REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 900-902 OF 2021

(@ SLP (CIVIL) Nos.27960-62 of 2019)

SECUNDERABAD CANTONMENT BOARD …APPELLANT

VERSUS

M/S B. RAMACHANDRAIAH & SONS …RESPONDENT

J U D G M E N T

R.F. Nariman, J.

1.Leave granted.

2.These appeals arise out of applications under Section 11 of the

Arbitration and Conciliation Act, 1996 [“Arbitration Act”]. On

02.09.2000, the appellant before us, Secunderabad Cantonment

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

annual term contract for:

1.Repairs to Main Roads (Resurfacing with Centralised with

Hot Mix Plant and Paver);

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2.Repairs to Main Roads (Widening of Roads with Centralised

Hot Mix Plant and Paver);

3.Repairs to Internal Roads (Resurfacing with Hot Mix Paver

and Plant).

3.Pursuant to the aforesaid N.I.T., three agreements were entered into with

the respondent, M/s Ramachandraiah and Sons [“Respondent”], the

first one dated 23.09.2000 and the other two dated 17.09.2001.

Clause 5 of each of the aforesaid agreements, which is in identical

terms, is important and reads as follows:

“5. Final Bill: The Contractor shall submit his final bil of the

work with full and complete measurements showing the

deductions on account of part payments received and

stores supplied by the Board cost of water and any other

items received by him under the contract within 08 days

from the date of completion and handing over the work.

The contractor shall also submit alongwith his bill a no

claim certificate stating that there are no claims from the

cantonment board on account of the work undertaken and

completed by him under the contract and that no claim

thereafter shall be entertainable. The bill shall also contain

a statement showing the justification of cement consumed

by the Contractor.”

4.The arbitration clause contained in Clause 17 of each of the aforesaid

agreements reads as follows:

“17. LAW Governing the Contract: The Contract shall be

governed by the Indian Law. [A]ll disputes between the

parties to this contract or being out of relating to the

contract other than those for which the decision of the

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accepting officer is final and conclusive shall after the

written notice given by either party to the other be referred

to the sole arbitrator as appointed by the [P]resident

Cantonment Board [S]ecunderabad. The award of the

Arbitrator shall be final, conclusive and binding on both

parties to the contract”

5.Work orders were issued with respect to the aforesaid works. The

Appellant argued that the Respondent had failed to complete the work

within the stipulated period, but vide its meeting dated 05.10.2002, it

resolved to grant an extension of time upto 31.12.2002 on an

undertaking from the Respondent that the Appellant would be at liberty

to impose penalty as provided in the contracts and as decided by the

Appellant in case balance works were not completed by 31.12.2002.

On 30.10.2002, the Respondent submitted the required undertaking.

6.It is not disputed that vide the final contract certificates issued by the

Appellant on 18.02.2003 and 26.03.2003, final payment was received

by the Respondent in respect of the works in question. After a hiatus

of about six months, the Respondent then started making demands

towards reimbursement on account of variation in prices of material,

labour and fuel. These demands were made vide letters dated

08.09.2003, 24.07.2004 and 12.10.2004.

7.After a silence of over two years, the Respondent then issued a letter

dated 07.11.2006 by which the Respondent requested for the

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appointment of an arbitrator in respect of the claim of reimbursement

on account of price variation in all the three contracts. It was

specifically stated that necessary steps should be taken by the

Appellant within 15 days of receipt of the letter. Receiving no reply

from the Appellant, the Respondent issued yet another letter dated

13.01.2007, in which it spoke of a fundamental breach of contractual

obligations and then stated that it had no option but to rescind the

contracts and have an arbitrator appointed within 30 days, in

conformity with the arbitration clause provided in the contracts.

8.To this letter, a laconic reply was received from the Appellant on

23.01.2007, stating that the matter referred to in their letter was under

consideration. It is not disputed that the 30-day period, spoken of in

the letter dated 13.01.2007, was over by 12.02.2007. Despite this

being the position, the Respondent kept on writing letters at long

intervals between the years 2007-2009, reiterating its claim. Finally, by

a legal notice dated 30.01.2010, the Respondent specifically stated:

“In order to reiterate the brief details of the Contracts, all

the three works have been completed way back in

31.03.2002 and final bill was received under protest.

It is also expedient to point out that arbitration

proceedings have already commenced since 07.11.2006

(within intent of the Arbitration and Conciliation Act of

1996).

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In the event that the Hon'ble appointing authority

continues to abdicate his rights to appoint an arbitrator, the

only remedy left to us is to seek the appointment of an

arbitrator by the Hon'ble Chief justice of High Court of

Andhra Pradesh (to enforce the arbitration clause) as

intended by the agreement (since the agreement

envisages arbitration as the means of settlement of

disputes in preclusion to a court of law).”

9.To this legal notice dated 30.01.2010, the Appellant replied on

16.02.2010, stating:

“1. … Subsequent to awarding those contracts, work

orders have been issued and part of works were executed

by your client within the stipulated time and the bills for the

works executed were cleared on submission of final bills

way back in the year 2002-2003 and your client has

received the payments by adhering to Clause 5 of the

Contract entered by and between your client and my client.

Since the final payments were made for the works

executed the copies requested by you may not be available

as 8 years time has been elapsed after conclusion of the

contract.

2. Subsequent to conclusion of the contract and after

receipt of final payments, your client has started

addressing letters as referred in your notice culminating

into the present notice under reply and seeking additional

claim towards reimbursement on variation in prices, though

there is no such clause in the agreement entered for

execution of above referred works to claim amounts on

variation of prices. Moreover the contract period is one

year from the date of awarding contract and the contract

periods were came to an end by 2001 and 2002

respectively. Whereas your client has got issued final

notice under reply on 30.01.2010 and insisting appointment

of an Arbitrator though no dispute is subsisting between

your client and my client and moreover your client's claim is

barred under law of limitation.”

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“4. In the above said background the contention in your

notice under reply that your client is insisting for the

appointment of an Arbitrator for adjudication of the dispute

and that appointing authority has not appointed the

arbitrator and that arbitration proceedings have already

commenced since 07.11.2006 and that in the event the

Hon'ble Appointing authority continues to abdicate his right

to appoint an arbitrator you client is left with no option

except to seek appointment of Arbitrator by the Hon'ble

Chief Justice of High Court of A.P. is highly objectionable

and untenable and your client has no legal right to raise the

dispute after concluding the contract way back in the year

2002. The claim of your client to appoint an Arbitrator

cannot be acceded to as there is no arbitral issues are

subsisting between your client and my client and

furthermore the claim raised by your client is hopelessly

barred under law of limitation and it is incorrect to state that

your has received the payments under protest.

5. My Client further reiterates that the above referred three

contracts were awarded for a period of one year in the year

2000-2001 and since your client could not complete the

works entrusted to him within the stipulated period, at his

request the time was further extended up to 31.12.2002

and by that time he can only complete the work to the tune

of Rs.75 lakhs approximately and your client's request to

release work order for balance amount with regard to the

works in question were turn down by the Hon'ble High

Court of A.P. Hence, the question of reimbursement on

variation in prices as claimed by your client does not arise

and he is not entitled for such claims.

6. My client further reiterates that as per clause 5 of the

Agreement, final bill amounts will be released on submitting

no claim certificate stating that there is no claim form the

Cantonment Board on account of the works undertaken

and completed by the contractor and no claim thereafter

shall be entertainable. Pursuant to this Clause your client

has received final bill amounts, hence there are no issues

to be adjudicated by an arbitrator. As referred above in the

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contract entered by and between your client and my client,

there is no specific clause under which your client is

entitled for reimbursement on variation of prices. Hence the

same cannot be made an issue to be adjudicated by an

arbitrator.”

10.By way of rejoinder to the aforesaid reply notice, the Respondent

issued what it called a “clarification notice” on 20.03.2010, followed by

three letters dated 30.09.2010, reiterating the earlier requests for the

appointment of an arbitrator. This was rejected by the Appellant vide a

letter dated 10.11.2010, which letter informed the Respondent that the

President of the Secunderabad Cantonment Board had rejected the

application for appointment of an arbitrator as all payments were

made and nothing remained pending.

11.After a three-year long hiatus, the Respondent then filed applications

under Section 11 of the Arbitration Act on 06.11.2013. Vide the

impugned judgment dated 20.08.2019, a learned Single Judge of the

High Court for the State of Telangana held that the Section 11

applications were within time as they were filed within three years from

the letter dated 10.11.2010 rejecting the request to appoint an

arbitrator. The learned Single Judge also went on to record:

“39. Proceedings dt. 07.11.2003 filed by the respondent of

a Board Meeting of the respondent no doubt show payment

of Rs. 14,06,580/- in addition to Rs. 14,84,000/- but this

payment is not on account of claim under Clause 2.2.46 for

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reimbursement on variation in prices claimed by the

applicant. It is a payment sanctioned for actual quantities of

the various items of work which had increased, and so the

same cannot be prima-facie construed as a payment

towards the claim of the applicant under Clause 2.2.46.”

“42. The prolonged silence of the respondent from

08.09.2003 onwards regarding claims made by the

applicant under Clause 2.2.46 without any emphatic

rejection of the same, prima facie show that there appears

to be a live issue In that regard between the parties.”

12.As a result, the Section 11 applications were allowed and Shri Y.V.

Ramakrishna (Retired District Judge) was appointed as arbitrator to

adjudicate the disputes between the parties arising out of the three

agreements. The question of the bar of limitation of the claims made

was left open to be considered and decided by the arbitrator.

13.Shri P.S. Narasimha, learned Senior Advocate appearing on behalf of

the Appellant, submitted that the date on which the request made for

the appointment of an arbitrator was received by the President of the

Secunderabad Cantonment Board was 23.01.2007, as a result of

which, this is the date on which the limitation period starts running

under Article 137 of the Limitation Act, 1963 [“Limitation Act”] insofar

as an application under Section 11(6) of the Arbitration Act is

concerned. For this purpose he relied upon a judgment of the High

Court of Bombay in Deepdharshan Builders Pvt. Ltd. v. Saroj,

(2019) 1 AIR Bom R 249, as well as a recent judgment of this Court in

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Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd.,

(2020) 14 SCC 643. He then argued that even so far as the cause of

action on merits is concerned, it arose way back on 08.09.2003, when

the Respondent raised the claim with regard to the dispute for the first

time. Once time begins to run, limitation cannot be extended by writing

any number of subsequent letters. He also relied upon the recent

judgment of this Court in Vidya Drolia v. Durga Trading Corpn.,

(2021) 2 SCC 1, stating that this case falls under paragraph 148 of the

judgment, in that the claim was ex facie time barred and dead and that

there was no subsisting dispute.

14.In reply, Shri Nithin Chowdary Pavuluri, learned counsel appearing for

the Respondent, argued that the request for appointment of an

arbitrator was rejected by the Appellant for the first time on

10.11.2010, and thus, 10.11.2010 would be the date on which the

cause of action would arise. He pressed the point that the rejection of

the request to appoint an arbitrator constituted a failure to perform the

function entrusted to the President of the Secunderabad Cantonment

Board under Clause 2.2.52 of the General Conditions of Contract

[“GCC”], and thus the cause of action under Section 11(6)(c) of the

Arbitration Act first arose on 10.11.2010. Till such rejection, the claim

would have to be deemed to have been pending and thus, the

9

Respondent’s claim was alive at the time of filing the applications

under Section 11 of the Arbitration Act. Further, though he pressed the

point that the final bill was received under protest since the price

variation bill submitted with the final bill had not been cleared by the

Appellant, he produced no such document evidencing the same. In

addition, he sought to distinguish, on facts, the judgments of this Court

in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam

Ltd., (2020) 14 SCC 643 and Vidya Drolia v. Durga Trading Corpn.,

(2021) 2 SCC 1 from the appeals before us, by arguing that the GCC

between the Appellant and the Respondent specifically provided for a

procedure to appoint an arbitrator and that the Appellant was

responsible for delaying and sitting on the Respondent’s request.

Thus, he supported the impugned judgment of the High Court by

which the Section 11 applications were allowed.

15.Having heard learned counsel appearing for both parties, it is first

necessary to refer to the recent judgment of this Court in Geo Miller &

Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14

SCC 643, which extracts passages from all the earlier relevant

judgments, and then lays down as to when time begins to run for the

purpose of filing an application under Section 11 of the Arbitration Act.

This Court, after referring to the relevant statutory provisions, held:

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“15. In Damodar Das [State of Orissa v. 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 [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.

xxx xxx xxx

“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. 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.

xxx xxx xxx

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23. Turning to the other decisions, it is true that in Inder

Singh Rekhi [Inder Singh Rekhi v. DDA, (1988) 2 SCC

338], this Court observed that the existence of a dispute is

essential for appointment of an arbitrator. A dispute arises

when a claim is asserted by one party and denied by the

other. The term “dispute” entails a positive element and

mere inaction to pay does not lead to the inference that

dispute exists. In that case, since the respondent failed to

finalise the bills due to the applicant, this Court held that

cause of action would be treated as arising not from the

date on which the payment became due, but on the date

when the applicant first wrote to the respondent requesting

finalisation of the bills. However, the Court also expressly

observed that “a party cannot postpone the accrual of

cause of action by writing reminders or sending reminders”.

24. In the present case, the appellant has not disputed the

High Court's finding that the appellant itself had handed

over the final bill to the respondent on 8-2-1983. Hence,

the holding in Inder Singh Rekhi [Inder Singh Rekhi v.

DDA, (1988) 2 SCC 338] will not apply, as in that case, the

applicant's claim was delayed on account of the

respondent's failure to finalise the bills. Therefore the right

to apply in the present case accrued from the date on

which the final bill was raised (see Union of India v. Momin

Construction Co. [Union of India v. Momin Construction

Co., (1997) 9 SCC 97] ).

xxx xxx xxx

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.”

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16.The recent judgment of this Court in Bharat Sanchar Nigam Ltd. &

Anr. v. M/s Nortel Networks India Pvt. Ltd., delivered on 10.03.2021

in Civil Appeal Nos. 843-844 of 2021 has also considered the entire

law on the subject. The first paragraph of the said judgment reads as

follows:

“1. The present Appeals raise two important issues for our

consideration : (i) the period of limitation for filing an

application under Section 11 of the Arbitration and

Conciliation Act, 1996 (“the 1996 Act”); and (ii) whether the

Court may refuse to make the reference under Section 11

where the claims are ex facie time-barred?”

17.Insofar as the first issue is concerned, after examining Article 137 of

the Limitation Act, this Court held:

“11. 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.

12. 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

disputes is necessarily distinct from that of filing an

13

application for appointment of an arbitrator. This position

was recognized even under Section 20 of the Arbitration

Act 1940. Reference may be made to the judgment of this

Court in C. Budhraja v. Chairman, Orissa Mining

Corporation Ltd. [(2008) 2 SCC 444] 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. Paragraph 26 of this judgment

reads as follows :

“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

Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2

SCC 338] , Panchu Gopal Bose v. Board of

Trustees for 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.””

18.Insofar as the second issue is concerned, this Court went into the

14

position prior to the Arbitration and Conciliation (Amendment) Act,

2015 [“2015 Amendment”] together with the change made by the

introduction of Section 11(6A) by the 2015 Amendment, stating:

“24. Sub-section (6A) came up for consideration in the

case of Duro Felguera SA v. Gangavaram Port Ltd.

[(2017) 9 SCC 729], wherein this Court held that the

legislative policy was to minimize judicial intervention at the

appointment stage. In an application under Section 11, the

Court should only look into the existence of the arbitration

agreement, before making the reference. Post the 2015

amendments, all that the courts are required to examine is

whether an arbitration agreement is in existence —nothing

more, nothing less.

“48. Section 11(6-A) added by the 2015

Amendment, reads as follows:

“11. (6-A) The Supreme Court or, as the

case may be, the High Court, while

considering any application under sub-

section (4) or sub-section (5) or sub-

section (6), shall, notwithstanding any

judgment, decree or order of any court,

confine to the examination of the

existence of an arbitration agreement.”

(emphasis supplied)

From a reading of Section 11(6-A), the intention of

the legislature is crystal clear i.e. the court should

and need only look into one aspect—the

existence of an arbitration agreement. What are

the factors for deciding as to whether there is an

arbitration agreement is the next question. The

resolution to that is simple—it needs to be seen if

the agreement contains a clause which provides

for arbitration pertaining to the disputes which

have arisen between the parties to the

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agreement.

…

59. The scope of the power under Section 11(6)

of the 1996 Act was considerably wide in view of

the decisions in SBP and Co. [SBP and Co. v.

Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara

Polyfab [National Insurance Co. Ltd. v. Boghara

Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1

SCC (Civ) 117] . This position continued till the

amendment brought about in 2015. After the

amendment, all that the courts need to see is

whether an arbitration agreement exists—nothing

more, nothing less. The legislative policy and

purpose is essentially to minimise the Court's

intervention at the stage of appointing the

arbitrator and this intention as incorporated in

Section 11(6-A) ought to be respected.”

25. In Mayavati Trading Company Private Ltd. v.

Pradyut Dev Burman [(2019) 8 SCC 714], a three-judge

bench held that the scope of power of the Court under

Section 11 (6A) had to be construed in the narrow sense.

In paragraph 10, it was opined as under :

“10. This being the position, it is clear that the law

prior to the 2015 Amendment that has been laid

down by this Court, which would have included

going into whether accord and satisfaction has

taken place, has now been legislatively overruled.

This being the position, it is difficult to agree with

the reasoning contained in the aforesaid judgment

[United India Insurance Co. Ltd. v. Antique Art

Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2

SCC (Civ) 785] , as Section 11(6-A) is confined to

the examination of the existence of an arbitration

agreement and is to be understood in the narrow

sense as has been laid down in the judgment in

Duro Felguera, SA [Duro Felguera, SA v.

Gangavaram Port Ltd., (2017) 9 SCC 729”

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26. In Uttarakhand Purv Sainik Kalyan Nigam v.

Northern Coal Field Limited [(2020) 2 SCC 455] this

Court took note of the recommendations of the Law

Commission in its 246th Report, the relevant extract of

which reads as :

“7.6. The Law Commission in the 246th Report

[Amendments to the Arbitration and Conciliation

Act, 1996, Report No. 246, Law Commission of

India (August 2014), p. 20.] recommended that:

“33. … the Commission has

recommended amendments to Sections

8 and 11 of the Arbitration and

Conciliation Act, 1996. The scope of the

judicial intervention is only restricted to

situations where the court/judicial

authority finds that the arbitration

agreement does not exist or is null and

void. Insofar as the nature of intervention

is concerned, it is recommended that in

the event the court/judicial authority is

prima facie satisfied against the

argument challenging the arbitration

agreement, it shall appoint the arbitrator

and/or refer the parties to arbitration, as

the case may be. The amendment

envisages that the judicial authority shall

not refer the parties to arbitration only if it

finds that there does not exist an

arbitration agreement or that it is null and

void. If the judicial authority is of the

opinion that prima facie the arbitration

agreement exists, then it shall refer the

dispute to arbitration, and leave the

existence of the arbitration agreement to

be finally determined by the Arbitral

Tribunal.”

17

In view of the legislative mandate contained in the

amended Section 11(6A), the Court is now required only to

examine the existence of the arbitration agreement. All

other preliminary or threshold issues are left to be decided

by the arbitrator under Section 16, which enshrines the

kompetenz-komptenz principle. The doctrine of

kompetenz-komptenz implies that the arbitral tribunal is

empowered, and has the competence to rule on its own

jurisdiction, including determination of all jurisdictional

issues. This was intended to minimise judicial intervention

at the pre-reference stage, so that the arbitral process is

not thwarted at the threshold when a preliminary objection

is raised by the parties.”

(emphasis in original)

19.This Court went on to hold that limitation is not a jurisdictional issue

but is an admissibility issue. It then referred to a recent judgment of

this Court in Vidya Drolia v. Durga Trading Corporation, (2021) 2

SCC 1, and stated as follows:

“36. In a recent judgment delivered by a three-judge bench

in Vidya Drolia v. Durga Trading Corporation [(2021) 2

SCC 1], on the scope of power under Sections 8 and 11, it

has been held that the Court must undertake a primary first

review to weed out “manifestly ex facie non-existent and

invalid arbitration agreements, or non-arbitrable disputes.”

The prima facie review at the reference stage is to cut the

deadwood, where dismissal is bare faced and pellucid, and

when on the facts and law, the litigation must stop at the

first stage. Only when the Court is certain that no valid

arbitration agreement exists, or that the subject matter is

not arbitrable, that reference may be refused.

In paragraph 144, the Court observed that the

judgment in Mayavati Trading had rightly held that the

judgment in Patel Engineering had been legislatively

overruled.

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Paragraph 144 reads as :

“144. As observed earlier, Patel Engg. Ltd.

explains and holds that Sections 8 and 11 are

complementary in nature as both relate to

reference to arbitration. Section 8 applies when

judicial proceeding is pending and an application

is filed for stay of judicial proceeding and for

reference to arbitration. Amendments to Section 8

vide Act 3 of 2016 have not been omitted. Section

11 covers the situation where the parties

approach a court for appointment of an arbitrator.

Mayavati Trading (P) Ltd., in our humble opinion,

rightly holds that Patel Engg. Ltd. has been

legislatively overruled and hence would not apply

even post omission of sub-section (6-A) to

Section 11 of the Arbitration Act. Mayavati Trading

(P) Ltd. has elaborated upon the object and

purposes and history of the amendment to

Section 11, with reference to sub-section (6-A) to

elucidate that the section, as originally enacted,

was facsimile with Article 11 of the Uncitral Model

of law of arbitration on which the Arbitration Act

was drafted and enacted.”

(emphasis supplied)

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.

Paragraph 148 of the judgment reads 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.

19

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 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.”

In paragraph 154.4, it has been concluded that:

“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-

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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)

In paragraph 244.4 it was concluded that:

“244.4. The court should refer a matter if the

validity of the arbitration agreement cannot be

determined on a prima facie basis, as laid down

above i.e. “ when in doubt, do refer ”.”

37. The upshot of the judgment in Vidya Drolia is

affirmation of the position of law expounded in Duro

Felguera and Mayavati Trading, which continue to hold

the field. It must be understood clearly that Vidya Drolia

has not resurrected the pre-amendment position on the

scope of power as held in SBP & Co. v. Patel

Engineering (supra).

It is only in the very limited category of cases, where

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

facie time-barred, or that the dispute is non-arbitrable, that

the court may decline to make the reference. However, if

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

disputes to arbitration, otherwise it would encroach upon

what is essentially a matter to be determined by the

tribunal.”

(emphasis in original)

20.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

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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 07.11.2006. This demand was reiterated by a letter dated

13.01.2007, 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 12.02.2007. The Appellant’s laconic letter dated 23.01.2007,

which stated that the matter was under consideration, was within the

30-day period. On and from 12.02.2007, 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 06.11.2013, 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.

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21.Even otherwise, the claim made by the Respondent was also ex facie

time barred. It is undisputed that final payments were received latest

by the end of March 2003 by the Respondent. That apart, even

assuming that a demand could have been made on account of price

variation, such demand was made on 08.09.2003. Repeated letters

were written thereafter by the Respondent, culminating in a legal

notice dated 30.01.2010. Vide the reply notice dated 16.02.2010, it

was made clear that such demands had been rejected. Even taking

16.02.2010 as the starting point for limitation on merits, a period of

three years having elapsed by February 2013, the claim made on

merits is also hopelessly time barred.

22.For all these reasons, the appeals are allowed and the impugned

judgment of the High Court dated 20.08.2019 is set aside.

…………………................J.

[ R.F. NARIMAN ]

………………....................J.

[ B.R. GAVAI ]

New Delhi;

March 15, 2021.

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