Limitation Challenges In Arbitration - Re- Initiating Arbitration After An Award Is Set Aside
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Category: Arbitration & ADR
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LIMITATION CHALLENGES IN ARBITRATION: RE-
INITIATING ARBITRATION AFTER AN AWARD IS SET
ASIDE
Vishnu R U, BMS College of Law
ABSTRACT
Arbitration is one of the most preferred forms of Alternative dispute resolution due to its efficiency and feasibility. It is already well known that the principle of res-judicata does not apply to arbitration proceedings, therefore parties can opt for re-arbitration or re-initiating arbitration. However, when an arbitral award is set aside parties face ambiguity related to the limitation period for re-initiating arbitration. This article explores the applicability of the Limitation Act, 1963, to arbitration under section 43(1) of the Arbitration & Conciliation Act, 1996, and analyses whether fresh notice under section 21 of the Act is required when re-initiating arbitration. This article examines key judicial precedents along with an illustration to demonstrate how parties must carefully track the remaining limitation period to avoid losing their right to arbitrate. This article also highlights the need for legislative clarity to ensure arbitration remains a time-bound process. It also recommends reducing the limitation period for appointing arbitrators and defining rules for re-initiating arbitration to prevent unnecessary delays. Keywords: Arbitration, Limitation, Initiation, re-initiation.
1) Introduction
Arbitration is a form of Alternative Dispute Resolution (ADR). ADR refers to settling of disputes without any litigation, where the settlement of the case is done by the impartial third party through conciliation, mediation, arbitration, Lok Adalat, and negotiations.1 The World Intellectual Property Organization (WIPO) defines Arbitration as a procedure in which a dispute is submitted, by the agreement of the parties, to one or more arbitrators for a binding decision.2 In recent years India has witnessed a rise in Arbitration as it is considered an effective mode of dispute resolution. The Mumbai Centre For International Arbitration (MCIA) observed a 20 percent (20%) increase in its caseload for the year 2022. As per the MCIA annual report 2023, ninety-three percent (93%) of the matters referred to arbitration have been completed within eighteen (18) months timeline, with no arbitral award being set aside. One of the main features of Arbitration is its speedy resolution of disputes. The procedures followed in arbitration are not very complex as compared to the CPC (Code of Civil Procedure,
1908) or the Indian Evidence Act, 1872. Section 193 of the Arbitration and Conciliation Act,
1996 expressly provides for the exclusion of the application of CPC, 1908, and The Indian
Evidence Act, 1872. The parties are free to decide on the procedure to be followed by the arbitral tribunal in conducting its proceedings. In case there is no such agreement between the parties with respect to the procedure of proceedings, the Tribunal can conduct the proceedings in the manner it considers appropriate. Courts in various instances have also encouraged parties to opt for arbitration to resolve disputes. Section 8 of the Act4 mandates the courts to refer the dispute to arbitration if the parties to the dispute have an arbitration agreement. The court cannot refer the dispute to arbitration when there is no express condition in the agreement to refer the dispute to arbitration5. In case there is no arbitration clause in the agreement between parties then a written consent of parties by way of joint memo or joint application is necessary for the court to refer the parties to arbitration. Oral consent by the parties is not sufficient for the court to refer the dispute to arbitration and therefore written 1Tala Esmaili and Krystyna Gilkis, Alternative Dispute Resolution, LEGAL INFORMATION INSTITUTE, https://www.law.cornell.edu/wex/alternative_dispute_resolution.
2 Organization, W. I. P. (2020). Guide to WIPO Arbitration, 2020. WIPO.
3 The Arbitration & Conciliation Act, 1996.
4 Section 8 of the Arbitration & Conciliation Act, 1996
5 Kerala State Electricity Board and Anr. v.. Kurien E. Kathilal and Anr MANU/SC/0231/2018
consent by the parties is mandatory. In order to initiate or re-initiate arbitration the parties should also look into the aspect of limitation.
2) Application of Limitation Act, 1963 to Arbitration Proceedings.
The Limitation Act, 19636 is an Act to consolidate and amend laws relating to the limitation of suits. The object of this Act is to compel a person to exercise his rights within a reasonable time and to discourage fake or fraudulent claims.7 It fixes the life span for legal injury suffered by an aggrieved person.8 Section 3 of the Limitation Act, 1963 states that any suit, application, or appeal filed beyond the limitation period will be dismissed. The rules of limitation are not meant to destroy the rights of the parties. It only bars the remedy and will not extinguish the rights. It gives assurance to the opposite party that the litigation will not be subject to an indefinite period of liability. The Limitation Act, 1963, is made applicable to the Arbitration & Conciliation Act, 1996 by virtue of sections 43(1) and 43(3) of the Arbitration & Conciliation Act, 1996.9 Under Part X section 43(1) of the Arbitration & Conciliation Act, 1996 states that Limitation Act, 1963, shall apply to arbitration as it applies to proceedings in court. This ensures that the time limits for initiating proceedings apply to arbitration, thereby promoting consistency and certainty. No Action can be initiated by the party after the expiration of the prescribed limitation period. None of the articles in the schedule to the Limitation Act, 1963 specifically provides a time period for initiating arbitration proceedings. Therefore article 137 of the Limitation Act, 1963 will apply to Arbitration proceedings except to the extent expressly excluded by the provisions of the Arbitration & Conciliation Act, 1996. Various high courts in cases such as Prasar Bharti v. Maa Communication10 and Golden Chariot Recreations PVT. LTD v. Mukesh Panika11, have upheld the applicability of Art 137 of the Limitation Act, 1963, to the Arbitration & Conciliation Act, 1996. The reasoning is that the application u/s 11 for the appointment of an arbitrator is in a court of law, and no article of the Limitation Act, 1963, provides limitation for
6 The Limitation Act, 1963.
7 B.B. & D. Mfg. Co. v. ESI Corporation, AIR 1972 SC 1935
8 Balakrishnan v. M.A. Krishnamurthy (1998) 7 SCC 123
9 Milkfood Ltd v. M/s GMC Ice Cream (P) ltd(2004) 7 SCC 288
10 Prasar Bharti v. Maa Communication, 2010 SCC OnLine Del 526.
11 Golden Chariot Recreations PVT. LTD v. Mukesh Panika, 2018 SCC OnLine Del 10050.
filing such an application, therefore the residual article ( Art 137) becomes applicable. Art 137 of the Limitation Act, 1963 is a residual provision, it provides a limitation for any application for which no period of limitation is provided in any of the Articles in the Schedule of the Limitation Act, 1963. It provides for a limitation period of three years from the time the "right to apply" accrues.
2.1 Limitation for Initiating Arbitration Proceedings.
Section 43(2) of the Arbitration & Conciliation Act, 1996 states that arbitration proceedings shall be deemed to have commenced on the date referred to in section 21 of the Act. Section
21 of the Act speaks about the Commencement of arbitral proceedings. It lays down that arbitral
proceedings will commence from the date on which a notice to refer the dispute to arbitration is received by the respondent. The moment a request for referring a dispute to arbitration is received by one party from the other, it shall mark the commencement of arbitral proceedings.12 The receipt of the notice by the respondent is mandatory to commence arbitration proceedings, and mere service of notice by the claimant is not sufficient. There must be a proper notice for invoking arbitration (includes claims/ amounts), and it must be received by the other party within 3 years from the date when the cause of action arose.13 The award rendered without notice and without hearing the party is illegal and liable to be set aside.14 Therefore notice is sine qua non for initiating arbitration. This notice needs to be sent within three years from when the cause of action arose.
2.2 Breaking Point.
The period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of Action or a right to refer the dispute to arbitration.15 In simple words, it means a cause of action arises when the applicant asserts a claim and the respondent has either denied or failed to reply to such claim. For this, the courts have emphasized the concept of breaking point which is crucial while determining limitation. ‘Breaking point’, is a point at which any reasonable party would have abandoned efforts at arriving at a settlement and considered referring the
12 Bharat Sanchar Nigam Ltd v. Nortel Networks India Pvt. Ltd. (2021) 5 SCC 738.
13 Indian Spinal Injuries Centre v. Galaxy India 2024 SCC OnLine Del 4385
14 Sachin Gupta v. K.S.Forge Matel (Pvt.) Ltd. (2013) 10 SCC 540
15 B & T AG v. Union of India, (2024) 5 SCC 358.
dispute for arbitration. This breaking point would be treated as the date on which the cause of Action arises, for the purpose of limitation16. Once the limitation starts running from the breaking point any further negotiations between the parties will not create any new limitation period.
2.3 Limitation for Appointment of Arbitrators.
Sections 8 and 11 of the Arbitration & Conciliation Act, 1996 are complementary in nature both relate to reference to arbitration17. Section 11 of the Arbitration & Conciliation Act, 1996 speaks about the appointment of arbitrators. Arbitrators for arbitration proceedings can be appointed as per the arbitration agreement or by mutual agreement of the parties. If parties fail to appoint an arbitrator or the arbitrators appointed by the parties cannot agree on the third presiding arbitrator, or do not adhere to the agreed appointment procedure within 30 days of receiving notice, either party may apply to the Supreme Court (in case of international arbitration) or to the High Court (in case of domestic arbitration) under Section 11 of the Arbitration & Conciliation Act, 1996 to appoint an arbitrator. The period of 30 days is only applicable to applications filed under section 11(4) and/or 11(5), and such period is not applicable to applications filed under 11(6) of the Act.18 This period of
30 days may be changed to 15 days.19
The limitation period starts from the date when there is a failure to appoint arbitrators.20 Thus while considering the issue of limitation in relation to a petition under Section 11(6) of the
1996 Act, the Courts should satisfy two aspects —
a) firstly, whether the petition under Section 11(6) of the Act is barred by limitation; and b) secondly, whether the claims sought to be arbitrated are ex facie dead claims and are thus barred by limitation. If the party fails to satisfy any one of the aspects, the Court
16 Geo Miller & Co. Pvt. Ltd v. Rajasthan Vidyut Utpadan Nigam Ltd (2020) 14 SCC 643.
17 SBP & CO. v. Patel Engg. ltd (2005) 8 SCC 618.
18 Ace pipeline contrAct (P) Ltd v. Bharat Petroleum corpn ltd (2007) 5 SCC 304.
19T.K. Viswanathan, Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act, 1996 to make it alternative in the letter and spirit, (7-2-2024).)
20 (2021) 5 SCC 738.
may refuse to appoint an Arbitrator.21 Therefore, the courts while appointing arbitrators have to not only ensure that the application made by the parties is within 3 years, but they also have to look into whether the claims of the parties are also within the limitation period. Suppose the claims are ex facie dead claims then it is barred by limitation. And such claims cannot be arbitrated.
2.4 Limitation for Re-initiating Arbitration.
When an arbitral award passed by the tribunal is challenged by any one of the parties to the arbitration, and subsequently a competent court sets aside the award in accordance with section
34. Once the award is set aside parties are free to begin the arbitration again if it is desired or
reinitiate arbitration22. Section 43(4) simply put, excludes the time from commencement of arbitration to the date of setting aside of the arbitral award for the purpose of computing the time for commencement of the proceedings with respect to the dispute between the parties. To re-initiate arbitration there is no requirement to have a new arbitration agreement. After the award is set aside, reinitiation of arbitration can be commenced under the existing arbitration clause and the same is neither based on nor dependent upon a fresh arbitration agreement between the parties.23 Now the question that arises is whether a fresh notice under section 21 of the Act to initiate arbitration is mandatory or not. There is no requirement for fresh notice under section 21 of the Act.24 The reason is that for re-commencing the arbitration after the first award is set aside under Section 34 of the Act a notice is not required as the opposite party would already be aware of the existence of the dispute. However, some courts have taken a different view and this is still a developing legal area. In my opinion, a fresh notice would be required because commencement of arbitration is possible only through a notice u/s 21 of the act, section 43(4) of the Arbitration Act provides to exclude time from the date of commencement of arbitration to setting aside of the award, for the purpose of limitation, therefore to reinitiate arbitration a fresh notice would be necessary and the other party should be aware of the arbitration being reinitiated. Parities cannot rely on the earlier notice to reinitiate arbitration. Further, Section 43(4) should be read in accordance with Article 137 of the
21 Arif Azim Co. Ltd. v. Aptech Ltd (2024) 5 SCC 313
22 McDermott International Inc. v. Burn Standard Co. Ltd (2006) 11 SCC 181.
23 R.J. Shah & Co. Ltd. v. State of Maharashtra and others, CARBAP NO. 13 of 2021.
24 Kirloskar Pneumatic Co. Ltd. v. Kataria Sales Corporation 2024 SCC OnLine Bom 941.
Limitation Act, 1963, it cannot be concluded that the date of setting aside of award will create a fresh period of limitation. Section 43(4) of the Arbitration & Conciliation Act, 1996 cannot breathe life into a proceeding that is already dead under Article 137 of the Limitation Act, 1963.25 This means that once the award is set aside, it will not create a fresh period of limitation, the limitation from the breaking point continues. Even if 43(4) is applied and the time from commencement of arbitration till setting aside of award is excluded, the limitation period from the breaking point still continues. So from the breaking point, the parties can initiate arbitration within 3 years. Assuming the party exhausts 1.5 years out of the 3 years for initiating arbitration so later after all the proceedings of arbitration are completed and the award is set aside by a competent court, and if parties intend to reinitiate arbitration, they can do so within the remaining 1.5 years only. If the parties fail to reinitiate within 1.5 years, the claim will be barred by limitation.
3. ILLUSTRATION
Company ‘A’ and company ‘B’ enter into a contract for the completion of a project. A dispute arose between the parties regarding payment. ‘A’ claims payment of a certain amount which ‘B’ rejects. Now ‘A’ can invoke the arbitration clause to settle the dispute. ‘A’ should send a notice invoking arbitration to ‘B’ within 3 years from the date of rejection of the claim by ‘B’. ‘A’ sends notice after 1 year and 6 months. Once the notice is sent within the Limitation period, they can move forward to appoint arbitrators. Parties can appoint arbitrators on the agreed procedure. If party ‘B’ fails to Act according to the agreed procedure and doesn't appoint an arbitrator within 30 days of receiving a request from party ‘A’. Party ‘A’ can make an application to the high court or the Supreme Court as the case may be for the appointment of arbitrators. This application can be made within 3 years from the date when there was a failure to appoint an arbitrator. Further, the award is passed by the arbitrators. Parties can also file an application in the competent court to set aside the award on the grounds mentioned in Section
34 of the Act. The competent court can either uphold the award or set aside the award only if
the award passed by the arbitrators is in violation of section 34 26of the Act. This decision is appealable in the higher courts. Now once the award is set aside and the parties intend to rearbitrate, they can do so by re-initiating arbitration within the remaining 1 year and 6 months
25 Manish Todi v. Pawan Agarwal 2023 SCC OnLine Cal 4812.
26 Section 34 of the Arbitration & COnciliation Act, 1996.
time period. Further, for appointment of arbitrators by courts following an application by the parties in case of re-initiating arbitration would be 3 years.
4. Conclusion.
The Arbitration & Conciliation Act, 1996 aims to ensure the speedy resolution of disputes, but the prolonged limitation periods for initiating and re-initiating arbitration undermine the objective of this Act. While courts have attempted to clarify these issues, legislative intervention is necessary to prevent ambiguity and procedural delays. The Act should be amended to expressly define the limitation period for re-initiating arbitration and should also consider reducing the limitation period for appointing arbitrators. A more streamlined approach would increase arbitration’s effectiveness as a time-bound dispute resolution mechanism, reducing unnecessary litigation.