M/s Geo Miller & Co. Pvt. Ltd. vs Chairman, Rajasthan Vidyut Utpadan Nigam Ltd.

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

JUDGMENT

MOHAN M. SHANTANAGOUDAR, J.

Signature Not Verified Digitally signed by VISHAL ANAND

1. The appeals arise out of the common judgement dated Date: 2019.09.03 16:08:18 IST Reason:

25.1.2007 of the High Court of Rajasthan at Jaipur Bench

1 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

2 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

3 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

4 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?

5 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; Shree Ram Mills Ltd. v. Utility Premises (P)

Ltd., (2007) 4 SCC 599 and Sunder Kukreja and Others v.

Mohan Lal Kukreja and Anr., (2009) 4 SCC 585.

6. Before deciding the issue of limitation, we must first

consider whether it is the 1940 Act or the 1996 Act which applies to

6 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

7 other party requesting appointment of an arbitrator (See Milkfood

Ltd. v. GMC Ice Cream (P) Ltd, (2004) 7 SCC 288; 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

Law and Practice of Arbitration, Justice Indu Malhotra ed., 3rd.

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

8 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

9 limitation period for reference of a dispute to arbitration or for

seeking appointment of an arbitrator before a Court under the 1940

Act (See State of Orissa and Another v. Damodar Das, (1996) 2

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 Damodar Das (supra), this Court observed, relying upon

Russell on Arbitration by Anthony Walton (19th 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 Panchu Gopal Bose (supra)

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 Panchu Gopal Bose observed that in

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

11 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 Panchu Gopal Bose this Court held that the

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 Grasim Industries (supra). In Grasim

Industries, similar to the present case, the arbitration agreement

12 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

13 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 Sunder Kukreja (supra) is on a

different set of facts. In that decision, the question before this Court

14 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.’

15 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 Union of India v. 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

16 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

Singhania were made in the specific context of a family settlement.

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.

17 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.

18 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

19 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’

20 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

21 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]

22