2019 (9) TMI 169 - SC - Indian Laws

Appointment of an arbitrator for adjudication of the disputes between the common appellant and the respondent - Section 11(6) of the Arbitration and Conciliation Act, 1996 - whether the Arbitration Applications, on the facts of this case, are barred by limitation? HELD THAT - Since notice was served to the respondent in 2002, the provisions of the 1996 Act will be deemed to apply to the present Arbitration Applications filed by the appellant. However, it remains to be examined separately whether the aforesaid Applications have been filed within the statutory limitation period - Section 43(1) and (3) of the 1996 Act is in pari materia with Section 37(1) and (4) of the 1940 Act. It is well settled that by virtue of Article 137 of the First Schedule to the Limitation Act, 1963 the limitation period for reference of a dispute to arbitration or for seeking appointment of an arbitrator before a Court under the 1940 Act. The period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the breaking point at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This breaking point would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party s primary interest is in securing the payment due to them, than in family disputes where it may be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim. In the present case, the appellant company vaguely stated before this Court that it was involved in negotiation with the respondents in the 14 years preceding the application dated 4.10.1997 before the Settlement Committee. However it did not place on record any evidence to show when it had first made a representation to the respondent in respect of the outstanding amounts, and what was the history of their negotiation with the respondents such that it was only in 1997 that they thought of approaching the Settlement Committee. Further, they have not brought anything on record to show that they were required to proceed before the Settlement Committee before requesting the appointment of an arbitrator. The arbitration clause does not stipulate any such requirement. In the absence of specific pleadings and evidence placed on record by the appellant with respect to the parties negotiation history, this Court cannot accept the appellant s contention that it was only after the respondent s letter dated 18.12.1999 that the appellant could have contemplated arbitration in relation to the outstanding amounts. Even if we were to include the time spent proceeding before the Settlement Committee, the limitation period, at the latest, would have started running from 4.10.1997 which is when the appellant made a representation to the Settlement Committee and the Committee failed to respond to the same. Appeal dismissed - decided against appellant.

Issues Involved:
1. Applicability of the Arbitration and Conciliation Act, 1996 vs. Arbitration Act, 1940.
2. Whether the Arbitration Applications are barred by limitation.
3. The impact of negotiation and correspondence on the limitation period.
4. Whether undue hardship justifies an extension of time under Section 43(3) of the 1996 Act.

Detailed Analysis:

1. Applicability of the Arbitration and Conciliation Act, 1996 vs. Arbitration Act, 1940:
The court examined whether the 1940 Act or the 1996 Act applies to the Arbitration Applications. Section 85 of the 1996 Act repeals the 1940 Act but allows the 1940 Act to apply to arbitral proceedings commenced before the 1996 Act came into force. Section 21 of the 1996 Act states that arbitral proceedings commence when a request for arbitration is received by the respondent. Since the notice for arbitration was served in 2002, the 1996 Act applies to the present Arbitration Applications.

2. Whether the Arbitration Applications are barred by limitation:
Section 43 of the 1996 Act applies the Limitation Act, 1963 to arbitration proceedings. The limitation period for seeking appointment of an arbitrator is three years from the date when the cause of action arises. The court found that the appellant's cause of action arose on 8.2.1983 when the final bill was handed over to the respondent. The appellant's applications for appointment of an arbitrator were filed in 2003, well beyond the three-year limitation period, making the claims barred by limitation.

3. The impact of negotiation and correspondence on the limitation period:
The appellant argued that the limitation period should be computed from the date of the respondent's letter dated 18.12.1999, which partially repudiated the appellant's claims. The court held that mere correspondence or reminders do not extend the limitation period. The appellant failed to provide specific evidence of negotiations that would justify delaying the arbitration request. The court emphasized that the limitation period begins when the claimant first acquires the right to seek arbitration, not when negotiations fail.

4. Whether undue hardship justifies an extension of time under Section 43(3) of the 1996 Act:
The court found no undue hardship justifying an extension of time under Section 43(3) of the 1996 Act. The appellant's delay in seeking arbitration for over 14 years was due to its own default. The court noted that the appellant's actions appeared to be a strategy to pursue a monetary claim against the respondent without a bona fide dispute. The court agreed with the High Court's observation that the dispute seemed concocted to exploit the provisions of the 1996 Act.

Conclusion:
The appeals were dismissed, and the High Court's judgment was confirmed. The court held that the Arbitration Applications were barred by limitation, and the appellant's delay and conduct did not justify an extension of time under the 1996 Act.

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