2023 (5) TMI 853 - SC - Indian Laws

Appointment of an arbitrator for the adjudication of disputes and claims - period of limitation - what is the breaking point for commencement of arbitration - Section 11(6) of the Arbitration and Conciliation Act, 1996 - alleged wrongful encashment of warranty bond by the respondent - whether time-barred claims or claims which are barred by limitation, can be said to be live claims, which can be referred to arbitration? HELD THAT - The starting point of limitation under Article 137 according to third column of the Article is the date when the right to apply arises . This being a residuary Article to be adopted to different classes of applications, the expression the right to apply is an expression of a broad common law principle and should be interpreted according to the circumstances of each case. In SBP. CO. VERSUS PATEL ENGINEERING LTD. ANR. 2005 (10) TMI 495 - SUPREME COURT , this Court held that dragging a party to an arbitration when there existed no arbitrable dispute, can certainly affect the right of that party, and, even on monetary terms, impose on him a serious liability for meeting the expenses of the arbitration. In Panchu Gopal Bose v. Board of Trustees for Port of Calcutta 1993 (4) TMI 302 - SUPREME COURT this Court had held that the provisions of the Act 1963 would apply to arbitrations and notwithstanding any term in the contract to the contrary, cause of arbitration for the purpose of limitation shall be deemed to have accrued to the party, in respect of any such matter at the time when it should have accrued but for the contract. Cause of arbitration shall be deemed to have commenced when one party serves the notice on the other party requiring the appointment of an arbitrator - Defaulting party should bear the hardship and should not transmit the hardship to the other party, after the claim in the cause of arbitration was allowed to be barred. It was further held that where the arbitration agreement does not really exist or ceased to exist or where the dispute applies outside the scope of arbitration agreement allowing the claim, after a considerable lapse of time, would be a harassment to the opposite party. It was accordingly held in that case that since the petitioner slept over his rights for more than 10 years, by his conduct he allowed the arbitration to be barred by limitation and the Court would be justified in relieving the party from arbitration agreement under Sections 5 and 12(2)(b) of the Act. The case on hand is clearly and undoubtedly, one of a hopelessly barred claim, as the petitioner by its conduct slept over its right for more than five years. Statutory arbitrations stand apart - Petition dismissed.

Summary

Issues Involved:
1. Appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996
2. Limitation Period for Filing Arbitration Petition
3. Existence of a Dispute and Cause of Action

Summary:

1. Appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996:
The petitioner, a Swiss company, filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to adjudicate disputes arising from a contract with the Ministry of Defence, Government of India. The contract included a dispute resolution clause mandating bilateral discussions before arbitration. The petitioner argued that despite continuous negotiations, the respondent's actions, including the encashment of a warranty bond and imposition of liquidated damages, necessitated arbitration.

2. Limitation Period for Filing Arbitration Petition:
The respondent contended that the petition was time-barred, asserting that the cause of action arose on 26.09.2016, when the last deduction was made. The petitioner issued a notice invoking arbitration on 08.11.2021, beyond the three-year limitation period prescribed under Article 137 of the Limitation Act, 1963. The Supreme Court emphasized that the limitation period for filing an application under Section 11(6) is three years from when the right to apply accrues. The Court found that the cause of action arose on 26.09.2016, and the petition filed in 2021 was ex facie time-barred.

3. Existence of a Dispute and Cause of Action:
The Court examined whether the claims were live or time-barred. It referred to the principles established in various judgments, including Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited, which stated that time spent in bona fide pre-arbitration negotiations could be excluded from the limitation period. However, the Court found that the petitioner failed to provide detailed evidence of continuous negotiations extending the limitation period. The "Breaking Point" was identified as 26.09.2016, when the respondent deducted the liquidated damages, marking the end of the matter.

Final Analysis:
The Supreme Court concluded that the petition was hopelessly time-barred, as the petitioner had slept over its rights for more than five years. The statutory period of three years for enforcing a claim cannot be defeated by mere negotiations. Consequently, the petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, was rejected.