Limitation Period For Arbitration Decided By Arbitral Tribunals, Not By Courts: Telangana High Court Allows Section 11(6)(a) Application

Brief Facts:

East Hyderabad Expressway Limited (“Applicant”), a company incorporated under the Companies Act, 1956, was involved in a project for the construction, development, and maintenance of an eight-lane access-controlled expressway which was under the supervision of the Hyderabad Metropolitan Development Authority (“Respondent”). A Concession Agreement was executed between the Applicant and the Respondent containing the detailed terms and conditions in relation to the project. The agreement was amended in Jan 2022 by a supplementary agreement, wherein Clause 39.2 (arbitration clause) was added with a view to refer the disputes in question to arbitration.

The Applicant contended that the project completion schedule mandated completion within 30 months from the commencement date. However, the Applicant contended that the Respondent's failure to hand over the site as stipulated in the Concession Agreement caused significant delays in completion of the project. This delay, coupled with subsequent revisions to the Annuity Payment Schedule, led to disputes regarding entitlements under the agreement. The Applicant highlighted various correspondences and meetings aimed at resolving the issues surrounding bonus payments, reimbursements, and delayed annuity payments. However, despite admissions and discussions, the Respondent failed to release the amounts owed to the Applicant. Following the Respondent's failure to settle the disputes, the Applicant invoked the arbitration clause and nominated an arbitrator, requesting the Respondent to do the same. However, the Respondent disputed the request, claiming it was barred by limitation. Aggrieved by the same, the Applicant filed an application under Section 11(6)(a) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in Telangana High Court (“High Court”) seeking to appoint a nominee arbitrator on behalf of Respondent.

Clause 39.2 (as amended) reads as follows:

"39.2.1 Any Dispute, which is not resolved amicably as provided in Clause 39.1 above shall be finally decided by reference to Arbitration by a Board of Arbitrators, appointed pursuant to Clause 39.2.2. Such arbitration shall be held in accordance with and shall be subject to the provisions of the Arbitration and Conciliation Act, 1996 and amendments thereto.

39.2.2 Arbitration shall be conducted by a panel of three Arbitrators each party shall appoint one Arbitrator and the two Arbitrators shall mutually appoint the Presiding Arbitrator. The Arbitration process shall be governed by the Arbitration and Conciliation Act, 1996, and amendments thereto.

39.2.3 The arbitrators shall issue a reasoned Award.

39.2.4 The seat of such arbitration shall be at Hyderabad, India.

39.2.5 The language of arbitration shall be English.”

Observations by the High Court:

The High Court observed that its role under Section 11(6) is limited to determining whether there exists an arbitral dispute between the parties and whether the agreement between them contains an arbitration clause. Referring to the decision of the Supreme Court in Duro Felguera, S.A. v. Gangavaram Port Ltd., it noted that after the 2015 amendment, courts are only required to ascertain the existence of an arbitration agreement, without delving into further details. The legislative intent behind this amendment was to minimize judicial intervention in the appointment of arbitrators. Similarly, in IBI Consultancy (India) (P) Ltd. v. DSC Ltd., the Supreme Court emphasized that courts should refrain from examining the merits of the case to avoid prejudicing the parties. The scope of Section 11(6) in conjunction with Section 11(9) is confined to the appointment of an arbitrator based on the existence of an arbitration agreement.

Additionally, the High Court referred to the Supreme Court in Indian Oil Corporation and others v. Raja Transport Private Limited and held that normally the courts should adhere to the provisions of the arbitration agreement, and exceptions can be made if there are reasonable doubts about the independence or impartiality of the named arbitrator.

The High Court noted that the Arbitration Act does not specify a limitation period for filing an application under Section 11, hence recourse should be taken of the Limitation Act, 1963. It held that the limitation period for filing an arbitration application is three years from the date when the cause of action arose. The High Court held that question of whether the Applicant's claim is barred by lapse of time is to be decided by the Arbitral Tribunal under Section 20 of the Arbitration Act.

As per the contract, arbitration was to be conducted by a panel of three Arbitrators, with each party appointing one Arbitrator and the two Arbitrators mutually appointing the Presiding Arbitrator. Since the Respondent failed to appoint their nominee Arbitrator within the specified period, the High Court deemed it appropriate to appoint a nominee Arbitrator on their behalf under Section 11(6) of the Arbitration Act. Therefore, the High Court appointed Justice V.V.S. Rao, former judge of Andhra Pradesh High Court, as the nominee Arbitrator on behalf of the Respondent.

Case Title: East Hyderabad Expressway Limited vs The Hyderabad Metropolitan Development Authority and another.

Case No.: Arbitration Application No.170 Of 2022

Advocate for the Applicant: S Ram Babu

Advocate for the Respondents: Y Rama Rao

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