The Supreme Court, relying upon the doctrine of kompetenz – kompetenz enshrined in Section 16 of the Arbitration & Conciliation Act, 1996. in the case of Uttarakhand Purv Sainik Kalyan Nigam Ltd. Vs. Northern Coal Field Ltd. Order (Special Leave Petition (C) No. 11476 of 2018), has held that the issue of limitation can be decided by the Arbitrator only.
An agreement dated 21.12.2010 was executed between the parties, under which the Petitioner (Contractor) agreed to provide security to the Respondent (Company) around the clock on need basis, as per the agreed rates. Disputes arose between the parties concerning payment under the contract by the Respondent and the deduction of the security money from the running bills. The Petitioner issued a Legal Notice demanding payment of amounts to the tune of Rs. 1,43,69,309/- along with interest from the Respondent.
The Petitioner issued a Notice of Arbitration asking the Respondent to nominate a Sole Arbitrator as per the arbitration clause, to adjudicate the disputes between the parties; however, the Respondent Company did not respond to the notice.
After that Petitioner, filed an Application, under Section 11(6) of Arbitration and Conciliation Act 1996, invoking the power of the High Court to make the appointment of a sole arbitrator. The High Court rejected the application and held that the claims of the Petitioner were barred by limitation. Therefore no arbitrator can be appointed in the matter by the Court. Feeling aggrieved by order of the High Court, the Petitioner filed a Special Leave Petition before the Supreme Court.
Can High Court reject an application filed under Section 11 for reference to arbitration, on the ground that it was barred by limitation?
Findings of Court:
- The 2015 Amendment Act brought a significant change in the appointment process under Section 11: firstly, in arbitrations governed by Part I of the Act, the default power of appointment shifted from the Chief Justice of the High Court to the High Court; secondly, the scope of jurisdiction under sub-section (6A) of Section 11 has been confined to the examination of the existence of the arbitration agreement only at the pre-reference stage.
- The Court referred to the seven judges constitution bench Judgment of the Supreme Court in SBP & Co. v. Patel Engineering Ltd., reported in (2005) 8 SCC 618, wherein it was held that the Chief Justice was earlier required to decide all preliminary issues concerning the existence of the agreement, jurisdiction, liveliness of claim; or whether the claim is time-barred; or whether final payment has been received without any objection, under Section 11, at the pre-reference stage.
- However, considering the recommendations of the Law Commission, by adding a non-obstante clause in Section 11 vide amendment in 2015, the Parliament reinforced the kompetenz-kompetenz principle enshrined in Section 16 of the 1996 Act, to overcome all previous Judicial Decisions.
- Given the non-obstante clause in Section 11(6A), previous judgments rendered in Patel Engineering Case (supra) and Boghara Polyfab Case (supra), were over-ruled in legislative power. Now the scope of examination of Application under Section 11(6) is restricted only to the presence of the arbitration agreement, and nothing more.
- The Court held that now while considering the Application under 11(6), only the existence of the arbitration agreement has to be examined by the Court concerned. All other preliminary issues are to be decided by the Arbitrator under Section 16, which enshrines the Kompetenz-Kompetenz principle.
- However, the Court carved out exceptions to the doctrine of kompetenz-kompetenz, i.e. when the arbitration agreement is disputed, on the ground of being procured by fraud. This exception would apply to draft agreements also, which could not culminate into a final agreement between the parties.
- Therefore the Court answered the issue by holding that in view of the legislative policy to restrict judicial intervention at the pre-reference stage under Section 16(1), the issue of limitation would require to be decided by the Arbitrator only. Sub-section (1) of Section 16 clearly provides that the Arbitrator may rule on its jurisdiction,”including any objections” regarding the existence or validity of the arbitration agreement.