September 16, 2021

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Limitation period for the appointment of the arbitrator

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This article is written by Vaibhav Raghuvanshi who is pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.

The article focuses on the Limitation period for the appointment of the Arbitrator. A recent judgment was passed by the Supreme Court of India in the case Bharat Sanchar Nigam Ltd, & ANR. Versus M/S Nortel Networks India Pvt. Ltd. on 10 March 2021 in which the question where the Section 11 of Arbitration and Conciliation Act, 1996 is governed by Section 137 of Limitation Act, 1963 was discussed. In this article, we will go through the basics of arbitration to the appointment of an arbitrator and will be discussing the limitation period for the appointment of an arbitrator in light of the recent judgment passed by the Supreme Court of India.

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Table of Contents

As Indian courts were flooded with unresolved cases and the cases were piling up in the court of law the requirement was felt for a process that was less costly, speedy, and much flexible as compared regular judicial process. To fulfill these requirements Alternate Dispute Resolution was introduced in India. Alternate Dispute Resolution is a way of resolving disputes outside court without or with very little interference of the court. Arbitration is a form of alternate dispute resolution.

The first enactment devoted solely to Arbitration was introduced in India in the year 1899. Though its application was limited to the Presidency town of Bombay, Madras, and Calcutta. In recent times the arbitration proceeding is governed by the statute called the Arbitration and Conciliation Act, 1996. Arbitration aims at the resolution of disputes outside court in a cost-effective, flexible, and fast-track manner. The government of Indian is keen on making arbitration a quicker way of dispute resolution. To achieve this, the arbitration proceedings must dispose of expeditiously.

Arbitration is a form of alternate dispute resolution in which the parties to the dispute by mutual agreement or with the help of the court appoint a third party knows as the arbitrator for resolution of the dispute. Arbitration is an adjudicatory process. In general, according to Section 21 of the Arbitration and Conciliation Act 1996 the arbitration proceeding is deemed to commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent and concluded with the arbitrator passing award. The award passed in Arbitration proceedings can only be challenged on a certain ground as mentioned in Section 34(2) of the Arbitration and Conciliation Act 1996. 

Arbitration is of two types Ad hoc arbitration and institutional arbitration. In Ad Hoc arbitration all the aspects such as the number of arbitrators, process of appointing of those arbitrators, procedural for conducting the arbitration, etc are determined by the parties. Whereas in institutional arbitration parties mutually agrees on a specialized institution to take on the role of administering the arbitration process.

These institutions have their own set of rules, administration, and frameworks for conducting the arbitration. Parties opting for institutional arbitration are bound by these rules. Some institution which offers arbitration services in India is Indian Council of Arbitration (ICA), Delhi International Arbitration Centre (DIAC), Mumbai Centre for International Arbitration (MCIA), International Arbitration Centre for Alternative Dispute Resolution (ICADR), etc.

An arbitrator is an individual third party that presides over an arbitration proceeding. An arbitrator is like a private judge hired by the party or sometimes appointed by the court at the request of a party to resolve a dispute through an arbitration proceeding.  According to Section 11 of the arbitration and Conciliation Act, any person of any nationality can be an arbitrator unless otherwise agreed by the parties to an arbitration agreement. It is at the discretion of the parties to decide the number of arbitrators but this number shall not be even as required by Section 10 of Arbitration and Conciliation Act 1996. If in an agreement or a clause for arbitration provide even number of the arbitrator it does not make the arbitration agreement or clause invalid, in such case a sole arbitrator is to appoint.

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In institutional arbitration, the appointment of arbitrator is taken care of by the institution referred by the party in their agreement to arbitration under the rule of such institute. In the case of an Ad hoc arbitration, the arbitrator is appointed by a mutual agreement of the parties in accordance with the procedure agreed by the party in an arbitration agreement. If in case parties to an arbitration agreement on commencement of arbitration are not able to mutually agree on an appointment of the arbitrator within 30 days then any of the party to an arbitration agreement can approach the court and file an application under Section 11 for the appointment of an arbitrator.

Once the arbitrator is appointed by the court the parties shall not appeal to such a decision. Though if any of the parties to arbitration during the arbitration hearing finds that the arbitrator is partial, biased, prejudiced against them, the procedure is not met with, etc it can file a challenge to such arbitrator under Section 12 of Arbitration and Conciliation Act, 1996. Schedule 5 of the Arbitration and Conciliation Act, 1996 provides for the justifiable ground on with the independence and impartiality of the arbitrator may be doubted.

The question of whether there can be any limitations period for the appointment of arbitrator by the court under Section 11 of Arbitration and Conciliation Act 1996 has been raised from time to time before different High Courts. The High Courts have a difference of opinion on the question of limitations on the appointment of an arbitrator as the statute Arbitration and Conciliation Act, 1996 does not provide for any limitation period in the appointment of an Arbitrator. This question on limitations of the period in the appointment of an arbitrator was finally settled by Supreme Court by the recent judgment in Bharat Sanchar Nigam Ltd. v. M/s Nortel Network India Pvt. Ltd. In this case, a civil appeal was filed against the judgment of the Delhi High Court in which it permitted referring the dispute between the parties to the Arbitral Tribunal.

In the appeal, it was submitted by the appellant (BSNL) that the cause of action for invocation of arbitration arose five and a half years before the notice of invocation of arbitration was issued by the respondent (Nortel). As the respondent has slept over his right the notice invoking arbitration has become legally stale, non-arbitrable, and unenforceable. It was pleaded that limitation for invocation of the arbitrator and the appointment of arbitrator by the court under Section 11 would be covered by Article 137 of the First Schedule to the Limitation Act, 1963. It was further contended that the language used in Section 11 (6A) “examination of the existence of an arbitration agreement” implies that the power is conferred to the court to exercise a certain degree of examination. 

In the response to the submission of the appellant (BSNL), the respondent (Nortel) submitted that the amendment of Section 11 by the Arbitration and Conciliation Act, 2015 has limited the scope of enquiring by the court only to the existence of an arbitration agreement at pre-reference stage under Section 11 (6A) of Arbitration and Conciliation Act. The respondent (Nortel) content that the objection with respect to the claim being time-barred should be decided by the arbitral tribunal. It was further stated by the respondent that the starting point of limitation for initiating a proceeding under Section 11 is the expiry of 30 days from the date of issuing the notice of arbitration. Thus, the cause of action was therefore a continuing one.

The Supreme court in its judgment stated that the appointment of Arbitrator under Section 11 of Arbitration and Conciliation Act is governed by Article 137 of the First Schedule of the Limitations Act 1963 which state that if no limitations period is provided in the Limitations Act or the statute under which the application is to be filed the limitations period will be 3 years from the date when the right to appeal accrues. Thus, the application under Section 11 for the appointment Arbitrator under Arbitrator and Conciliation Act, 1996 should be filed within 3 years from the date of notice of invocation of arbitral proceedings.

The Supreme Court in this judgment further suggested the Parliament consider making amendment in Section 11 of Arbitration and Conciliation Act, 1996 and provide for a period of limitation for filing an application for the appointment of arbitrator under this provisions so that it is in accordance with the objective of expeditious disposal of arbitration proceedings and ruled that in rare and exceptional cases, where the claim is ex facie time-barred and it is manifested that there is no subsistence dispute the court may refuse to make the reference.  

The main objective for the parties to refer a case to arbitration is for an expedition resolution of a dispute. To make the arbitration proceeding a quicker process of dispute resolution it is important that a limitation period is provided for filing an application for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act.

The Supreme Court by its decision Bharat Sanchar Nigam Ltd, & ANR. Versus M/S Nortel Networks India Pvt. Ltd. by providing for a limited period of 3 years for filing an application under Section 11 of Arbitration and Conciliation Act has served to the objective of expeditious disposal of the arbitration proceeding. The legislative should also address the issue and make the required amendment in Section 11 of Arbitration and Conciliation Act 1996 providing a limitation period in Section 11 itself as suggested by the Supreme Court. So that the arbitration proceeding becomes a quicker and an efficient way of dispute resolution.


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