An amendment to the Arbitration Act to prescribe a short period of limitation for applying for the appointment of an arbitrator will ensure that parties are not lethargic in approaching the court.
The Supreme Court, in its recent judgment in Arif Azim Co Ltd v Aptech Limited, opined that Parliament should consider bringing in an amendment to Section 11 of the Arbitration and Conciliation Act, 1996 to incorporate a specific period of limitation for applying to court for the appointment of an arbitrator.
The Court reiterated that the period of limitation prescribed in Article 137 of the Limitation Act, 1963 applies to an application for the appointment of an arbitrator. Article 137 of the Limitation Act prescribes a limitation period of three years from the date the right to sue accrues, which, in the case of an application for the appointment of an arbitrator, accrues upon the expiry of the 30 days from the respondent receiving the invocation notice. The Court also held that this limitation period is distinct from the limitation applicable to the underlying claim.
In Aptech, the Court opined that the applicability of the period of limitation prescribed in Article 137 of the Limitation Act goes against the object of the Arbitration Act, which is to provide a mechanism for speedy dispute resolution.
Given the directions passed by the Court, this article makes a case for Parliament to amend Section 11 of the Arbitration Act to incorporate a similar period of limitation for applying for the appointment of an arbitrator, as exists for filing a complaint in respect of a dishonoured cheque under the Negotiable Instruments Act, 1881.
Limitation under the Negotiable Instruments Act
It is important to first analyse the provisions of the Negotiable Instruments (NI) Act. Section 138 and Section 142 prescribe the ingredients of the offence and the period of limitation for filing a complaint regarding a dishonoured cheque. The relevant portion of Section 138 of the NI Act is:
“Where any cheque…
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
The necessary ingredients of the offence were expounded upon by the Supreme Court in Yogendra Pratap Singh v. Savitri Pandey & Anr, wherein the Court held that a complaint filed before the expiry of the 15 days provided in the statute for repayment would not be maintainable.
It is also important to note that for a notice to constitute a valid notice under Section 138 of the NI Act, it must contain a demand for the cheque amount, as held in Suman Sethi v. Ajay K Churiwal and Another and Rahul Builders v. Arihant Fertilizers and Chemicals and Another.
Section 142 of the NI Act prescribes the limitation period for filing a complaint regarding a dishonoured cheque once the offence has been committed. It reads as follows:
“(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:
Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;”
Therefore, once the cause of action arises, the complainant has one month to file the complaint in the court of competent jurisdiction. However, in the event of a justifiable delay, the court can condone the same.
Similarly, Section 11 of the Arbitration Act provides the circumstances under which a party can approach the court to appoint an arbitrator. The relevant portion is as follows:
“(4) If the appointment procedure in sub-section (3) applies and—
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party;
the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court;
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.”
Thus, where Sections 11(4) and 11(5) of the Arbitration Act apply, a party seeking to approach the court for appointment of an arbitrator must issue an invocation notice, and there must be a failure to appoint an arbitrator within 30 days of receipt of the notice by the other party.
The Supreme Court has held, in Bharat Sanchar Nigam Limited & Another v. Nortel Networks India Private Limited, that an application seeking the appointment of an arbitrator can only be filed in court after the expiry of 30 days post receipt of the invocation notice by the respondent. The Bombay High Court, in DP Construction v. Vishwaraj Entertainment Private Limited, after examining the requirements of an invocation notice under Section 21 of the Arbitration Act, held that unless the notice specifically lists out the disputes proposed to be referred to arbitration, and contains a clear and unequivocal reference of the disputes to arbitration, it would not constitute a valid invocation notice.
A perusal of the provisions of the Arbitration Act and the Negotiable Instruments Act reveals several similarities. In both cases, there is a mandatory requirement to issue a written notice, which must contain certain information and wait for a fixed period before approaching the court. Most importantly, both are intended to enable rapid dispute resolution.
However, as there is no specified period of limitation, a party can apply to the court for the appointment of an arbitrator anytime within three years of the expiry of the 30 days provided in Section 11 of the Arbitration Act, and the invocation notice itself could be issued anytime within the period of limitation of the underlying cause of action, thus defeating the entire purpose of arbitration.
In theory, if the period of limitation of the underlying cause of action is three years, a party can issue an invocation notice at the very end of the period and then wait another three years before filing the application seeking the appointment of an arbitrator. Thus, it could be more than six years since the accrual of the underlying cause of action before the arbitrator is appointed and enters reference.
Given the similarities between the provisions and the legislative intention of the Arbitration Act and the Negotiable Instruments Act, amending Section 11 of the Arbitration Act to prescribe a limitation of one month to apply for the appointment of an arbitrator, post the expiry of 30 days from the respondent receiving the invocation notice, is a viable solution. If, for legitimate reasons, a party cannot approach the court within this period, the amendment should include a provision allowing courts to condone the delay in applying.
An amendment to the Arbitration and Conciliation Act to prescribe a short period of limitation for applying for the appointment of an arbitrator will ensure that parties are not lethargic in approaching the court. Allowing courts to condone the delay in suitable cases will ensure that litigants with genuine difficulties are not denied the right to resolve their disputes through arbitration. The Supreme Court is correct in requesting the Parliament to consider amending the Arbitration Act, and the government must introduce the necessary bill as soon as possible, as this amendment will help make India an arbitration-friendly destination.