Bharat Sanchar Nigam ltd. & Anr. v. Nortel Networks India Pvt. Ltd. Civil Appeal No. 843-844 of 2021 : Supreme Court of India (decided on 10 March 2021)

Relevant Facts:

BSNL (Appellant) awarded Tender to Nortel (Respondent). Upon completion of work, BSNL withheld an amount of Rs. 99.70 Crores towards liquidated damages and other levies. On 13.05.2014, Nortel raised a claim for payment of the said amount. The claim was rejected by BSNL on 04.08.2014. Thereafter, Nortel invoked arbitration on 29.04.2020, i.e. after 5 ½ years. BSNL contended that the NIA was time barred matter.

Nortel approached the Kerala High Court u/s 11 Arbitration and Conciliation Act, 1996 (“Arbitration Act”) on 24.07.2020 which allowed the Application and referred the matter to arbitration.  BSNL preferred Review Petition, which was dismissed. So, BSNL approached the Supreme Court.

Issues:

• What is the period of limitation for filing an application under Section 11?
• Whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred?

Judgement:

Issue (i)

The objective of the Arbitration Act is expeditious resolution of disputes. The 2015 Amendment to the Arbitration Act, specifically insertion of Section 11(13) affirmed this objective. Section 11(13) provides that any application made u/s 11 shall be disposed of as expeditiously as possible with a period of 60 days from the date of service of the notice of the opposite party.

Section 11(6) does not prescribe any time limit for filing an application for appointment of arbitrator. Since the limitation period is not prescribed by the Act, the recourse had to be taken to the Limitation Act as per section 43 of the Arbitration Act. Since none of the Articles in the Schedule to the Limitation Act provide a time period for filing an application for appointment of an arbitrator u/s 11, it would be covered by the residual provision Article 137 of the Limitation Act, 1963, i.e. 3 years from the date when the right to apply accrues.

The Court referred to Delhi (2018), Bombay High Court (2010, 2019) and Supreme Court (2020) decisions wherein Article 137 was applied in Section 11 Application.

The Court however observed that three years period is unduly long and defeats the object of the Arbitration Act and is contrary to the scheme thereof. The Court therefore suggested that a specific limitation period needs to be prescribed by the Parliament by way of amending the provision.

In this case, Nortel filed Section 11 Application on 24.07.2020 which was held to be within three years from the NIA on 29.04.2020.

Issue (ii)

The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator.

The NIA was issued 5 ½ years after rejection of claims on 04.08.2014. Therefore, the Court held that it is ex facie time barred and cannot be referred to arbitration. The Court also observed that in rare and exceptional cases, where the claims are ex facie time barred and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference.

The conclusion drawn by the Court has based on the judgement in Mayavati Trading Trading Company Private Ltd. v. Pradyut Dev Burman (2019) 8 SCC 714 wherein it was held 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”. Mayavati Trading was reaffirmed in Vidya Drolia v.  Durga Trading Corporation (2021) 2 SCC 1. As a consequence, the Appeal was allowed and the Section 11 Application was dismissed.

Comments:

The judgement is objective oriented so far as it proposes the Parliament to consider a shorter and specific limitation period to entertain Section 11 Application.

The test laid down in Mayavati Trading expands the jurisdiction of Court in Section 11 Application to consider nature of the claim (though in exceptional circumstances) beyond examining the ‘existence’ of the arbitration agreement. This is on the basis that 2019 Amendment omitting Section 11(6A) has not yet been notified.

Interestingly, Vidya Drolia (2021) by three-Judge has been referred by a co-ordinate Bench to a larger Bench in N. N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. and Ors. 2021 SCC Online SC 13 (delivered on 11.01.2021) which was passed prior to the present Judgement delivered on 10.03.2021. BSNL and N. N. Global, both are penned down by Justice Indu Malhotra. Though, this Judgement is not per incuriam as such because N.N. Global has referred the point on ‘existence’ and ‘validity’ of the arbitration agreement (as against the nature of claim under the arbitration agreement) to the Constitution Bench, it would be interesting to see if the Constitution Bench judgement has any impact, direct or indirect, in terms of nature of claim being considered at Section 11 stage.