The Division Bench of the Kerala High Court has held that the cause of action giving a party the right to refer a dispute to arbitration only accrues when there is a clear and unequivocal denial of a right asserted by the proposed Respondent.
Disputes arose between the Southern Railway and its contractor, Cherian Varkey in connection with works for the construction of a bridge. The following timeline is relevant in relation to the facts:
- 2008 – Work was completed by the Contractor.
- 2010 – The Contractor raised a claim on the Railway for ₹1.19 Crores.
- 2012 – The final bill was drawn by the Railway.
- 2014 – The Contractor invoked arbitration for the payment of ₹1.19 Crores.
The Tribunal chose to decide the question of limitation as a preliminary issue, and it dismissed the Contractor's claim on the basis that the reference was made more than 3 years after the completion of the work and was thus beyond the limitation period allowed under Article 137 to the Schedule to the Limitation Act 1963.
§ 34 Appeal
In an appeal under §34 of the Arbitration and Conciliation Act 1996, the Kerala High Court set aside the award holding that the date of the final bill, and not the date of completion of the work, is the crucial date for determining the limitation period for an arbitral reference. Since the reference to arbitration was within 3 years from the date of the final bill of 13 December 2012, the claim was within limitation.
In further appeal under §37 of the Arbitration Act, the Division Bench of the Kerala High Court agreed with the Single Judge, observing:
- The limitation period to refer a dispute to arbitration is 3 years "from the date on which the right to apply accrues". Reliance was placed on State of Orissa v Damodar Das 2 in which it was held that the cause of action for a reference to an arbitration begins when there is a clear and unequivocal denial of a right asserted by one party.
- The agreement between the Contractor and Railway contained a clause which provided that the final decision on the claims of the Contractor would be taken by the Railway only at the time of drawing the final bill of the work.
- Reliance was placed on the judgment in Rashtriya Ispat Nigam Ltd v Prathyusha Resources & Infra (P) Ltd 3, to hold that a clear and unequivocal denial of the claim raised by the Contractor could only be inferred once the final bill of the work was drawn, which in the present case was only in 2012.
- The case of Geo Miller & Co Pvt Ltd v Chairman, Rajasthan Vidyut Utpadan Nigam Ltd4 was also discussed in which a reference to arbitration after 20 years was denied on the basis that the cause of action arose when the final bill became due in 1983. Arbitration was invoked in 2002, and subsequent correspondence between the parties cannot extend limitation. The Court distinguished Geo Miller on the basis of its peculiar facts specifically pointing to the 20-year delay in invoking arbitration.
The judgment clarifies that there is no right to refer a dispute to arbitration unless there is a clear and unequivocal denial of the right asserted by one party by the other.
1 Decision dated 15 March 2022 passed by the Kerala High Court in ARB. A. 33/2020.
2 (1996) 2 SCC 216
3 (2016) 12 SCC 405
4 (2020) 14 SCC 643
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