolete, or where there is no ongoing dispute, the court can intervene at the referral stage. All other cases are referred to an Arbitral Tribunal so that they can be decided on merits. Court also observed that when it is ex facie and without an iota of a doubt certain that the arbitration agreement is non-existent, invalid, or the disputes are non-arbitrable, the court may intervene at Section 8 or 11 stage as a demurrer, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The purpose of the restricted and limited review is to ensure that parties are not forced to arbitrate when the subject is non-arbitrable and to eliminate deadwood. These observations imply that when the concerned claim in the dispute is ex facie time-barred, then the court can interfere at the pre reference stage and can decide whether the claim in dispute needs arbitration.

Bharat Sanchar Nigam Ltd. & Anr. v. M/S Nortel Networks India Pvt. Ltd. (2021)

In this case., Nortel raised a claim for payment from BSNL and it was subsequently rejected by BSNL. After a period of more than five and half years, Nortel invoked the arbitration clause against BSNL and BSNL approached the Supreme Court and contended that the Arbitration clause cannot be invoked as the claim is time-barred and exceeded the limitation period. On this Supreme Court needed to decide whether the court can interfere at the pre reference stage and declare the claims as time-barred or the arbitral tribunal can only decide such a question of law. The Supreme Court on this held that the claim in dispute is deadwood and ex-facie time-barred. In one of the conclusions, Supreme Court observed that the Court may decline to issue the reference in rare and unusual situations where the claims are ex facie time-barred and it is clear that there is no ongoing dispute. By this observation, the Supreme Court implied that when the claims in dispute are ex facie time-barred, the court can refuse to make a reference of those claims to an arbitral tribunal.

Conclusion

From the above analysis through various cases, it will be sufficient to conclude that when at pre reference stage if the courts found that the claims in dispute are ex facie time-barred then the courts can interfere and refuse to refer the case to the arbitral tribunal. Though from the plain reading of Section 11(6A) it is clear that the courts only need to examine the existence of an arbitration agreement and not go beyond that. But from the reasoning given by Supreme Court in various judgements, it is clear that there is no need for arbitration which does not exist and ex facie time-barred debts is one of those things as they are time-barred and arbitral tribunal in all the circumstances will come to the same result as the judicial court can arrive at the pre-arbitration stage. Arbitration is chosen as an alternative method for dispute resolution because it saves time for both the parties and also of the courts and the Arbitration Act also provides different strict timelines which makes the intention of the legislation clear that the cases need to be disposed of in a speedy manner. If in any way if the setting up of an arbitral tribunal is in all likelihood will prove as wasting of time as the thing doesn’t exist can be considered as defeating the purpose of the Act.        

References

  1. https://prsindia.org/files/bills_acts/acts_parliament/2015/the-arbitration-and-conciliation-(amendment)-act,-2015.pdf 
  2. https://www.italaw.com/sites/default/files/case-documents/italaw10115.pdf 
  3. https://indiankanoon.org/doc/1641452/ 
  4. https://indiankanoon.org/doc/1243245/ 
  5. https://indiankanoon.org/doc/1752565/ 

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