Limitation for Arbitration Claims: Supreme Court Dismisses Appeal in Geo Miller & Co. Case (03 September 2019)

Introduction

Date of the Judgment: 03 September 2019

Citation: 2019 INSC 854

Judges: N.V. Ramana, J., Mohan M. Shantanagoudar, J., Ajay Rastogi, J.

When does the clock start ticking for an arbitration claim? Is it when the payment is due, or when the dispute officially arises? The Supreme Court of India addressed this crucial question in a case between M/s Geo Miller & Co. Pvt. Ltd. and the Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. The Court examined whether the appellant’s arbitration claims were time-barred, clarifying the application of limitation periods in arbitration proceedings. This judgment emphasizes the importance of timely action in pursuing legal remedies.

Case Background

M/s Geo Miller & Co. Pvt. Ltd. (the appellant) was awarded three work orders by Rajasthan Vidyut Utpadan Nigam Ltd. (the respondent) for work on a water treatment plant. These work orders were dated 7 October 1979, 4 April 1980, and 3 May 1985. Each work order was governed by a separate contract, all of which included a common arbitration clause. The appellant claimed that the respondent failed to make due payments under these contracts. Discussions regarding the outstanding payments continued until 1997, when the appellant approached a Settlement Committee formed by the respondent. However, the Settlement Committee also did not resolve the matter. The respondent acknowledged the pending matter in internal communications dated 20 November 1997. Subsequently, on 17/18 December 1999, the respondent partly allowed one claim for Rs. 1,34,359.12 and requested further details for other claims. The appellant provided the requested details on 6 January 2000. After further communications on 5 and 10 October 2002, the appellant requested the appointment of an arbitrator on 22 November 2002, as the payments were still not made. The respondent did not appoint an arbitrator, leading the appellant to file Arbitration Applications for the appointment of an arbitrator. The respondent contended that the claims were time-barred since the final bills were raised in 1983, and the request for arbitration was made only in 2002.

Timeline

Course of Proceedings

The High Court of Rajasthan dismissed the Arbitration Applications filed by the appellant. The High Court agreed with the respondent’s argument that the claims were barred by limitation, noting that the final bills were raised in 1983, but the request for arbitration was made in 2002. The High Court also noted that the arbitration clause stipulated appointment of an arbitrator under the Arbitration Act, 1940, whereas the appellant made the request under the Arbitration and Conciliation Act, 1996. The High Court concluded that the appellant failed to justify the delay in filing the applications and that the applications were barred by limitation. This led to the appeal before the Supreme Court.

Legal Framework

The case is primarily governed by the Arbitration and Conciliation Act, 1996 (the 1996 Act) and the Limitation Act, 1963. Section 85 of the 1996 Act deals with the repeal and savings of previous arbitration laws, stating that the 1996 Act applies to arbitral proceedings commenced on or after its enforcement unless otherwise agreed by the parties. Section 21 of the 1996 Act defines the commencement of arbitral proceedings as the date on which a request for arbitration is received by the respondent. Section 43 of the 1996 Act incorporates the Limitation Act, 1963, making it applicable to arbitrations as it applies to court proceedings. Specifically, Section 43(3) allows the court to extend the time for commencing arbitral proceedings if undue hardship would otherwise be caused. The Limitation Act, 1963, under Article 137, prescribes a limitation period of three years for seeking appointment of an arbitrator from the date the cause of action arises.

Section 85 of the Arbitration and Conciliation Act, 1996 states:

“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.”

Section 21 of the Arbitration and Conciliation Act, 1996 states:

“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.”

Section 43 of the Arbitration and Conciliation Act, 1996 states:

“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…”

Arguments

Appellant’s Submissions:

• The appellant argued that the cause of action arose not in 1983 or 1989, when the final bills were raised, but on 17/18 December 1999, when the respondent partly repudiated their claims.
• They contended that the period during which the parties were negotiating and corresponding should not be counted for computing the limitation period.
• The delay in filing the Arbitration Applications was due to the respondent’s delay in responding to their representations.
• The appellant relied on the decisions 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, to support their arguments.

Respondent’s Submissions:

• The respondent argued that the final bills for the work orders were raised in 1983, and the request for arbitration was made only in 2002, making the claim time-barred.
• They contended that the appellant failed to take immediate steps to refer the dispute to the Chairman, Rajasthan State Electricity Board, as provided under the arbitration clause.
• The respondent also pointed out that the request for arbitration was made under the 1996 Act, while the contracts stipulated arbitration under the 1940 Act.
• The respondent argued that the appellant’s actions were a mere gamble to pursue a monetary claim without a genuine dispute.

Submissions Table

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the Arbitration Applications, on the facts of this case, are barred by limitation?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Milkfood Ltd. v. GMC Ice Cream (P) Ltd., (2004) 7 SCC 288: Established that the date of commencement of arbitration proceedings is the date on which notice was served to the other party requesting appointment of an arbitrator.
• Shetty’s Constructions Co. Pvt. Ltd. v. Konkan Railway Construction and Another, (1998) 5 SCC 599: Reinforced the principle for determining the commencement of arbitration proceedings.
• Fuerst Day Lawson Ltd v. Jindal Exports Ltd., (2001) 6 SCC 356: Clarified that the 1996 Act applies to arbitral proceedings commenced after its enforcement, even if the arbitration clause contemplated proceedings under the 1940 Act.
• State of Orissa and Another v. Damodar Das, (1996) 2 SCC 216: Stated that the limitation period for reference of a dispute to arbitration is three years from the date the cause of action arises.
• Grasim Industries Limited v. State of Kerala, (2018) 14 SCC 265: Reiterated the three-year limitation period for invoking arbitration under the 1996 Act.
• Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, (1993) 4 SCC 338: Held that the limitation period for arbitration commences when the cause of action would have accrued had there been no arbitration clause.
• Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, (1988) 2 SCC 338: Discussed that a dispute arises when a claim is asserted by one party and denied by the other, and mere inaction to pay does not lead to the inference that a dispute exists.
• Union of India v. Momin Construction Company, (1997) 9 SCC 97: Held that the right to apply for arbitration accrues from the date on which the final bill was raised.
• Hari Shankar Singhania and Others v. Gaur Hari Singhania and Others, (2006) 4 SCC 658: Observed that the limitation period would not run so long as the parties were in dialogue, particularly in family settlements.
• Shree Ram Mills Ltd. v. Utility Premises (P) Ltd., (2007) 4 SCC 599: Found a continuing cause of action based on the complete history of negotiations between the parties.

Legal Provisions:

• Section 85 of the Arbitration and Conciliation Act, 1996: Deals with the repeal and savings of previous arbitration laws.
• Section 21 of the Arbitration and Conciliation Act, 1996: Defines the commencement of arbitral proceedings.
• Section 43 of the Arbitration and Conciliation Act, 1996: Incorporates the Limitation Act, 1963, for arbitrations.
• Article 137 of the Limitation Act, 1963: Prescribes a three-year limitation period for applications where no specific period is provided.
• Section 114(g) of the Indian Evidence Act, 1872: Allows the court to presume that evidence which could be and is not produced would, if produced, be unfavorable to the person who withholds it.

Authorities Table

Judgment

The Supreme Court upheld the High Court’s decision, dismissing the appeals. The Court found that the appellant’s claims were indeed barred by limitation. The Court clarified that the limitation period for arbitration commences when the cause of action arises, which in this case was when the final bills became due, not when the respondent partially repudiated the claims or when negotiations failed. The Court emphasized that mere correspondence does not extend the limitation period. The Court also noted that the appellant failed to produce evidence of negotiations prior to 1997, which could have potentially extended the limitation period.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court followed Milkfood Ltd. v. GMC Ice Cream (P) Ltd. [CITATION] and Shetty’s Constructions Co. Pvt. Ltd. v. Konkan Railway Construction and Another [CITATION] to determine that the date of notice for appointment of an arbitrator is the date of commencement of the arbitration proceedings.
• The Court followed Fuerst Day Lawson Ltd v. Jindal Exports Ltd. [CITATION] to clarify that the 1996 Act would apply even if the arbitration clause contemplated proceedings under the 1940 Act.
• The Court followed State of Orissa and Another v. Damodar Das [CITATION] and Grasim Industries Limited v. State of Kerala [CITATION] to reiterate that the limitation period for invoking arbitration is three years from the date the cause of action arises.
• The Court followed Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [CITATION] to hold that the limitation period for arbitration commences when the cause of action would have accrued had there been no arbitration clause.
• The Court distinguished Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority [CITATION], stating that in the present case, the applicant’s claim was not delayed due to the respondent’s failure to finalize the bills.
• The Court followed Union of India v. Momin Construction Company [CITATION] to hold that the right to apply for arbitration accrued from the date on which the final bill was raised.
• The Court distinguished Hari Shankar Singhania and Others v. Gaur Hari Singhania and Others [CITATION], noting that its findings were specific to family settlements and not applicable to commercial disputes.
• The Court distinguished Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. [CITATION], as in that case, there was a continuing cause of action between the parties, which was not the case in the present matter.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of limitation and the need for timely action in pursuing legal remedies. The Court emphasized that the cause of action arises when the payment becomes due, and mere correspondence or negotiations do not extend the limitation period unless there is clear evidence of ongoing settlement talks. The Court also considered the lack of specific pleadings and evidence from the appellant regarding their negotiation history. The Court’s sentiment was towards upholding the statutory limitation period and ensuring that parties do not unduly delay initiating arbitration proceedings.

Fact:Law Ratio

The Court’s reasoning was heavily based on legal principles and precedents, with a lesser emphasis on the factual aspects of the case. The Court focused on the legal interpretation of when the cause of action arises and the application of the Limitation Act, rather than the specific details of the negotiations between the parties.

Logical Reasoning

Key Takeaways

• Limitation Period: The limitation period for initiating arbitration starts from the date the cause of action arises, which is typically when the payment becomes due.
• Negotiation Period: While the period of bona fide negotiations can be excluded, it requires specific pleadings and evidence to support the claim.
• Timely Action: Parties must act promptly to initiate arbitration proceedings once a dispute arises. Mere correspondence or reminders do not extend the limitation period.
• Evidence of Negotiations: Parties must maintain and present detailed records of their negotiations to claim exclusion of time for limitation purposes.
• Applicability of the 1996 Act: The Arbitration and Conciliation Act, 1996, applies to arbitral proceedings commenced on or after its enforcement, irrespective of the arbitration clause.

Directions

The Supreme Court dismissed the appeals and upheld the judgment of the High Court.

Development of Law

The ratio decidendi of this case is that the limitation period for arbitration commences when the cause of action arises, which is when the payment becomes due. The Court clarified that mere correspondence or negotiations do not extend the limitation period unless there is clear evidence of ongoing settlement talks. This judgment reinforces the importance of timely action in initiating arbitration proceedings and provides clarity on the interpretation of the limitation period under the Arbitration and Conciliation Act, 1996. There is no change in the previous positions of law, but the judgment clarifies the application of existing principles to commercial disputes.

Conclusion

In conclusion, the Supreme Court dismissed the appeal filed by M/s Geo Miller & Co. Pvt. Ltd., affirming that their arbitration claims were barred by limitation. The Court emphasized that the cause of action arose when the final bills became due, not when the respondent partially repudiated the claims or when negotiations failed. This judgment underscores the necessity of timely action in pursuing arbitration claims and serves as a crucial reference point for understanding the application of limitation periods in arbitration proceedings.