In a recent decision, the Supreme Court of India has reiterated that seeking the appointment of an arbitrator beyond three years is barred by limitation. The Court dismissed a petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, by a Swiss company engaged in arms manufacturing. The petition sought the appointment of an arbitrator to adjudicate disputes arising from a contract with the Government of India’s Ministry of Defence, executed in 2012.
The key issue before the Court was whether time-barred claims, or claims barred by limitation, could be referred to arbitration. The Court examined the relevant provisions of the Act and noted that no specific time limit was prescribed for filing an application for the appointment of an arbitrator under Section 11(6). However, it observed that the Limitation Act, 1963 applies to arbitrations as it does to court proceedings, as stated in Section 43 of the Act 1996.
The Court referred to Article 137 of the Schedule to the Limitation Act 1963, which sets a general limitation period of three years for various applications. It held that the period of limitation for applications under Section 11(6) is three years, starting from the date the right to apply accrues. The Court relied on earlier decisions to emphasize that the right to apply arises when the cause of action accrues, and a party cannot indefinitely postpone the accrual of the cause of action through bilateral discussions.
The Court highlighted the importance of identifying the “breaking point” at which a reasonable party would abandon settlement efforts and consider arbitration. It noted that if a party delays filing an application under the Act due to uncertainty about the cause of action, the claim may become time-barred even before the party realizes it. The Court emphasized that the determination of a cause of action should be based on the substance rather than the form of the action, and if an infringement of a right occurs at a specific time, the entire cause of action is deemed to have arisen then and there.
Considering the absence of a specific limitation period under Section 11 of the Act 1996, the Court urged the legislature to amend the provision to prescribe a definite time within which parties may seek the appointment of arbitrators. It concluded that there is a distinction between claims being barred by limitation and applications for the appointment of an arbitrator being barred by limitation.
In this particular case, the Court found that the petitioner’s claim was hopelessly time-barred, as the petitioner had failed to exercise its right for over five years. Consequently, the Court rejected the petition.
This decision by the Supreme Court reinforces the significance of the limitation period in arbitration matters and highlights the need for parties to promptly pursue their claims and seek the appointment of an arbitrator within the prescribed time frame.
