Supreme Court of India
M/S B AND T AGversusMINISTRY OF DEFENCE
- Citation
- 2023 INSC 549
- Decided
- 18 May 2023
- Disposal
- Rejected
- Bench
- D Y CHANDRACHUD
Holding
The cause of action for arbitration arose on 26 September 2016, the date of the respondent’s definitive denial, so the three‑year limitation under Article 137 began then, rendering the petition filed in 2021 time‑barred.
Summary
The parties entered into a 2012 contract for the supply of sub‑machine guns, after which the Ministry of Defence encashed a bank guarantee and deducted liquidated damages in September 2016. The petitioner claimed the dispute should be resolved by arbitration and, after a series of bilateral discussions, issued a notice of arbitration in November 2021 and filed a petition under Section 11(6) of the Arbitration and Conciliation Act in 2023. The central issue was when the cause of action for arbitration accrued and whether the ongoing negotiations could suspend the limitation period. The Court held that the "breaking point" – the moment the respondent definitively denied the petitioner’s claim by encashing the guarantee and deducting damages on 26‑09‑2016 – marked the accrual of the cause of action, triggering the three‑year limitation under Article 137 of the Limitation Act. Because the petition was filed more than five years after that date, it was time‑barred. Consequently, the petition for appointment of an arbitrator was dismissed.
Issues considered
- The date on which the cause of action for arbitration accrues in a commercial dispute involving wrongful encashment of a bank guarantee and liquidated damages.
- Whether pre‑arbitration bilateral negotiations postpone or suspend the limitation period under the Limitation Act.
- The applicable limitation period for an application under Section 11(6) of the Arbitration and Conciliation Act, 1996.
- Whether a court may refuse to refer a dispute to arbitration when the claim is ex‑facie time‑barred.
- The interpretation of "right to apply" under Article 137 of the Limitation Act in the context of arbitration.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(12), s. 11(6), s. 21, s. 43
- Limitation Act, 1963s. 5‑20, s. 9, s. Article 137
Subjects
ArbitrationLimitation periodCause of actionBreaking pointSection 11(6)Article 137Bilateral negotiationsTime‑barred claimPre‑arbitration discussions
Judgment
[2023] 7 S.C.R. 599 599
M/S B AND T AG A
v.
MINISTRY OF DEFENCE
(Arbitration Petition (Civil) No. 13 of 2023)
MAY 18, 2023 B
[DR. DHANANJAYA Y CHANDRACHUD, CJI AND
J. B. PARDIWALA, J.]
Arbitration and Conciliation Act, 1996 – s.11– Limitation
period – Cause of action – When accrues – “Breaking Point”–
Negotiations, if postpone the cause of action – Held: No – Cause C
of action becomes important for calculating the limitation period
for bringing an action – Period of limitation for commencing an
arbitration runs from the date on which the “cause of arbitration”
accrued i.e., from the date when the claimant first acquired either a
right of action or a right to require arbitration – An application u/ D
s.11 is governed by Article 137 of the Schedule to the 1963 Act and
must be made within 3 years from the date when the right to apply
first accrues – There is no right to apply until there is a clear and
unequivocal denial of that right by the respondent – Claim for
arbitration must be raised as soon as the cause for arbitration arises
– Whether any particular facts constitute a cause of action has to E
be determined with reference to the facts of each case and the
substance rather than the form of the action – If an infringement of
a right happens at a particular time, the whole cause of action will
be said to have arisen then and there – In such a case, it is not open
to a party to sit tight and not file an application for settlement of F
dispute of his right and allow it to be extinguished by lapse of time
– Mere negotiations will not postpone the cause of action for the
purpose of limitation – What is important for the Court is to find out
what was the “Breaking Point”, a question of fact, at which any
reasonable party would have abandoned efforts at arriving at a
settlement and contemplated referral of the dispute for arbitration– G
Entire history of the negotiation between the parties must be pleaded
and placed on record for the Court to find out the “Breaking Point”
– Bilateral discussions for an indefinite period of time would not
save the situation so far as the accrual of cause of action and the
H
599
600 SUPREME COURT REPORTS [2023] 7 S.C.R.
A right to apply for appointment of arbitrator is concerned – Limitation
Act, 1963 – Article 137.
Arbitration and Conciliation Act, 1996 – s.11(6), 43 – Contract
entered between parties in 2012 – Dispute in relation to the alleged
wrongful imposition of Liquidated Damages and wrongful
B encashment of the bank guarantee by the respondent-Ministry of
Defence in2016 – Petitioner issued notice invoking arbitration only
in 2021 – According to the petitioner the parties were trying to
amicably resolve the disputes by way of ‘bilateral discussions’ as
per the Contract – Present petition filed by the petitioner u/s.11(6),
claiming to be within the period of limitation, for appointment of
C arbitrator – Time-barred claims/claims barred by limitation, if can
be said to be live claims which can be referred to arbitration –
Held: Disputes between the parties had cropped up way back in
the year 2014 itself – When the bank guarantee came to be encashed
in 2016 and the requisite amount stood transferred to the
D Government account, that was the end of the matter – This “Breaking
Point” is the date at which the cause of action arose for the purpose
of limitation – Petitioner not justified in saying that it continued to
negotiate till 2019 – Statutory time period of three years prescribed
for the enforcement of a claim cannot be defeated on the ground
that the parties were negotiating – Present case is one of a hopelessly
E barred claim, as the petitioner slept over its right for more than five
years – Petition rejected – Limitation Act, 1963 – Article 137.
Words and Phrases– “cause of action”; “right to apply” –
Meaning of – Discussed.
F Rejecting the petition, the Court
HELD: 1.1 Ordinarily on the completion of the work, the
right to receive the payment begins. A dispute arises when there
is a claim on one side and its denial/repudiation by the other. A
person cannot postpone the accrual of cause of action by
G repeatedly writing letters or sending reminders.‘Bilateral
discussions’ for an indefinite period of time would not save the
situation so far as the accrual of cause of action and the right to
apply for appointment of arbitrator is concerned. 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
H
M/S B AND T AG v. MINISTRY OF DEFENCE 601
arriving at a settlement and contemplated referral of the dispute A
for arbitration. What was the “Breaking Point” is a question of
fact. [Paras 37, 44 and 45][618-D-E; 623-C-D]
Major (Retd.) Inder Singh Rekhi v. Delhi Development
Authority AIR 1988 SC 1887; Geo Miller and Company
Private Limited v. Chairman, Rajasthan Vidyut Utpadan B
Nigam Limited (2020) 14 SCC 643 : [2019] 11 SCR
1108 – relied on.
1.2 There is a fine distinction between the plea that the
claims raised are barred by limitation and the plea that the
application for appointment of an arbitrator is barred by limitation. C
[Para 52][633-C]
1.3 “Cause of action” means the whole bundle of material
facts, which it is necessary for the plaintiff to prove in order to
entitle him to succeed in the suit. Cause of action becomes
important for the purposes of calculating the limitation period for D
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. The period of
limitation for commencing an arbitration runs from the date on E
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 F
arbitration clause, the cause of action would have accrued. Even
if the arbitration clause contains a provision that no cause of action
shall accrue in respect of any matter agreed to be referred to
until an award is made, time still runs from the normal date when
the cause of action would have accrued if there had been no
arbitration clause. An application under Section 11 of the Act 1996 G
is governed by Article 137 of the Schedule to the Act 1963 and
must be made within 3 years from the date when the right to
apply first accrues. There is no right to apply until there is a clear
and unequivocal denial of that right by the respondent. It must,
therefore, be clear that the claim for arbitration must be raised H
602 SUPREME COURT REPORTS [2023] 7 S.C.R.
A as soon as the cause for arbitration arises as in the case of cause
of action arisen in a civil action. [Paras 54-55 and 57][633-H;
634-C-E; 635-C]
Dwijendra Narain Roy v. Joges Chandra De and others,
AIR 1924 Cal 600; Mussummat Chand Kour and
B Another v. Partab Singh and Others ILR (1889) 16
Cal 98 – referred to.
Russell on Arbitration by Anthony Walton (19th Edn.)
at pp. 4-5; Law of Arbitration by Justice Bachawat, p.
549 – referred to.
C 1.4 Whether any particular facts constitute a cause of action
has to be determined with reference to the facts of each case and
with reference to, the substance, rather than the form of the action.
If an infringement of a right happens at a particular time, the
whole cause of action will be said to have arisen then and there.
D In such a case, it is not open to a party to sit tight and not to file
an application for settlement of dispute of his right, which had
been infringed, within the time provided by the Limitation Act,
and, allow his right to be extinguished by lapse of time, and
thereafter, to wait for another cause of action and then file an
application under Section 11 of the Act 1996 for establishment of
E his right which was not then alive, and, which had been long
extinguished because, in such a case, such 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
F obviously be met by the plea of limitation under Article 137 of
the Act 1963. [Para 58][635-D-F]
1.5 The plain reading of the letter dated 24.02.2016 would
indicate that the disputes between the parties had cropped up
way back in the year 2014 itself. This is evident by the date
G 24.10.2014 figuring in the aforesaid letter dated 24.02.2016. The
letter indicates that after the disputes arose between the parties,
the petitioner tried to offer its explanation and put forward its
case vide letter dated 24.10.2014. The respondent by letter dated
24.02.2016 clarified or rather informed the petitioner that the
justifications put forward by the petitioner vide its letter dated
H 24.10.2014 were duly considered and thereafter, a final decision
M/S B AND T AG v. MINISTRY OF DEFENCE 603
was taken for encashment of the liquidated damages. Therefore, A
the petitioner is not justified in saying that it continued to
negotiate till 2019. The mere bald assertion in this regard is not
sufficient. The entire history of the negotiation between the
parties must be specifically pleaded and placed on record. It is
only after the entire history of negotiation is pleaded and placed
B
on record that the Court would be in a position to consider such
history so as 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. When the bank guarantee came to be encashed in
the year 2016 and the requisite amount stood transferred to the C
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. 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
D
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. 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 E
years. Statutory arbitrations stand apart. The petition fails and is
rejected. [Paras 61-63, 66][637-B-G; 641-E]
Union of India and Another v. M/s L. K. Ahuja and Co.
(1988) 3 SCC 76 : [1988] 3 SCR 402; J. C. Budhraja
v. Chairman, Orissa Mining Corporation Ltd. and F
Another (2008) 2 SCC 444 : [2008] 1 SCR 821; SBP
& Co. v. Patel Engineering Ltd. and Another (2005) 8
SCC 618 : [2005] 4 Suppl. SCR 688; National
Insurance Company Limited v. Boghara Polyfab Private
Limited (2009) 1 SCC 267 : [2008] 13 SCR 638; Bharat
Sanchar Nigam Limited and Anr. v. Nortel Networks G
India Private Limited (2021) 5 SCC 738; Panchu Gopal
Bose v. Board of Trustees for Port of Calcutta (1993) 4
SCC 338: [1993] 3 SCR 361; State of Orissa v. Damodar
Das (1996) 2 SCC 216: [1995] 6 Suppl. SCR 800 –
relied on. H
604 SUPREME COURT REPORTS [2023] 7 S.C.R.
A Cognizance for Extension of Limitation, In re (2022) 3
SCC 117; Consolidated Engineering Enterprises v.
Principal Secretary, Irrigation Department and Others
(2008) 7 SCC 169 : [2008] 5 SCR 1108; Merla
Ramanna v. Nallaparaju and Others [1955] 2 SCR 938;
Secunderabad Cantonment Board v. B.
B
Ramachandraiah and Sons (2021) 5 SCC 705; NTPC
Ltd. v. SPML Infra Ltd. reported in 2023 SCC Online
SC 389; Vidya Drolia and Ors. v. Durga Trading
Corporation (2021) 2 SCC 1 : [2020] 11 SCR 1001 –
referred to.
C Welspun Enterprises Ltd. v. NCC Ltd.(2022) 295 DLT
286; Zillon Infraprojects Pvt. 33 Ltd. v. Bharat Heavy
Electricals Limited reported in 2023 SCC OnLine Cal
756 – referred to.
Case Law Reference
D
[2019] 11 SCR 1108 relied on Para 14
[2008] 5 SCR 1108 referred to Para 30
[1955] 2 SCR 938 referred to Para 34
[1988] 3 SCR 402 relied on Para 38
E
[2008] 1 SCR 821 relied on Para 40
[2005] 4 Suppl. SCR 688 relied on Para 41
[2008] 13 SCR 638 relied on Para 42
F (2021) 5 SCC 705 referre to Para 48
(2021) 5 SCC 738 relied on Para 49
[2020] 11 SCR 1001 referred to Para 49
[1993] 3 SCR 361 relied on Para 64
G [1995] 6 Suppl. SCR 800 relied on Para 64
CIVIL ORIGINAL JURISDICTION : Arbitration Petition (C)
No.13 of 2023.
Petition U/S 11(6) read with Section 11(12) of the Arbitration and
Conciliation Act, 1996 (‘ACT”) for Constituting Arbitral Tribunal in
H
M/S B AND T AG v. MINISTRY OF DEFENCE 605
Accordance with Contract dated 27.03.2012 entered into between the A
Parties.
Abhimanyu Bhandari, Ms. Rooh-e-hina Dua, Ms. Ananya Sikri,
Ms. Dhanakshi Gandhi, Advs. for the Petitioner.
K. M. Nataraj, ASG, Ms. Rukhmini Bobde, Vatsal Joshi, P V
Yogeshwaran, Vinayak Sharma, Arvind Kumar Sharma, Advs. for the B
Respondent.
The Judgment of the Court was delivered by
J. B. PARDIWALA, J.
1. This is a petition under Section 11(6) of the Arbitration and C
Conciliation Act, 1996, (for short, ‘the Act 1996’), filed at the instance of
a company based in Switzerland and engaged in the business of
manufacturing of arms etc., praying for appointment of an arbitrator for
the adjudication of disputes and claims arising out of the Contract No.
78953/SMG/GS/WE-4(GS-IV) dated 27.03.2012 executed with the D
respondent Government of India in its Ministry of Defence.
FACTUAL MATRIX
2. The respondent, Ministry of Defence vide the RFP No. 78953/
SMG/GS/WE-4 dated 18.11.2009 floated an urgent tender for
procurement of 1,568 Sub Machine Guns under a Fast Track Procedure. E
The petitioner participated in the tender process and offered its bid. The
tender was opened on 21.12.2010 and the petitioner was declared to be
the lowest acceptable bidder. After due negotiations, the Contract was
executed and signed on 27.03.2012.
3. The dispute between the parties arose in relation to the alleged F
wrongful encashment of warranty bond by the respondent. The
respondent vide its letter dated 16.02.2016, directed the Joint Chief
Executive Officer, State Bank of India, Frankfurt Branch, Germany to
encash the WBG No. 12/380 for its full value i.e., Euro 201,793.75 and
remit the amount through direct bank transfer to the Principal Controller
G
of Defence Account (PCDA, Government account) in accordance with
the details stated in the letter. One copy of the letter dated 16.02.2016
was also forwarded to the petitioner. 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. H
606 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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
B
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
C 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 discussions” with a view to explore the possibility
D of resolving the dispute regarding imposition of the LDs and encashment
of the WBG. However, the respondent vide its letter dated 22.09.2017
informed the petitioner, that all actions taken by the respondent were in
accordance with the terms of the Contract, and that the petitioner was
given sufficient opportunity to present its case.
E 7. The petitioner claims that after the letter dated 22.09.2017
was issued, the parties remained in constant communication with each
other, to negotiate and resolve the dispute. Nonetheless, the petitioner
vide letter dated 04.09.2019, requested the respondent to review and
discuss the wrongful imposition of LDS and give a fair chance to the
F petitioner to present its case.
8. In such circumstances referred to above, the petitioner is here
before this Court with the present petition.
SUBMISSIONS ON BEHALF OF THE PETITIONER
9. At the outset, Ms. Dua, the learned counsel appearing for the
G
petitioner made a fervent appeal to this Court to take notice of the
following dates and events:
27.03.2012: Petitioner and the Respondent entered into a
Contract dated 27.03.2012 bearing No.
78953/SMG/GS/WE-4 for procurement /
H
M/S B AND T AG v. MINISTRY OF DEFENCE 607
[J. B. PARDIWALA, J.]
supply of quantity 568 9MM SMG Model MP- A
9 Sub Machine Gun with Accessories
(“Contract”). The Contract contained a
dispute resolution clause which also
incorporated an agreement to arbitrate (Article
21).
B
16.02.2016: Disputes arose between the parties in relation
to 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. C
22.09.2017: It is pertinent to state that between 16.02.2016
and 22.09.2017, the parties were constantly
engaged in “bilateral discussion” as
specifically mandated by Article 21 of the
Contract in order to resolve their disputes D
regarding the wrongful deduction of
Liquidated damages and encashment of the BG.
The Petitioner had urged the Respondent to
reconsider the wrongful Encashment of BG.
However, the Respondent, vide letter dated E
22.09.2017 for the first time communicated to
the Petitioner that it would not reconsider the
request.
2017-2019: Even after the communication dated
22.09.2017, the Parties were constantly trying F
to negotiate and resolve their disputes. In
relation to which the Petitioner even attended
a meeting with Director General (Acquisition.)
and Additional Secretary.
04.09.2019: The Petitioner further requested the G
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
H
608 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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.
B
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
C 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.
D
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 be
appointed for the adjudication of the disputes
E under the contract.
18.02.2022: The Respondent vide its response dated
18.02.2022 to the arbitration notice of the
Petitioner, did not raise any objection to the
invocation of the arbitration proceedings
F however suggested that the Respondent shall
not opt for a Sole Arbitrator and is in favour
of appointing a three member arbitral tribunal.
28.11.2022: The Petitioner vide e-mail dated 28.11.2022
and notice dated 25.11.2022 replied to the
Respondent for appointing Hon’ble Mr. Justice
G
Mukul Mudgal (Retd.) as their Nominee
Arbitrator for the adjudication of the disputes
under the said Contract. However, no reply
has been received by the Respondent to the
said notice.
H
M/S B AND T AG v. MINISTRY OF DEFENCE 609
[J. B. PARDIWALA, J.]
10. Ms. Dua submitted that the claims of the petitioner are not A
time barred as strongly asserted on behalf of the respondent. The learned
counsel submitted that the respondent wrongfully deducted the LDs and
encashed the bank guarantee on 16.02.2016. It was submitted that the
parties were trying to amicably resolve the disputes by way of ‘bilateral
discussions’ in accordance with Article 21.1 of the Contract.
B
11. Ms. Dua invited the attention of this Court to Article 21 of the
Contract. Article 21 provides for the dispute resolution mechanism and
is reproduced hereinunder:
“Article 21
ABITRATION C
21.1. All disputes or differences arising out of or in connection
with the present Contract, including the one connected with
the validity of the present Contract or any part thereof, shall
be settled by bilateral discussions.
D
21.2. Any dispute, disagreement of question arising out of or
relating to this Contract or relating to construction or
performance (except as to any matter the decision or
determination whereof is provided for by these conditions),
which cannot be settled amicably, shall within sixty (60) days
or such longer period as may be mutually agreed upon, from E
the date on which either party informs the other in writing by
a notice that such dispute, disagreement or question exists,
will be referred to the Arbitration Tribunal consisting of three
arbitrators.
21.3 Within sixty (60) days of the receipt of the said Notice, F
one arbitrator shall be nominated in writing by SELLER and
one arbitrator shall be nominated by BUYER.
21.4. The third arbitrator, who shall not be a citizen or
domicile or of the country either of the parties or of any other
country unacceptable to any of the parties shall be nominated G
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
H
610 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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
B 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.
C 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 arbitrator shall be shared equally
D by the Seller and the Buyer, unless otherwise awarded by the
Arbitration Tribunal.
21.9 In the event of a vacancy caused in the office of the
arbitrators, the party which nominated such arbitrator, shall
be entitled to nominate another in his place and the arbitration
E proceedings shall continue from the stage they were left by
the retiring arbitrator.
21.10. In the event of one of the parties failing to nominate
its arbitrator within 60 days as above or if any of the parties
does not nominate another arbitrator within 60 days of the
F place of arbitrator failing vacant, then the other party shall
be entitled after due notice of at least 30 days to request the
President of International Chamber of Commerce, Paris to
nominate another arbitrator as above.
21.11. If the place of the third arbitrator falls vacant, his
G substitute shall be nominated according to the provisions
herein above stipulated.
21.12. The parties shall continue to perform their respective
obligations under this contract during the pendency of the
arbitration proceedings except in so far as such obligations
H are the subject matter of the said arbitration proceedings.”
M/S B AND T AG v. MINISTRY OF DEFENCE 611
[J. B. PARDIWALA, J.]
12. According to Ms. Dua, Article 21.1 of the Contract referred A
to above, clearly stipulates that all disputes or differences arising out of
in connection with the present contract, including the one connected
with the validity of the present contract or in part thereof, shall be settled
by ‘bilateral discussions’.
13. According to the learned counsel, the aforestated is one of the B
distinguishing features of the Contract in question as in defence
procurement contracts, it would be in the interest of the parties to resolve
the disputes if any by way of ‘bilateral discussions’ rather than by initiating
arbitration proceedings. The learned counsel submitted that the respondent
for the first time informed the petitioner by letter dated 22.09.2017 that
the proposal put forward by the petitioner to reconsider the decision of C
wrongful deduction of LD and encashment of bank guarantee was
rejected. According to the learned counsel, even thereafter, i.e., after
22.09.2017, the parties continued to negotiate with each other until
04.09.2019.
14. Relying on the decision of this Court in the case of Geo Miller D
and Company Private Limited v. Chairman, Rajasthan Vidyut
Utpadan Nigam Limited, 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. E
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. F
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 G
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 Limitation,
In re, reported in (2022) 3 SCC 117, would end on 22.09.2022. However,
the notice of arbitration was sent by the petitioner on 08.11.2021. H
612 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 17. The learned counsel further pointed that the respondent by its
own letter dated 18.02.2022, did not object to the invocation of the
arbitration, however, it only objected to the appointment of a sole
arbitrator.
18. In the last, the learned counsel submitted that the issue of
B limitation being a mixed question of law and fact will be looked into by
the Arbitral Tribunal. What was the “Breaking Point” of negotiations
cannot be gone into while deciding an application filed under Section
11(6) of the Act 1996.
19. In such circumstances referred to above, the learned counsel
C prayed that the petition filed under Section 11(6) of the Act 1996 for
constituting an Arbitral Tribunal being within the period of limitation, the
same may be allowed and Arbitral Tribunal be constituted.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
20. On the other hand, Mr. K. M. Nataraj, the learned Additional
D Solicitor General of India vehemently opposed the present petition
submitting that not only the petition filed under Section 11(6) of the Act
1996 is time barred but even the claims raised by the petitioner could be
said to be time barred.
21. According to the learned ASG, the grievance of the petitioner
E revolves around the deduction of LDs by encashment of the bank
guarantee. The last of such deduction was made on 26.09.2016.
According to the learned ASG, the cause of action in the present case,
could be said to have arisen on 26.09.2016. However, the notice for
invoking of arbitration in accordance with Article 21 of the Contract
F was issued only on 08.11.2021, i.e., after a period of more than five
years and much beyond the limitation period of three years. According
to the learned ASG, the claim of the petitioner is hopelessly time barred.
22. The learned ASG requested the Court to look into the following
dates and events for the purpose of deciding the present petition:
G 27.03.2012: Contract was executed between the Petitioner
and Respondent.
26.09.2016: CAUSE OF ACTION arose
Liquidated damages were finally deducted.
H 25.09.2019: The limitation period of 3 years expired.
M/S B AND T AG v. MINISTRY OF DEFENCE 613
[J. B. PARDIWALA, J.]
08.11.2021: Advocate for claimant sent ‘Notice for invoking A
of Arbitration under Article 21 of the Contract’.
16.11.2021: 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 B
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 C
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 D
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
E
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 canvassed on either
side, we may look into few relevant provisions of the Act 1996 and the
F
Act 1963.
27. Section 11 of the Act 1996 provides for appointment of
arbitrators. Sub section (6) of Section 11 reads thus:
“11(6). Where, under an appointment procedure agreed upon
by the parties,— G
(a) a party fails to act as required under that procedure;
or
(b) the parties, or the two appointed arbitrators, fail to
reach an agreement expected of them under that procedure;
or H
614 SUPREME COURT REPORTS [2023] 7 S.C.R.
A (c) a person, including an institution, fails to perform any
function entrusted to him or it under that procedure,
a party may request the Supreme Court or, as the case may
be, the High Court or any person or institution designated by
such Court to take the necessary measure, unless the
B agreement on the appointment procedure provides other means
for securing the appointment.”
28. The plain reading of the aforesaid provision would indicate
that no time limit has been prescribed for filing application under Section
11(6) of the Act, 1996 for appointment of an arbitrator.
C 29. Section 43 of the Act 1996 provides that the Limitation Act,
1963 would apply to arbitrations as it applies to the proceedings in Court.
Section 43 reads thus:
“43. Limitations.—(1) The Limitation Act, 1963 (36 of 1963),
shall apply to arbitrations as it applies to proceedings in court.
D
(2) For the purposes of this section and the Limitation Act,
1963 (36 of 1963), an arbitration shall be deemed to have
commenced on the date referred to in section 21.
(3) Where an arbitration agreement to submit future disputes
to arbitration provides that any claim to which the agreement
E
applies shall be barred unless some step to commence arbitral
proceedings is taken within a time fixed by the agreement,
and a dispute arises to which the agreement applies, the Court,
if it is of opinion that in the circumstances of the case undue
hardship would otherwise be caused, and notwithstanding
F that the time so fixed has expired, may on such terms, if any,
as the justice of the case may require, extend the time for
such period as it thinks proper.
(4) Where the Court orders that an arbitral award be set aside,
the period between the commencement of the arbitration and
G the date of the order of the Court shall be excluded in
computing the time prescribed by the Limitation Act, 1963
(36 of 1963), for the commencement of the proceedings
(including arbitration) with respect to the dispute so
submitted.”
H
M/S B AND T AG v. MINISTRY OF DEFENCE 615
[J. B. PARDIWALA, J.]
30. In context with Section 43 of the Act 1996 referred to above, A
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
B
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 C
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 D
it applies to proceedings in court. The purpose of Section 43
of the AC Act is not to make the Limitation Act inapplicable to
proceedings before court, but on the other hand, make the
Limitation Act applicable to arbitrations. As already noticed,
the Limitation Act applies only to proceedings in court, and
but for the express provision in Section 43, the Limitation Act E
would not have applied to arbitration, as arbitrators are
private tribunals and not courts. Section 43 of the AC Act,
apart from making the provisions of the Limitation Act, 1963
applicable to arbitrations, reiterates that the Limitation Act
applies to proceedings in court. Therefore, the provisions of F
the Limitation Act, 1963 apply to all proceedings under the
AC Act, both in court and in arbitration, except to the extent
expressly excluded by the provisions of the AC Act.”
(Emphasis supplied)
31. Since a petition under Section 11(6) of the Act 1996 for seeking G
appointment of Arbitral Tribunal is required to be filed before the High
Court or the Supreme Court, as the case may be, Article 137 of the
Schedule to the Act 1963 would apply.
32. Article 137 reads thus:
H
616 SUPREME COURT REPORTS [2023] 7 S.C.R.
A
B 33. A plain reading of the aforesaid Article would indicate that the
period of limitation in cases covered by Article 137 is three years and
the said period would begin to run when the right to apply accrues.
34. The starting point of limitation under Article 137 according to
third column of the Article is the date when ‘the right to apply arises’.
C 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. ‘The right to apply’ has been interpreted
to mean ‘the right to apply first arises’. (See: Merla Ramanna v.
Nallaparaju and Others, (1955) 2 SCR 938)
D
35. Further, it would be necessary to refer to Section 9 of the Act
1963 of the Act which reads thus:
“9. Continuous running of time.— Where once time has begun
to run, no subsequent disability or inability to institute a suit
E 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.”
F (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
G
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”
H contains a positive element of assertion and in denying and merely an
M/S B AND T AG v. MINISTRY OF DEFENCE 617
[J. B. PARDIWALA, J.]
inaction to accede to a claim or a request. With respect to the period of A
time, in the light of the facts of that particular case as to when did the
dispute actually arises, despite the fact that the contract work in question
was completed in the year 1980, the Court observed that even though it
was true that on completion of the contract work right to get payment
would normally arise, but where the final bill had not been prepared and
B
when the assertion of the claim was made much after the completion of
the work and there was non-payment, the cause of action arose from
the date when the assertion was made. The Court then went on to
observe that it was also true that a party cannot postpone the accrual of
a cause of action by writing letters or sending reminders but where the
bill had been finally prepared, the claim made by the claimant is the C
accrual of the cause of action. For a proper understanding of the ratio in
the aforesaid judgment, we reproduce hereinbelow para 4 of the judgment
in its entirety. Para 4 reads thus:
“4. Therefore, in order to be entitled to order of reference
under S. 20, it is necessary that there should be an arbitration D
agreement and secondly, difference must arise to which this
agreement applied. In this case, there is no dispute that there
was an arbitration agreement. There has been an assertion
of claim by the appellant and silence as well as refusal in
respect of the same by respondent. Therefore, a dispute has
arisen regarding non-payment of the alleged dues of the E
appellant. The question is for the present case when did such
dispute arise. The High Court proceeded on the basis that
the work was completed in 1980 and, therefore, the appellant
became entitled to the payment from that date and the cause
of action under Art. 137 arose from that date. But in order to F
be entitled to ask for a reference under S. 20 of the Act there
must not only be an entitlement to money but there must be a
difference or a dispute must arise. It is true that on completion
of the work a right to get payment would normally arise but
where the final bills as in this case have not been prepared as
appears from the record and when the assertion of the claim G
was made on 28th Feb. 1983 and there was non-payment, the
cause of action from that date, that is to say, 28th of Feb.
1983. It is also true that a party cannot postpone the accrual
of cause of action by writing reminders or sending reminders
but where the bill had not been finally prepared, the claim H
618 SUPREME COURT REPORTS [2023] 7 S.C.R.
A made by a claimant is the accrual of the cause of 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
B
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
C 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
D 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
E discussions’ for an indefinite period of time would not save the situation
so far as the accrual of cause of action and the right to apply for
appointment of arbitrator is concerned.
38. In Union of India and Another v. M/s L. K. Ahuja and Co.,
reported in (1988) 3 SCC 76, this Court in paras 6 and 8 respectively of
F the judgment has laid down the ratio with regard to the limitation period
applicable in arbitration proceeding. Paras 6 and 8 respectively read as
under:
“6. It appears that these questions were discussed in the
decision of the Calcutta High Court in Jiwnani Engineering
G Works Pvt. Ltd. v. Union of India [AIR 1978 Cal 228] where
one of us (Sabyasachi Mukharji, J.) was a party and which
held after discussing all these authorities that the question
whether the claim sought to be raised was barred by limitation
or not, was not relevant for an order under Section 20 of the
Act. Therefore, there are two aspects. One is whether the claim
H made in the arbitration is barred by limitation under the
M/S B AND T AG v. MINISTRY OF DEFENCE 619
[J. B. PARDIWALA, J.]
relevant provisions of the Limitation Act and secondly, whether A
the claim made for application under Section 20 is barred. In
order to be a valid claim for reference under Section 20 of
the Arbitration Act, 1940, it is necessary that there should be
an arbitration agreement and secondly differences must arise
to which the agreement in question applied and, thirdly, that
B
must be within time as stipulated in Section 20 of the Act.
xxx xxx xxx
8. In view of the well settled principles we are of the view that
it will be entirely a wrong to mix up the two aspects, namely, C
whether there was any valid claim for reference under Section
20 of the Act and, secondly, whether the claim to be
adjudicated by the arbitrator, was barred by lapse of time.
The second is a matter which the arbitrator would decide
unless, however, if on admitted facts a claim is found at the D
time of making an order under Section 20 of the Arbitration
Act, to be barred by limitation. In order to be entitled to ask
for a reference under Section 20 of the Act, there must be an
entitlement to money and a difference or dispute in respect of
the same. It is true that on completion of the work, right to get
payment would normally arise and it is also true that on E
settlement of the final bill, the right to get further payment
gets weakened but the claim subsists and whether it does
subsist, is 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 F
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) G
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
H
620 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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
B
on to say that it would be wrong to mix up the two aspects, namely,
whether there was any valid claim for reference under Section 20 of the
Act 1940 and whether the claim to be adjudicated by the Arbitrator was
barred by lapse of time.
40. On the aspect whether the decision on the issue of limitation
C should be decided at the stage of passing of an order referring the disputes
to the arbitrator, this Court in the case of J.C. Budhraja v. Chairman,
Orissa Mining Corporation Ltd. and Another, reported in (2008) 2
SCC 444 has drawn a fine distinction between the period of limitation
for filing of a petition and as to the claims being barred by time. We
D quote the relevant observations made by this Court in J.C. Budhraja
(supra) in paras 25 and 26 respectively, as under:
“25. The learned counsel for the appellant submitted that the
limitation would begin to run from the date on which a
difference arose between the parties, and in this case the
E difference arose only when OMC refused to comply with the
notice dated 4-6-1980 seeking reference to arbitration. We
are afraid, the contention is without merit. The appellant is
obviously confusing the limitation for a petition under Section
8(2) of the Arbitration Act, 1940 with the limitation for the
claim itself. The limitation for a suit is calculated as on the
F date of filing of the suit. In the case of arbitration, limitation
for the claim is to be calculated on the date on which the
arbitration is deemed to have commenced.
26. Section 37(3) of the Act provides that for the purpose of
the Limitation Act, an arbitration is deemed to have been
G commenced when one party to the arbitration agreement serves
on the other party thereto, a notice requiring the appointment
of an arbitrator. Such a notice having been served on 4-6-
1980, it has to be seen whether the claims were in time as on
that date. If the claims were barred on 4-6-1980, it follows
that the claims had to be rejected by the arbitrator on the
H
M/S B AND T AG v. MINISTRY OF DEFENCE 621
[J. B. PARDIWALA, J.]
ground that the claims were barred by limitation. The said A
period has nothing to do with the period of limitation for
filing a petition under Section 8(2) of the Act. Insofar as a
petition under Section 8(2) is concerned, the cause of action
would arise when the other party fails to comply with the
notice invoking arbitration. Therefore, the period of limitation
B
for filing a petition under Section 8(2) seeking appointment
of an arbitrator cannot be 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 C
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 D
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, E
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] This Court identified and segregated F
the preliminary issues that may arise for consideration in an
application under Section 11 of the Act into three categories,
that is, (i) issues which the Chief Justice or his designate is
bound to decide; (ii) issues which he can also decide, that is,
issues which he may choose to decide; and (iii) issues which G
should be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached
the appropriate High Court. H
622 SUPREME COURT REPORTS [2023] 7 S.C.R.
A (b) Whether there is an arbitration agreement and whether
the party who has applied under Section 11 of the Act, is a
party to such an agreement.
22.2. The issues (second category) which the Chief Justice/
his designate may choose to decide (or leave them to the
B decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
(b) Whether the parties have concluded the contract/
transaction by recording satisfaction of their mutual rights
C and obligation or by receiving the final payment without
objection.”
43. In Geo Miller (supra), this Court observed in para 28 and 29
as under:
D “28. Having perused through the relevant precedents, we
agree that on a certain set of facts and circumstances, 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
E 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
F 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
G 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.
29. Moreover, in a commercial dispute, while mere failure to
pay may not give rise to a cause of action, once the applicant
H has asserted their claim and the respondent fails to respond
M/S B AND T AG v. MINISTRY OF DEFENCE 623
[J. B. PARDIWALA, J.]
to such claim, such failure will be treated as a denial of the A
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
B
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. C
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 asserted by the respondent. What was the “Breaking Point” is
a question of fact and we shall deal with this issue a little later. However, D
para 28 referred to above should be read along with the observations
made by this Court in para 21 of the judgment. Para 21 reads thus:
“21. Applying the aforementioned principles to the present
case, we find ourselves in agreement with the finding of the
High Court that the appellant’s cause of action in respect of E
Arbitration Applications Nos. 25/2003 and 27/2003, relating
to the work orders dated 7-10-1979 and 4-4-1980 arose on
8-2-1983, which is when the final bill handed over to the
respondent became due. Mere correspondence of the
appellant by way of writing letters/reminders to the respondent F
subsequent to this date would not extend the time of limitation.
Hence the maximum period during which this Court could
have allowed the appellant’s application for appointment of
an arbitrator is 3 years from the date on which cause of action
arose i.e. 8-2-1986. Similarly, with respect to Arbitration
Application No. 28/2003 relating to the work order dated 3- G
5-1985, the respondent has stated that final bill was handed
over and became due on 10-8-1989. This has not been
disputed by the appellant. Hence the limitation period ended
on 10-8-1992. Since the appellant served notice for
appointment of arbitrator in 2002, and requested the H
624 SUPREME COURT REPORTS [2023] 7 S.C.R.
A appointment of an arbitrator before a court only by the end
of 2003, his claim is clearly barred by limitation.”
(Emphasis supplied)
46. Relying on the observations made in para 21 referred to above,
the submission canvassed on behalf of the respondent is that para 28 of
B Geo Miller (supra) may be applicable in a given set of facts where
there is subsisting/continuing cause of action. However, in the present
case, the Liquidated Damages were deducted by encashment of bank
guarantee. This was a positive action on the part of the respondent,
crystalising the rights/cause of action and the same should not be
C interpreted as a continuing cause of action.
47. In Bharat Sanchar Nigam Limited and Another v. Nortel
Networks India Private Limited, reported in (2021) 5 SCC 738, this
Court undertook a comprehensive analysis of the relevant provisions
and held that in cases where claims are ex facie time barred, the Court
D may refuse to make reference under Section 11 of the Act 1996. This
decision 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
E 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.
F
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
G 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 arbitrator. The High Court vide their order dated
H 13.10.2020 referred the disputes to arbitration. The appellant filed a
M/S B AND T AG v. MINISTRY OF DEFENCE 625
[J. B. PARDIWALA, J.]
review petition before the High Court against the order dated 13.10.2020 A
which was dismissed by the Court vide their order dated 14.01.2021.
Therefore, the appellant filed two Civil appeals before this Court.
The appellant submitted the following before this Court-
• The cause of action for invoking arbitration arose on
04.08.2014 when the claim made by the respondent was B
rejected by making deductions from the final bill.
• The respondent slept over its alleged rights for over 5.5
years, before issuing the notice of arbitration on 29.04.2020.
• The respondent did not take any action in between the period C
and therefore the notice invoking arbitration had become
legally stale, non-arbitrable and unenforceable.
• The High Court had erroneously proceeded on the premise
of mere existence of a valid arbitration agreement, without
considering that such an agreement was inextricably D
connected with the existence of a live dispute.
• In cases where the invocation of the arbitration agreement
is ex facie time barred, the Court must reject the request
for appointment of an arbitrator is at par with a civil action
and would be covered under Article 137 of Schedule to the
E
Act 1963.
• An action taken by a claimant must necessarily fall within
the statutory period of 3 years from the date on which the
right to apply accrues.
The respondent submitted the following- F
• The amendment to Section 11 by the Arbitration and
Conciliation (Amendment) Act, 2015 provides for a limited
scope of enquiry at the pre-reference stage which is
restricted only to the ‘existence; of an arbitration agreement
under Section 11(6A). G
• The objection with respect to the claims being allegedly
time barred, could be decided by the arbitral tribunal.
• The High Court rightly limited the enquiry at the pre-
reference stage to the ‘existence’ of the arbitration
agreement. H
626 SUPREME COURT REPORTS [2023] 7 S.C.R.
A • The starting point of limitation for initiating a proceeding
under Section 11 is the expiry of 30 days from the date of
issuing notice of arbitration on 29.04.2020. The cause of
action was, therefore, a continuing one. The High Court
had rightly held that the issue of limitation must be decided
B by the arbitral tribunal.
The following two questions fell for the consideration of this Court-
• The period of limitation for filing an application under Section
11 of the Act 1996; and
C • 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
D
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
E 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
F three years for any other application for which no period of limitation is
provided elsewhere in the division. The time limit starts from the period
when the right to apply accrues.
This Court relied on its various other decisions including few High
Court decisions. This Court held that an application under Section 11 is
G to be filed in a Court of Law, and since no specific Article of the Act
1963 applies, the residual Article would become applicable. The effect
being that the period of limitation to file an application under Section 11
is three years from the date of refusal to appoint the arbitrator or on
expiry of 30 days whichever is earlier.
H
M/S B AND T AG v. MINISTRY OF DEFENCE 627
[J. B. PARDIWALA, J.]
In the said case the respondent had issued the notice of arbitration A
on 29.04.2020 which was rejected by the appellant on 09.06.2020. The
respondent filed an application under Section 11 before the High Court
on 24.07.2020, i.e., within the period of three years of rejection of the
request for appointment of arbitrator.
This Court allowed the appeals filed by the BSNL holding as under: B
“48. Applying the law to the facts of the present case, it is
clear that this is a case where the claims are ex facie time-
barred by over 5½ years, since Nortel did not take any action
whatsoever after the rejection of its claim by BSNL on 4-8-
2014. The notice of arbitration was invoked on 29-4-2020. C
There is not even an averment either in the notice of
arbitration, or the petition filed under Section 11, or before
this Court, of any intervening facts which may have occurred,
which would extend the period of limitation falling within
Sections 5 to 20 of the Limitation Act. Unless, there is a pleaded
case specifically adverting to the applicable section, and how D
it extends the limitation from the date on which the cause of
action originally arose, there can be no basis to save the time
of limitation.
49. The present case is a case of deadwood/no subsisting
dispute since the cause of action arose on 4-8-2014, when E
the claims made by Nortel were rejected by BSNL. The
respondent has not stated any event which would extend the
period of limitation, which commenced as per Article 55 of
the Schedule of the Limitation Act (which provides the
limitation for cases pertaining to breach of contract) F
immediately after the rejection of the final bill by making
deductions.
50. In the notice invoking arbitration dated 29-4-2020, it has
been averred that:
“Various communications have been exchanged between G
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.”
H
628 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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
B
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
C 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,
failing which, the time bar would prevail.
D
52. In the present case, the notice invoking arbitration was
issued 5½ years after rejection of the claims on 4-8-2014.
Consequently, the notice invoking arbitration is ex facie time-
barred, and the disputes between the parties cannot be
referred to arbitration in the facts of this case.”
E
Amendment required
However, this Court in the above said case observed that since
there is vacuum in the law to provide a period of limitation under Section
11 of the Act 1996 the Courts have taken recourse to the position that
F the limitation period would be governed by Article 137 of the Limitation
Act, 1963 which provides a period of three years from the date when
the right to apply accrues. This Court considered this as an unduly long
period for filing an application under Section 11, since it would defeat
the very object of the Act 1996, which provides for expeditious resolution
of commercial disputes within a time bound period. The Act has been
G amended in 2015 and 2019 respectively to provide for further time limits
to ensure that the arbitration proceedings are conducted and concluded
expeditiously. Section 29A mandates that the arbitral tribunal will
conclude the proceedings within a period of 18 months. In view of the
legislative intent, the period of 3 years for filing an application under
H Section 11 would run contrary to the scheme of the Act.
M/S B AND T AG v. MINISTRY OF DEFENCE 629
[J. B. PARDIWALA, J.]
This Court, therefore, considered it necessary for the Parliament A
to effect an amendment to Section 11 of the Act 1996, prescribing a
specific period of limitation within which a party may move the court for
making an application for appointment of arbitrators under Section 11 of
the Act [Reference: Article titled as ‘Limitation for Filing Application for
Appointment of Arbitrator’ by Mr. M. Govindarajan]
B
48.In Secunderabad Cantonment Board v. B.
Ramachandraiah and Sons, reported in (2021) 5 SCC 705, while taking
note of both BSNL (supra) and Geo Miller (supra), it is held as under:
“19. Applying the aforesaid judgments to the facts of this case,
so far as the applicability of Article 137 of the Limitation Act C
to the applications under Section 11 of the Arbitration Act is
concerned, it is clear that the demand for arbitration in the
present case was made by the letter dated 7-11-2006. This
demand was reiterated by a letter dated 13-1-2007, which
letter itself informed the appellant that appointment of an
arbitrator would have to be made within 30 days. At the very D
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 E
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 F
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 G
Act, themselves being hopelessly time-barred, no arbitrator
could have been appointed by the High Court.”
(Emphasis supplied)
49. NTPC Ltd. v. SPML Infra Ltd. reported in 2023 SCC Online
SC 389, noted that an overarching principle with respect to the pre- H
630 SUPREME COURT REPORTS [2023] 7 S.C.R.
A referral jurisdiction under Section 11(6) of the Act 1996 as laid down in
Vidya Drolia and Ors. v. Durga Trading Corporation reported in
(2021) 2 SCC 1, and following the decision in Vidya Drolia’s case, it
has been consistently held by the Courts that the arbitral tribunal was
the preferred first authority to determine and decide all questions of
non-arbitrability. The Court held that:
B
“25. Eye of the Needle: The above-referred precedents
crystallise the position of law that the pre-referral jurisdiction
of the courts under Section 11(6) of the Act is very narrow
and inheres two inquiries. The primary inquiry is about the
existence and the validity of an arbitration agreement, which
C also includes an inquiry as to the parties to the agreement
and the applicant’s privity to the said agreement. These are
matters which require a thorough examination by the referral
court. The secondary inquiry that may arise at the reference
stage itself is with respect to the non-arbitrability of the dispute.
D 26. As a general rule and a principle, the arbitral tribunal is
the preferred first authority to determine and decide all
questions of non-arbitrability. As an exception to the rule,
and rarely as a demurrer, the referral court may reject claims
which are manifestly and ex-facie non-arbitrable [Vidya
E Drolia supra note 7, para 154.4.]. Explaining this position,
flowing from the principles laid down in Vidya Drolia (supra),
this Court in a subsequent decision in Nortel Networks (supra)
held [Nortel Networks supra note 22, para 45.1.]:
“45.1 ...While exercising jurisdiction under Section 11 as the
F judicial forum, the court may exercise the prima facie test to
screen and knockdown ex facie meritless, frivolous, and
dishonest litigation. Limited jurisdiction of the courts would
ensure expeditious and efficient disposal at the referral stage.
At the referral stage, the Court can interfere “only” when it
is “manifest” that the claims are ex facie time-barred and
G dead, or there is no subsisting dispute...”
27. The standard of scrutiny to examine the non-arbitrability
of a claim is only prima facie. Referral courts must not
undertake a full review of the contested facts; they must only
be confined to a primary first review [Vidya Drolia supra note
H 7, para 134.] and let facts speak for themselves. This also
M/S B AND T AG v. MINISTRY OF DEFENCE 631
[J. B. PARDIWALA, J.]
requires the courts to examine whether the assertion on A
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
B
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 C
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 D
intervene, it may undermine the effectiveness of both,
arbitration and the Court [ibid]. Therefore, this Court or a
High Court, as the case may be, while exercising jurisdiction
under Section 11(6) of the Act, is not expected to act
mechanically merely to deliver a purported dispute raised by
an applicant at the doors of the chosen arbitrator [DLF Home E
Developers Limited v. Rajapura Homes Pvt. Ltd., 2021 SCC
OnLine SC 781, paras 18, 20.], as explained in DLF Home
Developers Limited v. Rajapura Homes Pvt. Ltd.”
(Emphasis supplied)
F
50. The learned counsel appearing for the petitioner also placed
reliance on a decision rendered by the Delhi High Court in the case of
Welspun Enterprises Ltd. v. NCC Ltd. reported in (2022) 295 DLT
286 wherein, the High Court observed as under:
“58. In view of the above, the period of limitation would run G
when a party acquires a right to refer the disputes to
arbitration. Clearly, if the arbitration agreement requires the
parties to exhaust the dispute resolution process as a pre-
condition for invoking arbitration, the right to refer the dispute
to arbitration would arise only after the parties have
exhausted the said procedure. The counterparty could raise H
632 SUPREME COURT REPORTS [2023] 7 S.C.R.
A a valid objection to any step taken to refer the disputes to
arbitration in avoidance of the agreed pre-reference dispute
resolution procedure. If the parties have agreed that they would
first endeavour to resolve the disputes amicably in a particular
manner, it is necessary for them to first exhaust that procedure
before exercising any right to refer the disputes to arbitration.
B
59. In Hari Shankar Singhania v. Gaur Hari Singhania
[(2006) 4 SCC 658], the Supreme Court categorically held
that a reference to arbitration “is required to be filed within a
period of three years when the right to apply accrues”. It is,
therefore, crucial to determine when such ‘right to apply’
C accrues in a case. As per the Court, the right to apply would
accrue when differences between the parties to the arbitration
agreement were evident - when the parties reach a ‘breaking
point’, that is, when a settlement with or without conciliation
is no longer possible. Pertinently, the Court noted that the
D limitation period would not start so long as the parties were
in dialogue even if differences surfaced during such period,
as an interpretation to the contrary would inevitably “compel
the parties to resort to litigation/arbitration even where there
is serious hope of the parties themselves resolving the issues”.
Thus, the right to apply can be said to have accrued “only on
E 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
F 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
G 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
H respondent’s last communication vide email dated January
M/S B AND T AG v. MINISTRY OF DEFENCE 633
[J. B. PARDIWALA, J.]
09, 2020, and within a period of two and half years from the A
issuance of Section 21 notice dated January 16, 2019.
Xxx xxx xxx
35. Therefore, the limitation period will not be operative
against the petitioner from February 05, 2019 onwards, and
hence, the present petition is well within time and not barred B
by limitation. …”
FINAL ANALYSIS
52. On a conspectus of all the aforesaid decisions what is
discernible is that there is a fine distinction between the plea that the C
claims raised are barred by limitation and the plea that the application
for appointment of an arbitrator is barred by limitation.
53. Mookerjee, J. in Dwijendra Narain Roy v. Joges Chandra
De and others, reported in AIR 1924 Cal 600 has explained the true
test to determine when a cause of action could be said to have accrued D
observing as under:
“10.…The substance of the matter is that time runs when the
cause of action accrues and a cause of action accrues when
there is in existence a person who can sue and another who
can be sued, and when all the facts have happened which
E
are material to be proved to entitle the plaintiff to succeed ;
Coburn v. Colledge [(1897) 1 Q.B. 702] ; Gelmani v. Morriggia
[(1913) 2 K.B. 549]. The cause of action arises when and
only when the aggrieved party has the right to apply to the
proper tribunals for relief : Whalley v. Whalley [(1816) 1 M.R.
436]. The statute does not attach to a claim for which there is F
as yet no right of action and does not run against a right for
which there is no corresponding remedy or for which judgment
cannot be obtained. Consequently the true test to determine
when a cause of action has accrued is to ascertain the time
when plaintiff could first have maintained his action to a
G
successful result. ….”
(Emphasis supplied)
54. “Cause of action” means the whole bundle of material facts,
which it is necessary for the plaintiff to prove in order to entitle him to
succeed in the suit. In delivering the judgment of the Board H
634 SUPREME COURT REPORTS [2023] 7 S.C.R.
A in Mussummat Chand Kour and Another v. Partab Singh and
Others, reported in ILR (1889) 16 Cal 98, Lord Watson observed:
“Now the cause of action has no relation whatever to the
defence which may be set up by the defendant, nor does it
depend upon the character of the relief prayed for by the
B plaintiff it refers entirely to the grounds set forth in the plaint
as the cause of action, or in other words to the media upon
which the plaintiff asks the court to arrive at a conclusion in
his favour.”
(Emphasis supplied)
C 55. Cause of action becomes important for the purposes of
calculating 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
D 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
E 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
F 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.”
Even if the arbitration clause contains a provision that no cause of
G
action shall accrue in respect of any matter agreed to be referred to until
an award is made, time still runs from the normal date when the cause
of action would have accrued if there had been no arbitration clause.
57. In Law of Arbitration by Justice Bachawat at p. 549,
commenting on Section 37, it is stated that subject to the Act 1963, every
H
M/S B AND T AG v. MINISTRY OF DEFENCE 635
[J. B. PARDIWALA, J.]
arbitration must be commenced within the prescribed period. Just as in A
the case of actions the claim is not to be brought after the expiration of
a specified number of years from the date when the cause of action
accrues, so in the case of arbitrations the claim is not to be put forward
after the expiration of a specified number of years from the date when
the claim accrues. For the purpose of Section 37(1) “action” and “cause
B
of arbitration” should be construed as arbitration and cause of arbitration.
The cause of arbitration arises when the claimant becomes entitled to
raise the question, that is, when the claimant acquires the right to require
arbitration. An application under Section 11 of the Act 1996 is governed
by Article 137 of the Schedule to the Act 1963 and must be made within
3 years from the date when the right to apply first accrues. There is no C
right to apply until there is a clear and unequivocal denial of that right by
the respondent. It must, therefore, be clear that the claim for arbitration
must be raised as soon as the cause for arbitration arises as in the case
of cause of action arisen in a civil action.
58. Whether any particular facts constitute a cause of action has D
to be determined with reference to the facts of each case and with
reference to, the substance, rather than the form of the action. If an
infringement of a right happens at a particular time, the whole cause of
action will be said to have arisen then and there. In such a case, it is not
open to a party to sit tight and not to file an application for settlement of
dispute of his right, which had been infringed, within the time provided E
by the Limitation Act, and, allow his right to be extinguished by lapse of
time, and thereafter, to wait for another cause of action and then file an
application under Section 11 of the Act 1996 for establishment of his
right which was not then alive, and, which had been long extinguished
because, in such a case, such an application would mean an application F
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 G
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
H
636 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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
B
not save the period of limitation.
60. In the aforesaid context, we deem fit to reproduce the entire
letter dated 24.02.2016 addressed by the respondent to the petitioner.
The letter reads thus:
C “BY FAX
Integrated HQs of MoD (Army)
Master General of Ordnance Branch
Procurement Progressing Organisation
D Room No. 230, B Wing, Sena Bhavan
DHQ PO, New Delhi – 110011
78953/SMG/GS/WE-4/PPO/D(MC)876 24 Feb 2016
M/s B&T Switzerland
E PO Box 174, 3604 Thun
Switzerland
Fax : 0041 33 3346701
Local : 46088802
F
CONTRACT NO. 78953/SMG/GS/WE-4 DATED 27
MAR 2012 FOR PROCUREMENT OF QUANTITY
1568 SUB MACHINE GUN UNDER FTP
1. Refer your letter No B&T/1568/2016 dated 19 Feb 2016.
G 2. Subject instructions for WBG encashment have been issued,
after due scrutiny and analysis of your justification forwarded
vide letter B&T/1568/10-26 dated 24 Oct 2014, with approval
of competent authority at MoD.
3. Thus, you may approach MoD for requisite action/directions
H please.
M/S B AND T AG v. MINISTRY OF DEFENCE 637
[J. B. PARDIWALA, J.]
(Apratim Sharma) A
Lt Col
AMGO (Import 1)
For DDG PPO”
61. The plain reading of the aforesaid letter would indicate that B
the disputes between the parties had cropped up way back in the year
2014 itself. This is evident by the date 24.10.2014 figuring in the aforesaid
letter dated 24.02.2016. The letter indicates that after the disputes arose
between the parties, the petitioner tried to offer its explanation and put
forward its case vide letter dated 24.10.2014. The respondent by letter C
dated 24.02.2016 clarified or rather informed the petitioner that the
justifications put forward by the petitioner vide its letter dated 24.10.2014
were duly considered and thereafter, a final decision was taken for
encashment of the liquidated damages. Therefore, the petitioner is not
justified in saying that it continued to negotiate till 2019. The mere bald
assertion in this regard is not sufficient as observed by this Court in Geo D
Miller (supra). The entire history of the negotiation between the parties
must be specifically pleaded and placed on record. It is only after the
entire history of negotiation is pleaded and placed on record that the
Court would be in a position to consider such history so as to find out
what was the “Breaking Point” at which any reasonable party would E
have abandoned efforts at arriving at a settlement and contemplated
referral of the dispute for arbitration.
62. At the cost of 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. F
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
G
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
H
638 SUPREME COURT REPORTS [2023] 7 S.C.R.
A 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
B
appointment of an arbitrator. The question was when the cause of
arbitration arises in the absence of issuance of a notice or omission to
issue notice for a long time after the contract was executed? Arbitration
implies to charter out timeous commencement of arbitration availing of
the arbitral agreement, as soon as difference or dispute has arisen. Delay
C defeats justice and equity aids promptitude and resultant consequences.
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,
D
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
E 12(2)(b) of the Act. [See: State of Orissa v. Damodar Das, (1996) 2
SCC 216]
65. The observations made by this Court in Panchu Gopal (supra)
in paras 10, 11, 12, 13, 14 and 15 respectively, are also relevant. The
observations read as under:
F “10. In West Riding of Yorkshire County
Council v. Huddersfield Corpn. [(1957) 1 All ER 669] the
Queen’s Bench Division, Lord Goddard, C.J. (as he then was)
held that the Limitation Act applies to arbitrations as it applies
to actions in the High Court and the making, after a claim
G has become statute-barred, of a submission of it to arbitration,
does not prevent the statute of limitation being pleaded. Russel
on Arbitration, 19th Edn., reiterates the above proposition.
At page 4 it was further stated that the parties to an arbitration
agreement may provide therein, if they wish, that an arbitration
must be commenced within a shorter period than that allowed
H
M/S B AND T AG v. MINISTRY OF DEFENCE 639
[J. B. PARDIWALA, J.]
by statute; but the court then has power to enlarge the time so A
agreed. 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
takes place upon the dispute concerned.
B
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 C
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: D
“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 E
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 right to claim arbitration but leaving
open a right of action in the courts. Or it may make F
compliance with a time-limit a condition of any claim without
limiting the operation of the arbitration clause, leaving a party
who is out of time with the right to claim arbitration but so
that it is a defence in the arbitration that the claim is out of
time and barred. Nor, since the provisions concerned are
essentially separate, is there anything to prevent the party G
relying on the limitation clause waiving his objection to
arbitration whilst still relying on the clause as barring the
claim.”
At page 80 it is stated thus:
H
640 SUPREME COURT REPORTS [2023] 7 S.C.R.
A “An extension of time is not automatic and it is only
granted if ‘undue hardship’ would otherwise be caused. Not
all hardship, however, is ‘undue hardship’; it may be proper
that hardship caused to a party by his own default should be
borne by him, and not transferred to the other party by
allowing a claim to be reopened after it has become barred.
B
The mere fact that a claim was barred could not be held to be
‘undue hardship’.”
13. The Law of Arbitration by Justice Bachawat in Chapter
37 at p. 549 it is stated that just as in the case of actions the
claim is not to be brought after the expiration of a specified
C number of years from the date when the claim accrues, so
also in the case of arbitrations, the claim is not to be put
forward after the expiration of a specified number of years
from the date when the claim accrues. For the purpose of
Section 37(1) ‘action’ and ‘cause of action’ in the Limitation
D Act should be construed as arbitration and cause of
arbitration. The cause of arbitration, therefore, arises when
the claimant becomes entitled to raise the question, i.e. when
the claimant acquires the right to require arbitration. The
limitation would run from the date when cause of arbitration
would have accrued, but for the agreement.
E
14. Arbitration implies to charter out timeous commencement
of arbitration availing the arbitral agreement, as soon as
difference or dispute has arisen. Delay defeats justice and
equity aid the promptitude and resultant consequences.
Defaulting party should bear the hardship and should not
F transmit the hardship to the other party, after the claim in the
cause of arbitration was allowed to be barred. The question,
therefore, as posed earlier is whether the court would be
justified to permit a contracting party to rescind the contract
or the court can revoke the authority to refer the disputes or
G 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
H
M/S B AND T AG v. MINISTRY OF DEFENCE 641
[J. B. PARDIWALA, J.]
should give effect to all legal defences such as that of A
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
B
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 (1982 Edn.) C
under the heading “Hopeless Claim” in Chapter 31 at page
436 it is stated thus:
“There is undoubtedly no jurisdiction to interfere by way
of injunction to prevent the respondent from being harassed
by a claim which can never lead to valid award for example D
in cases where claim is brought in respect of the alleged
Arbitration agreement which does not really exist or which
has ceased to exist. So also where the dispute lies outside
the scope of arbitration agreement.””
(Emphasis supplied) E
66. 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.
67. In view of the aforesaid, this petition fails and is hereby rejected. F
68. Pending application(s) if any shall stand disposed of.
Divya Pandey Petition rejected.
(Assisted by : Shevali Monga, LCRA)
G
H
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