# M/S B AND T AG v. MINISTRY OF DEFENCE

- **Citation:** [2023] 7 S.C.R. 599
- **Court:** Supreme Court of India
- **Decided:** 2023-05-18
- **Bench:** Dr. Dhananjaya Y Chandrachud, J. B. Pardiwala
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-b-and-t-ag-v-ministry-of-defence-37488
- **Pages:** 43

## Headnote

Arbitration and Conciliation Act, 1996 - s.11- Limitation
period - Cause of action - When accrues - "Breaking Point"-
Negotiations, if postpone the cause of action - Held: No - Cause
of action becomes important for calculating the limitation period
for bringing an action - Period of limitation for commencing an
arbitration runs from 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 arbitration - An application u/
s.11 is governed by Article 137 of the Schedule to the 1963 Act and
must be made within 3 years from the date when the right to apply
first accrues - There is no right to apply until there is a clear and
unequivocal denial of that right by the respondent - Claim for
arbitration must be raised as soon as the cause for arbitration arises
- Whether any particular facts constitute a cause of action has to
be determined with reference to the facts of each case and the
substance rather than the form of the action - If an infringement of
a right happens at a particular time, the 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 file an application for settlement of
dispute of his right and allow it to be extinguished by lapse of time
- Mere negotiations will not postpone the cause of action for the
purpose of limitation - What is important for the Court is to find out
what was the "Breaking Point", a question of fact, at which any
reasonable party would have abandoned efforts at arriving at a
settlement and contemplated referral of the dispute for arbitrationEntire history of the negotiation between the parties must be pleaded
and placed on record for the Court to find out the "Breaking Point"
- Bilateral discussions for an indefinite period of time would not
save the situation so far as the accrual of cause of action and the
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[2023] 7 S.C.R.
right to apply for appointment of arbitrator is concerned - Limitation
Act, 1963 - Article 137.
Arbitration and Conciliation Act, 1996 - s.11(6), 43 - Contract
entered between parties in 2012 - Dispute in relation to the alleged
wrongful imposition of Liquidated Damages and wrongful
encashment of the bank guarantee by the respondent-Ministry of
Defence in2016 - Petitioner issued notice invoking arbitration only
in 2021 - According to the petitioner the parties were trying to
amicably resolve the disputes by way of 'bilateral discussions' as
per the Contract - Present petition filed by the petitioner u/s.11(6),
claiming to be within the period of limitation, for appointment of
arbitrator - Time-barred claims/claims barred by limitation, if can
be said to be live claims which can be referred to arbitration -
Held: Disputes between the parties had cropped up way back in
the year 2014 itself - When the bank guarantee came to be encashed
in 2016 and the requisite amount stood transferred to the
Government account, that was the end of the matter - This "Breaking
Point" is the date at which the cause of action arose for the purpose
of limitation - Petitioner not justified in saying that it continued to
negotiate till 2019 - Statutory time period of three years prescribed
for the enforcement of a claim cannot be defeated on the ground
that the parties were negotiating - Present case is one of a hopelessly
barred claim, as the petitioner slept over its right for more than five
years - Petition rejected - Limitation Act, 1963 - Article 137.
Words and Phrases- "cause of action"; "right to apply" -
Meaning of - Discussed.
Rejecting the petition, the Court
HELD: 1.1 Ordinarily on the completion of the work, the
right to receive the payment begins. A dispute arises when there
is a claim on one side and its denial/repudiation by the other. A
person cannot postpone the accrual of cause of action by
repeatedly writing letters or sending reminders.'Bilateral
discussions' for an i

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 [2023] 7 S.C.R. 599
M/S B AND T AG
v.
MINISTRY OF DEFENCE
(Arbitration Petition (Civil) No. 13 of 2023)
MAY 18, 2023
[DR. DHANANJAYA Y CHANDRACHUD, CJI AND
J. B. PARDIWALA, J.]
Arbitration and Conciliation Act, 1996 - s.11- Limitation
period - Cause of action - When accrues - "Breaking Point"-
Negotiations, if postpone the cause of action - Held: No - Cause
of action becomes important for calculating the limitation period
for bringing an action - Period of limitation for commencing an
arbitration runs from 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 arbitration - An application u/
s.11 is governed by Article 137 of the Schedule to the 1963 Act and
must be made within 3 years from the date when the right to apply
first accrues - There is no right to apply until there is a clear and
unequivocal denial of that right by the respondent - Claim for
arbitration must be raised as soon as the cause for arbitration arises
- Whether any particular facts constitute a cause of action has to
be determined with reference to the facts of each case and the
substance rather than the form of the action - If an infringement of
a right happens at a particular time, the 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 file an application for settlement of
dispute of his right and allow it to be extinguished by lapse of time
- Mere negotiations will not postpone the cause of action for the
purpose of limitation - What is important for the Court is to find out
what was the "Breaking Point", a question of fact, at which any
reasonable party would have abandoned efforts at arriving at a
settlement and contemplated referral of the dispute for arbitrationEntire history of the negotiation between the parties must be pleaded
and placed on record for the Court to find out the "Breaking Point"
- Bilateral discussions for an indefinite period of time would not
save the situation so far as the accrual of cause of action and the
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right to apply for appointment of arbitrator is concerned - Limitation
Act, 1963 - Article 137.
Arbitration and Conciliation Act, 1996 - s.11(6), 43 - Contract
entered between parties in 2012 - Dispute in relation to the alleged
wrongful imposition of Liquidated Damages and wrongful
encashment of the bank guarantee by the respondent-Ministry of
Defence in2016 - Petitioner issued notice invoking arbitration only
in 2021 - According to the petitioner the parties were trying to
amicably resolve the disputes by way of 'bilateral discussions' as
per the Contract - Present petition filed by the petitioner u/s.11(6),
claiming to be within the period of limitation, for appointment of
arbitrator - Time-barred claims/claims barred by limitation, if can
be said to be live claims which can be referred to arbitration -
Held: Disputes between the parties had cropped up way back in
the year 2014 itself - When the bank guarantee came to be encashed
in 2016 and the requisite amount stood transferred to the
Government account, that was the end of the matter - This "Breaking
Point" is the date at which the cause of action arose for the purpose
of limitation - Petitioner not justified in saying that it continued to
negotiate till 2019 - Statutory time period of three years prescribed
for the enforcement of a claim cannot be defeated on the ground
that the parties were negotiating - Present case is one of a hopelessly
barred claim, as the petitioner slept over its right for more than five
years - Petition rejected - Limitation Act, 1963 - Article 137.
Words and Phrases- "cause of action"; "right to apply" -
Meaning of - Discussed.
Rejecting the petition, the Court
HELD: 1.1 Ordinarily on the completion of the work, the
right to receive the payment begins. A dispute arises when there
is a claim on one side and its denial/repudiation by the other. A
person cannot postpone the accrual of cause of action by
repeatedly writing letters or sending reminders.'Bilateral
discussions' for an indefinite period of time would not save the
situation so far as the accrual of cause of action and the right to
apply for appointment of arbitrator is concerned. What is important
for the Court is to find out what was the "Breaking Point" at
which any reasonable party would have abandoned efforts at
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arriving at a settlement and contemplated referral of the dispute
for arbitration. What was the "Breaking Point" is a question of
fact. [Paras 37, 44 and 45][618-D-E; 623-C-D]
Major (Retd.) Inder Singh Rekhi v. Delhi Development
Authority AIR 1988 SC 1887; Geo Miller and Company
Private Limited v. Chairman, Rajasthan Vidyut Utpadan
Nigam Limited (2020) 14 SCC 643 : [2019] 11 SCR
1108 - relied on.
1.2 There is a fine distinction between the plea that the
claims raised are barred by limitation and the plea that the
application for appointment of an arbitrator is barred by limitation.
[Para 52][633-C]
1.3 "Cause of action" means the whole bundle of material
facts, which it is necessary for the plaintiff to prove in order to
entitle him to succeed in the suit. Cause of action becomes
important for the purposes of calculating the limitation period for
bringing an action. It is imperative that a party realises when a
cause of action arises. If a party simply delays sending a notice
seeking reference under the Act 1996 because they are unclear
of when the cause of action arose, the claim can become timebarred even before the party realises the same. The period of
limitation for commencing an arbitration runs from the date on
which the "cause of arbitration" accrued, that is to say, 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. The period of limitation for the commencement of an
arbitration runs from the date on which, had there been no
arbitration clause, the cause of action would have accrued. Even
if the arbitration clause contains a provision that no cause of action
shall accrue in respect of any matter agreed to be referred to
until an award is made, time still runs from the normal date when
the cause of action would have accrued if there had been no
arbitration clause. An application under Section 11 of the Act 1996
is governed by Article 137 of the Schedule to the Act 1963 and
must be made within 3 years from the date when the right to
apply first accrues. There is no right to apply until there is a clear
and unequivocal denial of that right by the respondent. It must,
therefore, be clear that the claim for arbitration must be raised
M/S B AND T AG v. MINISTRY OF DEFENCE
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as soon as the cause for arbitration arises as in the case of cause
of action arisen in a civil action. [Paras 54-55 and 57][633-H;
634-C-E; 635-C]
Dwijendra Narain Roy v. Joges Chandra De and others,
AIR 1924 Cal 600; Mussummat Chand Kour and
Another v. Partab Singh and Others ILR (1889) 16
Cal 98 - referred to.
Russell on Arbitration by Anthony Walton (19th Edn.)
at pp. 4-5; Law of Arbitration by Justice Bachawat, p.
549 - referred to.
1.4 Whether any particular facts constitute a cause of action
has to be determined with reference to the facts of each case and
with reference to, the substance, rather than the form of the action.
If an infringement of a right happens at a particular time, the
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 the time provided by the 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 an
application under Section 11 of the Act 1996 for establishment of
his right which was not then alive, and, which had been long
extinguished because, in such a case, such an application would
mean an application for revival of a right, which had long been
extinguished under the Act 1963 and is, therefore, dead for all
purposes. Such proceedings would not be maintainable and would
obviously be met by the plea of limitation under Article 137 of
the Act 1963. [Para 58][635-D-F]
1.5 The plain reading of the letter dated 24.02.2016 would
indicate that the disputes between the parties had cropped up
way back in the year 2014 itself. This is evident by the date
24.10.2014 figuring in the aforesaid letter dated 24.02.2016. The
letter indicates that after the disputes arose between the parties,
the petitioner tried to offer its explanation and put forward its
case vide letter dated 24.10.2014. The respondent by letter dated
24.02.2016 clarified or rather informed the petitioner that the
justifications put forward by the petitioner vide its letter dated
24.10.2014 were duly considered and thereafter, a final decision
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was taken for encashment of the liquidated damages. Therefore,
the petitioner is not justified in saying that it continued to
negotiate till 2019. The mere bald assertion in this regard is not
sufficient. The entire history of the negotiation between the
parties must be specifically pleaded and placed on record. It is
only after the entire history of negotiation is pleaded and placed
on record that the Court would be in a position to consider such
history so as to 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. When the bank guarantee came to be encashed in
the year 2016 and the requisite amount stood transferred to the
Government account that was the end of the matter. This
"Breaking Point" should be treated as the date at which the cause
of action arose for the purpose of limitation. Negotiations may
continue even for a period of ten years or twenty years after the
cause of action had arisen. Mere negotiations will not postpone
the "cause of action" for the purpose of limitation. The Legislature
has prescribed a limit of three years for the enforcement of a
claim and this statutory time period cannot be defeated on the
ground that the parties were negotiating. The case on hand is
clearly and undoubtedly, one of a hopelessly barred claim, as the
petitioner by its conduct slept over its right for more than five
years. Statutory arbitrations stand apart. The petition fails and is
rejected. [Paras 61-63, 66][637-B-G; 641-E]
Union of India and Another v. M/s L. K. Ahuja and Co.
(1988) 3 SCC 76 : [1988] 3 SCR 402; J. C. Budhraja
v. Chairman, Orissa Mining Corporation Ltd. and
Another (2008) 2 SCC 444 : [2008] 1 SCR 821; SBP
& Co. v. Patel Engineering Ltd. and Another (2005) 8
SCC 618 : [2005] 4 Suppl. SCR 688; National
Insurance Company Limited v. Boghara Polyfab Private
Limited (2009) 1 SCC 267 : [2008] 13 SCR 638; Bharat
Sanchar Nigam Limited and Anr. v. Nortel Networks
India Private Limited (2021) 5 SCC 738; Panchu Gopal
Bose v. Board of Trustees for Port of Calcutta (1993) 4
SCC 338: [1993] 3 SCR 361; State of Orissa v. Damodar
Das (1996) 2 SCC 216: [1995] 6 Suppl. SCR 800 -
relied on.
M/S B AND T AG v. MINISTRY OF DEFENCE
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Cognizance for Extension of Limitation, In re (2022) 3
SCC 117; Consolidated Engineering Enterprises v.
Principal Secretary, Irrigation Department and Others
(2008) 7 SCC 169 : [2008] 5 SCR 1108; Merla
Ramanna v. Nallaparaju and Others [1955] 2 SCR 938;
Secunderabad
Cantonment
Board
v.
B.
Ramachandraiah and Sons (2021) 5 SCC 705; NTPC
Ltd. v. SPML Infra Ltd. reported in 2023 SCC Online
SC 389; Vidya Drolia and Ors. v. Durga Trading
Corporation (2021) 2 SCC 1 : [2020] 11 SCR 1001 -
referred to.
Welspun Enterprises Ltd. v. NCC Ltd.(2022) 295 DLT
286; Zillon Infraprojects Pvt. 33 Ltd. v. Bharat Heavy
Electricals Limited reported in 2023 SCC OnLine Cal
756 - referred to.
Case Law Reference
[2019] 11 SCR 1108
relied on
Para 14
[2008] 5 SCR 1108
referred to
Para 30
[1955] 2 SCR 938
referred to
Para 34
[1988] 3 SCR 402
relied on
Para 38
[2008] 1 SCR 821
relied on
Para 40
[2005] 4 Suppl. SCR 688
relied on
Para 41
[2008] 13 SCR 638
relied on
Para 42
 (2021) 5 SCC 705
referre to
Para 48
(2021) 5 SCC 738
relied on
Para 49
[2020] 11 SCR 1001
referred to
Para 49
[1993] 3 SCR 361
relied on
Para 64
[1995] 6 Suppl. SCR 800
relied on
Para 64
CIVIL ORIGINAL JURISDICTION : Arbitration Petition (C)
No.13 of 2023.
Petition U/S 11(6) read with Section 11(12) of the Arbitration and
Conciliation Act, 1996 ('ACT") for Constituting Arbitral Tribunal in
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Accordance with Contract dated 27.03.2012 entered into between the
Parties.
Abhimanyu Bhandari, Ms. Rooh-e-hina Dua, Ms. Ananya Sikri,
Ms. Dhanakshi Gandhi, Advs. for the Petitioner.
K. M. Nataraj, ASG, Ms. Rukhmini Bobde, Vatsal Joshi, P V
Yogeshwaran, Vinayak Sharma, Arvind Kumar Sharma, Advs. for the
Respondent.
The Judgment of the Court was delivered by
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.
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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.
78953/SMG/GS/WE-4 for procurement /
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supply of quantity 568 9MM SMG Model MP9 Sub Machine Gun with Accessories
("Contract"). The Contract contained a
dispute resolution clause which also
incorporated an agreement to arbitrate (Article
21).
16.02.2016:
Disputes arose between the parties in relation
to wrongful encashment of bank guarantee
vide letter dated 16.02.2016 for Euro
201,793.75 ("BG") and for wrongful
imposition of liquidated damages to the tune
of Euro 399,0240.10.
22.09.2017:
It is pertinent to state that between 16.02.2016
and 22.09.2017, the parties were constantly
engaged in "bilateral discussion" as
specifically mandated by Article 21 of the
Contract in order to resolve their disputes
regarding the wrongful deduction of
Liquidated damages and encashment of the BG.
The Petitioner had urged the Respondent to
reconsider the wrongful Encashment of BG.
However, the Respondent, vide letter dated
22.09.2017 for the first time communicated to
the Petitioner that it would not reconsider the
request.
2017-2019:
Even after the communication dated
22.09.2017, the Parties were constantly trying
to negotiate and resolve their disputes. In
relation to which the Petitioner even attended
a meeting with Director General (Acquisition.)
and Additional Secretary.
04.09.2019:
The Petitioner further requested the
Respondent to review and discuss the wrongful
imposition of Liquidated Damages and give a
fair chance to the Petitioner to explain their
position. The Petitioner emphasized to consider
this situation as an urgent matter as it involves
M/S B AND T AG v. MINISTRY OF DEFENCE
[J. B. PARDIWALA, J.]
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M/s B&T AG Switzerland who has signed up
to manufacture in India, their 9mm SMG and
the 338 Sniper Rifles, but their board has
requested a resolution to this outstanding issue
before proceeding further with any "Make in
India" programme.
08.11.2021:
The world was hit by COVID in March 2020.
The Petitioner on 08.11.2021 issued Notice
dated 08.11.2021 invoking Arbitration under
Article 21 of the said Contract to the
Respondent. The Petitioner enumerated the
unresolved issues.
10.01.2022:
The Supreme Court, in SMW (C) No. 3/2020
had taken Suo moto cognizance to extend the
limitation under any general and special laws
until 28.02.2022.
03.02.2022:
Petitioner vide email dated 03.02.2022
requested the Respondent to expedite the
proceedings and further suggested to propose
the name of the Arbitrator who could be
appointed for the adjudication of the disputes
under the contract.
18.02.2022: The Respondent vide its response dated
18.02.2022 to the arbitration notice of the
Petitioner, did not raise any objection to the
invocation of the arbitration proceedings
however suggested that the Respondent shall
not opt for a Sole Arbitrator and is in favour
of appointing a three member arbitral tribunal.
28.11.2022:
The Petitioner vide e-mail dated 28.11.2022
and notice dated 25.11.2022 replied to the
Respondent for appointing Hon'ble Mr. Justice
Mukul Mudgal (Retd.) as their Nominee
Arbitrator for the adjudication of the disputes
under the said Contract. However, no reply
has been received by the Respondent to the
said notice.
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10. Ms. Dua submitted that the claims of the petitioner are not
time barred as strongly asserted on behalf of the respondent. The learned
counsel submitted that the respondent wrongfully deducted the LDs and
encashed the bank guarantee on 16.02.2016. It was submitted that the
parties were trying to amicably resolve the disputes by way of 'bilateral
discussions' in accordance with Article 21.1 of the Contract.
11. Ms. Dua invited the attention of this Court to Article 21 of the
Contract. Article 21 provides for the dispute resolution mechanism and
is reproduced hereinunder:
"Article 21
ABITRATION
21.1. All disputes or differences arising out of or in connection
with the present Contract, including the one connected with
the validity of the present Contract or any part thereof, shall
be settled by bilateral discussions.
21.2. Any dispute, disagreement of question arising out of or
relating to this Contract or relating to construction or
performance (except as to any matter the decision or
determination whereof is provided for by these conditions),
which cannot be settled amicably, shall within sixty (60) days
or such longer period as may be mutually agreed upon, from
the date on which either party informs the other in writing by
a notice that such dispute, disagreement or question exists,
will be referred to the Arbitration Tribunal consisting of three
arbitrators.
21.3 Within sixty (60) days of the receipt of the said Notice,
one arbitrator shall be nominated in writing by SELLER and
one arbitrator shall be nominated by BUYER.
21.4. The third arbitrator, who shall not be a citizen or
domicile or of the country either of the parties or of any other
country unacceptable to any of the parties shall be nominated
of the parties within (90) days of the receipt of the notice
mentioned above, failing which the third arbitrator may be
nominated by the President of International Chamber of
Commerce, Paris, at request of either party but the said
nomination would be after consultation with both the parties
M/S B AND T AG v. MINISTRY OF DEFENCE
[J. B. PARDIWALA, J.]
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and shall preclude any citizen or domicile of any country as
mentioned. The arbitrator nominated under this Clause shall
not be regarded nor act as an umpire.
21.5. The Arbitration Tribunal shall have its seat in New Delhi
or such other place in India as may be mutually agreed to
between the parties.
21.6. The Arbitration Proceedings shall be conducted in India
under the Indian Arbitration and Conciliation Act, 1996 and
the award of such Arbitration Tribunal shall be enforceable
in Indian Courts only.
21.7. The decision of the majority of the arbitrator shall be
final and binding on the parties to this contract.
21.8. Each party shall bear its own cost of preparing and
presenting its case. The cost of arbitration including the fees
and expenses of the third arbitrator shall be shared equally
by the Seller and the Buyer, unless otherwise awarded by the
Arbitration Tribunal.
21.9 In the event of a vacancy caused in the office of the
arbitrators, the party which nominated such arbitrator, shall
be entitled to nominate another in his place and the arbitration
proceedings shall continue from the stage they were left by
the retiring arbitrator.
21.10. In the event of one of the parties failing to nominate
its arbitrator within 60 days as above or if any of the parties
does not nominate another arbitrator within 60 days of the
place of arbitrator failing vacant, then the other party shall
be entitled after due notice of at least 30 days to request the
President of International Chamber of Commerce, Paris to
nominate another arbitrator as above.
21.11. If the place of the third arbitrator falls vacant, his
substitute shall be nominated according to the provisions
herein above stipulated.
21.12. The parties shall continue to perform their respective
obligations under this contract during the pendency of the
arbitration proceedings except in so far as such obligations
are the subject matter of the said arbitration proceedings."
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12. According to Ms. Dua, Article 21.1 of the Contract referred
to above, clearly stipulates that all disputes or differences arising out of
in connection with the present contract, including the one connected
with the validity of the present contract or in part thereof, shall be settled
by 'bilateral discussions'.
13. According to the learned counsel, the aforestated is one of the
distinguishing features of the Contract in question as in defence
procurement contracts, it would be in the interest of the parties to resolve
the disputes if any by way of 'bilateral discussions' rather than by initiating
arbitration proceedings. The learned counsel submitted that the respondent
for the first time informed the petitioner by letter dated 22.09.2017 that
the proposal put forward by the petitioner to reconsider the decision of
wrongful deduction of LD and encashment of bank guarantee was
rejected. According to the learned counsel, even thereafter, i.e., after
22.09.2017, the parties continued to negotiate with each other until
04.09.2019.
14. Relying on the decision of this Court in the case of Geo Miller
and Company Private Limited v. Chairman, Rajasthan Vidyut
Utpadan Nigam Limited, reported in (2020) 14 SCC 643, it was
submitted that the time spent in pre-arbitration negotiations, held in good
faith may be excluded for the purpose of computation of the period of
limitation.
15. According to the learned counsel, the ratio of the decision of
this Court in the case of Geo Miller (supra) squarely applies to the facts
of the present case. It was submitted that once the parties get involved
in 'bilateral discussions' then the time stops to run as the contract mandates
the parties to resolve the disputes by way of discussion and negotiations.
16. The learned counsel further submitted that the petitioner will
be in a position to lead appropriate evidence in the arbitration proceedings
to establish that the parties continued to negotiate and discuss as late as
up to 04.09.2019. It was submitted that, the communication of the
respondent to the petitioner, declining to reconsider the alleged illegal
deduction of the Liquidated Damages vide letter dated 22.09.2017, could
be said to be the "Breaking Point". The period of three years from
22.09.2017 after excluding the 'Covid period' in accordance with the
order passed by this Court in Cognizance for Extension of Limitation,
In re, reported in (2022) 3 SCC 117, would end on 22.09.2022. However,
the notice of arbitration was sent by the petitioner on 08.11.2021.
M/S B AND T AG v. MINISTRY OF DEFENCE
[J. B. PARDIWALA, J.]
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17. The learned counsel further pointed that the respondent by its
own letter dated 18.02.2022, did not object to the invocation of the
arbitration, however, it only objected to the appointment of a sole
arbitrator.
18. In the last, the learned counsel submitted that the issue of
limitation being a mixed question of law and fact will be looked into by
the Arbitral Tribunal. What was the "Breaking Point" of negotiations
cannot be gone into while deciding an application filed under Section
11(6) of the Act 1996.
19. In such circumstances referred to above, the learned counsel
prayed that the petition filed under Section 11(6) of the Act 1996 for
constituting an Arbitral Tribunal being within the period of limitation, the
same may be allowed and Arbitral Tribunal be constituted.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
20. On the other hand, Mr. K. M. Nataraj, the learned Additional
Solicitor General of India vehemently opposed the present petition
submitting that not only the petition filed under Section 11(6) of the Act
1996 is time barred but even the claims raised by the petitioner could be
said to be time barred.
21. According to the learned ASG, the grievance of the petitioner
revolves around the deduction of LDs by encashment of the bank
guarantee. The last of such deduction was made on 26.09.2016.
According to the learned ASG, the cause of action in the present case,
could be said to have arisen on 26.09.2016. However, the notice for
invoking of arbitration in accordance with Article 21 of the Contract
was issued only on 08.11.2021, i.e., after a period of more than five
years and much beyond the limitation period of three years. According
to the learned ASG, the claim of the petitioner is hopelessly time barred.
22. The learned ASG requested the Court to look into the following
dates and events for the purpose of deciding the present petition:
27.03.2012: Contract was executed between the Petitioner
and Respondent.
26.09.2016: CAUSE OF ACTION arose
Liquidated damages were finally deducted.
25.09.2019: The limitation period of 3 years expired.
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08.11.2021: Advocate for claimant sent 'Notice for invoking
of Arbitration under Article 21 of the Contract'.
16.11.2021: Respondent received the Notice invoking
arbitration.
03.02.2023: The Petitioner filed Arbitration Petition No. 13
i.e. the Present Petition under Section 11(6) of
the Arbitration and Conciliation Act, 1996 for
Constitution of Arbitral Tribunal.
23. In the last, the learned ASG submitted that the period of
limitation for issuing notice invoking arbitration not being specifically
prescribed in the Schedule to the Limitation Act, 1963 (for short, 'the
Act 1963') will be covered by the residuary Article i.e., Article 137 of
the Schedule to the said Act.
24. In such circumstances referred to above, Mr. Nataraj, the
learned ASG prayed that the claim of the petitioner being ex facie time
barred, the present petition under Section 11(6) of the Act 1996 may not
be entertained and the same may be rejected.
ANALYSIS
25. Having heard the learned counsel appearing for the parties
and having gone through the materials on record, the only question that
falls for our 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?
26. Before adverting to the rival submissions canvassed on either
side, we may look into few relevant provisions of the Act 1996 and the
Act 1963.
27. Section 11 of the Act 1996 provides for appointment of
arbitrators. Sub section (6) of Section 11 reads thus:
"11(6). Where, under an appointment procedure agreed upon
by the parties,-
(a) a party fails to act as required under that procedure;
or
(b) the parties, or the two appointed arbitrators, fail to
reach an agreement expected of them under that procedure;
or
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[J. B. PARDIWALA, J.]
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(c) a person, including an institution, fails to perform any
function entrusted to him or it under that procedure,
a party may request the Supreme Court or, as the case may
be, the High Court or any person or institution designated by
such Court to take the necessary measure, unless the
agreement on the appointment procedure provides other means
for securing the appointment."
28. The plain reading of the aforesaid provision would indicate
that no time limit has been prescribed for filing application under Section
11(6) of the Act, 1996 for appointment of an arbitrator.
29. Section 43 of the Act 1996 provides that the Limitation Act,
1963 would apply to arbitrations as it applies to the proceedings in Court.
Section 43 reads thus:
"43. Limitations.-(1) The Limitation Act, 1963 (36 of 1963),
shall apply to arbitrations as it applies to proceedings in court.
(2) For the purposes of this section and the Limitation Act,
1963 (36 of 1963), an arbitration shall be deemed to have
commenced on the date referred to in section 21.
(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.
(4) Where the Court orders that an arbitral award be set aside,
the period between the commencement of the arbitration and
the date of the order of the Court shall be excluded in
computing the time prescribed by the Limitation Act, 1963
(36 of 1963), for the commencement of the proceedings
(including arbitration) with respect to the dispute so
submitted."
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30. In context with Section 43 of the Act 1996 referred to above,
we may refer to a decision of this Court in the case of Consolidated
Engineering Enterprises v. Principal Secretary, Irrigation
Department and Others, reported in (2008) 7 SCC 169. In the said
case, it was contended on behalf of the appellant therein that Section 43
of the Act 1996 makes the provisions of the Act 1963 applicable only to
arbitrations and not to any proceedings relating to arbitration in a Court.
Such contention canvassed on behalf of the appellant therein, was
negatived by this Court observing as under:
"45. Learned counsel for the appellant contended that Section
43 of the AC Act makes applicable the provisions of the
Limitation Act only to arbitrations, thereby expressing an intent
to exclude the application to any proceedings relating to
arbitration in a court. The contention of the appellant ignores
and overlooks Section 29(2) of the Limitation Act and Section
43(1) of the AC Act. Sub-section (1) of Section 43 of the Act
provides that the Limitation Act shall apply to arbitrations as
it applies to proceedings in court. The purpose of Section 43
of the AC Act is not to make the Limitation Act inapplicable to
proceedings before court, but on the other hand, make the
Limitation Act applicable to arbitrations. As already noticed,
the Limitation Act applies only to proceedings in court, and
but for the express provision in Section 43, the Limitation Act
would not have applied to arbitration, as arbitrators are
private tribunals and not courts. Section 43 of the AC Act,
apart from making the provisions of the Limitation Act, 1963
applicable to arbitrations, reiterates that the Limitation Act
applies to proceedings in court. Therefore, the provisions of
the Limitation Act, 1963 apply to all proceedings under the
AC Act, both in court and in arbitration, except to the extent
expressly excluded by the provisions of the AC Act."
(Emphasis supplied)
31. Since a petition under Section 11(6) of the Act 1996 for seeking
appointment of Arbitral Tribunal is required to be filed before the High
Court or the Supreme Court, as the case may be, Article 137 of the
Schedule to the Act 1963 would apply.
32. Article 137 reads thus:
M/S B AND T AG v. MINISTRY OF DEFENCE
[J. B. PARDIWALA, J.]
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33. A plain reading of the aforesaid Article would indicate that the
period of limitation in cases covered by Article 137 is three years and
the said period would begin to run when the right to apply accrues.
34. The starting point of limitation under Article 137 according to
third column of the Article is the date when 'the right to apply arises'.
This being a residuary Article to be adopted to different classes of
applications, the expression 'the right to apply' is an expression of a
broad common law principle and should be interpreted according to the
circumstances of each case. 'The right to apply' has been interpreted
to mean 'the right to apply first arises'. (See: Merla Ramanna v.
Nallaparaju and Others, (1955) 2 SCR 938)
35. Further, it would be necessary to refer to Section 9 of the Act
1963 of the Act which reads thus:
"9. Continuous running of time.- Where once time has begun
to run, no subsequent disability or inability to institute a suit
or make an application stops it:
Provided that, where letters of administration to the estate of
a creditor have been granted to his debtor, the running of the
period of limitation for a suit to recover the debt shall be
suspended while the administration continues."
 (Emphasis supplied)
CASE LAW ON THE SUBJECT
36. In the case of Major (Retd.) Inder Singh Rekhi v. Delhi
Development Authority reported in AIR 1988 SC 1887, it has been
held that the existence of a dispute is essential for the appointment of an
Arbitrator under Section 8 or a reference under Section 20 of the
Arbitration Act, 1940 (for short, 'the Act 1940') and that a dispute can
arise only when a claim is asserted by one party and denied by the other
on whatever grounds. Mere failure or inaction to pay does not lead to
the inference about the existence of a dispute as the expression "dispute"
contains a positive element of assertion and in denying and merely an
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inaction to accede to a claim or a request. With respect to the period of
time, in the light of the facts of that particular case as to when did the
dispute actually arises, despite the fact that the contract work in question
was completed in the year 1980, the Court observed that even though it
was true that on completion of the contract work right to get payment
would normally arise, but where the final bill had not been prepared and
when the assertion of the claim was made much after the completion of
the work and there was non-payment, the cause of action arose from
the date when the assertion was made. The Court then went on to
observe that it was also true that a party cannot postpone the accrual of
a cause of action by writing letters or sending reminders but where the
bill had been finally prepared, the claim made by the claimant is the
accrual of the cause of action. For a proper understanding of the ratio in
the aforesaid judgment, we reproduce hereinbelow para 4 of the judgment
in its entirety. Para 4 reads thus:
"4. Therefore, in order to be entitled to order of reference
under S. 20, it is necessary that there should be an arbitration
agreement and secondly, difference must arise to which this
agreement applied. In this case, there is no dispute that there
was an arbitration agreement. There has been an assertion
of claim by the appellant and silence as well as refusal in
respect of the same by respondent. Therefore, a dispute has
arisen regarding non-payment of the alleged dues of the
appellant. The question is for the present case when did such
dispute arise. The High Court proceeded on the basis that
the work was completed in 1980 and, therefore, the appellant
became entitled to the payment from that date and the cause
of action under Art. 137 arose from that date. But in order to
be entitled to ask for a reference under S. 20 of the Act there
must not only be an entitlement to money but there must be a
difference or a dispute must arise. It is true that on completion
of the work a right to get payment would normally arise but
where the final bills as in this case have not been prepared as
appears from the record and when the assertion of the claim
was made on 28th Feb. 1983 and there was non-payment, the
cause of action from that date, that is to say, 28th of Feb.
1983.