NRI in Dubai sues Indian firm for shares; Supreme Court appoints arbitrator

An NRI in Dubai says an Indian company never gave him shares he was promised in 2011. The company says his claims are dead by limitation. The Supreme Court just appointed an arbitrator — and warned him about costs.

The deal was signed in 2011. Aslam Ismail Khan Deshmukh would get 4,00,000 equity shares in ASAP Fluids Pvt. Ltd., plus another 2,00,010 shares held by Gumpro Drilling Fluids Pvt. Ltd. on his behalf. He would also serve as Director for three years. He resigned early. The shares, in the form of certificates that were never printed or handed over, remained a promise on paper only.

When the arbitration notice got no answer

Deshmukh, based in Dubai, says he asked for the share certificates. The company never issued them. By January 2017, he sent an arbitration notice — a formal letter demanding the dispute go to arbitration instead of court. The law gives a party 30 days to respond. The respondents stayed silent. The notice, dated 23 January 2017, was a single document that landed with no reply, its silence stretching into weeks.

So Deshmukh filed applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the provision that lets a party ask a court to appoint an arbitrator when the other side refuses to cooperate). He went to the Bombay High Court. The High Court dismissed his petitions. Its reason: the dispute involved an NRI, which made it an international commercial arbitration, and the High Court said it didn't have jurisdiction to handle that kind of appointment.

Deshmukh then approached the Supreme Court.

The company's defence: too little, too late

The respondents raised two main arguments. First, they said Deshmukh's claims were time-barred. Under the Limitation Act, 1963, a party generally has three years to file a claim from the date the right to sue arises. The agreement was from 2011. Deshmukh sent his arbitration notice in 2017. That's six years. The company said the clock had run out.

Second, they argued that Deshmukh had forfeited his right to the shares by resigning early from his Director position. The Service Agreement required three years of service. He didn't complete it. So, the company said, he couldn't demand shares that were tied to that commitment.

The question before the Supreme Court was narrow but critical: at the stage of appointing an arbitrator, should the court examine whether the underlying claims are too old? Or should it leave that question entirely to the arbitrator?

Why the referral court must stay in its lane

The Supreme Court, in a judgment delivered on November 7, 2024, by a bench of Chief Justice Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, clarified the law with precision. The courtroom, filled with the rustle of files and the low hum of arguments, fell still as the bench delivered its finding.

The court traced its own evolving jurisprudence — from Vidya Drolia v. Durga Trading Corporation (2021) through Arif Azim Company v. Aptech Limited (2024) to SBI General Insurance v. Krish Spinning (2024). The consistent thread: a referral court under Section 11(6) must confine its enquiry to one question only — whether the Section 11 petition itself has been filed within the three-year limitation period under Article 137 of the Limitation Act (the residuary article that applies when no specific limitation period is prescribed).

The court held that "the referral court must not conduct an intricate evidentiary enquiry into whether the underlying substantive claims are time-barred." That determination belongs to the arbitral tribunal. The referral stage is not the place for a mini-trial on limitation.

Applying this principle, the court found that Deshmukh's petitions were filed within three years of the relevant trigger events — the arbitration notice of January 2017 was followed by the Section 11 applications in March 2017, well within the three-year window. The petitions were, therefore, within limitation. The court appointed a sole arbitrator.

The court also clarified that under Section 11(6-A) of the Arbitration Act (the provision that confines the court's examination to the existence of an arbitration agreement), the referral court's role is deliberately limited. It must not conduct a deep factual probe into whether the claims are time-barred, as that would defeat the legislative intent of a quick, efficient appointment process. The court cited Bharat Sanchar Nigam Limited v. Nortel Networks India Pvt. Ltd. (2021) and Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, In Re (2023) to reinforce this principle.

The court further noted that Section 21 of the Arbitration Act (which governs the commencement of arbitral proceedings) and Section 43 (which applies the Limitation Act to arbitration) together mean that the limitation question is best left to the arbitrator, who can hear evidence and assess the facts. The court also left open the possibility that Section 22 of the Limitation Act (dealing with continuing breaches) could apply, though it did not decide that issue.

The cost warning that changes the game

But the court did not stop there. It added a safeguard — one that practitioners should note carefully. The court said that if the arbitral tribunal eventually finds that Deshmukh's claims are indeed time-barred, the tribunal may direct that the entire costs of the arbitration be borne solely by Deshmukh. In other words, the party that dragged everyone into arbitration on a dead claim could end up paying for the entire process. The bench's tone, as it delivered this warning, was measured but firm — a clear signal that the court would not tolerate abuse of process.

This is the court's way of balancing two competing interests. On one hand, the referral court should not conduct a deep factual enquiry into limitation — that would defeat the purpose of a quick, efficient appointment process. On the other hand, a party should not be able to abuse the process by forcing the other side into expensive arbitration on claims that are clearly dead on arrival. The cost direction gives the arbitrator a tool to penalize such abuse.

The court's reasoning draws from the evolving jurisprudence on limitation in arbitration. In Vidya Drolia, the Supreme Court had held that referral courts should only examine whether the arbitration agreement exists and whether the dispute is arbitrable. In Arif Azim, the court clarified that limitation is a mixed question of fact and law, best left to the arbitrator. In SBI General Insurance v. Krish Spinning, the court further refined this position, holding that the referral court's enquiry into limitation is limited to whether the Section 11 petition itself is within time. The present judgment applies this consistent thread.

The court also noted that under Section 11(12)(a) of the Arbitration Act (which applies to international commercial arbitrations), the Supreme Court has the authority to appoint an arbitrator. Since the dispute involved an NRI, it fell within this provision, and the Supreme Court was the appropriate forum.

THE PLAY: When filing a Section 11 petition, ensure the petition itself is filed within three years of the date the right to seek arbitration arose — the arbitrator, not the court, will decide if the underlying claims are time-barred, but you may have to pay the other side's costs if those claims fail.

The sole arbitrator appointed

The Supreme Court appointed Mr. Mayur Khandeparkar, an Advocate of the Bombay High Court, as the sole arbitrator to adjudicate all disputes arising from the Shareholders Agreement dated July 25, 2011. All other rights and contentions of both parties were left open for the arbitrator to decide. The file, thin but weighty with consequence, was handed over to the arbitrator's chamber.

The court did not rule on whether Deshmukh forfeited his share rights by resigning early. It did not decide whether the claims are time-barred. It did not even decide whether the respondents were right about the limitation clock. All of that now goes to the arbitrator.

Deshmukh got his arbitrator. But the warning about costs hangs over the entire proceeding — a quiet, firm reminder that the court's door is open, but only for claims that are alive.

Procedural timeline

The case, Aslam Ismail Khan Deshmukh v. ASAP Fluids Pvt. Ltd. & Anr., followed a clear procedural path. On 23 January 2017, Deshmukh sent an arbitration notice to the respondents. They did not respond within 30 days. On 3 March 2017, he filed Section 11(6) applications before the Bombay High Court, which dismissed them on jurisdictional grounds. On 9 April 2019, he filed petitions before the Supreme Court under Section 11(6) read with Section 11(12)(a) of the Arbitration Act. The Supreme Court allowed the petitions on 7 November 2024, appointing a sole arbitrator.

Key provisions engaged

The court engaged several provisions of the Arbitration and Conciliation Act, 1996. Section 11(6) was the procedural vehicle for appointing the arbitrator. Section 11(6-A) was the primary interpretation target, confining the court's examination to the existence of an arbitration agreement. Section 11(12)(a) applied because the dispute involved an NRI, making it an international commercial arbitration. Section 43 applied the Limitation Act to arbitration proceedings. Section 21 governed the commencement of arbitral proceedings. Article 137 of the Limitation Act, 1963, provided the three-year limitation period for the Section 11 petition. Section 22 of the Limitation Act, dealing with continuing breaches, was left open for the arbitrator to consider.

Precedents cited

The court relied on a consistent line of precedents: Vidya Drolia & Ors v. Durga Trading Corporation (2021) 2 SCC 1; Bharat Sanchar Nigam Limited v. Nortel Networks India Pvt. Ltd. (2021) 5 SCC 738; Arif Azim Company Limited v. Aptech Limited (2024) 5 SCC 313; Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, In Re 2023 INSC 1066; and SBI General Insurance Co. Ltd. v. Krish Spinning 2024 SCC OnLine SC 1754. These cases collectively establish that the referral court's role is limited and that limitation questions are for the arbitrator.

Ratio decidendi

The court held two key principles. First, while determining limitation under Section 11(6) of the Arbitration Act, the referral court must only examine whether the Section 11(6) application itself has been filed within the three-year limitation period prescribed under Article 137 of the Limitation Act. The court must not conduct an intricate evidentiary enquiry into whether the underlying substantive claims are time-barred, leaving that determination to the arbitral tribunal. Second, to balance the limited scope of judicial interference at the referral stage with the interests of parties who may be constrained to participate in arbitration, the arbitral tribunal may direct that costs of arbitration be borne by the party found to have abused the process of law.