ASLAM ISMAIL KHAN DESHMUKHversusASAP FLUIDS PVT. LTD. & ANR.
- Citation
- 2024 INSC 849
- Decided
- 7 November 2024
- Bench
- D Y CHANDRACHUD
Holding
A Section 11(6) application is valid if filed within three years of the other party's failure to comply with a valid arbitration notice, and the court must not adjudicate the substantive limitation of the underlying claims at the referral stage.
Summary
The petitioner, a non‑resident Indian, claimed entitlement to 400,000 and 200,010 equity shares under a 2011 Shareholders Agreement and sought appointment of an arbitrator under Section 11(6) of the Arbitration & Conciliation Act, 1996 after the respondents failed to issue share certificates. The respondents argued that the petitioner's claims were barred by limitation, contending that the cause of action arose either on the date of his resignation in 2013 or earlier correspondence in 2015, making the claims ex‑facie time‑barred. The Supreme Court examined whether the Section 11(6) application itself was filed within the three‑year limitation period, concluding that the limitation clock started on 23 February 2017 (the date of respondents' failure to respond to the arbitration notice) and the petitions filed on 9 April 2019 were timely. The Court reiterated that at the referral stage the court's inquiry is limited to the existence of a prima facie arbitration agreement and whether the Section 11(6) petition is within limitation, leaving substantive limitation questions to the arbitral tribunal. Consequently, the petitions were allowed and a sole arbitrator, already appointed in a related dispute, was directed to hear the present matters, with costs potentially imposed on the petitioner if the claims are later found time‑barred.
Issues considered
- The applicability of the Limitation Act, 1963 to a Section 11(6) application for appointment of an arbitrator.
- Whether the Section 11(6) petition filed by the petitioner is barred by the three‑year limitation period.
- Whether the substantive claims of the petitioner are ex‑facie time‑barred and thus non‑arbitrable at the referral stage.
Legislation cited
- Arbitration & Conciliation Act, 1996s. 11(12)(a), s. 11(6), s. 43
- Limitation Act, 1963s. Article 137, s. Schedule Article 55, s. Section 22
Subjects
Judgment
[2024] 12 S.C.R. 108 : 2024 INSC 849
Aslam Ismail Khan Deshmukh
v.
Asap Fluids Pvt. Ltd. & Anr.
(Arbitration Petition No. 20 of 2019)
07 November 2024
[Dr Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala*
and Manoj Misra, JJ.]
Issue for Consideration
Petitioner sought appointment of an arbitrator for the adjudication
of disputes and claims in terms of the Shareholders Agreement
between the parties. Whether the reference under Section 11(6)
of the Arbitration & Conciliation Act, 1996, should be declined by
examining whether the substantive claims of the petitioner are
ex facie and hopelessly time barred.
Headnotes†
Arbitration & Conciliation Act, 1996 – s.11(6) – Appointment
of Arbitrators – Jurisdiction of referral court – Scope of
interference – Petitions filed u/s.11(6), if within limitation:
Held: Courts at the referral stage can interfere only in rare cases
where it is manifest that the claims are ex facie time-barred and
dead, or there is no subsisting dispute – While determining the
issue of limitation in the exercise of powers u/s.11(6), the referral
court must only conduct a limited enquiry for the purpose of
examining whether the s.11(6) application has been filed within the
limitation period of three years or not – At this stage, the referral
court would not indulge in an intricate evidentiary enquiry into the
question of whether the claims raised by the petitioner are time
barred – Such a determination must be left to the decision of
the arbitrator – Petitioner had issued notice invoking arbitration
on 23.01.2017 which was delivered to both the respondents on
24.01.2017 – However, the respondents failed to reply to the said
notice within 30 days i.e. within 23.02.2017 – Therefore, the period
of limitation of three years, for the purposes of a s.11(6) petition,
would begin to run from 23.02.2017 i.e., the date of failure or refusal
by the other party to comply with the requirements mentioned
*Author
[2024] 12 S.C.R. 109
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
in the notice invoking arbitration – Thus, the present petitions
u/s.11(6) filed on 09.04.2019 were within limitation – Furthermore,
at the stage of s.11 application, the referral Courts need only
to examine whether the arbitration agreement exists or not –
The existence of the arbitration agreement in the Shareholders
Agreement is not disputed – Petitions allowed – Sole arbitrator
already appointed for the adjudicating disputes between the
parties in relation to the Service Agreement, appointed for
adjudication of the present disputes pertaining to the Shareholders
Agreement – Issue as regards the claim of the petitioner being
ex facie time barred may be adjudicated as a preliminary issue –
Limitation Act, 1963. [Paras 32, 39, 41, 44-46]
Arbitration & Conciliation Act, 1996 – s.11(6) – Limited scope
of interference by referral courts – Interests of the party forced
to participate in the arbitration proceedings to be balanced,
arbitral tribunal may impose costs on the party abusing
process of law:
Held: At the stage of s.11 application, the referral Courts need
only to examine whether the arbitration agreement exists or not,
nothing more, nothing less – However, some parties might take
undue advantage of such a limited scope of judicial interference
of the referral courts and force other parties to the agreement into
participating in a time consuming and costly arbitration process
in cases, including but not limited to, where the claims are either
ex facie time-barred or are discharged through "accord and
satisfaction", or cases where the impleadment of a non-signatory
to the arbitration agreement is sought etc. – In order to balance
such a limited scope of judicial interference with the interests of the
parties who might be constrained to participate in the arbitration
proceedings, the arbitral tribunal may impose costs of the arbitration
on the party which the Tribunal ultimately finds to have abused the
process of law and caused unnecessary harassment to the other
party to the arbitration. [Para 44]
Case Law Cited
Interplay between Arbitration Agreements Under the Arbitration
and Conciliation Act, 1996 and the Indian Stamp Act, 1899, In Re
[2023] 15 SCR 1081 – followed.
110 [2024] 12 S.C.R.
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Vidya Drolia & Ors v. Durga Trading Corporation [2020] 11 SCR
1001 : (2021) 2 SCC 1; Bharat Sanchar Nigam Limited and Another
v. Nortel Networks India Private Limited [2021] 2 SCR 644 : (2021)
5 SCC 738; SBI General Insurance Co. Ltd. v. Krish Spinning
[2024] 7 SCR 840 : 2024 SCC OnLine SC 1754 – relied on.
Arif Azim Company Limited v. Aptech Limited [2024] 3 SCR 73 :
(2024) 5 SCC 313 – referred to.
List of Acts
Arbitration & Conciliation Act, 1996; Limitation Act, 1963.
List of Keywords
Section 11(6) of the Arbitration & Conciliation Act, 1996; Referral
court; Jurisdiction of referral court; Limitation; Petitions filed under
Section 11(6) of the Arbitration & Conciliation Act, 1996 within
limitation; Appointment of an arbitrator; Shareholders Agreement;
Service Agreement; Non-Resident Indian; Claims ex facie and
hopelessly time barred; Limited enquiry; No intricate evidentiary
enquiry; Period of limitation of three years for Section 11(6)
petition; Notice invoking arbitration; Failure or refusal by the other
party to comply with the requirements; Arbitration agreement;
Existence of a prima facie arbitration agreement; Sole arbitrator;
Time consuming, Costly arbitration process; Claims ex facie
time-barred; Preliminary issue; Claims discharged through "accord
and satisfaction"; Impleadment of a non-signatory to the arbitration
agreement sought; Costs; Abuse of process of law; Harassment
caused to the other party to the arbitration.
Case Arising From
CIVIL ORIGINAL JURISDICTION: Arbitration Petition No. 20 of 2019
(Under Section 11(6) read with Section 11(12)(a) of the Arbitration
& Conciliation Act, 1996)
With
Arbitration Petition No. 22 of 2019
Appearances for Parties
Kunal Cheema, Raghav Deshpande, Shubham Chandankhede,
Advs. for the Petitioner.
[2024] 12 S.C.R. 111
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
Ms. Jasmine Damkewala, Rajesh Kumar, Ms. Vaishali Sharma,
Ms. Rachita Sood, Ms. Nishtha Tyagi, Divyam Khera, Tushar,
Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
1. Since the captioned petitions raise analogous issues between the
same parties, those were taken up together and are being disposed
of by this common judgment and order.
2. The petitioner has filed the present two petitions in terms of
Section 11(6) read with Section 11(12)(a) of the Arbitration
& Conciliation Act, 1996 (for short “the Act, 1996”), seeking
appointment of an arbitrator for the adjudication of disputes and
claims in terms of Clause 13.10 of the Shareholders Agreement dated
25.07.2011 entered into between the petitioner and the respondents.
I. FACTUAL MATRIX
3. Aslam Ismail Khan Deshmukh (hereinafter referred to as the
“petitioner”) is a Non-Resident Indian, who is currently residing
and working in Dubai, UAE, having experience and expertise in the
drilling fluid industry.
4. ASAP Fluids Pvt. Ltd. (hereinafter referred to as the “respondent
no.1”) is an Indian private limited company engaged in providing
drilling fluids services to the oil and gas industry, whereas Gumpro
Drilling Fluids Pvt. Ltd. (hereinafter referred to as the “respondent
no. 2”) is a private limited company that specializes in oil field
services and offers mud services.
5. A Shareholders Agreement dated 25.07.2011 (hereinafter referred
to as “Shareholders Agreement”) was executed by and among
the petitioner, respondent no.1, respondent no.2, Mr. Robert
Wayne Pantermuehl, and Mr. Sunil B. Shitole. In terms of the said
Shareholders Agreement, the petitioner was to hold 4,00,000 equity
shares of respondent no. 1 and also participate in the management
of respondent no.1 company. The relevant clauses from the same
are reproduced hereinbelow:
112 [2024] 12 S.C.R.
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"4. RIGHT OF PRE-EMPTION FOR ISSUE OF
NEW DILUTION INSTRUMENTS OR DILUTION OF
SHAREHOLDING
Present issued, subscribed and paid up share capital of
the Company is Rs.2,64,00.000/- divided into 26,40,000
equity shares of INR 10 each which is held by the members
as mentioned below:
a. Gumpro holding 18,00,000 equity shares of
Rs. 10/- each in the Company.
b. Bob currently holding only 40,000 equity shares
of Rs. 10/- each and shall be allotted additional
360,000 equity shares subject to getting the
approval of Foreign Investment Promotion Board
(FIPB). Ministry of’ Finance and Reserve Bank of
India or such other approval as may be required
as per Indian Law.
c. Aslam Khan holding 400,000 equity shares of
Rs. 10/- each in the Company and
d. Sunil Shitole holding 400,000 equity shares of
Rs. 10/- each in the Company.
On allotment of further 360,000 equity shares to Bob,
the issued, subscribed and paid up share capital of the
Company will be Rs. 3 Crores divided into 30,00,000 equity
shares of Rs. 10/- each which will be held as follow:
a. Gumpro 18,00,000 equity shares of Rs. 10/-
each in the Company
b. Bob 400,000 equity shares of Rs. 10/- each in
the Company
c. Aslam Khan 400,000 equity shares of Rs. 10/-
each in the Company and
d. Sunil Shitole 400,000 equity shares of Rs. 10/-
each in the Company·
Gumpro has provided Rs.4,58,39,200 Crores as unsecured
Loan (as on 31st March 2011) and Gumpro will additionally
raise Rs.6.6 Crores for the Company from private equity
[2024] 12 S.C.R. 113
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
fund or venture capital fund and advance it to the Company
as secured loan against the security of equipments of the
Company.
General. Subject to the terms and conditions specified in
Section 4.3, the affirmative approval provisions contained
in Section 9 and applicable Indian law, in the event that
the Company proposes to issue any Dilution Instruments,
the Company shall first offer such Dilution Instruments
to all the Shareholders on rights basis, in proportion
to their shareholding ratio in the Company on the date
immediately prior to such further issue, in accordance
with the procedure set forth in Section 4.2. It is clarified
that the shareholding pattern of the Company as stated
in Clause 4.1 shall be maintained at all times, save and
except in the circumstances specified in Clause 4.2 below.
It is agreed and understood by all the Parties to this
Agreement that any Shares offered/ issued or subscribed
by the Other Shareholder will be under lock -in period
of 3 (Three) years from the date of its allotment. The Board
shall prior to undertaking any such issue appoint any
reputed investment banker/ Chartered accountant to carry
out a valuation of the Company. The Board shall ensure
that the capital shall be raised at valuation no lower than
the valuation set forth in the report of such investment
banker/ Chartered Accountant.
xxx xxx xxx
5 RESTRICTIONS ON TRANSFER OF SHARES AND
PROVISIONS RELATING TO TRANSMISSION OF
SHARES
5.1 Other Shareholder Share Sale Restriction.
Notwithstanding anything contained elsewhere in this
Shareholder’s Agreement, the Other Shareholder agree
that they shall not, whether collectively or individually,
directly or indirectly, Transfer any part of their shareholding
in the Company in whatever form, or any legal or beneficial
interest therein, until the earlier of: (a) Gumpro ceasing to
hold a minimum of two percent (2%) of its shareholding in
the Company and (b) the completion of a Qualified Public
114 [2024] 12 S.C.R.
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Offering, except in compliance with this Shareholders’
Agreement, particularly Section 6. Without prejudice to the
generality of the foregoing. The Other Shareholder shall
not Transfer any part of their individual shareholding until
the expiry of three (03) years from the date of issue of
such shares. It has been clearly understood and agreed
that the shares of the Other Shareholder are locked-in for
a period of three years from the date of its issuance or
conversion of it into equity shares.
xxx xxx xxx
6. RIGHT OF FIRST REFUSAL AND RIGHT OF CO-SALE
6.1 General. Subject to the provisions of Section 5, the
Other Shareholder (for this Section “Selling Shareholder”)
hereby unconditionally and irrevocably grants to Gumpro
a right (the “Right of First Refusal”) to purchase all or a
portion of the Shares that such Selling Shareholder may
propose to Transfer (“Sale Shares”).”
6. Mr. Anand Gupta, the Managing Director of respondent no.2 informed
the petitioner, vide letter dated 22.09.2011, that 2,00,010 equity
shares of respondent no.1 which belong to the petitioner were being
held by respondent no.2 in its name. It was stated therein that this
arrangement was made to provide comfort to the potential investors
in respondent nos.1 and 2 respectively. It was further clarified that
the abovementioned shares held by respondent no.2 would be
governed by the Shareholders Agreement dated 25.07.2011 and that
those shall not be pledged or sold at any time without the written
consent of the petitioner. At the time of sale of respondent no.1, it
was confirmed that the value of these shares net of taxes would be
paid to the petitioner or his nominee.
7. Subsequently, the respondent no.1 along with its Dubai subsidiary
company, ASAP Fluids DMCC (hereinafter referred to as the “Dubai
subsidiary”) entered into a Service Agreement dated 18.10.2011
(hereinafter referred to as, the “Service Agreement”) with the
petitioner. By the Service Agreement, the petitioner was appointed
as a Director of respondent no.1 and its Dubai subsidiary. Among
his responsibilities in relation to respondent no.1, the petitioner was
also required to carry on the responsibilities of the full operations of
[2024] 12 S.C.R. 115
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
the Dubai subsidiary. He was obligated to hold office for an initial
period of 3 years w.e.f. 01.01.2011. The Service Agreement provided
for the remuneration and benefits that the petitioner was entitled to.
The relevant clauses from the same are reproduced hereinbelow:
"3. TERM
3.1 The Director shall hold the office for a period of
three years commencing from ________ subject to the
determination thereof as hereinafter provided.
xxx xxx xxx
10. TERM AND TERMINATION
[…]
10.2 Aslam Khan shall not for a period of three (3) years
from the Effective Date (Initial Term), terminate this
Agreement. In case if he terminates his employment prior
to Initial Term, he shall transfer all the equity shares held
by him in favour of the Promoter of the Company at zero
consideration implying his outstation from the register of
members of the Company.”
8. On the same day, i.e., on 18.10.2011, the petitioner signed an
Agreement for Transfer of Commercial Expertise (hereinafter referred
to as “Commercial Expertise Agreement”) with respondent nos.
1 and 2 respectively, agreeing to the transfer of all his commercial
expertise, knowledge and experience in the field of getting approvals
from the government, and handling administrative and legal aspects of
the business to respondent no. 1. In return, respondent no. 1 agreed
to issue 4,00,000 equity shares of Rs. 10/- each to the petitioner
for consideration other than cash. The relevant recitals and clauses
from the same are reproduced hereinbelow:
“ WHEREAS
[…]
3. The Parties have agreed before starting this venture that
the Transferor shall transfer all his commercial expertise
knowledge and experience in the field of getting the
approvals of government. handling administrative and legal
aspects of the Business (“Commercial Expertise·’) to the
116 [2024] 12 S.C.R.
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Transferee and the Transferee shall issue him 400,000
equity shares of Rs.10/- each in the Transferee Company
for the consideration other than cash for transferring such
Commercial Expertise to the Transferee and continuing
with the transferee Company for minimum period of three
(3) years and the such shares allotted to him shall be
under lock in for three years.
xxx xxx xxx
3. TRANSFER OF COMMERCIAL EXPERTISE AND
ISSUE OF SHARES
3.1 It is hereby agreed by and between the parties hereto that
all the Commercial Expertise of the Transferor pertaining
to or referable to all expertise in the management of the
Business and its related activities including Administration,
ensuring smooth performance, high efficiency and
productivity along with knowledge on tender participations
etc. shall be transferred to and unto the transferee and
the Transferor shall work for a minimum period of 3 years
for the Transferee or its affiliate or group company either
in India or Overseas effective from 1st January 2011 and
the Transferee shall issue and allot 400,000 Equity Shares
of Rs. 10/- each at par in the Transferee Company in
lieu thereof by way of consideration for transfer of such
Commercial Expertise as mentioned above and holding
such shares under lock in for minimum period of 3 years.
The Transferor shall then assign and transfer all the
Transferor’s right, title and interest in all the Commercial
Expertise for the entire world and for entire period during
which this Commercial Expertise subsists to and unto the
Transferee absolutely.
xxx xxx xxx
4. COVENANTS OF THE TRANSFEROR
4.1 The Transferor ensures that he shall continue in the
employment of the Transferee for minimum period of three
years effective from 1st January 2011.
[…]
[2024] 12 S.C.R. 117
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
4.3 If at any time after a minimum period of 3 years as
locking of shares the transferee wish to sell his share to the
transferee he must first offer for sale to management, all
(and not only some unless management agrees otherwise)
of the shares owned by him (“the Sale Shares”) at a price
as mutually agreed with him and the management at the
relevant time.”
xxx xxx xxx
10. TERM OF THE AGREEMENT
[…]
10.2 The term for this Agreement will start on Allotment of
Shares by the Transferee to the Transferor and the such
allotted Shares will be under Lock in for a period of three
years from the date of its Allotment and the Transferor shall
not leave the services with the Transferee for a period of
three years from the date of Allotment of Shares in the
Company as per terms of this Agreement”
(Emphasis supplied)
9. Upon certain other issues arising between the parties, the petitioner
tendered his resignation as the Director in respondent no. 1 and
its Dubai subsidiary. The resignation was accepted by the Dubai
subsidiary vide Director’s Resolution dated 18.07.2013.
10. The petitioner was concerned with the failure of respondent no.2 in
transferring 2,00,010 shares in respondent no.1 which belonged to the
petitioner despite confirmation of the same vide letter dated 22.09.2011
and also the non-issuance of the share certificates evidencing allotment
of additional 2,00,010 shares in the name of the petitioner by respondent
no. 1. The petitioner further contended that despite holding 4,00,000
equity shares in respondent no.1 as per the Shareholders Agreement,
respondent no.1 failed to issue duly stamped, signed and sealed share
certificates evidencing such an allotment to the petitioner.
11. It is the case of the petitioner that he had requested respondent no.1
on several occasions to either issue the share certificates evidencing
allotment of 4,00,000 equity shares or in the alternate, return the
amount equivalent to such shares. The petitioner alleged that, since
the share certificates were not issued to him, he was unable to send
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an ‘offer notice’ to sell his portion of equity shares to respondent
no.2 who has the “Right of First Refusal” under Clause 6 of the
Shareholders Agreement.
12. The petitioner stated that since the respondents were not paying
heed to his repeated requests for issuance of share certificates,
the petitioner sent a Common Notice dated 23.01.2017 (hereinafter
referred to as “Arbitration Notice”) to both the respondents, directing
them to either issue the share certificates evidencing allotment of
2,00,010 and 4,00,000 shares respectively or in the alternate, to return
the amount equivalent to those shares. The same was received by
both the respondents on 24.01.2017. In the event of a dispute, the
Arbitration Notice called upon the respondents to appoint arbitrators
in terms of Clause 13.10 of the Shareholders Agreement. The said
clause is reproduced hereinbelow:
"13.10. Dispute Resolution. Any dispute, claim or
controversy arising under or relating to this Agreement,
including without limitation any dispute concerning the
existence or enforceability hereof, shall be resolved by
arbitration in Mumbai in accordance with the Arbitration
and Conciliation Act, 1996. The dispute will be referred
to the arbitrator, and Gumpro has right to appoint 2
(two) arbitrators and Other Shareholder have the right to
appoint 1(one) arbitrator. All these three (03) arbitrators,
will appoint one of them to act as umpire of the arbitral
tribunal. The language of the arbitration shall be English.
Any arbitration award by the arbitral tribunal shall be
final and binding upon the Parties, shall not be subject
to appeal, and shall be enforced by judgment of a court
of competent jurisdiction.”
13. As there was no response from the respondents, the petitioner filed
two separate applications dated 03.03.2017 under Section 11(6)
of the Act, 1996, bearing Arbitration Application No. 50 of 2017 for
adjudication of disputes pertaining to the 4,00,000 equity shares and
Arbitration Application No. 51 of 2017 for adjudication of disputes
pertaining to 2,00,010 equity shares, before the High Court of Bombay,
praying for the appointment of an arbitral tribunal.
14. After nearly 10 months from the date of the arbitration notice,
on 07.11.2017, the respondents sent a reply denying and disputing all
[2024] 12 S.C.R. 119
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
the claims and allegations made by the petitioner. Without prejudice to
the contentions in the reply, the respondents appointed two arbitrators
in terms of clause 13.10 of the Shareholders Agreement and called
upon the petitioner to nominate the third arbitrator. It was asserted
that the alleged claim of 2,00,010 shares or the value thereof cannot
be referred to arbitration as it does not fall within the remit of the
dispute resolution clause of the Shareholders Agreement.
15. The High Court of Bombay vide Judgment and final order
dated 22.02.2019 held that the petitioner is a Non-Resident Indian
who habitually resides and works in Dubai. The proceedings would
constitute an “international commercial arbitration” and therefore, the
Section 11 applications filed before it were not maintainable.
16. In light of the above and upon the dismissal of the Section 11
applications by the High Court, the petitioner has filed the present
petitions before this Court i.e., Arbitration Petition No.20 and
Arbitration Petition No. 22 under Section 11(6), for appointment of an
arbitral tribunal, to adjudicate the disputes under the Shareholders
Agreement pertaining to 2,00,010 shares and 4,00,000 shares
respectively.
II. SUBMISSIONS ON BEHALF OF THE PETITIONER
17. Mr. Kunal Cheema, the learned counsel appearing for the petitioner,
submitted that both the arbitration petitions arise out of disputes
under the Shareholders Agreement. Clause 13.10 of the agreement
provides for the arbitration clause and the same has not been
disputed by the parties.
18. It was submitted that the petitioner was entitled to be allotted 4,00,000
equity shares of Rs. 10 each in respondent no.1 company
under the Shareholders Agreement. In addition, as per the letter
dated 22.09.2011, respondent no.2 further confirmed that 2,00,010
equity shares in respondent no.1 which belonged to the petitioner,
were being held by respondent no.2. Despite repeated reminders to
both the respondents, the share certificates of the aforementioned
shares were not issued to the petitioner.
19. The counsel submitted that the respondents have raised two broad
contentions - one, with respect to the merits of the dispute; and two,
that the claims made in the petitions are not maintainable as they
are barred by limitation. As regards the first aspect, it was submitted
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that the merits of the dispute can be looked into by the arbitral
tribunal and arguments on merit can be made after the parties file
their pleadings and lead evidence therein.
20. On the issue of limitation, it was submitted that under the Shareholders
Agreement, there was no time frame within which the share
certificates were to be issued to the petitioner. On a reading of the
letter dated 22.09.2011, the value of the share was to be paid to
the petitioner at the time of sale of respondent no.1 company. As
far as the petitioner is aware, such a sale has not been made, at
least till the issuance of notice dated 23.02.2017. Hence, there is
no specific date/day on which it can be ascertained that the cause
of action had arisen.
21. The counsel submitted that it is the case of the respondents that
certain correspondence was exchanged between the parties in
the period between 06.08.2015 and 15.10.2015. Therefore, the
Arbitration Notice dated 23.01.2017 was sent within 3 years from
15.10.2015 which is the date of the last legal notice sent by the
respondents to the petitioner. Thereafter, the petitioner filed two
arbitration applications on 03.03.2017 before the High Court of
Bombay which were ultimately dismissed on 22.02.2019. Immediately
thereafter, on 09.04.2019, the present petitions were filed before
this Court. Therefore, the arbitration petitions cannot be said to
be ex-facie time barred and the implication or interpretation of the
said correspondences could be looked into by the arbitral tribunal
while deciding the claim and its maintainability on the question of
limitation and merits.
22. It was submitted that, without prejudice to the aforesaid contention,
even if it is assumed that the “cause of action” had arisen at any
specific point of time, there is a continuing breach of contract since
the respondents failed to provide the share certificates and abide
by the Shareholders Agreement and the letter dated 22.09.2011.
Therefore, in view of Section 22 of the Limitation Act, 1963, a fresh
period of limitation would begin to run at every moment of time during
which the breach continues.
23. Another submission of the counsel was that the respondents, on
07.11.2017 had sent a reply to the Arbitration Notice dated 23.01.2017
wherein they appointed two arbitrators as per Clause 13.10 of the
Shareholders Agreement. The same was sent after the applications
under Section 11(6) were filed before the High Court of Bombay. In
[2024] 12 S.C.R. 121
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the said letter, the respondents have not contended that the claim
is time barred.
24. It was further submitted that, in reply to the Arbitration Notice, the
only case of the respondents is that the issue regarding the 2,00,010
shares cannot be referred to arbitration under clause 13.10 of the
Shareholders Agreement and that the scope of arbitration should
be confined only to the issue of the 4,00,000 shares. However, the
letter dated 22.09.2011 clearly states that the 2,00,010 shares will
be governed by the Shareholders Agreement. Therefore, this being
a contentious issue should be considered by the arbitral tribunal.
25. The counsel finally submitted that, in the event the Court is inclined
to allow the petition, then, considering the nature and low value of
the claim, instead of a three-member tribunal, a sole arbitrator may
be appointed.
III. SUBMISSIONS ON BEHALF OF THE RESPONDENTS
26. On the other hand, Ms. Jasmine Damkewala, the learned counsel
appearing for the respondents submitted that the petitioner is seeking
implementation of the Shareholders Agreement dated 25.07.2011.
However, the petitioner has violated the Lock-in Period of 3 years,
in as much as the petitioner’s date of employment is 01.01.2011
and the date of acceptance of resignation vide the board resolution
is 18.07.2013.
27. It was submitted that in terms of Clause 4 of the Shareholders
Agreement, the petitioner was holding 4,00,000 equity shares in
respondent no.1. Clause 5.1 of the said Shareholders Agreement
specifically indicates that the petitioner shall not transfer any part
of his individual shareholding until the expiry of 3 years from the
date of issue of such shares. It was argued that there was a clear
understanding which was agreed upon by the parties that the shares
of the petitioner shall remain locked for a period of 3 years from the
date of their issuance or conversion of it into equity shares. However,
any right over the said shares would accrue only if the petitioner
remained in employment.
28. Clause 3 of the Service Agreement indicates that the Director shall
hold office for a period of 3 years commencing from the date of
employment (w.e.f. 01.01.2011) which is a Lock-in Period. Further
Clause 10.2 of the Service Agreement states that the petitioner shall
transfer all the equity shares held by him in favour of the Promoter of
122 [2024] 12 S.C.R.
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respondent no.1 at zero consideration if he terminates his employment
prior to the Initial Term of 3 years. Accordingly, the petitioner would
in any case, have no valid right or claim over the subject shares
having terminated his employment before a period of 3 years.
29. It was submitted that as per Recital 3, and Clauses 3.1 and 4.1
respectively of the Commercial Expertise Agreement, for the petitioner
to hold the shares, he ought to have worked for a period of 3 years.
Since the petitioner resigned on 18.07.2013, he is not entitled to
these shares. In any case, any claim regarding the 4,00,000 equity
shares, howsoever misconceived, can arise only upon the date of
resignation i.e., 18.07.2013 and the Arbitration Notice being issued
on 23.01.2017 was clearly outside of limitation. Therefore, the present
petition is stale, belated and misconceived.
30. The counsel, in the last, submitted that Section 43 of the Act, 1996
lays down that the Limitation Act, 1963 is applicable to arbitrations.
An arbitration commences upon issuing the notice of invocation of
arbitration in accordance with the arbitral clause i.e., Clause 13.10
of the Shareholders Agreement. Accordingly, where the petitioner
seeks enforcement of the letter dated 22.09.2011, the Notice for
Invocation of Arbitration was served 6 years later i.e., on 23.01.2017
and is hopelessly outside of limitation. For the sake of argument and
without admitting, even if limitation for the claim of the petitioner with
respect to the 2,00,010 shares is calculated from the date when he
ceased to be in employment, i.e., from 18.07.2013, the claim is still
clearly time-barred.
IV. ANALYSIS
31. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the short question that
falls for our consideration is whether we should decline to make a
reference under Section 11(6) of the Act, 1996 by examining whether
the substantive claims of the petitioner are ex facie and hopelessly
time barred?
32. A three-judge bench of this Court in Vidya Drolia & Ors v. Durga
Trading Corporation reported in (2021) 2 SCC 1 while dealing with
the scope of powers of the referral court under Sections 8 and 11
respectively, endorsed the prima facie test and opined that Courts at
the referral stage can interfere only in rare cases where it is manifest
[2024] 12 S.C.R. 123
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
that the claims are ex facie time-barred and dead, or there is no
subsisting dispute. Such a restricted and limited review was considered
necessary to check and protect parties from being forced to arbitrate
when the matter is demonstrably “non-arbitrable” and to cut off the
deadwood. The relevant observations are reproduced hereinbelow:
"148. Section 43(1) of the Arbitration Act states that
the Limitation Act, 1963 shall apply to arbitrations as it
applies to court proceedings. Sub-section (2) states that
for the purposes of the Arbitration Act and Limitation Act,
arbitration shall be deemed to have commenced on the
date referred to in Section 21. Limitation law is procedural
and normally disputes, being factual, would be for the
arbitrator to decide guided by the facts found and the law
applicable. The court at the referral stage can interfere
only when it is manifest that the claims are ex facie time-
barred and dead, or there is no subsisting dispute. All
other cases should be referred to the Arbitral Tribunal for
decision on merits. Similar would be the position in case
of disputed “no-claim certificate” or defence on the plea
of novation and “accord and satisfaction”. As observed
in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v.
Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus
LR 1719 (HL)] , it is not to be expected that commercial
men while entering transactions inter se would knowingly
create a system which would require that the court should
first decide whether the contract should be rectified or
avoided or rescinded, as the case may be, and then if the
contract is held to be valid, it would require the arbitrator
to resolve the issues that have arisen.
xxx xxx xxx
154.4. Rarely as a demurrer the court may interfere at
Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non-existent, invalid
or the disputes are non-arbitrable, though the nature and
facet of non-arbitrability would, to some extent, determine
the level and nature of judicial scrutiny. The restricted
and limited review is to check and protect parties from
being forced to arbitrate when the matter is demonstrably
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“non-arbitrable” and to cut off the deadwood. The court by
default would refer the matter when contentions relating to
non-arbitrability are plainly arguable; when consideration
in summary proceedings would be insufficient and
inconclusive; when facts are contested; when the party
opposing arbitration adopts delaying tactics or impairs
conduct of arbitration proceedings. This is not the stage
for the court to enter into a mini trial or elaborate review
so as to usurp the jurisdiction of the Arbitral Tribunal but
to affirm and uphold integrity and efficacy of arbitration as
an alternative dispute resolution mechanism.”
(Emphasis supplied)
33. In Bharat Sanchar Nigam Limited and Another v. Nortel Networks
India Private Limited reported in (2021) 5 SCC 738, the notice
invoking arbitration was issued 5 ½ years after the cause of action
arose, i.e., rejection of the claims of Nortel by BSNL and the claim
was therefore held to be ex facie time-barred. This Court clarified
that the period of limitation for filing a petition seeking appointment
of an arbitrator(s) cannot be confused or conflated with the period
of limitation applicable to substantive claims made in the underlying
commercial contract. By placing reliance on Vidya Drolia (supra)
it was held that, a referral court exercising its jurisdiction under
section 11 may decline to make the reference in a very limited
category of cases, where there is not even a vestige of doubt that
the claim is ex facie time-barred. The relevant observations are
reproduced hereinbelow:
"44. The issue of limitation which concerns the “admissibility”
of the claim, must be decided by the Arbitral Tribunal either
as a preliminary issue, or at the final stage after evidence
is led by the parties.
xxx xxx xxx
47. It is only in the very limited category of cases, where
there is not even a vestige of doubt that the claim is ex
facie time-barred, or that the dispute is non-arbitrable, that
the court may decline to make the reference. However,
if there is even the slightest doubt, the rule is to refer
the disputes to arbitration, otherwise it would encroach
[2024] 12 S.C.R. 125
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
upon what is essentially a matter to be determined by
the tribunal.
48. Applying the law to the facts of the present case, it
is clear that this is a case where the claims are ex facie
time-barred by over 5½ years, since Nortel did not take
any action whatsoever after the rejection of its claim by
BSNL on 4-8-2014. The notice of arbitration was invoked
on 29-4-2020. There is not even an averment either in the
notice of arbitration, or the petition filed under Section 11, or
before this Court, of any intervening facts which may have
occurred, which would extend the period of limitation falling
within Sections 5 to 20 of the Limitation Act. Unless, there
is a pleaded case specifically adverting to the applicable
section, and how it extends the limitation from the date
on which the cause of action originally arose, there can
be no basis to save the time of limitation.
49. The present case is a case of deadwood/no subsisting
dispute since the cause of action arose on 4-8-2014, when
the claims made by Nortel were rejected by BSNL. The
respondent has not stated any event which would extend
the period of limitation, which commenced as per Article
55 of the Schedule of the Limitation Act (which provides
the limitation for cases pertaining to breach of contract)
immediately after the rejection of the final bill by making
deductions.”
(Emphasis supplied)
34. This very Bench in Arif Azim Company Limited v. Aptech Limited
reported in (2024) 5 SCC 313 was concerned with the following
two issues while deciding an application for the appointment of an
arbitrator under Section 11(6) of the Act, 1996 – first, whether the
Limitation Act, 1963 is applicable to an application for appointment
of arbitrator under Section 11(6) of the Act, 1996?; and second,
whether the Court may decline to make a reference under Section 11
of the Act, 1996 where the claims are ex-facie and hopelessly time
barred.
35. On the first issue in Arif Azim (supra), it was observed that
Section 11(6) of the Act, 1996 would be covered by Article 137 of
126 [2024] 12 S.C.R.
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the Limitation Act, 1963 which prescribes a limitation period of 3
years from the date when the right to apply accrues. The limitation
period for filing an application seeking appointment of an arbitrator
was held to commence only after a valid notice invoking arbitration
had been issued by one of the parties to the other party and there
had been either a failure or refusal on the part of the other party to
comply with the requirements of the said notice.
36. On the second issue in Arif Azim (supra), which is identical to the
issue raised in the present petitions, it was observed that, although,
limitation is an admissibility issue, yet it is the duty of the Courts to
prima facie examine and reject non-arbitrable or dead claims, so as
to protect the other party from being drawn into a time-consuming
and costly arbitration process. The findings on both the issues were
summarized as thus:
"92. Thus, from an exhaustive analysis of the position of
law on the issues, we are of the view that while considering
the issue of limitation in relation to a petition under Section
11(6) of the 1996 Act, the Courts should satisfy themselves
on two aspects by employing a two-pronged test — first,
whether the petition under Section 11(6) of the 1996 Act
is barred by limitation; and secondly, whether the claims
sought to be arbitrated are ex facie dead claims and are
thus barred by limitation on the date of commencement
of arbitration proceedings. If either of these issues are
answered against the party seeking referral of disputes
to arbitration, the Court may refuse to appoint an Arbitral
Tribunal.”
(Emphasis supplied)
37. However, subsequently, very pertinent observations were made by
a seven-judge Bench of this Court in Interplay between Arbitration
Agreements Under the Arbitration and Conciliation Act, 1996 and
the Indian Stamp Act, 1899, In Re, reported in 2023 INSC 1066
regarding the scope of judicial interference at the Section 11 stage
with a view to give complete meaning to the legislative intention behind
the insertion of Section 11(6-A) of the Act, 1996. This Court referred
to the Statement of Objects and Reasons of the 2015 Amendment
Act and opined that the same indicated that the referral courts shall
“examine the existence of a prima facie arbitration agreement and
[2024] 12 S.C.R. 127
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
not other issues” at the stage of appointment of an arbitrator. These
“other issues” would include the examination of any other issue
which has the consequence of unnecessary judicial interference in
the arbitral proceedings. The relevant observations are reproduced
hereinbelow:
"208. The Statement of Objects and Reasons of the 2015
Amendment Act are as follows:
"(iii) an application for appointment of an arbitrator
shall be disposed of by the High Court or Supreme
Court, as the case may be, as expeditiously as
possible and an endeavour should be made to dispose
of the matter within a period of sixty days.
(iv) to provide that while considering any application
for appointment of arbitrator, the High Court or the
Supreme Court shall examine the existence of a
prima facie arbitration agreement and not other
issues.”
209. The above extract indicates that the Supreme Court
or High Court at the stage of the appointment of an
arbitrator shall “examine the existence of a prima facie
arbitration agreement and not other issues”. These other
issues not only pertain to the validity of the arbitration
agreement, but also include any other issues which
are a consequence of unnecessary judicial interference
in the arbitration proceedings. Accordingly, the “other
issues” also include examination and impounding of an
unstamped instrument by the referral court at the Section 8
or Section 11 stage […]”
(Emphasis supplied)
38. In light of the aforesaid observations, the ratio of Arif Azim (supra)
was reconsidered by this very Bench in SBI General Insurance Co.
Ltd. v. Krish Spinning reported in 2024 SCC OnLine SC 1754.
The position of law was clarified as thus:
"128. On the first issue, it was observed by us that the
Limitation Act, 1963 is applicable to the applications filed
under Section 11(6) of the Act, 1996. Further, we also
held that it is the duty of the referral court to examine
128 [2024] 12 S.C.R.
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that the application under Section 11(6) of the Act, 1996
is not barred by period of limitation as prescribed under
Article 137 of the Limitation Act, 1963, i.e., 3 years from
the date when the right to apply accrues in favour of the
applicant. To determine as to when the right to apply
would accrue, we had observed in paragraph 56 of the
said decision that “the limitation period for filing a petition
under Section 11(6) of the Act, 1996 can only commence
once a valid notice invoking arbitration has been sent by
the applicant to the other party, and there has been a
failure or refusal on part of that other party in complying
with the requirements mentioned in such notice.”
129. Insofar as the first issue is concerned, we are of the
opinion that the observations made by us in Arif Azim
(supra) do not require any clarification and should be
construed as explained therein.
xxx xxx xxx
132. Insofar as our observations on the second issue are
concerned, we clarify that the same were made in light of
the observations made by this Court in many of its previous
decisions, more particularly in Vidya Drolia (supra) and
NTPC v. SPML (supra). However, in the case at hand, as
is evident from the discussion in the preceding parts of
this judgment, we have had the benefit of reconsidering
certain aspects of the two decisions referred to above
in the light of the pertinent observations made by a
seven-Judge Bench of this Court in In Re : Interplay (supra).
133. Thus, we clarify that while determining the issue of
limitation in exercise of the powers under Section 11(6) of
the Act, 1996, the referral court should limit its enquiry to
examining whether Section 11(6) application has been filed
within the period of limitation of three years or not. The
date of commencement of limitation period for this purpose
shall have to be construed as per the decision in Arif Azim
(supra). As a natural corollary, it is further clarified that the
referral courts, at the stage of deciding an application for
appointment of arbitrator, must not conduct an intricate
evidentiary enquiry into the question whether the claims
[2024] 12 S.C.R. 129
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
raised by the applicant are time barred and should leave
that question for determination by the arbitrator. Such an
approach gives true meaning to the legislative intention
underlying Section 11(6-A) of the Act, and also to the view
taken in In Re : Interplay (supra).
134. The observations made by us in Arif Azim (supra)
are accordingly clarified. We need not mention that the
effect of the aforesaid clarification is only to streamline
the position of law, so as to bring it in conformity with the
evolving principles of modern-day arbitration, and further
to avoid the possibility of any conflict between the two
decisions that may arise in future. These clarifications
shall not be construed as affecting the verdict given by us
in the facts of Arif Azim (supra), which shall be given full
effect to notwithstanding the observations made herein.”
(Emphasis supplied)
39. Therefore, while determining the issue of limitation in the exercise of
powers under Section 11(6) of the Act, 1996, the referral court must
only conduct a limited enquiry for the purpose of examining whether
the Section 11(6) application has been filed within the limitation
period of three years or not. At this stage, it would not be proper
for the referral court to indulge in an intricate evidentiary enquiry
into the question of whether the claims raised by the petitioner are
time barred. Such a determination must be left to the decision of
the arbitrator. After all, in a scenario where the referral court is able
to discern the frivolity in the litigation on the basis of bare minimum
pleadings, it would be incorrect to assume or doubt that the arbitral
tribunal would not be able to arrive at the same inference, especially
when they are equipped with the power to undertake an extensive
examination of the pleadings and evidence adduced before them.
40. As observed by us in Krish Spinning (supra), the power of the referral
court under Section 11 must essentially be seen in light of the fact that
the parties do not have the right of appeal against any order passed
by the referral court under Section 11, be it for either appointing or
refusing to appoint an arbitrator. Therefore, if the referral court delves
into the domain of the arbitral tribunal at the Section 11 stage and
rejects the application of the claimant, we run a serious risk of leaving
the claimant remediless for the adjudication of their claims. Moreover,
130 [2024] 12 S.C.R.
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the Courts are vested with the power of subsequent review in which
the award passed by the arbitrator may be subjected to challenge by
any party to the arbitration. Therefore, the Courts may take a second
look at the adjudication done by the arbitral tribunal at a later stage,
if considered necessary and appropriate in the circumstances.
41. In view of the above discussion, we must restrict ourselves to
examining whether the Section 11 petitions made before us are
within limitation. The petitioner herein issued a notice invoking
arbitration on 23.01.2017 and the same was delivered to both the
respondents on 24.01.2017. However, the respondents failed to reply
to the said notice within a period of 30 days i.e. within 23.02.2017.
Therefore, the period of limitation of three years, for the purposes
of a Section 11(6) petition, would begin to run from 23.02.2017 i.e.,
the date of failure or refusal by the other party to comply with the
requirements mentioned in the notice invoking arbitration. The present
petitions under Section 11(6) were filed on 09.04.2019. Even including
the period during which the parties proceeded before the Bombay
High Court which ultimately held that the applications before it were
not maintainable i.e., 03.03.2017 to 22.02.2019, these petitions are
well within the bounds of limitation.
42. The primary issue that has been canvassed by the respondents
is that the substantive claims of the petitioner are ex-facie time
barred and therefore, incapable of being referred to arbitration. The
respondents contend that, with respect to the issue relating to the
2,00,010 equity shares, the petitioner has sought enforcement of the
letter dated 22.09.2011 but has however, served a notice invoking
arbitration 6 years later on 23.01.2017. Further, with respect to the
4,00,000 equity shares, it was contended that the claim can only
arise upon the date of resignation i.e., 18.07.2013 and the claim
would, therefore, again be time-barred. Conversely, the case of the
petitioners is that the date of 15.10.2015 i.e., the date of the last legal
notice sent by the respondents to the petitioner, can be considered
as the date of cause of action for the purposes of limitation. In the
alternative, they assert that there is no specific date or day on which
it can be ascertained that the cause of action had arisen since there
is a continuous breach of contract on part of the respondents. As
evident from the aforesaid discussion and especially in light of the
observations made in Krish Spinning (supra), this Court cannot
conduct an intricate evidentiary enquiry into the question of when
[2024] 12 S.C.R. 131
Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. & Anr.
the cause of action can be said to have arisen between the parties
and whether the claim raised by the petitioner is time barred. This
has to be strictly left for the determination by the arbitral tribunal.
43. All other submissions made by the parties regarding the entitlement of
the petitioner to 4,00,000 and 2,00,010 equity shares in the respondent
no.1 company are concerned with the merits of the dispute which
squarely falls within the domain of the arbitral tribunal.
44. It is now well settled law that, at the stage of Section 11 application,
the referral Courts need only to examine whether the arbitration
agreement exists – nothing more, nothing less. This approach
upholds the intention of the parties, at the time of entering into
the agreement, to refer all disputes arising between themselves to
arbitration. However, some parties might take undue advantage of
such a limited scope of judicial interference of the referral courts
and force other parties to the agreement into participating in a
time-consuming and costly arbitration process. This is especially
possible in instances, including but not limited to, where the
claimant canvasses either ex facie time-barred claims or claims
which have been discharged through “accord and satisfaction”, or
cases where the impleadment of a non-signatory to the arbitration
agreement is sought etc. In order to balance such a limited scope
of judicial interference with the interests of the parties who might be
constrained to participate in the arbitration proceedings, the arbitral
tribunal may direct that the costs of the arbitration shall be borne
by the party which the Tribunal ultimately finds to have abused the
process of law and caused unnecessary harassment to the other
party to the arbitration.
V. CONCLUSION
45. The existence of the arbitration agreement as contained in Clause
13.10 of the Shareholders Agreement is not disputed by either of
the parties. The submissions as regard the claim of the petitioner
being ex-facie time barred may be adjudicated upon by the arbitral
tribunal as a preliminary issue.
46. In view of the aforesaid, the present petitions are allowed. Taking
into consideration the fact that an arbitral tribunal comprising of
a sole arbitrator, Mr. Mayur Khandeparkar (Advocate, High Court
of Judicature at Bombay) has already been constituted for the
adjudication of disputes between the same parties in relation to
132 [2024] 12 S.C.R.
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the Service Agreement dated 18.10.2011, it would be desirable to
constitute an arbitral tribunal comprising of the same sole arbitrator
for adjudication of the present disputes pertaining to the Shareholders
Agreement dated 25.07.2011. The fees of the arbitrator including
other modalities shall be fixed in consultation with the parties.
47. In the facts of the present case, it would be apposite to observe
that, in the event the arbitral tribunal ultimately finds the present
claims of the petitioner to be time-barred, it may direct that the costs
of the arbitration pertaining to these claims be borne solely by the
petitioner herein.
48. It is made clear that all the other rights and contentions of the parties
are left open for adjudication by the learned arbitrator.
49. Pending applications(s), if any, shall stand disposed of.
Result of the case: Petitions allowed.
†
Headnotes prepared by: Divya Pandey
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