Judicial updates-

SUPREME COURT - BREAKING POINT WILL BE THE CAUSE OF ACTION TO APPOINT AN ARBITRATOR.

Computation of limitation is one the most important aspects that drive litigation in a court of law. However, one of the most notable provisions of the Arbitration and Conciliation Act, 1996, i.e., Section 11, is totally silent on limitation and does not prescribe any time period within which an application for appointment of an Arbitrator may be filed.

This does not mean that an application u/s 11 is not hit by limitation at all, as recently clarified by the Supreme Court in the matter of M/s B and T AG v. Ministry of Defence [Arbitration Petition (C) No. 13 of 2023]. In 2009, the Respondent, under the Fast Track Procedure, floated a tender for procuring Sub Machine Guns. The Petitioner emerged as the successful bidder in 2012, and the parties executed the contract. A dispute arose when the Respondent allegedly wrongfully encashed a warranty bond. In a letter dated 16.02.2016, the Respondent directed the State Bank of India, Frankfurt Branch, Germany, to encash the warranty bond and transfer the amount to the Principal Controller of Defence Account (PCDA) due to a delay in the supply of goods beyond the contractual time period. The Respondent informed the Petitioner about this action in a letter dated 24.02.2016 and justified it as per the terms of the Contract. Subsequently, the Respondent deducted the applicable liquidated damages (LDs) from the Petitioner's account, crediting it to the Government Account on 26.09.2016.

Despite ongoing bilateral discussions between the parties to resolve the dispute, the Respondent, in a letter dated 22.09.2017, maintained that their actions were in accordance with the Contract terms. However, after a failed attempt to resolve the dispute amicably, the Petitioner invoked the arbitration clause and filed the application u/s 11 before the Supreme Court for the appointment of an Arbitrator. Before the Supreme Court, the issue was whether the Petition was barred by limitation.

The Supreme Court, after carefully analysing the facts and authorities cited, observed that since there was no time limit prescribed under the Act for applying section 11(6) of the Act, limitation provided u/s 137 of the Limitation Act, 1963, i.e., three years from when the right to apply accrues, shall be used to decide the question of limitation.

Furthermore, the Supreme Court observed, "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, which had been infringed, within the time provided by the Limitation Act, and allow his right to be extinguished by lapse of time, and after that, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for the 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".

Moreover, the Court added, "At the cost of repetition, we state that 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."

Thus, the Supreme Court rejected the Petition for being barred by limitation.

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