Rinkoo Aggarwal v. Gaurav Sabharwal & Anr.

50. A three-Judge Bench of this Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. [Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643] observed as follows: (SCC pp. 649-50, paras 14-17)

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.

16. We also find the decision in Panchu Gopal Bose [Panchu Gopal Bose v. Port of Calcutta, (1993) 4 SCC 338] relevant for the purpose of this case. This was a case similar to the present set of facts, where the petitioner sent bills to the respondent in 1979, but payment was not made. After an interval of a decade, he sent a notice to the respondent in 1989 for reference to arbitration. This Court inPanchu Gopal Bose [Panchu Gopal Bose v. Port of Calcutta, (1993) 4 SCC 338] observed that in mercantile references of this kind, it is implied that the arbitrator must decide the dispute according to the existing law of contract, and every defence which would have been open to the parties in a court of law, such as the plea of limitation, would be open to the parties for the arbitrator's decision as well. Otherwise, as this Court observed: (SCC p. 344, para 8) ‘8. … a claim for breach of contract containing a reference clause could be brought at any time, it might be 20 or 30 years after the cause of action had arisen, although the legislature has prescribed a limit of three years for the enforcement of such a claim in any application that might be made to the law courts.’

17. This Court further held as follows: (Panchu Gopal Bose case [Panchu Gopal Bose v. Port of Calcutta, (1993) 4 SCC 338], SCC pp. 345-46, paras 11-12) ‘11. Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of civil actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued.

12. In Russell on Arbitration…. At p. 80 it is stated thus: “An extension of time is not automatic and it is only granted if “undue hardship” would otherwise be caused. Not all hardship, however, is “undue hardship”; it may be proper that hardship caused to a party by his own default should be borne by him, and not transferred to the other party by allowing a claim to be reopened after it has become barred.”’” (emphasis in original and supplied)

51. Having traversed the statutory framework and case law, we are of the clear view that 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 1996 Act in particular. Having held thus, the next question that falls for our determination is whether the present petition seeking appointment of an arbitrator is barred by limitation.”

9. The Supreme Court further observed that under Article 137 of the 1963 Act, limitation period for making an application under Section 11(6) is 03 years from the date when the right to apply accrues and then examined the issue as to when the right to apply accrues. In this context, it was held that limitation period for filing of petition under Section 11(6) can only commence, once a valid notice invoking arbitration has been sent by the applicant to the other party and there is a failure or refusal on part of the other party in complying with the requirements of the notice. Relevant paragraphs are as follows:-

request under Section 11(6) to the Chief Justice or his designate, to take the necessary measure for appointing an arbitrator. Therefore, Article 137 of the Limitation Act, 1963, which provides the limitation period of three years for filing any other application for which no period of limitation is provided elsewhere in the third division of the Schedule to the Act from the day when the right to apply accrues. It is the residuary article in regard to the applications, and it can only be applied if no other article is applicable. It would only apply to an application where it is required by law to be made. It is restricted to applications for the exercise of the Acts and powers which the Court is not bound to perform suo motu. Therefore, the period of limitation for making a request under Section 11(6) is three years, and the limitation is to be counted from the date on which 30 days from the date of notice by one party to the other for appointing arbitrator expires. The question whether the claims/disputes made in reference to arbitration was valid is a question to be decided by the arbitrator, and not by the appointing authority of the arbitrator under Section 11(6) of the Act. The appointing authority is certainly required to ascertain whether the application under Section 11(6) of the Act was barred by time.”

55. Dr P.C. Markanda in Law Pertaining to Arbitration and Conciliation, 9th Edn., LexisNexis, pp. 550-51 has discussed on the applicability of law of limitation to a petition under Section 11(6) of the 1996 Act as follows: “For the purpose of examining the right of the petitioner to apply under sub-section (6) for calculating the period of limitation, it is necessary to establish, in the first instance, the relevant date when the right to apply accrued in favour of the petitioner. It is the date on which the right to apply accrues that determines the starting point. The starting point does not coincide with the date on which the cause of action for filing a suit arises. Whether the claims of a party are barred by limitation or not is for the arbitrator to see, but it is the duty of the Court to see whether the application filed in the Court is within limitation or not. Limitation for filing application under sub-section (4) would commence only from the expiry of 30 days from the receipt of request mentioned in sub-section (4)(a) or (b) and the limitation for an application under sub-section (6) would commence from the happening of the contingencies mentioned in sub-clauses (a) or (b) or

(c) thereof. The procedure prescribed under this section is mandatory and Article 137, Limitation Act providing for limitation shall apply. x x x It would be entirely wrong to mix the two aspects, namely, whether there was any valid claim and secondly the claim to be adjudicated by the arbitrator was barred by time. As for the second matter, it is for the arbitrator to see whether the claim was within limitation or not and the Court should confine itself to see whether the application made to the Court is within limitation. An application made more than three years after the accrual of cause of action is palpably timebarred and liable to be dismissed. Article 137 of the Limitation Act makes it obligatory for claims to be filed within 3 years of the rescission/termination of the contract. The right of action for the department starts from the date when the work is rescinded and not from the date when the balance work is got completed through another agency. If the petitioner delays invocation of arbitration clause for months together for no justifiable cause after the period prescribed in the arbitration agreement had elapsed, the Court would not come to the rescue of such a party seeking appointment of arbitrator and the abnormal delay of more than a year cannot be condoned.”

56. This Court in BSNL v. Nortel Networks (India) (P) Ltd. [BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5 SCC 738] held thus: (SCC p. 752, paras 15-16)

appointment of an arbitrator. Para 26 of this judgment [J.C. Budhraja v. Orissa Mining Corpn. Ltd., (2008) 2 SCC 444: (2008) 1 SCC (Civ) 582] reads as follows: (SCC p. 460) ‘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 Inder Singh Rekhi v. DDA [Inder Singh Rekhi v. DDA, (1988) 2 SCC 338], Panchu Gopal Bose v. Port of Calcutta [Panchu Gopal Bose v. Port of Calcutta, (1993) 4 SCC 338] and Utkal Commercial Corpn. v. Central Coal Fields Ltd. [Utkal Commercial Corpn. v. Central Coal Fields Ltd., (1999) 2 SCC 571] also make this position clear.’ ”

57. The other way of ascertaining the relevant point in time when the limitation period for making a Section 11(6) application would begin is by making use of Hohfeld's analysis of jural relations. It is a settled position of law that the limitation period under Article 137 of the Limitation Act, 1963 will commence only after the right to apply has accrued in favour of the applicant. As per Hohfeld's scheme of jural relations, conferring of a right on one entity must entail the vesting of a corresponding duty in another. When an application under Section 11(6) of the 1996 Act is made before this Court without exhausting the mechanism prescribed under the said sub-section, including that of invoking arbitration by issuance of a formal notice to the other party, this Court is not duty-bound to appoint an arbitrator and can reject the application for being premature and non-compliant with the statutory mandate. However, once the procedure laid down under Section 11(6) of the 1996 Act is exhausted by the applicant and the application passes all other tests of limited judicial scrutiny as have been evolved by this Court over the years, this Court becomes duty-bound to appoint an arbitrator and refer the matter to an Arbitral Tribunal. Thus, the “right to apply” of the applicant can be said to have as its jural corelative the “duty to appoint” of this Court only after all the steps required to be completed before instituting a Section 11(6) application have been duly completed. Thus, the limitation period for filing a petition under Section 11(6) of the 1996 Act 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.”

10. This position was reiterated by the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754. It was held that the observations made in Arif Azim Company Limited (supra), to the extent that Limitation Act is applicable to applications under Section 11(6) and that it is the duty of the referral Court to examine that the application is not barred by limitation prescribed under Article 137 i.e. 03 years from the date valid notice invoking arbitration is sent by the applicant to the other party and there is a failure on the part of the recipient to act as per the notice, needs no clarification. It was, however, clarified that while determining the issue of limitation in a petition under Section 11(6), the referral Court would confine its inquiry to examining whether the petition is within the period of limitation of 03 years or not. The referral Court will not conduct an intricate evidentiary inquiry into the question whether the claims raised by the applicant are time barred and this would be left for determination by the Arbitrator. Relevant passages from the judgment are as follows:-

accrues in favour of the applicant. To determine as to when the right to apply would accrue, we had observed in paragraph 56 of the said decision that “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.”

129. Insofar as the first issue is concerned, we are of the opinion that the observations made by us in Arif Azim (supra) do not require any clarification and should be construed as explained therein.

130. On the second issue it was observed by us in paragraph 67 that the referral courts, while exercising their powers under Section 11 of the Act, 1996, are under a duty to “prima-facie examine and reject non-arbitrable or dead claims, so as to protect the other party from being drawn into a time-consuming and costly arbitration process.”

131. Our findings on both the aforesaid issues have been summarised in paragraph 89 of the said decision thus:—

132. Insofar as our observations on the second issue are concerned, we clarify that the same were made in light of the observations made by this Court in many of its previous decisions, more particularly in Vidya Drolia (supra) and NTPC v. SPML (supra). However, in the case at hand, as is evident from the discussion in the preceding parts of this judgment, we have had the benefit of reconsidering certain aspects of the two decisions referred to above in the light of the pertinent observations made by a seven-Judge Bench of this Court in In Re: Interplay (supra).

133. Thus, we clarify that while determining the issue of limitation in exercise of the powers under Section 11(6) of the Act, 1996, the referral court should limit its enquiry to examining whether Section 11(6) application has been filed within the period of limitation of three years or not. The date of commencement of limitation period for this purpose shall have to be construed as per the decision in Arif Azim (supra). As a natural corollary, it is further clarified that the referral courts, at the stage of deciding an application for appointment of arbitrator, must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time barred and should leave that question for determination by the arbitrator. Such an approach gives true meaning to the legislative intention underlying Section 11(6-A) of the Act, and also to the view taken in In Re: Interplay (supra).

134. The observations made by us in Arif Azim (supra) are accordingly clarified. We need not mention that the effect of the aforesaid clarification is only to streamline the position of law, so as to bring it in conformity with the evolving principles of modern-day arbitration, and further to avoid the possibility of any conflict between the two decisions that may arise in future. These clarifications shall not be construed as affecting the verdict given by us in the facts of Arif Azim (supra), which shall be given full effect to notwithstanding the observations made herein.”

11. It is thus evident that two kinds of limitations may come into play in a petition under Section 11(6) of the 1996 Act: (a) where the petition under Section 11(6) may be barred by limitation having been filed beyond a period of 3 years from the date when the right to apply accrues in favour of the applicant; and (b) where the claims sought to be referred to arbitration may be ex facie time barred and/or dead claims. The decision with respect to time barred claims in the latter category is to be left to the Arbitrator, as held by the Supreme Court in SBI General Insurance Co. Ltd. (supra). However, the objection falling under the former category has to be examined by the referral Court.

12. In light of this, I may now examine whether the present petition is barred by limitation and this shall entail an examination of when the right to apply accrued. Petitioner contends that for the first time invocation notice was sent on 04.03.2024 and thus the petition is within the limitation period while Respondents urge that the invocation notice was sent by the Petitioner on 12.01.2017 and thus the petition is barred by limitation, having been filed in the year 2024. Broadly understood, case of the Petitioner is that it had authorized its counsel only to send the legal notice dated 26.11.2016 calling upon the Respondents to pay the outstanding dues but the invocation notice dated 12.01.2017 which was allegedly a rejoinder-cum-notice of invocation was sent by the lawyer, without his knowledge, instructions or authority.

13. Having given my thoughtful consideration to the rival pleas, I am of the view that the stand of the Petitioner cannot be accepted for more than one reason. Indisputably, Petitioner authorized his counsel to send the legal notice dated 26.11.2016 to the Respondents demanding the dues allegedly outstanding. It is unbelievable that Petitioner did not follow up the matter thereafter with the lawyer he engaged, to find out the outcome of the notice. There is also no reason to accept the plea that the lawyer did not inform the Petitioner of the receipt of the reply to the notice and of sending the rejoinder-cum-invocation notice, as no lawyer would act without instructions or authority from the client and ordinarily, without consideration. If the stand of the Petitioner is accepted, it would make a mockery of the mandatory requirement of sending a notice under Section 21 of the 1996 Act as also the limitation period prescribed for filing a petition under Section 11(6) as every applicant, who sends an invocation notice through a counsel, would take a plea that it was without authority, when confronted with an objection that the petition is time barred. Interestingly, even after allegedly learning of the invocation notice from the reply filed in this Court, Petitioner has not sent a single communication to the lawyer questioning him about the notice. Clearly, Petitioner abandoned his claims in 2017 after sending the invocation notice and got up from the deep slumber in 2024 and again sent an invocation notice, only to overcome the bar of limitation, as an afterthought.

14. In my view, this petition is barred by limitation and cannot be entertained and is accordingly dismissed.

JYOTI SINGH, J MAY 07, 2025/YA/RW/Shivam