Court U/S 11 Of Arbitration Act only verifies existence of agreement, jurisdictional questions to be decided by arbitrator: Telangana HC

The Telangana High Court Bank of Chief Justice Alok Aradhe stated that Subsection (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” to the existence or validity of the arbitration agreement. Section 16 is a comprehensive provision, which would encompass all preliminary matters relating to the jurisdiction of the Arbitral Tribunal. The question of limitation is a question of jurisdiction, which should be decided by the arbitrator under Section 16, and not by the High Court at the pre-reference stage under Section 11 of the Act.

Short facts

This application is made pursuant to Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”), which requires the appointment of an arbitral tribunal to adjudicate claims and disputes between the parties.

The parties entered into a purchase order and a service order on 11/04/2016. Clauses 15 and 19 of the Purchase Order and Service Order, respectively, contain an arbitration clause.

The applicant filed an application on 03/02/2020 under the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the “2006 Act”). The Board, by an order dated 24.04.2023, rejected the claimant’s claim on the ground that it was not governed by the 2006 Act. The claimant subsequently issued a notice under section 21 of the A&C Act on 15.10.2023, invoking the arbitration clause . The respondent filed a response to the aforementioned notice on 08.12.2023. Subsequently, this request was submitted on 16.07.2024.

Appeals

The applicant submitted that the purchase order and the service order contain an arbitration clause and that the dispute has arisen between the parties, which must be resolved in the manner agreed upon by the parties.

That the applicant is entitled to the benefit under section 14 of the Limitation Act, 1963, as the applicant is bona fide in pursuing the proceedings under the Act, 2006. In support of the aforesaid contention, reliance was placed on the decision of the Delhi High Court dated 10.04. .2024 in arbitration petition no. 13 of 2024. (M/s. Advance Stimul vs. Gail (India) Limited).

On the contrary, the respondent claimed that in order to claim the benefit of section 14 of the Limitation Act, 1963, the prior proceedings initiated must be followed with due diligence.

That the applicant has failed to establish that the proceedings under the 2006 Act were pursued with due diligence. Therefore, the plaintiff is not entitled to the benefit of section 14 of the Limitation Act, 1963 and the plaintiff’s claim is barred.

That the plaintiff’s claim is not covered by the arbitration clause, namely clauses 15 and 19 of the purchase order and the service order respectively. Reliance was placed on the decision of the Supreme Court Consolidated Engineering Enterprises vs. Principal Secretary, Irrigation Department and others (2008).

The Court’s analysis

The court at the outset referred to section 11 of the Arbitration Act and observed that in a proceeding under section 11(6) of the A&C Act, this Court has to ascertain whether the underlying contract contains an arbitration agreement which provides for arbitration regarding disputes arising between the parties.

The court further referred to the judgment of the Supreme Court in Bharat Sanchar Nigam Limited Vs. Nortel Networks India Private Limited (2021) in which it was observed that the question of limitation regarding the “admissibility” of the claim, must be decided by the Arbitral Tribunal either as a preliminary matter or at the final stage after the evidence is led by the parties.

The court also observed that only in the very limited category of cases, where there is not even a trace of doubt that the claim is ex facie time-barred or that the dispute is non-arbitrable, the court can refuse to make a reference. However, if there is even the slightest doubt, the rule is to refer disputes to arbitration, otherwise it would violate what is essentially a matter to be determined by the tribunal.

The court further referred to another decision of the Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field Limited (2020) in which it was held that the doctrine of kompetenz-kompetenz is intended to minimize judicial intervention so that the arbitration process is not thwarted at the threshold when a preliminary objection is raised by one of the parties. It was also argued that Section 16 of the Arbitration Act is a comprehensive provision with a very wide scope.

Based on the above, the court observed that the plaintiff’s claim cannot be considered barred ex facie. The question whether or not the plaintiff is entitled to claim the benefit of section 14 of the Limitation Act, 1963, in the facts and circumstances of the case, is a moot point to be decided by the Arbitral Tribunal.

Consequently, the present application was granted.

Title of the case: M/s KD SOLAR SYSTEMS v. M/s. Mytrah Energy India Pvt. Ltd.

Citation: ARBITRATION REQUEST No. 176 of 2024

Judgment Date: 25/10/2024

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