Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 967 OF 2010
M/s Geo Miller & Co. Pvt. Ltd. …..Appellant
Versus
Chairman, Rajasthan Vidyut
Utpadan Nigam Ltd. …..Respondent
WITH
CIVIL APPEAL NO. 968 OF 2010
CIVIL APPEAL NO. 969 OF 2010
J U D G M E N T
MOHAN M. SHANTANAGOUDAR, J.
Signature Not Verified
1. The appeals arise out of the common judgement dated
Digitally signed by
VISHAL ANAND
Date: 2019.09.03
16:08:18 IST
Reason:
25.1.2007 of the High Court of Rajasthan at Jaipur Bench
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dismissing the three Arbitration Applications Nos. 25/2003,
27/2003 and 28/2003 (‘Arbitration Applications’) filed by the
appellant under Section 11(6) of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as ‘the 1996 Act’) seeking
appointment of an arbitrator for adjudication of the disputes
between the common appellant and the respondent in these
appeals.
2. The facts giving rise to these appeals are as follows: The
respondent had floated tenders for execution of work on a water
treatment plant. Three work orders dated 7.10.1979, 4.4.1980 and
3.5.1985 were assigned in favour of the appellant. The three Notice
Inviting Tender (‘NIT’) documents in respect of these work orders
constituted the terms and conditions of the three separate contracts
between the parties. The three contracts had a common arbitration
clause as follows (relevant part):
“i. If at any time any question/dispute/difference
whatsoever arises between the purchaser and the
supplier, upon or in relation to the contract, either party
may forthwith give to the other once question(s), disputes
or difference and the same shall be referred to the
Chairman, Rajasthan State Electricity Board, Jaipur or
any person appointed by him for the purpose (hereinafter
referred to as Arbitrator). Such a reference to the
arbitrator/arbitrators shall be deemed to be a
submission to the Arbitrator within the meaning of the
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Indian Arbitration Act, 1940 and statutory modifications
thereof.”
3. The appellant’s case is that the respondent failed to make
the payments due to them under the three contracts. Till 1997, the
appellant was involved in discussions with the respondents in
respect of the outstanding payments and the respondent kept
delaying their decision on the same. On 4.10.1997 the appellant
approached the Settlement Committee constituted by the
respondent Board for release of the outstanding payment. It is the
appellant’s case that they were required to have pursued the matter
with the Settlement Committee prior to initiating arbitration.
However the Settlement Committee also failed to respond to their
representations.
The respondent vide internal communications dated
20.11.1997 acknowledged that the matter was pending
consideration with them. Thereafter by letters dated 17/18.12.1999
the respondent replied to the appellant partly allowing one claim to
the extent of Rs. 1,34,359.12 and requesting details of
bills/invoices of certain other claims for verification. The appellant
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on 6.1.2000 replied stating that the bills had already been
processed for payment and sent photocopies of the bills submitted
earlier to the respondents.
On 5.10.2002 and 10.10.2002 the appellant sent a final
communication to the respondent requesting payment of all the
outstanding amounts. When the payment was still not made, the
appellant sent a communication dated 22.11.2002 to the
respondent requesting appointment of an arbitrator for adjudication
of disputes relating to payment, as provided under the arbitration
clause. However the respondent did not appoint an arbitrator within
the period of 30 days as stipulated under the agreement between
the parties. Hence the appellant has filed the aforementioned
Arbitration Applications for appointment of an arbitrator. Per
contra, the respondent contends that as per the appellant’s own
admission, the final bills for the work orders were raised in 1983.
Hence since the request for arbitration was invoked only in 2002,
the appellant’s claim is barred by limitation.
4. The High Court in the impugned judgement accepted the
respondent’s argument. The Court found that the appellant had
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raised the final bill on 8.2.1983, but had not stated any explanation
for why it failed to take any steps for immediately referring the
dispute in 1983 to the Chairman, Rajasthan State Electricity Board,
as provided under the arbitration clause, but instead requested
appointment of arbitrator as late as in 2002. Further, that the
appellant could not be allowed to make such a request under the
1996 Act given that the contracts provided that the arbitrator was
to be appointed under The Arbitration Act, 1940 (‘1940 Act’). This
all reflected that the appellant had filed the Arbitration Applications
merely as a gamble for pursuing a monetary claim against the
respondent, without the existence of any bonafide dispute. Thus the
High Court in the impugned judgement held that the appellant had
failed to make out any case of hardship or injustice justifying
condonation of delay in filing the applications under Section 43(3)
of the 1996 Act, and the Arbitration Applications were hopelessly
barred by limitation. Hence this appeal.
5. The limited issue which arises for our consideration is
therefore, whether the Arbitration Applications, on the facts of this
case, are barred by limitation?
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Learned counsel for the appellant vehemently contended that
the cause of action arose not in 1983 or 1989, but by the letters
dated 17/18.12.1999 in which the respondents repudiated the
appellant’s claims. The period prior to 18.12.1999 during which the
parties were negotiating and corresponding with each other could
not be counted for the purpose of computing the limitation period.
It was due to the respondent’s delay in responding to the
representations sent by the appellant that delay arose in filing the
Arbitration Applications. Hence the Arbitration Applications are not
barred by limitation. In support of his contention, he relied upon
the decisions of this Court in
Major (Retd.) Inder Singh Rekhi v.
Delhi Development Authority , (1988) 2 SCC 338; Hari Shankar
,
Singhania and Others v. Gaur Hari Singhania and Others
(2006) 4 SCC 658; v.
Shree Ram Mills Ltd. Utility Premises (P)
Ltd., (2007) 4 SCC 599 and Sunder Kukreja and Others v.
, (2009) 4 SCC 585.
Mohan Lal Kukreja and Anr.
6. Before deciding the issue of limitation, we must first
consider whether it is the 1940 Act or the 1996 Act which applies to
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the Arbitration Applications. Section 85 of the 1996 Act provides as
follows:
“ 85. Repeal and savings. —(1) The Arbitration (Protocol
and Convention) Act, 1937 (6 of 1937), the Arbitration
Act, 1940 (10 of 1940) and the Foreign Awards
(Recognition and Enforcement) Act, 1961 (45 of 1961) are
hereby repealed.
(2) Notwithstanding such repeal,—
(a) the provisions of the said enactments shall apply in
relation to arbitral proceedings which commenced before
this Act came into force unless otherwise agreed by the
parties but this Act shall apply in relation to arbitral
proceedings which commenced on or after this Act comes
into force;
(b) all rules made and notifications published, under the
said enactments shall, to the extent to which they are not
repugnant to this Act, be deemed respectively to have
been made or issued under this Act.” (emphasis supplied)
Section 21 of the 1996 Act provides:
“ 21. Commencement of arbitral proceedings .—Unless
otherwise agreed by the parties, the arbitral proceedings
in respect of a particular dispute commence on the date
on which a request for that dispute to be referred to
arbitration is received by the respondent.”
It is settled law that the date of commencement of arbitration
proceedings for the purpose of deciding which Act 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
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other party requesting appointment of an arbitrator (See Milkfood
, (2004) 7 SCC 288;
Ltd. v. GMC Ice Cream (P) Ltd Shetty’s
Constructions Co. Pvt. Ltd. v. Konkan Railway Construction
and Another , (1998) 5 SCC 599).
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 (See Fuerst Day Lawson Ltd v.
Jindal Exports Ltd. , (2001) 6 SCC 356: O.P. Malhotra on The
rd
, Justice Indu Malhotra ed., 3 .
Law and Practice of Arbitration
edn, 2014 at page 1915). In Milkfood Ltd (supra) as well, the
arbitration agreement was governed by the provisions of the 1940
Act. The appellant sent a notice to the respondent for appointment
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of an arbitrator on 14.9.1995. Hence this Court held that the 1940
Act would apply.
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. However,
it remains to be examined separately whether the aforesaid
Applications have been filed within the statutory limitation period.
7. Section 43 of the 1996 Act (relevant part) provides as
follows:
43. Limitations. —(1) The Limitation Act, 1963 (36 of
1963), shall apply to arbitrations as it applies to
proceedings in court…
(3) Where an arbitration agreement to submit future
disputes to arbitration provides that any claim to which
the agreement applies shall be barred unless 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…”
Section 43(1) and (3) of the 1996 Act is in pari materia with
Section 37(1) and (4) of the 1940 Act. It is wellsettled that by virtue
of Article 137 of the First Schedule to the Limitation Act, 1963 the
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limitation period for reference of a dispute to arbitration or for
seeking appointment of an arbitrator before a Court under the 1940
Act (See , (1996) 2
State of Orissa and Another v. Damodar Das
SCC 216) as well as the 1996 Act (See Grasim Industries Limited
v. State of Kerala , (2018) 14 SCC 265) is three years from the date
on which the cause of action or the claim which is sought to be
arbitrated first arises.
In (supra), this Court observed, relying upon
Damodar Das
th
Russell on Arbitration by Anthony Walton (19 Edn.) at pages 45
and an earlier decision of a twoJudge bench in Panchu Gopal
Bose v. Board of Trustees for Port of Calcutta , (1993) 4 SCC
338, that the period of limitation for an application for appointment
of arbitrator under Sections 8 and 20 of the 1940 Act commences
on 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 that an arbitration take place upon the dispute
concerned.
We also find the decision in (supra)
Panchu Gopal Bose
relevant for the purpose of this case. This was a case similar to the
10
present set of facts, where the petitioner sent bills to the respondent
in 1979, but payment was not made. After an interval of a decade,
he sent a notice to the respondent in 1989 for reference to
arbitration. This Court in observed that in
Panchu Gopal Bose
mercantile references of this kind, it is implied that the arbitrator
must decide the dispute according to the existing law of contract,
and every defence which would have been open to the parties in a
court of law, such as the plea of limitation, would be open to the
parties for the arbitrator’s decision as well. Otherwise, as this Court
observed:
“8…a claim for breach of contract containing a reference
clause could be brought at any time, it might be 20 or 30
years after the cause of action had arisen, although the
legislature has prescribed a limit of three years for the
enforcement of such a claim in any application that
might be made to the law courts…”
This Court further held as follows:
“11. Therefore, the period of limitation for the
commencement of 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 civil 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
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expiration of the specified number of years from the date
when the claim accrued.
12. In Russell on Arbitration ,…At page 80 it is stated
thus:
‘An extension of time is not automatic and it is only
granted if ‘undue harship’ would otherwise be caused.
Not all hardship, however, is ‘undue hardship’; it may be
proper that hardship caused to a party by his own
default should be borne by him, and not transferred to
the other party by allowing a claim to be reopened after it
has become barred.’ ” (emphasis supplied)
Therefore in this Court held that the
Panchu Gopal Bose
claim is “hopelessly barred” by limitation as the petitioner by his
own conduct had slept over his right for more than 10 years.
8. Undoubtedly, a different scheme has been evolved under
the 1996 Act. However we find that the same principles continue to
apply with respect to the applicability of the law of limitation to an
application under Section 11(6) of the 1996 Act as laid down in the
decisions dealing with judicial appointment of an arbitrator under
Sections 8 and 20 of the 1940 Act.
Our finding is supported by the decision of a threeJudge
Bench of this Court in (supra). In
Grasim Industries Grasim
Industries , similar to the present case, the arbitration agreement
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provided for reference to be made under the 1940 Act. However the
appellant raised their claim in 2002, attracting the application of
the 1996 Act. This Court was therefore faced with the issue of
whether an application for appointment of an arbitrator under the
1996 Act would be barred by limitation in respect of the appellant’s
claim. This Court found that, in view of Section 28 of the Indian
Contract Act, 1872, the parties in the arbitration agreement could
not stipulate a restricted period for raising a claim. However, the
limitation period for invocation of arbitration would be three years
from the date of the cause of action under Article 137 of the
Limitation Act, 1963. However in the facts of that case, this Court
found that certain claims had arisen within the three year limitation
period and hence, could be allowed.
Applying the aforementioned principles to the present case, we
find ourselves in agreement with the finding of the High Court that
the appellant’s cause of action in respect of Arbitration Applications
Nos. 25/2003 and 27/2003, 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
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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 Nos. 28/2003 relating to the work order
dated 3.5.1985, the respondent has stated that final bill was
handed over and became due on 10.8.1989. This has not been
disputed by the appellant. 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.
9. The decisions relied upon by the appellant are
inapplicable to the present facts and circumstances. At the outset,
we observe that the decision in (supra) is on a
Sunder Kukreja
different set of facts. In that decision, the question before this Court
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was whether the arbitration clause in a partnership deed would
continue to subsist in light of a subsequent retirement deed which
the appellant denied executing, and whether the arbitrator
appointed by the Court could examine the genuineness of the said
retirement deed. Hence it is not relevant to the issue of limitation.
Turning to the other decisions, it is true that in
Major (Retd.)
Inder Singh Rekhi (supra), this Court observed that the existence
of a dispute is essential for appointment of an arbitrator. A dispute
arises when a claim is asserted by one party and denied by the
other. The term ‘dispute’ entails a positive element and mere
inaction to pay does not lead to the inference that dispute exists. In
that case, since the respondent failed to finalise the bills due to the
applicant, this Court held that cause of action would be treated as
arising not from the date on which the payment became due, but on
the date when the applicant first wrote to the respondent requesting
finalisation of the bills. However, the Court also expressly observed
that ‘ a party cannot postpone the accrual of cause of action by
.’
writing reminders or sending reminders
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In the present case, the appellant has not disputed the High
Court’s finding that the appellant itself had handed over the final
bill to the respondent on 8.2.1983. Hence, the holding in
Major
(Retd.) Inder Singh Rekhi (supra) will not apply, as in that case,
the applicant’s claim was delayed on account of the respondent’s
failure to finalize the bills. Therefore the right to apply in the
present case accrued from the date on which the final bill was
raised (See v. ,
Union of India Momin Construction Company
(1997) 9 SCC 97).
10. In Hari Shankar Singhania (supra), the dispute to be
referred to arbitration was regarding division of assets amongst
partners of a dissolved family partnership firm. The appellants
specifically placed letters on the record showing that the parties
were trying to reach an amicable settlement prior to the stage where
adjudication of the dispute became inevitable. This Court observed
that the stage of adjudication by way of arbitration comes when
settlement with or without conciliation becomes impossible. Hence
this Court held that the limitation period would not run so long as
the parties were in dialogue. In that sense, when the settlement
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talks were taking place, the period of limitation would commence
from the date of the last communication between the parties.
It is relevant to note that the findings in Hari Shankar
were made in the specific context of a family settlement.
Singhania
This Court specifically observed that such a settlement is to be
treated differently from a formal commercial settlement, and that
efforts should be made to promote family settlements without the
obstruction of technicalities of limitation, etc. Hence this Court was
not dealing with a mercantile dispute such as in the present case.
In Shree Ram Mills Ltd (supra), this Court found that the
parties were continuously at loggerheads over joint development of
certain land. They had entered into a Memorandum of
Understanding to settle their dispute, however the respondent
cancelled this Memorandum; hence the dispute was referred to
arbitration under Section 11(6) of the 1996 Act. This Court, upon
considering the complete history of negotiation between the parties
which was placed before it, on the facts of that case, concluded that
the claim would not be barred by limitation as there was a
continuing cause of action between the parties.
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Having perused through the relevant precedents, we agree that
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.
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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.
11. We are of the considered opinion that the decisions in
Hari Shankar Singhania and Shree Ram Mills Ltd. (supra) will
not be applicable to the appellant’s case as in these cases the entire
negotiation history of the parties had been made available to this
Court. 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
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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.
We therefore find that 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 Indian 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’
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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 we were to include
the time spent proceeding before the Settlement Committee, 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.
It is further relevant to note that even the respondent’s letter
dated 18.12.1999 does not completely repudiate the appellant’s
claims but requests the submission of certain documents for
verification. Hence it was not so radical a departure from the
prevailing situation at that time so as to give a finding that the
appellant could not have contemplated arbitration prior to the
aforesaid letter.
We also find it pertinent to add that 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
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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. We agree with the High Court’s observation that the entire
dispute seems concocted so as to pursue a monetary claim against
the respondents, taking advantage of the provisions of the 1996 Act.
12. Hence the appeals are dismissed and the impugned
judgement and order is confirmed, in the above terms.
..............................................J.
[N.V. RAMANA]
...............................................J.
[MOHAN M. SHANTANAGOUDAR]
NEW DELHI; .................................................J.
SEPTEMBER 03, 2019. [AJAY RASTOGI]
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