A) ABSTRACT / HEADNOTE

This case involves the applicability of the Limitation Act, 1963, to petitions for the appointment of arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996, and the determination of whether claims are barred by limitation. The dispute originates from franchise agreements between M/S Arif Azim Co. Ltd. (Petitioner) and M/S Aptech Ltd. (Respondent), where royalties and payments became contentious. Central issues include the timeline for invoking arbitration, the interplay of cause of action, and limitation periods, further complicated by the applicability of COVID-19-induced suspension of limitation periods. The Supreme Court allowed the petition, appointing an arbitrator, stating that the limitation for such petitions begins post-notice for arbitration and is governed by Article 137 of the Limitation Act.

Keywords: Arbitration, Limitation Act, Franchise Dispute, Royalty Claims, Article 137.

B) CASE DETAILS

i) Judgment Cause Title
M/S Arif Azim Co. Ltd. v. M/S Aptech Ltd.

ii) Case Number
Arbitration Petition No. 29 of 2023

iii) Judgment Date
01 March 2024

iv) Court
Supreme Court of India

v) Quorum
Dr. Dhananjaya Y. Chandrachud, CJI; J.B. Pardiwala; Manoj Misra, JJ.

vi) Author
J.B. Pardiwala, J.

vii) Citation
[2024] 3 S.C.R. 73 : 2024 INSC 155

viii) Legal Provisions Involved

• Arbitration and Conciliation Act, 1996: Sections 11(6), 21
• Limitation Act, 1963: Article 137
• Commercial Courts Act, 2015: Section 12A

ix) Judgments Overruled by the Case (if any)
Not applicable.

x) Case is Related to Which Law Subjects
Arbitration Law, Contract Law.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This petition arose from a dispute under franchise agreements executed between the petitioner and respondent. The petitioner, an Afghan entity, was granted a non-exclusive license to operate centers under the respondent’s trademarks. Disputes emerged over non-payment of royalties and proceeds from a short-term educational project facilitated by ICCR (Indian Council for Cultural Relations). The arbitration clause in the agreements became the focal point of contention.

D) FACTS OF THE CASE

1. Agreements Execution: Three franchise agreements were signed in March 2013, enabling the petitioner to operate centers under the respondent’s trade names in Afghanistan.

2. ICCR Project: In 2017, the petitioner executed a short-term English course for Afghan students, facilitated by the respondent through ICCR. Payment disputes arose after project completion.

3. Royalty Claims: The respondent issued a recovery notice in 2018 for outstanding royalties, followed by email exchanges disputing payments and percentages.

4. Delayed Arbitration: After failed conciliation efforts and mediation, arbitration was invoked in 2022. The respondent contested on grounds of limitation.

5. COVID-19 Impact: The court considered the suspension of limitation during the pandemic, influencing timelines for arbitration initiation.

E) LEGAL ISSUES RAISED

1. Is the Limitation Act, 1963, applicable to petitions under Section 11(6) of the Arbitration and Conciliation Act, 1996?
2. Are the petitioner’s claims barred by limitation, and what constitutes the starting point of limitation?
3. Can the court refuse to appoint an arbitrator if claims are prima facie time-barred?

F) PETITIONER’S ARGUMENTS

1. Limitation Exclusion: The petitioner argued the exclusion of the limitation period during COVID-19 under the Supreme Court’s directions.
2. Continuing Cause of Action: Non-disclosure of received amounts by the respondent kept the cause of action alive.
3. Arbitration Clause Enforcement: The petitioner emphasized their compliance with the pre-arbitration mediation requirements.

G) RESPONDENT’S ARGUMENTS

1. Time-Barred Claims: The respondent contended that the claims were ex-facie barred under Article 137.
2. Force Majeure Rebuttal: The respondent rejected the petitioner’s reliance on force majeure, citing operational email exchanges.
3. Arbitration Scope: The respondent argued the ICCR-related claims fell outside the scope of the arbitration agreement.

H) JUDGMENT

a. Ratio Decidendi

1. Article 137 applies to Section 11(6) petitions. Limitation begins post the expiry of 30 days from notice of arbitration.
2. The court must prima facie ensure claims are not ex-facie barred to avoid unnecessary arbitration costs.

b. Obiter Dicta

• Parliamentary amendments are necessary to prescribe a specific limitation for arbitration petitions, aligning with the Act’s intent of expeditious dispute resolution.

c. Guidelines Issued

1. Limitation Assessment: Courts must bifurcate the limitation for substantive claims and the petition for arbitrator appointment.
2. Notice Protocol: Valid arbitration notices are preconditions to initiating Section 11 petitions.

I) CONCLUSION & COMMENTS

The Supreme Court underscored the importance of judicial scrutiny to prevent unnecessary arbitrations while affirming the petitioner’s adherence to limitation norms.

J) REFERENCES

a. Important Cases Referred

1. SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618.
2. Bharat Sanchar Nigam Ltd. v. Nortel Networks, (2021) 5 SCC 738.
3. Major (Retd.) Inder Singh Rekhi v. DDA, (1988) 2 SCC 338.

b. Important Statutes Referred

1. Arbitration and Conciliation Act, 1996.
2. Limitation Act, 1963.
3. Commercial Courts Act, 2015.