Arbitration:
Arbitration proceedings – Determination as regards applicability of Arbitration Acts viz. Arbitration Act, 1940 or Arbitration and Conciliation Act, 1996 – Held: For the purpose of deciding as to which of the Acts is applicable, on conjoint reading of ss.21 and 85(2)(a) of 1996 Act, the date of commencement of arbitration proceedings shall be the date on which notice was served on the other party requesting appointment of arbitrator – If the date of notice was prior to 25.1.1996 (i.e. the date on which 1996 Act came into force) 1940 Act would apply and if the date of notice was on 25.1.1996 or after that, 1996 would apply – Arbitration and Conciliation Act, 1996 – ss.21 and 85(2)(a) – Arbitration Act, 1940.
Arbitration and Conciliation Act, 1996:
s.43(3) – Limitation – Limitation period for reference of dispute to arbitration or for seeking appointment of an arbitrator before a Court is three years from the date on which course of action or the claim which is sought to be arbitrated, first arises – On certain sets of facts and circumstances, the period during which the parties were bonafide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation – However, in such cases, entire negotiation history must be specifically pleaded and placed on record – In commercial disputes, failure to respond to the claim has to be treated as denial of claim giving rise to dispute and hence cause of action for reference to arbitration – Mere correspondence subsequent to this date of cause of action would not extend the time of limitation – In the facts of the present case, application for reference of the dispute to the Arbitrator is barred by limitation – Rather, appellant company’s case has certain element of mala fide as it has remained silent on specific actions taken to recover the dues during certain period – Under s.114(g) of Evidence Act, the Court can presume that evidence which would be and was not produced, would, if produced be unfavourable to the person who withholds it – Appellant’s own fault in sleeping over his right for
14 years will not constitute a case of ‘undue hardship’ justifying extention of time u/s.43(3) – Limitation Act, 1963 – First Schedule, Art.137 – Limitation.
Dismissing the appeals, the Court
HELD: 1.1 The date of commencement of arbitration proceedings for the purpose of deciding which Act (Arbitration Act 1940 or Arbitration and Conciliation Act, 1996) applies, upon a conjoint reading of Sections 21 and Section 85(2)(a) of the 1996 Act, shall be regarded as the date on which notice was served to the other party requesting appointment of an arbitrator. [Para 6] [1117-B-C]
Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC
288 : [2004] 3 SCR 854 ; Shetty’s Constructions Co.Pvt. Ltd. v. Konkan Railway Construction and Another (1998) 5 SCC 599 – relied on.
1.2 Though strictly speaking the 1996 Act came into force from 22.8.1996, for all practical purposes it is deemed to have been effective from 25.1.1996, which is when the Arbitration and Conciliation Ordinance, 1996 came into force. Hence if the date of notice was prior to 25.1.1996, the 1940 Act will apply. If the date of notice was on or after 25.1.1996, the 1996 Act will apply to the arbitral proceedings though the arbitration clause contemplated proceedings under the 1940 Act. In the present case, since notice was served to the respondent in 2002, the provisions of the 1996 Act will be deemed to apply to the present Arbitration Applications filed by the appellant. [Para 6] [1117D-E-G] Fuerst Day Lawson Ltd v. Jindal Exports Ltd. (2001)
6 SCC 356 : [2001] 3 SCR 479 – relied on.
2.1 By virtue of Article 137 of the First Schedule to the Limitation Act, 1963 the limitation period for reference of a dispute to arbitration or for seeking appointment of an arbitrator before a Court under the 1940 Act as well as the 1996 Act is three years from the date on which the cause of action or the claim which is sought to be arbitrated first arises. [Para 7] [118C-D] State of Orissa and Another v. Damodar Das, (1996)
2 SCC 216 : [1995] 6 Suppl. SCR 800 ; Grasim Industries Limited v. State of Kerala (2018) 14 SCC
265 – referred to.
2.2 In the present case, the appellant’s cause of action in respect of Arbitration Applications, relating to the work orders dated 7.10.1979 and 4.4.1980 arose on 8.2.1983, which is when the final bill handed over to the respondent became due. Mere correspondence of the appellant by way of writing letters/reminders to the respondent subsequent to this date would not extend the time of limitation. Hence the maximum period during which this Court could have allowed the appellant’s application for appointment of an arbitrator is 3 years from the date on which cause of action arose i.e. 8.2.1986. Similarly, with respect to Arbitration Application relating to the work order dated 3.5.1985, final bill was handed over and became due on 10.8.1989. Hence the limitation period ended on 10.8.1992. Since the appellant served notice for appointment of arbitrator in 2002, and requested the appointment of an arbitrator before a Court only by the end of 2003, his claim is clearly barred by limitation. [Para 8] [1120-C-F]
2.3 On a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the ‘breaking point’ at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This ‘breaking point’ would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party’s primary interest is in securing the payment due to them, than in family disputes where it may be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim. [Para 10] [1122-C-F]
2.4 Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant’s claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the applicant to plead that waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent’s failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile. [Para 10] [1122-G-H]
2.5 In the present case, the appellant company vaguely stated before this Court that it was involved in ‘negotiation’ with the respondents in the 14 years preceding the application dated 4.10.1997 before the Settlement Committee. However it did not place on record any evidence to show when it had first made a representation to the respondent in respect of the outstanding amounts, and what was the history of their negotiation with the respondents such that it was only in 1997 that they thought of approaching the Settlement Committee. Further, they have not brought anything on record to show that they were required to proceed before the Settlement Committee before requesting the appointment of an arbitrator. The arbitration clause does not stipulate any such requirement. [Para 11] [1123-B-C]
2.6 The appellant company’s case has a certain element of mala fide in so far as it has made detailed submissions in respect of its communications with the respondents subsequent to 4.10.1997, but has remained conspicuously silent on the specific actions taken to recover the payments due prior to that date. Under Section 114(g) of the Evidence Act, 1872 this Court can presume that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it. Hence, in the absence of specific pleadings and evidence placed on record by the appellant with respect to the parties’ negotiation history, this Court cannot accept the appellant’s contention that it was only after the respondent’s letter dated 18.12.1999 that the appellant could have contemplated arbitration in relation to the outstanding amounts. Even if the time spent proceeding before the Settlement Committee is included, the limitation period, at the latest, would have started running from 4.10.1997 which is when the appellant made a representation to the Settlement Committee and the Committee failed to respond to the same. [Para 11] [1123-D-G]
2.7 The appellant’s own default in sleeping over his right for 14 years will not constitute a case of ‘undue hardship’ justifying extension of time under Section 43(3) of the 1996 Act or show ‘sufficient cause’ for condonation of delay under Section
5 of the Limitation Act. The appellant should have approached the Court for appointment of an arbitrator under Section 8(2) of the 1940 Act within the appropriate limitation period. The entire dispute seems concocted so as to pursue a monetary claim against the respondents, taking advantage of the provisions of the 1996 Act. [Para 11] [1124-B-C]
Panchu Gopal Bose v. Board of Trustees for Port of Calcutta (1993) 4 SCC 338 : [1993] 3 SCR 361– relied on.
Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority (1988) 2 SCC 338 : [1988] 3 SCR 351 ; Hari Shankar Singhania and Others v. Gaur Hari Singhania and Others (2006) 4 SCC 658 : [2006]
3 SCR 726 ; Shree Ram Mills Ltd. v. Utility Premises (P) Ltd., (2007) 4 SCC 599 : [2007] 4 SCR 279 ; Sunder Kukreja and Others v. Mohan Lal Kukreja and Anr. (2009) 4 SCC 585 : [2009] 4 SCR 1163 –
distinguished.
Union of India v. Momin Construction
(1997) 9 SCC 97 – referred to.
Company
O.P. Malhotra on The Law and Practice of Arbitration, Justice Indu Malhotra ed., 3 rd. edn, 2014 at page 1915) – 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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