A) ABSTRACT / HEADNOTE

In Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr., the Supreme Court addressed a dispute concerning the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The petitioner sought resolution of claims relating to 4,00,000 and 2,00,010 equity shares under a Shareholders Agreement dated 25.07.2011. The core issue involved whether the claims were ex facie and hopelessly time-barred, as alleged by the respondents.

The Court reiterated its limited role under Section 11, emphasizing that the referral court’s duty is restricted to examining whether the application for arbitration is within the limitation period of three years, starting from the date of failure to comply with the arbitration notice. The Court held that intricate questions of whether the substantive claims are time-barred must be adjudicated by the arbitral tribunal, not at the referral stage. A sole arbitrator was appointed to adjudicate the disputes.

Keywords: Section 11(6), Arbitration Agreement, Limitation, Shareholders Agreement, Referral Court.

B) CASE DETAILS

• i) Judgement Cause Title: Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
• ii) Case Number: Arbitration Petition No. 20 of 2019
• iii) Judgement Date: 07 November 2024
• iv) Court: Supreme Court of India
• v) Quorum: Dr. Dhananjaya Y Chandrachud (CJI), J.B. Pardiwala*, Manoj Misra, JJ.
• vi) Author: Justice J.B. Pardiwala
• vii) Citation: [2024] 12 S.C.R. 108; 2024 INSC 849
• viii) Legal Provisions Involved:
  • Arbitration & Conciliation Act, 1996: Sections 11(6), 11(12)(a)
  • Limitation Act, 1963: Section 43, Article 137
• ix) Judgments overruled by the Case: None
• x) Case is Related to Law Subject: Arbitration Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute arose under a Shareholders Agreement dated 25.07.2011 between the petitioner, Aslam Ismail Khan Deshmukh, and the respondents, ASAP Fluids Pvt. Ltd. and Gumpro Drilling Fluids Pvt. Ltd.. The petitioner alleged that despite holding 4,00,000 equity shares, the respondents failed to issue the corresponding share certificates. Furthermore, 2,00,010 shares, acknowledged to belong to the petitioner, were allegedly retained improperly.

The petitioner invoked arbitration on 23.01.2017 under Clause 13.10 of the Shareholders Agreement. However, the respondents challenged the claims as time-barred and invalid. The Bombay High Court dismissed earlier petitions on jurisdictional grounds, leading to the present petitions before the Supreme Court under Section 11(6) of the Arbitration Act.

D) FACTS OF THE CASE

1. The petitioner was allotted 4,00,000 equity shares in respondent No.1 as per the Shareholders Agreement.
2. Respondent No.2 held 2,00,010 shares belonging to the petitioner, confirmed via letter dated 22.09.2011.
3. The petitioner resigned from the Directorship of Respondent No.1 on 18.07.2013, prior to the completion of the lock-in period of three years.
4. Alleging non-issuance of share certificates and continuous breach of the agreement, the petitioner invoked arbitration on 23.01.2017.
5. Respondents argued that the claims were ex facie time-barred and invalid.

E) LEGAL ISSUES RAISED

1. Whether the claims raised under the Shareholders Agreement were ex facie and hopelessly time-barred?
2. Whether the petitioner’s arbitration applications under Section 11(6) were within the limitation period of three years?

F) PETITIONER/ APPELLANT’S ARGUMENTS

1. The petitioner argued that there was no specific timeframe in the Shareholders Agreement for issuing the share certificates.
2. The claims were within limitation as the last correspondence was dated 15.10.2015, and the arbitration notice was sent on 23.01.2017.
3. Continuous breach of contract invoked Section 22 of the Limitation Act, restarting the limitation period each moment the breach persisted.
4. Substantive claims should be decided by the arbitral tribunal, not the referral court.

G) RESPONDENT’S ARGUMENTS

1. The petitioner violated the lock-in period of three years by resigning prematurely on 18.07.2013, thereby forfeiting rights to the shares.
2. The claims regarding 2,00,010 shares and 4,00,000 shares were hopelessly time-barred.
3. The arbitration notice issued on 23.01.2017 was outside the three-year limitation period.

H) JUDGEMENT

a. RATIO DECIDENDI

1. The Court held that the referral court’s role under Section 11(6) is limited to determining if the arbitration application is within the three-year limitation period under Article 137 of the Limitation Act, 1963.
2. Whether the substantive claims are time-barred must be left for the arbitral tribunal.
3. The arbitration notice was sent on 23.01.2017, and the petition filed on 09.04.2019 was within limitation.

b. OBITER DICTA (IF ANY)

The arbitral tribunal can impose costs if it finds the claims to be frivolous, ex facie time-barred, or an abuse of process.

c. GUIDELINES

• At the Section 11 stage, courts must:
  1. Examine if the application is within the limitation period.
  2. Avoid delving into the merits of the substantive claims.

I) CONCLUSION & COMMENTS

The Supreme Court upheld the petitioner’s right to arbitration, clarifying the limited role of referral courts under Section 11. The judgment aligns with principles laid down in Vidya Drolia and subsequent rulings, preserving the arbitral tribunal’s primacy in adjudicating time-barred claims.

J) REFERENCES

a. Important Cases Referred

1. Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1
2. Bharat Sanchar Nigam Limited v. Nortel Networks, (2021) 5 SCC 738
3. Arif Azim Company Ltd. v. Aptech Ltd., (2024) 5 SCC 313
4. SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754

b. Important Statutes Referred

1. Arbitration and Conciliation Act, 1996: Sections 11(6), 11(12)(a).
2. Limitation Act, 1963: Article 137, Section 22.