URT 0 v. J&K State Power Development Corporation

15. Being aggrieved by the aforesaid deduction of the WCT from the supply portion of the petitioner’s bills, the petitioner vide letter dated

05.03.2021 invoked the arbitration clause as provided under Clauses 47 and Clause 48 of the General Conditions of Contract and in terms of aforesaid Clauses 47 and Clause 48, the petitioner also proceeded to nominate an arbitrator and the respondent was also expected to nominate its arbitrator. However, as there was no response, the petitioner filed the Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 petition before the High Court of Delhi under Section 11 (6) of the Arbitration and Conciliation Act, for appointment of an arbitrator, which however, was withdrawn due to lack of jurisdiction of the court with liberty to approach the competent Court of jurisdiction which was allowed by the Delhi High Court vide order dated 30.03.2022. Accordingly, these three petitions have been filed before this Court for appointment of arbitrator in respect of aforesaid three contracts relating to the districts of Pulwama, Baramulla and Anantnag, being aggrieved by the deduction of the WCT from the bills of the petitioner.

16. These three petitions have been contested by the respondent corporation. The common plea taken by the respondent in its objection is that the application for appointment of arbitrator is barred by limitation since, the cause of action arose more than three years before the filing of the applications.

17. As no objection has been raised by the respondent about the existence of dispute or about the arbitration clause, we will not dwell on these issues.

18. It has been submitted by Mr. M. A. Chashoo, learned counsel on behalf of the respondent that the dispute relates to deduction of WCT from the pending bills of the petitioner. The dispute arose after the respondent started deducting WCT and the petitioner was informed of the decision of the respondent to deduct WCT in terms of the letter dated 15.07.2013 issued by the Director, Finance to the Chief Engineer, JKSPDC and accordingly, deductions came to be made from the bills of the petitioner and as such, if the petitioner was aggrieved of the same i.e., recovering Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 from the bills of the petitioner as per the decision of the respondents taken on 29.06.2013, the cause of action would arise on 29.06.2013, in which event the limitation period for recovering WCT would lapse by

28.06.2016 and as such any claim made thereafter would be time barred.

19. It has been submitted that once the cause of action commences, the same cannot be postponed on account of alleged discussion between the parties and requests made by the petitioner for reconsideration of the claim for not deducting the WCT. Accordingly, it has been submitted that merely because the Chief Engineer, Generation Wing Kashmir (JKSPDC) wrote to the petitioner on 26.07.2018 that the claim for release of payment on account of WTC is not tenable and cannot be entertained, or that the deduction was made from the final payment of the bills of the petitioner on 05.04.2018, or 28.03.2018 or 11.08.2017, it cannot be said that the cause of action would start running from

26.07.2018 or from 05.04.2018, or 28.03.2018, or 11.08.2017. Further, merely by serving a notice for appointment of an arbitrator on

05.03.2021, it cannot be said that the cause of action would start running from that time.

20. It has been submitted that the issue relating to limitation has been settled by the Hon’ble Supreme Court in its latest decision in M/s B AND T AG vs. Ministry of Defence, 2023 SCC Online SC 657decided on

18.05.2023, in which it was held by the Hon’ble Supreme Court that the cause of action cannot be postponed by writing letters or sending Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 reminders by bilateral discussions without indicating the period and the cause of action would arise when the right to sue accrues.

21. It has been submitted by Mr. M.A. Chashoo, learned counsel that it has been held in the said judgment that the limitation applies both before the arbitrator as well as before the Court when considering application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 and it has been submitted that since the cause of action had arisen on

29.06.2013 when the respondent informed him of the decision of the respondent-corporation to deduct WCT from the bills, as the respondent started deducting WCT from July, 2013 onwards, the limitation period continued only up to 28.06.2016 and hence any letter or legal notice thereafter for appointment of arbitrator is clearly time barred. It has been submitted that since the claim itself is time barred, the application for appointment of arbitrator after the lapse of the limitation period will also be not maintainable.

22. Mr. Pranav Kohli, learned Senior Counsel appearing for the petitioner, on the other hand, has submitted that the issue of limitation is a mixed question of law and fact which can best be ascertained only after leading evidence and appreciation of the same which can be appropriately done by the arbitral tribunal and as such, this petition may not be rejected at the threshold at the referral stage, for which the learned counsel for the petitioner has relied on the decision in BSNL and Anr. vs. Nortel Networks India Pvt. Limited, (2021) 5 SCC 738. It has been further submitted relying on the aforesaid decision that if there is the slightest Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 doubt about any such claim being time barred, the proper course of action is to refer the dispute to arbitration and allow the arbitral tribunal to decide the matter as otherwise, it would encroach upon what is essentially a matter to be decided by the tribunal.

23. In order to appreciate the rival contentions, we may briefly refer to the relevant law governing the field in this regard.

24. The scope of the power of the High Court pertaining to appointment of arbitrator under the Arbitration and Conciliation Act, 1996 before its amendment in 2015 was considered in extenso by a Constitution Bench of the Hon’ble Supreme Court in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618. This Court, is not however, concerned with various aspects considered in the said judgement, except for the issue of limitation. The Hon’ble Supreme Court in the aforesaid case observed that the scope of examination by the Chief Justice while exercising the power under Section 11 of the Act is a limited one though it includes deciding whether the claim was a dead one, or a long-barred claim that was sought to be resurrected. It was observed that it may not be possible at that refusal stage, to decide whether a claim made is live one which comes within the purview of the arbitration clause. In such a situation, it will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. It was thus, held in the aforesaid case as follows: Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 “39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.” (emphasis added)

25. After the amendment of the Act in 2015 by the Arbitration and Conciliation (Amendment) Act, 2015, certain significant changes were brought in the Act. The Hon’ble Supreme Court had the occasion to deal with many aspects including arbitrability of disputes and requirement to weed out stale claims in Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1. In the present case, we are not so much concerned with arbitrability of dispute, as the respondent corporation is not contesting these petitions on the existence of dispute or its arbitrability, but on the sole ground that the claim is time barred and hence no arbitrator can be Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 appointed. We will therefore, confine ourselves with this issue and examine this aspect from various perspectives highlighted in numerous decisions. As regards the issue relating to time barred claim and how the Court has to deal with such issue while considering appointment of arbitrator, under Section 11 of the Act, it was observed in Vidya Drolia (supra), 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.64, 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. 64: Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL) (emphasis added)

26. What we can thus, understand is that “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”.

27. The aforesaid observation is an echo of the observations made in SBP & Co. v. Patel Engg. Ltd. (supra) wherein it was held that “It may not be Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration.”

28. What is discernible from the aforesaid observations is that unless the claim is ex-facie time barred, or “hopelessly time barred” to quote the expression used in Secunderabad Cantonment Board v. B. Ramachandraiah & Sons, (2021) 5 SCC 705. the Court at the time exercising power under Section 11 of the Act for appointment of arbitrator should desist from rejecting any application for appointment of an arbitrator at the threshold unless

29. What is an ex-facie time barred claim or hopelessly time barred claim?

30. The word ex-facie has been defined in Black’s Law Dictionary (Seventh Edition) as “apparently, evidently, facially” and in legal parlance it means “on the face of it”. This means any matter which appears to be true or valid outwardly on its surface which understanding, or appreciation may not involve undertaking any detail analysis of the subject. A hopeless time barred claim is obviously a claim which is barred due to prolonged delay.

31. The inference that can be drawn from the aforesaid decisions in SBP & Co. v. Patel Engg. Ltd.(supra) and Vidya Drolia (supra) is that if the claim cannot be determined as ex-facie time barred, and if such conclusion of the claim being time barred is to be arrived at after a detail Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 discussion and appreciation of evidence, it cannot be said to be ex-facie time barred, in which event, it should be left to the arbitral tribunal to consider such an aspect. Further, if there is the slightest doubt about the issue of arbitrability on account of the claim being time barred, it should be left to the arbitrator to decide.

32. In this regard, it may be appropriate to reproduce the following observations in BSNL v. Nortel Networks (India) (supra) as follows: “45. In a recent judgment delivered by a three-Judge Bench in Vidya Drolia v. Durga Trading Corpn., 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 barefaced 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. 46. …………………………….. 47. 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.”

33. In my view the rationale behind such a view is simple, that is, if the Court while exercising jurisdiction under Section 11 of the Act has to embark upon a task of ascertaining limitation period by undertaking an elaborate exercise of involving production of evidence and appreciating evidence, the Court will be usurping the role of the arbitral tribunal as also observed by the Hon’ble Supreme Court in the above referred case of BSNL v. Nortel Networks (India) (supra). Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022

34. The irresistible conclusion is that only when the claim appears on the face of the record appears to be hopelessly time barred without the Court requiring to undertake an exhaustive and elaborate exercise, the Court can refuse to exercise jurisdiction under Section 11 of the Act, to weed out such dead wood claims.

35. There is yet another related issue. Section 43 (1) of the Arbitration and Conciliation Act, 1996 provides that the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings in Court. If that is so, provisions of Section 5 of the Limitation Act will also certainly apply to proceedings before the Court while exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996, just as provisions of Section 137 of the Limitation Act applies, as held in the above referred cases. If provisions of Section 5 of the Limitation Act apply, nothing prevents the Court to condone delay in certain cases while exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act. But is the Court at the refusal stage expected to exercise this power under Section 5 of the Limitation Act to condone the delay in respect of any belated claim if there are sufficient causes for condoning the same? In my view, the said course of action is not desirable in view of the decisions of the larger Bench of the Hon’ble Supreme Court in SBP & Co. v. Patel Engg. Ltd.(supra) and Vidya Drolia (supra), that it would be more appropriate to leave that question to be decided by the arbitral tribunal on taking evidence. Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022

36. The upshot of this discussion is that the Court at the referral stage can reject the claim only when it is manifestly, ex-facie and hopelessly time barred and not otherwise. There can be situations where a belated claim could be entertained if the claimant is able to show sufficient causes for not making the application within the limitation period as provided under Section 5 of the Limitation Act, which should be examined by the arbitral tribunal and not by the Court at the referral stage.

37. As we proceed to examine the matter further, it may be relevant to consider certain other aspects of the issue relating to limitation in filing application for appointment of arbitrator under Section 11 of the Act.

38. It is now well settled that there are two facets to the issue of limitation involved in an application under Section 11 of the Act. One relates to the limitation period for appointment of arbitrator under the Act, and other relates to the limitation period pertaining to the substantive relief claimed. This has been clarified in BSNL v. Nortel Networks (India) (P) Ltd. (supra) in the following words: respect arbitration “15. 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 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. 16. 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 Arb P. No.12/2022 Arb P. No.13/2022 Arb P. No.14/2022 underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator………”

39. The effect is that while the application for appointment of arbitrator must be within 30 days as provided under Section 11 (5) of the Act, the limitation period for reference of a dispute to arbitration is 3 (three) years from the date on which the cause of action arises or when the claim which is sought to be arbitrated first arises. In Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643, it was held as under: “13. Section 43 of the 1996 Act (relevant part) provides as follows: “43. Limitations.—(1) The Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in court. (3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.” caused,

14. Sections 43(1) and (3) of the 1996 Act are in perimetria with Sections 37(1) and (4) of the 1940 Act. It is well-settled that by virtue of Article 137 of the First Schedule to the Limitation Act, 1963 the limitation period for reference of a dispute to arbitration or for seeking appointment of an arbitrator before a court under the 1940 Act (see State of Orissa v. Damodar Das 9) as well as the 1996 Act (see Grasim Industries Ltd. v. State of Kerala 10) is three years from the date on which the cause of action or the claim which is sought to be arbitrated first arises.” 9: 10: