Application of Limitation Act,1963 to Arbitration And Conciliation Act, 1996

Updated: Jul 24

*Arpit Sarangi


1. Introduction


The law of Limitation is an essential legislation that prescribes an outer time limit within which a claim can be brought after the cause of action has occurred. The Limitation Act, 1963 (Hereinafter, “Act, 1963”) is made applicable to Arbitration and Conciliation Act, 1996 (Hereinafter, “Act, 1996”) through Section 43(1) of Act, 1996 which provides that the Act, 1963 “shall apply to arbitrations as it applies to proceedings in court.” The first part of the Article would analyse the application of Act, 1963 to Section 11 of Act, 1996 (i.e. application of limitation act to initiate arbitration) whereas the second part would analyse the application of Act, 1963 to Section 34 of Act, 1996 (i.e. application of limitation act to set aside or challenge an arbitral award in a Court of law). There is a fundamental difference between Section 11 and Section 34 of Act, 1996. Section 34 provides for an exclusive statutory time limit whereas Section 11 does not provide for any such time limit.


2. Application of Act, 1963 to Section 11 of Act, 1996.


a. A primer on Section 11 of Act, 1996 and the current position of law.


Section 11 provides for the procedure to initiate arbitration. It can further be divided into two issues. The first issue is relating to an application to Court to appoint an arbitrator and the other being an issue of claim to a cause of action. For the first issue, the limitation period begins from the date of refusal to appoint an arbitrator by the other party or on expiry of thirty days, whichever is earlier. Moreover, for the second issue, the period of limitation begins from the “Cause of Action”. In the case of Bharat Sanchar Nigam Limited v. M/s Nortel Networks India Pvt. Ltd.[1], the Court held that both of the above issues should not be time-barred to allow an application under Section 11. Consequently, in the above case, the first issue was within limitation but as the second issue (i.e. Cause of Action) was barred by limitation, the application of Section 11, of Act, 1996 was denied.


When does a “cause of action” arise?


The Supreme Court (SC) in the case of Grasim Industries v. State of Kerala[2] has held that the provisions of Art. 137 of the Act, 1963 would apply to the Act, 1996. Any application under Section 11 of the Act, 1996 should be initiated within three years from the date when the cause of action arose.


Article 137 of the Act, 1963 provides for an outer time limit of three years from the time the “right to apply accrues” to applications for which no exclusive time period of limitation is provided elsewhere in the Division of Act, 1963. As, Section 11 of Act, 1996 did not have any specific mention in the division, consequently, Article 137 of Act, 1963 was applied.[3]


Now, the question arises what is the cause of action under arbitration law? The Supreme Court in the case of State of Orissa v. Damodar Das observed that “cause of action” under Arbitration law is treated to be similar to those of civil suits[4]and generally arises when there is a dispute.


Further, in the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, the Supreme Court held that the dispute can be said to arise only when “a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request.”[5]


The Courts have also inclined to hold that the “cause of action” arises when the final bill handed over to the other party became due.[6] However, where final bills have not been prepared, the Courts have held that the cause of action arises when-

· There was an assertion of claim yet there was no payment.[7]

· the notice demanding the disputed amount remains unanswered[8]

· There is a clear and unequivocal denial of that right asserted by the other party in a notice.[9]


The Supreme Court has held that a party cannot postpone the accrual of a cause of action by writing or sending reminders.[10] However, if the parties are in constant negotiation in some specific matters, certain exceptions were seen to be made. In the case of Hari Shankar Singhania & Ors vs Gaur Hari Singhania & Ors., the Supreme Court held that certain exceptions can be made in the case of family settlement. The Court differentiated a family settlement from a commercial settlement as the former results in peace and goodwill among the family members. The Court held that the well-being of a family is to be considered of prime importance. The process of arbitration would begin only when a dispute cannot be settled by conciliation. Consequently, if the parties are in dialogue even after the disputes have appeared, the limitation under Article 137 of Act 1963 cannot be considered to have commenced.[11] Hence, a narrow approach was provided to the application of Article 137 of Act 1963 to Act, 1996 in case of family disputes.


b. What is the current settled position?


The above discussion suggests that the point of law on the application of Act, 1963 to Act, 1996 is not clear. Moreover, in the recent case of Geo Miller v. Rajasthan Vidyut Nigam[12] Court had an opportunity to deal with similar issues. The judgment to the above issues are as follows


What is the time limit for application for appointment of an Arbitrator under 11(6) of Act, 1996?


The Court held that by application of Article 137 to the Act 1963, the limitation period for a reference of a dispute to arbitration or to appoint an arbitrator under Section 11 of Act, 1996 is three years from the date on which the cause of action or the claim which is required to be arbitrated first arise. Further, mere interaction between the parties in the form of letters or reminders will not extend the statute of limitations.


What is the “cause of action” to determine the beginning of the time limit under the Act, 1963?


The Courts were inclined to hold that the “cause of action” arises when the final bill became due. However, after perusing the decision of Major (Retd.) Inder Singh Rekhi[13] and Hari Shankar Singhania[14] the Court made an interesting observation. It held that-


“Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the ‘breaking point’ at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This ‘breaking point’ would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party’s primary interest is in securing the payment due to them, than in family disputes where it may be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim.”


An analysis of the Geo-Miller judgment.


An analysis of the Geo Miller judgment would suggest to us that Court has moved away from a strict interpretation of “cause of action”. In earlier decisions, the act of negotiation delayed the beginning of “cause of action” only in family settlements. However, after the Geo Miller judgment, negotiation can also delay the beginning of the time period in commercial matters to compute limitation. However, the Court did introduce the caveat of “breaking point” during the negotiations which would mark the beginning of the limitation period. Moreover, the threshold of the “breaking point” would be lower in commercial disputes than in the case of family settlements. The Author believes that Geo Miller’s judgement would allow more time for settlement of dispute via negotiation but it would also make the determination of “cause of action” more subjective and confusing.


3. Application of Act, 1963 to Section 34 of Act, 1996.


a. A primer on Section 34, of Act, 1996 and current position of law.


The second part of the Article discusses the application of Act, 1963 to challenge and finally set aside an arbitral award under Section 34 of Act, 1996. Hence, this part would discuss the application of Act, 1963 to Act, 1996 after an award is delivered. Section 34 of Act, 1996 provides that any party to an arbitral award can take recourse to a Court to set aside the same award if any of the conditions mentioned under Section 34(2) of Act, 1996 is satisfied. Further, Section 34 (3) of Act, 1996 provides that-


“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.[15]


It can be observed that Section 34(3) of Act, 1996 prescribes an outer time limit of three months from the date on which the party challenging the arbitral award received the award or, from the date on which the request under Section 33 of Act, 1996 is answered. The proviso to the above section allows an additional thirty days to challenge the arbitral award but only if the Court is satisfied.


In the above context of Section 34 (3) of Act, 1996 it is pertinent to refer the Section 29 (2) of the Act, 1963 which provides that if any special law provides for a period of limitation distinct from the time-limit prescribed under the Act, 1963, then the time limit prescribed under the special act would apply and provisions under Sections 4 to 24 of the Act, 1963 apply only in so far as they are not excluded by the special law.[16] Section 4 to 24 of Act, 1963 mostly provides for exclusion of certain time-period in the computation of the period of limitation. The Courts have observed that Act, 1996 is a special Law.[17]


b. Application of Section 5 of Act, 1963 to Act, 1996.


The SC in the case of UOI v. Popular Construction[18] was asked to determine whether Section 5 of the Act, 1963 apply to an application contesting an award filed under Section 34 of the Act, 1996. The Court held that the 1996 Act is a 'special law' as required under Section 29 (2) of Act, 1963 and that Section 34 of Act, 1996 provides for a period of limitation distinct from the Limitation Act.[19]

Further, the Court noticed that proviso to Section 34(3) of the Act 1996 contain the words 'but not thereafter' and observed that this phrase would amount to an express exclusion within the meaning of Section 29(2) of the Act 1963. Furthermore, the Court held that to consider an application to set aside the Award beyond the proviso's extended timeframe would render the words 'but not thereafter' completely meaningless.[20]


Analysis of the above judgment.


The quick and timely execution of arbitral awards is essential to give complete effect and strength to arbitration laws in any country. The Court discarding the application of Section 5 of Act, 1963 helps in quick disposal of arbitral awards in three ways. Firstly, it creates certainty in determining the period of limitation as an application of Section 5 of Act, 1963 may lead to a situation where the beginning of the time period would be different from what is statutorily provided under Section 34(3) of Act, 1996 (i.e. from receive of arbitral award or disposal of the request under Section 33.). Secondly, the non-application is in consonance with Section 34(3) of Act, 1996. Thirdly, it helps in making arbitration a quick and efficacious remedy.


c. Application of Section 14 of Act, 1963 to Act, 1996.


Section 14 of the Act, 1963 allows for the exclusion of time spent in bona fide proceedings in a Court sans jurisdiction to compute the limitation period. The SC in the case of Consolidated Engineering Enterprises vs Principal Secretary Irrigation Department[21] was asked to determine whether Section 14 of Act, 1963 would apply to an application submitted under Section 34 of Act, 1996.


Section 14(2) of Act, 1963 provides that


“In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.[22]


The Court began by observing that it would be preposterous to assume that just because Section 5 of Act, 1963 does not apply to Act, 1996, it would suo-moto result in non-application of Section 14, Act 1963 to Act, 1996. The Court further went to interpret Section 14 of Act, 1963 and held that a justice-oriented approach is to be taken than an approach that aborts the proceedings.[23]


Further, no provisions in the Act, 1996 expressly or impliedly prevent the application of Section 14 of the Act, 1963. On the contrary, the Court held that Section 43(4) of Act, 1996 encourages the application of Section 14 of Act, 1963 as the former section allows exclusion of the time period between the commencement of the arbitration proceedings and the date in which the award is set aside in computing the limitation period for initiating any proceeding with respect to the dispute.[24]


Analysis of the above judgment.


The author believes that the SC was correct in applying Section 14 of Act, 1963 to Act, 1996 as the application doesn’t provide for a new period of limitation but only provides for exclusion of a certain period that is wasted in the Court of wrong jurisdiction. This doesn’t create any uncertainty in determining the period of limitation. The period of limitation still begins from as statutorily mentioned under Section 34 (3) of Act, 1996. Further, Section 34 (3) provides for a strict timeline of 90 days with a further extension of 30 days on approval of Court and there may be genuine cases where parties may wrongfully approach a Court with different jurisdiction due to confusion to set aside an arbitral award under Section 34 of Act, 1996. A blanket non-application of Section 14 of Act, 1963 would lead to the washing away of rights of the parties without any substantive wrongdoing on the part of parties.


d. Application of Section 18 of Act 1963 to Act, 1996.


In the case of P. Radha Bai v. P. Ashok Kumar[25] the SC was asked to determine whether Section 17 of Act, 1963 would be applicable in computing the period of limitation under Section 34(3) of the Arbitration Act?


Section 17 of the Act, 1963 provides that where any fraudulent act has been committed by any person and consequently the plaintiff or the applicant is restricted from establishing his right, the time period for the purpose of limitation would only begin to run when the plaintiff or applicant has discovered the fraud or could, with reasonable diligence would have discovered it.[26]


The Court referred to the case of Hukumdev Narain Dev v. Lalit Narain Mishra[27] wherein it was observed that an express exclusion of Section 4 to 24 of Act, 1963 is not required to be made under the Special act and an implied exclusion would suffice. Further, the implied exclusion has to be determined from the scheme, subject matter and object of Special law.


Therefore, the Court in the P. Radha Bai case went on to analyze the implication of application of Section 17 of Act, 1963 to Section 34(3) of Act, 1996 and also the characteristics of the above Sections. The Court started by observing that Section 17 of Act, 1963 neither extends nor breaks the limitation period. It delays or postpones the start of the limitation period which is evident from the use of the statement "the period of limitation shall not begin to run".[28]


Subsequently, the Court provided the characteristics of Section 34 of Act, 1996. It observed that


1. The phrase "may not be made" used in Section 34(3) has to be interpreted to mean "cannot be made".


2. The use of the phrase "but not thereafter" in the proviso to Section 34(3) of Act 1996 showcases the legislative intent not to allow any period beyond the time limit mentioned or else the phrase would become otiose.


3. The period to enforce the award under Section 36 of Act 1996 begins once the time limit to challenge the award under Section 34 of Act, 1996 expires. Moreover, if Section 17 of Act 1996 were to be used to calculate the limitation period under Section 34(3), the date of discovery of the alleged fraud or error would be the beginning of the limitation period. It would result in a different starting point of limitation than provided under Section 34 (3) of Act, 1996 and would result in undermining of the Special Law.[29]


Analysis of the above judgment.


Dr. Peter Binder in International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdiction had observed that the period to challenge and set aside an arbitral award should be an “unbreakable time” for sake of “certainty and expediency”. Hence, “time” and “certainty” were always considered to be a sine qua non for an efficient arbitral system. The author believes that SC was correct in discarding the application of Section 17, of Act 1963 to Act 1996 in three ways. Firstly, it creates certainty in the commencement of the limitation period. Secondly, it is in consonance with Section 34(3), Act 1996 which statutorily recognizes a beginning time period of limitation. Thirdly, it is in consonance with the reasoning of SC’s other judgments like Consolidated Engineering Enterprises vs Principal Secretary Irrigation Department and UOI v. Popular Construction.


4. Conclusion


The SC has provided a time limit of three years to approach the Court to initiate arbitration. However, it can be observed from the above cases that “time is of the essence” for the cases under Arbitration. Consequently, a time limit of three years seems a bit too long to resurrect a dispute. This flaw or deficiency has also been pointed out by SC in the case of Bharat Sanchar Nigam Limited v. M/s Nortel Networks India Pvt. Ltd.[30]Further, the concept of “breaking point” also adds to the ambiguity and subjectivity of the provision. Hence, it can be concluded that Section 11 of Act, 1996 has some flaws and should be rectified by the legislature. However, analysis of the second part or application of Act, 1963 to Section 34 of Act, 1996 suggests that the SC has been moving in the right direction and the point of law is clear and without any ambiguity.


*Arpit Sarangi, final year student of Hidayatullah National Law University, arpitsarangi12@gmail.com.

[1] Civil Appeal No. 843-844 of 2021 [2] (2018) 14 SCC 265 [3] Article 137, The Limitation Act, 1963. [4] State of Orisaa v. Damodar Das, (1996) 2 SCC 216. [5] Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority 1988 AIR 1007 [6] Ibid. [7] Ibid. [8] SAIL v. JC Budharaja, 1999 AIR (SC) 3275 [9] Supra 3. [10] Supra 5. [11] Hari Shankar Singhania & Ors vs Gaur Hari Singhania & Ors., (2006) 4 SCC 658. [12] 2019 SCC OnLine SC 1137 [13] Supra 6. [14] Supra 12. [15] Section 34 (3), Arbitration and Conciliation Act, 1996 [16] Section 29(2), The Limitation Act, 1963. [17] UOI v. Popular Construction, (2001) 8 SCC 470 [18] (2001) 8 SCC 470 [19] Ibid. [20] Ibid. [21] (2008) 7 SCC 169 [22] Section 14(2), The Limitation Act, 1963. [23] Supra 22. [24] Ibid. [25] AIR 2018 SC 5013 [26] Section 17, The Limitation Act, 1963 [27] 1974 2 SCC 133 [28] Supra 26. [29] Ibid. [30] Supra 2

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