At what point does time run out? Understanding limitation in pre-arbitral proceedings and the transition to arbitration

The interplay between conciliation, mediation, arbitration and limitation remains one of the most significant issues in commercial dispute resolution.

While conciliation and mediation are designed to promote amicable settlement and reduce reliance on adversarial proceedings, parties often enter the process without a clear understanding of how it affects statutory timelines for bringing claims. Does the clock stop when pre-arbitral proceedings begin? Does it continue to run silently in the background? And at what point does delay in conciliation and mediation jeopardize a party’s right to seek arbitration?

This article examines the critical issue of when time runs out in the transition from pre-arbitral proceedings to arbitration. By analysing the judicial precedents, it seeks to clarify how limitation operates during these steps, when it pauses, when it does not, and how parties can safeguard their rights while engaging in good-faith settlement efforts.

The law of limitation is grounded in the maxim vigilantibus non dormientibus jura subveniunt, meaning that “the law assists those who are vigilant, not those who sleep over their rights.” Arbitration is no exception to this principle. Section 43(1) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) expressly provides that the Limitation Act, 1963 shall apply to arbitrations in the same manner as it applies to proceedings before a court.

It is equally essential to understand what constitutes a “dispute,” as it is the dispute that triggers pre-arbitral procedures and, if unresolved, culminates in arbitral proceedings. The High Court of Madhya Pradesh in Indian Oil Corporation Ltd. & Ors. v. Tatpar Petroleum Centre, Arbitration Appeal No. 80/2021, examined this issue.

Referring to various sources, the Court concluded that a dispute arises when one party asserts a claim that is denied or contested by the other.

Having examined the applicability of limitation to arbitral proceedings and the definition of dispute, we now turn to the effect and operation of limitation upon pre-arbitral procedures.

Commercial agreements routinely require parties to engage in settlement discussions, whether through negotiation, mediation, or conciliation, before they can initiate formal arbitral proceedings. As these mechanisms have become integral to dispute-resolution frameworks, understanding how they interact with the law of limitation has become essential. For parties that anticipate escalating a dispute to arbitration, clarity on whether time pauses, extends, or continues to run during these preliminary steps is crucial to safeguarding their rights.

In Hari Shankar Singhania and Ors Vs. Gaur Hari  Singh (2006) 4 SCC 658, the Supreme Court was posed with a question of identifying the point in time when the parties’ ongoing negotiations crossed the “breaking point” and crystallized into a legal “dispute” such that the right to apply under Section 20 of the Arbitration Act, 1940 accrued and the three‑year limitation under Article 137 of the Limitation Act, 1963 began. The Hon’ble Supreme Court held that as long as parties are genuinely negotiating, the limitation under Article 137 does not start. Limitation begins when negotiations break down, evidenced by clear denial/ repudiation when it becomes necessary to invoke adjudication. In arbitration matters, the breaking point is fact-sensitive and will turn on correspondence showing a transition from negotiating to dispute.

In B and T AG v. Ministry of Defence, (2024) 5 SCC 358, the Supreme Court clarified that limitation for invoking arbitration begins the moment a party’s right is infringed, not when negotiations break down. The Court stressed that parties must remain conscious of when the cause of action first arises; waiting indefinitely in the hope of a negotiated settlement does not stop the limitation clock. Even if discussions continue for years, they do not extend or suspend the statutory three-year period under the Limitation Act.

The decision makes clear that the pendency of negotiations does not, by itself, suspend or extend the period of limitation. Once a right is infringed, the clock runs, and no amount of back-and-forth discussions can halt or revive a claim that has already become time-barred.

In Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd., (2020) 14 SCC 643, the Hon’ble Supreme Court examined whether an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 could be barred by limitation. The Court held that, in appropriate cases, the period spent in bona fide negotiations towards an amicable settlement may be excluded while computing limitation for reference to arbitration. However, such exclusion is permissible only where the entire negotiation history is specifically pleaded and placed on record, enabling the Court to identify the “breaking point”, the stage at which a reasonable party would abandon efforts at settlement and proceed to arbitration. This breaking point is treated as the date on which the cause of action arises for limitation purposes.

The Court further clarified that in commercial disputes, where the primary interest is securing payment, the threshold for identifying this breaking point is lower.

Courts now consistently emphasize that while parties may agree to conciliation or mutual discussion procedures, such mechanisms cannot obstruct or delay the invocation of arbitration. The Hon’ble Supreme Court has reinforced this balance through its ruling in B and T AG v. Ministry of Defence (Supra), which categorically holds that limitation begins when the cause of action first arises, and not when negotiations conclude.

At the same time, the Court in Geo Miller (Supra), recognizes that truly bona fide and continuous negotiations may, in rare cases, shift the limitation period. However, this benefit is available only where the negotiation history is fully documented and reveals a clear "breaking point" at which a reasonable party would abandon settlement efforts. The threshold for this exception is deliberately narrow, particularly in commercial disputes where promptness is expected.

Collectively, these decisions indicate a maturing arbitration framework in which conciliation is supported but cannot operate as an excuse for delay. Parties are now expected to pursue settlement and limitation compliance simultaneously, adopting greater procedural vigilance. Failure to act within the prescribed timelines risks irreversible extinction of claims, signaling a more disciplined and time-sensitive approach to dispute resolution in India.

We have already examined the principles governing the “breaking point” and the applicability of the law of limitation. However, an additional issue that arises is the effect of institutional pre-arbitral procedures, such as mandatory mediation, on the computation of limitations.

This question came up squarely before the High Court of Delhi in Alstom Systems India Pvt. Ltd. v. Zillion Infraprojects Pvt. Ltd., O.M.P. (Comm) 351/2021. In that case, an arbitral award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996. The arbitral tribunal had held that the claims were not barred by limitation, reasoning that the claimant could not have invoked arbitration without first completing the contractually mandated mediation process.

The respondent had argued that limitation should run from the date of the first instance of dispute. The tribunal rejected this contention, observing that:

(i) Both parties had willingly participated in the ICC-ADR mediation process;

(ii) During mediation, the claimant continued to attempt an amicable settlement.

In these circumstances, the tribunal held that the claimant was entitled to invoke arbitration only after the mediation process had failed. The Hon’ble High Court concurred with this reasoning and dismissed the Section 34 petition.

At first glance, this approach may appear to deviate from earlier Supreme Court judgments holding that limitation begins when the underlying dispute first arises. However, the High Court’s decision does not dilute that principle, rather, it recognizes that where institutional rules or contractual terms impose mandatory pre-arbitral procedures, the “breaking point”, shifts accordingly.

Limitation does not wait for settlement. The jurisprudence now clearly establishes that the period of limitation for invoking arbitration begins when the cause of action first arises and, as a rule, is not suspended by negotiations, conciliation, or mutual discussions. The Supreme Court’s decision in B and T AG v. Ministry of Defence Cements (Supra)  confirms this principle, warning that parties cannot allow claims to lapse under the misconception that ongoing settlement efforts preserve their rights. At the same time, Geo Miller preserves a narrow and carefully policed exception: where negotiations are demonstrably bona fide, continuous, and fully documented, courts may recognize a “breaking point” that resets the accrual of cause of action for the purpose of limitation.

Mandatory pre‑arbitral procedures can shift the limitation clock, but they do so by deferring the “breaking point” rather than rewriting the basic rule.

The Delhi High Court’s decision in Alstom Systems India Pvt. Ltd. v. Zillion Infraprojects Pvt. Ltd., fits comfortably within established principle.

In this legal landscape, parties must adopt a dual-track strategy, pursuing conciliation without compromising limitation compliance. They should assert claims promptly, record negotiation history meticulously, and, where necessary, take timely steps to invoke arbitration even as settlement continues.

About the authors: Rahul Saraswat is a Senior Principal Associate and Kushagra Kaul is a Senior Associate and S&A Law Offices.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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