Arbitration and Conciliation Act, 1996 – s.11(6) – Limitation Act, 1963 – Article 137 – Applicability – Three franchise agreements entered into between parties in 2013 – As per the agreements, the petitioner-a company based in Afghanistan, as the franchisee, was granted a non-exclusive license, by the respondent to establish and operate businesses under three trade names – Proposals were invited by the Indian Council for Cultural Relations (ICCR), for the execution of a short-term course – Proposal of the respondent accepted – Course executed by the petitioner at its centre in Kabul from February to April, 2017 – Disputes arose between the parties in relation to the renewal and payment of royalties for all the three franchise agreements – Respondent issued recovery notice for non-payment of royalty/renewal fees in 2018 – Petitioner informed the respondent of its decision to not renew two franchise agreements – In 2021, after a gap of around three years, the petitioner again took up the issue of non-payment of dues for the ICCR project with the respondent – Petitioner invoked a pre-institution mediation in 2022 however, upon failure thereof, it sent notice for invocation of arbitration to the respondent – Respondent replied denying the claims stating that notwithstanding the merits, the claims were barred by limitation – Petitioner filed petition u/s.11(6) filed for the appointment of an arbitrator:

Held: There is no doubt as to the applicability of the Limitation Act, 1963 to arbitration proceedings in general and that of Article 137 of the Limitation Act, 1963 to a petition u/s.11(6) in particular – As is evident from Article 137, the limitation period for making an application u/s.11(6) is three years from the date when the right to apply accrues – Limitation period for filing an application seeking appointment of arbitrator commences only after a valid notice invoking arbitration has been issued by one of the parties to the other party and there has been either a failure or refusal on part of the other party to make an appointment as per the appointment procedure agreed upon between the parties – The request for appointment of an arbitrator was first made by the petitioner vide notice dtd. 24.11.2022 and a time of one month from the date of receipt of notice was given to the respondent to comply with the said notice – Notice was delivered to the respondent on 29.11.2022 – Hence, the said period of one month from the date of receipt came to an end on 28.12.2022 – Thus, it is only from this day that the clock of limitation for filing the present petition would start to tick – The present petition was filed by the petitioner on 19.04.2023, well within the time period of 3 years provided by Article 137 – Thus, the present petition u/s.11(6) cannot be said to be barred by limitation – Further, the notice invoking arbitration was received by the respondent on 29.11.2022, which is within the three-year period from the date on which the cause of action for the claim had arisen – Thus, it cannot be said that the claims sought to be raised by the petitioner are ex-facie time-barred or dead claims on the date of the commencement of arbitration – Petition allowed, sole arbitrator appointed.[Paras 50-52, 62, 88, 92]

Arbitration and Conciliation Act, 1996 – s.11(6) – Petition under, issue of limitation – Courts to satisfy themselves on two aspects by employing a two-pronged test:

Held: While considering the issue of limitation in relation to a petition u/s.11(6), the courts should satisfy themselves on two aspects by employing a two-pronged test – first, whether the petition u/s.11(6) is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings – If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal. [Para 89]

Arbitration and Conciliation Act, 1996 – s.11(6) – Ascertaining the relevant point in time when the limitation period for making a s.11(6) application would begin – Hohfeld’s analysis of jural relations – Discussed.

Arbitration and Conciliation Act, 1996 – s.11(6) – Application for appointment of arbitrator u/s.11(6) – Categories of issues – “jurisdictional issues/objections”; “admissibility issues/ objections”:

Held: Issues pertaining to the power and authority of the arbitrators to hear and decide a case are referred to as the “jurisdictional issues/objections” – Objections to the competence of arbitrators to adjudicate a dispute, existence/validity of arbitration agreement, absence of consent of the parties to submit the disputes to arbitration, dispute falling out of the scope of the arbitration agreement are some examples of jurisdictional or maintainability issues – The second category referred to as the “admissibility issues/objections” is of those issues which are related to the nature of the claim and include challenges to procedural requirements, viz. a mandatory requirement for pre-reference mediation; claim or a part thereof being barred by limitation, etc. – Although, limitation is an admissibility issue, yet it is the duty of the courts to prima facie examine and reject non-arbitrable or dead claims, so as to protect the other party from being drawn into a time-consuming and costly arbitration process. [Paras 64, 65]

Arbitration – Cause of action – When arises – Notice for invocation of arbitration issued by the petitioner within three years from the date of accrual of cause of action, claims not ex-facie dead or time-barred on the date of commencement of the arbitration proceedings:

Held: Mere failure to pay may not give rise to a cause of action – However, once the applicant has asserted its claim and the respondent has either denied such claim or failed to reply to it, the cause of action will arise after such denial or failure – In the present case, the petitioner alleged that the respondent received the payment for the course from the ICCR on 03.10.2017 – However, the perusal of the communication exchanged between the parties indicates that it was only on 28.03.2018 that the right of the petitioner to bring a claim against the respondent could be said to have been crystallised – Petitioner completed the course sometime in April and a letter to this effect was issued on 30.07.2017 by the EOI, Kabul – Allegedly, the ICCR made payment to the respondent on 03.10.2017 – However, the right of the petitioner to raise the claim could only be said to have accrued after the petitioner made a positive assertion in March, 2018 which was denied by the respondent vide email dated 28.03.2018 – Another reminder through email was given by the petitioner on 29.12.2018, however, mere giving reminders and sending of letters would not extend the cause of action any further from 28.03.2018 on which date the rights of the petitioner could be said to have been crystallised – Thus, in ordinary circumstances, the limitation period available to the petitioner for raising a claim would have come to an end after an expiry of three years, that is, on 27.03.2021 – However, in March 2020, in view of deadly Covid-19 pandemic, this Court directed the period commencing from 15.03.2020 to be excluded for the purposes of computation of limitation – As a result, the period from 15.03.2020 to 28.02.2022 was finally determined to be excluded for the computation of limitation – It was provided that the balance period of limitation as available on 15.03.2020 would become available from 01.03.2022 – The effect of the said order of this Court in the facts of the present case is that the balance limitation left on 15.03.2020 would become available w.e.f. 01.03.2022 – The balance period of limitation remaining on 15.03.2020 can be calculated by computing the number of days be-tween 15.03.2020 and 27.03.2021, which is the day when the limitation period would have come to an end under ordinary circumstances – The balance period thus comes to 1 year 13 days which became available to the petitioner from 01.03.2022, thereby meaning that the limitation period available to the petitioner for invoking arbitration proceedings would have come to an end on 13.03.2023 – Notice for invocation of arbitration having been issued by the petitioner within three years from the date of accrual of cause of action, the claims cannot be said to be ex-facie dead or time-barred on the date of commencement of the arbitration proceedings. [Paras 77, 81, 82, 84 and 91]

Arbitration and Conciliation Act, 1996 – s.21 – Commencement of arbitral proceedings:

Held: s.21 provides that the arbitral proceedings in relation to a dispute commence when a notice invoking arbitration is sent by the claimant to the other party. [Para 85]

Arbitration and Conciliation Act, 1996 – s.11(6) – Limitation Act, 1963 – Article 137 – Applicability of Article 137 to applications u/s.11(6), a result of legislative vacuum – Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation:

Held: Applicability of Article 137 to applications u/s.11(6), a result of legislative vacuum as there is no statutory prescription regarding the time limit – Period of three years is an unduly long period for filing an application u/s.11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner – Various amendments to the Act, 1996 have been made over the years to ensure that arbitration proceedings are conducted and concluded expeditiously – Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators u/s.11 of the Act, 1996. [Para 94]

Maxims – “Vigilantibus non dormientibus jura subveniunt” – Discussed.