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2019 (9) TMI 169

..... ion Applications, on the facts of this case, are barred by limitation? HELD THAT:- 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 - 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 well settled that by virtue of Article 137 of the First Schedule to the Limitation Act, 1963 the limitation period for reference of a dispute to arbitration or for seeking appointment of an arbitrator before a Court under the 1940 Act. 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 re .....

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..... missing 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 per .....

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..... urt found that the appellant had 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 cas .....

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..... 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 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 responden .....

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..... 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 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 ar .....

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..... 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 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 .....

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..... 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 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 th .....

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..... 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 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 unfavou .....

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