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SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, CJI., J. B. PARDIWALA, J.
M/S B AND T AG - PETITIONER
VERSUS
MINISTRY OF DEFENCE - RESPONDENT
ARBITRATION PETITION (C) NO. 13 OF 2023
Decided On : 18-05-2023
(A) Arbitration and Conciliation Act, 1996 – Section 11(6) – Limitation Act, 1963 – Article 137 – Appointment of Arbitrator – Limitation – Period of limitation in cases covered by Article 137 is three years and said period would begin to run when right to apply accrues – There is a fine distinction between plea that claims raised are barred by limitation and plea that application for appointment of Arbitrator is barred by limitation – What is important for Court is to find out what was “Breaking Point” at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of dispute for arbitration – Even if arbitration clause contains a provision that no cause of action shall accrue in respect of any matter agreed to be referred to until award is made, time still runs from normal date when cause of action would have accrued if there had been no arbitration clause – Claim for arbitration must be raised as soon as cause for arbitration arises as in case of cause of action arisen in a civil action. (Paras 33, 44, 52, 56 and 57)
(B) Arbitration and Conciliation Act, 1996 – Sections 11(6), 9 and 43 – Limitation Act, 1963 – Article 137 of Schedule and Section 14 – Appointment of Arbitrator – Limitation – Whether any particular facts constitute a cause of action has to be determined with reference to facts of each case and with reference to substance rather than form of action – If infringement of a right happens at a particular time, whole cause of action will be said to have arisen then and there – In such a case, it is not open to a party to sit tight and not to file an application for settlement of dispute of his right which had been infringed, within time provided by 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 application under Section 11 of Act 1996 for establishment of his right which was not then alive and which had been long extinguished – In present case, disputes arose between parties in relation to wrongful encashment of bank guarantee – Disputes between parties had cropped up way back in year 2014 itself – When bank guarantee came to be encashed in year 2016 and requisite amount stood transferred to Government account that was end of the matter – This “Breaking Point” should be treated as date at which cause of action arose for the purpose of limitation – Mere negotiations will not postpone “cause of action” for the purpose of limitation – Case on hand is clearly one of a hopelessly barred claim as petitioner by its conduct slept over its right for more than five years – Petition rejected. (Paras 58, 59, 61, 62, 63, 66 and 67)
Facts of the case:
Only question that falls for reconsideration is whether time-barred claims or claims which are barred by limitation, can be said to be live claims, which can be referred to arbitration?
Findings of Court:
Cause of arbitration arises when claimant becomes entitled to raise the question, i.e. when the claimant acquires the right to require arbitration. Limitation would run from the date when cause of arbitration would have accrued, but for the agreement.
Result : Petition rejected.
JUDGMENT :
J. B. PARDIWALA, J.
1. This is a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, (for short, ‘the Act 1996’), filed at the instance of a company based in Switzerland and engaged in the business of manufacturing of arms etc., praying for appointment of an arbitrator for the adjudication of disputes and claims arising out of the Contract No. 78953/SMG/GS/WE-4(GS-IV) dated 27.03.2012 executed with the respondent Government of India in its Ministry of Defence.
FACTUAL MATRIX
2. The respondent, Ministry of Defence vide the RFP No. 78953/SMG/GS/WE-4 dated 18.11.2009 floated an urgent tender for procurement of 1,568 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 encashment had been issued after due scrutiny and analysis of the case put up by the Petitioner vide letter dated 24.10.2014 and such encashment was with approval of the competent authority at Ministry of Defence. The respondent was also accorded sanction by the President of India to deduct Euro 197,230.35 towards the recovery of applicable LDs from the Petitioner in accordance with the terms of the Contract vide letter dated 11.08.2016.
5. In the aforesaid context, the respondent on 26.09.2016 deducted the amount for recovery of applicable LDs. The amount was consequently, credited into the Government Account as per the instructions contained in the letter dated 11.08.2016 issued on behalf of the President of India. Accordingly, the claims of the Petitioner stood rejected.
6. Despite the aforesaid, the parties continued to engage themselves in “bilateral discussions” with a view to explore the possibility of resolving the dispute regarding imposition of the LDs and encashment of the WBG. However, the respondent vide its letter dated 22.09.2017 informed the petitioner, that all actions taken by the respondent were in accordance with the terms of the Contract, and that the petitioner was given sufficient opportunity to present its case.
7. The petitioner claims that after the letter dated 22.09.2017 was issued, the parties remained in constant communication with each other, to negotiate and resolve the dispute. Nonetheless, the petitioner vide letter dated 04.09.2019, requested the respondent to review and discuss the wrongful imposition of LDS and give a fair chance to the petitioner to present its case.
8. In such circumstances referred to above, the petitioner is here before this Court with the present petition.
SUBMISSIONS ON BEHALF OF THE PETITIONER
9. At the outset, Ms. Dua, the learned counsel appearing for the petitioner made a fervent appeal to this Court to take notice of the following dates and events:
| 27.03.2012 | Petitioner and the Respondent entered into a Contract dated 27.03.2012 bearing No. 7895 |
An application under Section 11 for appointment of an arbitrator is time-barred if filed after three years from the refusal to appoint, with delays not justified.
Arbitration requests must be filed within three years of the cause of action; failure to act in time bars subsequent petitions.
The Arbitration and Conciliation Act requires strict adherence to limitation periods for the appointment of arbitrators; delays exceeding three years render petitions ex-facie time-barred.
The main legal point established in the judgment is that the limitation for filing an application under Section 11 of the Arbitration Act arises upon the failure to make the appointment of the arbitr....
The main legal point established in the judgment is the application of the Limitation Act, 1963 to arbitration proceedings and the significance of acknowledging claims to extend the period of limitat....
The main legal point established in the judgment is that the limitation period for filing an application seeking appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation A....
The main legal principle established is that the Court should not reject an application for appointment of an arbitrator at the threshold unless the claim is manifestly, ex-facie and hopelessly time-....
The main legal point established is that the filing of a petition under Section 11(6) of the 1996 Act is not subject to a period of limitation and is covered by the residual provision Article 137 of ....
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