M/S GEO MILLER & CO. PVT. LTD. versus CHAIRMAN, RAJASTHAN VIDYUT UTPADAN NIGAM LTD. on 3 September 2019

[2019] 11 S.C.R.

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M/S GEO MILLER & CO. PVT. LTD.

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CHAIRMAN, RAJASTHAN VIDYUT UTPADAN NIGAM LTD.

(Civil Appeal No. 967 of 2010)

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SEPTEMBER 03, 2019

[N. V. RAMANA, MOHAN M. SHANTANAGOUDARAND AJAY RASTOGI, JJ.]

Arbitration:

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CArbitration proceedings – Determination as regardsapplicability of Arbitration Acts viz. Arbitration Act, 1940 orArbitration and Conciliation Act, 1996 – Held: For the purposeof deciding as to which of the Acts is applicable, on conjointreading of ss.21 and 85(2)(a) of 1996 Act, the date ofcommencement of arbitration proceedings shall be the date onDwhich notice was served on the other party requesting appointmentof arbitrator – If the date of notice was prior to 25.1.1996 (i.e.the date on which 1996 Act came into force) 1940 Act would applyand if the date of notice was on 25.1.1996 or after that, 1996would apply – Arbitration and Conciliation Act, 1996 – ss.21 andE85(2)(a) – Arbitration Act, 1940.

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Arbitration and Conciliation Act, 1996:

s.43(3) – Limitation – Limitation period for reference ofdispute to arbitration or for seeking appointment of an arbitratorbefore a Court is three years from the date on which course ofFaction or the claim which is sought to be arbitrated, first arises –On certain sets of facts and circumstances, the period during whichthe parties were bonafide negotiating towards an amicablesettlement may be excluded for the purpose of computing theperiod of limitation – However, in such cases, entire negotiationGhistory must be specifically pleaded and placed on record – Incommercial disputes, failure to respond to the claim has to betreated as denial of claim giving rise to dispute and hence causeof action for reference to arbitration – Mere correspondencesubsequent to this date of cause of action would not extend thetime of limitation – In the facts of the present case, application for H

M/S GEO MILLER & CO. PVT. LTD. v. CHAIRMAN,RAJASTHAN VIDYUT UTPADAN NIGAM LTD.

reference of the dispute to the Arbitrator is barred by limitation –Rather, appellant company’s case has certain element of mala fideas it has remained silent on specific actions taken to recover thedues during certain period – Under s.114(g) of Evidence Act, theCourt can presume that evidence which would be and was notproduced, would, if produced be unfavourable to the person whowithholds it – Appellant’s own fault in sleeping over his right for14 years will not constitute a case of ‘undue hardship’ justifyingextention of time u/s.43(3) – Limitation Act, 1963 – First Schedule,Art.137 – Limitation.

Dismissing the appeals, the Court

HELD: 1.1 The date of commencement of arbitrationproceedings for the purpose of deciding which Act (ArbitrationAct 1940 or Arbitration and Conciliation Act, 1996) applies,upon a conjoint reading of Sections 21 and Section 85(2)(a) ofthe 1996 Act, shall be regarded as the date on which notice wasserved to the other party requesting appointment of an arbitrator.[Para 6] [1117-B-C]

Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC288 : [2004] 3 SCR 854 ; Shetty’s ConstructionsCo.Pvt. Ltd. v. Konkan Railway Construction andAnother (1998) 5 SCC 599 – relied on.

1.2 Though strictly speaking the 1996 Act came into forcefrom 22.8.1996, for all practical purposes it is deemed to havebeen effective from 25.1.1996, which is when the Arbitration andConciliation Ordinance, 1996 came into force. Hence if the dateof notice was prior to 25.1.1996, the 1940 Act will apply. If thedate of notice was on or after 25.1.1996, the 1996 Act will applyto the arbitral proceedings though the arbitration clausecontemplated proceedings under the 1940 Act. In the presentcase, since notice was served to the respondent in 2002, theprovisions of the 1996 Act will be deemed to apply to the presentArbitration Applications filed by the appellant. [Para 6] [1117-D-E-G]

Fuerst Day Lawson Ltd v. Jindal Exports Ltd. (2001)6 SCC 356 : [2001] 3 SCR 479 – relied on.

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A2.1 By virtue of Article 137 of the First Schedule to theLimitation Act, 1963 the limitation period for reference of adispute to arbitration or for seeking appointment of an arbitratorbefore a Court under the 1940 Act as well as the 1996 Act isthree years from the date on which the cause of action or theclaim which is sought to be arbitrated first arises. [Para 7] [118-BC-D]

State of Orissa and Another v. Damodar Das, (1996)2 SCC 216 : [1995] 6 Suppl. SCR 800 ; GrasimIndustries Limited v. State of Kerala (2018) 14 SCC265 – referred to.C

2.2 In the present case, the appellant’s cause of action inrespect of Arbitration Applications, relating to the work ordersdated 7.10.1979 and 4.4.1980 arose on 8.2.1983, which is whenthe final bill handed over to the respondent became due. Merecorrespondence of the appellant by way of writing letters/Dreminders to the respondent subsequent to this date would notextend the time of limitation. Hence the maximum period duringwhich this Court could have allowed the appellant’s applicationfor appointment of an arbitrator is 3 years from the date on whichcause of action arose i.e. 8.2.1986. Similarly, with respect toEArbitration Application relating to the work order dated3.5.1985, final bill was handed over and became due on10.8.1989. Hence the limitation period ended on 10.8.1992. Sincethe appellant served notice for appointment of arbitrator in 2002,and requested the appointment of an arbitrator before a Courtonly by the end of 2003, his claim is clearly barred by limitation.F[Para 8] [1120-C-F]

2.3 On a certain set of facts and circumstances, the periodduring which the parties were bona fide negotiating towards anamicable settlement may be excluded for the purpose ofcomputing the period of limitation for reference to arbitrationGunder the 1996 Act. However, in such cases the entirenegotiation history between the parties must be specificallypleaded and placed on the record. The Court upon carefulconsideration of such history must find out what was the‘breaking point’ at which any reasonable party would haveHabandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This ‘breaking point’ wouldthen be treated as the date on which the cause of action arises,for the purpose of limitation. The threshold for determining whensuch a point arises will be lower in the case of commercialdisputes, where the party’s primary interest is in securing thepayment due to them, than in family disputes where it may besaid that the parties have a greater stake in settling the disputeamicably, and therefore delaying formal adjudication of the claim.[Para 10] [1122-C-F]

2.4 Moreover, in a commercial dispute, while mere failureto pay may not give rise to a cause of action, once the applicanthas asserted their claim and the respondent fails to respond tosuch claim, such failure will be treated as a denial of theapplicant’s claim giving rise to a dispute, and therefore the causeof action for reference to arbitration. It does not lie to theapplicant to plead that waited for an unreasonably long periodto refer the dispute to arbitration merely on account of therespondent’s failure to settle their claim and because they werewriting representations and reminders to the respondent in themeanwhile. [Para 10] [1122-G-H]

2.5 In the present case, the appellant company vaguelystated before this Court that it was involved in ‘negotiation’ withthe respondents in the 14 years preceding the application dated4.10.1997 before the Settlement Committee. However it did notplace on record any evidence to show when it had first made arepresentation to the respondent in respect of the outstandingamounts, and what was the history of their negotiation with therespondents such that it was only in 1997 that they thought ofapproaching the Settlement Committee. Further, they have notbrought anything on record to show that they were required toproceed before the Settlement Committee before requesting theappointment of an arbitrator. The arbitration clause does notstipulate any such requirement. [Para 11] [1123-B-C]

2.6 The appellant company’s case has a certain elementof mala fide in so far as it has made detailed submissions inrespect of its communications with the respondents subsequentto 4.10.1997, but has remained conspicuously silent on the AB

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1112SUPREME COURT REPORTS

Aspecific actions taken to recover the payments due prior to thatdate. Under Section 114(g) of the Evidence Act, 1872 this Courtcan presume that evidence which could be and is not producedwould, if produced, be unfavourable to the person who withholdsit. Hence, in the absence of specific pleadings and evidence Bplaced on record by the appellant with respect to the parties’negotiation history, this Court cannot accept the appellant’scontention that it was only after the respondent’s letter dated18.12.1999 that the appellant could have contemplatedarbitration in relation to the outstanding amounts. Even if thetime spent proceeding before the Settlement Committee isCincluded, the limitation period, at the latest, would have startedrunning from 4.10.1997 which is when the appellant made arepresentation to the Settlement Committee and the Committeefailed to respond to the same. [Para 11] [1123-D-G]

D2.7 The appellant’s own default in sleeping over his rightfor 14 years will not constitute a case of ‘undue hardship’justifying extension of time under Section 43(3) of the 1996 Actor show ‘sufficient cause’ for condonation of delay under Section5 of the Limitation Act. The appellant should have approachedthe Court for appointment of an arbitrator under Section 8(2) ofEthe 1940 Act within the appropriate limitation period. The entiredispute seems concocted so as to pursue a monetary claimagainst the respondents, taking advantage of the provisions ofthe 1996 Act. [Para 11] [1124-B-C]

Panchu Gopal Bose v. Board of Trustees for Port ofFCalcutta (1993) 4 SCC 338 : [1993] 3 SCR 361–relied on.

Major (Retd.) Inder Singh Rekhi v. Delhi DevelopmentAuthority (1988) 2 SCC 338 : [1988] 3 SCR 351 ;Hari Shankar Singhania and Others v. Gaur HariGSinghania and Others (2006) 4 SCC 658 : [2006]3 SCR 726 ; Shree Ram Mills Ltd. v. Utility Premises(P) Ltd., (2007) 4 SCC 599 : [2007] 4 SCR 279 ;Sunder Kukreja and Others v. Mohan Lal Kukreja andAnr. (2009) 4 SCC 585 : [2009] 4 SCR 1163 –Hdistinguished.

M/S GEO MILLER & CO. PVT. LTD. v. CHAIRMAN,RAJASTHAN VIDYUT UTPADAN NIGAM LTD.

Union of India v. Momin Construction Company(1997) 9 SCC 97 – referred to.

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O.P. Malhotra on The Law and Practice of Arbitration,Justice Indu Malhotra ed., 3[rd]. edn, 2014 at page1915) – referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 967of 2010.

With

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Civil Appeal Nos. 968, 969 of 2010.

From the Judgment and Order dated 25.01.2007 of the HighCourt of Judicature for Rajasthan at Jaipur Bench, Jaipur in S.B.Arbitration Application No. 25 of 2003.

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S. D. Singh, Mrs. Bharti Tyagi, Mrs. Shweta Sinha, JitenderSingh, Mrs. Meenu Singh, Ram Kripal Singh, Vishwajit Singh, Advs.for the Appellant.

Sushil Kumar Jain, Sr. Adv., Ms. Christi Jain, Ms. Ankita Gupta,Harshit Khanduja, Ms. Pratibha Jain, Advs. for the Respondent.

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AThe Judgment of the Court was delivered byMOHAN M. SHANTANAGOUDAR, J.

1. The appeals arise out of the common judgement dated25.1.2007 of the High Court of Rajasthan at Jaipur Bench dismissingthe three Arbitration Applications Nos. 25/2003, 27/2003 and 28/2003B(‘Arbitration Applications’) filed by the appellant under Section 11(6)of the Arbitration and Conciliation Act, 1996 (hereinafter referred toas ‘the 1996 Act’) seeking appointment of an arbitrator for adjudicationof the disputes between the common appellant and the respondent inthese appeals.

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2. The facts giving rise to these appeals are as follows: Therespondent had floated tenders for execution of work on a watertreatment plant. Three work orders dated 7.10.1979, 4.4.1980 and3.5.1985 were assigned in favour of the appellant. The three NoticeInviting Tender (‘NIT’) documents in respect of these work ordersconstituted the terms and conditions of the three separate contractsDbetween the parties. The three contracts had a common arbitrationclause as follows (relevant part):

“i. If at any time any question/dispute/difference whatsoeverarises between the purchaser and the supplier, upon or in relationto the contract, either party may forthwith give to the other onceEquestion(s), disputes or difference and the same shall be referredto the Chairman, Rajasthan State Electricity Board, Jaipur or anyperson appointed by him for the purpose (hereinafter referredto as Arbitrator). Such a reference to the arbitrator/arbitratorsshall be deemed to be a submission to the Arbitrator within theFmeaning of the Indian Arbitration Act, 1940 and statutorymodifications thereof.”

3. The appellant's case is that the respondent failed to make thepayments due to them under the three contracts. Till 1997, the appellantwas involved in discussions with the respondents in respect of theGoutstanding payments and the respondent kept delaying their decisionon the same. On 4.10.1997 the appellant approached the SettlementCommittee constituted by the respondent Board for release of theoutstanding payment. It is the appellant's case that they were requiredto have pursued the matter with the Settlement Committee prior toinitiating arbitration. However the Settlement Committee also failed toHrespond to their representations.

The respondent vide internal communications dated 20.11.1997acknowledged that the matter was pending consideration with them.Thereafter by letters dated 17/18.12.1999 the respondent replied to theappellant partly allowing one claim to the extent of Rs. 1,34,359.12 andrequesting details of bills/invoices of certain other claims for verification.The appellant on 6.1.2000 replied stating that the bills had already beenprocessed for payment and sent photocopies of the bills submitted earlierto the respondents.

On 5.10.2002 and 10.10.2002 the appellant sent a finalcommunication to the respondent requesting payment of all theoutstanding amounts. When the payment was still not made, theappellant sent a communication dated 22.11.2002 to the respondentrequesting appointment of an arbitrator for adjudication of disputesrelating to payment, as provided under the arbitration clause. Howeverthe respondent did not appoint an arbitrator within the period of 30 daysas stipulated under the agreement between the parties. Hence theappellant has filed the aforementioned Arbitration Applications forappointment of an arbitrator. Per contra, the respondent contends thatas per the appellant’s own admission, the final bills for the work orderswere raised in 1983. Hence since the request for arbitration was invokedonly in 2002, the appellant's claim is barred by limitation.

4. The High Court in the impugned judgement accepted therespondent’s argument. The Court found that the appellant had raisedthe final bill on 8.2.1983, but had not stated any explanation for why itfailed to take any steps for immediately referring the dispute in 1983to the Chairman, Rajasthan State Electricity Board, as provided underthe arbitration clause, but instead requested appointment of arbitratoras late as in 2002. Further, that the appellant could not be allowed tomake such a request under the 1996 Act given that the contractsprovided that the arbitrator was to be appointed under The ArbitrationAct, 1940 (‘1940 Act’). This all reflected that the appellant had filedthe Arbitration Applications merely as a gamble for pursuing a monetaryclaim against the respondent, without the existence of any bonafidedispute. Thus the High Court in the impugned judgement held that theappellant had failed to make out any case of hardship or injusticejustifying condonation of delay in filing the applications under Section43(3) of the 1996 Act, and the Arbitration Applications were hopelesslybarred by limitation. Hence this appeal.

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A5. The limited issue which arises for our consideration istherefore, whether the Arbitration Applications, on the facts of this case,are barred by limitation?

Learned counsel for the appellant vehemently contended thatthe cause of action arose not in 1983 or 1989, but by the letters datedB17/18.12.1999 in which the respondents repudiated the appellant’s claims.The period prior to 18.12.1999 during which the parties were negotiatingand corresponding with each other could not be counted for the purposeof computing the limitation period. It was due to the respondent’s delayin responding to the representations sent by the appellant that delay aroseCin filing the Arbitration Applications. Hence the Arbitration Applicationsare not barred by limitation. In support of his contention, he relied uponthe decisions of this Court in Major (Retd.) Inder Singh Rekhi v. DelhiDevelopment Authority, (1988) 2 SCC 338; Hari Shankar Singhaniaand Others v. Gaur Hari Singhania and Others, (2006) 4 SCC 658;DShree Ram Mills Ltd. v. Utility Premises (P) Ltd., (2007) 4 SCC599 and Sunder Kukreja and Others v. Mohan Lal Kukreja andAnr., (2009) 4 SCC 585.

6. Before deciding the issue of limitation, we must first considerwhether it is the 1940 Act or the 1996 Act which applies to theEArbitration Applications. Section 85 of the 1996 Act provides as follows:

“85. Repeal and savings.-(1) The Arbitration (Protocol andConvention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10of 1940) and the Foreign Awards (Recognition and Enforcement)Act, 1961 (45 of 1961) are hereby repealed.

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(2) Notwithstanding such repeal,-

(a) the provisions of the said enactments shall apply in relationto arbitral proceedings which commenced before this Act cameinto force unless otherwise agreed by the parties but this Act shallGapply in relation to arbitral proceedings which commenced on orafter this Act comes into force; (b) all rules made and notifications published, under the saidenactments shall, to the extent to which they are not repugnantto this Act, be deemed respectively to have been made or issuedHunder this Act.” (emphasis supplied)

Section 21 of the 1996 Act provides:

“21. Commencement of arbitral proceedings.-Unlessotherwise agreed by the parties, the arbitral proceedings inrespect of a particular dispute commence on the date on whicha request for that dispute to be referred to arbitration is receivedby the respondent.”

It is settled law that the date of commencement of arbitrationproceedings for the purpose of deciding which Act applies, upon aconjoint reading of Sections 21 and Section 85(2)(a) of the 1996 Act,shall be regarded as the date on which notice was served to the otherparty requesting appointment of an arbitrator (See Milkfood Ltd. v.GMC Ice Cream (P) Ltd, (2004) 7 SCC 288; Shetty's ConstructionsCo. Pvt. Ltd. v. Konkan Railway Construction and Another, (1998)5 SCC 599).

Though strictly speaking the 1996 Act came into force from22.8.1996, for all practical purposes it is deemed to have been effectivefrom 25.1.1996, which is when the Arbitration and ConciliationOrdinance, 1996 came into force. Hence if the date of notice was priorto 25.1.1996, the 1940 Act will apply. If the date of notice was on orafter 25.1.1996, the 1996 Act will apply to the arbitral proceedingsthough the arbitration clause contemplated proceedings under the 1940Act (See Fuerst Day Lawson Ltd v. Jindal Exports Ltd., (2001)6 SCC 356: O.P. Malhotra on The Law and Practice of Arbitration,Justice Indu Malhotra ed., 3[rd.] edn, 2014 at page 1915). In MilkfoodLtd (supra) as well, the arbitration agreement was governed by theprovisions of the 1940 Act. The appellant sent a notice to the respondentfor appointment of an arbitrator on 14.9.1995. Hence this Court heldthat the 1940 Act would apply.

In the present case, since notice was served to the respondentin 2002, the provisions of the 1996 Act will be deemed to apply to thepresent Arbitration Applications filed by the appellant. However, itremains to be examined separately whether the aforesaid Applicationshave been filed within the statutory limitation period.

7. Section 43 of the 1996 Act (relevant part) provides as follows:43. Limitations.-(1) The Limitation Act, 1963 (36 of 1963), shallapply to arbitrations as it applies to proceedings in court…

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A(3) Where an arbitration agreement to submit future disputes toarbitration provides that any claim to which the agreement appliesshall be barred unless some step to commence arbitralproceedings is taken within a time fixed by the agreement, anda dispute arises to which the agreement applies, the Court, if itis of opinion that in the circumstances of the case undue hardshipBwould otherwise be caused, and notwithstanding that the timeso fixed has expired, may on such terms, if any, as the justice ofthe case may require, extend the time for such period as it thinksproper…”

Section 43(1) and (3) of the 1996 Act is in pari materia withCSection 37(1) and (4) of the 1940 Act. It is well-settled that by virtueof Article 137 of the First Schedule to the Limitation Act, 1963 thelimitation period for reference of a dispute to arbitration or for seekingappointment of an arbitrator before a Court under the 1940 Act (SeeState of Orissa and Another v. Damodar Das, (1996) 2 SCC 216)Das well as the 1996 Act (See Grasim Industries Limited v. State ofKerala, (2018) 14 SCC 265) is three years from the date on whichthe cause of action or the claim which is sought to be arbitrated firstarises.

In Damodar Das (supra), this Court observed, relying uponERussell on Arbitration by Anthony Walton (19[th] Edn.) at pages 4-5and an earlier decision of a two-Judge bench in Panchu Gopal Bosev. Board of Trustees for Port of Calcutta, (1993) 4 SCC 338, thatthe period of limitation for an application for appointment of arbitratorunder Sections 8 and 20 of the 1940 Act commences on the date onwhich the “cause of arbitration” accrued, i.e. from the date when theFclaimant first acquired either a right of action or a right to require thatan arbitration take place upon the dispute concerned.

We also find the decision in Panchu Gopal Bose (supra)relevant for the purpose of this case. This was a case similar to thepresent set of facts, where the petitioner sent bills to the respondent inG1979, but payment was not made. After an interval of a decade, hesent a notice to the respondent in 1989 for reference to arbitration. ThisCourt in Panchu Gopal Bose observed that in mercantile referencesof this kind, it is implied that the arbitrator must decide the disputeaccording to the existing law of contract, and every defence whichHwould have been open to the parties in a court of law, such as the plea of limitation, would be open to the parties for the arbitrator's decisionas well. Otherwise, as this Court observed:

“8…a claim for breach of contract containing a reference clausecould be brought at any time, it might be 20 or 30 years afterthe cause of action had arisen, although the legislature hasprescribed a limit of three years for the enforcement of such aclaim in any application that might be made to the law courts…”

This Court further held as follows:

“11. Therefore, the period of limitation for the commencementof arbitration runs from the date on which, had there been noarbitration clause, the cause of action would have accrued. Justas in the case of civil actions the claim is not to be brought afterthe expiration of a specified number of years from the date onwhich the cause of action accrued, so in the case of arbitrations,the claim is not to be put forward after the expiration of thespecified number of years from the date when the claim accrued.

12. In Russell on Arbitration,…At page 80 it is stated thus:

‘An extension of time is not automatic and it is only granted if‘undue harship’ would otherwise be caused. Not all hardship,however, is ‘undue hardship’; it may be proper that hardshipcaused to a party by his own default should be borne by him,and not transferred to the other party by allowing a claim to bereopened after it has become barred.’ ” (emphasis supplied)

Therefore in Panchu Gopal Bose this Court held that the claimis “hopelessly barred” by limitation as the petitioner by his own conducthad slept over his right for more than 10 years.

8. Undoubtedly, a different scheme has been evolved under the1996 Act. However we find that the same principles continue to applywith respect to the applicability of the law of limitation to an applicationunder Section 11(6) of the 1996 Act as laid down in the decisions dealingwith judicial appointment of an arbitrator under Sections 8 and 20 ofthe 1940 Act.

Our finding is supported by the decision of a three-Judge Benchof this Court in Grasim Industries (supra). In Grasim Industries,similar to the present case, the arbitration agreement provided forreference to be made under the 1940 Act. However the appellant raised A

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Atheir claim in 2002, attracting the application of the 1996 Act. This Courtwas therefore faced with the issue of whether an application forappointment of an arbitrator under the 1996 Act would be barred bylimitation in respect of the appellant’s claim. This Court found that, inview of Section 28 of the Indian Contract Act, 1872, the parties in thearbitration agreement could not stipulate a restricted period for raisingBa claim. However, the limitation period for invocation of arbitrationwould be three years from the date of the cause of action under Article137 of the Limitation Act, 1963. However in the facts of that case,this Court found that certain claims had arisen within the three yearlimitation period and hence, could be allowed.

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Applying the aforementioned principles to the present case, wefind ourselves in agreement with the finding of the High Court that theappellant’s cause of action in respect of Arbitration Applications Nos.25/2003 and 27/2003, relating to the work orders dated 7.10.1979 and4.4.1980 arose on 8.2.1983, which is when the final bill handed over toDthe respondent became due. Mere correspondence of the appellant byway of writing letters/reminders to the respondent subsequent to thisdate would not extend the time of limitation. Hence the maximum periodduring which this Court could have allowed the appellant’s applicationfor appointment of an arbitrator is 3 years from the date on which causeof action arose i.e. 8.2.1986. Similarly, with respect to ArbitrationEApplication Nos. 28/2003 relating to the work order dated 3.5.1985, therespondent has stated that final bill was handed over and became dueon 10.8.1989. This has not been disputed by the appellant. Hence thelimitation period ended on 10.8.1992.

Since the appellant served notice for appointment of arbitratorFin 2002, and requested the appointment of an arbitrator before a Courtonly by the end of 2003, his claim is clearly barred by limitation.

9. The decisions relied upon by the appellant are inapplicable tothe present facts and circumstances. At the outset, we observe thatthe decision in Sunder Kukreja (supra) is on a different set of facts.GIn that decision, the question before this Court was whether thearbitration clause in a partnership deed would continue to subsist in lightof a subsequent retirement deed which the appellant denied executing,and whether the arbitrator appointed by the Court could examine thegenuineness of the said retirement deed. Hence it is not relevant toHthe issue of limitation.

Turning to the other decisions, it is true that in Major (Retd.)Inder Singh Rekhi (supra), this Court observed that the existence ofa dispute is essential for appointment of an arbitrator. A dispute ariseswhen a claim is asserted by one party and denied by the other. Theterm 'dispute' entails a positive element and mere inaction to pay doesnot lead to the inference that dispute exists. In that case, since therespondent failed to finalise the bills due to the applicant, this Court heldthat cause of action would be treated as arising not from the date onwhich the payment became due, but on the date when the applicantfirst wrote to the respondent requesting finalisation of the bills. However,the Court also expressly observed that ‘a party cannot postpone theaccrual of cause of action by writing reminders or sendingreminders.’

In the present case, the appellant has not disputed the HighCourt's finding that the appellant itself had handed over the final bill tothe respondent on 8.2.1983. Hence, the holding in Major (Retd.) InderSingh Rekhi (supra) will not apply, as in that case, the applicant's claimwas delayed on account of the respondent's failure to finalize the bills.Therefore the right to apply in the present case accrued from the dateon which the final bill was raised (See Union of India v. MominConstruction Company, (1997) 9 SCC 97).

10. In Hari Shankar Singhania (supra), the dispute to bereferred to arbitration was regarding division of assets amongst partnersof a dissolved family partnership firm. The appellants specifically placedletters on the record showing that the parties were trying to reach anamicable settlement prior to the stage where adjudication of the disputebecame inevitable. This Court observed that the stage of adjudicationby way of arbitration comes when settlement with or without conciliationbecomes impossible. Hence this Court held that the limitation periodwould not run so long as the parties were in dialogue. In that sense,when the settlement talks were taking place, the period of limitationwould commence from the date of the last communication between theparties.

It is relevant to note that the findings in Hari ShankarSinghania were made in the specific context of a family settlement.This Court specifically observed that such a settlement is to be treateddifferently from a formal commercial settlement, and that efforts shouldbe made to promote family settlements without the obstruction of A

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Atechnicalities of limitation, etc. Hence this Court was not dealing witha mercantile dispute such as in the present case.

In Shree Ram Mills Ltd (supra), this Court found that the partieswere continuously at loggerheads over joint development of certain land.They had entered into a Memorandum of Understanding to settle theirBdispute, however the respondent cancelled this Memorandum; hencethe dispute was referred to arbitration under Section 11(6) of the 1996Act. This Court, upon considering the complete history of negotiationbetween the parties which was placed before it, on the facts of thatcase, concluded that the claim would not be barred by limitation as thereCwas a continuing cause of action between the parties.

Having perused through the relevant precedents, we agree thaton a certain set of facts and circumstances, the period during whichthe parties were bona fide negotiating towards an amicable settlementmay be excluded for the purpose of computing the period of limitationDfor reference to arbitration under the 1996 Act. However, in such casesthe entire negotiation history between the parties must be specificallypleaded and placed on the record. The Court upon careful considerationof such history must find out what was the ‘breaking point’ at whichany reasonable party would have abandoned efforts at arriving at aEsettlement and contemplated referral of the dispute for arbitration. This'breaking point' would then be treated as the date on which the causeof action arises, for the purpose of limitation. The threshold fordetermining when such a point arises will be lower in the case ofcommercial disputes, where the party’s primary interest is in securingthe payment due to them, than in family disputes where it may be saidFthat the parties have a greater stake in settling the dispute amicably,and therefore delaying formal adjudication of the claim.

Moreover, in a commercial dispute, while mere failure to pay maynot give rise to a cause of action, once the applicant has asserted theirclaim and the respondent fails to respond to such claim, such failureGwill be treated as a denial of the applicant's claim giving rise to a dispute,and therefore the cause of action for reference to arbitration. It doesnot lie to the applicant to plead that waited for an unreasonably longperiod to refer the dispute to arbitration merely on account of therespondent's failure to settle their claim and because they were writingHrepresentations and reminders to the respondent in the meanwhile.

11. We are of the considered opinion that the decisions in HariShankar Singhania and Shree Ram Mills Ltd. (supra) will not beapplicable to the appellant’s case as in these cases the entire negotiationhistory of the parties had been made available to this Court. In thepresent case, the appellant company vaguely stated before this Courtthat it was involved in ‘negotiation’ with the respondents in the 14 yearspreceding the application dated 4.10.1997 before the SettlementCommittee. However it did not place on record any evidence to showwhen it had first made a representation to the respondent in respect ofthe outstanding amounts, and what was the history of their negotiationwith the respondents such that it was only in 1997 that they thought ofapproaching the Settlement Committee. Further, they have not broughtanything on record to show that they were required to proceed beforethe Settlement Committee before requesting the appointment of anarbitrator. The arbitration clause does not stipulate any suchrequirement.

We therefore find that the appellant company’s case has acertain element of mala fide in so far as it has made detailedsubmissions in respect of its communications with the respondentssubsequent to 4.10.1997, but has remained conspicuously silent on thespecific actions taken to recover the payments due prior to that date.Under Section 114(g) of the Indian Evidence Act, 1872 this Court canpresume that evidence which could be and is not produced would, ifproduced, be unfavourable to the person who withholds it.

Hence, in the absence of specific pleadings and evidence placedon record by the appellant with respect to the parties' negotiation history,this Court cannot accept the appellant’s contention that it was only afterthe respondent's letter dated 18.12.1999 that the appellant could havecontemplated arbitration in relation to the outstanding amounts. Even ifwe were to include the time spent proceeding before the SettlementCommittee, the limitation period, at the latest, would have started runningfrom 4.10.1997 which is when the appellant made a representation tothe Settlement Committee and the Committee failed to respond to thesame.

It is further relevant to note that even the respondent’s letterdated 18.12.1999 does not completely repudiate the appellant's claimsbut requests the submission of certain documents for verification. Henceit was not so radical a departure from the prevailing situation at that A

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Atime so as to give a finding that the appellant could not havecontemplated arbitration prior to the aforesaid letter.

We also find it pertinent to add that the appellant’s own defaultin sleeping over his right for 14 years will not constitute a case of ‘unduehardship’ justifying extension of time under Section 43(3) of the 1996BAct or show ‘sufficient cause’ for condonation of delay under Section5 of the Limitation Act. The appellant should have approached the Courtfor appointment of an arbitrator under Section 8(2) of the 1940 Actwithin the appropriate limitation period. We agree with the High Court'sobservation that the entire dispute seems concocted so as to pursue amonetary claim against the respondents, taking advantage of theCprovisions of the 1996 Act.

12. Hence the appeals are dismissed and the impugned judgementand order is confirmed, in the above terms.

DKalpana K. Tripathy

Appeals dismissed.

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