Mere correspondence between parties does not extend limitation period for arbitrator appointment: Supreme Court

IN THE CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 900 902 OF 2021 SLPNos.27960 619 SECUNDERABAD CANTONMENT BOARD …APPELLANT M S B. RAMACHANDRAIAH & SONS …RESPONDENT JUDGMENT R.F. Nariman J 1. Leave granted 2. These appeals arise out of applications under Section 11 of the Arbitration and Conciliation Act 1996floated a notice inviting tenderfor an annual term contract for 1. Repairs to Main Roads2. Repairs to Main Roads3. Pursuant to the aforesaid N.I.T. three agreements were entered into with the respondent M s Ramachandraiah and Sonsthe first one dated 23.09.2000 and the other two dated 17.09.2001. Clause 5 of each of the aforesaid agreements which is in identical terms is important and reads as follows “5. Final Bill: The Contractor shall submit his final bil of the work with full and complete measurements showing the deductions on account of part payments received and stores supplied by the Board cost of water and any other items received by him under the contract within 08 days from the date of completion and handing over the work. The contractor shall also submit alongwith his bill a no claim certificate stating that there are no claims from the cantonment board on account of the work undertaken and completed by him under the contract and that no claim thereafter shall be entertainable. The bill shall also contain a statement showing the justification of cement consumed by the Contractor.” 4. The arbitration clause contained in Clause 17 of each of the aforesaid agreements reads as follows “17. LAW Governing the Contract: The Contract shall be governed by the Indian Law.as intended by the agreementwas appointed as arbitrator to adjudicate the disputes between the parties arising out of the three agreements. The question of the bar of limitation of the claims made was left open to be considered and decided by the arbitrator 13. Shri P.S. Narasimha learned Senior Advocate appearing on behalf of the Appellant submitted that the date on which the request made for the appointment of an arbitrator was received by the President of the Secunderabad Cantonment Board was 23.01.2007 as a result of which this is the date on which the limitation period starts running under Article 137 of the Limitation Act 1963insofar as an application under Section 11(6) of the Arbitration Act is concerned. For this purpose he relied upon a judgment of the High Court of Bombay in Deepdharshan Builders Pvt. Ltd. v. Saroj 2019) 1 AIR Bom R 249 as well as a recent judgment of this Court in Geo Miller & Co.Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. 2020) 14 SCC 643. He then argued that even so far as the cause of action on merits is concerned it arose way back on 08.09.2003 when the Respondent raised the claim with regard to the dispute for the first time. Once time begins to run limitation cannot be extended by writing any number of subsequent letters. He also relied upon the recent judgment of this Court in Vidya Drolia v. Durga Trading Corpn. 2021) 2 SCC 1 stating that this case falls under paragraph 148 of the judgment in that the claim was ex facie time barred and dead and that there was no subsisting dispute. In reply Shri Nithin Chowdary Pavuluri learned counsel appearing for the Respondent argued that the request for appointment of an arbitrator was rejected by the Appellant for the first time on 10.11.2010 and thus 10.11.2010 would be the date on which the cause of action would arise. He pressed the point that the rejection of the request to appoint an arbitrator constituted a failure to perform the function entrusted to the President of the Secunderabad Cantonment Board under Clause 2.2.52 of the General Conditions of Contract “GCC”] and thus the cause of action under Section 11(6)(c) of the Arbitration Act first arose on 10.11.2010. Till such rejection the claim would have to be deemed to have been pending and thus the Respondent’s claim was alive at the time of filing the applications under Section 11 of the Arbitration Act. Further though he pressed the point that the final bill was received under protest since the price variation bill submitted with the final bill had not been cleared by the Appellant he produced no such document evidencing the same. In addition he sought to distinguish on facts the judgments of this Court in Geo Miller & Co.Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. 14 SCC 643 and Vidya Drolia v. Durga Trading Corpn. 2021) 2 SCC 1 from the appeals before us by arguing that the GCC between the Appellant and the Respondent specifically provided for a procedure to appoint an arbitrator and that the Appellant was responsible for delaying and sitting on the Respondent’s request. Thus he supported the impugned judgment of the High Court by which the Section 11 applications were allowed 15. Having heard learned counsel appearing for both parties it is first necessary to refer to the recent judgment of this Court in Geo Miller Co.Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. 14 SCC 643 which extracts passages from all the earlier relevant judgments and then lays down as to when time begins to run for the purpose of filing an application under Section 11 of the Arbitration Act. This Court after referring to the relevant statutory provisions held “15. In Damodar Das2 SCC 216] this Court observed relying upon Russell on Arbitration by Anthony Waltonat pp 4 5 and an earlier decision of a two Judge Bench in Panchu Gopal Bose v. Port of Calcutta4 SCC 338] that the period of limitation for an application for appointment of arbitrator under Sections 8 and 20 of the 1940 Act commences on 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 that an arbitration take place upon the dispute concerned xxx xxx xxx “21. 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 No. 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 court only by the end of 2003 his claim is clearly barred by limitation xxx xxx xxx 23. Turning to the other decisions it is true that in Inder Singh Rekhi2 SCC 338] this Court observed that the existence of a dispute is essential for appointment of an arbitrator. A dispute arises when a claim is asserted by one party and denied by the other. The term “dispute” entails a positive element and mere inaction to pay does not lead to the inference that dispute exists. In that case since the respondent failed to finalise the bills due to the applicant this Court held that cause of action would be treated as arising not from the date on which the payment became due but on the date when the applicant first wrote to the respondent requesting finalisation of the bills. However the Court also expressly observed that “a party cannot postpone the accrual of cause of action by writing reminders or sending reminders” 24. In the present case the appellant has not disputed the High Court s finding that the appellant itself had handed over the final bill to the respondent on 8 2 1983. Hence the holding in Inder Singh Rekhi2 SCC 338] will not apply as in that case the applicant s claim was delayed on account of the respondent s failure to finalise the bills. Therefore the right to apply in the present case accrued from the date on which the final bill was raised9 SCC 97] xxx xxx xxx 29. Moreover in a commercial dispute while mere failure to pay may not give rise to a cause of action once the applicant has asserted their claim and the respondent fails to respond to such claim such failure will be treated as a denial of the applicant s claim giving rise to a dispute and therefore the cause of action for reference to arbitration. It does not lie to the applicant to plead that it waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent s failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile.” 16. The recent judgment of this Court in Bharat Sanchar Nigam Ltd. & Anr. v. M s Nortel Networks India Pvt. Ltd. delivered on 10.03.2021 in Civil Appeal Nos. 843 8421 has also considered the entire law on the subject. The first paragraph of the said judgment reads as “1. The present Appeals raise two important issues for our consideration :the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act 1996andwhether the Court may refuse to make the reference under Section 11 where the claims are ex facie time barred ” Insofar as the first issue is concerned after examining Article 137 of the Limitation Act this Court held “11. It is now fairly well settled that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days’ from issuance of the notice invoking arbitration. In other words an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s) dispute(s) to be referred to arbitrationis made and there is failure to make the appointment 12. The period of limitation for filing a petition seeking appointment of an arbitrator s cannot be confused or conflated with the period of limitation applicable to the substantive claims made in the underlying commercial contract. The period of limitation for such claims is prescribed under various Articles of the Limitation Act 1963. The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator. This position was recognized even under Section 20 of the Arbitration Act 1940. Reference may be made to the judgment of this Court in C. Budhraja v. Chairman Orissa Mining Corporation Ltd.2 SCC 444] wherein it was held that Section 37(3) of the 1940 Act provides that for the purpose of the Limitation Act an arbitration is deemed to have commenced when one party to the arbitration agreement serves on the other party a notice requiring the appointment of an arbitrator. Paragraph 26 of this judgment reads as follows : “26. Section 37(3) of the Act provides that for the purpose of the Limitation Act an arbitration is deemed to have been commenced when one party to the arbitration agreement serves on the other party thereto a notice requiring the appointment of an arbitrator. Such a notice having been served on 4 6 1980 it has to be seen whether the claims were in time as on that date. If the claims were barred on 4 6 1980 it follows that the claims had to be rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of limitation for filing a petition under Section 8(2) of the Act. Insofar as a petition under Section 8(2) is concerned the cause of action would arise when the other party fails to comply with the notice invoking arbitration. Therefore the period of limitation for filing a petition under Section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in MajorInder Singh Rekhi v. DDA2 SCC 338] Panchu Gopal Bose v. Board of Trustees for Port of Calcutta4 SCC 338] and Utkal Commercial Corpn. v. Central Coal Fields Ltd.2 SCC 571] also make this position clear.”” Insofar as the second issue is concerned this Court went into the position prior to the Arbitration and ConciliationAct 2015together with the change made by the introduction of Section 11(6A) by the 2015 Amendment stating “24. Sub sectioncame up for consideration in the case of Duro Felguera SA v. Gangavaram Port Ltd. 2017) 9 SCC 729] wherein this Court held that the legislative policy was to minimize judicial intervention at the appointment stage. In an application under Section 11 the Court should only look into the existence of the arbitration agreement before making the reference. Post the 2015 amendments all that the courts are required to examine is whether an arbitration agreement is in existence —nothing more nothing less “48. Section 11(6 A) added by the 2015 Amendment reads as follows “11.The Supreme Court or as the case may be the High Court while considering any application under sub sectionor sub sectionor sub sectionshall notwithstanding any judgment decree or order of any court confine to the examination of the existence of an arbitration agreement.” From a reading of Section 11(6 A) the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the 59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co.8 SCC 618] and Boghara PolyfabLtd. 1 SCC 267 :1 SCC117] . This position continued till the amendment brought about in 2015. After the amendment all that the courts need to see is whether an arbitration agreement exists—nothing more nothing less. The legislative policy and purpose is essentially to minimise the Court s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6 A) ought to be respected.” 25. In Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman8 SCC 714] a three judge bench held that the scope of power of the Court under Section 11had to be construed in the narrow sense. In paragraph 10 it was opined as under : “10. This being the position it is clear that the law prior to the 2015 Amendment that has been laid down by this Court which would have included going into whether accord and satisfaction has taken place has now been legislatively overruled This being the position it is difficult to agree with the reasoning contained in the aforesaid judgment United India Insurance Co. Ltd. v. Antique Art ExportsLtd. 5 SCC 362 :2 SCC785] as Section 11(6 A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera SA9 SCC 729” 26. In Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Limited2 SCC 455] this Court took note of the recommendations of the Law Commission in its 246th Report the relevant extract of which reads as : “7.6. The Law Commission in the 246th Report Amendments to the Arbitration and Conciliation Act 1996 Report No. 246 Law Commission of Indiap. 20.] recommended that “33. … the Commission has recommended amendments to Sections 8 and 11 of the Arbitration and Conciliation Act 1996. The scope of the judicial intervention is only restricted to situations where the court judicial authority finds that the arbitration agreement does not exist or is null and void. Insofar as the nature of intervention is concerned it is recommended that in the event the court judicial authority is prima facie satisfied against the argument challenging the arbitration agreement it shall appoint the arbitrator and or refer the parties to arbitration as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists then it shall refer the dispute to arbitration and leave the existence of the arbitration agreement to be finally determined by the Arbitral In view of the legislative mandate contained in the amended Section 11(6A) the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16 which enshrines the kompetenz komptenz principle. The doctrine of kompetenz komptenz implies that the arbitral tribunal is empowered and has the competence to rule on its own jurisdiction including determination of all jurisdictional issues. This was intended to minimise judicial intervention at the pre reference stage so that the arbitral process is not thwarted at the threshold when a preliminary objection is raised by the parties.” emphasis in original 19. This Court went on to hold that limitation is not a jurisdictional issue but is an admissibility issue. It then referred to a recent judgment of this Court in Vidya Drolia v. Durga Trading Corporation 2 SCC 1 and stated as follows “36. In a recent judgment delivered by a three judge bench in Vidya Drolia v. Durga Trading Corporation2 SCC 1] on the scope of power under Sections 8 and 11 it has been held that the Court must undertake a primary first review to weed out “manifestly ex facie non existent and invalid arbitration agreements or non arbitrable disputes.” The prima facie review at the reference stage is to cut the deadwood where dismissal is bare faced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists or that the subject matter is not arbitrable that reference may be refused. In paragraph 144 the Court observed that the judgment in Mayavati Trading had rightly held that the judgment in Patel Engineering had been legislatively Paragraph 144 reads as “144. As observed earlier Patel Engg. Ltd. explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration. Amendments to Section 8 vide Act 16 have not been omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati TradingLtd. in our humble opinion rightly holds that Patel Engg. Ltd. has been legislatively overruled and hence would not apply even post omission of sub sectionto Section 11 of the Arbitration Act. Mayavati Trading P) Ltd. has elaborated upon the object and purposes and history of the amendment to Section 11 with reference to sub sectionto elucidate that the section as originally enacted was facsimile with Article 11 of the Uncitral Model of law of arbitration on which the Arbitration Act was drafted and enacted.” While exercising jurisdiction under Section 11 as the judicial forum the court may exercise the prima facie test to screen and knockdown ex facie meritless frivolous and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage the Court can interfere “only” when it is “manifest” that the claims are ex facie time barred and dead or there is no subsisting dispute. Paragraph 148 of the judgment reads as follows : “148. Section 43(1) of the Arbitration Act states that the Limitation Act 1963 shall apply to arbitrations as it applies to court proceedings. Sub sectionstates that for the purposes of the Arbitration Act and Limitation Act arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes being factual would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time barred and dead or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed “no claim certificate” or defence on the plea of novation and “accord and satisfaction”. As observed in Premium Nafta Products Ltd.it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded as the case may be and then if the contract is held to be valid it would require the arbitrator to resolve the issues that have arisen.” In paragraph 154.4 it has been concluded that “154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non existent invalid or the disputes are non arbitrable though the nature and facet of non arbitrability would to some extent determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non arbitrability are plainly arguable when consideration in summary proceedings would be insufficient and inconclusive when facts are contested when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.” emphasis supplied) In paragraph 244.4 it was concluded that “244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis as laid down above i.e. “ when in doubt do refer 37. The upshot of the judgment in Vidya Drolia is affirmation of the position of law expounded in Duro Felguera and Mayavati Trading which continue to hold the field. It must be understood clearly that Vidya Drolia has not resurrected the pre amendment position on the scope of power as held in SBP & Co. v. Patel Engineering (supra). It is only in the very limited category of cases where there is not even a vestige of doubt that the claim is ex facie time barred or that the dispute is non arbitrable that the court may decline to make the reference. However if there is even the slightest doubt the rule is to refer the disputes to arbitration otherwise it would encroach upon what is essentially a matter to be determined by the 20. Applying the aforesaid judgments to the facts of this case so far as the applicability of Article 137 of the Limitation Act to the applications emphasis in original under Section 11 of the Arbitration Act is concerned it is clear that the demand for arbitration in the present case was made by the letter dated 07.11.2006. This demand was reiterated by a letter dated 13.01.2007 which letter itself informed the Appellant that appointment of an arbitrator would have to be made within 30 days. At the very latest therefore on the facts of this case time began to run on and from 12.02.2007. The Appellant’s laconic letter dated 23.01.2007 which stated that the matter was under consideration was within the 30 day period. On and from 12.02.2007 when no arbitrator was appointed the cause of action for appointment of an arbitrator accrued to the Respondent and time began running from that day. Obviously once time has started running any final rejection by the Appellant by its letter dated 10.11.2010 would not give any fresh start to a limitation period which has already begun running following the mandate of Section 9 of the Limitation Act. This being the case the High Court was clearly in error in stating that since the applications under Section 11 of the Arbitration Act were filed on 06.11.2013 they were within the limitation period of three years starting from 10.11.2020. On this count the applications under Section 11 of the Arbitration Act themselves being hopelessly time barred no arbitrator could have been appointed by the High Court 21. Even otherwise the claim made by the Respondent was also ex facie time barred. It is undisputed that final payments were received latest by the end of March 2003 by the Respondent. That apart even assuming that a demand could have been made on account of price variation such demand was made on 08.09.2003. Repeated letters were written thereafter by the Respondent culminating in a legal notice dated 30.01.2010. Vide the reply notice dated 16.02.2010 it was made clear that such demands had been rejected. Even taking 16.02.2010 as the starting point for limitation on merits a period of three years having elapsed by February 2013 the claim made on merits is also hopelessly time barred 22. For all these reasons the appeals are allowed and the impugned judgment of the High Court dated 20.08.2019 is set aside. [ R.F. NARIMAN [ B.R. GAVAI New Delhi March 15 2021

Summary: In the event of a contract breach, the correspondence letters between the parties does not extend the limitation period for the appointment of the arbitrator. A bench constituting of R.F. Nariman J. and B.R. Gavai J. delivered the judgement in Secunderabad Cantonment Board Vs. M/s. B. Ramachandraiah &amp; Sons [Civil Appeal Nos. 900-902 of 2021]. The case involved an unusual hiatus in the appointment of arbitrator, the communication of which was carried on through correspondences through series of years under the presumption of extension of limitation period. 
The Appellant argued that the Respondent had failed to complete the work within the stipulated period, but vide its meeting dated 05.10.2002, it resolved to grant an extension of time up to 31.12.2002 on an undertaking from the Respondent that the Appellant would be at liberty to impose penalty as provided in the contracts and as decided by the Appellant in case balance works were not completed by 31.12.2002. Both parties exchanged correspondences irregularly and after a three-year long hiatus after last communication dated 10.11.2010, the Respondent filed applications under Section 11 of the Arbitration Act on 06.11.2013. The learned Single Judge of the High Court for the State of Telangana held that the Section 11 applications were within time as they were filed within three years. 
It was contended that the request made for the appointment of an arbitrator was received by the President of the Secunderabad Cantonment Board was 23.01.2007, which is the date on which the limitation period starts running under Article 137 of the Limitation Act, 1963 insofar as an application under Section 11(6) of the Arbitration Act is concerned. The Court referred to the judgement of Geo Miller &amp; Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd [(2020) 14 SCC 643] wherein it observed that 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.
The Court opined that, “Obviously, once time has started running, any final rejection by the Appellant by its letter dated 10.11.2010 would not give any fresh start to a limitation period which has already begun running, following the mandate of Section 9 of the Limitation Act.”