S V Choudary vs V Vidya Sagar
2022 Latest Caselaw 8810 AP

                                  1



             THE HON'BLE SRI JUSTICE D. RAMESH

            ARBITRATION APPLICATION NO.30 of 2021

ORDER:-


      This petition is filed by the petitioner s under Section 11(6)(a)

of the Arbitration and Conciliation Act, 1996 r/w Rules and Scheme

under the Act for getting the disputes resolved between the parties

as per Clause 7 of the Memorandum of Understanding dated

01.10.2009.

2.    Learned counsel for the petitioner submitted that the

petitioner was the core promoter and founder Director of Subhodaya

Chemicals     Limited   (Subhodaya     Chemicals    Pvt.   Ltd).   The

respondents 1,3 and 4 are co-promoters of the 2nd Respondent

Company. Petitioner has given his personal guarantees and offered

family properties as collateral security to financial institutions and

Banks, thereby extending loans to the business entity for its

establishment and survival. The 1st respondent and petitioner has

entered into a bilateral agreement by way of an MOU dated

20.07.2005 with the petitioner promising that the promoter

Directors, including the petitioner will divest themselves of their

equity and consideration will be paid before December 2005 and

promised to release the collateral securities offered by the petitioner

and also has taken the responsibility of relieving him from all

personal guarantees given by the petitioner and thereafter, the

amount due will incur interest at 15% p.a. In the MOU dated

01.10.2005 the 1st respondent has agreed that the petitioner will

continue as a whole-time director of the company for a period of 5

years from the date of MoU and in the meantime, the first

respondent will have to relieve the petitioner from all the personal

guarantee and collateral securities given to financial institutions.

3. On 11.03.2006, the 1st respondent has entered into an MOU

with the petitioner to the effect that 33% of the equity held by the

Petitioner in the business entity shall be transferred on consent

only, after the personal guarantees and securities given by him, his

friends and relatives will be released and interest at 15% will be

paid with effect from 31.12.2005 on the consideration which is to be

transferred. Again on 11.03.2006 the 1st respondent entered into

an MOU agreeing to discharge the obligation under earlier MOU

dated 20.07.2005. Once again on 01.10.2009 1st respondent

entered into an MOU with the petitioner in continuation with the

earlier MOU wherein he promised to undertake the total liabilities of

the company and to relieve the petitioner from personal guarantees

given by him. As per the MOU the petitioner agreed to transfer

12,50,225 shares constituting 25% of the total equity share capital

in respondent favour. And also transfer of remaining 4,00,075

shares for the price of Rs.10/-together with interest at 15% per

annum from 31.12.2005, subject to fulfillment of earlier agreed

conditions.

4. It is submitted that on 25.10.2014, the first respondent once

again agreed to honour the earlier MOU with an understanding the

share of the petitioner and his family members will be transferred

as per the entire MOU. It is also agreed the title deeds of the

petitioner will be released from Punjab National Bank and petitioner

will be considered to be a director up to 30.09.2017 with

remuneration of Rs.50,000/- per month and to pay interest on

Rs.20,00,000/. From the earlier period of MOU to settle the issue of

Natiya Palam site into the petitioner with priority before selecting

other. It is also agreed to relieve the petitioner office personal

guarantees given to Punjab National Bank. Till date, the first

respondent has not complied with any of the conditions.

5. Having no other way, the petitioner has invoked clause 7 of

MOU dated 1.10.2009 for resolution of the disputes through

arbitration as per the provisions of Arbitration and Conciliation Act,

1996 and got issued a legal notice dated 30.09.2020 to the

respondents making some demands. And in the said notice the

petitioner also stated that he appointed Mr.K.Sanjeevarao Naidu,

Retired District Judge as his Arbitrator and the respondents were

called upon to accept the appointment of Arbitrator within 30 days

from the date of notice. In reply to the said notice, the 1st

respondent sent reply dated 29.10.2020 stating further reasons will

be sent by way of full-fledged reply while denying the allegations

made in the notice and also stated rejecting the Arbitrator

appointed by the Petitioner , even after 4 ½ months have lapsed no

full-fledged reply was received by the petitioner from respondents.

6. 1st respondent has filed counter in which he has denied

claims of the petitioner and further submitted that the claim of the

petitioner is ex-facie time barred. The claim raised by the petitioner

arose in 2005 and 2009 and thereafter in 2014. It is settled law that

as there is no specific time period specified for referring disputes to

arbitral tribunal, Article 137 of the Limitation Act applies.

Considering that in the case on hand, the cause of action for filing

the application would accrue within three years from the date of

MOU, but it has been more than a decade since the cause of action

has arisen which is clearly 11 years on the date of notice issued by

the applicant.

7. In counter to the submission made by the petitioner that the

period of limitation has to be reckoned from the date of issuance of

the notice invoking Arbitration and the present application is well

within the limitation, it is submitted that the limitation for raising a

dispute on substantive claim is three years from the date of accrual

of cause of action for making such claim. The substantive claim in

the given case is non-adherence to the terms of the MoU dated

01.10.2009 by the respondents, therefore the petitioner's time to

raise a dispute would start to run from the date 01.10.2009 and

end by 01.10.2012 according to Article 137 of Limitation Act. This

period is completely distinct and different from the limitation for

filing an application under section 11(6) of the Act after issuance of

notice under section 21 of the Act.

8. It is further submitted that the petitioner has made series of

allegations against the respondents but has not filed even a single

document except the MoU of 2009. The legal notice invoking the

Arbitration clause under Section 21 which is sine-qua-non for filing

the present application is not filed. There is no specific dispute

raised as to the violations made in adhering to the terms of the MoU

are not adhered to. The applicant has voluntarily resigned from the

Company and that too after 18 months more than what is

mentioned in the MoU, the applicant agreed to sell his share at a

price amount of Rs.1/- per share. All those things are wantonly

suppressed. There is no arbitrable dispute in so far as the MoU

dated 1.10.2009 is concerned which is invoked and the applicant

can't go beyond the scope of the said understanding and make

listless claims.

9. It is also pertinent and important to state that the

Respondents 2 to 5 are not parties to the Memorandum of

Understandings dated 01.10.2009 that the petitioner is placing

reliance on. When the Company and the other respondents are not

parties to the MoU which contains an Arbitration Clause, they

cannot be dragged in to it without any cause of action. Further, the

arbitration clause in the MoU clearly states that a sole Arbitrator

has to be appointed with mutual consent of both the parties but

strangely the petitioner himself nominates an Arbitrator and is

before this Hon'ble Court seeking appointment of an arbitrator on

behalf of the Respondent. In fact, the petitioner's affidavit and

prayer are not in terms of the alleged legal notice sent and the

Arbitration Application is to be dismissed on this ground alone.

10. The 2nd respondent filed counter stating that the 2nd

respondent is not a party to any of the MoU's, as such no cause of

action arose against it. The MoUs relying upon by the petitioner

dated 20.07.2005 and 01.10.2009 are barred by limitation as it has

been more than a decade since then. As such, the arbitration

application is time barred. As per the MoU Arbitrator has to be

appointed with the mutual consent of both the parties but the

petitioner has solely nominated an arbitrator.

11. The petitioner, his wife and his sons sold their shares to

K.Keshava and Associates for Rs.10/- per share though it was

agreed of Rs.1/- per share only and made huge profits. It is

submitted that the petitioner was appointed as chairman of the 2nd

Respondent Company for a period of 3 years with a remuneration of

Rs.30,000/- per month. However, the petitioner without even

completing his term resigned from the company on 17.05.2016.

When the petitioner was working as a Chairman, he had requested

the Respondent not to release his properties as his father became

defaulter to Andhra Bank. After the resignation of the applicant,

the Respondent company has written a letter to the bank dated

19.10.2016 wherein it was requested that all the petitioner's

property be released from any type of security. With that any legal

relationship between the Respondent Company and the petitioner

has ended.

12. It is submitted that the 2nd Respondent has no knowledge

about the MoUs entered between the petitioner and the 1st

respondent in their Individual capacities. The petitioner and his

family have already sold their shares and have no other remedy or

legal relationship with the Company. The petitioner is not eligible

for anything let alone dividends.

The respondents have referred to the case of DLF Home

Developers Limited v. Rajapura Homes Private Limited and Anr.

To say it differently, this Court or a High Court, as the case may be, are not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen Arbitrator. On the contrary, the Court(s) are obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act. Such a review, as already clarified by this Court, is not intended to usurp the jurisdiction of the Arbitral Tribunal but is aimed at streamlining the process of arbitration. Therefore, even when an arbitration agreement exists, it would not prevent the Court to decline a prayer for reference if the dispute in question does not correlate to the said agreement.

13. It is submitted that when there exists no Arbitration

Agreement between the petitioner and the company or if the

disputes are beyond the scope of the arbitration agreement, then

appointment of an arbitrator may be refused. Section 11(6)

mandates the presence of an arbitration agreement and in such

absence in the present case there is no basis for the Applicant's

claim and the company is not liable to pay any amounts stated let

alone Rs.11,81,000./-

14. The petitioner has filed reply to the counter by submitting

that in the Memorandum of understanding agreement where in it is

clearly mentioned that Respondent no.2, 3 and 4 and petitioner,

entered into a Memorandum of understanding on 10-07-2005 with

1st respondent, on that the petitioner and the 1st respondent

expressed their intention to enter into an amendment to continue

petitioner as chairman of the Company on that the said agreement

was entered. All the promoters of Subhodaya Chemicals Limited

are parties to the said MoU, and hence they are liable for what is

written in the said MoU.

15. It is submitted that the agreement is a continuing process

and is not barred by limitation. The jurisdiction of High Court is

only to a limited extent that is whether there is Arbitration Clause is

in the agreement or not, if there is a clause, the petition is to be

allowed by appointment of an Arbitrator. The other issues involved

including the plea taken by the respondent whether it is enforced or

not or it is within the time or not all the aspects are to be decided

before the Arbitrator. The Apex court in catena of judgments held

that the jurisdiction under section 11 of the Arbitration and

Conciliation Act is very limited, it is only for appointment of

arbitrator and whatever other contentions between the parties even

relating to the limitation issue is to be decided before the arbitrator

only but not under section 11 application.

16. Learned counsel for the petitioner contended that in

connection with the referred MOUs, all the activities of the

petitioner as well as the respondents' discussions, assurances and

promises are continuing from 2014, 2017, 2020. Since the

respondent is not fulfilling the terms of MoU's, petitioner was

constrained to issue a legal notice. Hence there is no question of

limitation arose except from the date of completion of 30 days

period of the issuance of notice and this case is field well with in the

period of limitation.

17. Learned counsel further contended that there is no time limit

and there is no limitation for the MoU, and the MoU is a continuing

process and the petitioner is still acting in the capacity of a Director

on record in the 2nd respondent company and respondents has

taken a false plea that the Applicant resigned as Director from the

Company. The petitioner submits that the respondents are making

part payments occasionally agreed under the MoU and the services

of the petitioner as a Director are continuous for which there is no

limitation.

18. He further contended that the issue of limitation is a mixed

question of facts and law and it is to be decided by the Arbitrator

and this Hon'ble court under Section 11(6) of the Act cannot go into

the issue of limitation as the jurisdiction of High Court is very

limited by virtue of several judgments of Apex Court. The limitation

for filing Arbitration Application under section 11(6) of Arbitration

and Conciliation Act,1996 commences from the date of completion

of 30 days since the date of issuance of Notice invoking the

Arbitration Clause, which is 30.09.2020 in the present case,

therefore the present application is filed well within the limitation.

The respondents have not fulfilled the MoU conditions and as such

the petitioner's 33% share in the company has to be restored, else

compensate by considering the present fair value of his part of

shares worth about Rs.9.00 Crores. And he is also entitled to get all

his remuneration and perk benefits amounting Rs.36.00 lakhs and

also entitled as he stood as surety for the company loans a risk fee

at 5% per annum on an average market value of the property

amount to Rs.75 lakhs totally his claim is around

Rs.11,81,00,000/-.

19. He further submits that the claim of the petitioner is not for

one but for several claims for which no limitation is prescribed, the

petitioner's properties which are kept as security in the bank and

not released, no limitation is prescribed. The respondents failed to

appoint arbitrator in spite of first demand through a legal notice in

the year 2020 on that reply issued 29-10-2020 from that date only

limitation starts hence the application is filed within a period of

limitation only. He further submits that the referred judgments by

the respondents also clearly say that limitation will arise from the

date of notice of demand only. As per the judgments of the Hon'ble

Apex Court and other High Courts whatever the pleas taken

whether it may be validity of the agreements, plea of Limitation etc

all are to be decided before the Arbitral Tribunal only for which the

High Court cannot decide those factual issues including limitation

hence on that ground also the application is to be allowed.

20. He relied on the following judgments.

In Indian Oil Corporation Ltd. v. SPS Engg. Ltd.,1 (2011)

3 SCC 507 wherein the Hon'ble Supreme Court has recited that

To find out whether a claim is barred by res judicata, or whether a claim is "mala fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under Section 11 of the Act is whether there is an arbitration agreement between the parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under Section 11 of the Act. The Chief Justice or his designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time-barred claim and there is no need for any detailed consideration of evidence. We may elucidate by an illustration: if the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgment of a liability or other factors that kept the claim alive in law, and the claim is patently long time-barred, the Chief Justice or his designate will examine whether the claim is a dead claim (that is, a long time-barred claim). On the other hand, if the

(2011) 3 SCC 507

contractor makes a claim for payment, beyond three years of completing of the work but say within five years of completion of work, and alleges that the final bill was drawn up and payments were made within three years before the claim, the Court will not enter into a disputed question whether the claim was barred by limitation or not. The Court will leave the matter to the decision of the Tribunal. If the distinction between apparent and obvious dead claims, and claims involving disputed issues of limitation is not kept in view, the Chief Justice or his designate will end up deciding the question of limitation in all applications under Section 11 of the Act.

15. An application under Section 11 of the Act is expected to contain pleadings about the existence of a dispute and the existence of an arbitration agreement to decide such dispute. The applicant is not expected to justify the claim or plead exhaustively in regard to limitation or produce documents to demonstrate that the claim is within time in a proceeding under Section 11 of the Act. That issue should normally be left to the Arbitral Tribunal. If the Chief Justice or his designate is of the view that in addition to examining whether there is an arbitration agreement between the parties, he should consider the issue whether the claim is a dead one (long time-barred) or whether there has been satisfaction of mutual rights and obligation under the contract, he should record his intention to do so and give an opportunity to the parties to place their materials on such issue. Unless the parties are put on notice that such an issue will be examined, they will be under the impression that only questions of jurisdiction and existence of arbitration agreement between the parties will be considered in such proceedings.

By relying on the above judgment, it is submitted that under

Section 11 of the Arbitration and Conciliation Act, this Hon'ble

Court cannot go into the merits of the case and it is for the

arbitrator to decide the issue whether the claim is barred by the

limitation or not.

21. In another judgment of the Hon'ble Apex Court in Datar

Switchgears Ltd. v. Tata Finance Ltd.,2 wherein it is recited that:

(2000) 8 SCC 151

So far as cases falling under Section 11(6) are concerned -- such as the one before us -- no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.

22. In another judgment of the Hon'ble Supreme Court reported

in between Punjab Lloyd Ltd. v. Petronet MHB Ltd.,3 where in a

three-Judge Bench referred to Datar switchgears and held as

follows:

Having heard the learned counsel for the parties, we are satisfied that the appeal deserves to be allowed. The learned counsel for the appellant has placed reliance on the law laid down by this Court in the case of Datar Switchgears Ltd. v. Tata Finance Ltd. [(2000) 8 SCC 151] (SCC p. 158, para 19) wherein this Court has held as under:

"So far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an

(2006) 2 SCC 638

appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases."

The case at hand is squarely covered by the abovesaid view of the law taken by this Court. The learned designated Judge of the High Court, as also the Division Bench were not right in taking a contrary view.

And also referred to a three-judge bench of the Supreme

Court in Deep Trading Company vs. Indian oil Corporation and Ors.

in Civil Appeal no.2673 of 2013(Arising out of SLP© No.24684 of

2007, dated 22.03.2013 which upheld the legal position enunciated

in the above judgments. It is submitted that in view of the settled

principles of law, the question of MOU had come to an end by efflux

of time does not arise and the Arbitrator can be appointed under

S.11(6) of the Act.

23. Learned counsel for the respondents reiterated the

submissions made by them in the counter and contended that the

2ndrespondent is not a party to any of the MoU's, hence it cannot be

dragged into this litigation as there exists no cause of action against

this respondent and the Arbitration application is bad for mis-

joinder of parties. It is also contended that the claims cannot be

entertained as they are frivolous and barred by limitation. It is more

than a decade since the cause of action has arisen hence the claim

is ex-facie time barred and the application cannot be entertained.

The applicant himself resigned as Chairman from the Company as

such he is not entitled for any benefits and all the legal relations

with him were also ended after ordering the banks to release the

applicant from his personal guarantees.

24. It is contended that without the consent of the respondent the

applicant has proposed an arbitrator and also approached this

Hon'ble Court on behalf of the respondents also. The counsel denied

the contention of the petitioner that the limitation starts from expiry

of 30 days from the date of issuance of notice and stated that

limitation of claim starts from the date of cause of action arises.

The Applicant is not clear as to what relief he wants. In support of

his contentions counsel for respondent has placed the following

judgments.

25. Learned counsel has relied on the following judgments.

In the judgment relied upon by the petitioner i.e., Indian Oil

Corpn. Ltd. v. SPS Engg. Ltd., (referred to supra) Hon'ble Apex

Court held that the dead (long-barred) claims can be decided by the

Chief Justice of his designate if it is clearly evident. The said

paragraph is extracted herein below

To find out whether a claim is barred by res judicata, or whether a claim is "mala fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under Section 11 of the Act is whether there is an arbitration agreement between the parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under Section 11 of the Act. The Chief Justice or his designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights,

obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time-barred claim and there is no need for any detailed consideration of evidence. We may elucidate by an illustration: if the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgment of a liability or other factors that kept the claim alive in law, and the claim is patently long time-barred, the Chief Justice or his designate will examine whether the claim is a dead claim (that is, a long time-barred claim). On the other hand, if the contractor makes a claim for payment, beyond three years of completing of the work but say within five years of completion of work, and alleges that the final bill was drawn up and payments were made within three years before the claim, the Court will not enter into a disputed question whether the claim was barred by limitation or not. The Court will leave the matter to the decision of the Tribunal. If the distinction between apparent and obvious dead claims, and claims involving disputed issues of limitation is not kept in view, the Chief Justice or his designate will end up deciding the question of limitation in all applications under Section 11 of the Act.

26. In another judgment of the Hon'ble Apex court reported in

between Secunderabad Cantonment Board v. B.

Ramachandraiah & Sons 4 wherein the Hon'ble Apex Court has

recited that:

14. Having heard the learned counsel appearing for both parties, it is first necessary to refer to the recent judgment of this Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. [Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643], which extracts passages from all the earlier relevant judgments, and then lays down as to when time begins to run for the purpose of filing an application under Section 11 of the Arbitration Act. This Court, after referring to the relevant statutory provisions, held: (SCC pp. 649-52, paras 15, 21, 23-24 &

29)

(2021) 5 SCC 705

"15. In Damodar Das [State of Orissa v. Damodar Das, (1996) 2 SCC 216], this Court observed, relying upon Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 and an earlier decision of a two-Judge Bench in Panchu Gopal Bose v. Port of Calcutta [Panchu Gopal Bose v. Port of Calcutta, (1993) 4 SCC 338] , that the period of limitation for an application for appointment of arbitrator under Sections 8 and 20 of the 1940 Act commences on the date on which the "cause of arbitration" accrued i.e. from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned.

27. Applying the aforementioned principles to the present case,

we find ourselves in agreement with the finding of the High Court

Geo Miller & Co. v. Rajasthan Vidyut Utpadan Nigam Ltd. 5 ,

2007 SCC OnLine Raj 97 : (2008) 1 RLW 429] that the appellant's

cause of action in respect of Arbitration Application Nos.25/2003

and 27/2003, relating to the work orders dated 07-10-1979 and 04-

4-1980 arose on 08-02-1983, which is when the final bill handed

over to the respondent became due. Mere correspondence of the

petitioner by way of writing letters/reminders to the respondent

subsequent to this date would not extend the time of limitation.

Hence the maximum period during which this Court could have

allowed the appellant's application for appointment of an arbitrator

is 3 years from the date on which cause of action arose i.e. 08-02-

1986. Similarly, with respect to Arbitration Application No.28/2003

relating to the work order dated 03-5-1985, the respondent has

stated that final bill was handed over and became due on 10-8-

1989. This has not been disputed by the appellant. Hence the

2007 SCC Online Raj 97

limitation period ended on 10-8-1992. Since the appellant served

notice for appointment of arbitrator in 2002, and requested the

appointment of an arbitrator before a Court only by the end of 2003,

his claim is clearly barred by limitation.

28. This Court went on to hold that limitation is not a

jurisdictional issue but is an admissibility issue. It then referred to

a recent judgment of this Court in Vidya Drolia v. Durga Trading

Corpn. and stated as follows:

"45. In a recent judgment delivered by a three-Judge Bench in Vidya Drolia v. Durga Trading Corpn. [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] , on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out „manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes‟. The prima facie review at the reference stage is to cut the deadwood, where dismissal is barefaced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject-matter is not arbitrable, that reference may be refused.

45.1. In para 144, the Court observed that the judgment in Mayavati Trading [Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714 : (2019) 4 SCC (Civ) 441] had rightly held that the judgment in Patel Engg. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] had been legislatively overruled. Para 144 reads as: (Vidya Drolia case [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] , SCC pp. 114-15)

„144. As observed earlier, Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration.

Amendments to Section 8 vide Act 3 of 2016 have not been

omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati Trading (P) Ltd. [Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714 : (2019) 4 SCC (Civ) 441] , in our humble opinion, rightly holds thatPatelEngg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] has been legislatively overruled and hence would not apply even post omission of sub-section (6-A) to Section 11 of the Arbitration Act. Mayavati Trading (P) Ltd. [Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714 : (2019) 4 SCC (Civ) 441] has elaborated upon the object and purposes and history of the amendment to Section 11, with reference to sub-section (6-A) to elucidate that the section, as originally enacted, was facsimile with Article 11 of the Uncitral Model of law of arbitration on which the Arbitration Act was drafted and enacted.‟

While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute. Para 148 of the judgment reads as follows: (Vidya Drolia case [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] , SCC p. 119)

„148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section

21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed "no-claim certificate" or defence on the plea of novation and "accord and satisfaction". As observed in Fili Shipping Co. Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 Bus LR 1719 : 2007 UKHL 40] , it is

not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen.‟

47. It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time- barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal."

29. In Vishram Varu & Co. v. Union of India 6 , where in the

Hon'ble Apex Court has recited that:

10. We have heard Shri Pijush K. Roy, learned counsel appearing for the appellant at length.

11. At the outset, it is required to be noted that in the present case, work order was issued on 7.4.1982 and the work/excess work was completed in the year 1986. Even as per the statement of claim, the amount due and payable was under work order dated 7.4.1982, which was executed up to 11.05.1986 and work order dated 15.01.1984 which was executed up to 26.8.1985. Therefore, right to claim the amount, due and payable, if any, can be said to have accrued in the year 1985/1986. Thereafter, the correspondences under the RTI Act had taken from the year 2012 onwards. Thereafter, for the first time, the appellant served a legal notice upon the General Manager, South Eastern Railway on 22.10.2018 requesting either to release the amount which was overdue or to refer the dispute to the arbitrator under clauses 63 & 64 of GCC under the 1996 Act. The aforesaid legal notice is thereafter followed by three to four letters/communications and thereafter the appellant herein filed the present application under Section 11(6) of the 1996 Act before the High Court in the year 2019. Merely because for the claim/alleged dues of 1985/1986, the legal notice calling upon the respondent to pay the amount due and payable or to refer the dispute to the arbitrator is made after a period of approximately thirty-two years, the appellant cannot be permitted to say that the cause of action to

2022 SCC Online SC 487

file the application under Section 11(6) of the 1996 Act had accrued in the year 2018/2019. In the present case, the legal notice has been served and the arbitration clause is invoked and request to appoint the arbitrator was made after a period of approximately thirty-two years from the date of completion of work. Therefore, the appellant, who served the legal notice invoking the arbitration clause and requesting for appointment of an arbitrator after a period of approximately thirty-two years, cannot contend that still his application under Section 11(6) of the 1996 Act be considered as the limitation would start from the date of serving the legal notice and after completion of 30 days from the date of service of the legal notice and invoking arbitration clause.

12. Now, so far as the reliance placed upon the decision of this Court in the case of Bharat Sanchar Nigam Limited (supra) is concerned, the said decision shall not be applicable to the facts of the case on hand. In the aforesaid decision, the Court was not dealing with such a situation where the legal notice was issued and served and the arbitration clause was invoked after a period of thirty-two years. In the aforesaid decision, this Court has not stated and/or observed and/or held that despite the fact that the legal notice invoking the arbitration clause and/or request for referring the dispute to the arbitrator is made after 20/30 years, still the application under Section 11(6) of the 1996 Act can be entertained.

13. Therefore, in the facts and circumstances of the case, narrated hereinabove, the High Court has not committed any error in dismissing the application under Section 11(6) of the 1996 Act on the ground that it is hopelessly barred by limitation and is a stale claim. We are in complete agreement with the view taken by the High Court.

In another judgment of the Hon'ble Supreme Court reported

in between BSNL v. Nortel Networks (India) (P) Ltd.,7

47. It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise, it would encroach upon what is essentially a matter to be determined by the tribunal.

(2021) 5 SCC 738

30. On considering the rival contentions and also the

observations of the Hon'ble Apex Court in various judgments with

regard to consideration of application under Section 11(6) of the Act,

though the respondents vehemently contended that with regard to

the Limitaion aspect, the claim made by the petitioner was barred

by limitation, hence the Court should not entertain the application

made by the petitioner under Section 11(6) of the Act as held by the

Hon'ble Supreme Court in BSNL vs. Nortel Networks (India) Pvt.

Ltd (referred to supra). But the observations made by the Hon'ble

Apex Court in three Judges Bench in Vidya Drolia vs. Durga

Trading Corporation (referred to supra) that the Court must

undertake a primary first review to wed out manifestly ex facie non-

existent and invalid arbitration agreements, or non-arbitrable

disputes. When the court is certain that no valid arbitration

agreement exists, or that the subject matter is not arbitrable, that

reference may be refused.

31. But in the instant case, there is no dispute with regard to the

clause as well as existence of dispute. Even as per the observations

made by Hon'ble Apex Court in BSNL vs. Nortel Networks (India)

Pvt. Ltd (referred to supra) held that even in the slightest doubt, the

rule is to refer the dispute to the arbitrator.

32. Considering the above said observations, this Court feels that

with regard to delay, the same can be raised before the arbitrator.

33. Considering the submissions of both the counsel and in view

of the MoU, this petition is disposed of appointing Smt. Justice

K.Vijayalakshmi, Retired Judge, High Court of Andhra Pradesh, as

an arbitrator to the dispute between the parties. The fee of the

arbitrator as well as the other terms and conditions shall be settled

by the parties in consultation with the arbitrator and the parties are

at liberty to file their replies, pleadings and claims before the

arbitrator as per the Rules.

34. The Registry is directed to send a copy of this order to Smt.

Justice K.Vijayalakshmi, Retired Judge, High Court of Andhra

Pradesh.

Miscellaneous applications pending, if any in the Arbitration

Application, shall also stand closed.

________________ D.RAMESH, J Date: 17.11.2022 RD

THE HON'BLE SRI JUSTICE D.RAMESH

ARBITRATION APPLICATION No.30 of 2021

Date: 17.11.2022

RD