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TMI Blog2023 (5) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner. This action on the part of the respondent, i.e., of encashing Liquidated Damages (LDs) for the requisite amount was on account of delay in the supply of goods beyond the contractual time period. 4. The respondent, vide its letter dated 24.02.2016, informed the Petitioner that the subject instructions for WBG encashment had been issued after due scrutiny and analysis of the case put up by the Petitioner vide letter dated 24.10.2014 and such encashment was with approval of the competent authority at Ministry of Defence. The respondent was also accorded sanction by the President of India to deduct Euro 197,230.35 towards the recovery of applicable LDs from the Petitioner in accordance with the terms of the Contract vide letter dated 11.08.2016. 5. In the aforesaid context, the respondent on 26.09.2016 deducted the amount for recovery of applicable LDs. The amount was consequently, credited into the Government Account as per the instructions contained in the letter dated 11.08.2016 issued on behalf of the President of India. Accordingly, the claims of the Petitioner stood rejected. 6. Despite the aforesaid, the parties continued to engage themselves in bilateral di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attended a meeting with Director General (Acquisition.) and Additional Secretary. 04.09.2019: The Petitioner further requested the Respondent to review and discuss the wrongful imposition of Liquidated Damages and give a fair chance to the Petitioner to explain their position. The Petitioner emphasized to consider this situation as an urgent matter as it involves M/s B T AG Switzerland who has signed up to manufacture in India, their 9mm SMG and the 338 Sniper Rifles, but their board has requested a resolution to this outstanding issue before proceeding further with any Make in India programme. 08.11.2021: The world was hit by COVID in March 2020. The Petitioner on 08.11.2021 issued Notice dated 08.11.2021 invoking Arbitration under Article 21 of the said Contract to the Respondent. The Petitioner enumerated the unresolved issues. 10.01.2022: The Supreme Court, in SMW (C) No. 3/2020 had taken Suo moto cognizance to extend the limitation under any general and special laws until 28.02.2022. 03.02.2022: Petitioner vide email dated 03.02.2022 requested the Respondent to expedite the proceedings and further suggested to propose the name of the Arbitrator who could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he country either of the parties or of any other country unacceptable to any of the parties shall be nominated of the parties within (90) days of the receipt of the notice mentioned above, failing which the third arbitrator may be nominated by the President of International Chamber of Commerce, Paris, at request of either party but the said nomination would be after consultation with both the parties and shall preclude any citizen or domicile of any country as mentioned. The arbitrator nominated under this Clause shall not be regarded nor act as an umpire. 21.5. The Arbitration Tribunal shall have its seat in New Delhi or such other place in India as may be mutually agreed to between the parties. 21.6. The Arbitration Proceedings shall be conducted in India under the Indian Arbitration and Conciliation Act, 1996 and the award of such Arbitration Tribunal shall be enforceable in Indian Courts only. 21.7. The decision of the majority of the arbitrator shall be final and binding on the parties to this contract. 21.8. Each party shall bear its own cost of preparing and presenting its case. The cost of arbitration including the fees and expenses of the third arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , reported in (2020) 14 SCC 643, it was submitted that the time spent in pre-arbitration negotiations, held in good faith may be excluded for the purpose of computation of the period of limitation. 15. According to the learned counsel, the ratio of the decision of this Court in the case of Geo Miller (supra) squarely applies to the facts of the present case. It was submitted that once the parties get involved in bilateral discussions then the time stops to run as the contract mandates the parties to resolve the disputes by way of discussion and negotiations. 16. The learned counsel further submitted that the petitioner will be in a position to lead appropriate evidence in the arbitration proceedings to establish that the parties continued to negotiate and discuss as late as up to 04.09.2019. It was submitted that, the communication of the respondent to the petitioner, declining to reconsider the alleged illegal deduction of the Liquidated Damages vide letter dated 22.09.2017, could be said to be the Breaking Point . The period of three years from 22.09.2017 after excluding the Covid period in accordance with the order passed by this Court in Cognizance for Extension of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021: Respondent received the Notice invoking arbitration. 03.02.2023: The Petitioner filed Arbitration Petition No. 13 i.e. the Present Petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 for Constitution of Arbitral Tribunal. 23. In the last, the learned ASG submitted that the period of limitation for issuing notice invoking arbitration not being specifically prescribed in the Schedule to the Limitation Act, 1963 (for short, the Act 1963 ) will be covered by the residuary Article i.e., Article 137 of the Schedule to the said Act. 24. In such circumstances referred to above, Mr. Nataraj, the learned ASG prayed that the claim of the petitioner being ex facie time barred, the present petition under Section 11(6) of the Act 1996 may not be entertained and the same may be rejected. ANALYSIS 25. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our reconsideration is whether time-barred claims or claims which are barred by limitation, can be said to be live claims, which can be referred to arbitration? 26. Before adverting to the rival submissions c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commencement of the proceedings (including arbitration) with respect to the dispute so submitted. 30. In context with Section 43 of the Act 1996 referred to above, we may refer to a decision of this Court in the case of Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department and Others, reported in (2008) 7 SCC 169. In the said case, it was contended on behalf of the appellant therein that Section 43 of the Act 1996 makes the provisions of the Act 1963 applicable only to arbitrations and not to any proceedings relating to arbitration in a Court. Such contention canvassed on behalf of the appellant therein, was negatived by this Court observing as under: 45. Learned counsel for the appellant contended that Section 43 of the AC Act makes applicable the provisions of the Limitation Act only to arbitrations, thereby expressing an intent to exclude the application to any proceedings relating to arbitration in a court. The contention of the appellant ignores and overlooks Section 29(2) of the Limitation Act and Section 43(1) of the AC Act. Sub-section (1) of Section 43 of the Act provides that the Limitation Act shall apply to arbitrations as it ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it: Provided that, where letters of administration to the estate of a creditor have been granted to his debtor, the running of the period of limitation for a suit to recover the debt shall be suspended while the administration continues. (Emphasis supplied) CASE LAW ON THE SUBJECT 36. In the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority reported in AIR 1988 SC 1887, it has been held that the existence of a dispute is essential for the appointment of an Arbitrator under Section 8 or a reference under Section 20 of the Arbitration Act, 1940 (for short, the Act 1940 ) and that a dispute can arise only when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference about the existence of a dispute as the expression dispute contains a positive element of assertion and in denying and merely an inaction to accede to a claim or a request. With respect to the period of time, in the light of the facts of that particular case as to when did the dispute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under S. 8 or a reference under S. 20 of the Act. See Law of Arbitration by R.S. Bachawat, 1st Edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion in denying, not merely inaction to accede to a claim or a request. When in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case. (Emphasis supplied) 37. Three principles of law are discernible from the aforesaid decision of this Court. First, ordinarily on the completion of the work, the right to receive the payment begins. Secondly, a dispute arises when there is a claim on one side and its denial/repudiation by the other and thirdly, a person cannot postpone the accrual of cause of action by repeatedly writing letters or sending reminders. In other words, bilateral disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter which is arbitrable. In this case the claim for reference was made within three years commencing from April 16, 1976 and the application was filed on December 13, 1976. We are, therefore, of the view that the High Court was right in this case. See in this connection the observations of this Court in Inder Singh Rekhi v. D.D.A. [(1988) 2 SCC 338] (Emphasis supplied) 39. One would thus see that in L.K. Ahuja (supra) the Court was dealing with the twin aspects, one whether the claim made in the arbitration was barred by law of limitation under the relevant provisions of the relevant Act, and secondly whether the application under Section 20 of the Act 1940 was barred by limitation. In order to be a valid claim with reference to Section 28 of the Act 1940 it is necessary that there should be an arbitration agreement, secondly, the differences must arise to which the agreement in question applies and thirdly that application must be within time as stipulated in Section 20 of the Act 1940. With reference to the limitation aspect the Court found that the assertion of claim and denial of the same was a necessary ingredient and then went on to say that it would be wrong to mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confused with the period of limitation for making a claim. The decisions of this Court in Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2 SCC 338], Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [(1993) 4 SCC 338] and Utkal Commercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCC 571] also make this position clear. (Emphasis supplied) 41. In SBP Co. v. Patel Engineering Ltd. and Another, reported in (2005) 8 SCC 618, 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. 42. Whether time barred claims should be referred to for decision in the arbitration proceedings was looked into by this Court in National Insurance Company Limited v. Boghara Polyfab Private Limited, reported in (2009) 1 SCC 267. Paras 22 to 22.2 respectively of the said judgment read as under: 22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP Co. [(2005) 8 SCC 618] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g formal adjudication of the claim. 29. Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant's claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the applicant to plead that it waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent's failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile. 44. The aforesaid observations make it very clear that what is important for the Court is to 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. 45. The learned counsel appearing for the petitioner has placed strong reliance on para 28 of Geo Miller (supra) to fortify her submission that the Breaking Point was sometime in September, 2019 and not in 2016 as asser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assumes importance and we should look into the same in little details. The appellant BSNL issued a tender notification inviting bids for planning, engineering, supply, insulation, testing and commissioning of GSM based cellular mobile network in the Southern region. The respondent company was awarded the purchase order. On completion of the project, the appellant withheld an amount of Rs. 99.70 crore towards the liquidated damages and other levies. The respondent raised a claim on 13.05.2014 for payment of the above said amount from the appellant who rejected the claim on 04.08.2014. The respondent, after a period of over 5.5 years invoked the arbitration clause and requested for the appointment of an independent arbitrator on 29.04.2020. It was also contended that the dispute of withholding the said amount, would fall within the ambit of arbitrable disputes under the agreement. The appellant on 09.06.2020 replied that the request for appointment of an arbitrator could not be entertained since the case had already been closed and the notice invoking arbitration was time barred. The respondent filed an application before the High Court of Kerala for appointment of arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - The period of limitation for filing an application under Section 11 of the Act 1996; and Whether the Court may decline to make the reference under Section 11 where the claims are ex facie time barred? This Court observed that the Act 1996 has been framed for expeditious resolution of disputes and various provisions have been incorporated in the Act 1996 to ensure that the arbitral proceedings are conducted in a time bound manner. The Act 1996 does not prescribe any time period for filing an application under Section 11(6). Since there is no provision in the Act 1996 specifying the period of limitation for filing an application under Section 11, one would have to take recourse to the Act 1963, as per Section 43 of the Act 1996 which provides that the Limitation Act shall apply to arbitrators, as it applies to proceedings in Court. Since none of the articles in Schedule to the Limitation Act provide a time period for filing an application for appointment of arbitrator under Section 11, it would be covered by the residual provision under Article 137 of the Limitation Act which provides that the period of limitation is three years for any other application for which n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications have been exchanged between the petitioner and the respondents ever since and a dispute has arisen between the petitioner and the respondents, regarding non-payment of the amounts due under the tender document. 51. The period of limitation for issuing notice of arbitration would not get extended by mere exchange of letters, [S.S. Rathore v. State of M.P., (1989) 4 SCC 582 : 1990 SCC (L S) 50; Union of India v. Har Dayal, (2010) 1 SCC 394; CLP (India) (P) Ltd. v. Gujarat Urja Vikas Nigam Ltd., (2020) 5 SCC 185] or mere settlement discussions, where a final bill is rejected by making deductions or otherwise. Sections 5 to 20 of the Limitation Act do not exclude the time taken on account of settlement discussions. Section 9 of the Limitation Act makes it clear that: where once the time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it. There must be a clear notice invoking arbitration setting out the particular dispute [ Section 21 of the Arbitration and Conciliation Act, 1996.] (including claims/amounts) which must be received by the other party within a period of 3 years from the rejection of a final bill, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself informed the appellant that appointment of an arbitrator would have to be made within 30 days. At the very latest, therefore, on the facts of this case, time began to run on and from 12-2-2007. The appellant's laconic letter dated 23-1-2007, which stated that the matter was under consideration, was within the 30-day period. On and from 12-2-2007, when no arbitrator was appointed, the cause of action for appointment of an arbitrator accrued to the respondent and time began running from that day. Obviously, once time has started running, any final rejection by the appellant by its letter dated 10-11-2010 would not give any fresh start to a limitation period which has already begun running, following the mandate of Section 9 of the Limitation Act. This being the case, the High Court was clearly in error in stating that since the applications under Section 11 of the Arbitration Act were filed on 6-11-2013, they were within the limitation period of three years starting from 10-11-2020. On this count, the applications under Section 11 of the Arbitration Act, themselves being hopelessly time-barred, no arbitrator could have been appointed by the High Court. (Emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Vidya Drolia supra note 7, para 134.] and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not [ibid.]. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim is non-arbitrable [Nortel Networks supra note 22, para 47.]. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration [Vidya Drolia supra note 7, para 154.4.]. 28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable [ibid para 154.4.]. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources [[ibid para 139]. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court [ibid]. Therefore, this Court or a Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s . Thus, the right to apply can be said to have accrued only on the date of the last correspondence between the parties and the period of limitation commences from the date of the last communication between the parties. 51. The learned counsel appearing for the petitioner also placed reliance on a decision rendered by the Calcutta High Court in Zillon Infraprojects Pvt. Ltd. v. Bharat Heavy Electricals Limited reported in 2023 SCC OnLine Cal 756, wherein, the High Court observed as under: 33. Therefore, after a careful perusal of the aforesaid facts, it would not be incorrect to state that the cause of action herein has been of a continuous nature. The claims of the petitioner never attained finality, and remained a live claim as the parties were in mutual discussion to resolve the disputes between them. The arbitration petition was filed on July 28, 2021 that is within a period of one and half years from the respondent's last communication vide email dated January 09, 2020, and within a period of two and half years from the issuance of Section 21 notice dated January 16, 2019. Xxx xxx xxx 35. Therefore, the limitation period will not be operative agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the limitation period for bringing an action. It is imperative that a party realises when a cause of action arises. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become time-barred even before the party realises the same. 56. Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 states that the period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned. The period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued: Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch an application would mean an application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act 1963. 59. We once again go back to the facts of the present case. Even according to the petitioner, the disputes arose between the parties in relation to the wrongful encashment of bank guarantee vide letter dated 16.02.2016 for Euro 201,793.75 ( BG ) and for wrongful imposition of liquidated damages to the tune of Euro 399,0240.10. We are at one with the learned ASG that this was the Breaking Point . What is more important is the fact that the respondent on 26.09.2016, deducted the amount towards recovery of the liquidated damages. The requisite amount was credited into the Government account in accordance with the instructions contained in the letter dated 11.08.2016. This was the end of the matter. To say that even thereafter, the petitioner kept negotiating with the respondent in anticipation of some amicable settlement would not save the period of limitation. 60. In the aforesaid context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f repetition, we state that when the bank guarantee came to be encashed in the year 2016 and the requisite amount stood transferred to the Government account that was the end of the matter. This Breaking Point should be treated as the date at which the cause of action arose for the purpose of limitation. 63. Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the cause of action for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating. 64. In Panchu Gopal Bose v. Board of Trustees for Port of Calcutta reported in (1993) 4 SCC 338, 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a right to require that an arbitration takes place upon the dispute concerned. 11. Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued. 12. In Russell on Arbitration, at pages 72 and 73 it is stated thus: Disputes under a contract may also be removed, in effect, from the jurisdiction of the court, by including an arbitration clause in the contract, providing that any arbitration under it must be commenced within a certain time or not at all, and going on to provide that if an arbitration is not so commenced the claim concerned shall be barred. Such provisions are not necessarily found together. Thus the contract may limit the time for arbitration without barring the claim depriving a party who is out of time of his ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracting party to rescind the contract or the court can revoke the authority to refer the disputes or differences to arbitration. Justice Bachawat in his Law of Arbitration, at p. 552 stated that in an appropriate case leave should be given to revoke the authority of the arbitrator . It was also stated that an ordinary submission without special stipulation limiting or conditioning the functions of the arbitrator carried with it the implication that the arbitrator should give effect to all legal defences such as that of limitation. Accordingly the arbitrator was entitled and bound to apply the law of limitation. Section 3 of the Limitation Act applied by way of analogy to arbitration proceedings, and like interpretation was given to Section 14 of the Limitation Act. The proceedings before the arbitration are like civil proceedings before the court within the meaning of Section 14 of the Limitation Act. By consent the parties have substituted the arbitrator for a court of law to arbiter their disputes or differences. It is, therefore, open to the parties to plead in the proceedings before him of limitation as a defence. 15. In Mustiu and Boyd's Commercial Arbitration ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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