Delhi High Court on Limitation Period under Section 8, Arbitration And Conciliation Act

[Piyush Agrawal and Radhika Agrawal are 3rd year students at the Hidayatullah National Law University, Raipur]

Whether or not the limitation period is applicable to section 8 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) is an unsettled principle. The peculiarity of the statute of limitation being enforceable in courts, but not in matters of arbitration, has long been debated. It is the limitation period expressed under section 8 of Arbitration Act that has been dealt in this post.

The enforceability and applicability of statute of limitations in arbitration was first discussed by the Supreme Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors. (2011), wherein the Court sought to put an end to the debate by ruling that the limitation period is not applicable in case of section 8 of Arbitration Act, and that a written application must be filed at the earliest. The Booz Allen decision arose before the 2015 Amendment to the Arbitration Act.

Framework of Section 8

After the 2015 amendment, sub-section (1) of section 8 of the Arbitration Act read as follows:

“If an action relating to the subject matter of an arbitration agreement has been brought before the judicial authority by a party not later than the date of submitting his first statement on the substance of the dispute, then the judicial authority shall refer the parties to arbitration provided a valid arbitration agreement exists between the parties.”

The 2015 amendment added the expression “the date of” to section 8(1), which now reads: “not later than the date of submitting his first statement on the substance of the dispute”. By adding the said words, it can be presumed that the date on which written statement is actually filed can be considered for the purposes of the limitation period.

The Delhi High Court in SSIPL Lifestyle Private Limited v. Vama Apparels (India) Private Limited observed that the mention of the word “date” in the amended provision means that it is a precise date and usually incapable of ambiguity. The same is a crystallized date and not a “period” prior to the filing of the first statement on the substance of the dispute. The Court stated: “The entire intention is that those parties who wish to proceed for arbitration ought to do so with alacrity and speed and not merely procrastinate.”

Section 8 of Arbitration Act is not discretionary, but it is rather peremptory, i.e., a judicial authority is under an obligation to refer the parties to arbitration if a valid agreement exists between them.

Revisiting SSIPL Lifestyle

In SSIPL Lifestyle, the Delhi High Court was concerned with the existence of limitation period in the filing of an application under section 8 of Arbitration Act and also whether the limitation period prescribed under the Code of Civil Procedure 1908 (“CPC”) and the Commercial Courts Act 2015 would be applicable to section 8 of Arbitration Act.

Briefly, SSIPL Lifestyle Private Limited entered into an agreement dated 22 April 2016 with Vama Apparels (India) Private Limited. Subsequently, disputes arose between the parties. Two suits were thereafter filed by SSIPL on 17 February 2018 to recover certain amounts due from Vama Apparels. The Court issued summons on 15 March 2018; on 16 May 2018, time was allowed to Vama Apparels for filing of the written statement. A written statement was not filed by Vama Apparels, as insolvency proceedings were initiated against them on 17 May 2018 before the National Company Law Tribunal. Vama Apparels made applications under section 8 of Arbitration Act with respect to the two suits for seeking reference to arbitration, in accordance with the arbitration clause in the agreement between the parties.

SSIPL objected to the applications made by Vama Apparels on 11 February 2019 in view of the expiry of the limitation period according to section 8 of Arbitration Act and argued that an application under section 8 cannot be filed. The Court, therefore, dismissed SSIPL’s application under section 8 of Arbitration Act and observed: “The Defendant (Vama Apparels) cannot defeat the intention behind the amendments in the Civil Procedure Code and the Arbitration Act, by choosing to file a Section 8 application at its own sweet will.

Thus, the Delhi High Court departed from the decision of the Supreme Court in Booz Allen and ruled that an application filed under section 8 of Arbitration Act is governed by the law of limitation, and that the period of limitation prescribed under the CPC and the Commercial Court Act, 2015 would also be applicable to section 8 of the Arbitration Act. The Court focused upon the legislative intent behind the 2015 amendment, which was not in accordance with the previous judgements.

Conclusion

The decision of the Delhi High Court would be hailed by those who do not prefer arbitration and were subjected to arbitration even after the expiry of the limitation period. It would help to expedite the process of arbitration, as parties would now be filing the application within the prescribed time limit, without delay.

Hence, before bringing an action before a judicial authority, the party so applying must file the written application in terms of section 8 of Arbitration Act before the expiry of the limitation period, i.e., no later than the date of submitting the first statement on the substance of the dispute. To reiterate, any application filed after the expiry of the limitation period shall not be entertained by the judicial authority.

While there seems to be a variance in the stance taken by the Delhi High Court in SSIPL Lifestyle and by the Supreme Court in Booz Allen, it is significant to note that because of the legislative silence of the amended Arbitration Act on the applicability of the limitation period, the general laws, i.e., CPC and Commercial Courts Act shall have priority. Intrinsically, the issue is subject to widespread implications, and it appears that the final burden is likely to fall upon the Supreme Court to decide the said issue.

Piyush Agrawal & Radhika Agrawal


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