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The Geo Miller Case: A Landmark Judgement Solidifying India’s Pro-Arbitration Stance
A method of dispute resolution that is gaining popularity these days is that of ADR or Alternate Dispute Resolution. Alternate Dispute Resolution can be divided into three, commonly used, forms – Arbitration, Mediation and Negotiation, with Arbitration being the most well-known and popular of the three. Arbitration is the most formal method of ADR and cannot be invoked unless the parties have a valid agreement to refer any dispute to an arbitrator chosen by them both[1]. Any party to an agreement with an arbitration clause can invoke it either himself or through his authorized agent. Arbitration is a method by which parties refer the dispute to one or more persons known as arbitrators so the arbitration clause must mention the name of the arbitrator/s, language of the process, place of work of the arbitrator/s, and place where the arbitration process will take place. The arbitrator must listen to the parties and make a decision, and this is a power similar to that of a judge in a case[2]. The arbitrator’s decision may be binding or non-binding, as the parties may decide, and if binding it can be enforced by a court of law. A binding arbitration means that the parties have waived their right to a trial, have agreed to accept the arbitrator’s decision and have chosen not to appeal the decision[3]. With businesses booming and entrepreneurship at an all-time high, people from all over the globe are connecting over a single idea. However, these people may not always be likeminded and sooner or later disputes will arise between then on various matters affecting the company and business in general.
Partners who have an arbitration clause in their contract can easily refer the matter to an arbitrator and although the arbitration process is more time and cost effective while also promising confidentiality, a negotiation or simple conversation in good faith between the parties might resolve the conflict without the need to spend money, time, resources and the risk of airing a company’s “dirty laundry” to the public[4]. These conversations or negotiations are very common, and they provide the defending party an opportunity to hear the injured party out and respond in a way that might resolve the dispute. However, these good faith negotiations can take weeks, months or even years in some cases, and this inhibits the party’s right to proceed with arbitration after a certain period as per the Limitation Act, 1963. The Act states that all civil disputes, a claim cannot be made after the expiration of three years from the date on which the claim accrued[5], and as per precedent and general practice of law the same applies to arbitration proceedings. The limitation period for arbitration in three years from the date on which, had there been no arbitration clause, the cause of action would have accrued[6]. For the purpose of determining the limitation period, the arbitration proceeding is deemed to have commenced on the date when a request for arbitration was received by the other party, who is the defending party[7] but this provision fails to take into consideration any specific time allotted for pre-arbitration negotiations in the arbitration agreement or clause. For example, under Article 55 of the Schedule to the Limitation Act, all suits for compensation arising out of a breach of contract must be filed within three years from the breach and this means that the claimant has the responsibility of engaging in pre-arbitration negotiations or conversations and wrapping them up within the three year period, if he wants compensation, even if a resolution is in sight.
The Supreme Court’s judgement in the case of Geo Miller & Co. Pvt. Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd.[8] is so important with relation to this aspect because for the first time in Indian history a court has held that time spent in pre-arbitration negotiations, held in good faith, may be excluded when computation the period of limitation. In determining the period of computation in these cases the court held that:
“Having perused through the relevant precedents, we agree that 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. 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 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 that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim[9].”
This ratio states that in cases where the claimant has not asserted his claim and the parties have entered into good faith negations prior to the commencement of an arbitration proceeding, the time spent on the negotiation will be excluded from the computation of the limitation period. The judgment also clarifies that the limitation period will be assessed from the period when the said negotiation reaches a “breaking point” – a point wherein a reasonable party would have abandoned all efforts at reconciliation and would have considered referral of the dispute to arbitration. The principle laid down will apply regardless of whether the arbitration agreement included a clause envisaged a pre-arbitration negotiation or not. Further, the judgement states that for the purpose of sustaining a claim for exclusion/suspension of limitation period on account of good faith negotiations between the parties, the claimant will have to place strong evidence, on record, establishing the entire negotiation history between the parties to show that there was a serious effort to reach an amicable settlement prior to the stage when reference to arbitration became inevitable[10]. The judgement also categorizes different thresholds for matters depending on the subject of the dispute, i.e., a high threshold for family matters and a lower one for commercial disputes.
The judgement in the Geo Miller case is, therefore, a well-received change which will allow parties the opportunity to maintain their relationship with pre-arbitration negotiations that won’t take away the parties’ right to arbitration and a guaranteed resolution.
[1] Anubhav Pandey, All you need to know about Alternative Dispute Resolution (ADR), iPleaders, (May 9, 2017, 11:37 AM), https://blog.ipleaders.in/adr-alternative-dispute-resolution/.
[2] Editor, Types of Alternative Dispute Resolution, LegalMatch, (Apr. 9, 11:40 AM), https://www.legalmatch.com/law-library/article/types-of-alternative-dispute-resolution-adr.html.
[3] Editor, Forms of Alternative Dispute Resolution, MillerLaw, (Mar. 17, 2020, 3:44 PM), https://millerlawpc.com/alternative-dispute-resolution/.
[4] Indranil Deshmukh, Good Faith Negotiations and Mediation: A Missed Opportunity So Far, CyrilAmarchand, (Nov. 28, 2019, 6:58 PM), https://corporate.cyrilamarchandblogs.com/2019/11/good-faith-negotiations-mediation-missed-opportunity-so-far/.
[5] Pegler v. Railway Executive, (1948) 1 All ER 559.
[6] Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, (1993) 4 SCC 338.
[7] The Arbitration and Conciliation Act, 1996, No. 26 Acts of Parliament, 1996 (India).
[8] Geo Miller & Co. Pvt. Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. (2019) SCC OnLine SC 1137.
[9] Geo Miller & Co. Pvt. Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd. (2019) SCC OnLine SC 1137 (Para 29).
[10] Indranil Deshmukh, Exclusion of Time Spent in Pre-arbitration Negotiations/Settlement Discussions: A much needed carve out, CryrilAmarchand, (Dec. 10, 2019, 8:16 PM), https://corporate.cyrilamarchandblogs.com/2019/12/exclusion-time-spent-prearbitration-negotiations-settlement-discussions/.
- Geo Miller Case
- Pre-arbitration Negotiation
- Limitation Period
