The Supreme Court dismissed the arbitration petition, holding that the claims were ex facie time-barred and beyond the limitation period.
The Three-Judge Bench of the Supreme Court, comprising Dr. Dhananjaya Y. Chandrachud, CJI, Justice J.B. Pardiwala, and Justice Manoj Misra, reviewed a set of two Arbitration Petitions and held that claims which are ex facie time-barred fall within the narrow scope of judicial interference under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court emphasized that courts must reject such "deadwood" claims at the referral stage to prevent parties from being compelled into a futile arbitration process. It was further held that invoking arbitration over eleven years after the cause of action arose was manifestly barred by limitation.
The petitioner, a United Arab Emirates-incorporated entity, was approached by the respondents to finance a telecommunication project undertaken by Telesuprecon Nigeria Limited (TNL). A Memorandum of Understanding (MoU) dated 1 June 2004 was executed, forming the basis of the dispute under Section 11(6) of the Arbitration and Conciliation Act, 1996. The second respondent, a director of the first respondent – an Indian company – represented TNL. In pursuance of the MoU, the petitioner claimed to have disbursed funds on multiple occasions. A supplementary MoU was signed on 2 August 2006, stipulating repayment terms and providing the respondents' property as comfort, supported by cheques issued for financial security.
Subsequently, fifteen cheques aggregating to Rs. 7.30 crores were issued to the petitioner but were dishonoured upon presentation on 7 May 2011. The petitioner sent a legal notice on 2 June 2011, calling upon the respondents to honour the MoU and repay the amount due. Despite this, the petitioner waited until 4 July 2022 – over eleven years later – to invoke arbitration under clause 19 of the MoU. Upon receiving no response, the petitioner issued a fresh notice on 27 October 2022 and subsequently approached the Supreme Court for the appointment of an arbitrator.
The respondents opposed the petition, contending that the claims were time-barred. The Court observed that while issues of limitation generally fall within the arbitral tribunal's jurisdiction, it may intervene at the Section 11 stage where claims are ex facie time-barred, non-arbitrable, or “deadwood,” as clarified in Vidya Drolia and Others v. Durga Trading Corporation, REEDLAW 2020 SC 12221 and BSNL v. Nortel Networks India Private Limited, REEDLAW 2021 SC 03101. The Court emphasized that limited scrutiny of uncontested facts, as affirmed in NTPC Limited v. SPML Infra Limited, REEDLAW 2023 SC 04101, was necessary to ensure parties were not forced into arbitration when the claims were demonstrably barred by limitation.
In this case, the Court noted the undisputed facts: the cause of action arose in 2011 when the cheques were dishonoured, yet the arbitration notices were issued in July and October 2022, well beyond the three-year limitation period prescribed under the Limitation Act, 1963. The Court rejected the petitioner’s contention that pending proceedings under Section 138 of the Negotiable Instruments Act, 1881 constituted a continuing cause of action for arbitration. Relying on Sri Krishna Agencies v. State of A.P., the Court held that arbitration and Section 138 proceedings arise from distinct causes of action.
Given the clear lapse of limitation and the absence of any subsisting dispute, the Court refused to refer the matter to arbitration, holding that entertaining such a petition would amount to compelling parties to arbitrate a “deadwood” claim. Accordingly, the Arbitration Petition (Civil) No. 15 of 2023 was dismissed.
The companion petition, Arbitration Petition (Civil) No. 10 of 2023, which involved similar facts save for a MoU dated 26 May 2004, was also dismissed on identical grounds. The Court concluded that the claims were ex-facie time-barred, and the petitions were accordingly dismissed. Pending applications in both matters stood disposed of.
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REEDLAW 2024 SC 07014
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