SECUNDERABAD CANTONMENT BOARD versus M/S B. RAMACHANDRAIAH & SONS on 15 March 2021

1. Leave granted.

2. These appeals arise out of applications under Section 11 of theArbitration and Conciliation Act, 1996 [“Arbitration Act”]. On02.09.2000, the appellant before us, Secunderabad Cantonment BoardH

[“Appellant”], floated a notice inviting tender [“N.I.T.”] for an annualterm contract for:

1. Repairs to Main Roads (Resurfacing with Centralised withHot Mix Plant and Paver);

2. Repairs to Main Roads (Widening of Roads with CentralisedHot Mix Plant and Paver);

3. Repairs to Internal Roads (Resurfacing with Hot Mix Paverand Plant).

3. Pursuant to the aforesaid N.I.T., three agreements were enteredinto with the respondent, M/s Ramachandraiah and Sons[“Respondent”], the first one dated 23.09.2000 and the other two dated17.09.2001. Clause 5 of each of the aforesaid agreements, which is inidentical terms, is important and reads as follows:

“5. Final Bill: The Contractor shall submit his final bil of thework with full and complete measurements showing the deductionson account of part payments received and stores supplied by theBoard cost of water and any other items received by him underthe contract within 08 days from the date of completion andhanding over the work. The contractor shall also submit alongwithhis bill a no claim certificate stating that there are no claims fromthe cantonment board on account of the work undertaken andcompleted by him under the contract and that no claim thereaftershall be entertainable. The bill shall also contain a statement showingthe justification of cement consumed by the Contractor.”

4. The arbitration clause contained in Clause 17 of each of theaforesaid agreements reads as follows:

“17.LAW Governing the Contract: The Contract shall begoverned by the Indian Law. [A]ll disputes between the parties tothis contract or being out of relating to the contract other thanthose for which the decision of the accepting officer is final andconclusive shall after the written notice given by either party tothe other be referred to the sole arbitrator as appointed by the[P]resident Cantonment Board [S]ecunderabad. The award ofthe Arbitrator shall be final, conclusive and binding on both partiesto the contract”

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A5. Work orders were issued with respect to the aforesaid works.The Appellant argued that the Respondent had failed to complete thework within the stipulated period, but vide its meeting dated 05.10.2002,it resolved to grant an extension of time upto 31.12.2002 on an undertakingfrom the Respondent that the Appellant would be at liberty to imposepenalty as provided in the contracts and as decided by the Appellant inBcase balance works were not completed by 31.12.2002. On 30.10.2002,the Respondent submitted the required undertaking.

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6. It is not disputed that vide the final contract certificates issuedby the Appellant on 18.02.2003 and 26.03.2003, final payment wasreceived by the Respondent in respect of the works in question. After aChiatus of about six months, the Respondent then started making demandstowards reimbursement on account of variation in prices of material,labour and fuel. These demands were made vide letters dated 08.09.2003,24.07.2004 and 12.10.2004.

7. After a silence of over two years, the Respondent then issuedDa letter dated 07.11.2006 by which the Respondent requested for theappointment of an arbitrator in respect of the claim of reimbursement onaccount of price variation in all the three contracts. It was specificallystated that necessary steps should be taken by the Appellant within 15days of receipt of the letter. Receiving no reply from the Appellant, theERespondent issued yet another letter dated 13.01.2007, in which it spokeof a fundamental breach of contractual obligations and then stated that ithad no option but to rescind the contracts and have an arbitrator appointedwithin 30 days, in conformity with the arbitration clause provided in thecontracts.

F8. To this letter, a laconic reply was received from the Appellanton 23.01.2007, stating that the matter referred to in their letter was underconsideration. It is not disputed that the 30-day period, spoken of in theletter dated 13.01.2007, was over by 12.02.2007. Despite this being theposition, the Respondent kept on writing letters at long intervals betweenthe years 2007-2009, reiterating its claim. Finally, by a legal notice datedG30.01.2010, the Respondent specifically stated:

“In order to reiterate the brief details of the Contracts, all thethree works have been completed way back in 31.03.2002 andfinal bill was received under protest.

It is also expedient to point out that arbitration proceedingshave already commenced since 07.11.2006 (within intent of theArbitration and Conciliation Act of 1996).

In the event that the Hon’ble appointing authority continuesto abdicate his rights to appoint an arbitrator, the only remedy leftto us is to seek the appointment of an arbitrator by the Hon’bleChief justice of High Court of Andhra Pradesh (to enforce thearbitration clause) as intended by the agreement (since theagreement envisages arbitration as the means of settlement ofdisputes in preclusion to a court of law).”

9. To this legal notice dated 30.01.2010, the Appellant replied on16.02.2010, stating:

“1. … Subsequent to awarding those contracts, work orders havebeen issued and part of works were executed by your client withinthe stipulated time and the bills for the works executed werecleared on submission of final bills way back in the year 2002-2003 and your client has received the payments by adhering toClause 5 of the Contract entered by and between your client andmy client. Since the final payments were made for the worksexecuted the copies requested by you may not be available as 8years time has been elapsed after conclusion of the contract.

2. Subsequent to conclusion of the contract and after receipt offinal payments, your client has started addressing letters as referredin your notice culminating into the present notice under reply andseeking additional claim towards reimbursement on variation inprices, though there is no such clause in the agreement enteredfor execution of above referred works to claim amounts onvariation of prices. Moreover the contract period is one year fromthe date of awarding contract and the contract periods were cameto an end by 2001 and 2002 respectively. Whereas your client hasgot issued final notice under reply on 30.01.2010 and insistingappointment of an Arbitrator though no dispute is subsistingbetween your client and my client and moreover your client’sclaim is barred under law of limitation.”

“4. In the above said background the contention in your noticeunder reply that your client is insisting for the appointment of anArbitrator for adjudication of the dispute and that appointing AB

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authority has not appointed the arbitrator and that arbitrationproceedings have already commenced since 07.11.2006 and thatin the event the Hon’ble Appointing authority continues to abdicatehis right to appoint an arbitrator you client is left with no optionexcept to seek appointment of Arbitrator by the Hon’ble ChiefJustice of High Court of A.P. is highly objectionable and untenableand your client has no legal right to raise the dispute after concludingthe contract way back in the year 2002. The claim of your clientto appoint an Arbitrator cannot be acceded to as there is no arbitralissues are subsisting between your client and my client andfurthermore the claim raised by your client is hopelessly barredunder law of limitation and it is incorrect to state that your hasreceived the payments under protest.

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5. My Client further reiterates that the above referred threecontracts were awarded for a period of one year in the year 2000-2001 and since your client could not complete the works entrustedDto him within the stipulated period, at his request the time wasfurther extended up to 31.12.2002 and by that time he can onlycomplete the work to the tune of Rs.75 lakhs approximately andyour client’s request to release work order for balance amountwith regard to the works in question were turn down by the Hon’bleHigh Court of A.P. Hence, the question of reimbursement onEvariation in prices as claimed by your client does not arise and heis not entitled for such claims.

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6. My client further reiterates that as per clause 5 of theAgreement, final bill amounts will be released on submitting noclaim certificate stating that there is no claim form the CantonmentFBoard on account of the works undertaken and completed by thecontractor and no claim thereafter shall be entertainable. Pursuantto this Clause your client has received final bill amounts, hencethere are no issues to be adjudicated by an arbitrator. As referredabove in the contract entered by and between your client and myGclient, there is no specific clause under which your client is entitledfor reimbursement on variation of prices. Hence the same cannotbe made an issue to be adjudicated by an arbitrator.”

10. By way of rejoinder to the aforesaid reply notice, theRespondent issued what it called a “clarification notice” on 20.03.2010,Hfollowed by three letters dated 30.09.2010, reiterating the earlier requests for the appointment of an arbitrator. This was rejected by the Appellantvide a letter dated 10.11.2010, which letter informed the Respondentthat the President of the Secunderabad Cantonment Board had rejectedthe application for appointment of an arbitrator as all payments weremade and nothing remained pending.

11. After a three-year long hiatus, the Respondent then filedapplications under Section 11 of the Arbitration Act on 06.11.2013. Videthe impugned judgment dated 20.08.2019, a learned Single Judge of theHigh Court for the State of Telangana held that the Section 11 applicationswere within time as they were filed within three years from the letterdated 10.11.2010 rejecting the request to appoint an arbitrator. The learnedSingle Judge also went on to record:

“39. Proceedings dt. 07.11.2003 filed by the respondent of a BoardMeeting of the respondent no doubt show payment of Rs.14,06,580/- in addition to Rs. 14,84,000/- but this payment is noton account of claim under Clause 2.2.46 for reimbursement onvariation in prices claimed by the applicant. It is a paymentsanctioned for actual quantities of the various items of work whichhad increased, and so the same cannot be prima-facie construedas a payment towards the claim of the applicant under Clause2.2.46.”

“42. The prolonged silence of the respondent from 08.09.2003onwards regarding claims made by the applicant under Clause2.2.46 without any emphatic rejection of the same, prima facieshow that there appears to be a live issue In that regard betweenthe parties.”

12. As a result, the Section 11 applications were allowed and ShriY.V. Ramakrishna (Retired District Judge) was appointed as arbitratorto adjudicate the disputes between the parties arising out of the threeagreements. The question of the bar of limitation of the claims madewas left open to be considered and decided by the arbitrator.

13. Shri P.S. Narasimha, learned Senior Advocate appearing onbehalf of the Appellant, submitted that the date on which the requestmade for the appointment of an arbitrator was received by the Presidentof the Secunderabad Cantonment Board was 23.01.2007, as a result ofwhich, this is the date on which the limitation period starts running underArticle 137 of the Limitation Act, 1963 [“Limitation Act”] insofar as A

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Aan application under Section 11(6) of the Arbitration Act is concerned.For this purpose he relied upon a judgment of the High Court of Bombayin Deepdharshan Builders Pvt. Ltd. v. Saroj, (2019) 1 AIR BomR 249,as well as a recent judgment of this Court in Geo Miller & Co.(P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC643.He then argued that even so far as the cause of action on merits isBconcerned, it arose way back on 08.09.2003, when the Respondent raisedthe claim with regard to the dispute for the first time. Once time beginsto run, limitation cannot be extended by writing any number of subsequentletters. He also relied upon the recent judgment of this Court in VidyaDrolia v. Durga Trading Corpn., (2021) 2 SCC 1, stating that thisCcase falls under paragraph 148 of the judgment, in that the claim was exfacie time barred and dead and that there was no subsisting dispute.14. In reply, Shri Nithin Chowdary Pavuluri, learned counselappearing for the Respondent, argued that the request for appointmentof an arbitrator was rejected by the Appellant for the first time onD10.11.2010, and thus, 10.11.2010 would be the date on which the causeof action would arise. He pressed the point that the rejection of therequest to appoint an arbitrator constituted a failure to perform thefunction entrusted to the President of the Secunderabad CantonmentBoard under Clause 2.2.52 of the General Conditions of Contract[“GCC”], and thus the cause of action under Section 11(6)(c) of theEArbitration Act first arose on 10.11.2010. Till such rejection, the claimwould have to be deemed to have been pending and thus, the Respondent’sclaim was alive at the time of filing the applications under Section 11 ofthe Arbitration Act. Further, though he pressed the point that the final billwas received under protest since the price variation bill submitted withFthe final bill had not been cleared by the Appellant, he produced no suchdocument evidencing the same. In addition, he sought to distinguish, onfacts, the judgments of this Court in Geo Miller & Co. (P) Ltd. v.Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643 andVidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 from theappeals before us, by arguing that the GCC between the Appellant andGthe Respondent specifically provided for a procedure to appoint anarbitrator and that the Appellant was responsible for delaying and sittingon the Respondent’s request. Thus, he supported the impugned judgmentof the High Court by which the Section 11 applications were allowed.

15. Having heard learned counsel appearing for both parties, it isHfirst necessary to refer to the recent judgment of this Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd.,(2020) 14 SCC 643, which extracts passages from all the earlier relevantjudgments, and then lays down as to when time begins to run for thepurpose of filing an application under Section 11 of the Arbitration Act.This Court, after referring to the relevant statutory provisions, held:

“15. In Damodar Das [State of Orissa v. Damodar Das, (1996)2 SCC 216] , this Court observed, relying upon Russell onArbitration by Anthony Walton (19th Edn.) at pp. 4-5 and anearlier decision of a two-Judge Bench in Panchu Gopal Bose v.Port of Calcutta [Panchu Gopal Bose v. Port of Calcutta,(1993) 4 SCC 338] , that the period of limitation for an applicationfor appointment of arbitrator under Sections 8 and 20 of the 1940Act commences on the date on which the “cause of arbitration”accrued i.e. from the date when the claimant first acquired eithera right of action or a right to require that an arbitration take placeupon the dispute concerned.

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“21. Applying the aforementioned principles to the present case,we find ourselves in agreement with the finding of the High Courtthat the appellant’s cause of action in respect of ArbitrationApplications Nos. 25/2003 and 27/2003, relating to the work ordersdated 7-10-1979 and 4-4-1980 arose on 8-2-1983, which is whenthe final bill handed over to the respondent became due. Merecorrespondence of the appellant by way of writing letters/reminders to the respondent subsequent to this date would notextend the time of limitation. Hence the maximum period duringwhich this Court could have allowed the appellant’s applicationfor appointment of an arbitrator is 3 years from the date on whichcause of action arose i.e. 8-2-1986. Similarly, with respect toArbitration Application No. 28/2003 relating to the work orderdated 3-5-1985, the respondent has stated that final bill was handedover and became due on 10-8-1989. This has not been disputedby the appellant. Hence the limitation period ended on 10-8-1992.Since the appellant served notice for appointment of arbitrator in2002, and requested the appointment of an arbitrator before acourt only by the end of 2003, his claim is clearly barred bylimitation.

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23. Turning to the other decisions, it is true that in Inder SinghRekhi [Inder Singh Rekhi v. DDA, (1988) 2 SCC 338], this Courtobserved that the existence of a dispute is essential for appointmentof an arbitrator. A dispute arises when a claim is asserted by oneparty and denied by the other. The term “dispute” entails a positiveelement and mere inaction to pay does not lead to the inferencethat dispute exists. In that case, since the respondent failed tofinalise the bills due to the applicant, this Court held that cause ofaction would be treated as arising not from the date on which thepayment became due, but on the date when the applicant firstwrote to the respondent requesting finalisation of the bills.However, the Court also expressly observed that “a party cannotpostpone the accrual of cause of action by writing remindersor sending reminders”.

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24. In the present case, the appellant has not disputed the HighCourt’s finding that the appellant itself had handed over the finalDbill to the respondent on 8-2-1983. Hence, the holding in InderSingh Rekhi [Inder Singh Rekhi v. DDA, (1988) 2 SCC 338]will not apply, as in that case, the applicant’s claim was delayedon account of the respondent’s failure to finalise the bills. Thereforethe right to apply in the present case accrued from the date onwhich the final bill was raised (see Union of India v. MominEConstruction Co. [Union of India v. Momin Construction Co.,(1997) 9 SCC 97] ).

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29. Moreover, in a commercial dispute, while mere failure to payFmay not give rise to a cause of action, once the applicant hasasserted their claim and the respondent fails to respond to suchclaim, such failure will be treated as a denial of the applicant’sclaim giving rise to a dispute, and therefore the cause of actionfor reference to arbitration. It does not lie to the applicant to pleadthat it waited for an unreasonably long period to refer the disputeGto arbitration merely on account of the respondent’s failure tosettle their claim and because they were writing representationsand reminders to the respondent in the meanwhile.”

16. The recent judgment of this Court in Bharat Sanchar NigamLtd. & Anr. v. M/s Nortel Networks India Pvt. Ltd., delivered onH10.03.2021 in Civil Appeal Nos. 843-844 of 2021 has also considered SECUNDERABAD CANTONMENT BOARD v. M/S B.RAMACHANDRAIAH & SONS [R.F. NARIMAN, J.]

the entire law on the subject. The first paragraph of the said judgmentreads as follows:

“1. The present Appeals raise two important issues for ourconsideration : (i) the period of limitation for filing an applicationunder Section 11 of the Arbitration and Conciliation Act, 1996(“the 1996 Act”); and (ii) whether the Court may refuse to makethe reference under Section 11 where the claims are ex facietime-barred?”

17. Insofar as the first issue is concerned, after examining Article137 of the Limitation Act, this Court held:

“11. It is now fairly well-settled that the limitation for filing anapplication under Section 11 would arise upon the failure to makethe appointment of the arbitrator within a period of 30 days’ fromissuance of the notice invoking arbitration. In other words, anapplication under Section 11 can be filed only after a notice ofarbitration in respect of the particular claim(s) / dispute(s) to bereferred to arbitration [as contemplated by Section 21 of the Act]is made, and there is failure to make the appointment.

12. The period of limitation for filing a petition seeking appointmentof an arbitrator/s cannot be confused or conflated with the periodof limitation applicable to the substantive claims made in theunderlying commercial contract. The period of limitation for suchclaims is prescribed under various Articles of the Limitation Act,1963. The limitation for deciding the underlying substantive disputesis necessarily distinct from that of filing an application forappointment of an arbitrator. This position was recognized evenunder Section 20 of the Arbitration Act 1940. Reference may bemade to the judgment of this Court in C. Budhraja v. Chairman,Orissa Mining Corporation Ltd. [(2008) 2 SCC 444] whereinit was held that Section 37(3) of the 1940 Act provides that forthe purpose of the Limitation Act, an arbitration is deemed tohave commenced when one party to the arbitration agreementserves on the other party, a notice requiring the appointment of anarbitrator. Paragraph 26 of this judgment reads as follows :

“26. Section 37(3) of the Act provides that for the purpose of theLimitation Act, an arbitration is deemed to have been commencedwhen one party to the arbitration agreement serves on the other AB

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SUPREME COURT REPORTS

Aparty thereto, a notice requiring the appointment of an arbitrator.Such a notice having been served on 4-6-1980, it has to be seenwhether the claims were in time as on that date. If the claimswere barred on 4-6-1980, it follows that the claims had to berejected by the arbitrator on the ground that the claims were barredby limitation. The said period has nothing to do with the period ofBlimitation for filing a petition under Section 8(2) of the Act. Insofaras a petition under Section 8(2) is concerned, the cause of actionwould arise when the other party fails to comply with the noticeinvoking arbitration. Therefore, the period of limitation for filing apetition under Section 8(2) seeking appointment of an arbitratorCcannot be confused with the period of limitation for making aclaim. The decisions of this Court in Major (Retd.) Inder SinghRekhi v. DDA [(1988) 2 SCC 338] , Panchu Gopal Bose v. Boardof Trustees for Port of Calcutta [(1993) 4 SCC 338] and UtkalCommercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCC571] also make this position clear.””D18. Insofar as the second issue is concerned, this Court went intothe position prior to the Arbitration and Conciliation (Amendment) Act,2015 [“2015 Amendment”] together with the change made by theintroduction of Section 11(6A) by the 2015 Amendment, stating:

“24. Sub-section (6A) came up for consideration in the case ofEDuro Felguera SA v. Gangavaram Port Ltd.[(2017) 9 SCC729], wherein this Court held that the legislative policy was tominimize judicial intervention at the appointment stage. In anapplication under Section 11, the Court should only look into theexistence of the arbitration agreement, before making thereference. Post the 2015 amendments, all that the courts areFrequired to examine is whether an arbitration agreement is inexistence —nothing more, nothing less.

“48. Section 11(6-A) added by the 2015 Amendment, reads asfollows:

“11. (6-A) The Supreme Court or, as the case may be, theGHigh Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall,notwithstanding any judgment, decree or order of anycourt, confine to the examination of the existence of anarbitration agreement.”

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From a reading of Section 11(6-A), the intention of thelegislature is crystal clear i.e. the court should and need onlylook into one aspect—the existence of an arbitration agreement.What are the factors for deciding as to whether there is anarbitration agreement is the next question. The resolution tothat is simple—it needs to be seen if the agreement contains aclause which provides for arbitration pertaining to the disputeswhich have arisen between the parties to the agreement.

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59. The scope of the power under Section 11(6) of the 1996Act was considerably wide in view of the decisions in SBPand Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]and Boghara Polyfab [National Insurance Co. Ltd. v. BogharaPolyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in2015. After the amendment, all that the courts need to see is—whether an arbitration agreement existsnothing more,nothing less. The legislative policy and purpose is essentially tominimise the Court’s intervention at the stage of appointing thearbitrator and this intention as incorporated in Section 11(6-A)ought to be respected.”

25. In Mayavati Trading Company Private Ltd. v. PradyutDev Burman[(2019) 8 SCC 714], a three-judge bench held thatthe scope of power of the Court under Section 11 (6A) had to beconstrued in the narrow sense. In paragraph 10, it was opined asunder :

“10. This being the position, it is clear that the law prior to the2015 Amendment that has been laid down by this Court, whichwould have included going into whether accord and satisfactionhas taken place, has now been legislatively overruled. Thisbeing the position, it is difficult to agree with the reasoningcontained in the aforesaid judgment [United India InsuranceCo. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 :(2019) 2 SCC (Civ) 785] , as Section 11(6-A) is confined tothe examination of the existence of an arbitration agreementand is to be understood in the narrow sense as has been laiddown in the judgment in Duro Felguera, SA [Duro Felguera,SA v. Gangavaram Port Ltd., (2017) 9 SCC 729”

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26. In Uttarakhand Purv Sainik Kalyan Nigam v. NorthernCoal Field Limited [(2020) 2 SCC 455] this Court took note ofthe recommendations of the Law Commission in its 246th Report,the relevant extract of which reads as :

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“7.6. The Law Commission in the 246th Report [Amendmentsto the Arbitration and Conciliation Act, 1996, Report No. 246,Law Commission of India (August 2014), p. 20.] recommendedthat:

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“33. … the Commission has recommended amendments toSections 8 and 11 of the Arbitration and Conciliation Act,1996. The scope of the judicial intervention is only restrictedto situations where the court/judicial authority finds that thearbitration agreement does not exist or is null and void.Insofar as the nature of intervention is concerned, it isrecommended that in the event the court/judicial authorityis prima facie satisfied against the argument challengingthe arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. Theamendment envisages that the judicial authority shall notrefer the parties to arbitration only if it finds that there doesnot exist an arbitration agreement or that it is null and void.If the judicial authority is of the opinion that prima facie thearbitration agreement exists, then it shall refer the disputeto arbitration, and leave the existence of the arbitrationagreement to be finally determined by the Arbitral Tribunal.”

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In view of the legislative mandate contained in the amendedFSection 11(6A), the Court is now required only to examine theexistence of the arbitration agreement. All other preliminary orthreshold issues are left to be decided by the arbitrator underSection 16, which enshrines the kompetenz-komptenz principle.The doctrine of kompetenz-komptenz implies that the arbitraltribunal is empowered, and has the competence to rule on its ownGjurisdiction, including determination of all jurisdictional issues. Thiswas intended to minimise judicial intervention at the pre-referencestage, so that the arbitral process is not thwarted at the thresholdwhen a preliminary objection is raised by the parties.”

(emphasis in original)

SECUNDERABAD CANTONMENT BOARD v. M/S B.RAMACHANDRAIAH & SONS [R.F. NARIMAN, J.]

19. This Court went on to hold that limitation is not a jurisdictionalissue but is an admissibility issue. It then referred to a recent judgmentof this Court in Vidya Drolia v. Durga Trading Corporation, (2021)2 SCC 1, and stated as follows:

“36. In a recent judgment delivered by a three-judge bench inVidya Drolia v. Durga Trading Corporation[(2021) 2 SCC1], on the scope of power under Sections 8 and 11, it has beenheld that the Court must undertake a primary first review to weedout “manifestly ex facie non-existent and invalid arbitrationagreements, or non-arbitrable disputes.” The prima facie reviewat the reference stage is to cut the deadwood, where dismissal isbare faced and pellucid, and when on the facts and law, the litigationmust stop at the first stage. Only when the Court is certain that novalid arbitration agreement exists, or that the subject matter is notarbitrable, that reference may be refused.

In paragraph 144, the Court observed that the judgment inMayavati Trading had rightly held that the judgment in PatelEngineering had been legislatively overruled.

Paragraph 144 reads as :

“144. As observed earlier, Patel Engg. Ltd. explains and holdsthat Sections 8 and 11 are complementary in nature as bothrelate to reference to arbitration. Section 8 applies when judicialproceeding is pending and an application is filed for stay ofjudicial proceeding and for reference to arbitration.Amendments to Section 8 vide Act 3 of 2016 have not beenomitted. Section 11 covers the situation where the partiesapproach a court for appointment of an arbitrator. MayavatiTrading (P) Ltd., in our humble opinion, rightly holds that PatelEngg. Ltd. has been legislatively overruled and hence would--not apply even post omission of subsection (6A) to Section11 of the Arbitration Act. Mayavati Trading (P) Ltd. haselaborated upon the object and purposes and history of the--amendment to Section 11, with reference to subsection (6A)to elucidate that the section, as originally enacted, was facsimilewith Article 11 of the Uncitral Model of law of arbitration onwhich the Arbitration Act was drafted and enacted.”

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While exercising jurisdiction under Section 11 as the judicial forum,the court may exercise the prima facie test to screen andknockdown ex facie meritless, frivolous, and dishonest litigation.Limited jurisdiction of the Courts would ensure expeditious andefficient disposal at the referral stage. At the referral stage, theCourt can interfere “only” when it is “manifest” that the claimsare ex facie time barred and dead, or there is no subsisting dispute.

Paragraph 148 of the judgment reads as follows :

Paragraph 148 of the judgment reads as follows :

“148. Section 43(1) of the Arbitration Act states that theLimitation Act, 1963 shall apply to arbitrations as it applies tocourt proceedings. Sub-section (2) states that for the purposesof the Arbitration Act and Limitation Act, arbitration shall bedeemed to have commenced on the date referred to in Section21. Limitation law is procedural and normally disputes, beingfactual, would be for the arbitrator to decide guided by thefacts found and the law applicable. The court at the referralstage can interfere only when it is manifest that the claims areex facie time-barred and dead, or there is no subsisting dispute.All other cases should be referred to the Arbitral Tribunal fordecision on merits. Similar would be the position in case ofdisputed “no-claim certificate” or defence on the plea ofnovation and “accord and satisfaction”. As observed inPremium Nafta Products Ltd. [Fili Shipping Co. Ltd. v.Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR1719 (HL)] , it is not to be expected that commercial menwhile entering transactions inter se would knowingly create asystem which would require that the court should first decidewhether 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 havearisen.”

In paragraph 154.4, it has been concluded that:

“154.4. Rarely as a demurrer the court may interfere at Section8 or 11 stage when it is manifestly and ex facie certain that the-arbitration agreement is nonexistent, invalid or the disputesare non-arbitrable,though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to checkand protect parties from being forced to arbitrate when thematter is demonstrably “non-arbitrable” and to cut off thedeadwood. The court by default would refer the matter whencontentions relating to non-arbitrability are plainly arguable;when consideration in summary proceedings would beinsufficient and inconclusive; when facts are contested; whenthe party opposing arbitration adopts delaying tactics or impairsconduct of arbitration proceedings. This is not the stage forthe court to enter into a mini trial or elaborate review so as tousurp the jurisdiction of the Arbitral Tribunal but to affirm anduphold integrity and efficacy of arbitration as an alternativedispute resolution mechanism.”

In paragraph 244.4 it was concluded that:

“244.4.The court should refer a matter if the validity ofthe arbitration agreement cannot be determined on a primafacie basis, as laid down above i.e. “when in doubt, dorefer”.”

37. The upshot of the judgment in Vidya Drolia is affirmation ofthe position of law expounded in Duro Felguera and MayavatiTrading, which continue to hold the field. It must be understoodclearly that Vidya Drolia has not resurrected the pre-amendmentposition on the scope of power as held in SBP & Co. v. PatelEngineering (supra).

It is only in the very limited category of cases, where thereis not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court maydecline to make the reference. However, if there is even theslightest doubt, the rule is to refer the disputes to arbitration,otherwise it would encroach upon what is essentially a matter tobe determined by the tribunal.”

(emphasis in original)

20. Applying the aforesaid judgments to the facts of this case, sofar as the applicability of Article 137 of the Limitation Act to theapplications under Section 11 of the Arbitration Act is concerned, it isclear that the demand for arbitration in the present case was made by A

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Athe letter dated 07.11.2006. This demand was reiterated by a letter dated13.01.2007, which letter itself informed the Appellant that appointmentof an arbitrator would have to be made within 30 days. At the verylatest, therefore, on the facts of this case, time began to run on and from12.02.2007. The Appellant’s laconic letter dated 23.01.2007, which statedthat the matter was under consideration, was within the 30-day period.BOn and from 12.02.2007, when no arbitrator was appointed, the causeof action for appointment of an arbitrator accrued to the Respondentand time began running from that day. Obviously, once time has startedrunning, any final rejection by the Appellant by its letter dated 10.11.2010would not give any fresh start to a limitation period which has alreadyCbegun running, following the mandate of Section 9 of the Limitation Act.This being the case, the High Court was clearly in error in stating thatsince the applications under Section 11 of the Arbitration Act were filedon 06.11.2013, they were within the limitation period of three years startingfrom 10.11.2020. On this count, the applications under Section 11 of theArbitration Act, themselves being hopelessly time barred, no arbitratorDcould have been appointed by the High Court.

21. Even otherwise, the claim made by the Respondent was alsoex facie time barred. It is undisputed that final payments were receivedlatest by the end of March 2003 by the Respondent. That apart, evenassuming that a demand could have been made on account of priceEvariation, such demand was made on 08.09.2003. Repeated letters werewritten thereafter by the Respondent, culminating in a legal notice dated30.01.2010. Vide the reply notice dated 16.02.2010, it was made clearthat such demands had been rejected. Even taking 16.02.2010 as thestarting point for limitation on merits, a period of three years having Felapsed by February 2013, the claim made on merits is also hopelesslytime barred.22. For all these reasons, the appeals are allowed and the impugnedjudgment of the High Court dated 20.08.2019 is set aside.

G

Ankit Gyan

Appeals allowed.

H