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FACTS- On 27 March 2012 a contract was entered between M/S B AND TAG (TAG) and Ministry of Defence (MOD) for the supply of 1568 sub machine guns. A performance guarantee was issued by TAG. Owing to certain disputes, MOD, on 26 September 2016 encashed the BG for liquidated damages. Between September 2016 and November 2021 parties were in discussions to resolve the issues. On 8 November 2021, TAG invoked the arbitration clause, appointed an arbitrator and called upon MOD to appoint an arbitrator as well. MOD did not appoint an arbitrator. On 3 February 2023, TAG filed an arbitration petition before the Supreme Court of India for constitution of an arbitral tribunal.
ARGUMENTS OF PARTIES:
Ministry of Defence- MOD contend that the arbitration petition of B&TAG for constitution of tribunal should be rejected on the following grounds:
- Cause of action for invoking arbitration arose on 26 September 2016 when BG was invoked and deducted.
- The limitation period commenced on 26 September 2016 and three years later, expired on 25 September 2019.Arbitration Clause was invoked on 8 November 2021.
In view of the above, the Claim of B&TAG was time barred and the arbitration petition for constitution of tribunal should be rejected.
B&TAG- B&TAG contended that time spent in pre-arbitration conversations that were undertaken in good faith may be omitted for the purposes of computing the statute of limitations by citing the Supreme Court of India’s decision in Geo Miller2. TAG further stated that once the parties engage in “bilateral discussions,” time stops ticking since the contract requires that problems be settled by discussion and negotiation.
RATIO- According to the Supreme Court, the three-year window for submitting a Section 11 application begins on the day the initial cause of action arose. The cause of action will not be postponed for the purpose of determining the statute of limitations due to further negotiations between the parties.
The “breaking point” at which serious attempts to resolve the dispute peacefully would have been abandoned must be established by the Court in cases where parties engage in serious negotiations. To calculate the limitation period, however, the Court will need to be presented with the full history of the negotiations and a record of them in order for it to identify the “breaking point.”
The three-judge bench’s ruling in the Geo Miller Case regarding the exclusion of the negotiation period from the computation of the limitation period for reference to arbitration appears to have been diluted by the Supreme Court’s two-judge bench decision in the B&T Case. Although it acknowledges the observations made in the Geo Miller Case in light of the Court’s ruling in that case, it doesn’t go into detail about the specific facts and conditions that would allow the negotiation period to be excluded from the calculation of the limitation period.
We are a law firm in the name and style of Law Offices of Kr. Vivek Tanwar Advocate and Associates at Gurugram and Rewari. We are providing litigation support services for matters related to Arbitration Law.
Written By- Adv. Vartika