Time it Right: A Plea to the Legislature to End the Extended Timelines in Section 11(6) of the Arbitration and Conciliation Act, 1996

The Supreme Court of India, in Arif Azim Co. Ltd. v. Aptech Ltd.¹ held that Article 137 of the Limitation Act, 1963² (LA) is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996³ (A&C Act). The court held that the time to file an application under Section 11(6) of the A&C Act arises 30 days after the notice of invocation under Section 21 of the A&C Act⁴ has been received by the respondent. However, the Court, lamented that: 97. … the period of three years (under Article 137 of the LA) is an unduly long period for filing an application under Section 11 of the 1996 Act and goes against the very spirit of the 1996 Act which provides for expeditious resolution of commercial disputes within a time-bound manner.⁵

It is an established legal principle that the initiation of arbitration under Section 21 of the A&C Act must occur within the limitation period prescribed by the LA. However, Section 11(6) of the A&C Act does not specify a limitation period for making the application. The Court has currently addressed this statutory gap by relying on Article 137 of the LA which provides a three-year limitation period for any application for which no specific period is prescribed. However, this solution provided to compensate for the legislative vacuum in Section 11(6) of the A&C Act, is inadequate.

To illustrate this issue, consider the following two hypothetical scenarios:

Scenario 1: C and R enter into an agreement. R breaches the terms of the agreement and disputes arise between C and R. The agreement contemplates an ad hoc arbitration under the laws of India, with seat in Mumbai. C invokes arbitration on the last day of limitation. R receives the invocation notice on the same date. The arbitration commences on the date R received the notice. R does not reply. C potentially has 3 years from expiry of 30 days from the date of receipt of notice by R to file an application under Section 11(6) of the A&C Act. Therefore, C can potentially delay the constitution of the Arbitral Tribunal and keep the claim alive for more than 6 years.

Scenario 2: The facts remain the same as in Scenario 1. The only difference is that the agreement specifies that disputes will be referred to the Mumbai Centre for International Arbitration (MCIA). C must submit a written request for arbitration to the Registrar of the MCIA in accordance with the MCIA Rules, 2017⁶ (MCIA Rules). This request must be received by the Registrar before the expiration of the limitation period for the cause of action. Arbitration commences on the date the Registrar receives a complete request under the MCIA Rules. If the MCIA does not receive a joint nomination of arbitrators within 28 days of receipt by the Registrar of the request for arbitration, the MCIA Council shall appoint an arbitrator. Therefore, C is unlikely to be able to delay the constitution of the Arbitral Tribunal beyond 3½ years.

The two scenarios presented highlight two significant concerns.

First, there is a clear dichotomy between “commencement of arbitration” in respect of ad hoc and institutional arbitrations. This is problematic because, both ad hoc and institutional arbitrations may operate within the same jurisdiction, for instance, in the above scenarios, the seat of arbitration is Mumbai, and the applicable laws are that of India. Yet, the disparity in commencement procedures creates a significant gap in timelines between the commencement of arbitration in an ad hoc set-up and an institutional set-up. On one hand, the legislative gap in Section 11(6) of the A&C Act allows a party initiating ad hoc arbitrations to delay the dispute resolution process. On the other hand, institutions like the MCIA have addressed this issue by stipulating that a request for arbitration to the institution marks the “commencement” of the arbitration process. This compels a party wishing to initiate arbitration to do so within the time-frame specified by the LA for the substantive dispute, thereby preventing the party from initiating arbitration and then waiting another three years before applying to constitute an Arbitral Tribunal. The disparity in the time-frame between ad hoc and institutional arbitrations is against the spirit of the A&C Act which aspires to have a uniform legal mechanism for dispute resolution.

Second, the period of three years available under Article 137 of the LA is too long. Arbitrations have become a viable form of dispute resolution because they are expected to ensure speedy and efficient determination of issues. However, with the application of Article 137 of the LA a party may delay the constitution of the Arbitral Tribunal by around 6 years thereby transforming a rapid dispute resolution process into a slow-moving one.

One of the primary objectives of the United Nations Commission on International Trade Law (UNCITRAL) Model Law, on which the A&C Act is based, is to establish a unified legal framework for dispute resolution. However, the dichotomy of procedure governing “commencement of arbitration” in respect of ad hoc and institutional arbitrations hinder efforts to have a uniform framework. While the institutional rules ensure efficiency and speedy dispute resolution, the disparity in timelines leave ad hoc arbitrations to move at a potentially glacial pace, dependant on the vagaries of the party initiating arbitration.

The existence of these disparate procedures undermines the goal of a uniform mechanism. International arbitration practices emphasise uniformity and consistency within the global arbitration regime. However, as different rules govern the arbitration “commencement” procedures in the Indian arbitration landscape, India may appear to be struggling with establishing a uniform system within its jurisdiction. This disparity is likely to cast a negative light on the global perception of arbitrations in India, since arbitrations in India may appear to be unpredictable, slow, inconsistent and misaligned with the intended spirit of the mechanism.

The other objective of the A&C Act is to offer a speedy and efficient form of dispute resolution. Keeping in line with these goals, the A&C Act prescribe timelines for various procedures. For instance, challenge to arbitrator must be made within 15 days of knowledge of ground of challenge⁷, an award shall be made within a period of 12 months from the date the Arbitral Tribunal enters upon the reference⁸, application for setting aside may not be made after three months have elapsed from the date of receipt of the arbitral award.⁹ The three-month period under Section 34(3) of the A&C Act is only extendable by 30 days and not beyond. However, the legislature has not established any time-limit to file a Section 11(6) application, let alone one that aligns with the goals of speedy and efficient dispute resolution.

Section 9(2) of the A&C Act¹⁰ stipulates that where a court passes an interim order before the commencement of the arbitral proceedings, “the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine”. This provision prescribes the time within which arbitration must be commenced under Section 21 of the A&C Act but does not set the time within which a Section 11(6) must be filed. Moreover, a failure to comply with Section 9(2) does not prohibit the commencement of arbitration after the expiration of 90 days. The legislature neither specifies the consequence of failing to “commence arbitration” within the 90-day period nor mandates that a Section 11(6) application must be filed within a specific time-frame.

Additionally, Section 11(6) is an “application” before an appropriate court. Under Section 5 of the LA¹¹, delay to file an application may be condoned by court on justifiable grounds. Consequently, the three-year time to file an application under Section 11(6) under Article 137 of the LA is capable of being extended by court.¹² In the absence of a strict statutory bar like the one found in Section 34(3) of the A&C Act, delay may be condoned on justifiable grounds. Therefore, a party may potentially be able to delay the constitution of the Arbitral Tribunal for more than 6 years.

In a Report submitted to the Law and Justice Department, it was noted that the “promotion of arbitration as a quick and effective alternative to litigation is another area of focus for the Government of India.…”¹³ Despite numerous amendments to the A&C Act, the legislature appears to have overlooked the issue stemming from a gap in Section 11(6). Consequently, courts have had to compensate by applying Article 137 of the LA to Section 11(6) applications.

It would be highly beneficial for the legislature to revisit this overlooked provision, which has been missed in recent amendments. Establishing a strict and shorter timeline than that under Article 137 of the LA for seeking the appointment of arbitrators under Section 11(6) of the A&C Act is crucial for tightening the regime. Moreover, bridging the disparity between ad hoc and institutional arbitrations is essential to establishing a uniform process of arbitration in India. Consequently, addressing the gap in Section 11(6) of the A&C Act is vital for enhancing India’s overall arbitration ecosystem.