BSNL v. Nortel Networks Pvt Ltd: Need for amendment in Sec. 11 & clarification on time-barred Claim
Updated: Apr 12, 2021
Urvi Khandelwal, Student, Institute of Law, Nirma University
On 10th March 2021, The Supreme court (two-judge bench), in the case of BSNL vs Nortel networks India Pvt Ltd. suggested the need to amend section 11 of The Arbitration and Conciliation act, 1996 concerning the limitation period for filing application of appointment of arbitrators.
The facts of the case were BSNL through the tender process awarded a purchase order to the respondent, Nortel Networks India. In 2014 Nortel Ltd raised a claim for the pending payment which BSNL denied. Then on 29th April 2020, the respondent invoked the arbitration clause and sent notice to BSNL for the appointment of an arbitrator. As BSNL rejected the claim, the respondent applied before the court for an appointment.
The main contention of BSNL was that the dispute was in the year 2014 and thus the claim is ex facie time-barred. The respondent contended that any objection regarding the limitation period has to be decided by the arbitration tribunal as per the kompetenz–kompetenz principle and section 11(6A). Kerela HC admitted the application and referred the case to arbitration. An appeal was made to the Supreme Court. The Supreme Court contemplated on two issues
DECISION AND ANALYSIS
PERIOD OF LIMITATION FOR SECTION 11 APPLICATION
Section 11(6) states that party may apply to the court to take necessary measure for the appointment of the arbitrator if the party themselves fail to do. The question before the court was till what time a party can apply for the appointment of arbitrators. As per section 43, the limitation act will apply to the arbitration proceedings as it applies to the court proceedings. As there is no explicit time mention, article 137, the residuary clause will apply. Thus the limitation period will be of 3 years. In the present case, the notice was rejected on 9th June 2020 and the application was filed on 24th July 2020 and thus it is within the limitation period.
But the court observed that three years is long period for filing an application and it will hamper the main objective of arbitration ie effective and timely resolution of dispute. The aim of 2015 and 2019 amendments was expeditious conclusion of cases. If the parties are given time limit of three years for just filing an application then it will be contrary to the legislative intent. Thus, the court concluded that Parliament must amend the section and prescribe a specific shorter period of limitation.
It is also important to understand the difference between the limitation period of claim and a section 11 application. The limitation period of claim is from the date the dispute arose and the period for section 11 application will start upon the failure of appointment of arbitration within 30 days from the issuance of notice to the opposite party.
Can the Court refuse to make reference when the substantive claim is ex-facie Time barred?
This issue arose because one of the main pillars of arbitration is kompetenz-kompetenz principle. The court has to ensure that there is minimal judicial intervention and the issues are decided by arbitration tribunal. Before the 2015 amendment, the court had broadened its scope and use to decide on validity and limitation period of agreement. As per 2015 amendment, section 11(6A) was added which says "court has to confine itself to the examination of an existence of arbitration agreements". Though this section has been deleted in 2019 amendment the changes are yet to be notified and thus 11(6A) governs the extent of intervention in the present.
In Mayavti Trading Pvt. Ltd. v. Pradyuat Deb Burman, the court clarified the position and held that 11(6A) has to be understood in narrow sense and thus the court can only examine the existence of dispute and not any other related matters. The Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Ltd, also held that issue of limitation has to be decided by the arbitration tribunal. Thus, when an application is filed under section 11 of the act, the court need not see that the claim is beyond limitation period or not.
In the present case, the court observed that limitation period is question of fact and law and thus has to be decided by the arbitration tribunal. The court explained the difference between jurisdictional and admissibility issue. The difference can be identified by tribunal versus claim test. The test says that if the issue is in regarding the claim or the agreement then it will be considered as admissibility issue and this shall be decided by the arbitration tribunal. As the limitation period is in regard to admissibility of claim it the tribunal has the power to decide on it.
But it is also important to follow the approach of expeditious resolution. Thus court can prima facie look into the issue to knockdown ex facie time barred claim. Only in rare and exceptional cases where on the face of it one can manifest that the claim is beyond the limitation period then the court may refuse to refer to arbitration. In Vidya Drolia v.Durga Trading Corporation, the court while defining the scope of section 11 held "Exercise of the limited prima facie review does not interfere with the competence competence principle but ensures that vexatious and frivolous matters get over at the initial stage".
The rationale behind this is that when in the initial stage it is clearly visible that the claim is time barred, it defeats the purpose of invoking arbitration clause i.e. to get timely and effective remedy to parties. Thus, the general rule is that the court has to refer the case to arbitration and only in some exceptional cases it can refrain from doing so.
In the present case the notice of invoking arbitration was made 5 1/2 years after the dispute arose. It was clear that the claim is time barred and thus the court refused to refer the dispute to arbitration.
The Supreme court on 15th March 2021, in case Secunderabad Cantonment Board vs M/S B. Ramachandraiah reiterated the same position on period of limitation and ex facie time barred claims. In that case, the court held that court cannot appoint an arbitrator as the section 11 application was filed after the completion of three years.
Thus, the position is settled that period of limitation for filing application of appointment of an arbitrator is of three years. The issue with this is that it is unduly long and hampers the objective of the act. Thus it is essential to make an amendment to specify shorter and definite period for timely resolution. Judiciary acknowledging the need for amendment is a right step in the direction of expeditious and effective arbitration. The court also distinguished between the limitation period of claims and section 11 application. In the present case even though the application was filed within the limitation period, there was undue delay in invoking the arbitration and thus the claim was not referred for arbitration.
The judgment of Vidya Droliya and the present case clarifies the circumstances in which the court may refuse to refer the dispute to arbitration. The court may refuse only when it is completely certain that the claim is beyond the limitation period. The court has clearly stated that if there is even the slightest doubt or evidence of subsisting dispute, then the court has to let the arbitration tribunal decide the issue. The reason behind this is that time and resources of the other party are not wasted when the claim is ex facie time-barred. Thus the court has tried to create a balance between the kompetenz–kompetenz principle and the authority of court to refuse claims on the basis that they are ex facie time-barred.
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