“We must first consider whether it is the 1940 Act or the 1996 Act which applies to the Arbitration Applications. It is settled law, the date of commencement of Arbitration Proceedings for the purpose of deciding which Act applies, upon a conjoint reading of Sections 21 and Section 85(2)(a) of the 1996 Act, shall be regarded as the date on which notice was served to the other party requesting appointment of an Arbitrator. Though strictly speaking the 1996 Act came into force from 22.08.1996, for all practical purposes it is deemed to have been effective from 25.01.1996, which is when The Arbitration and Conciliation Ordinance, 1996 came into force. Hence if the date of notice was prior to 25.01.1996, the 1940 Act will apply. If the date of notice was on or after 25.01.1996, the 1996 Act will apply to the Arbitral Proceedings though the Arbitration Clause contemplated proceedings under the 1940 Act. In the present case, since notice was served in 2002, the provisions of the 1996 Act will be deemed to apply to the present Arbitration Applications.

It remains to be examined whether the aforesaid Arbitration Applications have been filed within the statutory limitation period. It is well-settled, by virtue of Article 137 of The First Schedule to The Limitation Act, 1963 the limitation period for reference of a dispute to Arbitration for seeking appointment of an Arbitrator before a Court under the 1940 Act as well as the 1996 Act is three years from the date on which the cause of action or the claim which is sought to be Arbitrated first arises.

Appellant’s cause of action in respect of Arbitration Applications Nos. 25/2003 and 27/2003, relating to the work orders dated 07.10.1979 and 04.04.1980 arose on 08.02.1983, 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 three years from the date on which cause of action arose, i.e., 08.02.1986. Similarly, with respect to Arbitration Application No. 28/2003 relating to the work order dated 03.05.1985, the Respondent has stated, the final bill was handed over and became due on 10.08.1989. This has not been disputed by the Appellant. Hence the limitation period ended on 10.08.1992. 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.

Having perused through the relevant precedents, we agree, on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to Arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. 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 threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party’s primary interest is in securing the payment due to them, than in family disputes where it may be said, the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim. 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, 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. In the present case, the Appellant Company vaguely stated before this Court, it was involved in ‘negotiation’ with the Respondents for fourteen years; it did not place on record any evidence to show when it had first made a representation to the Respondent in respect of the outstanding amounts, and what was the history of their ‘negotiation’.

The Appellant Company’s case has a certain element of mala fide in so far as it has remained conspicuously silent on the specific actions taken to recover the payments due; under Section 114(g) of The Indian Evidence Act, 1872 this Court can presume, evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it. We also find it pertinent to add, the Appellant’s own default in sleeping over his right for fourteen years will not constitute a case of ‘undue hardship’ justifying extension of time under Section 43(3) of the 1996 Act or show ‘sufficient cause’ for condonation of delay under Section 5 of The Limitation Act, 1963. The Appellant should have approached Court for appointment of an Arbitrator under Section 8(2) of the 1940 Act within the appropriate limitation period. The entire dispute seems concocted so as to pursue a monetary claim against the Respondents, taking advantage of the provisions of the 1996 Act. Appeals are dismissed.”

– Hon’ble Justice Mohan M. Shantanagoudar, M/s. Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd., [Civil Appeal No. 967 of 2010].

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The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 was repealed by virtue of Section 32 of The Micro, Small and Medium Enterprises Development Act, 2006.

We hold, The MSMED Act, 2006, being a special Act, will have an overriding effect vis-à-vis The Arbitration and Conciliation Act, 1996, which is a general Act. 

– Hon’ble Justice R. Subhash Reddy, M/s. Silpi Industries v. Kerala State Road Transport Corporation, [Civil Appel Nos. 1570-1578 of 2021] decided on 29.06.2021.

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Also see, Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2), [Special Leave Petition (Civil) No. 12884 of 2020] decided on 31.10.2022.