Arbitration in India: Navigating Delays and the Role of Limitation Periods

The Arbitration and Conciliation Act, 1996, lays down a robust framework to address delays, ensure timely invocation of arbitration, and enforce the limitation period through sections such as 8, 11, 21, and 43. Drawing from landmark judgments, this article examines the implications of delay, the commencement of arbitration, and the application of the Limitation Act, 1963, to arbitration proceedings.

Arbitration and Conciliation Act, 1996:

Section 8: Mandates judicial authorities to refer disputes to arbitration if the arbitration agreement exists and is invoked before submission of the first statement on the substance of the dispute.

In M/S Sundaram Finance Limited And Anr vs T. Thankam on 20 February, 2015,  It was said by the court,

“Once there is an agreement between the parties to refer the disputes or differences arising out of the agreement to arbitration, and in case either party, ignoring the terms of the agreement, approaches the civil court and the other party, in terms of the Section 8 of the Arbitration Act, moves the court for referring the parties to arbitration before the first statement on the substance of the dispute is filed, in view of the peremptory language of Section 8 of the Arbitration Act, it is obligatory for the court to refer the parties to arbitration in terms of the agreement, as held by this Court in P. Anand Gajapathi Raju and others v. P.V.G. Raju (Dead) and others”.

Section 11: Pertains to the appointment of arbitrators, with the Supreme Court or High Court intervening in cases where parties delay invoking arbitration (given 30 days time to appoint arbitrators).

Section 21: Section 21 specifies the point at which arbitral proceedings are deemed to commence. The provision reads:

“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.”

Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd. (2017)

The Delhi High Court held that the date of receipt of the notice under Section 21 determines the commencement of arbitral proceedings, even if the arbitral tribunal is constituted later.

The court said,

“In view of section 21 of the Act providing that the arbitration proceedings shall be deemed to commence on the date on which “the request for that dispute to be referred to arbitration is received by the respondent” the said confusion is cleared. Therefore the purpose of section 21 of the Act is to determine the date of commencement of the arbitration proceedings, relevant mainly for deciding whether the claims of the claimant are barred by limitation or not.”

Section 43: Applies the Limitation Act, 1963, to arbitration proceedings. The time limit for invoking arbitration aligns with the limitation period prescribed for filing a civil suit on the same subject matter.

 Sub-section (1): Application of Limitation Act

• The Limitation Act, 1963, applies to arbitration proceedings in the same manner as it applies to proceedings in courts.

Sub-section (2): Commencement of Limitation Period

• For the purpose of arbitration, the limitation period begins to run when the cause of action arises and stops when a request for arbitration (under Section 21) is received by the respondent.

Sub-section (3): Arbitration Agreements and Pre-existing Disputes

• Arbitration agreements do not extend or alter limitation periods for disputes unless explicitly stated.

Sub-section (3) states as follows-

“(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.”

Article 137 of Limitation Act

Article 137 serves as a catch-all clause for applications not covered by specific articles in the Limitation Act.

Applicability to Arbitration: It governs the limitation period for filing arbitration claims or invoking arbitration under the Arbitration and Conciliation Act, 1996, in cases where no specific period is prescribed.

Link Between Article 137 and the Arbitration Act

1. Section 43 – Limitation in Arbitration:
   • Section 43 incorporates the Limitation Act into arbitration proceedings.
   • For arbitration claims, the limitation period under Article 137 (3 years) applies from the date when the cause of action arises.
   • This ensures that arbitration proceedings are initiated within the same timeframe as civil suits.
2. Section 21 – Commencement of Arbitration:
   • Under Section 21, arbitral proceedings commence when the respondent receives the request for arbitration.
   • If the request is made within the 3-year limitation period under Article 137, the claim is considered timely.
   • Section 21 essentially “stops the clock” for limitation purposes, preventing the period from running further after the request is received.

Typical Limitation Periods under Limitation Act, 1963

State of Orissa v. Damodar Das (1996)

The Supreme Court said in this case,

“An application under Section 20 is governed by Article 137 of the schedule to the Limitation Act, 1963 and must be made within 3 years from the date when the right to apply first accrues. There is no right to apply until there is a clear and unequivocal denial of that right by the respondent. It must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of cause of action arisen in a civil action.”

Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, [1993] 4 SCC 338 (this case was also referred in Damodar das case)

Supreme Court held that the provisions of the Limitation Act would apply to arbitrations and notwithstanding any terms in the contract to the contrary, cause of arbitration for the purpose of limitation shall be deemed to have accrued to the party, in respect of any such matter at the time when it should have accrued but for the contract.

Cause of arbitration shall be deemed to have commenced when one party serves the notice on the other party requiring the appointment of an arbitrator. The question is when the cause of arbitration arises in the absence of issuance of a notice or omission to issue notice for long time after the contract was executed?

Arbitration implies to charter out timeous commencement of arbitration availing the arbitral agreement, as soon as difference or dispute has arisen. Delay defeats justice and equity aids promptitude and resultant consequences. Defaulting party should bear the hardship and should not transmit the hardship to the other party, after the claim in the cause of arbitration was allowed to be barred. It was further held that where the arbitration agreement does not really exist or ceased to exist or where the dispute applies outside the scope of arbitration agreement allowing the claim, after considerable lapse of time, would be a harassment to the opposite party.

It was accordingly held in that case that since the petitioner slept over his rights for more than 10 years, by his conduct he allowed the arbitration to be barred by limitation and the Court would be justified in relieving the party from arbitration agreement under Sections 5 and 12(2)(b) of the Act.

Key Consideration

Arbitration Agreements and Cause of Action: The limitation period under Article 137 does not start on the date of the arbitration agreement but when the cause of action (e.g., breach of contract) arises.

Delay in Invoking Arbitration: Failure to issue a notice under Section 21 within the 3-year limitation period under Article 137 makes the claim time-barred, rendering arbitration inapplicable.

Timely Invocation of Arbitration: Parties must issue a Section 21 notice within the 3-year period prescribed by Article 137 to preserve their claims.

Stopping the Limitation Clock: Section 21 ensures that limitation ceases to run once arbitration is invoked.

Judicial Review: Courts strictly enforce Article 137, rejecting claims that are delayed without sufficient cause.