In a recent judgment, the Andhra Pradesh High Court held that the limitation period for filing an application seeking appointment of arbitrator under Section 11 (6) of the Arbitration and Conciliation Act, 1996, commences only after a notice invoking arbitration has been issued by one of the parties and there has been either a failure or refusal on the part of the opposite party to make an appointment as per the procedure agreed upon between the parties.
Brief Facts:
The present arbitration application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator to adjudicate disputes arising out of a Work Contract dated 05.08.2016. The applicant, Alliance Enterprises, is engaged in construction and infrastructure development activities. The respondent, Andhra Pradesh State Fiber Net Limited (APSFL), had floated a rate contract tender for commissioning and maintaining last-mile optical fiber connectivity to government offices in the districts of Anantapur and Kadapa in Andhra Pradesh. The applicant was awarded the contract, and multiple work orders were issued, amounting to a total of ₹12,26,63,520.
However, despite completing the assigned work, the applicant claims that APSFL failed to pay ₹2,82,60,159, despite multiple reminders. Instead of releasing the pending payments, the respondent terminated the contract on 02.01.2019, with official communication following on 09.01.2019. The applicant alleges that several attempts were made to resolve the dispute amicably, but to no avail. Consequently, the applicant invoked the arbitration clause on 17.10.2022. Clause 25 of the contract mandated that disputes be resolved through arbitration, with the Managing Director of APSFL appointing a sole arbitrator. However, the respondent failed to appoint an arbitrator despite receiving the notice, leading to the present application for the appointment of an independent arbitrator by the court.
Contentions of the Petitioner:
The learned counsel for appellant contended that APSFL’s failure to appoint an arbitrator within the stipulated time has resulted in the forfeiture of its right to do so. The applicant further argued that the arbitration clause in the contract is contrary to established legal principles, as it grants the Managing Director of APSFL the exclusive authority to appoint the arbitrator, leading to concerns over impartiality. In support of this claim, the applicant relied on the Supreme Court’s rulings in Perkins Eastman Architects DPC v. HSCC (India) Ltd., and Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), which held that a party with an interest in the dispute cannot unilaterally appoint an arbitrator.
Contentions of the Respondent:
The learned counsel for the respondents that the arbitration application is time-barred, as the contract was terminated in 2019, and the present application was filed only in 2023. Further he relied on Article 137 of the Limitation Act, 1963, which prescribes a three-year limitation period for arbitration applications and contended that the right to apply for arbitration arose in 2019 when the contract was terminated, and since the application was filed beyond the three-year period, it is liable to be dismissed.
Observations of the Court:
The court examined the respondent’s claim that the application was time-barred and found it to be without merit. Referring to the Supreme Court’s ruling in Arif Azim Co. Ltd. v. Aptech Ltd., the court reiterated that the limitation period for filing an application for the appointment of an arbitrator does not commence from the date of contract termination but from the date of refusal or failure to appoint an arbitrator after a valid notice invoking arbitration.
The court further referred to Aslam Ismail Khan Deshmukh v. ASAP Fluids (P) Ltd., wherein it was held that the three-year limitation period begins from the date of failure or refusal to appoint an arbitrator following a valid notice invoking arbitration. Applying these principles, the court observed that the applicant issued the notice invoking arbitration on 17.10.2022, and as the present application was filed on 31.08.2023—well within three years from the refusal—it was within the limitation period.
The court also considered the applicant’s contention regarding the appointment procedure under Clause 25 of the contract. Relying on Perkins Eastman Architects DPC v. HSCC (India) Ltd., the court reaffirmed that a person having a controlling interest in the outcome of arbitration cannot have the exclusive right to appoint an arbitrator. Since the Managing Director of APSFL, an interested party, was designated as the appointing authority, the arbitration clause was deemed contrary to established legal precedents.
The court further examined the respondent’s failure to appoint an arbitrator within the stipulated period after the notice invoking arbitration was served. Relying on Datar Switchgears Ltd. v. Tata Finance Ltd., the court held that once a party fails to appoint an arbitrator within 30 days of the demand, it loses the right to do so, and the court is empowered to appoint an independent arbitrator.
Applying the law laid down in these precedents to the facts of the present case, the Court observed that the notice invoking arbitration clause was issued by the Applicant only on 17.10.2022. Assuming that three years were to be calculated from the said date itself, the present application which was filed on 31.08.2023 was well within the period of limitation of three years as prescribed by Article 137 of the Limitation Act, 1963.
The decision of the Court:
The court allowed the arbitration application and appointed Justice U. Durga Prasad Rao, former Judge of the Andhra Pradesh High Court, as the sole arbitrator.
Case Title: Alliance Enterprises vs. Andhra Pradesh State Fiber Net Limited (APSFL)
Coram: Hon’ble Chief Justice Dhiraj Singh Thakur
Case No.:Arbitration Application No.: 62 of 2023
Advocate for the Applicant: Mr. Udit Seth
Advocate for the Respondent: Mr. A. Tulsi Raj Gokul
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