SECUNDERABAD CANTONMENT BOARD versus M/S B. RAMACHANDRAIAH & SONS
[2021] 3 S.C.R. 68, Supreme Court of India, 2021
Outcome: Appeal(s) allowed (Granted)
Segment: Body
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   [2021] 3 S.C.R. 68
68
SECUNDERABAD CANTONMENT BOARD
v.
M/S B. RAMACHANDRAIAH & SONS
(Civil Appeal  Nos. 900-902 of 2021)
MARCH 15, 2021
[R. F. NARIMAN AND B. R. GAVAI, JJ.]
Arbitration and Conciliation Act, 1996 – s.11 – Limitation
Act, 1963 – s. 9 and Art.137 – Appellant floated a notice inviting
tender for a term of annual contract – Three agreements were entered
into with the respondent – Agreements had arbitration clause – Work
orders were issued – Thereafter, final contract certificates were
issued by the appellant and final payment was received by the
respondent of the works in question – Respondent then started
making demands for reimbursement on account of variation in prices
of material, labour and fuel – By letter dated 07.11.2006, respondent
requested for appointment of arbitrator – Respondent issued another
letter dated 13.01.2007 and stated that it had no option but to rescind
contract and have an arbitrator appointed within 30 days – It is
not disputed that 30 day period was over by 12.02.2007, however,
respondent kept on writing letters in 2007-2009, reiterating its claim
– Finally, respondent issued a legal notice dated 30.01.2010 and
‘clarification notice’ dated 20.03.2010 – Appellant by letter dated
10.11.2010, rejected the claim of reimbursement and stated that
they have made final payments towards the work order – On
06.11.2013, the respondent filed applications u/s.11 of the Act –
The Single
Judge of the High Court allowed the application and an
arbitrator was appointed – On appeal, held: It is clear that demand
for arbitration was made by letter dated 07.11.2006 – Thereafter,
another letter dated 13.01.2007 informed the appellant that
appointment would have to be made within 30 days – The time begin
to run on and from 12.02.2007 – Once the time started running,
any final rejection by the appellant (letter dated 10.11.2010) would
not give any fresh start to a limitation period which was already
running, following the mandate of s. 9 of the Limitation Act – This
being the case, the High Court was clearly in error in stating that
since applications were filed on 06.11.2013, they were within the
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limitation period of three years starting from 10.11.2010 – Even
otherwise, the claim of the respondent was also ex facie time barred
– Thus, judgment of the High Court is set aside.
Allowing the appeals, the Court
HELD: 1. Limitation is not a jurisdictional issue but is an
admissibility issue. So far as the applicability of Article 137 of the
Limitation Act to the applications 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. [Paras 19, 20][83-A; 85-
G-H; 86-A-D]
2. 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 dated 16.02.2010 to legal notice, it was made clear that
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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. For all these reasons, the appeals
are allowed and the impugned judgment of the High Court dated
20.08.2019 is set aside. [Paras 21, 22][86-E-F]
Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan
Nigam Ltd., (2020) 14 SCC 643 : [2019] 11 SCR 1108;
Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC
1; Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel
Networks India Pvt. Ltd. 2021 (4) SCALE 11 – relied
on.
Deepdharshan Builders Pvt. Ltd. v. Saroj, (2019) 1 AIR
Bom R 249 – referred to.
Case Law Reference
[2019] 11 SCR 1108
relied on
Para 13
(2021) 2 SCC 1
relied on
Para 16
2021 (4) SCALE 11
relied on
Para 19
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 900-
902 of 2021.
From the Judgment and Order dated 20.08.2019 of the High Court
for the State of Telangana at Hyderabad in Arbitration  Application Nos.
154 of 2013, 155 of 2013 and 156 of 2013.
P.S. Narasimha, Sr. Adv., M/s. Veritas Legis, for the Appellant.
Nithin Pavuluri, Nitin Chowdary, Gp. Capt. Karan Singh Bhati,
Jaideep Singh, Ms.Chitrangda Rastravara, Manvendra Singh Rathore,
Dashrath Singh, Advs. for the Respondents.
The Judgment of the Court was delivered by
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
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[“Appellant”], floated a notice inviting tender [“N.I.T.”] for an annual
term contract for:
1.
Repairs to Main Roads (Resurfacing with Centralised with
Hot Mix Plant and Paver);
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 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”
SECUNDERABAD CANTONMENT BOARD v. M/S B.
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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
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.
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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).
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.”
“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
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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 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
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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 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
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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 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 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
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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:
“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.”
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
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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 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
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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 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)
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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 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”
SECUNDERABAD CANTONMENT BOARD v. M/S B.
RAMACHANDRAIAH & SONS [R.F. NARIMAN, J.]
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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.”
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)
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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.
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)
SECUNDERABAD CANTONMENT BOARD v. M/S B.
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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. 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
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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-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 under Section 11 of the Arbitration Act is concerned, it is
clear that the demand for arbitration in the present case was made by
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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.
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.
Ankit Gyan
Appeals allowed.