M/S B AND T AG versus MINISTRY OF DEFENCE on 18 May 2023

[2023] 7 S.C.R. 599

M/S B AND T AG

v.

MINISTRY OF DEFENCE

(Arbitration Petition (Civil) No. 13 of 2023)

MAY 18, 2023

[DR. DHANANJAYA Y CHANDRACHUD, CJI AND

J. B. PARDIWALA, J.]

Arbitration and Conciliation Act, 1996 – s.11– Limitationperiod – Cause of action – When accrues – “Breaking Point”–Negotiations, if postpone the cause of action – Held: No – Causeof action becomes important for calculating the limitation periodfor bringing an action – Period of limitation for commencing anarbitration runs from the date on which the “cause of arbitration”accrued i.e., from the date when the claimant first acquired either aright of action or a right to require arbitration – An application u/s.11 is governed by Article 137 of the Schedule to the 1963 Act andmust be made within 3 years from the date when the right to applyfirst accrues – There is no right to apply until there is a clear andunequivocal denial of that right by the respondent – Claim forarbitration must be raised as soon as the cause for arbitration arises– Whether any particular facts constitute a cause of action has tobe determined with reference to the facts of each case and thesubstance rather than the form of the action – If an infringement ofa right happens at a particular time, the whole cause of action willbe said to have arisen then and there – In such a case, it is not opento a party to sit tight and not file an application for settlement ofdispute of his right and allow it to be extinguished by lapse of time– Mere negotiations will not postpone the cause of action for thepurpose of limitation – What is important for the Court is to find outwhat was the “Breaking Point”, a question of fact, at which anyreasonable party would have abandoned efforts at arriving at asettlement and contemplated referral of the dispute for arbitration–Entire history of the negotiation between the parties must be pleadedand placed on record for the Court to find out the “Breaking Point”– Bilateral discussions for an indefinite period of time would notsave the situation so far as the accrual of cause of action and the

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Aright to apply for appointment of arbitrator is concerned – LimitationAct, 1963 – Article 137.

Arbitration and Conciliation Act, 1996 – s.11(6), 43 – Contractentered between parties in 2012 – Dispute in relation to the allegedwrongful imposition of Liquidated Damages and wrongfulBencashment of the bank guarantee by the respondent-Ministry ofDefence in2016 – Petitioner issued notice invoking arbitration onlyin 2021 – According to the petitioner the parties were trying toamicably resolve the disputes by way of ‘bilateral discussions’ asper the Contract – Present petition filed by the petitioner u/s.11(6),claiming to be within the period of limitation, for appointment ofCarbitrator – Time-barred claims/claims barred by limitation, if canbe said to be live claims which can be referred to arbitration –Held: Disputes between the parties had cropped up way back inthe year 2014 itself – When the bank guarantee came to be encashedin 2016 and the requisite amount stood transferred to theDGovernment account, that was the end of the matter – This “BreakingPoint” is the date at which the cause of action arose for the purposeof limitation – Petitioner not justified in saying that it continued tonegotiate till 2019 – Statutory time period of three years prescribedfor the enforcement of a claim cannot be defeated on the groundthat the parties were negotiating – Present case is one of a hopelesslyEbarred claim, as the petitioner slept over its right for more than fiveyears – Petition rejected – Limitation Act, 1963 – Article 137.

Words and Phrases– “cause of action”; “right to apply” –Meaning of – Discussed.

FRejecting the petition, the Court

Conclusion

HELD: 1.1 Ordinarily on the completion of the work, theright to receive the payment begins. A dispute arises when thereis a claim on one side and its denial/repudiation by the other. Aperson cannot postpone the accrual of cause of action byGrepeatedly writing letters or sending reminders.‘Bilateraldiscussions’ for an indefinite period of time would not save thesituation so far as the accrual of cause of action and the right toapply for appointment of arbitrator is concerned. What is importantfor the Court is to find out what was the “Breaking Point” atwhich any reasonable party would have abandoned efforts atH

arriving at a settlement and contemplated referral of the disputefor arbitration. What was the “Breaking Point” is a question offact. [Paras 37, 44 and 45][618-D-E; 623-C-D]

Major (Retd.) Inder Singh Rekhi v. Delhi DevelopmentAuthority AIR 1988 SC 1887; Geo Miller and CompanyPrivate Limited v. Chairman, Rajasthan Vidyut UtpadanNigam Limited (2020) 14 SCC 643 : [2019] 11 SCR1108 – relied on.

1.2 There is a fine distinction between the plea that theclaims raised are barred by limitation and the plea that theapplication for appointment of an arbitrator is barred by limitation.[Para 52][633-C]

1.3 “Cause of action” means the whole bundle of materialfacts, which it is necessary for the plaintiff to prove in order toentitle him to succeed in the suit. Cause of action becomesimportant for the purposes of calculating the limitation period forbringing an action. It is imperative that a party realises when acause of action arises. If a party simply delays sending a noticeseeking reference under the Act 1996 because they are unclearof when the cause of action arose, the claim can become time-barred even before the party realises the same. The period oflimitation for commencing an arbitration runs from the date onwhich the “cause of arbitration” accrued, that is to say, from thedate when the claimant first acquired either a right of action or aright to require that an arbitration take place upon the disputeconcerned. The period of limitation for the commencement of anarbitration runs from the date on which, had there been noarbitration clause, the cause of action would have accrued. Evenif the arbitration clause contains a provision that no cause of actionshall accrue in respect of any matter agreed to be referred tountil an award is made, time still runs from the normal date whenthe cause of action would have accrued if there had been noarbitration clause. An application under Section 11 of the Act 1996is governed by Article 137 of the Schedule to the Act 1963 andmust be made within 3 years from the date when the right toapply first accrues. There is no right to apply until there is a clearand unequivocal denial of that right by the respondent. It must,therefore, be clear that the claim for arbitration must be raised A

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Aas soon as the cause for arbitration arises as in the case of causeof 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 andBAnother v. Partab Singh and Others ILR (1889) 16Cal 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 actionhas to be determined with reference to the facts of each case andwith reference to, the substance, rather than the form of the action.If an infringement of a right happens at a particular time, thewhole cause of action will be said to have arisen then and there.DIn such a case, it is not open to a party to sit tight and not to filean application for settlement of dispute of his right, which hadbeen infringed, within the time provided by the Limitation Act,and, allow his right to be extinguished by lapse of time, andthereafter, to wait for another cause of action and then file anapplication under Section 11 of the Act 1996 for establishment ofEhis right which was not then alive, and, which had been longextinguished because, in such a case, such an application wouldmean an application for revival of a right, which had long beenextinguished under the Act 1963 and is, therefore, dead for allpurposes. Such proceedings would not be maintainable and wouldFobviously be met by the plea of limitation under Article 137 ofthe Act 1963. [Para 58][635-D-F]

1.5 The plain reading of the letter dated 24.02.2016 wouldindicate that the disputes between the parties had cropped upway back in the year 2014 itself. This is evident by the dateG24.10.2014 figuring in the aforesaid letter dated 24.02.2016. Theletter indicates that after the disputes arose between the parties,the petitioner tried to offer its explanation and put forward itscase vide letter dated 24.10.2014. The respondent by letter dated24.02.2016 clarified or rather informed the petitioner that thejustifications put forward by the petitioner vide its letter datedH24.10.2014 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 tonegotiate till 2019. The mere bald assertion in this regard is notsufficient. The entire history of the negotiation between theparties must be specifically pleaded and placed on record. It isonly after the entire history of negotiation is pleaded and placedon record that the Court would be in a position to consider suchhistory so as to find out what was the “Breaking Point” at whichany reasonable party would have abandoned efforts at arriving ata settlement and contemplated referral of the dispute forarbitration. When the bank guarantee came to be encashed inthe year 2016 and the requisite amount stood transferred to theGovernment account that was the end of the matter. This“Breaking Point” should be treated as the date at which the causeof action arose for the purpose of limitation. Negotiations maycontinue even for a period of ten years or twenty years after thecause of action had arisen. Mere negotiations will not postponethe “cause of action” for the purpose of limitation. The Legislaturehas prescribed a limit of three years for the enforcement of aclaim and this statutory time period cannot be defeated on theground that the parties were negotiating. The case on hand isclearly and undoubtedly, one of a hopelessly barred claim, as thepetitioner by its conduct slept over its right for more than fiveyears. Statutory arbitrations stand apart. The petition fails and isrejected. [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. Budhrajav. Chairman, Orissa Mining Corporation Ltd. andAnother (2008) 2 SCC 444 : [2008] 1 SCR 821; SBP& Co. v. Patel Engineering Ltd. and Another (2005) 8SCC 618 : [2005] 4 Suppl. SCR 688; NationalInsurance Company Limited v. Boghara Polyfab PrivateLimited (2009) 1 SCC 267 : [2008] 13 SCR 638; BharatSanchar Nigam Limited and Anr. v. Nortel NetworksIndia Private Limited (2021) 5 SCC 738; Panchu GopalBose v. Board of Trustees for Port of Calcutta (1993) 4SCC 338: [1993] 3 SCR 361; State of Orissa v. DamodarDas (1996) 2 SCC 216: [1995] 6 Suppl. SCR 800 –relied on.

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ACognizance for Extension of Limitation, In re (2022) 3SCC 117; Consolidated Engineering Enterprises v.Principal Secretary, Irrigation Department and Others(2008) 7 SCC 169 : [2008] 5 SCR 1108; MerlaRamanna v. Nallaparaju and Others [1955] 2 SCR 938;Secunderabad Cantonment Board v. B.BRamachandraiah and Sons (2021) 5 SCC 705; NTPCLtd. v. SPML Infra Ltd. reported in 2023 SCC OnlineSC 389; Vidya Drolia and Ors. v. Durga TradingCorporation (2021) 2 SCC 1 : [2020] 11 SCR 1001 –referred to.

CWelspun Enterprises Ltd. v. NCC Ltd.(2022) 295 DLT286; Zillon Infraprojects Pvt. 33 Ltd. v. Bharat HeavyElectricals Limited reported in 2023 SCC OnLine Cal756 – referred to.

Case Law Reference

Petition U/S 11(6) read with Section 11(12) of the Arbitration andConciliation Act, 1996 (‘ACT”) for Constituting Arbitral Tribunal in H

Accordance with Contract dated 27.03.2012 entered into between theParties.

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 VYogeshwaran, Vinayak Sharma, Arvind Kumar Sharma, Advs. for theRespondent.

The Judgment of the Court was delivered by

J. B. PARDIWALA, J.

1. This is a petition under Section 11(6) of the Arbitration andConciliation Act, 1996, (for short, ‘the Act 1996’), filed at the instance ofa company based in Switzerland and engaged in the business ofmanufacturing of arms etc., praying for appointment of an arbitrator forthe adjudication of disputes and claims arising out of the Contract No.78953/SMG/GS/WE-4(GS-IV) dated 27.03.2012 executed with therespondent 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 forprocurement of 1,568 Sub Machine Guns under a Fast Track Procedure.The petitioner participated in the tender process and offered its bid. Thetender was opened on 21.12.2010 and the petitioner was declared to bethe lowest acceptable bidder. After due negotiations, the Contract wasexecuted and signed on 27.03.2012.

3. The dispute between the parties arose in relation to the allegedwrongful encashment of warranty bond by the respondent. Therespondent vide its letter dated 16.02.2016, directed the Joint ChiefExecutive Officer, State Bank of India, Frankfurt Branch, Germany toencash the WBG No. 12/380 for its full value i.e., Euro 201,793.75 andremit the amount through direct bank transfer to the Principal Controllerof Defence Account (PCDA, Government account) in accordance withthe details stated in the letter. One copy of the letter dated 16.02.2016was also forwarded to the petitioner. This action on the part of therespondent, i.e., of encashing Liquidated Damages (LDs) for the requisiteamount was on account of delay in the supply of goods beyond thecontractual time period.

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A4. The respondent, vide its letter dated 24.02.2016, informed thePetitioner that the subject instructions for WBG encashment had beenissued after due scrutiny and analysis of the case put up by the Petitionervide letter dated 24.10.2014 and such encashment was with approval ofthe competent authority at Ministry of Defence. The respondent wasalso accorded sanction by the President of India to deduct Euro 197,230.35Btowards the recovery of applicable LDs from the Petitioner in accordancewith the terms of the Contract vide letter dated 11.08.2016.

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5. In the aforesaid context, the respondent on 26.09.2016 deductedthe amount for recovery of applicable LDs. The amount wasconsequently, credited into the Government Account as per theCinstructions contained in the letter dated 11.08.2016 issued on behalf ofthe President of India. Accordingly, the claims of the Petitioner stoodrejected.

6. Despite the aforesaid, the parties continued to engagethemselves in “bilateral discussions” with a view to explore the possibilityDof resolving the dispute regarding imposition of the LDs and encashmentof the WBG. However, the respondent vide its letter dated 22.09.2017informed the petitioner, that all actions taken by the respondent were inaccordance with the terms of the Contract, and that the petitioner wasgiven sufficient opportunity to present its case.

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7. The petitioner claims that after the letter dated 22.09.2017was issued, the parties remained in constant communication with eachother, to negotiate and resolve the dispute. Nonetheless, the petitionervide letter dated 04.09.2019, requested the respondent to review anddiscuss the wrongful imposition of LDS and give a fair chance to theFpetitioner to present its case.

8. In such circumstances referred to above, the petitioner is herebefore this Court with the present petition.

SUBMISSIONS ON BEHALF OF THE PETITIONER

9. At the outset, Ms. Dua, the learned counsel appearing for theGpetitioner made a fervent appeal to this Court to take notice of thefollowing dates and events:

27.03.2012:Petitioner and the Respondent entered into aContract dated 27.03.2012 bearing No.78953/SMG/GS/WE-4 for procurement /

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supply of quantity 568 9MM SMG Model MP-9 Sub Machine Gun with Accessories(“Contract”). The Contract contained adispute resolution clause which alsoincorporated an agreement to arbitrate (Article21).

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16.02.2016:Disputes arose between the parties in relationto wrongful encashment of bank guaranteevide letter dated 16.02.2016 for Euro201,793.75 (“BG”) and for wrongfulimposition of liquidated damages to the tuneof Euro 399,0240.10.

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22.09.2017:It is pertinent to state that between 16.02.2016and 22.09.2017, the parties were constantlyengaged in “bilateral discussion” asspecifically mandated by Article 21 of theDContract in order to resolve their disputesregarding the wrongful deduction ofLiquidated damages and encashment of the BG.The Petitioner had urged the Respondent toreconsider the wrongful Encashment of BG.However, the Respondent, vide letter datedE22.09.2017 for the first time communicated tothe Petitioner that it would not reconsider therequest.

2017-2019:Even after the communication dated22.09.2017, the Parties were constantly tryingto negotiate and resolve their disputes. Inrelation to which the Petitioner even attendeda meeting with Director General (Acquisition.)and Additional Secretary.

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04.09.2019:The Petitioner further requested theRespondent to review and discuss the wrongfulimposition of Liquidated Damages and give afair chance to the Petitioner to explain theirposition. The Petitioner emphasized to considerthis situation as an urgent matter as it involves GH

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[2023] 7 S.C.R.

M/s B&T AG Switzerland who has signed upto manufacture in India, their 9mm SMG andthe 338 Sniper Rifles, but their board hasrequested a resolution to this outstanding issuebefore proceeding further with any “Make inIndia” programme.

08.11.2021:The world was hit by COVID in March 2020.The Petitioner on 08.11.2021 issued Noticedated 08.11.2021 invoking Arbitration underArticle 21 of the said Contract to theRespondent. The Petitioner enumerated theunresolved issues.

10.01.2022:The Supreme Court, in SMW (C) No. 3/2020had taken Suo moto cognizance to extend thelimitation under any general and special lawsuntil 28.02.2022.

03.02.2022:Petitioner vide email dated 03.02.2022requested the Respondent to expedite theproceedings and further suggested to proposethe name of the Arbitrator who could beappointed for the adjudication of the disputesunder the contract.

18.02.2022: The Respondent vide its response dated18.02.2022 to the arbitration notice of thePetitioner, did not raise any objection to theinvocation of the arbitration proceedingshowever suggested that the Respondent shallnot opt for a Sole Arbitrator and is in favourof appointing a three member arbitral tribunal.

28.11.2022:The Petitioner vide e-mail dated 28.11.2022and notice dated 25.11.2022 replied to theRespondent for appointing Hon’ble Mr. JusticeMukul Mudgal (Retd.) as their NomineeArbitrator for the adjudication of the disputesunder the said Contract. However, no replyhas been received by the Respondent to thesaid notice.

10. Ms. Dua submitted that the claims of the petitioner are nottime barred as strongly asserted on behalf of the respondent. The learnedcounsel submitted that the respondent wrongfully deducted the LDs andencashed the bank guarantee on 16.02.2016. It was submitted that theparties were trying to amicably resolve the disputes by way of ‘bilateraldiscussions’ in accordance with Article 21.1 of the Contract.

11. Ms. Dua invited the attention of this Court to Article 21 of theContract. Article 21 provides for the dispute resolution mechanism andis reproduced hereinunder:

“Article 21

ABITRATION

21.1. All disputes or differences arising out of or in connectionwith the present Contract, including the one connected withthe validity of the present Contract or any part thereof, shallbe settled by bilateral discussions.

21.2. Any dispute, disagreement of question arising out of orrelating to this Contract or relating to construction orperformance (except as to any matter the decision ordetermination 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, fromthe date on which either party informs the other in writing bya notice that such dispute, disagreement or question exists,will be referred to the Arbitration Tribunal consisting of threearbitrators.

21.3 Within sixty (60) days of the receipt of the said Notice,one arbitrator shall be nominated in writing by SELLER andone arbitrator shall be nominated by BUYER.

21.4. The third arbitrator, who shall not be a citizen ordomicile or of the country either of the parties or of any othercountry unacceptable to any of the parties shall be nominatedof the parties within (90) days of the receipt of the noticementioned above, failing which the third arbitrator may benominated by the President of International Chamber ofCommerce, Paris, at request of either party but the saidnomination would be after consultation with both the parties A

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and shall preclude any citizen or domicile of any country asmentioned. The arbitrator nominated under this Clause shallnot be regarded nor act as an umpire.

21.5. The Arbitration Tribunal shall have its seat in New Delhior such other place in India as may be mutually agreed tobetween the parties.

21.6. The Arbitration Proceedings shall be conducted in Indiaunder the Indian Arbitration and Conciliation Act, 1996 andthe award of such Arbitration Tribunal shall be enforceablein Indian Courts only.

21.7. The decision of the majority of the arbitrator shall befinal and binding on the parties to this contract.

21.8. Each party shall bear its own cost of preparing andpresenting its case. The cost of arbitration including the feesand expenses of the third arbitrator shall be shared equallyby the Seller and the Buyer, unless otherwise awarded by theArbitration Tribunal.

21.9 In the event of a vacancy caused in the office of thearbitrators, the party which nominated such arbitrator, shallbe entitled to nominate another in his place and the arbitrationproceedings shall continue from the stage they were left bythe retiring arbitrator.

21.10. In the event of one of the parties failing to nominateits arbitrator within 60 days as above or if any of the partiesdoes not nominate another arbitrator within 60 days of theplace of arbitrator failing vacant, then the other party shallbe entitled after due notice of at least 30 days to request thePresident of International Chamber of Commerce, Paris tonominate another arbitrator as above.

21.11. If the place of the third arbitrator falls vacant, hissubstitute shall be nominated according to the provisionsherein above stipulated.

21.12. The parties shall continue to perform their respectiveobligations under this contract during the pendency of thearbitration proceedings except in so far as such obligationsare the subject matter of the said arbitration proceedings.”

12. According to Ms. Dua, Article 21.1 of the Contract referredto above, clearly stipulates that all disputes or differences arising out ofin connection with the present contract, including the one connectedwith the validity of the present contract or in part thereof, shall be settledby ‘bilateral discussions’.

13. According to the learned counsel, the aforestated is one of thedistinguishing features of the Contract in question as in defenceprocurement contracts, it would be in the interest of the parties to resolvethe disputes if any by way of ‘bilateral discussions’ rather than by initiatingarbitration proceedings. The learned counsel submitted that the respondentfor the first time informed the petitioner by letter dated 22.09.2017 thatthe proposal put forward by the petitioner to reconsider the decision ofwrongful deduction of LD and encashment of bank guarantee wasrejected. According to the learned counsel, even thereafter, i.e., after22.09.2017, the parties continued to negotiate with each other until04.09.2019.

14. Relying on the decision of this Court in the case of Geo Millerand Company Private Limited v. Chairman, Rajasthan VidyutUtpadan Nigam Limited, reported in (2020) 14 SCC 643, it wassubmitted that the time spent in pre-arbitration negotiations, held in goodfaith may be excluded for the purpose of computation of the period oflimitation.

15. According to the learned counsel, the ratio of the decision ofthis Court in the case of Geo Miller (supra) squarely applies to the factsof the present case. It was submitted that once the parties get involvedin ‘bilateral discussions’ then the time stops to run as the contract mandatesthe parties to resolve the disputes by way of discussion and negotiations.

16. The learned counsel further submitted that the petitioner willbe in a position to lead appropriate evidence in the arbitration proceedingsto establish that the parties continued to negotiate and discuss as late asup to 04.09.2019. It was submitted that, the communication of therespondent to the petitioner, declining to reconsider the alleged illegaldeduction of the Liquidated Damages vide letter dated 22.09.2017, couldbe said to be the “Breaking Point”. The period of three years from22.09.2017 after excluding the ‘Covid period’ in accordance with theorder 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.

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A17. The learned counsel further pointed that the respondent by itsown letter dated 18.02.2022, did not object to the invocation of thearbitration, however, it only objected to the appointment of a solearbitrator.

18. In the last, the learned counsel submitted that the issue ofBlimitation being a mixed question of law and fact will be looked into bythe Arbitral Tribunal. What was the “Breaking Point” of negotiationscannot be gone into while deciding an application filed under Section11(6) of the Act 1996.

19. In such circumstances referred to above, the learned counselCprayed that the petition filed under Section 11(6) of the Act 1996 forconstituting an Arbitral Tribunal being within the period of limitation, thesame 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 AdditionalDSolicitor General of India vehemently opposed the present petitionsubmitting that not only the petition filed under Section 11(6) of the Act1996 is time barred but even the claims raised by the petitioner could besaid to be time barred.

21. According to the learned ASG, the grievance of the petitionerErevolves around the deduction of LDs by encashment of the bankguarantee. 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 forinvoking of arbitration in accordance with Article 21 of the Contract Fwas issued only on 08.11.2021, i.e., after a period of more than fiveyears and much beyond the limitation period of three years. Accordingto the learned ASG, the claim of the petitioner is hopelessly time barred.22. The learned ASG requested the Court to look into the followingdates and events for the purpose of deciding the present petition:

G27.03.2012: Contract was executed between the Petitionerand Respondent.

26.09.2016: CAUSE OF ACTION arose

Liquidated damages were finally deducted.

25.09.2019: The limitation period of 3 years expired.

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08.11.2021: Advocate for claimant sent ‘Notice for invokingAof Arbitration under Article 21 of the Contract’.

16.11.2021: Respondent received the Notice invokingarbitration.

03.02.2023: The Petitioner filed Arbitration Petition No. 13Bi.e. the Present Petition under Section 11(6) ofthe Arbitration and Conciliation Act, 1996 forConstitution of Arbitral Tribunal.

23. In the last, the learned ASG submitted that the period oflimitation for issuing notice invoking arbitration not being specificallyprescribed in the Schedule to the Limitation Act, 1963 (for short, ‘theAct 1963’) will be covered by the residuary Article i.e., Article 137 ofthe Schedule to the said Act.

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24. In such circumstances referred to above, Mr. Nataraj, thelearned ASG prayed that the claim of the petitioner being ex facie timebarred, the present petition under Section 11(6) of the Act 1996 may notbe entertained and the same may be rejected.

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ANALYSIS

25. Having heard the learned counsel appearing for the partiesand having gone through the materials on record, the only question thatfalls for our reconsideration is whether time-barred claims or claimswhich are barred by limitation, can be said to be live claims, which canbe referred to arbitration?

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26. Before adverting to the rival submissions canvassed on eitherside, we may look into few relevant provisions of the Act 1996 and theAct 1963.

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27. Section 11 of the Act 1996 provides for appointment ofarbitrators. Sub section (6) of Section 11 reads thus:

“11(6). Where, under an appointment procedure agreed uponby the parties,—

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(a) a party fails to act as required under that procedure;or (b) the parties, or the two appointed arbitrators, fail toreach an agreement expected of them under that procedure;or H

(c) a person, including an institution, fails to perform anyfunction entrusted to him or it under that procedure, A

a party may request the Supreme Court or, as the case maybe, the High Court or any person or institution designated bysuch Court to take the necessary measure, unless theBagreement on the appointment procedure provides other meansfor securing the appointment.”

28. The plain reading of the aforesaid provision would indicatethat no time limit has been prescribed for filing application under Section11(6) of the Act, 1996 for appointment of an arbitrator.

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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.

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(2) For the purposes of this section and the Limitation Act,1963 (36 of 1963), an arbitration shall be deemed to havecommenced on the date referred to in section 21.

(3) Where an arbitration agreement to submit future disputesto arbitration provides that any claim to which the agreementEapplies shall be barred unless some step to commence arbitralproceedings 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 unduehardship would otherwise be caused, and notwithstandingFthat the time so fixed has expired, may on such terms, if any,as the justice of the case may require, extend the time forsuch period as it thinks proper.

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(4) Where the Court orders that an arbitral award be set aside,the period between the commencement of the arbitration andthe date of the order of the Court shall be excluded incomputing the time prescribed by the Limitation Act, 1963(36 of 1963), for the commencement of the proceedings(including arbitration) with respect to the dispute sosubmitted.”

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30. In context with Section 43 of the Act 1996 referred to above,we may refer to a decision of this Court in the case of ConsolidatedEngineering Enterprises v. Principal Secretary, IrrigationDepartment and Others, reported in (2008) 7 SCC 169. In the saidcase, it was contended on behalf of the appellant therein that Section 43of the Act 1996 makes the provisions of the Act 1963 applicable only toarbitrations and not to any proceedings relating to arbitration in a Court.Such contention canvassed on behalf of the appellant therein, wasnegatived by this Court observing as under:

“45.Learned counsel for the appellant contended that Section43 of the AC Act makes applicable the provisions of theLimitation Act only to arbitrations, thereby expressing an intentto exclude the application to any proceedings relating toarbitration in a court. The contention of the appellant ignoresand overlooks Section 29(2) of the Limitation Act and Section-43(1) of the AC Act. Subsection (1) of Section 43 of the Actprovides that the Limitation Act shall apply to arbitrations as it applies to proceedings in court. The purpose of Section 43of the AC Act is not to make the Limitation Act inapplicable toproceedings before court, but on the other hand, make theLimitation Act applicable to arbitrations. As already noticed,the Limitation Act applies only to proceedings in court, andbut for the express provision in Section 43, the Limitation Actwould not have applied to arbitration, as arbitrators areprivate tribunals and not courts. Section 43 of the AC Act,apart from making the provisions of the Limitation Act, 1963applicable to arbitrations, reiterates that the Limitation Actapplies to proceedings in court. Therefore, the provisions ofthe Limitation Act, 1963 apply to all proceedings under theAC Act, both in court and in arbitration, except to the extent”expressly excluded by the provisions of the AC Act.

31. Since a petition under Section 11(6) of the Act 1996 for seekingappointment of Arbitral Tribunal is required to be filed before the HighCourt or the Supreme Court, as the case may be, Article 137 of theSchedule to the Act 1963 would apply.

32. Article 137 reads thus:

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B33. A plain reading of the aforesaid Article would indicate that theperiod of limitation in cases covered by Article 137 is three years andthe said period would begin to run when the right to apply accrues.

34. The starting point of limitation under Article 137 according tothird column of the Article is the date when ‘the right to apply arises’.CThis being a residuary Article to be adopted to different classes ofapplications, the expression ‘the right to apply’ is an expression of abroad common law principle and should be interpreted according to thecircumstances of each case. ‘The right to apply’ has been interpretedto mean ‘the right to apply first arises’. (See: Merla Ramanna v.Nallaparaju and Others, (1955) 2 SCR 938)D35. Further, it would be necessary to refer to Section 9 of the Act1963 of the Act which reads thus:

“9. Continuous running of time.— Where once time has begunto run, no subsequent disability or inability to institute a suitEor make an application stops it:

Provided that, where letters of administration to the estate ofa creditor have been granted to his debtor, the running of theperiod of limitation for a suit to recover the debt shall besuspended while the administration continues.”

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CASE LAW ON THE SUBJECT

36. In the case of Major (Retd.) Inder Singh Rekhi v. DelhiDevelopment Authority reported in AIR 1988 SC 1887, it has beenheld that the existence of a dispute is essential for the appointment of anGArbitrator under Section 8 or a reference under Section 20 of theArbitration Act, 1940 (for short, ‘the Act 1940’) and that a dispute canarise only when a claim is asserted by one party and denied by the otheron whatever grounds. Mere failure or inaction to pay does not lead tothe inference about the existence of a dispute as the expression “dispute”Hcontains a positive element of assertion and in denying and merely an inaction to accede to a claim or a request. With respect to the period oftime, in the light of the facts of that particular case as to when did thedispute actually arises, despite the fact that the contract work in questionwas completed in the year 1980, the Court observed that even though itwas true that on completion of the contract work right to get paymentwould normally arise, but where the final bill had not been prepared andwhen the assertion of the claim was made much after the completion ofthe work and there was non-payment, the cause of action arose fromthe date when the assertion was made. The Court then went on toobserve that it was also true that a party cannot postpone the accrual ofa cause of action by writing letters or sending reminders but where thebill had been finally prepared, the claim made by the claimant is theaccrual of the cause of action. For a proper understanding of the ratio inthe aforesaid judgment, we reproduce hereinbelow para 4 of the judgmentin its entirety. Para 4 reads thus:

“4.Therefore, in order to be entitled to order of referenceunder S. 20, it is necessary that there should be an arbitrationagreement and secondly, difference must arise to which thisagreement applied. In this case, there is no dispute that therewas an arbitration agreement. There has been an assertionof claim by the appellant and silence as well as refusal inrespect of the same by respondent. Therefore, a dispute has-arisen regarding nonpayment of the alleged dues of theappellant. The question is for the present case when did suchdispute arise. The High Court proceeded on the basis thatthe work was completed in 1980 and, therefore, the appellantbecame entitled to the payment from that date and the causeof action under Art. 137 arose from that date. But in order tobe entitled to ask for a reference under S. 20 of the Act theremust not only be an entitlement to money but there must be adifference or a dispute must arise. It is true that on completionof the work a right to get payment would normally arise butwhere the final bills as in this case have not been prepared asappears from the record and when the assertion of the claimwas made on 28th Feb. 1983 and there was non-payment, thecause of action from that date, that is to say, 28th of Feb.1983. It is also true that a party cannot postpone the accrualof cause of action by writing reminders or sending remindersbut where the bill had not been finally prepared, the claim AB

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Amade by a claimant is the accrual of the cause of action. Adispute arises where there is a claim and a denial andrepudiation of the claim. The existence of dispute is essentialfor appointment of an arbitrator under S. 8 or a referenceunder S. 20 of the Act. See Law of Arbitration by R.S.Bachawat, 1st Edition, page 354. There should be disputeBand there can only be a dispute when a claim is asserted byone party and denied by the other on whatever grounds. Merefailure or inaction to pay does not lead to the inference of theexistence of dispute. Dispute entails a positive element andassertion in denying, not merely inaction to accede to a claimCor a request. When in a particular case a dispute has arisenor not has to be found out from the facts and circumstancesof the case.”

37. Three principles of law are discernible from the aforesaidDdecision of this Court. First, ordinarily on the completion of the work, theright to receive the payment begins. Secondly, a dispute arises whenthere is a claim on one side and its denial/repudiation by the other andthirdly, a person cannot postpone the accrual of cause of action byrepeatedly writing letters or sending reminders. In other words, ‘bilateralEdiscussions’ for an indefinite period of time would not save the situationso far as the accrual of cause of action and the right to apply forappointment 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 ofFthe judgment has laid down the ratio with regard to the limitation periodapplicable in arbitration proceeding. Paras 6 and 8 respectively read asunder:

“6. It appears that these questions were discussed in thedecision of the Calcutta High Court in Jiwnani EngineeringGWorks Pvt. Ltd. v. Union of India [AIR 1978 Cal 228] whereone of us (Sabyasachi Mukharji, J.) was a party and whichheld after discussing all these authorities that the questionwhether the claim sought to be raised was barred by limitationor not, was not relevant for an order under Section 20 of theAct. Therefore, there are two aspects. One is whether the claimHmade in the arbitration is barred by limitation under the relevant provisions of the Limitation Act and secondly, whetherthe claim made for application under Section 20 is barred. Inorder to be a valid claim for reference under Section 20 ofthe Arbitration Act, 1940, it is necessary that there should bean arbitration agreement and secondly differences must ariseto which the agreement in question applied and, thirdly, thatmust 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 thatit will be entirely a wrong to mix up the two aspects, namely,whether there was any valid claim for reference under Section20 of the Act and, secondly, whether the claim to beadjudicated by the arbitrator, was barred by lapse of time.The second is a matter which the arbitrator would decideunless, however, if on admitted facts a claim is found at thetime of making an order under Section 20 of the ArbitrationAct, to be barred by limitation. In order to be entitled to askfor a reference under Section 20 of the Act, there must be anentitlement to money and a difference or dispute in respect ofthe same. It is true that on completion of the work, right to getpayment would normally arise and it is also true that onsettlement of the final bill, the right to get further paymentgets weakened but the claim subsists and whether it doessubsist, is a matter which is arbitrable. In this case the claimfor reference was made within three years commencing fromApril 16, 1976 and the application was filed on December13, 1976. We are, therefore, of the view that the High Courtwas right in this case. See in this connection the observationsof this Court in Inder Singh Rekhi v. D.D.A. [(1988) 2 SCC338]”

39. One would thus see that in L.K. Ahuja (supra) the Court wasdealing with the twin aspects, one whether the claim made in thearbitration was barred by law of limitation under the relevant provisionsof the relevant Act, and secondly whether the application under Section20 of the Act 1940 was barred by limitation. In order to be a valid claim AB

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Awith reference to Section 28 of the Act 1940 it is necessary that thereshould be an arbitration agreement, secondly, the differences must ariseto which the agreement in question applies and thirdly that applicationmust be within time as stipulated in Section 20 of the Act 1940. Withreference to the limitation aspect the Court found that the assertion ofclaim and denial of the same was a necessary ingredient and then wentBon 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 theAct 1940 and whether the claim to be adjudicated by the Arbitrator wasbarred by lapse of time.

40. On the aspect whether the decision on the issue of limitationCshould be decided at the stage of passing of an order referring the disputesto the arbitrator, this Court in the case of J.C. Budhraja v. Chairman,Orissa Mining Corporation Ltd. and Another, reported in (2008) 2SCC 444 has drawn a fine distinction between the period of limitationfor filing of a petition and as to the claims being barred by time. WeDquote 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 thelimitation would begin to run from the date on which adifference arose between the parties, and in this case theEdifference arose only when OMC refused to comply with thenotice dated 4-6-1980 seeking reference to arbitration. Weare afraid, the contention is without merit. The appellant isobviously confusing the limitation for a petition under Section8(2) of the Arbitration Act, 1940 with the limitation for theclaim itself. The limitation for a suit is calculated as on theFdate of filing of the suit. In the case of arbitration, limitationfor the claim is to be calculated on the date on which thearbitration is deemed to have commenced.

26. Section 37(3) of the Act provides that for the purpose ofthe Limitation Act, an arbitration is deemed to have beenGcommenced when one party to the arbitration agreement serveson the other party thereto, a notice requiring the appointmentof an arbitrator. Such a notice having been served on 4-6-1980, it has to be seen whether the claims were in time as onthat date. If the claims were barred on 4-6-1980, it followsthat the claims had to be rejected by the arbitrator on theH

ground that the claims were barred by limitation. The saidperiod has nothing to do with the period of limitation forfiling a petition under Section 8(2) of the Act. Insofar as apetition under Section 8(2) is concerned, the cause of actionwould arise when the other party fails to comply with thenotice invoking arbitration. Therefore, the period of limitationfor filing a petition under Section 8(2) seeking appointmentof an arbitrator cannot be confused with the period oflimitation for making a claim. The decisions of this Courtin Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2 SCC338], Panchu Gopal Bose v. Board of Trustees for Port ofCalcutta [(1993) 4 SCC 338] and Utkal CommercialCorpn. v. Central Coal Fields Ltd. [(1999) 2 SCC 571] alsomake 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 anarbitration when there existed no arbitrable dispute, can certainly affectthe right of that party, and, even on monetary terms, impose on him aserious liability for meeting the expenses of the arbitration.

42. Whether time barred claims should be referred to for decisionin the arbitration proceedings was looked into by this Court in NationalInsurance Company Limited v. Boghara Polyfab Private Limited,reported in (2009) 1 SCC 267. Paras 22 to 22.2 respectively of the saidjudgment read as under:

“22. Where the intervention of the court is sought forappointment of an Arbitral Tribunal under Section 11, theduty of the Chief Justice or his designate is defined in SBP &Co. [(2005) 8 SCC 618] This Court identified and segregatedthe preliminary issues that may arise for consideration in anapplication under Section 11 of the Act into three categories,that is, (i) issues which the Chief Justice or his designate isbound to decide; (ii) issues which he can also decide, that is,issues which he may choose to decide; and (iii) issues whichshould be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/hisdesignate will have to decide are:

(a) Whether the party making the application has approachedthe appropriate High Court.

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(b) Whether there is an arbitration agreement and whetherthe party who has applied under Section 11 of the Act, is aparty to such an agreement.

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22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to theBdecision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a liveclaim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rightsand obligation or by receiving the final payment withoutobjection.”

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43. In Geo Miller (supra), this Court observed in para 28 and 29as under:

D“28. Having perused through the relevant precedents, weagree that on a certain set of facts and circumstances, theperiod during which the parties were bona fide negotiatingtowards an amicable settlement may be excluded for thepurpose of computing the period of limitation for referenceto arbitration under the 1996 Act. However, in such cases theEentire negotiation history between the parties must bespecifically pleaded and placed on the record. The Court uponcareful consideration of such history must find out what wasthe “breaking point” at which any reasonable party wouldhave abandoned efforts at arriving at a settlement andFcontemplated referral of the dispute for arbitration. This“breaking point” would then be treated as the date on whichthe cause of action arises, for the purpose of limitation. Thethreshold for determining when such a point arises will belower in the case of commercial disputes, where the party’sprimary interest is in securing the payment due to them, thanGin family disputes where it may be said that the parties have agreater stake in settling the dispute amicably, and thereforedelaying formal adjudication of the claim.

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29. Moreover, in a commercial dispute, while mere failure topay may not give rise to a cause of action, once the applicantHhas asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of theapplicant’s claim giving rise to a dispute, and therefore thecause of action for reference to arbitration. It does not lie tothe applicant to plead that it waited for an unreasonably longperiod to refer the dispute to arbitration merely on accountof the respondent’s failure to settle their claim and becausethey were writing representations and reminders to therespondent in the meanwhile.”

44. The aforesaid observations make it very clear that what isimportant for the Court is to find out what was the “Breaking Point” atwhich any reasonable party would have abandoned efforts at arriving ata settlement and contemplated referral of the dispute for arbitration.

45. The learned counsel appearing for the petitioner has placedstrong reliance on para 28 of Geo Miller (supra) to fortify her submissionthat the “Breaking Point” was sometime in September, 2019 and not in2016 as asserted by the respondent. What was the “Breaking Point” isa question of fact and we shall deal with this issue a little later. However,para 28 referred to above should be read along with the observationsmade by this Court in para 21 of the judgment. Para 21 reads thus:

“21. Applying the aforementioned principles to the presentcase, we find ourselves in agreement with the finding of theHigh Court that the appellant’s cause of action in respect ofArbitration Applications Nos. 25/2003 and 27/2003, relatingto the work orders dated 7-10-1979 and 4-4-1980 arose on8-2-1983, which is when the final bill handed over to therespondent became due. Mere correspondence of theappellant by way of writing letters/reminders to the respondentsubsequent to this date would not extend the time of limitation.Hence the maximum period during which this Court couldhave allowed the appellant’s application for appointment ofan arbitrator is 3 years from the date on which cause of actionarose i.e. 8-2-1986. Similarly, with respect to ArbitrationApplication No. 28/2003 relating to the work order dated 3-5-1985, the respondent has stated that final bill was handedover and became due on 10-8-1989. This has not beendisputed by the appellant. Hence the limitation period endedon 10-8-1992. Since the appellant served notice forappointment of arbitrator in 2002, and requested the A

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Aappointment of an arbitrator before a court only by the endof 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 ofBGeo Miller (supra) may be applicable in a given set of facts wherethere is subsisting/continuing cause of action. However, in the presentcase, the Liquidated Damages were deducted by encashment of bankguarantee. This was a positive action on the part of the respondent,crystalising the rights/cause of action and the same should not beCinterpreted as a continuing cause of action.

47. In Bharat Sanchar Nigam Limited and Another v. NortelNetworks India Private Limited, reported in (2021) 5 SCC 738, thisCourt undertook a comprehensive analysis of the relevant provisionsand held that in cases where claims are ex facie time barred, the CourtDmay refuse to make reference under Section 11 of the Act 1996. Thisdecision assumes importance and we should look into the same in littledetails. The appellant BSNL issued a tender notification inviting bids forplanning, engineering, supply, insulation, testing and commissioning ofGSM based cellular mobile network in the Southern region. Therespondent company was awarded the purchase order. On completionEof the project, the appellant withheld an amount of Rs. 99.70 crore towardsthe liquidated damages and other levies.

The respondent raised a claim on 13.05.2014 for payment of theabove said amount from the appellant who rejected the claim on04.08.2014.F

The respondent, after a period of over 5.5 years invoked thearbitration clause and requested for the appointment of an independentarbitrator on 29.04.2020. It was also contended that the dispute ofwithholding the said amount, would fall within the ambit of arbitrabledisputes under the agreement. The appellant on 09.06.2020 replied thatGthe request for appointment of an arbitrator could not be entertainedsince the case had already been closed and the notice invoking arbitrationwas time barred.

The respondent filed an application before the High Court of Keralafor appointment of arbitrator. The High Court vide their order datedH13.10.2020 referred the disputes to arbitration. The appellant filed a review petition before the High Court against the order dated 13.10.2020which 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 on04.08.2014 when the claim made by the respondent wasrejected by making deductions from the final bill.

•The respondent slept over its alleged rights for over 5.5years, before issuing the notice of arbitration on 29.04.2020.

•The respondent did not take any action in between the periodand therefore the notice invoking arbitration had becomelegally stale, non-arbitrable and unenforceable.

•The High Court had erroneously proceeded on the premiseof mere existence of a valid arbitration agreement, withoutconsidering that such an agreement was inextricablyconnected with the existence of a live dispute.

•In cases where the invocation of the arbitration agreementis ex facie time barred, the Court must reject the requestfor appointment of an arbitrator is at par with a civil actionand would be covered under Article 137 of Schedule to theAct 1963.

•An action taken by a claimant must necessarily fall withinthe statutory period of 3 years from the date on which theright to apply accrues.

The respondent submitted the following-

•The amendment to Section 11 by the Arbitration andConciliation (Amendment) Act, 2015 provides for a limitedscope of enquiry at the pre-reference stage which isrestricted only to the ‘existence; of an arbitration agreementunder Section 11(6A).

•The objection with respect to the claims being allegedlytime 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 arbitrationagreement.

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A•The starting point of limitation for initiating a proceedingunder Section 11 is the expiry of 30 days from the date ofissuing notice of arbitration on 29.04.2020. The cause ofaction was, therefore, a continuing one. The High Courthad rightly held that the issue of limitation must be decided Bby the arbitral tribunal.

The following two questions fell for the consideration of this Court- •The period of limitation for filing an application under Section11 of the Act 1996; and •Whether the Court may decline to make the referenceunder Section 11 where the claims are ex facie time barred?

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This Court observed that the Act 1996 has been framed forexpeditious resolution of disputes and various provisions have beenincorporated in the Act 1996 to ensure that the arbitral proceedings areconducted in a time bound manner. The Act 1996 does not prescribeDany time period for filing an application under Section 11(6). Since thereis no provision in the Act 1996 specifying the period of limitation forfiling an application under Section 11, one would have to take recourseto the Act 1963, as per Section 43 of the Act 1996 which provides thatthe Limitation Act shall apply to arbitrators, as it applies to proceedingsEin Court.

Since none of the articles in Schedule to the Limitation Act providea time period for filing an application for appointment of arbitrator underSection 11, it would be covered by the residual provision under Article137 of the Limitation Act which provides that the period of limitation isFthree years for any other application for which no period of limitation isprovided elsewhere in the division. The time limit starts from the periodwhen the right to apply accrues.

This Court relied on its various other decisions including few HighCourt decisions. This Court held that an application under Section 11 isGto be filed in a Court of Law, and since no specific Article of the Act1963 applies, the residual Article would become applicable. The effectbeing that the period of limitation to file an application under Section 11is three years from the date of refusal to appoint the arbitrator or onexpiry of 30 days whichever is earlier.

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In the said case the respondent had issued the notice of arbitrationon 29.04.2020 which was rejected by the appellant on 09.06.2020. Therespondent filed an application under Section 11 before the High Courton 24.07.2020, i.e., within the period of three years of rejection of therequest for appointment of arbitrator.

This Court allowed the appeals filed by the BSNL holding as under:

“48. Applying the law to the facts of the present case, it isclear that this is a case where the claims are ex facie time-barred by over 5½ years, since Nortel did not take any actionwhatsoever after the rejection of its claim by BSNL on 4-8-2014. The notice of arbitration was invoked on 29-4-2020.There is not even an averment either in the notice ofarbitration, or the petition filed under Section 11, or beforethis Court, of any intervening facts which may have occurred,which would extend the period of limitation falling withinSections 5 to 20 of the Limitation Act. Unless, there is a pleadedcase specifically adverting to the applicable section, and howit extends the limitation from the date on which the cause ofaction originally arose, there can be no basis to save the timeof limitation.

49. The present case is a case of deadwood/no subsistingdispute since the cause of action arose on 4-8-2014, whenthe claims made by Nortel were rejected by BSNL. Therespondent has not stated any event which would extend theperiod of limitation, which commenced as per Article 55 ofthe Schedule of the Limitation Act (which provides thelimitation for cases pertaining to breach of contract)immediately after the rejection of the final bill by makingdeductions.

50. In the notice invoking arbitration dated 29-4-2020, it hasbeen averred that:

“Various communications have been exchanged betweenthe petitioner and the respondents ever since and a disputehas arisen between the petitioner and the respondents,regarding non-payment of the amounts due under the tenderdocument.”

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SUPREME COURT REPORTS

A51. The period of limitation for issuing notice of arbitrationwould 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) 5SCC 185] or mere settlement discussions, where a final bill isBrejected by making deductions or otherwise. Sections 5 to 20of the Limitation Act do not exclude the time taken on accountof settlement discussions. Section 9 of the Limitation Act makesit clear that:”where once the time has begun to run, nosubsequent disability or inability to institute a suit or makeCan application stops it.” There must be a clear notice invokingarbitration setting out the “particular dispute” [ Section 21of the Arbitration and Conciliation Act, 1996.] (includingclaims/amounts) which must be received by the other partywithin a period of 3 years from the rejection of a final bill,failing which, the time bar would prevail.

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52. In the present case, the notice invoking arbitration wasissued 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 bereferred to arbitration in the facts of this case.”

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Amendment required

However, this Court in the above said case observed that sincethere is vacuum in the law to provide a period of limitation under Section11 of the Act 1996 the Courts have taken recourse to the position thatFthe limitation period would be governed by Article 137 of the LimitationAct, 1963 which provides a period of three years from the date whenthe right to apply accrues. This Court considered this as an unduly longperiod for filing an application under Section 11, since it would defeatthe very object of the Act 1996, which provides for expeditious resolutionof commercial disputes within a time bound period. The Act has beenGamended in 2015 and 2019 respectively to provide for further time limitsto ensure that the arbitration proceedings are conducted and concludedexpeditiously. Section 29A mandates that the arbitral tribunal willconclude the proceedings within a period of 18 months. In view of thelegislative intent, the period of 3 years for filing an application underHSection 11 would run contrary to the scheme of the Act.

This Court, therefore, considered it necessary for the Parliamentto effect an amendment to Section 11 of the Act 1996, prescribing aspecific period of limitation within which a party may move the court formaking an application for appointment of arbitrators under Section 11 ofthe Act [Reference: Article titled as ‘Limitation for Filing Application forAppointment of Arbitrator’ by Mr. M. Govindarajan]

48. In Secunderabad Cantonment Board v. B.Ramachandraiah and Sons, reported in (2021) 5 SCC 705, while takingnote 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 Actto the applications under Section 11 of the Arbitration Act isconcerned, it is clear that the demand for arbitration in thepresent case was made by the letter dated 7-11-2006. Thisdemand was reiterated by a letter dated 13-1-2007, whichletter itself informed the appellant that appointment of anarbitrator would have to be made within 30 days. At the verylatest, therefore, on the facts of this case, time began to runon and from 12-2-2007. The appellant’s laconic letter dated23-1-2007, which stated that the matter was underconsideration, was within the 30-day period. On and from12-2-2007, when no arbitrator was appointed, the cause ofaction for appointment of an arbitrator accrued to therespondent and time began running from that day. Obviously,once time has started running, any final rejection by theappellant by its letter dated 10-11-2010 would not give anyfresh start to a limitation period which has already begunrunning, following the mandate of Section 9 of the LimitationAct. This being the case, the High Court was clearly in errorin stating that since the applications under Section 11 of theArbitration Act were filed on 6-11-2013, they were within thelimitation period of three years starting from 10-11-2020. Onthis count, the applications under Section 11 of the ArbitrationAct, themselves being hopelessly time-barred, no arbitratorcould have been appointed by the High Court.”

49. NTPC Ltd. v. SPML Infra Ltd. reported in 2023 SCC OnlineSC 389, noted that an overarching principle with respect to the pre- A

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Areferral jurisdiction under Section 11(6) of the Act 1996 as laid down inVidya Drolia and Ors. v. Durga Trading Corporation reported in(2021) 2 SCC 1, and following the decision in Vidya Drolia’s case, ithas been consistently held by the Courts that the arbitral tribunal wasthe preferred first authority to determine and decide all questions ofnon-arbitrability. The Court held that:B

“25. Eye of the Needle: The above-referred precedentscrystallise the position of law that the pre-referral jurisdictionof the courts under Section 11(6) of the Act is very narrowand inheres two inquiries. The primary inquiry is about theexistence and the validity of an arbitration agreement, whichalso includes an inquiry as to the parties to the agreementand the applicant’s privity to the said agreement. These arematters which require a thorough examination by the referralcourt. The secondary inquiry that may arise at the referencestage itself is with respect to the non-arbitrability of the dispute.

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26. As a general rule and a principle, the arbitral tribunal isthe preferred first authority to determine and decide all-questions of nonarbitrability. As an exception to the rule,and rarely as a demurrer, the referral court may reject claims--which are manifestly and exfacie nonarbitrable [VidyaEDrolia 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 theFjudicial forum, the court may exercise the prima facie test toscreen and knockdown ex facie meritless, frivolous, anddishonest litigation. Limited jurisdiction of the courts wouldensure expeditious and efficient disposal at the referral stage.At the referral stage, the Court can interfere “only” when itis “manifest” that the claims are ex facie time-barred andGdead, 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 notundertake a full review of the contested facts; they must onlybe confined to a primary first review [Vidya Drolia supra noteH7, para 134.] and let facts speak for themselves. This also requires the courts to examine whether the assertion onarbitrability is bona fide or not [ibid.]. The prima faciescrutiny of the facts must lead to a clear conclusion that thereis not even a vestige of doubt that the claim is non-arbitrable[Nortel Networks supra note 22, para 47.]. On the otherhand, even if there is the slightest doubt, the rule is to referthe dispute to arbitration [Vidya Drolia supra note 7, para154.4.].

28. The limited scrutiny, through the eye of the needle, isnecessary and compelling. It is intertwined with the duty ofthe referral court to protect the parties from being forced toarbitrate when the matter is demonstrably non-arbitrable [ibidpara 154.4.]. It has been termed as a legitimate interferenceby courts to refuse reference in order to prevent wastage ofpublic and private resources [[ibid para 139]. Further, as notedin Vidya Drolia (supra), if this duty within the limited compassis not exercised, and the Court becomes too reluctant tointervene, it may undermine the effectiveness of both,arbitration and the Court [ibid]. Therefore, this Court or aHigh Court, as the case may be, while exercising jurisdictionunder Section 11(6) of the Act, is not expected to actmechanically merely to deliver a purported dispute raised byan applicant at the doors of the chosen arbitrator [DLF HomeDevelopers Limited v. Rajapura Homes Pvt. Ltd., 2021 SCCOnLine SC 781, paras 18, 20.], as explained in DLF HomeDevelopers Limited v. Rajapura Homes Pvt. Ltd.”

50. The learned counsel appearing for the petitioner also placedreliance on a decision rendered by the Delhi High Court in the case ofWelspun Enterprises Ltd. v. NCC Ltd. reported in (2022) 295 DLT286 wherein, the High Court observed as under:

“58. In view of the above, the period of limitation would runwhen a party acquires a right to refer the disputes toarbitration. Clearly, if the arbitration agreement requires theparties to exhaust the dispute resolution process as a pre-condition for invoking arbitration, the right to refer the disputeto arbitration would arise only after the parties haveexhausted the said procedure. The counterparty could raise AB

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a valid objection to any step taken to refer the disputes toarbitration in avoidance of the agreed pre-reference disputeresolution procedure. If the parties have agreed that they wouldfirst endeavour to resolve the disputes amicably in a particularmanner, it is necessary for them to first exhaust that procedurebefore exercising any right to refer the disputes to arbitration.

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59. In Hari Shankar Singhania v. Gaur Hari Singhania[(2006) 4 SCC 658], the Supreme Court categorically heldthat a reference to arbitration “is required to be filed within aperiod of three years when the right to apply accrues”. It is,therefore, crucial to determine when such ‘right to apply’accrues in a case. As per the Court, the right to apply wouldaccrue when differences between the parties to the arbitrationagreement were evident - when the parties reach a ‘breakingpoint’, that is, when a settlement with or without conciliationis no longer possible. Pertinently, the Court noted that thelimitation period would not start so long as the parties were C

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in dialogue even if differences surfaced during such period,as an interpretation to the contrary would inevitably “compelthe parties to resort to litigation/arbitration even where thereis serious hope of the parties themselves resolving the issues”.Thus, the right to apply can be said to have accrued “only onEthe date of the last correspondence between the parties andthe period of limitation commences from the date of the lastcommunication between the parties.”

51. The learned counsel appearing for the petitioner also placedreliance on a decision rendered by the Calcutta High Court in ZillonFInfraprojects Pvt. Ltd. v. Bharat Heavy Electricals Limited reportedin 2023 SCC OnLine Cal 756, wherein, the High Court observed asunder:

“33. Therefore, after a careful perusal of the aforesaid facts,it would not be incorrect to state that the cause of actionherein has been of a ‘continuous’ nature. The claims of thepetitioner never attained finality, and remained a ‘live claim’as the parties were in mutual discussion to resolve the disputesbetween them. The arbitration petition was filed on July 28,2021 that is within a period of one and half years from therespondent’s last communication vide email dated January G

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M/S B AND T AG v. MINISTRY OF DEFENCE[J. B. PARDIWALA, J.]

09, 2020, and within a period of two and half years from theissuance of Section 21 notice dated January 16, 2019.

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35. Therefore, the limitation period will not be operativeagainst the petitioner from February 05, 2019 onwards, andhence, the present petition is well within time and not barredby limitation. …”

FINAL ANALYSIS

52. On a conspectus of all the aforesaid decisions what isdiscernible is that there is a fine distinction between the plea that theclaims raised are barred by limitation and the plea that the applicationfor appointment of an arbitrator is barred by limitation.

53. Mookerjee, J. in Dwijendra Narain Roy v. Joges ChandraDe and others, reported in AIR 1924 Cal 600 has explained the truetest to determine when a cause of action could be said to have accruedobserving as under:

“10.…The substance of the matter is that time runs when thecause of action accrues and a cause of action accrues whenthere is in existence a person who can sue and another whocan be sued, and when all the facts have happened whichare 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 andonly when the aggrieved party has the right to apply to theproper tribunals for relief : Whalley v. Whalley [(1816) 1 M.R.436]. The statute does not attach to a claim for which there isas yet no right of action and does not run against a right forwhich there is no corresponding remedy or for which judgmentcannot be obtained. Consequently the true test to determinewhen a cause of action has accrued is to ascertain the timewhen plaintiff could first have maintained his action to asuccessful result. ….”

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 tosucceed in the suit. In delivering the judgment of the Board A

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Ain Mussummat Chand Kour and Another v. Partab Singh andOthers, reported in ILR (1889) 16 Cal 98, Lord Watson observed:

“Now the cause of action has no relation whatever to thedefence which may be set up by the defendant, nor does itdepend upon the character of the relief prayed for by theBplaintiff it refers entirely to the grounds set forth in the plaintas the cause of action, or in other words to the media uponwhich the plaintiff asks the court to arrive at a conclusion in”his favour.

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55. Cause of action becomes important for the purposes ofcalculating the limitation period for bringing an action. It is imperativethat a party realises when a cause of action arises. If a party simplydelays sending a notice seeking reference under the Act 1996 becausethey are unclear of when the cause of action arose, the claim can becomeDtime-barred even before the party realises the same.

56. Russell on Arbitration by Anthony Walton (19[th] Edn.) at pp.4-5 states that the period of limitation for commencing an arbitrationruns from the date on which the “cause of arbitration” accrued, that is tosay, from the date when the claimant first acquired either a right ofEaction or a right to require that an arbitration take place upon the disputeconcerned. The period of limitation for the commencement of anarbitration runs from the date on which, had there been no arbitrationclause, the cause of action would have accrued:

“Just as in the case of actions the claim is not to be broughtFafter the expiration of a specified number of years from thedate on which the cause of action accrued, so in the case ofarbitrations, the claim is not to be put forward after theexpiration of the specified number of years from the date whenthe claim accrued.”

Even if the arbitration clause contains a provision that no cause ofGaction shall accrue in respect of any matter agreed to be referred to untilan award is made, time still runs from the normal date when the causeof 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, everyH

arbitration must be commenced within the prescribed period. Just as inthe case of actions the claim is not to be brought after the expiration ofa specified number of years from the date when the cause of actionaccrues, so in the case of arbitrations the claim is not to be put forwardafter the expiration of a specified number of years from the date whenthe claim accrues. For the purpose of Section 37(1) “action” and “causeof arbitration” should be construed as arbitration and cause of arbitration.The cause of arbitration arises when the claimant becomes entitled toraise the question, that is, when the claimant acquires the right to requirearbitration. An application under Section 11 of the Act 1996 is governedby Article 137 of the Schedule to the Act 1963 and must be made within3 years from the date when the right to apply first accrues. There is noright to apply until there is a clear and unequivocal denial of that right bythe respondent. It must, therefore, be clear that the claim for arbitrationmust be raised as soon as the cause for arbitration arises as in the caseof cause of action arisen in a civil action.

58. Whether any particular facts constitute a cause of action hasto be determined with reference to the facts of each case and withreference to, the substance, rather than the form of the action. If aninfringement of a right happens at a particular time, the whole cause ofaction will be said to have arisen then and there. In such a case, it is notopen to a party to sit tight and not to file an application for settlement ofdispute of his right, which had been infringed, within the time providedby the Limitation Act, and, allow his right to be extinguished by lapse oftime, and thereafter, to wait for another cause of action and then file anapplication under Section 11 of the Act 1996 for establishment of hisright which was not then alive, and, which had been long extinguishedbecause, in such a case, such an application would mean an applicationfor revival of a right, which had long been extinguished under the Act1963 and is, therefore, dead for all purposes. Such proceedings wouldnot be maintainable and would obviously be met by the plea of limitationunder Article 137 of the Act 1963.

59. We once again go back to the facts of the present case. Evenaccording to the petitioner, the disputes arose between the parties inrelation to the wrongful encashment of bank guarantee vide letter dated16.02.2016 for Euro 201,793.75 (“BG”) and for wrongful imposition ofliquidated damages to the tune of Euro 399,0240.10. We are at one withthe learned ASG that this was the “Breaking Point”. What is more AB

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Aimportant is the fact that the respondent on 26.09.2016, deducted theamount towards recovery of the liquidated damages. The requisite amountwas credited into the Government account in accordance with theinstructions contained in the letter dated 11.08.2016. This was the end ofthe matter. To say that even thereafter, the petitioner kept negotiatingwith the respondent in anticipation of some amicable settlement wouldBnot save the period of limitation.

60. In the aforesaid context, we deem fit to reproduce the entireletter dated 24.02.2016 addressed by the respondent to the petitioner.The letter reads thus:

“BY FAX

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Integrated HQs of MoD (Army)

Master General of Ordnance Branch

Procurement Progressing Organisation

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Room No. 230, B Wing, Sena BhavanDHQ PO, New Delhi – 11001178953/SMG/GS/WE-4/PPO/D(MC)87624 Feb 2016

M/s B&T SwitzerlandEPO Box 174, 3604 Thun SwitzerlandFax : 0041 33 3346701

Local : 46088802

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CONTRACT NO. 78953/SMG/GS/WE-4 DATED 27MAR 2012 FOR PROCUREMENT OF QUANTITY1568 SUB MACHINE GUN UNDER FTP

1. Refer your letter No B&T/1568/2016 dated 19 Feb 2016.

2. Subject instructions for WBG encashment have been issued, G

after due scrutiny and analysis of your justification forwardedvide letter B&T/1568/10-26 dated 24 Oct 2014, with approvalof competent authority at MoD.

3. Thus, you may approach MoD for requisite action/directionsplease.

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61. The plain reading of the aforesaid letter would indicate thatthe disputes between the parties had cropped up way back in the year2014 itself. This is evident by the date 24.10.2014 figuring in the aforesaidletter dated 24.02.2016. The letter indicates that after the disputes arosebetween the parties, the petitioner tried to offer its explanation and putforward its case vide letter dated 24.10.2014. The respondent by letterdated 24.02.2016 clarified or rather informed the petitioner that thejustifications put forward by the petitioner vide its letter dated 24.10.2014were duly considered and thereafter, a final decision was taken forencashment of the liquidated damages. Therefore, the petitioner is notjustified in saying that it continued to negotiate till 2019. The mere baldassertion in this regard is not sufficient as observed by this Court in GeoMiller (supra). The entire history of the negotiation between the partiesmust be specifically pleaded and placed on record. It is only after theentire history of negotiation is pleaded and placed on record that theCourt would be in a position to consider such history so as to find outwhat was the “Breaking Point” at which any reasonable party wouldhave abandoned efforts at arriving at a settlement and contemplatedreferral of the dispute for arbitration.

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62. At the cost of repetition, we state that when the bank guaranteecame to be encashed in the year 2016 and the requisite amount stoodtransferred to the Government account that was the end of the matter.This “Breaking Point” should be treated as the date at which the causeof action arose for the purpose of limitation.

63. Negotiations may continue even for a period of ten years ortwenty years after the cause of action had arisen. Mere negotiationswill not postpone the “cause of action” for the purpose of limitation. TheLegislature has prescribed a limit of three years for the enforcement ofa claim and this statutory time period cannot be defeated on the groundthat the parties were negotiating.

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64. In Panchu Gopal Bose v. Board of Trustees for Port ofCalcutta reported in (1993) 4 SCC 338, this Court had held that the H

Aprovisions of the Act 1963 would apply to arbitrations and notwithstandingany term in the contract to the contrary, cause of arbitration for thepurpose of limitation shall be deemed to have accrued to the party, inrespect of any such matter at the time when it should have accrued butfor the contract. Cause of arbitration shall be deemed to have commencedwhen one party serves the notice on the other party requiring theBappointment of an arbitrator. The question was when the cause ofarbitration arises in the absence of issuance of a notice or omission toissue notice for a long time after the contract was executed? Arbitrationimplies to charter out timeous commencement of arbitration availing ofthe arbitral agreement, as soon as difference or dispute has arisen. DelayCdefeats justice and equity aids promptitude and resultant consequences.Defaulting party should bear the hardship and should not transmit thehardship to the other party, after the claim in the cause of arbitrationwas allowed to be barred. It was further held that where the arbitrationagreement does not really exist or ceased to exist or where the disputeapplies outside the scope of arbitration agreement allowing the claim,Dafter a considerable lapse of time, would be a harassment to the oppositeparty. It was accordingly held in that case that since the petitioner sleptover his rights for more than 10 years, by his conduct he allowed thearbitration to be barred by limitation and the Court would be justified inrelieving the party from arbitration agreement under Sections 5 andE12(2)(b) of the Act. [See: State of Orissa v. Damodar Das, (1996) 2SCC 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. Theobservations read as under:F

“10. In West Riding of Yorkshire CountyCouncil v. Huddersfield Corpn. [(1957) 1 All ER 669] theQueen’s Bench Division, Lord Goddard, C.J. (as he then was)held that the Limitation Act applies to arbitrations as it appliesto actions in the High Court and the making, after a claimGhas become statute-barred, of a submission of it to arbitration,does not prevent the statute of limitation being pleaded. Russelon Arbitration, 19th Edn., reiterates the above proposition.At page 4 it was further stated that the parties to an arbitrationagreement may provide therein, if they wish, that an arbitrationmust be commenced within a shorter period than that allowed H

by statute; but the court then has power to enlarge the time soagreed. The period of limitation for commencing an arbitrationruns from the date on which the cause of arbitration accrued,that is to say, from the date when the claimant first acquiredeither a right of action or a right to require that an arbitrationtakes place upon the dispute concerned.

11. Therefore, the period of limitation for the commencementof an arbitration runs from the date on which, had there beenno arbitration clause, the cause of action would haveaccrued. Just as in the case of actions the claim is not to bebrought after the expiration of a specified number of yearsfrom the date on which the cause of action accrued, so in thecase of arbitrations, the claim is not to be put forward afterthe expiration of the specified number of years from the datewhen the claim accrued.

12. In Russell on Arbitration, at pages 72 and 73 it is statedthus:

12. In Russell on Arbitration, at pages 72 and 73 it is statedthus:

“Disputes under a contract may also be removed, in effect,from the jurisdiction of the court, by including an arbitrationclause in the contract, providing that any arbitration under itmust be commenced within a certain time or not at all, andgoing on to provide that if an arbitration is not so commencedthe claim concerned shall be barred. Such provisions are notnecessarily found together. Thus the contract may limit thetime for arbitration without barring the claim depriving a partywho is out of time of his right to claim arbitration but leavingopen a right of action in the courts. Or it may makecompliance with a time-limit a condition of any claim withoutlimiting the operation of the arbitration clause, leaving a partywho is out of time with the right to claim arbitration but sothat it is a defence in the arbitration that the claim is out oftime and barred. Nor, since the provisions concerned areessentially separate, is there anything to prevent the partyrelying on the limitation clause waiving his objection toarbitration whilst still relying on the clause as barring theclaim.”

At page 80 it is stated thus:

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“An extension of time is not automatic and it is onlygranted if ‘undue hardship’ would otherwise be caused. Notall hardship, however, is ‘undue hardship’; it may be properthat hardship caused to a party by his own default should beborne by him, and not transferred to the other party byallowing a claim to be reopened after it has become barred.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 Chapter37 at p. 549 it is stated that just as in the case of actions theclaim is not to be brought after the expiration of a specifiednumber of years from the date when the claim accrues, soalso in the case of arbitrations, the claim is not to be putforward after the expiration of a specified number of yearsfrom the date when the claim accrues. For the purpose ofSection 37(1) ‘action’ and ‘cause of action’ in the LimitationAct should be construed as arbitration and cause ofarbitration. The cause of arbitration, therefore, arises whenthe claimant becomes entitled to raise the question, i.e. whenthe claimant acquires the right to require arbitration. Thelimitation would run from the date when cause of arbitrationwould have accrued, but for the agreement.

14. Arbitration implies to charter out timeous commencementof arbitration availing the arbitral agreement, as soon asdifference or dispute has arisen. Delay defeats justice andequity aid the promptitude and resultant consequences.Defaulting party should bear the hardship and should nottransmit the hardship to the other party, after the claim in thecause of arbitration was allowed to be barred. The question,therefore, as posed earlier is whether the court would bejustified to permit a contracting party to rescind the contractor the court can revoke the authority to refer the disputes ordifferences to arbitration. Justice Bachawat in his Law ofArbitration, at p. 552 stated that “in an appropriate case leaveshould be given to revoke the authority of the arbitrator”. Itwas also stated that an ordinary submission without specialstipulation limiting or conditioning the functions of thearbitrator carried with it the implication that the arbitrator

should give effect to all legal defences such as that oflimitation. Accordingly the arbitrator was entitled and boundto apply the law of limitation. Section 3 of the Limitation Actapplied by way of analogy to arbitration proceedings, andlike interpretation was given to Section 14 of the LimitationAct. The proceedings before the arbitration are like civilproceedings before the court within the meaning of Section14 of the Limitation Act. By consent the parties have substitutedthe arbitrator for a court of law to arbiter their disputes ordifferences. It is, therefore, open to the parties to plead in theproceedings before him of limitation as a defence.

15. In Mustiu and Boyd’s Commercial Arbitration (1982 Edn.)under the heading “Hopeless Claim” in Chapter 31 at page436 it is stated thus:

“There is undoubtedly no jurisdiction to interfere by wayof injunction to prevent the respondent from being harassedby a claim which can never lead to valid award for examplein cases where claim is brought in respect of the allegedArbitration agreement which does not really exist or whichhas ceased to exist. So also where the dispute lies outsidethe scope of arbitration agreement.””

66. The case on hand is clearly and undoubtedly, one of a hopelesslybarred claim, as the petitioner by its conduct slept over its right for morethan five years. Statutory arbitrations stand apart.

67. In view of the aforesaid, this petition fails and is hereby rejected.

68. Pending application(s) if any shall stand disposed of.

Divya Pandey

Petition rejected.

(Assisted by : Shevali Monga, LCRA)

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