Case Number: Arbitration Petition (C) NO. 13 OF 2023

Judges Name: Justice Pamidighantam Sri Narasimha and J.B. Pardiwala

Order dated: 18.05.2023

Facts of the Case:

1. The Ministry of Defense tendered a deal for procurement of 1,568 Sub Machine Guns under a Fast Track Procedure. The petitioner participated and was offered the contract which was later executed on 27.03.2012. 
2. The parties disagreement stemmed from the respondent’s alleged improper encashment of a warranty bond. The encashing of liquidated damages was in relation to the delay in supply of goods. The petitioner was later informed about the instructions for the encashment and that it had been authorized by the Ministry of Defence and the President to deduct Euro 197,230.35 from the petitioner in to collect any relevant LDs (liquidated damages) under the provisions of the contract. 
3. Parties have engaged in bilateral discussions in order to resolve the dispute regarding the imposition of the LDs and encashment. However, the respondent informed the petitioner in a letter dated 22.09.2017 that they were complying with the provisions of the Contract and that the petitioner had ample time to make its case. 
4. Although both parties have been engaged in negotiations, a letter dated 04.09.2019 urged the respondent to look into the improper imposition of Lds and to state their case.

Supreme Court Observed/ Held as Follows:

• The Supreme Court observed that the breaking point between parties occurred when the dispute arose due to wrongful encashment of bank guarantee according to a letter dated 16.92.2016 for Euro 201,7923.75, moreover money was later deducted for the recovery of liquidated damages following of which the requisite amount credited to the Government account according to a letter dated 11.08.2016. 
• A letter sent on 24.02.2016 highlights the disputes among the parties can be traced back to 2014. The court has ordered all the negotiations between the parties to be pleaded and placed before the court to ascertain which party had been at fault. 
• The Court observed the date when the bank guarantee came to be encashed in 2016 and the requisite amount stood transferred to the government to be the breaking point and to be the date when cause of action for limitation arose. The limitation period however stands to be 3 years to enforce a claim and an argument of negotiation cannot justify the parties delay. 
• Court cited Panchu Gopal Bose v. Board of Trustees for Port of Calcutta wherein it stated that allowing a claim beyond the limitation period would be harassment to the opposite party. Thus, barring the claims as the petitioner has appealed raised the dispute beyond the limitation period of 5 years. 
• The petition stands dismissed in the aforesaid terms leaving the parties to bear their own costs.