TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 853
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....8 Sub Machine Guns under a Fast Track Procedure. The petitioner participated in the tender process and offered its bid. The tender was opened on 21.12.2010 and the petitioner was declared to be the lowest acceptable bidder. After due negotiations, the Contract was executed and signed on 27.03.2012. 3. The dispute between the parties arose in relation to the alleged wrongful encashment of warranty bond by the respondent. The respondent vide its letter dated 16.02.2016, directed the Joint Chief Executive Officer, State Bank of India, Frankfurt Branch, Germany to encash the WBG No. 12/380 for its full value i.e., Euro 201,793.75 and remit the amount through direct bank transfer to the Principal Controller of Defence Account (PCDA, Government account) in accordance with the details stated in the letter. One copy of the letter dated 16.02.2016 was also forwarded to the petitioner. This action on the part of the respondent, i.e., of encashing Liquidated Damages (LDs) for the requisite amount was on account of delay in the supply of goods beyond the contractual time period. 4. The respondent, vide its letter dated 24.02.2016, informed the Petitioner that the subject instructions for WBG....
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....ter dated 16.02.2016 for Euro 201,793.75 ("BG") and for wrongful imposition of liquidated damages to the tune of Euro 399,0240.10. 22.09.2017: It is pertinent to state that between 16.02.2016 and 22.09.2017, the parties were constantly engaged in "bilateral discussion" as specifically mandated by Article 21 of the Contract in order to resolve their disputes regarding the wrongful deduction of Liquidated damages and encashment of the BG. The Petitioner had urged the Respondent to reconsider the wrongful Encashment of BG. However, the Respondent, vide letter dated 22.09.2017 for the first time communicated to the Petitioner that it would not reconsider the request. 2017-2019: Even after the communication dated 22.09.2017, the Parties were constantly trying to negotiate and resolve their disputes. In relation to which the Petitioner even attended a meeting with Director General (Acquisition.) and Additional Secretary. 04.09.2019: The Petitioner further requested the Respondent to review and discuss the wrongful imposition of Liquidated Damages and give a fair chance to the Petitioner to explain their position. The Petitioner emphasized to consider this situation as an urgent mat....
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....ns. 21.2. Any dispute, disagreement of question arising out of or relating to this Contract or relating to construction or performance (except as to any matter the decision or determination whereof is provided for by these conditions), which cannot be settled amicably, shall within sixty (60) days or such longer period as may be mutually agreed upon, from the date on which either party informs the other in writing by a notice that such dispute, disagreement or question exists, will be referred to the Arbitration Tribunal consisting of three arbitrators. 21.3 Within sixty (60) days of the receipt of the said Notice, one arbitrator shall be nominated in writing by SELLER and one arbitrator shall be nominated by BUYER. 21.4. The third arbitrator, who shall not be a citizen or domicile or of the country either of the parties or of any other country unacceptable to any of the parties shall be nominated of the parties within (90) days of the receipt of the notice mentioned above, failing which the third arbitrator may be nominated by the President of International Chamber of Commerce, Paris, at request of either party but the said nomination would be after consultation with both th....
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....ract in question as in defence procurement contracts, it would be in the interest of the parties to resolve the disputes if any by way of 'bilateral discussions' rather than by initiating arbitration proceedings. The learned counsel submitted that the respondent for the first time informed the petitioner by letter dated 22.09.2017 that the proposal put forward by the petitioner to reconsider the decision of wrongful deduction of LD and encashment of bank guarantee was rejected. According to the learned counsel, even thereafter, i.e., after 22.09.2017, the parties continued to negotiate with each other until 04.09.2019. 14. Relying on the decision of this Court in the case of Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited, reported in (2020) 14 SCC 643, it was submitted that the time spent in pre-arbitration negotiations, held in good faith may be excluded for the purpose of computation of the period of limitation. 15. According to the learned counsel, the ratio of the decision of this Court in the case of Geo Miller (supra) squarely applies to the facts of the present case. It was submitted that once the parties get involved in 'bilater....
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.... arbitration in accordance with Article 21 of the Contract was issued only on 08.11.2021, i.e., after a period of more than five years and much beyond the limitation period of three years. According to the learned ASG, the claim of the petitioner is hopelessly time barred. 22. The learned ASG requested the Court to look into the following dates and events for the purpose of deciding the present petition: 27.03.2012: Contract was executed between the Petitioner and Respondent. 26.09.2016: CAUSE OF ACTION arose Liquidated damages were finally deducted. 25.09.2019: The limitation period of 3 years expired. 08.11.2021: Advocate for claimant sent 'Notice for invoking of Arbitration under Article 21 of the Contract'. 16.11.2021: Respondent received the Notice invoking arbitration. 03.02.2023: The Petitioner filed Arbitration Petition No. 13 i.e. the Present Petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 for Constitution of Arbitral Tribunal. 23. In the last, the learned ASG submitted that the period of limitation for issuing notice invoking arbitration not being specifically prescribed in the Schedule to the Limitation Act, 1963 (for short, 'the ....
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.... some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper. (4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963 (36 of 1963), for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted." 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 Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department and Others, reported in (2008) 7 SCC 169. In the said case, it was contended on behalf of the appellant therein that Section 43 of the Act 1996 makes the provisions of the Act 1963 applicable only to arb....
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.... apply arises'. This being a residuary Article to be adopted to different classes of applications, the expression 'the right to apply' is an expression of a broad common law principle and should be interpreted according to the circumstances of each case. 'The right to apply' has been interpreted to mean 'the right to apply first arises'. (See: Merla Ramanna v. Nallaparaju and Others, (1955) 2 SCR 938) 35. Further, it would be necessary to refer to Section 9 of the Act 1963 of the Act which reads thus: "9. Continuous running of time.- Where once time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it: Provided that, where letters of administration to the estate of a creditor have been granted to his debtor, the running of the period of limitation for a suit to recover the debt shall be suspended while the administration continues." (Emphasis supplied) CASE LAW ON THE SUBJECT 36. In the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority reported in AIR 1988 SC 1887, it has been held that the existence of a dispute is essential for the appointment of an Arbitrator under Section 8 or a reference under S....
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....f the work a right to get payment would normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on 28th Feb. 1983 and there was non-payment, the cause of action from that date, that is to say, 28th of Feb. 1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under S. 8 or a reference under S. 20 of the Act. See Law of Arbitration by R.S. Bachawat, 1st Edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion in denying, not merely inaction to accede to a claim or a request. When in a particular case a dispute has a....
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.... is found at the time of making an order under Section 20 of the Arbitration Act, to be barred by limitation. In order to be entitled to ask for a reference under Section 20 of the Act, there must be an entitlement to money and a difference or dispute in respect of the same. It is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable. In this case the claim for reference was made within three years commencing from April 16, 1976 and the application was filed on December 13, 1976. We are, therefore, of the view that the High Court was right in this case. See in this connection the observations of this Court in Inder Singh Rekhi v. D.D.A. [(1988) 2 SCC 338]" (Emphasis supplied) 39. One would thus see that in L.K. Ahuja (supra) the Court was dealing with the twin aspects, one whether the claim made in the arbitration was barred by law of limitation under the relevant provisions of the relevant Act, and secondly whether the application under Section 20 of the Act 1940 was b....
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....at the claims had to be rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of limitation for filing a petition under Section 8(2) of the Act. Insofar as a petition under Section 8(2) is concerned, the cause of action would arise when the other party fails to comply with the notice invoking arbitration. Therefore, the period of limitation for filing a petition under Section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2 SCC 338], Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [(1993) 4 SCC 338] and Utkal Commercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCC 571] also make this position clear." (Emphasis supplied) 41. In SBP & Co. v. Patel Engineering Ltd. and Another, reported in (2005) 8 SCC 618, this Court held that dragging a party to an arbitration when there existed no arbitrable dispute, can certainly affect the right of that party, and, even on monetary terms, impose on him a serious liability for meeting the expenses of the arbitrat....
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....al 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. 29. 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 it waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent's failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile." 44. The aforesaid observat....
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....respondent, crystalising the rights/cause of action and the same should not be interpreted as a continuing cause of action. 47. In Bharat Sanchar Nigam Limited and Another v. Nortel Networks India Private Limited, reported in (2021) 5 SCC 738, this Court undertook a comprehensive analysis of the relevant provisions and held that in cases where claims are ex facie time barred, the Court may refuse to make reference under Section 11 of the Act 1996. This decision assumes importance and we should look into the same in little details. The appellant BSNL issued a tender notification inviting bids for planning, engineering, supply, insulation, testing and commissioning of GSM based cellular mobile network in the Southern region. The respondent company was awarded the purchase order. On completion of the project, the appellant withheld an amount of Rs. 99.70 crore towards the liquidated damages and other levies. The respondent raised a claim on 13.05.2014 for payment of the above said amount from the appellant who rejected the claim on 04.08.2014. The respondent, after a period of over 5.5 years invoked the arbitration clause and requested for the appointment of an independent arbitrat....
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....to the 'existence' of the arbitration agreement. * The starting point of limitation for initiating a proceeding under Section 11 is the expiry of 30 days from the date of issuing notice of arbitration on 29.04.2020. The cause of action was, therefore, a continuing one. The High Court had rightly held that the issue of limitation must be decided by the arbitral tribunal. The following two questions fell for the consideration of this Court- * The period of limitation for filing an application under Section 11 of the Act 1996; and * Whether the Court may decline to make the reference under Section 11 where the claims are ex facie time barred? This Court observed that the Act 1996 has been framed for expeditious resolution of disputes and various provisions have been incorporated in the Act 1996 to ensure that the arbitral proceedings are conducted in a time bound manner. The Act 1996 does not prescribe any time period for filing an application under Section 11(6). Since there is no provision in the Act 1996 specifying the period of limitation for filing an application under Section 11, one would have to take recourse to the Act 1963, as per Section 43 of the Act 1996 which pro....
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....ere rejected by BSNL. The respondent has not stated any event which would extend the period of limitation, which commenced as per Article 55 of the Schedule of the Limitation Act (which provides the limitation for cases pertaining to breach of contract) immediately after the rejection of the final bill by making deductions. 50. In the notice invoking arbitration dated 29-4-2020, it has been averred that : "Various communications have been exchanged between the petitioner and the respondents ever since and a dispute has arisen between the petitioner and the respondents, regarding non-payment of the amounts due under the tender document." 51. The period of limitation for issuing notice of arbitration would not get extended by mere exchange of letters, [S.S. Rathore v. State of M.P., (1989) 4 SCC 582 : 1990 SCC (L&S) 50; Union of India v. Har Dayal, (2010) 1 SCC 394; CLP (India) (P) Ltd. v. Gujarat Urja Vikas Nigam Ltd., (2020) 5 SCC 185] or mere settlement discussions, where a final bill is rejected by making deductions or otherwise. Sections 5 to 20 of the Limitation Act do not exclude the time taken on account of settlement discussions. Section 9 of the Limitation Act makes....
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....Miller (supra), it is held as under: "19. Applying the aforesaid judgments to the facts of this case, so far as the applicability of Article 137 of the Limitation Act to the applications under Section 11 of the Arbitration Act is concerned, it is clear that the demand for arbitration in the present case was made by the letter dated 7-11-2006. This demand was reiterated by a letter dated 13-1-2007, which letter itself informed the appellant that appointment of an arbitrator would have to be made within 30 days. At the very latest, therefore, on the facts of this case, time began to run on and from 12-2-2007. The appellant's laconic letter dated 23-1-2007, which stated that the matter was under consideration, was within the 30-day period. On and from 12-2-2007, when no arbitrator was appointed, the cause of action for appointment of an arbitrator accrued to the respondent and time began running from that day. Obviously, once time has started running, any final rejection by the appellant by its letter dated 10-11-2010 would not give any fresh start to a limitation period which has already begun running, following the mandate of Section 9 of the Limitation Act. This being the cas....
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....erral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..." 27. The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral courts must not undertake a full review of the contested facts; they must only be confined to a primary first review [Vidya Drolia supra note 7, para 134.] and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not [ibid.]. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim is non-arbitrable [Nortel Networks supra note 22, para 47.]. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration [Vidya Drolia supra note 7, para 154.4.]. 28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable [ibid para 154.4.]. It has been termed....
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....out conciliation is no longer possible. Pertinently, the Court noted that the limitation period would not start so long as the parties were in dialogue even if differences surfaced during such period, as an interpretation to the contrary would inevitably "compel the parties to resort to litigation/arbitration even where there is serious hope of the parties themselves resolving the issues". Thus, the right to apply can be said to have accrued "only on the date of the last correspondence between the parties and the period of limitation commences from the date of the last communication between the parties." 51. The learned counsel appearing for the petitioner also placed reliance on a decision rendered by the Calcutta High Court in Zillon Infraprojects Pvt. Ltd. v. Bharat Heavy Electricals Limited reported in 2023 SCC OnLine Cal 756, wherein, the High Court observed as under: "33. Therefore, after a careful perusal of the aforesaid facts, it would not be incorrect to state that the cause of action herein has been of a 'continuous' nature. The claims of the petitioner never attained finality, and remained a 'live claim' as the parties were in mutual discussion to resolve the dispute....
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....nor does it depend upon the character of the relief prayed for by the plaintiff it refers entirely to the grounds set forth in the plaint as the cause of action, or in other words to the media upon which the plaintiff asks the court to arrive at a conclusion in his favour." (Emphasis supplied) 55. Cause of action becomes important for the purposes of calculating the limitation period for bringing an action. It is imperative that a party realises when a cause of action arises. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become time-barred even before the party realises the same. 56. Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 states that the period of limitation for commencing an arbitration runs from the date on which the "cause of arbitration" accrued, that is to say, from the date when the claimant first acquired either a right of 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 ....
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....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. 59. We once again go back to the facts of the present case. Even according to the petitioner, the disputes arose between the parties in relation to the wrongful encashment of bank guarantee vide letter dated 16.02.2016 for Euro 201,793.75 ("BG") and for wrongful imposition of liquidated damages to the tune of Euro 399,0240.10. We are at one with the learned ASG that this was the "Breaking Point". What is more important is the fact that the respondent on 26.09.2016, deducted the amount towards recovery of the liquidated damages. The requisite amoun....
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....n 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. 62. At the cost of repetition, we state that when the bank guarantee came to be encashed in the year 2016 and the requisite amount stood transferred to the Government account that was the end of the matter. This "Breaking Point" should be treated as the date at which the cause of action arose for the purpose of limitation. 63. Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the "cause of action" for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating. 64. In Panchu Gopal Bose v. Board of Trustees for Port of Calcutta reported in (1993) 4 SCC 338, this Court had held that the provisions of the Act 1963 would apply to arbitrations and notwithstanding any term in the co....
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....tatute; but the court then has power to enlarge the time so agreed. The period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned. 11. Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued. 12. In Russell on Arbitration, at pages 72 and 73 it is stated thus: "Disputes under a contract may also be removed, in effect, from the jurisdiction of the court, by including an arbitration clause in the contract, providing that any arbitration under it must be commenced within a certain time or not at all, and going on to....