2024 INSC 155 Page 1 of 58

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO. 29 OF 2023

M/S ARIF AZIM CO. LTD. …PETITIONER

VERSUS

M/S APTECH LTD. …RESPONDENT

J U D G M E N T

J. B. PARDIWALA, J.:

For the convenience of exposition, this judgment is divided into the following

parts: -

INDEX

A. FACTUAL MATRIX .................................................................................... 2

B. SUBMISSIONS ON BEHALF OF THE PETITIONER ........................ 15

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT ...................... 18

D. ANALYSIS ................................................................................................... 21

i. ISSUE NO. 1: Whether the Limitation Act, 1963 is applicable to an

application for appointment of arbitrator under Section 11(6) of the

Arbitration and Conciliation Act, 1996? If yes, whether the present

petition is barred by limitation? ............................................................. 22

a. When does the right to apply under Section 11(6) accrue? .............. 27

Page 2 of 58

ii. ISSUE NO. 2: Whether the court may refuse to make a reference under

Section 11 of the Arbitration and Conciliation Act, 1996 where the

claims are ex-facie and hopelessly time-barred? .................................. 36

a. Jurisdiction versus Admissibility ...................................................... 37

b. When does the Cause of Action arise? ............................................. 47

c. When is Arbitration deemed to have commenced? .......................... 54

E. CONCLUSION ........................................................................................... 56

1. This is a petition under Section 11(6) of the Arbitration and Conciliation

Act, 1996 (for short, “the Act, 1996”) filed at the instance of a company based in

Kabul, Afghanistan and engaged in the business of providing training to desirous

students in computer education, English language, information technology, etc.

praying for the appointment of an arbitrator for the adjudication of disputes and

claims arising from the Contract dated 21.03.2013 entered into between the

petitioner and the respondent.

A. FACTUAL MATRIX

2. The petitioner, M/s Arif Azim Co. Ltd., is a company based in Afghanistan,

having its registered office at 1

st

Floor, Zarnigar Hotel, Mohammed Jan Khan

Watt, Kabul, Afghanistan and is engaged in the business of providing training in

computer education, information technology, English language, etc.

Page 3 of 58

3. The respondent, M/s Aptech Limited, is a company having its registered

office at Aptech House, A-65, MIDC Marol, Andheri (E), Mumbai – 400093,

Maharashtra, India and is engaged in the business of providing training and

education in information technology through its network in India and abroad.

4. On 21.03.2013, three separate franchise agreements were entered into

between petitioner/franchisee and the respondent/franchisor. As per the terms of

the said agreements, the petitioner, as the franchisee, was granted a non-exclusive

license, by the respondent to establish and operate businesses under the following

trade names:

I. Aptech English Language Academy (for short, “AELA”)

II. Aptech Computer Education (for short, “ACE”)

III. Aptech Hardware and Networking Academy (for short, “AHNA”)

5. The dispute in the present case pertains to the agreement entered into

between the parties for the AELA. A perusal of the recitals of the said agreement

reveals that the respondent company has the expertise in imparting training in

information technology and had developed content and established programs for

training in computer-based information. The programs developed by the

respondent under the brand name AELA included the recurring use of trade

names, trademarks, advertising and publicity, distinctive style and character of

premises and furnishings, support and placement program for students, etc. The

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petitioner, desirous of establishing a centre for providing training in information

technology in the courses conducted by the respondent with a view to train and

educate students to enable them to appear and qualify in the said courses, had

approached the respondent as a result of which the franchise agreements for

AELA, ACE and AHNA were entered into between the parties.

6. The relevant clauses of the AELA franchise agreement are reproduced

hereinbelow:

“1. GRANT OF LICENSE

1.01 The Franchisor hereby grants to the Franchisee for the

duration of the term and upon the terms of this Agreement, an

non-exclusive Licence ("the Licence") to establish and operate in

the Territory, a business under the Trade Name "APTECH

ENGLISH LEARNING ACADEMY" in accordance with the

PROGRAM, on the terms and conditions hereinafter set forth

("the Licensed Business"), from the designated training centre

located at First Floor, Zarnigar Hotel, Mohammad Jan Khan

Watt, Kabul, Afghanistan (hereinafter the center)) set up in the

designated territory, unless revoked otherwise by the Franchisor.

The Franchisor shall Licence to the Franchisee use of the Trade

Name in the said territory for the purpose of running the said

center. The Franchisee shall conduct only those courses as are

mentioned in Schedule 2. The Franchisee shall be required to

obtain the prior written permission of the Franchisor, if so

directed by the Franchisor before commencing the licensed

business from the said centre. However in respect of any

additional training centers in the designated territory for

carrying out the Licensed Business, the Franchisee shall be

required to obtain such written permissions from the Franchisor

from time to time.

xxx xxx xxx

3. APPOINTMENT

Subject to the terms and conditions of this agreement the Franchisor

appoints the franchisee as an independent non-exclusive partner

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with the right to market and train learners in the territory outlined

in Schedule 1.

Each party is acting as an independent contractor and not as an

agent, partner or joint venture with the other party for any purpose.

The franchisee shall bear all costs relating to the marketing and

promotion of the courses as outlined in Schedule 2.

xxx xxx xxx

8. PAYMENTS AND PAYMENT PROCEDURE

8.01 In consideration of the Franchisor agreeing to grant the licence

for the licensed business, in favour of the Franchisee for a period as

mentioned in Clause 2 above and for the use of the technical Know-

how, trade marks, trade names, service marks and logos of the

Franchisor in relation to its business of computer education and the

association of the Franchisee with the reputation and goodwill of

the Franchisor, the Franchisee agrees to pay to the Franchisor a

Non refundable sum of US$ 30,000 (US Dollars Thirty Thousand

only) as initial lumpsum fees.

8.02 If the Franchisee fails to pay the aforesaid lumpsum fees within

the aforesaid period, the Franchisor shall be entitled to terminate

this Agreement with immediate effect and shall have the right to

forfeit the fees, if any, already paid by the Franchisee.

8.03 Additionally, in consideration of the License and other rights

granted, and assistance agreed to be provided hereunder, the

Franchisee shall pay to the Franchisor recurring royalty fees as

under.

I. The recurring royalty payment shall be on the gross collection,

to be paid as given below:

• 10% of the gross collections received in the 1st Year.

• 10% of the gross collections received in the 2nd year.

• 12.5% of the gross collections received in the 3rd Year.

• 15% of the gross collections received in the 4th year.

• 17.5% of the gross collections received in the 5

th

year.

Page 6 of 58

Gross collections means the total gross collections, which

have accrued to the Franchisee (irrespective of whether

realized or not) from the conduct of licensed business of

Aptech in the designated territory.

Amounts payable as Recurring Franchisee Fees will be

remitted on or before 10th of the subsequent month for the

preceding calendar month e.g. Recurring Franchisee Fees for

the gross collections received during the period 1st April to

30th April will be remitted on or before May 10th

Such recurring payments shall be made on monthly basis

accompanied by the statement of course fees for each Course

for the relevant month and also for the total period for which

Franchisee's financial year relates. The Franchisee shall use

a format supplied by the Franchisor for such statements duly

supported with requisite documentation.

II. All the payments to be made by the Franchisee to the Franchisor

shall be by way of Telegraphic Transfer / Demand Draft.

III. Any and all statutory tax on the payment as above as per local

laws, any other taxes, incidental taxes, incremental taxes, duties

or any other charges whether statutory or otherwise in respect of

the payments to the Franchisor shall be borne and paid by the

Franchisee alone during the term of this agreement.

IV. In case the payments under this agreement are not received by

the due date the Franchisor shall be entitled to levy monthly

compound interest @ 24% p.a. on such late payments

notwithstanding the other remedies available under the

laws of the land.

xxx xxx xxx

12. RENEWAL

Not less than one hundred eighty days before the expiry of this

Agreement (whether or not it has previously been renewed under the

provisions of this Clause) the Franchisee may apply to the

Franchisor for renewal of this Agreement for further period(s).

Provided that the Franchisee has complied fully with the terms and

conditions of this Agreement, the Franchisor shall have option to

renew this Agreement on the terms and conditions for such mutually

agreed period. However in case the renewal documents and renewal

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fees are not received in time as stipulated by the Franchisor, the

Franchisor has the absolute right to charge monthly compound

interest @ 24% p.a. on the late renewal fees from the due date of

such payment, notwithstanding the right to terminate the renewal of

this agreement.

13. FORCE MAJEURE

Neither party to this agreement shall be liable for any failure or

delay to perform any of its obligations under this agreement if the

performance is prevented, hindered or delayed by a Force Majeure

Event which is beyond reasonable control of either party and in such

a case its obligations shall be suspended for so long as the Force

Majeure event continues. Each party shall promptly inform the other

in writing of the existence of a Force Majeure Event and shall

consult together to find a mutually acceptable solution. “Force

Majeure Even” means any event due to any cause beyond

reasonable control of parties to this agreement viz. unavailability of

any communication systems, breach or virus in the processes, fire,

storm, earthquake, Flood. Explosion, Act of God, Civil commotion,

strikes, or industrial action of any kind, riots, rebellion, war wreck,

epidemic failure, statutory laws, regulations or other Government

action, computer hacking, unauthorized access to computer data,

etc.

The affected party shall promptly upon the occurrence of any such

cause so inform the other party in writing and thereafter such party

shall use reasonable endeavors to comply with the terms of this

Agreement as fully and as promptly as possible.

xxx xxx xxx

17. STATUS OF AGREEMENT

17.01 Nothing in this Agreement shall constitute a partnership

between the parties hereto or constitute the Franchisee an agent of

the Franchisor for any purpose whatsoever and the Franchisee shall

have no authority or power to bind the Franchisor or to pledge its

credit.

17.02 This Agreement shall not be deemed to confer any right on the

Franchisee and the license granted by this Agreement shall be

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personal to the Franchisee only and shall not be capable of being

or be assigned by the Franchisee to any other person.

17.03 This Agreement shall in no way create a contractual

relationship between the students and the Franchisor and the

Franchisee shall, at all times, be wholly liable and responsible for

any claims related to and arising out of the Licensed Business and

the conduct of the Courses. The Franchisee undertakes to ensure

that the students are made aware at the time of enrolling in the

Course that Franchisee is entirely responsible for the conduct of the

Courses and, that the students shall have no claim whatsoever

against the Franchisor.

xxx xxx xxx

21. ARBITRATION AND GOVERNING LAWS

In the event of any dispute or difference arising between the parties

hereto, including the events of termination, the same shall be settled

through conciliation between the parties. In the event the parties are

unable to arrive at a settlement, the matter will be referred to

arbitration. The party raising the dispute shall serve a notice upon

the other party advising that a dispute or difference has arisen and

nominate on that notice its own arbitrator. The party receiving the

notice shall, within 30 days after receiving such notice, nominate its

arbitrator by advising the party raising the dispute and the name of

the arbitrator appointed by the other party. The arbitrators so

appointed shall appoint a third arbitrator. The award of the majority

arbitrators shall be final, conclusive and binding upon the parties

hereto. The venue of arbitration shall be MUMBAI and the

arbitration proceedings shall be conducted in accordance with the

UNCITRAL Model Rules. If arbitration process fails both the parties

shall submit to the jurisdiction of the Mumbai courts.

22. This Agreement shall be construed in accordance with and governed

by the Indian laws.”

7. Pursuant to the signing of the aforesaid agreement, proposals were invited

by the Indian Council for Cultural Relations, Azad Bhavan, Indraprastha Estate,

Page 9 of 58

New Delhi – 110002 (for short, “the ICCR”) in 2016 for the execution of a

short-term course for training in English for students from Afghanistan who

were selected to pursue degree courses in Indian Universities in the academic

year 2017-18 under the scholarship scheme of the Government of India (for

short, “the course”). The proposal of the respondent was accepted by the ICCR

vide Sanction Order No. SSSAN-2017-18 dated 10.10.2016. The sanction order

prescribed the schedule for the conduct of the course, submission of progress

report to the Embassy of India in Kabul (for short, “EOI, Kabul”) etc. and also

approved the training fees at Rs 5,000/- + service tax per student per month.

The order also stipulated that the payments for the course would be released to

the respondent by the ICCR at the end of every month after getting an

endorsement from the EOI, Kabul.

8. After securing the aforesaid sanction order, the respondent vide email dated

17.10.2016 addressed to the petitioner Company informed about the sanction

order and stated that the respondent would speak to the petitioner for the

implementation of the said order once the expectations of the ICCR for the

course were understood.

9. Subsequently, a series of emails were exchanged between the petitioner

and the respondent regarding the details of the course including the syllabus,

learning outcomes, class schedule, qualifications, salary and number of trainers,

etc.

Page 10 of 58

10. The EOI, Kabul vide email dated 24.12.2016, informed the petitioner that

although the applications of Afghan students were already sent to the Indian

Universities, yet the Universities had not started granting admissions to them and

thus it was suggested by the ICCR that the course should begin from the last week

of January/ First week of February, 2017.

11. The course was executed by the petitioner at its centre in Kabul from

February to April, 2017 for 440 Afghan students. The same was certified by the

EOI, Kabul vide its letter no. KAB/327/05/2016-17 dated 30.07.2017.

12. Vide letters dated 04.08.2017 and 14.08.2017 respectively addressed to the

EOI, Kabul, the program director for the ICCR requested for month-wise

details/number of students who attended the course so as to process the payments

for the course to the respondent.

13. Meanwhile disputes arose between the parties in relation to the renewal

and payment of royalties for all the three franchise agreements entered into by the

parties in March, 2013. Vide email dated 20.03.2018 addressed to the petitioner,

the respondent issued a recovery notice for non-payment of royalty/renewal fees.

The email stated that due to the non-payment of outstanding royalty, the portal

operations for AELA and ACE would be shut by 21.03.2018 and by the month-

end for the AHNA portal.

Page 11 of 58

14. The petitioner replied to the aforesaid recovery notice vide email dated

23.03.2018, however the contents of the same have not been placed on record.

The respondent replied to the reply email of the petitioner vide email dated

27.03.2018 stating that despite having sent the invoices for pending royalties,

nothing had been received by the respondent. Responding to the issue of non-

payment for the course conducted by the petitioner, the respondent stated in the

said email that they had not received the full amount from the ICCR, which had

officially held back 22% of the payment for deductions of quality. The respondent

also called upon the petitioner to urgently address, inter-alia, the issue of renewal

of the franchise agreements.

15. Responding to the above referred email on the very same day, i.e.,

27.03.2018, the petitioner stated that it had hired 7 Indian and 4 local English

trainers for executing the course and since the course had been executed in

Afghanistan, it was entitled to receive 90% of the payments received by the

respondent from Aptech India. The petitioner further requested the respondent to

share the details of the amount received from the ICCR after the 22% deduction

to enable them to make the calculations and finalise the payment accordingly.

16. The respondent vide an email dated 28.03.2018 replied to the above email

of the petitioner stating that it had received only 61.5% of the claimed amount

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from the ICCR after quality and TDS deductions. The respondent further

mentioned that it was entitled to 15% royalty as opposed to the 10% stated by the

petitioner and that it had incurred some incidental expenses for the project. The

respondent also stressed on the issue of payment of outstanding royalty and

renewal, calling upon the petitioner to address them first.

17. The petitioner replied to the above email on the same day disputing the

percentage of royalty fee to which the respondent was entitled. The petitioner

further stated that it had no issues regarding the quality deductions made by the

ICCR, however it needed to know the exact amount disbursed by the ICCR to the

respondent so that it could calculate its share from the same and adjust them

towards the pending dues.

18. From the email exchanges placed on record, it is clear that the discussions

regarding the non-payment of the amount received from the ICCR came to a halt

between the parties on 28.03.2018, however the discussions regarding the

renewal of the agreements continued. Finally, on 23.04.2018, the petitioner

informed the respondent of its decision to not renew the franchise agreements for

the ACE and AELA in light of the dispute regarding the payment for the course

executed by the petitioner. However, the agreement for AHNA was renewed and

the respondent acknowledged the same vide an email on the same day.

Page 13 of 58

19. After about nine months, the petitioner once again sent an email to the

respondent on 29.12.2018, raising the issue of the non-payment of the dues for

the ICCR project. Although the said email refers to some phone calls and

WhatsApp communication regarding the payment for the course, nothing has

been placed on record by the petitioner to that effect. Vide the said email, the

petitioner once again requested the respondent to provide accounting details for

the expenses incurred and payment received from the ICCR for the course. The

petitioner also mentioned that it had incurred expenses amounting to $ 60,000/-

on salary, lodging and food for the trainers.

20. As it appears from the record, it is only after a gap of around three years

that the petitioner again took up the issue of non-payment of dues for the ICCR

project with the respondent, vide a legal notice dated 26.08.2021. Through the

notice, the petitioner called upon the respondent to pay Rs 73,53,000/- with 18%

interest compounded monthly w.e.f. 01.11.2017 within 15 days of the receipt of

the notice. The notice further stated that in the event of the respondent failing to

comply with the aforesaid demand, the petitioner would file appropriate

proceedings before the competent courts including a suit for settlement of

accounts for recovery and also by way of damages or otherwise for breach of trust

and breach of contract.

Page 14 of 58

21. Again, after about 10 months, the petitioner invoked a pre-institution

mediation before the Main Mediation Centre, Bombay High Court on 05.07.2022

in accordance with Section 12A of the Commercial Courts Act, 2015 making the

respondent and the ICCR as party respondents. Notice was issued in the said

mediation proceedings and 12.08.2022 was scheduled as the date for appearance

of the parties. Upon failure of the parties to be present on the said date, 24.08.2022

was fixed as the next date for appearance. However, on the said date, the opposite

parties submitted letters refusing to go into mediation and thus a non-starter report

dated 24.08.2022 was issued under Rule 3(4) of the Commercial Courts (Pre-

Institution Mediation and Settlement) Rules, 2018.

22. After the failure of mediation as aforesaid, the petitioner sent notice for

invocation of arbitration to the respondent on 24.11.2022. Vide the notice, the

petitioner called upon the respondent to pay an amount of Rs 1,48,31,067/-

inclusive of interest of Rs 82,13,367/- and nominated Mr V. Giri and Mr M.L.

Verma, Senior Advocates practicing in this Court as its nominee arbitrators.

23. The respondent replied to the aforesaid notice vide letter dated 05.04.2023

denying all the claims raised by the petitioner in the notice dated 24.11.2022. It

further stated that notwithstanding the merits, the claims were barred by

limitation. The respondent also stated that the mediation proceedings initiated

before the Bombay High Court were under Section 12A of the Commercial

Page 15 of 58

Courts Act, 2015 which is a mandatory requirement before filing a commercial

suit, and thus it was not open to the petitioner to link it to the conciliation as

envisaged in the clause 21 of the franchise agreement for AELA as extracted

hereinbefore.

24. The present petition then came to be filed by the petitioner on 19.04.2023

before this Court after the failure of the respondent in nominating an arbitrator as

per the mutually agreed upon procedure in response to notice for invocation of

arbitration.

B. SUBMISSIONS ON BEHALF OF THE PETITIONER

25. Mr. R. Sathish, the learned counsel appearing for the petitioner submitted

that this Court has the requisite jurisdiction to take necessary measures for the

constitution of an arbitral tribunal under Section 11(6) of the Act, 1996 as the case

at hand pertains to an “international commercial arbitration” within the meaning

of Section 2(f) of the Act, 1996. Further, clause 21 of the AELA agreement

provides for appointment of a three-membered arbitral tribunal in case a dispute

arises and cannot be resolved through conciliation between the parties.

26. The counsel submitted that the petitioner, as an independent non-exclusive

partner of the respondent, is entirely responsible for the conduct of the course as

per clause 17.03 of the franchise agreement and is thus entitled to receive 90% of

Page 16 of 58

the payments received by the respondent from the ICCR after successful

completion of the course.

27. The counsel argued that as the principal contract for the course was signed

between the ICCR and the respondent, the grant in aid of Rs 73,53,000/- was

transferred by the ICCR to the respondent on 03.10.2017 after the certificate of

successful completion of the course was issued by the EOI, Kabul. However,

since the course was executed in Afghanistan by the petitioner as the franchisee,

it is entitled to received 90% of the amount received as per the AELA franchise

agreement.

28. The counsel further submitted that the respondent had neither informed

nor disclosed the amount received from the ICCR despite repeated requests made

by the petitioner for settlement of accounts. The petitioner further contended that

the experience of the respondent with the ICCR and Government of India cannot

be a ground for withholding of the payments by the respondent.

29. The counsel argued that the cause of action first arose on 03.10.2017 when

the respondent withheld the information of receipt of Rs 73,53,000/- from the

ICCR. The cause of action further arose on 28.03.2018 when the respondent

informed that cash-flow wise it had received only 61.5% of the claimed amount

from the ICCR and that it had incurred some incidental expenses for the project.

Page 17 of 58

30. The petitioner contended that since the respondent has failed to disclose

the amount received from ICCR till date, it has resulted in a continuing cause of

action as the petitioner couldn’t quantify the total amount due along with interest

as exact details of the amount received by the respondent from the ICCR were

not disclosed.

31. The counsel submitted that as the cause of action for full and final

settlement of claims was yet to accrue, the reliance placed by the respondent on

the decision of this Court in M/s B and T AG v. Ministry of Defence reported in

2023 SCC OnLine SC 657 was misconceived.

32. The counsel submitted that a force majeure situation as per clause 13 of

the AELA agreement was created due to the coming back of Taliban in

Afghanistan in August, 2021. It was contended by the petitioner that this resulted

in the break-down of all communication channels disabling the petitioner from

approaching the courts on time despite of doing everything in its power.

33. The counsel further submitted that the petitioner is entitled to get the

benefit of the extension of limitation period as directed by this Court in SMW(C)

No. 03 of 2020 by which the period from 15.03.2020 to 28.02.2022 is liable to be

excluded for the purposes of computing limitation.

Page 18 of 58

34. The counsel submitted that upon failure of the respondent in replying to

its claims and legal notice, it had approached the Bombay High Court Mediation

Centre under Section 12A of the Commercial Courts Act, 2015 and had initiated

pre-reference mediation in accordance with the terms of the arbitration clause in

the AELA agreement. It was further submitted that in any view of the matter, the

petitioner is not estopped from invoking arbitration under clause 21 of the AELA

agreement after having invoked pre-litigation mediation under the Commercial

Courts Act, 2015.

35. Finally, the counsel prayed for passing an order referring the dispute to

arbitration with a view to adjudicate the differences between the parties as

contemplated in clause 21 of the AELA agreement dated 21.03.2013.

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT

36. At the outset, Mr. Rana Mukherjee, the learned senior counsel appearing

on behalf of the respondent submitted that the disputes raised by the petitioner

are not arbitrable as the claims made by the petitioner relate to the sanction letter

dated 10.10.2016 issued by the ICCR to the respondent which is not a part of the

AELA franchise agreement entered into between the parties on 21.03.2013. Thus,

in the absence of any arbitration clause in the aforesaid sanction order, and it

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being unrelated to the AELA franchise agreement, the petitioner cannot invoke

arbitration for the adjudication of the claims.

37. It was further submitted by him that on the contrary, as per the AELA

franchise agreement, it was the respondent who was entitled to receive royalty

fee from the petitioner at the rates prescribed in the franchise agreement, and there

was no arrangement by which the petitioner was entitled to a 90% payment.

38. The learned Senior counsel vehemently argued that notwithstanding the

merits of the claim, the same is hopelessly barred by limitation on the face of it

by virtue of the applicability of Article 137 of the Limitation Act, 1963. The

dispute, as per the legal notice dated 26.08.2021 issued by the petitioner to the

respondent, arose on 01.11.2017 and thus the limitation period, even after

considering the covid exclusion, had come to an end much prior to the date when

the notice for invocation of arbitration was issued by the petitioner on 24.11.2022.

Further, the plea of a force-majeure event due to coming back of Taliban in

Afghanistan, as raised by the petitioner is not bona-fide as most of the exchanges

between the parties took place on email and the email facility was available to the

petitioner even in the month of August, 2021. The counsel submitted that no

effective steps were taken by the petitioner even after the covid period came to

an end indicating that the petitioner was not vigilant in protecting its rights and

hence the petition was liable to be dismissed as barred by limitation. The counsel

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contended that the mere exchange of letters would not extend the cause of action

and the period of limitation for the purposes of filing the arbitration petition.

39. It was further submitted that the invocation of pre-litigation mediation

proceedings before the Bombay High Court Mediation Centre by the petitioner

was under Section 12A of the Commercial Courts Act, 2015 which is a mandatory

pre-condition before institution of a commercial suit under the said Act and the

petitioner should not be allowed to change course by invoking arbitration after

having previously submitted to the jurisdiction of the Commercial Courts Act,

2015. Further, the petitioner made the ICCR as a party in the mediation

proceedings before the High Court and the ICCR also participated in the said

proceedings. Thus, it is evident that the dispute arising out of the tripartite

arrangement between the petitioner, respondent and the ICCR has no nexus with

the arbitration clause of the AELA franchise agreement.

40. An objection was raised by the learned counsel towards the identity of the

Deponent to the affidavit in support of the present arbitration petition on the

ground that no Power of Attorney or Letter of Authority could have been executed

by the petitioner in favour of the Deponent to the Affidavit.

41. One another submission made by the counsel was that the notice for

invocation of arbitration sent by the petitioner was not a valid notice as per clause

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21 of the franchise agreement being contrary to the arbitration clause which

provides for appointment of three arbitrators, the notice mentions appointment of

a sole arbitrator and proposes names of two arbitrators, and on this ground too,

the petition is liable to be dismissed.

42. Placing reliance on the judgment of this Court in M/s B and T AG (supra)

the learned senior counsel submitted that the present petition squarely falls within

the dictum laid down in the said judgment and is thus hopelessly barred by

limitation.

D. ANALYSIS

43. Having heard the learned counsel appearing for the parties and having

perused the material on record, the following two questions fall for our

consideration:

I. Whether the Limitation Act, 1963 is applicable to an application for

appointment of arbitrator under Section 11(6) of the Arbitration and

Conciliation Act, 1996? If yes, whether the present petition is barred by

limitation?

II. Whether the court may refuse to make a reference under Section 11 of

Act, 1996 where the claims are ex-facie and hopelessly time-barred?

Page 22 of 58

i. ISSUE NO. 1: Whether the Limitation Act, 1963 is applicable to an

application for appointment of arbitrator under Section 11(6) of the

Arbitration and Conciliation Act, 1996? If yes, whether the present

petition is barred by limitation?

44. The basic premise behind the statutes providing for a limitation period is

encapsulated by the maxim “Vigilantibus non dormientibus jura subveniunt”

which translates to “the law assists those who are vigilant and not those who

sleep over their rights”. The object behind having a prescribed limitation period

is to ensure that there is certainty and finality to litigation and assurance to the

opposite party that it will not be subject to an indefinite period of liability. Another

object achieved by a fixed limitation period is to only allow those claims which

are initiated before the deterioration of evidence takes place. The law of limitation

does not act to extinguish the right but only bars the remedy.

45. The plain reading of Section 11(6) of the Act, 1996, which provides for

the appointment of arbitrators, indicates that no time-limit has been prescribed

for filing an application under the said section. However, Section 43 of the Act,

1996 provides that the Limitation Act, 1963 would apply to arbitrations as it

applies to proceedings in court. The aforesaid section is reproduced hereinbelow:

“43. Limitations.—(1) The Limitation Act, 1963 (36 of 1963), shall

apply to arbitrations as it applies to proceedings in court.

(2) For the purposes of this section and the Limitation Act, 1963 (36

of 1963), an arbitration shall be deemed to have commenced on the

date referred to in section 21.

Page 23 of 58

(3) Where an arbitration agreement to submit future disputes to

arbitration provides that any claim to which the agreement applies

shall be barred unless some step to commence arbitral proceedings

is taken within a time fixed by the agreement, and a dispute arises

to which the agreement applies, the Court, if it is of opinion that in

the circumstances of the case undue hardship would otherwise be

caused, and notwithstanding that the time so fixed has expired, may

on such terms, if any, as the justice of the case may require, extend

the time for such period as it thinks proper.

(4) Where the Court orders that an arbitral award be set aside, the

period between the commencement of the arbitration and the date

of the order of the Court shall be excluded in computing the time

prescribed by the Limitation Act, 1963 (36 of 1963), for the

commencement of the proceedings (including arbitration) with

respect to the dispute so submitted.”

46. Since none of the Articles in the Schedule to the Limitation Act, 1963

provide a time period for filing an application under Section 11(6) of the Act,

1996, it would be covered by Article 137 of the Limitation Act, 1963 which is the

residual provision and reads as under:

Description of Application Period of

limitation

Time from which

period begins to run

137. Any other application for

which no period of limitation is

provided elsewhere in this

Division

Three

years

When the right to

apply accrues.

47. In his authoritative commentary, “International Commercial Arbitration,

Wolters Kluwer, 3

rd

Edition, pp. 2873-2875”, Gary B. Born has observed that as

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a general rule, limitation statutes are applicable to arbitration proceedings. The

relevant extract is as follows:

“Most nations impose limitation or prescription periods within

which civil claims must be brought. Of course, statutes of limitation

differ from country to country. As discussed below, statutes of

limitations are virtually always applicable in international

arbitration proceedings, in the same way that they apply in national

court proceedings. Choosing between various potentially-

applicable statutes of limitations in international arbitration raises

significant choice-of-law questions.

xxx xxx xxx

Conflict of laws issues also arise as to the date that the statute of

limitations period is tolled. The issue can be addressed by national

laws, as well as by institutional arbitration rules. Unfortunately,

inconsistencies can arise between institutional rules and one or

more potentially-applicable national laws (which may also apply in

a mandatory fashion). For counsel in a particular dispute, of course,

the only safe course is to satisfy the shortest potentially-applicable

limitations period.”

(emphasis supplied)

48. A seven-Judge Bench of this Court in SBP & Co. v. Patel Engineering

Ltd. and Another reported in (2005) 8 SCC 618 held that the issue of limitation

being one of threshold importance, it must be decided at the pre-reference stage,

so that the other party is not dragged through a long-drawn arbitration, which

would be expensive and time consuming.

49. A three-Judge Bench of this Court in Geo Miller and Company Private

Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited reported in

(2020) 14 SCC 643 observed as follows:

Page 25 of 58

“14. Sections 43(1) and (3) of the 1996 Act are in pari materia with

Sections 37(1) and (4) of the 1940 Act. It is well-settled that by virtue

of Article 137 of the First Schedule to the Limitation Act, 1963 the

limitation period for reference of a dispute to arbitration or for

seeking appointment of an arbitrator before a court under the 1940

Act (see State of Orissa v. Damodar Das [(1996) 2 SCC 216] ) as

well as the 1996 Act (see Grasim Industries Ltd. v. State of Kerala [

(2018) 14 SCC 265 : (2018) 4 SCC (Civ) 612] ) is three years from

the date on which the cause of action or the claim which is sought

to be arbitrated first arises.

15. In Damodar Das [(1996) 2 SCC 216], this Court observed,

relying upon Russell on Arbitration by Anthony Walton (19th Edn.)

at pp. 4-5 and an earlier decision of a two-Judge Bench in Panchu

Gopal Bose v. Port of Calcutta [(1993) 4 SCC 338], that the period

of limitation for an application for appointment of arbitrator under

Sections 8 and 20 of the 1940 Act commences on the date on which

the “cause of arbitration” accrued i.e. from the date when the

claimant first acquired either a right of action or a right to require

that an arbitration take place upon the dispute concerned.

16. We also find the decision in Panchu Gopal Bose [(1993) 4 SCC

338] relevant for the purpose of this case. This was a case similar

to the present set of facts, where the petitioner sent bills to the

respondent in 1979, but payment was not made. After an interval of

a decade, he sent a notice to the respondent in 1989 for reference to

arbitration. This Court in Panchu Gopal Bose [(1993) 4 SCC 338]

observed that in mercantile references of this kind, it is implied that

the arbitrator must decide the dispute according to the existing law

of contract, and every defence which would have been open to the

parties in a court of law, such as the plea of limitation, would be

open to the parties for the arbitrator's decision as well. Otherwise,

as this Court observed : (SCC p. 344, para 8)

“8. … a claim for breach of contract containing a reference

clause could be brought at any time, it might be 20 or 30 years

after the cause of action had arisen, although the legislature has

prescribed a limit of three years for the enforcement of such a

claim in any application that might be made to the law courts.”

17. This Court further held as follows: (Panchu Gopal Bose case [

(1993) 4 SCC 338] , SCC pp. 345-46, paras 11-12)

Page 26 of 58

“11. Therefore, the period of limitation for the commencement of

an arbitration runs from the date on which, had there been no

arbitration clause, the cause of action would have accrued. Just

as in the case of civil actions the claim is not to be brought after

the expiration of a specified number of years from the date on

which the cause of action accrued, so in the case of arbitrations,

the claim is not to be put forward after the expiration of the

specified number of years from the date when the claim accrued.

12. In Russell on Arbitration….

At p. 80 it is stated thus:

‘An extension of time is not automatic and it is only granted if

“undue hardship” would otherwise be caused. Not all hardship,

however, is “undue hardship”; it may be proper that hardship

caused to a party by his own default should be borne by him, and

not transferred to the other party by allowing a claim to be

reopened after it has become barred.’ ”

(emphasis supplied)

50. Having traversed the statutory framework and case law, we are of the clear

view that 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 under Section 11(6) of the Act, 1996 in particular. Having held

thus, the next question that falls for our determination is whether the present

petition seeking appointment of an arbitrator is barred by limitation.

51. The determination of the aforesaid question is an exercise involving both

law and facts. As is evident from Article 137 of the Limitation Act, 1963, the

limitation period for making an application under Section 11(6) of the Act, 1996

is three years from the date when the right to apply accrues. Thus, to determine

Page 27 of 58

whether the present petition is barred by limitation, it is necessary to ascertain

when the right to file the present petition under Section 11(6) of the Act, 1996

accrued in favour of the petitioner.

a. When does the right to apply under Section 11(6) accrue?

52. It has been held in a catena of decisions of this Court that the limitation

period for making an application seeking appointment of arbitrator must not be

conflated or confused with the limitation period for raising the substantive

claims which are sought to be referred to an arbitral tribunal. The 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.

53. O.P. Malhotra in The Law & Practice of Arbitration and Conciliation, 3

rd

Edition, pp. 688-689 has summarised the position of law on the limitation period

for a Section 11(6) petition thus:

“There is no specific period of limitation prescribed for making the

request under Section 11(6) to the Chief Justice or his designate, to

take the necessary measure for appointing an arbitrator. Therefore,

Article 137 of the Limitation Act, 1963, which provides the limitation

period of three years for filing any other application for which no

period of limitation is provided elsewhere in the third division of the

Page 28 of 58

Schedule of the Act from the day when the right to apply accrues. It

is the residuary article in regard to the applications, and it can only

be applied if no other article is applicable. It would only apply to an

application where it is required by law to be made. It is restricted to

applications for the exercise of the Acts and powers which the court

is not bound to perform suo motu. Therefore, the period of limitation

for making a request under Section 11(6) is three years, and the

limitation is to be counted from the date on which 30 days from the

date of notice by one party to the other for appointing arbitrator

expires. The question whether the claims/disputes made in reference

to arbitration was valid is a question to be decided by the arbitrator,

and not by the appointing authority of the arbitrator under Section

11(6) of the Act. The appointing authority is certainly required to

ascertain whether the application under Section 11(6) of the Act

was barred by time.”

(emphasis supplied)

54. Dr. P.C. Markanda in Law Pertaining to Arbitration and Conciliation, 9

th

Edition, LexisNexis, pp. 550-551 has discussed on the applicability of law of

limitation to a petition under Section 11(6) of the Act, 1996 as follows:

“For the purpose of examining the right of the petitioner to apply

under sub section (6) for calculating the period of limitation, it is

necessary to establish, in the first instance, the relevant date when

the right to apply accrued in favour of the petitioner. It is the date

on which the right to apply accrues that determines the starting

point. The starting point does not coincide with the date on which

the cause of action for filing a suit arises. Whether the claims of a

party are barred by limitation or not is for the arbitrator to see, but

it is the duty of the court to see whether the application filed in the

court is within limitation or not. Limitation for filing application

under sub-section (4) would commence only from the expiry of 30

days from the receipt of request mentioned in sub-section (4)(a) or

(b) and the limitation for an application under sub-section (6) would

commence from the happening of the contingencies mentioned in

sub-clauses (a) or (b) or (c) thereof. The procedure prescribed under

this section is mandatory and Art. 137, Limitation Act providing for

limitation shall apply.

Page 29 of 58

xxx xxx xxx

It would be entirely wrong to mix the two aspects, namely whether

there was any valid claim and secondly the claim to be adjudicated

by the arbitrator was barred by time. As for the second matter, it is

for the arbitrator to see whether the claim was within limitation or

not and the court should confine itself to see whether the application

made to the court is within limitation. An application made more

than three years after the accrual of cause of action is palpably time

barred and liable to be dismissed. Article 137 of the Limitation Act

makes it obligatory for claims to be filed within 3 years of the

rescission/termination of the contract. The right of action for the

department starts from the date when the work is rescinded and not

from the date when the balance work is got completed through

another agency.

If the petitioner delays invocation of arbitration clause for months

together for no justifiable cause after the period prescribed in the

arbitration agreement had elapsed, the court would not come to the

rescue of such a party seeking appointment of arbitrator and the

abnormal delay of more than a year cannot be condoned.”

(emphasis supplied)

55. This Court in Bharat Sanchar Nigam Limited & Another v. Nortel

Networks India Private Limited reported in (2021) 5 SCC 738 held thus:

“15. It is now fairly well-settled that the limitation for filing an

application under Section 11 would arise upon the failure to make

the appointment of the arbitrator within a period of 30 days from

issuance of the notice invoking arbitration. In other words, an

application under Section 11 can be filed only after a notice of

arbitration in respect of the particular claim(s)/dispute(s) to be

referred to arbitration [as contemplated by Section 21 of the Act] is

made, and there is failure to make the appointment.

16. The period of limitation for filing a petition seeking appointment

of an arbitrator(s) cannot be confused or conflated with the period

of limitation applicable to the substantive claims made in the

underlying commercial contract. The period of limitation for such

claims is prescribed under various Articles of the Limitation Act,

1963. The limitation for deciding the underlying substantive

Page 30 of 58

disputes is necessarily distinct from that of filing an application for

appointment of an arbitrator. This position was recognised even

under Section 20 of the Arbitration Act, 1940. Reference may be

made to the judgment of this Court in J.C. Budhraja v. Orissa

Mining Corpn. Ltd. [(2008) 2 SCC 444 : (2008) 1 SCC (Civ) 582]

wherein it was held that Section 37(3) of the 1940 Act provides that

for the purpose of the Limitation Act, an arbitration is deemed to

have commenced when one party to the arbitration agreement

serves on the other party, a notice requiring the appointment of an

arbitrator. Para 26 of this judgment reads as follows : (SCC p. 460)

“26. Section 37(3) of the Act provides that for the purpose of the

Limitation Act, an arbitration is deemed to have been

commenced when one party to the arbitration agreement serves

on the other party thereto, a notice requiring the appointment of

an arbitrator. Such a notice having been served on 4-6-1980, it

has to be seen whether the claims were in time as on that date. If

the claims were barred on 4-6-1980, it follows that the claims

had to be rejected by the arbitrator on the ground that the claims

were barred by limitation. The said period has nothing to do with

the period of limitation for filing a petition under Section 8(2) of

the Act. Insofar as a petition under Section 8(2) is concerned, the

cause of action would arise when the other party fails to comply

with the notice invoking arbitration. Therefore, the period of

limitation for filing a petition under Section 8(2) seeking

appointment of an arbitrator cannot be confused with the period

of limitation for making a claim. The decisions of this Court

in Inder Singh Rekhi v. DDA [(1988) 2 SCC 338], Panchu Gopal

Bose v. Port of Calcutta [(1993) 4 SCC 338] and Utkal

Commercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCC

571] also make this position clear.”

(emphasis supplied)

56. The other way of ascertaining the relevant point in time when the

limitation period for making a Section 11(6) application would begin is by

making use of the Hohfeld’s analysis of jural relations. It is a settled position of

law that the limitation period under Article 137 of the Limitation Act, 1963 will

commence only after the right to apply has accrued in favour of the applicant. As

Page 31 of 58

per Hohfeld’s scheme of jural relations, conferring of a right on one entity must

entail the vesting of a corresponding duty in another. When an application under

Section 11(6) of the Act, 1996 is made before this Court without exhausting the

mechanism prescribed under the said sub-section, including that of invoking

arbitration by issuance of a formal notice to the other party, this Court is not duty

bound to appoint an arbitrator and can reject the application for being premature

and non-compliant with the statutory mandate. However, once the procedure laid

down under Section 11(6) of the Act, 1996 is exhausted by the applicant and the

application passes all other tests of limited judicial scrutiny as have been evolved

by this Court over the years, this Court becomes duty-bound to appoint an

arbitrator and refer the matter to an arbitral tribunal. Thus, the “right to apply”

of the Applicant can be said to have as its jural corelative the “duty to appoint”

of this Court only after all the steps required to be completed before instituting a

Section 11(6) application have been duly completed. Thus, the limitation period

for filing a petition under Section 11(6) of the Act, 1996 can only commence once

a valid notice invoking arbitration has been sent by the applicant to the other

party, and there has been a failure or refusal on part of that other party in

complying with the requirements mentioned in such notice.

57. This Court in Utkal Commercial Corporation v. Central Coal Fields Ltd.

reported in (1999) 2 SCC 571 while determining a similar question in relation to

the Arbitration Act, 1940 held thus:

Page 32 of 58

“6. Therefore, the time for the purposes of limitation begins to run

from the date when the right to make an application under Section

8 accrues. Section 8 of the Arbitration Act, which is relevant for our

present purposes, is reproduced below:

“8. Power of court to appoint arbitrator or umpire.—(1) In

any of the following cases—

(a) where an arbitration agreement provides that the

reference shall be to one or more arbitrators to be appointed

by consent of the parties, and all the parties do not, after

differences have arisen, concur in the appointment or

appointments; or

(b)-(c)***

any party may serve the other parties or the arbitrators, as the

case may be, with a written notice to concur in the appointment

or appointments or in supplying the vacancy.

(2) If the appointment is not made within fifteen clear days

after service of the said notice, the court may, on the application

of the party who gave the notice and after giving the other parties

an opportunity of being heard, appoint an arbitrator or

arbitrators or umpire, as the case may be, who shall have like

power to act in the reference and to make an award as if he or

they had been appointed by consent of all parties.”

7. Therefore, under Section 8, before an application can be made to

the court under that section, the following requirements should be

satisfied:

(1) The arbitration agreement should provide for appointment of

arbitrator/s by consent.

(2) Parties do not concur in the appointment of an arbitrator.

(3) One party serves notice on the other party to concur in the

appointment.

(4) No appointment is made within 15 days of the service of the

notice.

8. Thereupon the court may, on the application of the party who

gave the notice and after giving the other party an opportunity of

being heard, appoint an arbitrator.

9. In view of the express language of Section 8, it is quite clear that

unless a party who desires to apply has resorted to the process set

Page 33 of 58

out in Section 8, and has failed to secure the concurrence of the

other party to the appointment of an arbitrator within the prescribed

period, the court will not intervene under Section 8. The right to

apply under Section 8, therefore, would accrue when, within 15

clear days of the notice, the other parties do not concur in the

appointment of an arbitrator.”

(emphasis supplied)

58. In Secunderabad Cantonment Board v. B. Ramachandraiah & Sons

reported in (2021) 5 SCC 705, this Court while determining the issue of limitation

in relation to a Section 11(6) petition under the Act, 1996 held thus:

“19. Applying the aforesaid judgments to the facts of this case, so

far as the applicability of Article 137 of the Limitation Act to the

applications under Section 11 of the Arbitration Act is concerned, it

is clear that the demand for arbitration in the present case was made

by the letter dated 7-11-2006. This demand was reiterated by a letter

dated 13-1-2007, which letter itself informed the appellant that

appointment of an arbitrator would have to be made within 30 days.

At the very latest, therefore, on the facts of this case, time began to

run on and from 12-2-2007. The appellant's laconic letter dated 23-

1-2007, which stated that the matter was under consideration, was

within the 30-day period. On and from 12-2-2007, when no

arbitrator was appointed, the cause of action for appointment of an

arbitrator accrued to the respondent and time began running from

that day. Obviously, once time has started running, any final

rejection by the appellant by its letter dated 10-11-2010 would not

give any fresh start to a limitation period which has already begun

running, following the mandate of Section 9 of the Limitation Act.

This being the case, the High Court was clearly in error in stating

that since the applications under Section 11 of the Arbitration Act

were filed on 6-11-2013, they were within the limitation period of

three years starting from 10-11-2020. On this count, the applications

under Section 11 of the Arbitration Act, themselves being hopelessly

time-barred, no arbitrator could have been appointed by the High

Court.”

(emphasis supplied)

Page 34 of 58

59. Similarly, in Bharat Sanchar Nigam Limited (supra), this Court after

applying the settled position of law held as follows:

“22. Applying the aforesaid law to the facts of the present case, we

find that the application under Section 11 was filed within the

limitation period prescribed under Article 137 of the Limitation Act.

Nortel issued the notice of arbitration vide letter dated 29-4-2020,

which was rejected by BSNL vide its reply dated 9-6-2020. The

application under Section 11 was filed before the High Court on 24-

7-2020 i.e. within the period of 3 years of rejection of the request for

appointment of the arbitrator.”

(emphasis supplied)

60. It’s time now to apply the dicta laid down in the aforesaid judgments to

the facts of the present case. The notice for invocation of arbitration was issued

by the petitioner to the respondent on 24.11.2022, proposing the names of two

learned arbitrators and calling upon the respondent to either release the allegedly

withheld payment or nominate an arbitrator from their side within a period of 30

days from the date of receipt of the notice. As per the record, the notice was

delivered to the respondent on 29.11.2022. The relevant extracts from the said

notice are extracted hereinbelow:

“14. Thus disputes arose between the parties, one incorporated in a

country other than India in relation to the Franchise Agreement dt.

21.3.2013, which would attract Section 2(1)(f)(ii) of the A&C Act.

Since every effort to resolve it amicably failed, our client is invoking

Sec 11(6) read with Section 11(12)(a) of A & C Act before Hon'ble

Supreme Court of India to seek appointment of a sole arbitrator in

case M/s Aptech Ltd. is not heeding AACL request in this behalf.

15. Without prejudice to your rights, our client suggests the name of

2 persons, namely Sri. V. Giri, Sri. M L Verma, Senior advocates

practicing in the Hon'ble Supreme Court subject to consent, or any

Hon'ble former judges for enter into reference with consent of

parties to decide all the disputes arising out of the Franchise

Page 35 of 58

Agreement dated 21.3.2013, between the parties, within the period

as per Section 29A of the Act.

16. In case of failure on your part to return the illegally withheld

money or if the above request for appointment of a sole Arbitrator

from the panel suggested or any other name suggested from your

side within 30 days of from the receipt of this notice, our clients will

be constrained to file appropriate legal proceedings as stated in

Para 14 of this notice for which M/s Aptech Ltd. will be fully

responsible for all costs, risks, responsibilities, expenses and

consequences thereof. Please note. Copy Retained.”

61. The respondent replied to the said notice on 05.04.2023. The relevant parts

from the aforesaid reply are extracted hereinbelow:

“5. My clients submit that the notice addressed by you on behalf of

your clients is defective, unjustified, without any basis, documents,

material and is contradictory and inconsistent with the stand taken

by your clients in the mediation proceedings filed before the Hon'ble

High Court.

6. My client states that your clients have misinterpreted the clause

of the Arbitration under the Franchise Agreement dated 21.3.2013

i.e., the conciliation/mediation process and are linking the same to

the proceedings of mediation filed before the Hon'ble Bombay High

Court. My client states that the mediation proceedings filed before

the Hon'ble Bombay High Court was filed under section 2(1)(c) of

the Commercial Court Act which is mandatory provision before

instituting the Commercial Suit. Therefore, my clients therefore state

that the invocation of arbitration clause under the Franchise

Agreement dated 21.3.2013 and your notice dated 24.11.2022 is

illegal, invalid, non-est and unjustified and is liable to be withdrawn

forthwith.

7. My clients state that in view of the aforesaid position, there is no

cause of action for referring any dispute to the Arbitration and your

notice is defective, illegal and invalid. Therefore, there is no

question of my clients consenting to the invocation of the arbitration

clause and/or appointment of an Arbitrator.

Page 36 of 58

8. My clients state that despite having conveyed the above should

your client insists in initiating any legal proceedings, the same shall

be defended entirely at your client's risk as to costs and

consequences. My clients reiterate that nothing contained in your

notice and not specifically dealt with herein shall in any manner be

treated as an admission due to non traverse and in fact shall be

treated as denial.”

62. A perusal of the above shows that the request for appointment of an

arbitrator was first made by the petitioner vide notice dated 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. The 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, which is well within the time period of 3 years

provided by Article 137 of the Limitation Act, 1963. Thus, the present petition

under Section 11(6) of the Act, 1996 cannot be said to be barred by limitation.

ii. ISSUE NO. 2: Whether the court may refuse to make a reference under

Section 11 of the Arbitration and Conciliation Act, 1996 where the

claims are ex-facie and hopelessly time-barred?

63. As discussed above, the present petition filed by the petitioner is not barred

by limitation. Thus, the next question that falls for our consideration is whether

the claims sought to be arbitrated by the petitioner are ex-facie barred by

limitation, and if so, whether the court may refuse to refer them to arbitration?

Page 37 of 58

a. Jurisdiction versus Admissibility

64. There are two categories of issues that may be raised against an application

for appointment of arbitrator under Section 11(6) of the Act, 1996. The first

category is of the issues pertaining to the power and authority of the arbitrators

to hear and decide a case and 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.

65. The second category 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. This category is referred to as the “admissibility

issues/objections”.

66. This Court in Bharat Sanchar Nigam Limited (supra), explained the

difference between the aforesaid two category of objections and held that the

issue of limitation is essentially an admissibility issue and is not a challenge to

Page 38 of 58

the jurisdiction of the arbitrator to decide the claim. While placing reliance on

decision of the Singapore Court of Appeal in Swissbourgh Diamond Mines

(Pty) Ltd. v. Kingdom of Lesotho reported in (2019) 1 SLR 263, this Court

explained the “tribunal v. claim” test thus:

“43. Applying the “tribunal v. claim” test, a plea of statutory time

bar goes towards admissibility as it attacks the claim. It makes no

difference whether the applicable statute of limitations is classified

as substantive (extinguishing the claim) or procedural (barring the

remedy) in the private international law sense.

44. The issue of limitation which concerns the “admissibility” of the

claim, must be decided by the Arbitral Tribunal either as a

preliminary issue, or at the final stage after evidence is led by the

parties.”

67. 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.

68. In Mustiu and Boyd's Commercial Arbitration (1982 Ed., pp. 436) under

the heading “Hopeless Claims” in Chapter 31 it is stated thus in relation to the

jurisdiction of an arbitral tribunal adjudicating commercial disputes:

“Two situations must be distinguished. The first, which is very rare,

exists when the claimant not only appreciates, but will if pressed be

prepared to acknowledge, that his claim is ill-founded in law. In

effect, he asserts that his claim has commercial and moral merit;

that if the law gives him no remedy, there is a defect in the law; and

that a commercial arbitrator ought to award him something in

recognition of the true merits.

Page 39 of 58

Here, we believe that there is undoubtedly jurisdiction to interfere

by way of injunction to prevent the respondent from being harassed

by a claim which can never lead to valid award, for example in cases

where claim is brought in respect of the alleged arbitration

agreement which does not really exist, or which has ceased to exist.

So also where the dispute lies outside the scope of the arbitration

agreement. By parity of reasoning, the Court should be prepared to

intervene where the claimant and the respondent are at one as to the

absence of legal merits, so that it can be said that there is no real

dispute.

The respondent might also seek to protect himself by recourse to the

arbitrator. He cannot ask the arbitrator to rule that there is no

dispute, since this would be a matter affecting his own jurisdiction.

An alternative would be to invite the arbitrator summarily to dismiss

the claim. It would appear safer, however, to leave the matter to the

court.”

69. The scope of this primary examination has been carefully laid down by a

three-Judge Bench of this Court in Vidya Drolia and Others v. Durga Trading

Corporation reported in (2021) 2 SCC 1 as follows:

“148. Section 43(1) of the Arbitration Act states that the Limitation

Act, 1963 shall apply to arbitrations as it applies to court

proceedings. Sub-Section (2) states that for the purposes of the

Arbitration Act and Limitation Act, arbitration shall be deemed to

have commenced on the date referred to in Section 21. Limitation

law is procedural and normally disputes, being factual, would be for

the arbitrator to decide guided by the facts found and the law

applicable. 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. All other cases should be referred to

the Arbitral Tribunal for decision on merits. Similar would be the

position in case of disputed “no-claim certificate” or defence on the

plea of novation and “accord and satisfaction”. As observed

in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium

Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)], it

is not to be expected that commercial men while entering

transactions inter se would knowingly create a system which would

require that the court should first decide whether the contract should

Page 40 of 58

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 have arisen.

xxx xxx xxx

154.4. Rarely as a demurrer the court may interfere at Section 8 or

11 stage when it is manifestly and ex facie certain that the

arbitration agreement is non-existent, invalid or the disputes are

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 check and protect

parties from being forced to arbitrate when the matter is

demonstrably “non-arbitrable” and to cut off the deadwood. The

court by default would refer the matter when contentions relating to

non-arbitrability are plainly arguable; when consideration in

summary proceedings would be insufficient and inconclusive; when

facts are contested; when the party opposing arbitration adopts

delaying tactics or impairs conduct of arbitration proceedings. This

is not the stage for the court to enter into a mini trial or elaborate

review so as to usurp the jurisdiction of the Arbitral Tribunal but to

affirm and uphold integrity and efficacy of arbitration as an

alternative dispute resolution mechanism.”

(emphasis supplied)

70. The aforesaid decision in Vidya Drolia (supra) was relied upon and

reaffirmed in another decision of this Court in NTPC Ltd. v. SPML Infra Ltd.

reported in (2023) 9 SCC 385 wherein the “Eye of the Needle” test was explained

as follows:

“Eye of the needle

25. The abovereferred precedents crystallise the position of law that

the pre-referral jurisdiction of the Courts under Section 11(6) of the

Act is very narrow and inheres two inquiries. The primary inquiry is

about the existence and the validity of an arbitration agreement,

which also includes an inquiry as to the parties to the

agreement and the applicant's privity to the said agreement. These

are matters which require a thorough examination by the Referral

Page 41 of 58

Court. The secondary inquiry that may arise at the reference stage

itself is with respect to the non-arbitrability of the dispute.

26. As a general rule and a principle, the Arbitral Tribunal is the

preferred first authority to determine and decide all questions of

non-arbitrability. As an exception to the rule, and rarely as a

demurrer, the Referral Court may reject claims which are manifestly

and ex facie non-arbitrable [Vidya Drolia v. Durga Trading Corpn.,

(2021) 2 SCC 1, para 154.4: (2021) 1 SCC (Civ) 549]. Explaining

this position, flowing from the principles laid down in Vidya

Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 :

(2021) 1 SCC (Civ) 549], this Court in a subsequent decision

in Nortel Networks [BSNL v. Nortel Networks (India) (P) Ltd.,

(2021) 5 SCC 738 : (2021) 3 SCC (Civ) 352] held [BSNL v. Nortel

Networks (India) (P) Ltd., (2021) 5 SCC 738, para 45.1 : (2021) 3

SCC (Civ) 352] : (Nortel Networks case [BSNL v. Nortel Networks

(India) (P) Ltd., (2021) 5 SCC 738 : (2021) 3 SCC (Civ) 352], SCC

p. 764, para 45)

“45. … 45.1. … While exercising jurisdiction under Section 11

as the judicial forum, the Court may exercise the prima facie test

to screen and knockdown ex facie meritless, frivolous, and

dishonest litigation. Limited jurisdiction of the Courts would

ensure expeditious and efficient disposal at the referral stage. At

the referral stage, the Court can interfere “only” when it is

“manifest” that the claims are ex facie time-barred and dead, or

there is no subsisting dispute.”

27. The standard of scrutiny to examine the non-arbitrability of a

claim is only prima facie. Referral Courts must not undertake a full

review of the contested facts; they must only be confined to

a primary first review [Vidya Drolia v. Durga Trading Corpn.,

(2021) 2 SCC 1, para 134 : (2021) 1 SCC (Civ) 549] and let facts

speak for themselves. This also requires the Courts to examine

whether the assertion on arbitrability is bona fide or not. [Vidya

Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC

(Civ) 549] The prima facie scrutiny of the facts must lead to a clear

conclusion that there is not even a vestige of doubt that the claim is

non-arbitrable. [BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5

SCC 738, para 47 : (2021) 3 SCC (Civ) 352] On the other hand,

even if there is the slightest doubt, the rule is to refer the dispute to

arbitration [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1,

para 154.4 : (2021) 1 SCC (Civ) 549] .

Page 42 of 58

28. The limited scrutiny, through the eye of the needle, is necessary

and compelling. It is intertwined with the duty of the Referral Court

to protect the parties from being forced to arbitrate when the matter

is demonstrably non-arbitrable [Ibid.]. It has been termed as

a legitimate interference by Courts to refuse reference in order to

prevent wastage of public and private resources [Vidya

Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 139 : (2021)

1 SCC (Civ) 549]. Further, as noted in Vidya Drolia [Vidya

Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC

(Civ) 549], if this duty within the limited compass is not

exercised, and the Court becomes too reluctant to intervene, it may

undermine the effectiveness of both, arbitration and the

Court [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para

139 : (2021) 1 SCC (Civ) 549]. Therefore, this Court or a High

Court, as the case may be, while exercising jurisdiction under

Section 11(6) of the Act, is not expected to act mechanically merely

to deliver a purported dispute raised by an applicant at the doors of

the chosen arbitrator, as explained in DLF Home Developers

Ltd. v. Rajapura Homes (P) Ltd. [DLF Home Developers

Ltd. v. Rajapura Homes (P) Ltd., (2021) 16 SCC 743, paras 22, 26

: 2021 SCC OnLine SC 781, paras 18, 20]”

(emphasis supplied)

71. In Geo Miller (supra) where the cause of action for bringing the claim

arose in 1983, this Court refused to appoint an arbitrator as the application seeking

appointment of arbitrator was filed much later in 2003, that is after a delay of

almost twenty years. The relevant part of the said judgment is extracted

hereinbelow:

“21. Applying the aforementioned principles to the present case, we

find ourselves in agreement with the finding of the High Court that

the appellant's cause of action in respect of Arbitration Applications

Nos. 25/2003 and 27/2003, relating to the work orders dated 7-10-

1979 and 4-4-1980 arose on 8-2-1983, which is when the final bill

handed over to the respondent became due. Mere correspondence of

the appellant by way of writing letters/reminders to the respondent

subsequent to this date would not extend the time of limitation.

Page 43 of 58

Hence the maximum period during which this Court could have

allowed the appellant's application for appointment of an arbitrator

is 3 years from the date on which cause of action arose i.e. 8-2-1986.

Similarly, with respect to Arbitration Application No. 28/2003

relating to the work order dated 3-5-1985, the respondent has stated

that final bill was handed over and became due on 10-8-1989. This

has not been disputed by the appellant. Hence the limitation period

ended on 10-8-1992. Since the appellant served notice for

appointment of arbitrator in 2002, and requested the appointment

of an arbitrator before a court only by the end of 2003, his claim is

clearly barred by limitation.”

(emphasis supplied)

72. In Bharat Sanchar Nigam Limited (supra), this Court while observing

that although the arbitration petition was not barred by limitation, yet the cause

of action for the underlying claims having arisen much earlier, the claims were

clearly barred by limitation on the day notice for arbitration was invoked.

Relevant paragraphs are extracted hereinbelow:

“48. Applying the law to the facts of the present case, it is clear that

this is a case where the claims are ex facie time-barred by over 5½

years, since Nortel did not take any action whatsoever after the

rejection of its claim by BSNL on 4-8-2014. The notice of arbitration

was invoked on 29-4-2020. There is not even an averment either in

the notice of arbitration, or the petition filed under Section 11, or

before this Court, of any intervening facts which may have occurred,

which would extend the period of limitation falling within Sections

5 to 20 of the Limitation Act. Unless, there is a pleaded case

specifically adverting to the applicable section, and how it extends

the limitation from the date on which the cause of action originally

arose, there can be no basis to save the time of limitation.

49. The present case is a case of deadwood/no subsisting dispute

since the cause of action arose on 4-8-2014, when the claims made

by Nortel were rejected by BSNL. The respondent has not stated any

event which would extend the period of limitation, which

commenced as per Article 55 of the Schedule of the Limitation Act

(which provides the limitation for cases pertaining to breach of

Page 44 of 58

contract) immediately after the rejection of the final bill by making

deductions.

50. In the notice invoking arbitration dated 29-4-2020, it has been

averred that:

“Various communications have been exchanged between the

petitioner and the respondents ever since and a dispute has

arisen between the petitioner and the respondents, regarding

non-payment of the amounts due under the tender document.”

51. The period of limitation for issuing notice of arbitration would

not get extended by mere exchange of letters, [S.S. Rathore v. State

of M.P., (1989) 4 SCC 582 : 1990 SCC (L&S) 50; Union of

India v. Har Dayal, (2010) 1 SCC 394; CLP (India) (P)

Ltd. v. Gujarat Urja Vikas Nigam Ltd., (2020) 5 SCC 185] or mere

settlement discussions, where a final bill is rejected by making

deductions or otherwise. Sections 5 to 20 of the Limitation Act do

not exclude the time taken on account of settlement discussions.

Section 9 of the Limitation Act makes it clear that:“where once the

time has begun to run, no subsequent disability or inability to

institute a suit or make an application stops it.” There must be a

clear notice invoking arbitration setting out the “particular

dispute” [ Section 21 of the Arbitration and Conciliation Act, 1996.]

(including claims/amounts) which must be received by the other

party within a period of 3 years from the rejection of a final bill,

failing which, the time bar would prevail.

52. In the present case, the notice invoking arbitration was issued

5½ years after rejection of the claims on 4-8-2014. Consequently,

the notice invoking arbitration is ex facie time-barred, and the

disputes between the parties cannot be referred to arbitration in the

facts of this case.”

(emphasis supplied)

73. This Court, in M/s B and T AG (supra), to which two of us, the Chief

Justice, Dr. D.Y. Chandrachud and Justice J.B. Pardiwala, were members of the

Bench, had the occasion to ascertain in the facts of the said case whether an

application for appointment of arbitrator under Section 11(6) of the Act, 1996 was

Page 45 of 58

barred by limitation. The facts of the said case were that disputes had arisen

between the parties in relation to the alleged wrongful encashment of warranty

bond by the respondent therein vide its letter dated 16.02.2016. Even after the

amount got credited in the bank account of the respondent, the parties continued

to engage in bilateral discussions. It was the case of the petitioner therein that the

‘breaking point’ was reached sometime in September, 2019 and not in 2016 as

negotiations had continued to take place between the parties. This Court rejected

the contention of the petitioner and held that the encashment of bank guarantee

was a positive action on part of the respondent which had crystallised the right of

the petitioner to seek reference of the dispute to arbitration and mere writing of

letters would not extend the cause of action. It was held that the notice for

invoking arbitration having been issued almost six years after the cause of action

for raising the claims had arisen, the claims were ex-facie dead and time-barred

and hence dismissed the application. Relevant extracts from the judgment are as

follows:

“65. On a conspectus of all the aforesaid decisions what is

discernible is that there is a fine distinction between the plea that

the claims raised are barred by limitation and the plea that the

application for appointment of an arbitrator is barred by limitation.

xxx xxx xxx

76. At the cost of repetition, we state that when the bank guarantee

came to be encashed in the year 2016 and the requisite amount stood

transferred to the Government account that was the end of the

matter. This “Breaking Point” should be treated as the date at which

the cause of action arose for the purpose of limitation.

Page 46 of 58

77. Negotiations may continue even for a period of ten years or

twenty years after the cause of action had arisen. Mere negotiations

will not postpone the “cause of action” for the purpose of limitation.

The Legislature has prescribed a limit of three years for the

enforcement of a claim and this statutory time period cannot be

defeated on the ground that the parties were negotiating.

xxx xxx xxx

80. The case on hand is clearly and undoubtedly, one of a hopelessly

barred claim, as the petitioner by its conduct slept over its right for

more than five years. Statutory arbitrations stand apart.”

(emphasis supplied)

74. The learned senior counsel appearing for the respondent has strongly

relied on the judgment in M/s B and T AG (supra) to argue that the facts of the

present case are squarely covered by the dicta laid down in the said judgment.

However, we are of the view that the said judgment is of no avail to the

respondent.

75. The respondent, relying upon the legal notice dated 26.08.2021 issued by

the petitioner, submitted that the cause of action arose on 01.11.2017. The

relevant part of the said notice is extracted here:

“10. Our client is entitled to receive 90% of the amount certified by

the Embassy in Kabul. While reserving our rights without prejudice

and subject to settlement of accounts illegally withheld, this notice

is issued calling upon you to pay Rs. 73,53,000/- with interest

compounded monthly @18% w.e.f. 1st November 2017 within 15

days of from the receipt of this notice, under intimation to us, failing

which our client has given instructions to file appropriate legal

Page 47 of 58

proceedings before competent courts in India including a suit for

settlement of accounts for recovery of money and also by way of

damages or otherwise for, breach of trust, breach of contract. In

default, Aptech will be fully responsible for all costs, risks,

responsibilities, expenses and consequences thereof.”

76. From the email communications placed on record, it appears that due to

the pre-existing disputes between the parties in relation to the franchise

agreements, the respondent sent a demand notice to the petitioner seeking

payment of royalty and renewal fees from the petitioner. It appears that in reply

to the said notice dated 23.03.2018, the petitioner raised the issue of payment of

dues relating to the ICCR project. Some more emails were exchanged between

the parties on the issue however it can be seen that vide email dated 28.03.2018,

the respondent clearly showed unwillingness to continue further discussions

regarding payments related to the ICCR project. Thus, it can be said that the rights

of the petitioner to bring a claim against the respondent were crystallised on

28.03.2018 and hence the cause of action for invocation of arbitration can also

said to have arisen on this date. This position has also been admitted in the Written

Submission dated 05.02.2024 wherein the petitioner has submitted as follows:

“4. The limitation for claiming the due amount would expire on

27.03.2021….”

b. When does the Cause of Action arise?

77. We are not impressed with the submission canvassed on behalf of the

respondent that the cause of action for raising the claims arose on 01.11.2017 and

Page 48 of 58

thus the limitation period for invoking arbitration should commence from the said

date. The petitioner has 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 is 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. The position of law is settled that 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.

78. In M/s B and T AG (supra) three principles of law came to be enunciated

by this Court regarding the manner in which the point in time when the cause of

action arose may be determined. First, that the right to receive the payment

ordinarily begins upon completion of the work. Secondly, a dispute arises only

when there is a claim by one side and its denial/repudiation by the other and

thirdly, the accrual of cause of action cannot be indefinitely postponed by

repeatedly writing letters or sending reminders. It was further emphasised by this

Court that it was important to find out the “breaking point” at which any

reasonable party would have abandoned the efforts at arriving at a settlement and

contemplated referral of the dispute to arbitration. Such breaking point would

then become the date on which the cause of action could be said to have

commenced.

Page 49 of 58

79. This Court in Major (Retd.) Inder Singh Rekhi v. Delhi Development

Authority reported in (1988) 2 SCC 338 held as follows:

“4. Therefore, in order to be entitled to order of reference under

Section 20, it is necessary that there should be an arbitration

agreement and secondly, difference must arise to which this

agreement applied. In this case, there is no dispute that there was

an arbitration agreement. There has been an assertion of claim by

the appellant and silence as well as refusal in respect of the same by

respondent. Therefore, a dispute has arisen regarding non-payment

of the alleged dues of the appellant. The question is for the present

case when did such dispute arise. The High Court proceeded on the

basis that the work was completed in 1980 and therefore, the

appellant became entitled to the payment from that date and the

cause of action under Article 137 arose from that date. But in order

to be entitled to ask for a reference under Section 20 of the Act there

must not only be an entitlement to money but there must be a

difference or dispute must arise. It is true that on completion of the

work a right to get payment would normally arise but where the final

bills as in this case have not been prepared as appears from the

record and when the assertion of the claim was made on February

28, 1983 and there was non-payment, the cause of action arose from

that date, that is to say, February 28, 1983. It is also true that a party

cannot postpone the accrual of cause of action by writing reminders

or sending reminders but where the bill had not been finally

prepared, the claim made by a claimant is the accrual of the cause

of action. A dispute arises where there is a claim and a denial and

repudiation of the claim. The existence of dispute is essential for

appointment of an arbitrator under Section 8 or a reference under

Section 20 of the Act. See Law of Arbitration by R.S. Bachawat, first

edition, page 354. There should be dispute and there can only be a

dispute 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. Whether in a particular case a

dispute has arisen or not has to be found out from the facts and

circumstances of the case.”

(emphasis supplied)

Page 50 of 58

80. In Geo Miller (supra), this Court held thus:

“28. 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.

29. Moreover, in a commercial dispute, while mere failure to pay

may not give rise to a cause of action, once the applicant has

asserted their claim and the respondent fails to respond to such

claim, such failure will be treated as a denial of the applicant's claim

giving rise to a dispute, and therefore the cause of action for

reference to arbitration. It does not lie to the applicant to plead that

it waited for an unreasonably long period to refer the dispute to

arbitration merely on account of the respondent's failure to settle

their claim and because they were writing representations and

reminders to the respondent in the meanwhile.”

(emphasis supplied)

81. The 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

Page 51 of 58

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.

82. 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, the entire world was

taken under the grip of the deadly Covid-19 pandemic bringing everyday life and

commercial activity to a complete halt across the globe. Taking cognisance of

this unfortunate turn of events, this Court vide order dated 23.03.2020 passed in

Suo Motu Civil Writ Petition No. 03/2020 directed the period commencing from

15.03.2020 to be excluded for the purposes of computation of limitation. The said

extension of limitation was extended from time to time by this Court in view of

the continuing pandemic. 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. Operative part of the order dated 10.01.2022

is extracted hereinbelow:

“5. Taking into consideration the arguments advanced by learned

counsel and the impact of the surge of the virus on public health

and adversities faced by litigants in the prevailing conditions, we

deem it appropriate to dispose of the M.A. No. 21 of 2022 with the

following directions:

Page 52 of 58

I. The order dated 23.03.2020 is restored and in continuation

of the subsequent orders dated 08.03.2021, 27.04.2021 and

23.09.2021, it is directed that the period from 15.03.2020 till

28.02.2022 shall stand excluded for the purposes of

limitation as may be prescribed under any general or special

laws in respect of all judicial or quasi judicial proceedings.

II. Consequently, the balance period of limitation remaining as

on 03.10.2021, if any, shall become available with effect from

01.03.2022.

III. In cases where the limitation would have expired during the

period between 15.03.2020 till 28.02.2022, notwithstanding

the actual balance period of limitation remaining, all

persons shall have a limitation period of 90 days from

01.03.2022. In the event the actual balance period of

limitation remaining, with effect from 01.03.2022 is greater

than 90 days, that longer period shall apply.

IV. It is further clarified that the period from 15.03.2020 till

28.02.2022 shall also stand excluded in computing the

periods prescribed under Sections 23 (4) and 29A of the

Arbitration and Conciliation Act, 1996, Section 12A of the

Commercial Courts Act, 2015 and provisos (b) and (c) of

Section 138 of the Negotiable Instruments Act, 1881 and any

other laws, which prescribe period(s) of limitation for

instituting proceedings, outer limits (within which the court

or tribunal can condone delay) and termination of

proceedings.”

83. The operation and effect of the aforesaid order was considered and

explained by a two-Judge Bench of this Court in Prakash Corporates v. Dee Vee

Projects Ltd., reported in (2022) 5 SCC 112 as follows:

“28. As regards the operation and effect of the orders passed by this

Court in SMWP No. 3 of 2020, noticeable it is that even though in

the initial order dated 23-3-2020 [Cognizance for Extension of

Limitation, In re, (2020) 19 SCC 10 : (2021) 3 SCC (Cri) 801], this

Page 53 of 58

Court provided that the period of limitation in all the proceedings,

irrespective of that prescribed under general or special laws,

whether condonable or not, shall stand extended w.e.f. 15-3-2020

but, while concluding the matter on 23-9-2021 [Cognizance for

Extension of Limitation, In re, (2021) 18 SCC 250 : 2021 SCC

OnLine SC 947], this Court specifically provided for exclusion of

the period from 15-3-2020 till 2-10-2021. A look at the scheme of

the Limitation Act, 1963 makes it clear that while extension of

prescribed period in relation to an appeal or certain applications

has been envisaged under Section 5, the exclusion of time has been

provided in the provisions like Sections 12 to 15 thereof. When a

particular period is to be excluded in relation to any suit or

proceeding, essentially the reason is that such a period is accepted

by law to be the one not referable to any indolence on the part of the

litigant, but being relatable to either the force of circumstances or

other requirements of law (like that of mandatory two months' notice

for a suit against the Government [Vide Section 15 of the Limitation

Act, 1963.]). The excluded period, as a necessary consequence,

results in enlargement of time, over and above the period

prescribed.”

(emphasis supplied)

84. The effect of the above-referred 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 between

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. This period of 1 year 13 days becomes 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.

Page 54 of 58

c. When is Arbitration deemed to have commenced?

85. Section 21 of the Act, 1996 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.

“21. Commencement of arbitral proceedings.—Unless otherwise

agreed by the parties, the arbitral proceedings in respect of a

particular dispute commence on the date on which a request for that

dispute to be referred to arbitration is received by the respondent.”

86. In Milkfood Ltd. v. GMC Ice Cream (P) Ltd. reported in (2004) 7 SCC

288, it was observed thus:

“26. The commencement of an arbitration proceeding for the

purpose of applicability of the provisions of the Indian Limitation

Act is of great significance. Even Section 43(1) of the 1996 Act

provides that the Limitation Act, 1963 shall apply to the arbitration

as it applies to proceedings in court. Sub-section (2) thereof

provides that for the purpose of the said section and the Limitation

Act, 1963, an arbitration shall be deemed to have commenced on the

date referred to in Section 21.

27. Article 21 of the Model Law which was modelled on Article 3 of

the UNCITRAL Arbitration Rules had been adopted for the purpose

of drafting Section 21 of the 1996 Act. Section 3 of the 1996 Act

provides for as to when a request can be said to have been received

by the respondent. Thus, whether for the purpose of applying the

provisions of Chapter II of the 1940 Act or for the purpose of Section

21 of the 1996 Act, what is necessary is to issue/serve a

request/notice to the respondent indicating that the claimant seeks

arbitration of the dispute.

xxx xxx xxx

29. For the purpose of the Limitation Act an arbitration is deemed

to have commenced when one party to the arbitration agreement

Page 55 of 58

serves on the other a notice requiring the appointment of an

arbitrator. This indeed is relatable to the other purposes also, as,

for example, see Section 29(2) of (English) Arbitration Act, 1950.

xxx xxx xxx

49. Section 21 of the 1996 Act, as noticed hereinbefore, provides as

to when the arbitral proceedings would be deemed to have

commenced. Section 21 although may be construed to be laying

down a provision for the purpose of the said Act but the same must

be given its full effect having regard to the fact that the repeal and

saving clause is also contained therein. Section 21 of the Act must,

therefore, be construed having regard to Section 85(2)(a) of the

1996 Act. Once it is so construed, indisputably the service of notice

and/or issuance of request for appointment of an arbitrator in terms

of the arbitration agreement must be held to be determinative of the

commencement of the arbitral proceeding.”

(emphasis supplied)

87. Similarly, in Bharat Sanchar Nigam Limited (supra), it was held by this

Court thus:

“51. The period of limitation for issuing notice of arbitration would

not get extended by mere exchange of letters, [S.S. Rathore v. State

of M.P., (1989) 4 SCC 582 : 1990 SCC (L&S) 50; Union of

India v. Har Dayal, (2010) 1 SCC 394; CLP (India) (P)

Ltd. v. Gujarat Urja Vikas Nigam Ltd., (2020) 5 SCC 185] or mere

settlement discussions, where a final bill is rejected by making

deductions or otherwise. Sections 5 to 20 of the Limitation Act do

not exclude the time taken on account of settlement discussions.

Section 9 of the Limitation Act makes it clear that:“where once the

time has begun to run, no subsequent disability or inability to

institute a suit or make an application stops it.” There must be a

clear notice invoking arbitration setting out the “particular

dispute” [ Section 21 of the Arbitration and Conciliation Act, 1996.]

(including claims/amounts) which must be received by the other

party within a period of 3 years from the rejection of a final bill,

failing which, the time bar would prevail.”

(emphasis supplied)

Page 56 of 58

88. In the present case, 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.

89. Thus, from an exhaustive analysis of the position of law on the issues, we

are of the view that while considering the issue of limitation in relation to a

petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves

on two aspects by employing a two-pronged test – first, whether the petition under

Section 11(6) of the Act, 1996 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.

E. CONCLUSION

90. The present arbitration petition having been filed within a period of three

years from the date when the respondent failed to comply with the notice of

invocation of arbitration issued by the petitioner is not hit by limitation.

Page 57 of 58

91. The notice for invocation of arbitration having been issued by the petitioner

within a period of 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.

92. In view of the aforesaid, the present petition is allowed. We appoint Shri

Justice Sanjay Kishan Kaul, Former Judge of the Supreme Court of India, to act

as the sole arbitrator. The fees of the arbitrator including other modalities shall

be fixed in consultation with the parties.

93. All other rights and contentions are kept open for the parties to raise before

the Arbitrator.

94. Before we part with the matter, we would like to mention that this Court

while dealing with similar issues in many other matters has observed that the

applicability of Section 137 to applications under Section 11(6) of the Act, 1996

is a result of legislative vacuum as there is no statutory prescription regarding the

time limit. We would again like to reiterate that the period of three years is an

unduly long period for filing an application under Section 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 so as to ensure that

arbitration proceedings are conducted and concluded expeditiously. We are of the

Page 58 of 58

considered opinion that the 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

under Section 11 of the Act, 1996. The Petition stands disposed of in the aforesaid

terms.

95. Pending application(s), if any, shall stand disposed of.

…...……..….………….……………CJI.

(Dr. Dhananjaya Y. Chandrachud)

…….…..….…….…..…………………J.

(J.B. Pardiwala)

…………...…...……………………….J.

(Manoj Misra)

New Delhi:

1

st

March, 2024.