Arbitration | Referral Courts Must Not Conduct Intricate Enquiry On Whether Claims Are Time-Barred : Supreme Court Clarifies 'Arif Azim' Judgment

The Supreme Court held that while deciding a Section 11(6) petition for an appointment of an arbitrator, the referral courts must not conduct an intricate evidentiary enquiry into the question of whether the claims raised by the applicant are time-barred and should leave that question for determination by the arbitrator.

The Court said that the referral court should limit its enquiry to examining whether the Section 11(6) application has been filed within the period of limitation of three years or not.

The bench comprising CJI DY Chandrachud and Justices JB Pardiwala and Manoj Misra clarified certain aspects of its previous judgment delivered in Arif Azim Case, wherein it was held that “while considering the issue of limitation in relation to a petition under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test – first, whether the petition under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings. If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal.”

The Court in the present case maintained the status quo on both aspects but has clarified the second aspect of Ariz Azim i.e., claims being ex-facie dead claims barred by limitation.

The Court clarified that though there would be no bar for the referral courts to satisfy whether the claims sought to be arbitrated are ex-facie dead claims or not, however the referral court while deciding such a question need not enter into an intricate evidentiary enquiry to find out whether the claims are ex-facie dead claims or not rather refer the question to be decided by the arbitrator.

“Thus, we clarify that while determining the issue of limitation in exercise of the powers under Section 11(6) of the Act, 1996, the referral court should limit its enquiry to examining whether Section 11(6) application has been filed within the period of limitation of three years or not. The date of commencement of limitation period for this purpose shall have to be construed as per the decision in Arif Azim (supra). As a natural corollary it is further clarified that the referral courts, at the stage of deciding an application for appointment of arbitrator, must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time barred and should leave that question for determination by the arbitrator. Such an approach gives true meaning to the legislative intention underlying Section 11(6-A) of the Act, and also to the view taken in In Re: Interplay (supra).”, the Judgment authored by Justice JB Pardiwala said.

The aforesaid clarification came in light of the decision rendered by the Seven Judges in In Re: Interplay, wherein it was held that the referral court must restrain themselves in undertaking laborious enquiry while deciding the question of frivolous litigation or the claims being ex-facie dead claims and barred by limitation.

The Court in In Re: Interplay observed that whenever the referral courts find that the question of dead claims needs to be decided based on an appreciation of evidence then the appropriate authority to determine such a question would be an arbitral tribunal and not the referral courts.

“We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material.”, the court said upon placing reliance on In Re: Interplay case.

In the end, the court said that aforesaid clarifications shall not be construed as affecting the verdict of Arif Azim, and the decision of Arif Azim shall be given full effect notwithstanding the observations made herein. The Court believed that the aforesaid clarification is only to streamline the position of law, so as to bring it in conformity with the evolving principles of modern-day arbitration, and further to avoid the possibility of any conflict between the two decisions that may arise in the future.

"The observations made by us in Arif Azim (supra) are accordingly clarified. We need not mention that the effect of the aforesaid clarification is only to streamline the position of law, so as to bring it in conformity with the evolving principles of modern-day arbitration, and further to avoid the possibility of any conflict between the two decisions that may arise in future. These clarifications shall not be construed as affecting the verdict given by us in the facts of Arif Azim (supra), which shall be given full effect to notwithstanding the observations made herein.", the Court observed.

For Petitioner(s) Mr. Saurav Agrawal, Adv. Mr. Madhav Misra, Adv. Mr. Ketan Paul, AOR Mr. Arjun Bose, Adv. Ms. Shubhi Pandey, Adv. Ms. Astha Nishad, Adv. Mr. Rajat Abhale, Adv. Mr. Rajat Chhabra, Adv. Mr. Shivam Chaudhary, Adv. Ms. Chakshu Purohit, Adv.

For Respondent(s) Mr. Rakesh Malhotra, Adv. Mr. Bharat Malhotra, Adv. Mr. Kushal Malhotra, Adv. Ms. Savita Singh, AOR

Case Details: SBI GENERAL INSURANCE CO. LTD. Versus KRISH SPINNING

Citation : 2024 LiveLaw (SC) 489

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