The limitation period of three years for reference of dispute to Arbitrator starts when the dispute first arose between the parties and in order to exclude the time spent in further negotiations, it has to be clearly pleaded and substantiated.
The Hon’ble Supreme Court vide its order dated 03.09.2019, passed in M/s Geo Miller & Co. Pvt. Ltd. vs. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. bearing Civil Appeal No. 967/2010, held that the limitation period for invoking arbitration is three years and which starts from the date when cause of action or dispute arose for the first time and time spent on further negotiations, if any, has to be clearly pleaded and substantiated, in order to get it excluded from the three years time period.
Challenge
The factual matrix of this case is that the Respondent had floated tenders for execution of work on a water treatment plant and the appellant applied for the same and was awarded with the three work orders dated 07.10.1979, 04.04.1980 and 03.05.1985. Three separate contracts were executed between the parties for three work orders but containing the same arbitration clause under the Arbitration Act, 1940 and statutory modifications thereof. The Appellant’s case is that the Respondents failed to make the payments under the three contracts and till 1997, the Appellant was involved in the discussion with the Respondents. On 04.10.1997, the Appellant approached the Settlement Committee constituted by the Respondent Board for release of the outstanding payment however, the Settlement Committee failed to respond to their representations.
The Respondent vide 20.11.1997 acknowledged that the matter was pending for consideration with them and thereafter, by letter dated 17/18.12.1999, the Respondents partly allowed the claim of the Appellant by allowing one claim of the Appellant and requesting for supporting bills for the other claims for verification. On 06.01.2000, the Appellant replied to the said letter sending the photocopies of the bills and stating that the bills had already been processed for payment. Thereafter, on 05.10.2002 and 10.10.2002, the appellant sent final communication to the Respondent requesting the Respondent for payment of all the outstanding amount, however, when the payment was still not made, the appellant sent a communication dated 22.11.2002 to the Respondent requesting appointment for adjudication of disputes relating to payment. However, when even after the expiry of 30 days, the Respondent did not appoint arbitrator, the Appellant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (1996 Act) before the Hon’ble High Court of Rajasthan.
The Hon’ble High Court, vide the impugned order dated 25.01.2007 dismissed the application of the Appellant on the ground that the Appellant received the final bill in 1983 but made request for the appointment of the arbitrator only in 2002, without giving any justified reason for the delay, therefore the application was time barred and secondly, the application for appointment of arbitration was made under 1996 Act when the contract provided for appointment under The Arbitration Act, 1940 (1940 Act). Hence, the present Special Leave Petition was filed.
The counsel for the Appellant contended that the cause of action arose on 17/18.12.1999 and not in 1983, when the final bill was issued as the parties were negotiating and corresponding with each other and the delay arose because of the delay on the part of the Respondent in responding to the representations of the applicant.
Held
The Hon’ble Supreme Court, after considering the contentions of the parties, held that since the notice for invoking arbitration was sent in 2002, i.e. after 25.01.1996, which is when the 1996 Act came into force, 1996 Act would apply in the present case, though the contract provided for arbitration under 1940 Act. The Hon’ble Court further observed that Section 3(10 and (3) of the 1996 Act is in pari materia with Section 37 (1) and (4) of the 1940 Act and therefore by virtue of Article 137 of the First Schedule of the Limitation Act, 1963, the limitation period for reference of dispute to the Arbitrator or for seeking the appointment of arbitrator is three years from the date on which the cause of action or claim which is sought to be arbitrated first arises.
The Hon’ble Court after referring to many judgments dismissed the appeal holding that the cause of action would arise when the Petitioner first received his final bills in the year 1983 and the claim of the Petitioner that reminders were being sent by the Petitioner to the Respondents would not extend such time especially when there is nothing on record to support the ‘negotiation history’. The Court further observed that in case of commercial disputes, when one party makes a claim and the other party fails to respond even after reasonable time, the failure should be deemed as denial, resulting in cause of action for invoking arbitration.