In the recent case of B and T AG v. Ministry of Defence1, the Supreme Court held that limitation period of 3 years for filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) would initiate from the date of the cause of action and mere negotiations will not result in postponement of the date of limitation.
- B and T AG (Petitioner) had approached the
Supreme Court of India under Section 11(6) of the Arbitration Act
praying for appointment of an Arbitrator for the adjudication of
disputes and claims arising out of a contract dated March 27, 2012
executed with the Government of India through its Ministry of
Defence (Respondent). The Petitioner had bid for
an urgent tender for procurement of 1,568 sub machine guns under a
fast-track procedure, and disputes arose between the parties in
relation to the alleged wrongful encashment of warranty bond by the
- The Respondent vide its letter dated February 16, 2016 directed
the Joint Chief Executive Officer, State Bank of India, Frankfurt
Branch, Germany to encash WBG No. 12/380 for its full value i.e.,
INR 18,100,672.65 (Bank Guarantee) and remit the
amount through direct bank transfer to the Principal Controller of
Defence Account (PCDA, Government Account), whilst also imposing
liquidated damages to the tune of INR 357,920,053.70
- The parties continued to engage in bilateral discussions in
order to resolve their disputes regarding the imposition of LDs and
encashment of the bank guarantee by the Respondent. However, the
disputes could not be resolved and on November 08, 2021 the
Petitioner issued notice invoking arbitration.
- The parties were unable to appoint an Arbitrator and the Petitioner filed the present petition for appointment of an Arbitrator under Section 11(6) of the Arbitration Act.
Issues at hand
- Whether the time barred claims can be considered live claims
referrable to arbitration by virtue of negotiation between the
- What would amount to 'breaking point' of negotiation between the parties?
- The Respondent's contention was that the Petitioner's
claim in relation to the wrongful invocation of Bank Guarantee was
time barred given that the cause of action had arisen back in 2016
at the time of invocation of Bank Guarantee, however, the notice
invoking arbitration had only been issued in 2021, way beyond the
limitation period of 3 years.
- The Petitioner relied on the decision of the Apex Court in the
case of Geo Miller & Company Pvt Ltd v. Chairman,
Rajasthan Vidyut Utpadan Nigam Ltd2
(Geo Miller) and 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. The Geo Miller decision states that 'The Court upon
careful consideration of such history must 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. This 'breaking
point' would then be treated as the date on which the cause of
action arises, for the purpose of limitation'.
- The counsel for the Petitioner submitted the 'breaking point' was sometime in September, 2019 and not February 16, 2016 i.e., date of encashment of the Bank Guarantee. Further, the Petitioner argued that as such, the issue of limitation, being a mixed question of law and fact, ought to be decided by the Arbitrator and cannot be gone into at the stage of a Section 11 application.
Findings of the Court
- The Supreme Court while relying on Bharat Sanchar
Nigam Ltd & Anr v. Nortel Networks India Pvt
Ltd3, noted that in cases where claims are
ex facie time barred, the Court may refuse to make reference under
Section 11 of the 1996 Act.
- The Supreme Court while pacing reliance on its decision in
Major (Retd.) Inder Singh Rekhi v. Delhi Development
Authority4, was of the opinion that a
dispute arises when there is a claim/assertion by one side and
denial/repudiation of the same by the other and such accrual of
cause of action cannot be delayed or postponed by indefinite
- While drawing reference from Geo Miller, the Supreme Court
observed that although time spent in bona fide negotiations may be
excluded for the purposes of computing limitation for reference of
disputes to arbitration, it is necessary for the Court to go into
the entire history of negotiations between the parties.
'61. ....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
- In the present case, the Supreme Court observed that disputes
arose between the parties in 2014, leading the Petitioner to put
forth its representation to the Respondent. Upon consideration of
the Petitioner's submissions, the Respondent then proceeded to
encash the Bank Guarantee and deduct the LD in 2016. The Supreme
Court was of the view the 'breaking point' between the
parties in this case is the date of encashment of the Bank
Guarantee and that is the day on which the cause of action arose
for reference of disputes to arbitration.
- The Supreme Court held that 'breaking point', in the current scenario is when Bank Guarantee came to be encashed in the year 2016 and the requisite amount stood transferred to the Government Account. 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.6
1. Arbitration Petition (C) No. 13 of 2023; 2023 SCC OnLine SC 657
2. (2020) 14 SCC 643
3. (2021) 5 SCC 738
4. AIR 1988 SC 1887
5. See Paragraph 61
6. See Paragraph 63
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