Limitation Need Not Be Examined By HC At Arbitrator Appointment Stage: Allahabad High Court

The Allahabad High Court at Lucknow has held that while appointing an arbitrator, it is not required to examine whether the claim is barred by limitation.

It clarified that such issues can be decided by the arbitral tribunal while exercising jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996.

The question before the bench of Justices Shekhar B. Saraf and Abhdesh Kumar Chaudhary was:

“Whether the High Court before appointing the arbitrator under Section 11(6) of the Act is required to adjudicate on the jurisdictional issue of limitation?”

Answering the question in the negative, the Court held:

“The power of the High Court being a reference court under Section 11 of the Act is of minimal interference and maximum delegation and the jurisdiction of the High Court in appointing an arbitrator under Section 11 is confined to examination of arbitration clause in the agreement and the Court at this stage should not get lost in thickets and decide disputed and mixed questions of fact such as the limitation for appointing the arbitrator"

The dispute arose between Rajendra Prasad Singh and Santosh Kumar Singh, partners in Arch Construction, over payments received for work carried out for Power Grid Corporation of India Limited.

Rajendra Prasad Singh wrote to the bank alleging illegal operation of the firm's account, following which the account was frozen. He further alleged that Santosh Kumar Singh opened another bank account in the name of the firm and diverted payments from Power Grid Corporation into that account. Upon discovering this, Sri Rajendra Prasad Singh lodged an FIR against Santosh Kumar Singh, who was subsequently arrested.

Santosh Kumar Singh had earlier invoked arbitration by issuing a legal notice, to which Rajendra Prasad Singh replied, advising him to approach the High Court for appointment of an arbitrator.

Pursuant to this, Santosh Kumar Singh filed an application for the appointment of an arbitrator. The High Court initially proposed a sole arbitrator and subsequently appointed the arbitrator, following which arbitration proceedings commenced. A recall application filed by Sanothosh was rejected.

Rajendra then moved an application before the arbitral tribunal challenging its jurisdiction on the ground that the application for appointment of arbitrator was barred by limitation. The tribunal rejected the plea, holding that it did not have jurisdiction to examine limitation for appointment of the arbitrator since the High Court had already appointed the arbitrator.

This order was challenged before the High Court.

The Court observed,

“When the High Court does look into the issue of limitation and rejects the reference to arbitration, the aggrieved party may approach the Supreme Court by way of a Special Leave Petition under Article 136 of the Constitution of India. Per Contra, when the High Court does not delve into the issue of limitation, the aggrieved party has two choices: either for filing a Special Leave Petition before the Supreme Court or filing an objection challenging the jurisdiction of the Arbitral Tribunal on the grounds of limitation under Section 16 of the Act before the Tribunal.”

The court held that the arbitral tribunal is empowered to rule on its own jurisdiction, including issues of limitation. It found that the tribunal had wrongly refused to exercise its jurisdiction and had abdicated the power vested in it, rendering the order patently illegal and perverse.

Setting aside the impugned order, the High Court directed the arbitral tribunal to adjudicate the issue of limitation relating to the application for appointment of an arbitrator as a preliminary objection, after giving both parties an opportunity of hearing.