Limitation Period For Applications Under Section 8 Of The Arbitration Act: How Late Is Too Late?
Phoenix Legal Advises Höegh LNG
Factual Background
Pursuant to disputes arising between the parties, two suits were filed by the plaintiffs on 17 February 2018 seeking recovery of amounts due from the defendants. Summons in the suits were issued by the Court on 15 March 2018. Thereafter, on 16 May 2018, time was granted to the defendants for filing of the written statement.
Since insolvency proceedings against the defendants were commenced on 17 May 2018 before the National Company Law Tribunal (NCLT), the defendant did not file a written statement. After conclusion of the insolvency proceedings before the NCLT on 8 October 2018, the defendants moved two applications under Section 8 of the Arbitration Act (Section 8 Application(s)) in each of the suits on 2 November 2018. By way of the Section 8 Applications, the defendants sought reference to arbitration, in accordance with the arbitration clause in the agreement between the parties.
The Section 8 Applications remained under objections for over 3 months, and objections were removed only by 11 February 2019 (effective date of filing of the Section 8 Applications). The petitioners objected to the Section 8 Applications on the ground that since the limitation period for filing of written statement had expired, even Section 8 Applications cannot be filed by the defendants.
Issues Raised
Two important questions of law were raised in the matter:
- Whether there is a limitation period prescribed for filing of a Section 8 Application?
- Whether the limitation for filing of a written statement as prescribed in the Civil Procedure Code, 1908 (CPC), and the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Commercial Courts Act) would be applicable for filing of a Section 8 Application?
Findings of the Court
The Court commenced its analysis by drawing comparisons between the wording of Section 8(1) of the Arbitration Act prior to, and post the Arbitration and Conciliation (Amendment) Act, 2015.
Unamended wording of Section 8(1) | Amended wording of Section 8(1) |
A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. | A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. |
To begin with, the Court placed reliance on some of its previous decisions to clarify that the "first statement on the substance of the dispute" is the written statement required to be filed by a litigant in terms of Order VIII Rule 1 of the CPC.
Considering the broad scheme of amendments in the CPC and the Arbitration Act in recent years, the Court was of the opinion that the amendment to Section 8 is a conscious step towards prescribing a limitation period for filing the Section 8 Application. The mention of the word "date" in the amended provision means that a reference is being made to a precise date to remove the ambiguity. The entire intention is that those parties who wish to proceed for arbitration ought to do so with alacrity and speed and not procrastinate.
In view of the above discussion, the Court carved out two instances wherein the right to arbitrate may be deemed to have been waived under the amended Section 8. Firstly, by filing of a statement of defence/written statement or submitting to jurisdiction; and secondly, by unduly delaying the filing of the Section 8 Application and not filing the same till the date by which the statement of defence/written statement could have been filed. In both these situations, there can be no reference to arbitration.
In the case of SSIPL, the Court was of the view that there was an unjustifiable delay in filing the Section 8 Applications. The Court observed that as on the date of filing of the Section 8 Applications i.e., 11 February 2019, more than 120 days had transpired even after conclusion of the insolvency proceedings against the defendants, before the NCLT. The defendants were therefore disallowed from abusing the provision for reference to arbitration, granted under Section 8 of the Arbitration Act, with a view to uphold the legislative intent behind the amendments in the CPC and the Arbitration Act.
Vasanth Rajasekaran is a partner at Phoenix Legal, a full-service law firm having its offices at New Delhi and Mumbai. Vasanth is based out of New Delhi and his practice areas include Dispute Resolution (Litigation & Arbitration) & Projects.
[1] CS (COMM) 735/2018, I.As. 15576/2018, 2756/2019, 2757/2019 & 2758/2019 decided on 19 February 2020.
[2] Amendment introduced by the Arbitration and Conciliation (Amendment) Act, 2015.
[3] Sharad P. Jagtiani v. Edelweiss Securities Limited, 2014 (2) ArbLR 136 (Delhi); and Krishan Radhu v. Em aar MGF Construction Pvt. Ltd. CS(OS) 3281/2014 decided on 21.12.2016.
[4] See Krishan Radhu v. Em aar MGF Construction Pvt. Ltd., CS(OS) 3281/2014 decided on 21.12.2016.
[5] Order VIII Rule 1, CPC.
[6] In view of the amendment incorporated by the Commercial Courts Act.
[7] See Krishan Radhu v. Em aar MGF Construction Pvt. Ltd. CS(OS) 3281/2014 decided on 21.12.2016; and Parasramka Holdings Pvt. Ltd. v. Ambience Pvt. Ltd., 2018 (2) ArbLR 498 (Delhi).
[8] See M/s SCG Contracts India Pvt. Ltd. v. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors., AIR 2019 SC 2691.