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Supreme Court of India
Secunderabad Cantonment Board vs M/S B. Ramachandraiah And Sons on 15 March, 2021Author: Rohinton Fali Nariman
Bench: Rohinton Fali Nariman, B.R. Gavai, Hrishikesh Roy
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 900-902 OF 2021
(@ SLP (CIVIL) Nos.27960-62 of 2019)
SECUNDERABAD CANTONMENT BOARD …APPELLANT
VERSUS
M/S B. RAMACHANDRAIAH & SONS …RESPONDENT
JUDGMENT
R.F. Nariman, J.
1. Leave granted.
2. These appeals arise out of applications under Section 11 of the
Arbitration and Conciliation Act, 1996 [“Arbitration Act”]. On
02.09.2000, the appellant before us, Secunderabad Cantonment
Board [“Appellant”], floated a notice inviting tender [“N.I.T.”] for an
annual term contract for:
Signature Not Verified
Digitally signed by
Jayant Kumar Arora
Date: 2021.03.15
1. Repairs to Main Roads (Resurfacing with Centralised with
15:48:16 IST
Reason:
Hot Mix Plant and Paver);
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2. Repairs to Main Roads (Widening of Roads with Centralised
Hot Mix Plant and Paver);
3. Repairs to Internal Roads (Resurfacing with Hot Mix Paver
and Plant).
3. Pursuant to the aforesaid N.I.T., three agreements were entered into with
the respondent, M/s Ramachandraiah and Sons [“Respondent”], the
first one dated 23.09.2000 and the other two dated 17.09.2001.
Clause 5 of each of the aforesaid agreements, which is in identical
terms, is important and reads as follows:
“5. Final Bill: The Contractor shall submit his final bil of the
work with full and complete measurements showing the
deductions on account of part payments received and
stores supplied by the Board cost of water and any other
items received by him under the contract within 08 days
from the date of completion and handing over the work.
The contractor shall also submit alongwith his bill a no
claim certificate stating that there are no claims from the
cantonment board on account of the work undertaken and
completed by him under the contract and that no claim
thereafter shall be entertainable. The bill shall also contain
a statement showing the justification of cement consumed
by the Contractor.”
4. The arbitration clause contained in Clause 17 of each of the aforesaid
agreements reads as follows:
“17. LAW Governing the Contract: The Contract shall be
governed by the Indian Law. [A]ll disputes between the
parties to this contract or being out of relating to the
contract other than those for which the decision of the
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accepting officer is final and conclusive shall after the
written notice given by either party to the other be referred
to the sole arbitrator as appointed by the [P]resident
Cantonment Board [S]ecunderabad. The award of the
Arbitrator shall be final, conclusive and binding on both
parties to the contract”
5. Work orders were issued with respect to the aforesaid works. The
Appellant argued that the Respondent had failed to complete the work
within the stipulated period, but vide its meeting dated 05.10.2002, it
resolved to grant an extension of time upto 31.12.2002 on an
undertaking from the Respondent that the Appellant would be at liberty
to impose penalty as provided in the contracts and as decided by the
Appellant in case balance works were not completed by 31.12.2002.
On 30.10.2002, the Respondent submitted the required undertaking.
6. It is not disputed that vide the final contract certificates issued by the
Appellant on 18.02.2003 and 26.03.2003, final payment was received
by the Respondent in respect of the works in question. After a hiatus
of about six months, the Respondent then started making demands
towards reimbursement on account of variation in prices of material,
labour and fuel. These demands were made vide letters dated
08.09.2003, 24.07.2004 and 12.10.2004.
7. After a silence of over two years, the Respondent then issued a letter
dated 07.11.2006 by which the Respondent requested for the
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appointment of an arbitrator in respect of the claim of reimbursement
on account of price variation in all the three contracts. It was
specifically stated that necessary steps should be taken by the
Appellant within 15 days of receipt of the letter. Receiving no reply
from the Appellant, the Respondent issued yet another letter dated
13.01.2007, in which it spoke of a fundamental breach of contractual
obligations and then stated that it had no option but to rescind the
contracts and have an arbitrator appointed within 30 days, in
conformity with the arbitration clause provided in the contracts.
8. To this letter, a laconic reply was received from the Appellant on
23.01.2007, stating that the matter referred to in their letter was under
consideration. It is not disputed that the 30-day period, spoken of in
the letter dated 13.01.2007, was over by 12.02.2007. Despite this
being the position, the Respondent kept on writing letters at long
intervals between the years 2007-2009, reiterating its claim. Finally, by
a legal notice dated 30.01.2010, the Respondent specifically stated:
“In order to reiterate the brief details of the Contracts, all
the three works have been completed way back in
31.03.2002 and final bill was received under protest.
It is also expedient to point out that arbitration
proceedings have already commenced since 07.11.2006
(within intent of the Arbitration and Conciliation Act of
1996).
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In the event that the Hon’ble appointing authority
continues to abdicate his rights to appoint an arbitrator, the
only remedy left to us is to seek the appointment of an
arbitrator by the Hon’ble Chief justice of High Court of
Andhra Pradesh (to enforce the arbitration clause) as
intended by the agreement (since the agreement
envisages arbitration as the means of settlement of
disputes in preclusion to a court of law).”
9. To this legal notice dated 30.01.2010, the Appellant replied on
16.02.2010, stating:
“1. … Subsequent to awarding those contracts, work
orders have been issued and part of works were executed
by your client within the stipulated time and the bills for the
works executed were cleared on submission of final bills
way back in the year 2002-2003 and your client has
received the payments by adhering to Clause 5 of the
Contract entered by and between your client and my client.
Since the final payments were made for the works
executed the copies requested by you may not be available
as 8 years time has been elapsed after conclusion of the
contract.
2. Subsequent to conclusion of the contract and after
receipt of final payments, your client has started
addressing letters as referred in your notice culminating
into the present notice under reply and seeking additional
claim towards reimbursement on variation in prices, though
there is no such clause in the agreement entered for
execution of above referred works to claim amounts on
variation of prices. Moreover the contract period is one
year from the date of awarding contract and the contract
periods were came to an end by 2001 and 2002
respectively. Whereas your client has got issued final
notice under reply on 30.01.2010 and insisting appointment
of an Arbitrator though no dispute is subsisting between
your client and my client and moreover your client’s claim is
barred under law of limitation.”
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“4. In the above said background the contention in your
notice under reply that your client is insisting for the
appointment of an Arbitrator for adjudication of the dispute
and that appointing authority has not appointed the
arbitrator and that arbitration proceedings have already
commenced since 07.11.2006 and that in the event the
Hon’ble Appointing authority continues to abdicate his right
to appoint an arbitrator you client is left with no option
except to seek appointment of Arbitrator by the Hon’ble
Chief Justice of High Court of A.P. is highly objectionable
and untenable and your client has no legal right to raise the
dispute after concluding the contract way back in the year
2002. The claim of your client to appoint an Arbitrator
cannot be acceded to as there is no arbitral issues are
subsisting between your client and my client and
furthermore the claim raised by your client is hopelessly
barred under law of limitation and it is incorrect to state that
your has received the payments under protest.
5. My Client further reiterates that the above referred three
contracts were awarded for a period of one year in the year
2000-2001 and since your client could not complete the
works entrusted to him within the stipulated period, at his
request the time was further extended up to 31.12.2002
and by that time he can only complete the work to the tune
of Rs.75 lakhs approximately and your client’s request to
release work order for balance amount with regard to the
works in question were turn down by the Hon’ble High
Court of A.P. Hence, the question of reimbursement on
variation in prices as claimed by your client does not arise
and he is not entitled for such claims.
6. My client further reiterates that as per clause 5 of the
Agreement, final bill amounts will be released on submitting
no claim certificate stating that there is no claim form the
Cantonment Board on account of the works undertaken
and completed by the contractor and no claim thereafter
shall be entertainable. Pursuant to this Clause your client
has received final bill amounts, hence there are no issues
to be adjudicated by an arbitrator. As referred above in the
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contract entered by and between your client and my client,
there is no specific clause under which your client is
entitled for reimbursement on variation of prices. Hence the
same cannot be made an issue to be adjudicated by an
arbitrator.”
10. By way of rejoinder to the aforesaid reply notice, the Respondent
issued what it called a “clarification notice” on 20.03.2010, followed by
three letters dated 30.09.2010, reiterating the earlier requests for the
appointment of an arbitrator. This was rejected by the Appellant vide a
letter dated 10.11.2010, which letter informed the Respondent that the
President of the Secunderabad Cantonment Board had rejected the
application for appointment of an arbitrator as all payments were
made and nothing remained pending.
11. After a three-year long hiatus, the Respondent then filed applications
under Section 11 of the Arbitration Act on 06.11.2013. Vide the
impugned judgment dated 20.08.2019, a learned Single Judge of the
High Court for the State of Telangana held that the Section 11
applications were within time as they were filed within three years from
the letter dated 10.11.2010 rejecting the request to appoint an
arbitrator. The learned Single Judge also went on to record:
“39. Proceedings dt. 07.11.2003 filed by the respondent of
a Board Meeting of the respondent no doubt show payment
of Rs. 14,06,580/- in addition to Rs. 14,84,000/- but this
payment is not on account of claim under Clause 2.2.46 for
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reimbursement on variation in prices claimed by the
applicant. It is a payment sanctioned for actual quantities of
the various items of work which had increased, and so the
same cannot be prima-facie construed as a payment
towards the claim of the applicant under Clause 2.2.46.”
“42. The prolonged silence of the respondent from
08.09.2003 onwards regarding claims made by the
applicant under Clause 2.2.46 without any emphatic
rejection of the same, prima facie show that there appears
to be a live issue In that regard between the parties.”
12. As a result, the Section 11 applications were allowed and Shri Y.V.
Ramakrishna (Retired District Judge) was appointed as arbitrator to
adjudicate the disputes between the parties arising out of the three
agreements. The question of the bar of limitation of the claims made
was left open to be considered and decided by the arbitrator.
13. Shri P.S. Narasimha, learned Senior Advocate appearing on behalf of
the Appellant, submitted that the date on which the request made for
the appointment of an arbitrator was received by the President of the
Secunderabad Cantonment Board was 23.01.2007, as a result of
which, this is the date on which the limitation period starts running
under Article 137 of the Limitation Act, 1963 [“Limitation Act”] insofar
as an application under Section 11(6) of the Arbitration Act is
concerned. For this purpose he relied upon a judgment of the High
Court of Bombay in Deepdharshan Builders Pvt. Ltd. v. Saroj,
(2019) 1 AIR Bom R 249, as well as a recent judgment of this Court in
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Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd.,
(2020) 14 SCC 643. He then argued that even so far as the cause of
action on merits is concerned, it arose way back on 08.09.2003, when
the Respondent raised the claim with regard to the dispute for the first
time. Once time begins to run, limitation cannot be extended by writing
any number of subsequent letters. He also relied upon the recent
judgment of this Court in Vidya Drolia v. Durga Trading Corpn.,
(2021) 2 SCC 1, stating that this case falls under paragraph 148 of the
judgment, in that the claim was ex facie time barred and dead and that
there was no subsisting dispute.
14. In reply, Shri Nithin Chowdary Pavuluri, learned counsel appearing for
the Respondent, argued that the request for appointment of an
arbitrator was rejected by the Appellant for the first time on
10.11.2010, and thus, 10.11.2010 would be the date on which the
cause of action would arise. He pressed the point that the rejection of
the request to appoint an arbitrator constituted a failure to perform the
function entrusted to the President of the Secunderabad Cantonment
Board under Clause 2.2.52 of the General Conditions of Contract
[“GCC”], and thus the cause of action under Section 11(6)(c) of the
Arbitration Act first arose on 10.11.2010. Till such rejection, the claim
would have to be deemed to have been pending and thus, the
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Respondent’s claim was alive at the time of filing the applications
under Section 11 of the Arbitration Act. Further, though he pressed the
point that the final bill was received under protest since the price
variation bill submitted with the final bill had not been cleared by the
Appellant, he produced no such document evidencing the same. In
addition, he sought to distinguish, on facts, the judgments of this Court
in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam
Ltd., (2020) 14 SCC 643 and Vidya Drolia v. Durga Trading Corpn.,
(2021) 2 SCC 1 from the appeals before us, by arguing that the GCC
between the Appellant and the Respondent specifically provided for a
procedure to appoint an arbitrator and that the Appellant was
responsible for delaying and sitting on the Respondent’s request.
Thus, he supported the impugned judgment of the High Court by
which the Section 11 applications were allowed.
15. Having heard learned counsel appearing for both parties, it is first
necessary to refer to the recent judgment of this Court in Geo Miller &
Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14
SCC 643, which extracts passages from all the earlier relevant
judgments, and then lays down as to when time begins to run for the
purpose of filing an application under Section 11 of the Arbitration Act.
This Court, after referring to the relevant statutory provisions, held:
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“15. In Damodar Das [State of Orissa v. Damodar Das,
(1996) 2 SCC 216] , this Court observed, relying upon
Russell on Arbitration by Anthony Walton (19th Edn.) at pp.
4-5 and an earlier decision of a two-Judge Bench in
Panchu Gopal Bose v. Port of Calcutta [Panchu Gopal
Bose v. Port of Calcutta, (1993) 4 SCC 338] , that the
period of limitation for an application for appointment of
arbitrator under Sections 8 and 20 of the 1940 Act
commences on the date on which the “cause of arbitration”
accrued i.e. from the date when the claimant first acquired
either a right of action or a right to require that an
arbitration take place upon the dispute concerned.
xxx xxx xxx
“21. Applying the aforementioned principles to the present
case, we find ourselves in agreement with the finding of the
High Court that the appellant’s cause of action in respect of
Arbitration Applications Nos. 25/2003 and 27/2003, relating
to the work orders dated 7-10-1979 and 4-4-1980 arose on
8-2-1983, which is when the final bill handed over to the
respondent became due. Mere correspondence of the
appellant by way of writing letters/reminders to the
respondent subsequent to this date would not extend the
time of limitation. Hence the maximum period during which
this Court could have allowed the appellant’s application for
appointment of an arbitrator is 3 years from the date on
which cause of action arose i.e. 8-2-1986. Similarly, with
respect to Arbitration Application No. 28/2003 relating to
the work order dated 3-5-1985, the respondent has stated
that final bill was handed over and became due on 10-8-
1989. This has not been disputed by the appellant. Hence
the limitation period ended on 10-8-1992. Since the
appellant served notice for appointment of arbitrator in
2002, and requested the appointment of an arbitrator
before a court only by the end of 2003, his claim is clearly
barred by limitation.
xxx xxx xxx
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23. Turning to the other decisions, it is true that in Inder
Singh Rekhi [Inder Singh Rekhi v. DDA, (1988) 2 SCC
338], this Court observed that the existence of a dispute is
essential for appointment of an arbitrator. A dispute arises
when a claim is asserted by one party and denied by the
other. The term “dispute” entails a positive element and
mere inaction to pay does not lead to the inference that
dispute exists. In that case, since the respondent failed to
finalise the bills due to the applicant, this Court held that
cause of action would be treated as arising not from the
date on which the payment became due, but on the date
when the applicant first wrote to the respondent requesting
finalisation of the bills. However, the Court also expressly
observed that “a party cannot postpone the accrual of
cause of action by writing reminders or sending reminders”.
24. In the present case, the appellant has not disputed the
High Court’s finding that the appellant itself had handed
over the final bill to the respondent on 8-2-1983. Hence,
the holding in Inder Singh Rekhi [Inder Singh Rekhi v.
DDA, (1988) 2 SCC 338] will not apply, as in that case, the
applicant’s claim was delayed on account of the
respondent’s failure to finalise the bills. Therefore the right
to apply in the present case accrued from the date on
which the final bill was raised (see Union of India v. Momin
Construction Co. [Union of India v. Momin Construction
Co., (1997) 9 SCC 97] ).
xxx xxx xxx
29. Moreover, in a commercial dispute, while mere failure
to pay may not give rise to a cause of action, once the
applicant has asserted their claim and the respondent fails
to respond to such claim, such failure will be treated as a
denial of the applicant’s claim giving rise to a dispute, and
therefore the cause of action for reference to arbitration. It
does not lie to the applicant to plead that it waited for an
unreasonably long period to refer the dispute to arbitration
merely on account of the respondent’s failure to settle their
claim and because they were writing representations and
reminders to the respondent in the meanwhile.”
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16. The recent judgment of this Court in Bharat Sanchar Nigam Ltd. &
Anr. v. M/s Nortel Networks India Pvt. Ltd., delivered on 10.03.2021
in Civil Appeal Nos. 843-844 of 2021 has also considered the entire
law on the subject. The first paragraph of the said judgment reads as
follows:
“1. The present Appeals raise two important issues for our
consideration : (i) the period of limitation for filing an
application under Section 11 of the Arbitration and
Conciliation Act, 1996 (“the 1996 Act”); and (ii) whether the
Court may refuse to make the reference under Section 11
where the claims are ex facie time-barred?”
17. Insofar as the first issue is concerned, after examining Article 137 of
the Limitation Act, this Court held:
“11. It is now fairly well-settled that the limitation for filing
an application under Section 11 would arise upon the
failure to make the appointment of the arbitrator within a
period of 30 days’ from issuance of the notice invoking
arbitration. In other words, an application under Section 11
can be filed only after a notice of arbitration in respect of
the particular claim(s) / dispute(s) to be referred to
arbitration [as contemplated by Section 21 of the Act] is
made, and there is failure to make the appointment.
12. The period of limitation for filing a petition seeking
appointment of an arbitrator/s cannot be confused or
conflated with the period of limitation applicable to the
substantive claims made in the underlying commercial
contract. The period of limitation for such claims is
prescribed under various Articles of the Limitation Act,
1963. The limitation for deciding the underlying substantive
disputes is necessarily distinct from that of filing an
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application for appointment of an arbitrator. This position
was recognized even under Section 20 of the Arbitration
Act 1940. Reference may be made to the judgment of this
Court in C. Budhraja v. Chairman, Orissa Mining
Corporation Ltd. [(2008) 2 SCC 444] wherein it was held
that Section 37(3) of the 1940 Act provides that for the
purpose of the Limitation Act, an arbitration is deemed to
have commenced when one party to the arbitration
agreement serves on the other party, a notice requiring the
appointment of an arbitrator. Paragraph 26 of this judgment
reads as follows :
“26. Section 37(3) of the Act provides that for the
purpose of the Limitation Act, an arbitration is
deemed to have been commenced when one
party to the arbitration agreement serves on the
other party thereto, a notice requiring the
appointment of an arbitrator. Such a notice having
been served on 4-6-1980, it has to be seen
whether the claims were in time as on that date. If
the claims were barred on 4-6-1980, it follows that
the claims had to be rejected by the arbitrator on
the ground that the claims were barred by
limitation. The said period has nothing to do with
the period of limitation for filing a petition under
Section 8(2) of the Act. Insofar as a petition under
Section 8(2) is concerned, the cause of action
would arise when the other party fails to comply
with the notice invoking arbitration. Therefore, the
period of limitation for filing a petition under
Section 8(2) seeking appointment of an arbitrator
cannot be confused with the period of limitation
for making a claim. The decisions of this Court in
Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2
SCC 338] , Panchu Gopal Bose v. Board of
Trustees for Port of Calcutta [(1993) 4 SCC 338]
and Utkal Commercial Corpn. v. Central Coal
Fields Ltd. [(1999) 2 SCC 571] also make this
position clear.””
18. Insofar as the second issue is concerned, this Court went into the
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position prior to the Arbitration and Conciliation (Amendment) Act,
2015 [“2015 Amendment”] together with the change made by the
introduction of Section 11(6A) by the 2015 Amendment, stating:
“24. Sub-section (6A) came up for consideration in the
case of Duro Felguera SA v. Gangavaram Port Ltd.
[(2017) 9 SCC 729], wherein this Court held that the
legislative policy was to minimize judicial intervention at the
appointment stage. In an application under Section 11, the
Court should only look into the existence of the arbitration
agreement, before making the reference. Post the 2015
amendments, all that the courts are required to examine is
whether an arbitration agreement is in existence —nothing
more, nothing less.
“48. Section 11(6-A) added by the 2015
Amendment, reads as follows:
“11. (6-A) The Supreme Court or, as the
case may be, the High Court, while
considering any application under sub-
section (4) or sub-section (5) or sub-
section (6), shall, notwithstanding any
judgment, decree or order of any court,
confine to the examination of the
existence of an arbitration agreement.”
(emphasis supplied)
From a reading of Section 11(6-A), the intention of
the legislature is crystal clear i.e. the court should
and need only look into one aspect—the
existence of an arbitration agreement. What are
the factors for deciding as to whether there is an
arbitration agreement is the next question. The
resolution to that is simple—it needs to be seen if
the agreement contains a clause which provides
for arbitration pertaining to the disputes which
have arisen between the parties to the
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agreement.
…
59. The scope of the power under Section 11(6)
of the 1996 Act was considerably wide in view of
the decisions in SBP and Co. [SBP and Co. v.
Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara
Polyfab [National Insurance Co. Ltd. v. Boghara
Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1
SCC (Civ) 117] . This position continued till the
amendment brought about in 2015. After the
amendment, all that the courts need to see is
whether an arbitration agreement exists—nothing
more, nothing less. The legislative policy and
purpose is essentially to minimise the Court’s
intervention at the stage of appointing the
arbitrator and this intention as incorporated in
Section 11(6-A) ought to be respected.”
25. In Mayavati Trading Company Private Ltd. v.
Pradyut Dev Burman [(2019) 8 SCC 714], a three-judge
bench held that the scope of power of the Court under
Section 11 (6A) had to be construed in the narrow sense.
In paragraph 10, it was opined as under :
“10. This being the position, it is clear that the law
prior to the 2015 Amendment that has been laid
down by this Court, which would have included
going into whether accord and satisfaction has
taken place, has now been legislatively overruled.
This being the position, it is difficult to agree with
the reasoning contained in the aforesaid judgment
[United India Insurance Co. Ltd. v. Antique Art
Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2
SCC (Civ) 785] , as Section 11(6-A) is confined to
the examination of the existence of an arbitration
agreement and is to be understood in the narrow
sense as has been laid down in the judgment in
Duro Felguera, SA [Duro Felguera, SA v.
Gangavaram Port Ltd., (2017) 9 SCC 729”
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26. In Uttarakhand Purv Sainik Kalyan Nigam v.
Northern Coal Field Limited [(2020) 2 SCC 455] this
Court took note of the recommendations of the Law
Commission in its 246th Report, the relevant extract of
which reads as :
“7.6. The Law Commission in the 246th Report
[Amendments to the Arbitration and Conciliation
Act, 1996, Report No. 246, Law Commission of
India (August 2014), p. 20.] recommended that:
“33. … the Commission has
recommended amendments to Sections
8 and 11 of the Arbitration and
Conciliation Act, 1996. The scope of the
judicial intervention is only restricted to
situations where the court/judicial
authority finds that the arbitration
agreement does not exist or is null and
void. Insofar as the nature of intervention
is concerned, it is recommended that in
the event the court/judicial authority is
prima facie satisfied against the
argument challenging the arbitration
agreement, it shall appoint the arbitrator
and/or refer the parties to arbitration, as
the case may be. The amendment
envisages that the judicial authority shall
not refer the parties to arbitration only if it
finds that there does not exist an
arbitration agreement or that it is null and
void. If the judicial authority is of the
opinion that prima facie the arbitration
agreement exists, then it shall refer the
dispute to arbitration, and leave the
existence of the arbitration agreement to
be finally determined by the Arbitral
Tribunal.”
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In view of the legislative mandate contained in the
amended Section 11(6A), the Court is now required only to
examine the existence of the arbitration agreement. All
other preliminary or threshold issues are left to be decided
by the arbitrator under Section 16, which enshrines the
kompetenz-komptenz principle. The doctrine of
kompetenz-komptenz implies that the arbitral tribunal is
empowered, and has the competence to rule on its own
jurisdiction, including determination of all jurisdictional
issues. This was intended to minimise judicial intervention
at the pre-reference stage, so that the arbitral process is
not thwarted at the threshold when a preliminary objection
is raised by the parties.”
(emphasis in original)
19. This Court went on to hold that limitation is not a jurisdictional issue
but is an admissibility issue. It then referred to a recent judgment of
this Court in Vidya Drolia v. Durga Trading Corporation, (2021) 2
SCC 1, and stated as follows:
“36. In a recent judgment delivered by a three-judge bench
in Vidya Drolia v. Durga Trading Corporation [(2021) 2
SCC 1], on the scope of power under Sections 8 and 11, it
has been held that the Court must undertake a primary first
review to weed out “manifestly ex facie non-existent and
invalid arbitration agreements, or non-arbitrable disputes.”
The prima facie review at the reference stage is to cut the
deadwood, where dismissal is bare faced and pellucid, and
when on the facts and law, the litigation must stop at the
first stage. Only when the Court is certain that no valid
arbitration agreement exists, or that the subject matter is
not arbitrable, that reference may be refused.
In paragraph 144, the Court observed that the
judgment in Mayavati Trading had rightly held that the
judgment in Patel Engineering had been legislatively
overruled.
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Paragraph 144 reads as :
“144. As observed earlier, Patel Engg. Ltd.
explains and holds that Sections 8 and 11 are
complementary in nature as both relate to
reference to arbitration. Section 8 applies when
judicial proceeding is pending and an application
is filed for stay of judicial proceeding and for
reference to arbitration. Amendments to Section 8
vide Act 3 of 2016 have not been omitted. Section
11 covers the situation where the parties
approach a court for appointment of an arbitrator.
Mayavati Trading (P) Ltd., in our humble opinion,
rightly holds that Patel Engg. Ltd. has been
legislatively overruled and hence would not apply
even post omission of sub-section (6-A) to
Section 11 of the Arbitration Act. Mayavati Trading
(P) Ltd. has elaborated upon the object and
purposes and history of the amendment to
Section 11, with reference to sub-section (6-A) to
elucidate that the section, as originally enacted,
was facsimile with Article 11 of the Uncitral Model
of law of arbitration on which the Arbitration Act
was drafted and enacted.”
(emphasis supplied)
While exercising jurisdiction under Section 11 as the
judicial forum, the court may exercise the prima facie test
to screen and knockdown ex facie meritless, frivolous, and
dishonest litigation. Limited jurisdiction of the Courts would
ensure expeditious and efficient disposal at the referral
stage. At the referral stage, the Court can interfere “only”
when it is “manifest” that the claims are ex facie time
barred and dead, or there is no subsisting dispute.
Paragraph 148 of the judgment reads as follows :
“148. Section 43(1) of the Arbitration Act states
that the Limitation Act, 1963 shall apply to
arbitrations as it applies to court proceedings.
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Sub-section (2) states that for the purposes of the
Arbitration Act and Limitation Act, arbitration shall
be deemed to have commenced on the date
referred to in Section 21. Limitation law is
procedural and normally disputes, being factual,
would be for the arbitrator to decide guided by the
facts found and the law applicable. The court at
the referral stage can interfere only when it is
manifest that the claims are ex facie time-barred
and dead, or there is no subsisting dispute. All
other cases should be referred to the Arbitral
Tribunal for decision on merits. Similar would be
the position in case of disputed “no-claim
certificate” or defence on the plea of novation and
“accord and satisfaction”. As observed in
Premium Nafta Products Ltd. [Fili Shipping Co.
Ltd. v. Premium Nafta Products Ltd., 2007 UKHL
40 : 2007 Bus LR 1719 (HL)] , it is not to be
expected that commercial men while entering
transactions inter se would knowingly create a
system which would require that the court should
first decide whether the contract should be
rectified or avoided or rescinded, as the case may
be, and then if the contract is held to be valid, it
would require the arbitrator to resolve the issues
that have arisen.”
In paragraph 154.4, it has been concluded that:
“154.4. Rarely as a demurrer the court may
interfere at Section 8 or 11 stage when it is
manifestly and ex facie certain that the arbitration
agreement is non-existent, invalid or the disputes
are non-arbitrable, though the nature and facet of
non-arbitrability would, to some extent, determine
the level and nature of judicial scrutiny. The
restricted and limited review is to check and
protect parties from being forced to arbitrate when
the matter is demonstrably “non-arbitrable” and to
cut off the deadwood. The court by default would
refer the matter when contentions relating to non-
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arbitrability are plainly arguable; when
consideration in summary proceedings would be
insufficient and inconclusive; when facts are
contested; when the party opposing arbitration
adopts delaying tactics or impairs conduct of
arbitration proceedings. This is not the stage for
the court to enter into a mini trial or elaborate
review so as to usurp the jurisdiction of the
Arbitral Tribunal but to affirm and uphold integrity
and efficacy of arbitration as an alternative
dispute resolution mechanism.”
(emphasis supplied)
In paragraph 244.4 it was concluded that:
“244.4. The court should refer a matter if the
validity of the arbitration agreement cannot be
determined on a prima facie basis, as laid down
above i.e. “when in doubt, do refer”.”
37. The upshot of the judgment in Vidya Drolia is
affirmation of the position of law expounded in Duro
Felguera and Mayavati Trading, which continue to hold
the field. It must be understood clearly that Vidya Drolia
has not resurrected the pre-amendment position on the
scope of power as held in SBP & Co. v. Patel
Engineering (supra).
It is only in the very limited category of cases, where
there is not even a vestige of doubt that the claim is ex
facie time-barred, or that the dispute is non-arbitrable, that
the court may decline to make the reference. However, if
there is even the slightest doubt, the rule is to refer the
disputes to arbitration, otherwise it would encroach upon
what is essentially a matter to be determined by the
tribunal.”
(emphasis in original)
20. Applying the aforesaid judgments to the facts of this case, so far as
the applicability of Article 137 of the Limitation Act to the applications
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under Section 11 of the Arbitration Act is concerned, it is clear that the
demand for arbitration in the present case was made by the letter
dated 07.11.2006. This demand was reiterated by a letter dated
13.01.2007, which letter itself informed the Appellant that appointment
of an arbitrator would have to be made within 30 days. At the very
latest, therefore, on the facts of this case, time began to run on and
from 12.02.2007. The Appellant’s laconic letter dated 23.01.2007,
which stated that the matter was under consideration, was within the
30-day period. On and from 12.02.2007, when no arbitrator was
appointed, the cause of action for appointment of an arbitrator accrued
to the Respondent and time began running from that day. Obviously,
once time has started running, any final rejection by the Appellant by
its letter dated 10.11.2010 would not give any fresh start to a limitation
period which has already begun running, following the mandate of
Section 9 of the Limitation Act. This being the case, the High Court
was clearly in error in stating that since the applications under Section
11 of the Arbitration Act were filed on 06.11.2013, they were within the
limitation period of three years starting from 10.11.2020. On this
count, the applications under Section 11 of the Arbitration Act,
themselves being hopelessly time barred, no arbitrator could have
been appointed by the High Court.
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21. Even otherwise, the claim made by the Respondent was also ex facie
time barred. It is undisputed that final payments were received latest
by the end of March 2003 by the Respondent. That apart, even
assuming that a demand could have been made on account of price
variation, such demand was made on 08.09.2003. Repeated letters
were written thereafter by the Respondent, culminating in a legal
notice dated 30.01.2010. Vide the reply notice dated 16.02.2010, it
was made clear that such demands had been rejected. Even taking
16.02.2010 as the starting point for limitation on merits, a period of
three years having elapsed by February 2013, the claim made on
merits is also hopelessly time barred.
22. For all these reasons, the appeals are allowed and the impugned
judgment of the High Court dated 20.08.2019 is set aside.
……………………………….J.
[ R.F. NARIMAN ]
………………………………..J.
[ B.R. GAVAI ]
New Delhi;
March 15, 2021.
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