The Supreme Court ruled on the issue of whether the arbitration petition filed by Arif Azim Co. Ltd. was barred by limitation under Article 137 of the Limitation Act, 1963. The case also considered if the court can refuse to make a reference under Section 11 of the Arbitration and Conciliation Act, 1996, when claims are ex-facie time-barred.

The court held that while the petition was filed within the limitation period for seeking arbitration, the underlying claims had expired long before, rendering them time-barred. Thus, while the arbitration could be referred, the petitioner would face serious issues regarding the validity of its claims during arbitration proceedings.

Acts and Sections Discussed:

• Arbitration and Conciliation Act, 1996: Section 11(6) (appointment of arbitrators)
• Limitation Act, 1963: Article 137 (residual limitation period for applications)

1. Factual Background (Paras 1-6):

   • M/s Arif Azim Co. Ltd., an Afghanistan-based company, entered into a franchise agreement with M/s Aptech Ltd. The dispute arose from issues related to payments under the agreement, and Arif Azim sought arbitration for resolution.

2. Submissions by Petitioner (Paras 15-17):

   • The petitioner argued that the dispute arose due to non-payment for services related to an ICCR project and invoked arbitration. They contended that the notice for arbitration was within the valid limitation period.

3. Submissions by Respondent (Paras 18-21):

   • The respondent challenged the arbitration petition as time-barred, citing Article 137 of the Limitation Act, arguing that the cause of action arose earlier and that mere exchanges of letters do not extend the limitation period.

4. Issue No. 1: Applicability of Limitation Act to Arbitration Applications (Paras 43-45):

   • The court acknowledged that while the Arbitration and Conciliation Act does not prescribe a limitation period, the Limitation Act applies, and the three-year period under Article 137 governs such petitions.

5. Issue No. 2: Ex-facie Time-barred Claims (Paras 63-66):

   • The court discussed that claims which are hopelessly time-barred should not be entertained in arbitration, even if the petition for arbitration itself is within the limitation period.

Ratio Decidendi:

The court held that while the petition for arbitration was within the prescribed time, the claims were ex-facie time-barred. Courts should ensure that dead claims are not arbitrated as it would result in unnecessary and costly arbitration processes. The limitation period for a claim does not extend merely by negotiation or exchange of letters; a specific cause of action must arise for arbitration.

Subjects:

• Arbitration Law
• Limitation Act
• Contractual Disputes
• Arbitration
• Limitation
• Commercial Dispute
• Franchise Agreement