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The Supreme Court has on March 1, 2024 asked Parliament to consider bringing an amendment to the Arbitration and Conciliation 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. 

A bench of Chief Justice of India D Y Chandrachud and Justices J B Pardiwala and Manoj Misra said in many other matters, it has been observed that the applicability of Section 137 (of the Limitation Act) to applications under Section 11(6) of the Act, 1996 is a result of legislative vacuum as there is no statutory prescription regarding the time limit. 

"We would again like to reiterate that the period of three years (under Section 137) 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 so as to ensure that arbitration proceedings are conducted and concluded expeditiously," the court said.

The court was dealing with an Afghanistan based company M/s Arif Azim Co Ltd's petition under Section 11(6) of the 1996 Act for the appointment of an arbitrator for the adjudication of disputes and claims arising from the contract dated March 21, 2013 entered into between the petitioner and the respondent Mumbai based M/s Aptech Ltd.

In the present case, the bench said the notice invoking arbitration was received by the respondent on November 29, 2022, which is within the three-year period from the date on which the cause of action for the claim had arisen. 

"Thus, it cannot be said that the claims sought to be raised by the petitioner are ex-facie time-barred or dead claims on the date of the commencement of arbitration," the bench said.

Having made an exhaustive analysis of the position of law on the issues, the bench said, "We are of the view that while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test – first, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings. If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal."

With regard to a question whether the Limitation Act, 1963 is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, the bench said there is no doubt as to the applicability of the Limitation Act, 1963 to arbitration proceedings in general and that of Article 137 of the Limitation Act, 1963 to a petition under Section 11(6) of the Act, 1996 in particular. 

As to when the right to apply under Section 11(6) accrues, the bench said 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.

The court also pointed out 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 remed, it pointed out.

In the case at hand, the bench appointed Justice Sanjay Kishan Kaul, former Judge of the Supreme Court, to act as the sole arbitrator, in the disputes arising out of payment of money.