Mediation/Settlement Talks - A New Lease Of Life For Time Barred Arbitration Claims?

Contemporary legislative and judicial trends suggest that Indian commercial litigation has been focussing on mediation as a tool to resolve disputes, more than ever before.

For instance, Section 12A of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 ("Commercial Courts Act") introduced the concept of mandatory 'Pre-Institution Mediation and Settlement' under Section 12 thereof before a Commercial Civil Suit can be instituted in a Civil Court in India. Interestingly, the proviso to Section 12A(3) categorically provides that the time period during which the parties were occupied in with pre-institution mediation shall not be computed for the purposes of limitation under the Limitation Act, 1963. One must although, hasten to add here that the said provision appears to be in stark distinction to the settled law under the Indian regime – which holds that condonation of delay (or the Limitation Act, 1963) does not apply to original actions i.e. original Suits – and time barred suits have to be dismissed. (See paragraph 18 of Vishal Hira Merchant Pvt. Ltd. and Ors. V HDFC Bank; AIR 2017 Del 49)

'Breaking Point' of negotiations as cause of action for arbitral claims

Conceivably with this focus on promoting mediation, the Indian Supreme Court has recently held that under 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 the reference to arbitration under the 1996 Act.^[1] The court lays down the test as follows-

1. 1.For exclusion of limitation as above, the entire negotiation history between the parties must be specifically pleaded and placed on record.
2. 2.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 of arbitration.
3. 3.This 'breaking point' would then be treated as the date on which the cause of action of arises, for the purposes of limitation.

(See paragraph 29 of Geo Miller and Co. Pvt.Ltd. v Rajasthan Vidyut Utpadan Nigam Ltd.; 2019 SCC OnLine SC 1137, hereinafter "Geo Miller Case" - )

Family disputes v Commercial Disputes

Even while laying down the aforesaid test, the Geo Miller Case distinguishes the manner in which the 'breaking point' ought to be determined in arbitral disputes arising out of family disputes, as against commercial disputes. The Court holds that such 'breaking point' may occur soon in a commercial dispute, where the litigants' primary objective is to secure payment of money. However, the said 'breaking point' may have to be judged on a higher threshold in the context of 'family disputes' where parties have a greater stake in settling the dispute amicably. The Court further relied on Hari Shankar Singhania v Gaur Hari Singhania; (2006) 4 SCC 658 ("Hari Shankar Case") to reason such higher thresholds of 'breaking point' in family disputes – since the said case holds that family settlements are sacrosanct and are to be treated differently from commercial settlements.

The author however contends that the 'breaking point' ought to be same for family disputes and commercial dispute.

Firstly, on account of the withering away of the joint family system in India, the primary focus of contemporary litigants even in family disputes (for example in a partition suit or other joint family property disputes) is mostly to secure payment of money or realisation of assets/properties – rather than keeping the family as one unit. The nature of litigation therefore, ought not to be a relevant fact to hold that such 'breaking point' may occur sooner in commercial disputes than in family disputes.

Secondly, because the Geo Miller case appears to incorrectly appreciate the ratio of the Hari Shankar Case for the above reasoning. It is relevant to note that even though the dispute involved in the Hari Shankar Case was a family dispute, the Supreme Court had cited with approval – (i) a decision of the Delhi High Court in Oriental Building and Furnishing Co. Ltd. v. Union of India AIR 1981 Del 293; (ii) the observations in the English Court of Appeal decision in 'Hughes v Metropolitan Rly. Co.' – both of which decisions were rendered in relation to commercial disputes and hold that strict rights of parties do not come into play where negotiations for settlement are pending.

'Under Consideration' claims – whether time barred in view of decision in Geo Miller

It is common for parties to usually respond to pre-arbitral communications with the phrases that the matter is 'under consideration' or 'is being examined' – when an amicable settlement is still being considered by the concerned management. The Delhi High Court in the cases of (1) 'DDA v Cengers Geotechnica Pvt. Ltd.'; RFA 157/2017 and (2) 'Kidde India v NTPC'; 258 (2019) DLT 347, had previously held that a mere letter that the matter is 'under consideration' or 'is being examined' is not sufficient to extend limitation.

However, with the Supreme Court laying down the aforesaid test in relation to extension of limitation, the said communications will have to be seen in the light of surrounding circumstances and the manner in which the claim is pleaded. There may thus not be an outright rejection of an assertion of extension of limitation on the basis of such letters stating that the matter is 'under consideration' or 'is being examined'.

Extended trial of all arbitration claims

It is trite law that limitation is a mixed question of law and fact. In cases where limitation is a pure question of law, claims can be rejected at the outset, without any requirement of trial (See Nusli Neville Wadia v IvoryProperties and Ors. SC ). With the aforesaid test requiring the parties to 'plead' and 'place on record' the surrounding events/circumstances in relation to the settlement/negotiation talks, a prudent litigant (by way of clever drafting) may get away with a prima facie rejection of its claim (which would have been otherwise barred by limitation), if such events relating to settlement are set out as per the Geo Miller Judgment. This may prolong the arbitral trials, since these claims cannot then be summarily rejected by the Arbitral Tribunal under Section 16 of the Arbitration Act as being barred by limitation – in cases where such events are pleaded as per the Geo Miller case.

It would be interesting to observe if the test laid down in the Geo Miller case is also adopted by the Indian Courts to extend limitation in other original actions – such as filing of Civil Suits, especially when Section 12A of the Commercial Courts has now statutorily recognised that time spent in pre-institution mediation shall not be included for calculating the limitation period.

Views are personal only

(Vipul Kumar is an Advocate practising before all the courts and tribunals in New Delhi and may be contacted at 'vipul.rmlnlu@gmail.com')