Arbitration and Conciliation Act, 1996 – s.11– Limitation period – Cause of action – When accrues – “Breaking Point”– Negotiations, if postpone the cause of action – Held: No – Cause of action becomes important for calculating the limitation period for bringing an action – Period of limitation for commencing an arbitration runs from the date on which the “cause of arbitration” accrued i.e., from the date when the claimant first acquired either a right of action or a right to require arbitration – An application u/s.11 is governed by Article 137 of the Schedule to the 1963 Act and must be made within 3 years from the date when the right to apply first accrues – There is no right to apply until there is a clear and unequivocal denial of that right by the respondent – Claim for arbitration must be raised as soon as the cause for arbitration arises – Whether any particular facts constitute a cause of action has to be determined with reference to the facts of each case and the substance rather than the form of the action – If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there – In such a case, it is not open to a party to sit tight and not file an application for settlement of dispute of his right and allow it to be extinguished by lapse of time – Mere negotiations will not postpone the cause of action for the purpose of limitation – What is important for the Court is to find out what was the “Breaking Point”, a question of fact, at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration– Entire history of the negotiation between the parties must be pleaded and placed on record for the Court to find out the “Breaking Point” – Bilateral discussions for an indefinite period of time would not save the situation so far as the accrual of cause of action and the right to apply for appointment of arbitrator is concerned – Limitation Act, 1963 – Article 137.
Arbitration and Conciliation Act, 1996 – s.11(6), 43 – Contract entered between parties in 2012 – Dispute in relation to the alleged wrongful imposition of Liquidated Damages and wrongful encashment of the bank guarantee by the respondent-Ministry of Defence in2016 – Petitioner issued notice invoking arbitration only in 2021 – According to the petitioner the parties were trying to amicably resolve the disputes by way of ‘bilateral discussions’ as per the Contract – Present petition filed by the petitioner u/s.11(6), claiming to be within the period of limitation, for appointment of arbitrator – Time-barred claims/claims barred by limitation, if can be said to be live claims which can be referred to arbitration – Held: Disputes between the parties had cropped up way back in the year 2014 itself – When the bank guarantee came to be encashed in 2016 and the requisite amount stood transferred to the Government account, that was the end of the matter – This “Breaking Point” is the date at which the cause of action arose for the purpose of limitation – Petitioner not justified in saying that it continued to negotiate till 2019 – Statutory time period of three years prescribed for the enforcement of a claim cannot be defeated on the ground that the parties were negotiating – Present case is one of a hopelessly barred claim, as the petitioner slept over its right for more than five years – Petition rejected – Limitation Act, 1963 – Article 137. Words and Phrases– “cause of action”; “right to apply” – Meaning of – Discussed.
Rejecting the petition, the Court
HELD: 1.1 Ordinarily on the completion of the work, the right to receive the payment begins. A dispute arises when there is a claim on one side and its denial/repudiation by the other. A person cannot postpone the accrual of cause of action by repeatedly writing letters or sending reminders.‘Bilateral discussions’ for an indefinite period of time would not save the situation so far as the accrual of cause of action and the right to apply for appointment of arbitrator is concerned. What is important for the Court is to find out what was the “Breaking Point” at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. What was the “Breaking Point” is a question of fact. [Paras 37, 44 and 45][618-D-E; 623-C-D]
Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority AIR 1988 SC 1887; Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited (2020) 14 SCC 643 : [2019] 11 SCR 1108 – relied on.
1.2 There is a fine distinction between the plea that the claims raised are barred by limitation and the plea that the application for appointment of an arbitrator is barred by limitation. [Para 52][633-C]
1.3 “Cause of action” means the whole bundle of material facts, which it is necessary for the plaintiff to prove in order to entitle him to succeed in the suit. Cause of action becomes important for the purposes of calculating the limitation period for bringing an action. It is imperative that a party realises when a cause of action arises. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become timebarred even before the party realises the same. The period of limitation for commencing an arbitration runs from the date on which the “cause of arbitration” accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned. The period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Even if the arbitration clause contains a provision that no cause of action shall accrue in respect of any matter agreed to be referred to until an award is made, time still runs from the normal date when the cause of action would have accrued if there had been no arbitration clause. An application under Section 11 of the Act 1996 is governed by Article 137 of the Schedule to the Act 1963 and must be made within 3 years from the date when the right to apply first accrues. There is no right to apply until there is a clear and unequivocal denial of that right by the respondent. It must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of cause of action arisen in a civil action. [Paras 54-55 and 57][633-H; 634-C-E; 635-C]
Dwijendra Narain Roy v. Joges Chandra De and others, AIR 1924 Cal 600; Mussummat Chand Kour and
Another v. Partab Singh and Others ILR (1889) 16 Cal 98 – referred to.
Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5; Law of Arbitration by Justice Bachawat, p.
549 – referred to.
1.4 Whether any particular facts constitute a cause of action has to be determined with reference to the facts of each case and with reference to, the substance, rather than the form of the action. If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there. In such a case, it is not open to a party to sit tight and not to file an application for settlement of dispute of his right, which had been infringed, within the time provided by the Limitation Act, and, allow his right to be extinguished by lapse of time, and thereafter, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for establishment of his right which was not then alive, and, which had been long extinguished because, in such a case, such an application would mean an application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act 1963. [Para 58][635-D-F]
1.5 The plain reading of the letter dated 24.02.2016 would indicate that the disputes between the parties had cropped up way back in the year 2014 itself. This is evident by the date 24.10.2014 figuring in the aforesaid letter dated 24.02.2016. The letter indicates that after the disputes arose between the parties, the petitioner tried to offer its explanation and put forward its case vide letter dated 24.10.2014. The respondent by letter dated 24.02.2016 clarified or rather informed the petitioner that the justifications put forward by the petitioner vide its letter dated 24.10.2014 were duly considered and thereafter, a final decision was taken for encashment of the liquidated damages. Therefore, the petitioner is not justified in saying that it continued to negotiate till 2019. The mere bald assertion in this regard is not sufficient. The entire history of the negotiation between the parties must be specifically pleaded and placed on record. It is only after the entire history of negotiation is pleaded and placed on record that the Court would be in a position to consider such history so as to find out what was the “Breaking Point” at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. When the bank guarantee came to be encashed in the year 2016 and the requisite amount stood transferred to the Government account that was the end of the matter. This “Breaking Point” should be treated as the date at which the cause of action arose for the purpose of limitation. Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the “cause of action” for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating. The case on hand is clearly and undoubtedly, one of a hopelessly barred claim, as the petitioner by its conduct slept over its right for more than five years. Statutory arbitrations stand apart. The petition fails and is rejected. [Paras 61-63, 66][637-B-G; 641-E]
Union of India and Another v. M/s L. K. Ahuja and Co. (1988) 3 SCC 76 : [1988] 3 SCR 402; J. C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. and Another (2008) 2 SCC 444 : [2008] 1 SCR 821; SBP & Co. v. Patel Engineering Ltd. and Another (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688; National
Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267 : [2008] 13 SCR 638; Bharat Sanchar Nigam Limited and Anr. v. Nortel Networks India Private Limited (2021) 5 SCC 738; Panchu Gopal Bose v. Board of Trustees for Port of Calcutta (1993) 4 SCC 338: [1993] 3 SCR 361; State of Orissa v. Damodar Das (1996) 2 SCC 216: [1995] 6 Suppl. SCR 800 – relied on.
Cognizance for Extension of Limitation, In re (2022) 3 SCC 117; Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department and Others (2008) 7 SCC 169 : [2008] 5 SCR 1108; Merla
Ramanna v. Nallaparaju and Others [1955] 2 SCR 938; Secunderabad
Cantonment
Board
v.
B.
Ramachandraiah and Sons (2021) 5 SCC 705; NTPC Ltd. v. SPML Infra Ltd. reported in 2023 SCC Online SC 389; Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1 : [2020] 11 SCR 1001 – referred to.
Welspun Enterprises Ltd. v. NCC Ltd.(2022) 295 DLT 286; Zillon Infraprojects Pvt. 33 Ltd. v. Bharat Heavy Electricals Limited reported in 2023 SCC OnLine Cal
756 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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