Supreme Court: Right To Seek Arbitration Not Lost Despite Inoperable Clause Under Statutory Amendment; Dispute Referred To Delhi International Arbitration Centre
Kiran Raj
The Supreme Court, Division Bench of Justice Dipankar Datta and Justice Augustine George Masih set aside the Madhya Pradesh High Court’s refusal to appoint an arbitrator in a dispute between Offshore Infrastructures Limited and Bharat Petroleum Corporation Limited over payment claims arising from delayed completion of works at the Bina Refinery. The Court held that the invalidity of an arbitration clause naming an ineligible arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996 does not nullify the underlying arbitration agreement, and that in such circumstances the Court may appoint a neutral arbitrator under Section 11(6) to preserve the arbitration mechanism. It directed that the matter be referred to the Delhi International Arbitration Centre for the appointment of an arbitrator.
Offshore Infrastructures Limited entered into a contract with Bharat Oman Refineries Limited, later merged into Bharat Petroleum Corporation Limited, for composite works related to the establishment of a new Modular Penex Unit and associated revamp and capacity enhancement at the Bina Refinery. The work was awarded on 31 December 2016 and was to be completed by 30 May 2017. The work was completed on 31 January 2018. Offshore Infrastructures raised the final bill on 20 March 2018, issued a “No Claim Certificate” on 3 October 2018, and received a completion certificate on 5 February 2019. Part payment was released on 11 June 2019 with a deduction of 5% as liquidated damages.
On 26 April 2021, Offshore Infrastructures raised a consolidated claim for outstanding dues and on 14 June 2021 issued a notice to the Managing Director of Bharat Petroleum for the appointment of an arbitrator under Clause 8.6 of the General Conditions of Contract. The respondent rejected the request on 2 July 2021.
The appellant then approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator. The High Court dismissed the application, holding it barred by limitation as the period began from the issuance of the “No Claim Certificate.” A subsequent review petition was also dismissed on similar grounds.
The appellant contended before the Supreme Court that the limitation period commenced upon refusal to appoint an arbitrator, that part payment on 11 June 2019 extended limitation under Section 19 of the Limitation Act, and that the period from 15 March 2020 to 28 February 2022 was excluded by the Court’s COVID-19 extension order. The respondent argued that the arbitration clause had become inoperative due to statutory amendments disqualifying the named arbitrator and that the claim was time-barred.
The Court recorded that “merely because the procedure to appoint an arbitrator provided in the clause has become inoperative due to subsequent changes in statutory provisions, would not mean that the core of the contract referring the dispute for adjudication to arbitrator would be rendered nugatory.”
It further observed that “the very existence of the arbitration clause in the GCC referring to all disputes to arbitrator is the core part of contract.” The Court stated that “it cannot be justified to literally interpret the clause in a manner or at the cost of the entire arbitration mechanism itself being abandoned.”
The Bench noted that “the Appellant is, therefore, entitled to file application under section 11(6) of the 1996 Act for appointment of arbitrator and thereby the power is vested with the court to appoint an arbitrator upon filing of such application.”
Regarding limitation, the Court referred to Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited and recorded that “the cause of action in respect of arbitration application arises when the final bill handed over to the respondent becomes due, and further correspondences between the parties subsequent to the due date of bill would not extend the time of limitation.”
However, the Bench stated that “it would be unjust and detrimental to not consider [the COVID-19 extension period] while deciding upon the period of limitation in the present case.” It recorded that “the benefit of the period from 15.03.2020 to 28.02.2022 must be given to the Appellant and this period need to be excluded while counting the period of limitation for filing application for appointment of arbitrator.”
The Court concluded that “once this period is excluded, it can be concluded that the Appellant’s application for appointment of arbitrator under section 11(6) of the 1996 Act before the High Court was moved within the period of limitation.”
The Court held: “the Judgment and Order dated 10.04.2024 passed in Review Petition No. 76 of 2024 and Judgment and Order dated 19.12.2023 passed in Arbitration Case No. 23 of 2022 by the High Court cannot sustain and are, therefore, set aside.”
“The matter shall stand referred to the Delhi International Arbitration Centre, which shall proceed to appoint an arbitrator, who shall decide the matter in accordance with law and rules, as applicable.”
“The present appeals are allowed in the above terms. There shall be no order as to costs. Pending application(s), if any, shall be disposed of.”
Advocates Representing the Parties
For the Petitioners: Mr. Gaurav Dudeja, Adv. Mr. Akarsh Garg, Adv. Mr. Kaushik Choudhury, AOR Mr. Dhruval Singh, Adv. Mr. Subhan Shankar Gogoi, Adv. Mr. Abhijit Debnath, Adv.
For the Respondents: Mr. Balbir Singh, Sr. Adv. Mr. Parijat Sinha, AOR Mr. Divyam Dhyani, Adv. Ms. Reshmi Rea Sinha, Adv. Mr. Deepak Joshi, Adv. Dr. Sanjay Sharma, Adv. Mr. Naman Tandon, Adv.
Case Title: Offshore Infrastructures Limited v. Bharat Petroleum Corporation Limited
Neutral Citation: 2025 INSC 1196
Case Number: Civil Appeals arising out of SLP (C) Nos. 22105-22106 of 2024
Bench: Justice Dipankar Datta and Justice Augustine George Masih
