Arbitration is a common technique of dispute resolution that offers a faster and more accommodating alternative to court action. Nonetheless, like in conventional court actions, arbitration has time limitations so that disputes can be concluded within a fair timeframe. Section 43 of Arbitration and Conciliation Act 1996 applies the provisions of the Limitation Act from 1963 to the entire arbitration procedure in a manner similar to regular civil suits. The provision establishes time limits for filing claims so that delays are avoided.
Understanding Section 43 of Arbitration and Conciliation Act
Section 43 of Arbitration and Conciliation Act 1996 addresses the application of the Limitation Act, 1963 to arbitral proceedings. This provides that arbitration should subject itself to the same time limits as court cases so there would be no delay in filing remedies through arbitration. Section 43 includes four subsections that detail varied aspects of the application of time limitations to arbitration proceedings.
Sub-section (1): Applicability of the Limitation Act, 1963
Explanation:
Arbitration is subject to the same time limits as court proceedings.
The Limitation Act, 1963, applies to arbitration, meaning:
If a claim in court must be filed within three years (as per the Limitation Act), the same rule applies to arbitration.
Any delay beyond the prescribed period can result in the dismissal of the arbitration claim.
Example:
A party has a contractual dispute. Under the Limitation Act, it must file a claim within three years. If the party waits four years before initiating arbitration, the claim will be time-barred.
Sub-section (2): When Arbitration is Deemed to Have Commenced
Explanation:
Section 21 of the Arbitration Act states that arbitration commences when a party sends a notice to the other party requesting arbitration.
The date of the notice is considered the date of commencement for limitation purposes.
Example:
If a party sends an arbitration notice on March 1, 2024, the limitation period stops running from that date, even if the arbitration proceedings actually begin months later.
Sub-section (3): Court's Power to Extend Time in Case of Undue Hardship
Explanation:
Some arbitration agreements specify a fixed time limit for initiating arbitration (e.g., "claims must be raised within 12 months of a dispute arising").
If a party fails to meet this deadline, the court has the power to extend the time period if it believes that strict enforcement would cause "undue hardship".
The court's power to extend time is not automatic—it is discretionary and depends on the circumstances of the case.
Example:
A contract provides that arbitration should be commenced within six months after a dispute.
The claimant was not informed of the dispute because communication had been delayed.
The claimant came to court six months later, seeking an extension.
If the court determines that undue hardship would ensue, it can grant an extension of the deadline.
Sub-section (4): Exclusion of Time When an Award is Set Aside
Explanation:
When a court announces an arbitral award, the period spent on arbitration is disregarded when counting the limitation period for a new claim.
This makes sure that a party is not held back for wasting time in arbitration that eventually gets invalidated.
Example:
A dispute arose in 2018, and arbitration started in 2019.
In 2022, the court set aside the arbitral award.
The limitation period resumes from the point arbitration started and does not count the arbitration time.
The claimant can now re-file the dispute in arbitration or court.
Also, Learn How to Become an Arbitrator in India
Principal Characteristics of Section 43 of Arbitration and Conciliation Act
The section provides for definite timelines to be followed by arbitration cases so that parties do not keep putting proceedings on hold indefinitely.
1. Three-Year Limit for Arbitration Claims
The general rule is that most contractual claims have a limitation period of three years from when the cause of action arises.
The limitation period does not change, whether through court or through arbitration.
2. The Limitation Period is Suspended
If the parties undertake attempts at negotiation prior to arbitration, the limitation period is not suspended unless enacted by law.
In case of invalidation of arbitration proceedings, the time devoted to arbitration might be subtracted from the period of limitation at the time of re-filing the claim.
3. Limitation of Enforcement of Arbitral Awards
A domestic arbitral award must be enforced within 12 years of when the award becomes final, according to the Limitation Act.
For foreign awards, the period of limitation is three years from when the right to enforce the award accrues.
4. Effect of Arbitration Agreement on Limitation
Having an arbitration clause in a contract does not extend the statutory period of limitation for instituting claims.
Where a party postpones too long before resorting to arbitration, the claim will be under the Limitation Act.
Learn the Key Differences between Mediation & Arbitration
Judicial Interpretation of Section 43 of Arbitration and Conciliation Act
Indian courts have clarified various aspects of limitation in arbitration through landmark rulings:
1: Bharat Sanchar Nigam Ltd. (BSNL) v. Nortel Networks India Pvt. Ltd. (2021 SCC 207)
Facts: A dispute arose, and BSNL sought arbitration beyond the three-year limitation period.
Issue: Whether limitation law applies to arbitration under Section 43(1)?
Judgment: The Supreme Court held that the Limitation Act applies to arbitration in the same way as court cases.
Significance: Parties must initiate arbitration within the prescribed limitation period.
2: Hari Shankar Singhania v. Gaur Hari Singhania (2006 SCC 532)
Facts: A contract required arbitration to be initiated within one year, but a party was delayed due to unavoidable circumstances.
Issue: Could the court extend the time limit under Section 43(3)?
Judgment: The Supreme Court ruled that courts can extend the deadline if undue hardship would otherwise result.
Significance: If a contract fixes a deadline for arbitration, courts can override it if enforcing it would be unfair.
3: State of Goa v. Praveen Enterprises (2012 SCC 41)
Facts: Arbitration started but was set aside by the court after two years. The claimant wanted to re-file.
Issue: Should the two years spent in arbitration be excluded from the limitation period?
Judgment: The Supreme Court ruled that under Section 43(4), the limitation period excludes the time spent in arbitration if the award is set aside.
Significance: Ensures that claimants are not disadvantaged due to delays caused by arbitration.
In a nutshell,
Under Section 43 of Arbitration and Conciliation Act, 1996, arbitration protocols must follow the procedures that suits need to meet. The application of the time limits from the Limitation Act of 1963 provides arbitration with requirements for quick dispute resolution and timely delivery of justice.
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Section 43 of Arbitration and Conciliation Act, 1996: FAQs
Q1. What does Section 43 of Arbitration Act mention?
Section 43 brings the Limitation Act 1963 into force for arbitration, such that claims are lodged within the requisite timeframes as in cases pertaining to the court.
Q2. What is the period of limitation for arbitration claims?
According to the Limitation Act, the limitation period in most contractual claims is three years from the time when the cause of action arose.
Q3. Can the parties extend the limitation period through an arbitration agreement?
No, an arbitration agreement does not extend the statutory limitation period for making claims.
Q4. What is the limitation period for enforcing an arbitral award?
For domestic awards, the period is 12 years; for foreign awards, three years from the date when enforcement can take place.
Q5. Does negotiation or mediation suspend the limitation period?
In most cases, negotiations do not suspend the limitation period unless it has been specifically agreed upon or authorised by legal provisions.
