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B and T AG Vs. Ministry of Defence - (Supreme Court) (18 May 2023)

Mere negotiations will not postpone the "cause of action" for the purpose of limitation



Present is a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, filed at the instance of a company based in Switzerland and engaged in the business of manufacturing of arms etc., praying for appointment of an arbitrator for the adjudication of disputes and claims arising out of the Contract dated 27th March, 2012 executed with the Respondent Government of India in its Ministry of Defence.

Cause of action becomes important for the purposes of calculating the limitation period for bringing an action. It is imperative that a party realises when a cause of action arises. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become time-barred even before the party realises the same. Even if the arbitration Clause contains a provision that no cause of action shall accrue in respect of any matter agreed to be referred to until an award is made, time still runs from the normal date, when the cause of action would have accrued, if there had been no arbitration clause.

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.

Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. 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. The case on hand is clearly and undoubtedly, one of a hopelessly barred claim, as the Petitioner by its conduct slept over its right for more than five years. Petition dismissed.


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