Substantive claims are barred by limitation if arbitration is validly invoked beyond three years from the breaking point.

The Plaintiff was awarded a contract by the Defendant in 1982 for fire protection systems, which were taken over on 04.08.1986

After claims for additional works were rejected by the Defendant on 21.06.1988, the Plaintiff issued a notice invoking arbitration on 09.12.1989

The Defendant denied receipt of this 1989 notice

Arbitral proceedings were eventually triggered by a subsequent notice dated 10.05.1994

A majority Arbitral Award was passed on 09.12.2008, allowing several of the Plaintiff’s claims

The Defendant challenged the award under Sections 30 and 33 of the Arbitration Act, 1940

After a round of appeals reached the Supreme Court, the matter was remanded to determine if the substantive claims were barred by limitation

1. Whether the substantive claims raised by the Plaintiff were instituted within the prescribed period of limitation reckoned from the date of accrual of the cause of action.

2. Whether the notice dated 09.12.1989 was validly served so as to commence arbitral proceedings under Section 37(3) of the Arbitration Act, 1940.

The court applied Section 37(3) of the Arbitration Act, 1940, which deems arbitration to commence only when a notice requiring the appointment of an arbitrator is served on the other party

It relied on the "breaking point" doctrine established in B & T AG v. Union of India and Arif Azim Co. Ltd. v. Aptech Ltd., which posits that limitation begins when negotiations fail and a party contemplates referral to arbitration

The court also applied Article 137 of the Limitation Act, 1963, prescribing a three-year period for claims

Principles of specific denial under Order VIII Rules 3 and 5 of the CPC

The Court found the Arbitral Tribunal’s reasoning—that limitation was extended by ongoing negotiations—to be legally flawed, as mere reminders do not stop the clock once time begins to run

Applying the "breaking point" test, the Court determined that the cause of action accrued, at the latest, on 09.12.1989, when the Plaintiff first attempted to invoke arbitration, signaling that amicable settlement was no longer possible

Regarding commencement, the Plaintiff failed to prove service of the 1989 notice, and its own pleadings inconsistently admitted the Defendant’s non-receipt of said notice

Consequently, the Court held that arbitration only validly commenced with the second notice in May 1994

Since the gap between the accrual of the cause of action (December 1989) and the valid commencement of arbitration (May 1994) exceeded the three-year statutory limit, the claims were time-barred

The suit CS(OS) 549/2009 was dismissed and the Court imposed costs of Rs. 2,50,000 each on both the Plaintiff and the Defendant for adopting shifting, inconsistent stands and wasting judicial time