Setting The Clock: Proposing A Limitation Period For An Application To Appoint Arbitrators

This paper analyses the question: “How long can the aggrieved party, under law, delay before applying for the appointment of an arbitrator?” It first explores the interaction between the Act and the Limitation Act, 1963 (“Limitation Act”), then critiques the current legal position regarding the limitation period for Section 11(6) applications, and finally proposes an amendment to address the identified concerns.

Interaction Between Arbitration And Limitation

This section examines the Limitation Act's relevance to Arbitration, particularly its implications for Section 11(6) applications.

Section 43 of the Act explicitly incorporates the provisions of the Limitation Act, ensuring that the time limits for initiating proceedings apply equally to arbitration, thereby promoting consistency and certainty. However, the Limitation Act does not explicitly address the appointment of arbitrators.

Section 137 of the Limitation Act is a residual provision that prescribes a three-year limitation period for any application not explicitly covered elsewhere. The Supreme Court has consistently held that Section 137 of the Limitation Act applies to Section 11(6) applications.^[1]

The Court established a two-pronged test to determine the limitation period's applicability. First, the Court identifies the date on which the “cause of action” for requesting the appointment of an arbitrator arises, which is when one party invokes the arbitration agreement, and the other party fails to appoint an arbitrator within the agreed-upon timeframe. Once the cause of action is established, the three-year limitation period prescribed by the Limitation Act applies. Thus, under the current regime, the application for the appointment of an arbitrator must be filed within three years.

Critiquing The Current Three-Year Limitation Period

To understand the issue with the three-year limitation period, consider the following illustration:

X Ltd. initiated an arbitration against Y Ltd. on 01.01.2020. The parties failed to agree on the appointment of an arbitrator within thirty days of receiving X Ltd.'s request. X Ltd.'s right to apply for a Section 11(6) application accrues on 31.01.2020. Currently, X Ltd. can delay applying until 31.01.2023.

The primary issue with the three-year period is that it allows for significant delays in the arbitration process. Arbitration is supposed to provide a quicker resolution to disputes compared to litigation. However, this advantage is lost if parties can wait up to three years before starting arbitration. This extended timeframe undermines arbitration's effectiveness and efficiency.

Secondly, prolonged disputes lead to increased costs. Delays in initiating arbitration result in higher legal fees and administrative expenses, burdening smaller businesses and individuals. Additionally, unresolved disputes require ongoing record maintenance and preparation, consuming resources that a shorter limitation period could save.

Thirdly, an extended period can deteriorate evidence. Over time, evidence may become less reliable, witnesses may become unavailable, and details may disintegrate. This degradation affects the fairness and accuracy of arbitration proceedings, making it harder to resolve disputes based on the best possible evidence.

Recognising these issues, courts have suggested legislative amendments to specify a shorter limitation period for Section 11(6) applications, though they have not determined the exact duration.

The Proposed Amendment

The position in English law on the limitation for approaching the court to appoint an arbitrator contrasts with that in India. Under English law, the limitation period to initiate arbitration proceedings ceases upon the issue of notice, which does not lapse with time or upon the issue of a subsequent notice.^[2] It has been held that, provided the notice to arbitrate is served before the expiry of the limitation period, a party can take as long as it likes to apply for the appointment of an arbitrator. The only remedy available to the other party is to apply for dismissing the arbitration for want of prosecution under Section 41(3) of the English Arbitration Act, 1996. Similarly, jurisdictions like the US,^[3] France,^[4] and Switzerland^[5] have provisions for the judicial appointment of arbitrators without any limitation period. Therefore, we must look at the scheme of our Act itself to define a suitable period.

The Act incorporates specific timelines to ensure efficiency: Section 9(2) requires arbitral proceedings to commence within 90 days of an interim measure; Section 11(4), (13) mandate court appointment of an arbitrator if not appointed within 30 days and disposal of such applications within 60 days; Section 13(2) necessitates challenging an arbitrator within 15 days of awareness; Section 23(4) stipulates completion of statements of claim and defence within six months; Section 29A(1), (3), (4) sets a twelve-month period for arbitral awards, extendable by six months, with court extensions to be disposed of within 60 days; Section 29B(4) specifies six months for fast-track awards; Section 33(1), (2) allows 30 days for error correction or interpretation and 60 days for additional awards; Section 34(3) imposes a three-month period for setting aside awards, extendable by 30 days, with a disposal mandate within one year.

These timelines reflect the legislature's intent to promote swift dispute resolution. The specified periods range from 15 days for challenging an arbitrator to 18 months for making an arbitral award, indicating a structured approach to managing different stages of arbitration. This framework helps maintain discipline among parties and arbitrators, ensuring each stage is completed within a reasonable timeframe.

Therefore, a 60-day limitation period for filing an application under Section 11(6) is proposed. This period aligns with the Act's objective and prescribed timelines, balancing urgency and fairness. The recent ExpertCommittee on Arbitration Law also supports this timeframe, recommending amendments to Section 11(4) to reduce the waiting period to approach from 30 days to 15 days. A period longer than 60 days could undermine arbitration's efficiency, while a shorter period could unjustly deprive parties of their right to arbitration. The following section will address the concerns related to this proposal.

Addressing Concerns With The Amendment

The first concern is the riskof parties rushing into arbitration. The amendment might pressure parties to initiate arbitration proceedings prematurely without giving them adequate time to negotiate and attempt an amicable settlement. Negotiation and mediation are often effective ways to resolve disputes without formal arbitration. If parties feel compelled to initiate arbitration quickly to avoid missing the deadline, it could lead to unnecessary arbitration proceedings, increased costs, and strained business relationships.

Despite this concern, it is essential to recognise that the amendment does not preclude negotiation and mediation. Parties can still engage in these processes within a shorter timeframe. Additionally, the pressure to act promptly can incentivise more earnest and efficient negotiations, knowing they must settle the dispute amicably or move to arbitration within the stipulated period. The Act also provides for enforcing settlement agreements through Section 30, allowing arbitral tribunals to encourage settlement and record it as an arbitral award. Therefore, the shorter period can enhance the overall efficiency of dispute resolution.

The second concern with the amendment is that parties may miss the deadline and consequently lose their right to arbitrate. This concern is particularly relevant for parties unaware of the limitation period or cannot act within the shortened timeframe due to unforeseen circumstances. The loss of the right to arbitrate can have severe legal and financial implications, potentially forcing parties to seek resolution through traditional litigation, which the arbitration process is designed to avoid.

To address this concern, we look a fundamental principle of limitation law – “Vigilantibusnon dormientibus jura subveniunt” or “The law assists those who are vigilant and not those who sleep over their rights.” A defined limitation period ensures certainty and finality, preventing endless liability and preserving evidence quality. While the law of limitation prohibits the remedy, it does not extinguish the right itself.

Further, Section 5 of the Limitation Act allows for condoning delays if “sufficient cause” is shown, serving as a safeguard. This flexibility ensures that parties are not unduly penalised for missing the deadline due to legitimate reasons. Courts can exercise discretion to condone delays, thereby providing relief in cases where parties have genuine reasons for their inability to comply with the shorter limitation period. This countermeasure balances the need for efficiency with fairness, preventing undue hardship.

India has an opportunity to lead by specifying a 60-day limitation period for applications to appoint arbitrators. This period balances urgency and fairness, ensuring arbitration remains efficient and effective. It reduces delays and costs, preserves evidence quality, and aligns with recent Expert Committee recommendations. A 60-day limit promotes prompt action without sacrificing the parties' right to arbitration. This reform will make India a more attractive destination for arbitration by providing speedy justice.

The author is a third-year student at NALSAR University of Law. Views are personal.