JUDGMENT Hon’ble Dilip Gupta, J.—The petitioner has sought the quashing of the order dated 2nd June, 2009 passed by the Arbitrator by which the preliminary objection raised by the petitioner was rejected and it was held that the claim referred for decision before the Arbitrator was within the limitation period prescribed under Section 137 of the Limitation Act, 1963 (hereinafter referred to as the ‘Limitation Act’). 2. Respondent No. 2-U.P. State Sugar Corporation Limited, Sakoti Tanda, Lucknow (hereinafter referred to as the ‘Corporation’) filed a claim petition on 5th August, 2006 before the Arbitrator, namely the Managing Director of the Corporation, for refund of Rs.9,19,168.56 from the petitioner with interest. It was mentioned that the Corporation had placed a purchase order dated 22nd January, 1990 with the petitioner-Company for supplying certain machines and under Clause 20 of the General Terms and Conditions enclosed with the said purchase order it was provided that if at any time any question, dispute or difference whatsoever arises between the purchasers and the sellers, the decision of the Managing Director of the Corporation shall be final within the meaning of the Indian Arbitration Act, 1940 and the Rules made thereunder, or any statutory modification or enactment thereof. The petitioner-Company had supplied material worth Rs.11,83,840/- on 10th September, 1990 which was received by the Corporation on 19th September, 1990. Payment of Rs.9,19,168.56/- was also made to the petitioner-Company by the Corporation between 15th February, 1990 and 10th July, 1992, but as the system supplied by the petitioner-Company was not running properly, a communication dated 21st April, 1994 was sent to the petitioner-Company by the Corporation informing it about the operational difficulties and the balance amount of Rs.2,36,969/- to be paid to the petitioner-Company was withheld. 3. Communications were exchanged between the parties and ultimately a communication dated 18th February, 1998 was sent by the petitioner-Company to the Corporation expressing its inability to re-install/commission the System again and the letter is as follows : “We have received your above referred letter for subject cited instrument. We had already installed & Commissioning the system in Jan’ 1994, except discharge valve. The discharge valve could not be run because of technical problem. So, we discussed the matter with your Director (ST) at Head Office, Lucknow and General Manager, Chief Chemist & Chief Engineer. Enclosed please find our letter No. PGP-1/SER/0048 dated 21.4.1994 for your information. We had already installed & Commissioning the system in Jan’ 1994, except discharge valve. The discharge valve could not be run because of technical problem. So, we discussed the matter with your Director (ST) at Head Office, Lucknow and General Manager, Chief Chemist & Chief Engineer. Enclosed please find our letter No. PGP-1/SER/0048 dated 21.4.1994 for your information. Now affect four years, it is very difficult for us to re-installation/Commisssioning the system again.” 4. In response to the aforesaid letter dated 18th February, 1998 sent by the petitioner-Company, a letter dated 15th July, 1998 was sent by the Corporation to the petitioner-Company which is as follows : “We have received your above letter. The system as installed and taken trial by you and your staff did not work even in your third trial. The main defects of the system as found and also seen by your staff at the time of trial were as follows : 1.Automatic discharge of Pan totally failed. Due to this, the whole system did not work. 2.The working of other 3 points as checked on trial on 4.3.1998 and reported by the then Chief Chemist was unsatisfactory. The pan which was feeded on your auto system was ready in 4.00 hours. 30 mts, while on manual running generally the pan will be ready within 2 hours, i.e. reduding the capacity of the machine by 50%, which is a major draw back and problem with your system. This had been checked in presence of your service engineer, Mr. Pandey, who left the site immediately for Lucknow on 4.3.1994 at 7.00 p.m., as reported by the then Chief Chemist. It is clear from the above that the system has not worked. Inspite of our letter No. SSC/SKF/PI/97-98/3268 dated 7th Feb. 98 you again failed even to depute your technical team. This also indicate that you yourself knew it well that this system will not work. You are, one again, requested to kindly either depute your technical team within 7 days in receipt of this letter to set right the system and deliver performance trial in ensuing cane crushing season or refund the total amount paid to you by this Unit alongwith interest @ 18% w.e.f. the date of payment to the actual date of refund, otherwise we will be compelled to proceed legally against you.” (emphasis supplied) 5. In response to the said letter of the Corporation, the petitioner-Company sent a reply dated 5th August, 1998 which is as follows : “This is with reference to your above letter regarding above system. Points mentioned in your letter are unknown to us. Our engineers were present at the factory for the three complete trial of the system and the system was given trial till the last crushing day of the season in April, 1994. All your chemist and concerned persons were given complete training and they were in position to run the system on their own. In our opinion, we have discharged our duties and the system was handed over to you in satisfactory running conditions except the discharge valve.” (emphasis supplied) 6. Thereafter, the Corporation sent a letter dated 19th August, 1998 to the petitioner-Company which is as follows : “Please refer to your letter No. AS-/17489/0187 dated 5th August, 98, on the above cited subject. In this connection it is to inform to you again that the said micro processor based pan Automatic system did not work properly viz.; 1.Your system was taken as a whole, not in parts. Automatic discharge of pan did not work and hence whole system failed. 2.after starting of the pan, the total filling time was just double than what it is in normal and thus reducing the capacity of the plant and machinery. This again is a failure of your system. 3.all these things have been shown and checked by your engineer Mr. Pandey, who remained in the trial upto 7.00 p.m. on 4.3.1994, as reported by the then Chief Chemist. Factory’s staff has not given any letter to you for satisfactory performance, hence it is wrong to say that you have discharged your duties. Please note that this factory has invested huge amount in it, but your system totally failed to give results and for which you are totally responsible as per the terms of the order. It is again requested to please set right the system immediately, so that it can run in the ensuing cane crushing season, otherwise we will be forced to take other steps for the recovery of amount paid to you by this unit alongwith interest.” (emphasis supplied) 7. The Corporation, thereafter, sent letters dated 28th July, 2003 and 6th September, 2003 to the petitioner-Company. 8. The Corporation, thereafter, sent letters dated 28th July, 2003 and 6th September, 2003 to the petitioner-Company. 8. The preliminary objection that was raised by the petitioner before the Arbitrator was that the claim petition was barred by limitation as it was filed on 5th August, 2006 in respect of a dispute that had arisen in 1998, though under Section 137 of the Limitation Act the period of limitation is three years from the date the right to apply accrues. 9. The Arbitrator rejected the preliminary objection raised by the petitioner by the order dated 2nd June, 2009 and the relevant portion of the impugned order is as follows : “I have gone through the pleadings of the parties, their oral arguments and written submissions as submitted by them. In my view the controversy involved presently cannot be adjudicated except by minutely scanning the communication between the parties so as to find out as to when a ‘referable’ dispute under clause 20 arisen between the parties, to give rise the claims as has been filed by the claimant under Section 23 of the Act, 1996. A close reading of the letter dated 15.7.1998 which have been heavily relied by the respondent company for raising the preliminary objection in regards to the limitation reveals prima facie that the same is not a notice of initiating legal action rather the same is an expression of state of helplessness of general manager to proceed legally against respondent company in case the request is not heeded.....................In the absence of unequivocal statement to proceed in accordance with law the letter dated 15.7.1998 cannot be construed as ‘notice’ to give rise to a dispute for initiating the present arbitral proceedings though the same to my mind is only a prelude for creating dispute by asserting therein certain obligations to be discharged by the respondent company for completion of performance trial of the system supplied. ................................ I have gone through the reply of the letter dated 15.7.1998 as submitted by the respondent company vide its letter dated 5.8.1998 very closely and I find that the same is not the negation in a specific and unequivocal terms of the assertions of the letter dated 15.7.1998 rather the same is an opinion expressed by the respondent company regarding satisfactory running of the system supplied except ‘discharge valve’. I fail to understand as to how a dispute can be inferred to have been raised on such mere expression of opinion vide the letter dated 5.8.1998................ ................................ In the light of the above judgments I am of firm view of the communication dated 15.7.1998 and dated 5.8.1998 do not create a referable ‘dispute’ or adjudicatable ‘difference’ between the parties, particularly when letter dated 15.7.1998 does not indicate firmly to initiate legal proceedings and letter dated 5.8.1998 being simply an opinion and admission of non-satisfactory performance of discharge valve. The pleadings in Para 16 of the claim filed by the claimant and its most evasive reply of the respondent company in regard to even receipt of the letter dated 19.8.1998 and letter dated 6.9.2003 and 28.7.2003 goes to prove that the said letter which were dispatched by registered post, the service thereof is presumed on the respondent-Company in absence of a rebuttable in specific terms............ On further perusal of the record I find that on 1/3-2-05 a registered notice was sent by the claimant through its advocate D.V. Singh Chauhan whereby in specific, categoric and unequivocal terms the respondent company was required to set right the system as a whole and to give satisfactory trial or to refund entire amount as paid by the claimant alongwith interest. The said notice dated 1/3-2-05 was replied vide letter dated 4.3.2005 by one V.S. Shrivastava, Advocate on behalf of the respondent company wherein also the claim as mentioned in the notice of the claimant in specific terms was not denied, rather ignorance has been pleaded in pretext of closing its regional office at Lucknow, removing its entire staff sometime in the year 1998 and records have been asked to be supplied to them so as to enable them to give reply. The letter dated 4.3.2005 of the respondent company was again replied by D.S. Chauhan, Advocate vide its letter dated 30.3.2005 and 43 papers were enclosed alongwith an index. The letter dated 4.3.2005 of the respondent company was again replied by D.S. Chauhan, Advocate vide its letter dated 30.3.2005 and 43 papers were enclosed alongwith an index. It is at this point of time that notice dated 1.2.2005 and letter dated 30.3.2005 of the claimant was replied in a specific terms by respondent company through I.V. Raghav, Advocate vide its letter dated 19.5.2005, in which for the first time the request to set right the system was denied vide para 6, and contents of paragraph 11 of letter dated 30.3.2005 was also denied as well as paragraph 12 was denied word by word. Further, instead of payment as claimed in notice dated 1.2.2005 the respondent company has raised a counterclaim to the tune of rupees 3,21,434.00/- alongwith the interest at the rate of 18% upto the date of its realization. To my mind all the doubts in regard to any conciliation and for settlement of issues and differences between the parties have specifically come to an end vide the letter dated 19.5.2005 thus giving a cause of action to the claimant to refer the dispute in terms of clause 20 of general terms and conditions as attached with letter dated of intent dated 1.1.90 and sub-clause 9 of the terms and conditions of purchase order number 228, dated 22.1.90. In view of above discussion I find that the claims as referred for decision in view of disputes between the parties is within the limitation prescribed under the Limitation Act, 1963 and the preliminary objection of the respondent company is thus, devoid of any merits and the same is rejected. The next date of hearing is fixed for 18-07-2009.” (emphasis supplied) 10. In the present case, the claim petition was filed under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘1996 Act’). Under the Arbitration Act, 1940 (hereinafter referred to as the ‘1940 Act’), the Court could appoint an Arbitrator under Section 8 contained in Chapter II dealing with arbitration without intervention of the Court. An application to file in Court the arbitration agreement could be filed under Section 20 of the 1940 Act which is contained in Chapter III dealing with arbitration without intervention of the Court. An application to file in Court the arbitration agreement could be filed under Section 20 of the 1940 Act which is contained in Chapter III dealing with arbitration without intervention of the Court. It is in connection with Section 20 of the 1940 Act that the Courts have repeatedly held that the limitation under Article 137 of the Limitation Act starts to run from the date the right to apply accrues. 11. In Hari Shanker Singhania and others v. Gaur Hari Singhania and others, (2006) 4 SCC 658 , the Supreme Court pointed out that under the 1996 Act, intervention of the Court in the matter of arbitration proceedings has been minimized to a great extent and that there is no provision in the 1996 Act similar to Section 8 (power of Court to appoint Arbitrator) or Section 20 (application to file in Court the arbitration agreement) or Section 33 (arbitration agreement or award to be contested by application), of the 1940 Act. 12. However, in Panchu Gopal Bose v. Board of Trustees, Calcultta Port, AIR 1994 SC 1615 , the Supreme Court pointed out : “Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of civil actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued.” 13. Under the Limitation Act, the limitation prescribed for recovery of amount is three years from the date the cause of action arises. 14. To determine when the cause of action arises, it would be necessary to refer to decisions of the Supreme Court. 15. In Asia Resorts Ltd. v. Usha Breco Ltd., AIR 2002 SC 55 , the Supreme Court observed : “A perusal of the notice sent by the appellant on 17.4.1990 to the respondent and the reply received from the latter would show that the cause of action had arisen for filing of a petition under Section 20 of the Act as early as on 17.5.1990. The material portion of the notice sent by the appellant has been extracted in the impugned judgment. Suffice it to say that in the notice dated 17.4.1990, it is made out in unmistakable terms that the appellant was of the view that the respondent had committed a serious breach of the agreement and, therefore, the respondent was called upon to do the needful within 30 days from the date of that notice, failing which the appellant would take legal action against the respondent in Court of law......................The tenor of the notice dated 17-4-1990 is that the appellant wanted the respondent to give a final reply in the matter and to settle all claims of the appellant. The respondent sent a detailed reply to the notice sent by the appellant wherein all the allegations were denied. The respondent denied the claim made by the appellant in its entirety and it was stated that the appellant issued the notice with a view to delay the payment of about Rs.6 lakhs which was due to the respondent. The appellant was told in clear terms that the respondent was not prepared to accede to the claim made by the appellant. ................................ Under Section 20 of the Act, the cause of action for filing an application may arise whenever “a difference has arisen to which the agreement applies”. Regard must be had to the relevant arbitration clause in the agreement. If any specific terms are used in the arbitration clause, that would govern the parties as to when a petition for reference of arbitration shall be filed in Court. In the instant case, the arbitration clause states that all parties would resolve such differences by mutual consultation failing which either party must give to the other notice in writing of the existence of such question, dispute or difference and the same shall be referred for the final determination. The appellant issued notice to the respondent and a definite reply was received by the appellant. It is clear that cause of action for filing had arisen, the moment the appellant received the reply notice denying the claims made by the appellant. Therefore, the Division Bench has rightly held that the application was barred by time.” 16. The appellant issued notice to the respondent and a definite reply was received by the appellant. It is clear that cause of action for filing had arisen, the moment the appellant received the reply notice denying the claims made by the appellant. Therefore, the Division Bench has rightly held that the application was barred by time.” 16. In Hari Shanker Singhania (supra), the Supreme Court held : “The period of three years prescribed in Art.137 of the Limitation Act, 1963 is applicable to file an application under Section 20 of the Arbitration Act, 1940 as decided by this Court in the case of Vulcan Insurance Co. Ltd. v. Maharaj Singh, AIR 1976 SC 287 . The limitation period starts running from the time the right to apply accrue. An application filed under Section 20 of the Arbitration Act has to be filed within three years from the date when the right to apply accrues. In the case of State of Orissa v. Damodar Das, AIR 1996 SC 942 , this Court held that, the right to apply accrues under Section 20, Arbitration Act, 1940, as soon as dispute or difference arises on unequivocal denial of claim by one party to the other party as a result of which the claimant acquires a right to refer the dispute to arbitration. In the case of S. Rajan v. State of Kerala, AIR 1992 SC 1918 , the right to apply accrues when the difference arises or differences arise between the parties involved. It is thus a question of fact, not a question of law as urged by the respondents, and should be determined in each case having regard to the facts of the case. In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, (1988) 2 SCC 338 at 340, this Court holding that the application under Section 20 was filed within time examined that: “.......a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by the claimant is the accrual of cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. ..........There should be a dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. A dispute arises where there is a claim and a denial and repudiation of the claim. ..........There should be a dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or request. Whether in a particular case dispute has arisen or not has to be found out from the facts and circumstances of the case.” In the instant case, correspondence was not merely in the nature of reminders but also instruments to resolve the matter and amicably negotiate. Therefore, when the negotiations were taking place between the parties by way of various letters written by both parties the right to apply can be said to accrue when it becomes necessary to apply, that is to say when a dispute in fact arose. Furthermore, the respondent did not ever dispute the claim of the appellants. Learned counsel appearing for the appellants placed reliance on Oriental Building and Furnishing Co. Ltd. v. Union of India, AIR 1981 Del 293 , where the material question was what is the starting point of limitation for moving a petition under Section 20 of the Arbitration Act, 1940. It was held that: “Neither party can move the Court without the existence of a difference between them. So, the material question is, when the difference arose between the parties and not when the lease expired, nor when it was entered into.” The Court further observed, “.......a difference can arise long after some work has been done under a contract. There can be negotiations between the parties and all sorts of correspondence. But it is only when they come to the conclusion that they cannot resolve the dispute between them, it can be said that a difference arises. A difference under the arbitration agreement is a claim made by one party, which is refuted by the other party. At that stage, it is open to the parties or any one of them to go for arbitration to get this difference or differences settled and it is only at this stage it is possible to say that a difference has arisen between the parties.” (emphasis supplied) 17. At that stage, it is open to the parties or any one of them to go for arbitration to get this difference or differences settled and it is only at this stage it is possible to say that a difference has arisen between the parties.” (emphasis supplied) 17. The Arbitrator, however, proceeded to observe that the letter dated 5th August, 1998 does not negate in unequivocal terms the assertions made in letter dated 15th July, 1998 and that the letter dated 15th July, 1998 also does not indicate a firm intention to initiate legal proceedings. This finding of the Arbitrator is not correct. 18. It is seen that in response to the letter dated 18th February, 1998 sent by the petitioner-Company that it had already installed and commissioned the System in January, 1994 and after four years, it would be very difficult for it to re-install/commission the System, the Corporation sent a letter pointing out the defects and expressly intimated the petitioner-Company to either depute a technical team within 7 days from the receipt of the letter to set right the System and deliver performance trial or refund the amount paid to the petitioner-Company alongwith the interest at the rate of 18% with immediate effect, otherwise, the Corporation will be compelled to proceed legally against the petitioner-Company. The petitioner-Company sent a reply dated 5th August, 1998 stating that, in its opinion, it had discharged its duties and the System had been handed over to the Corporation in a satisfactory running condition. Thus, even though the Corporation had stated in its letter dated 15th July, 1998 that if the petitioner-Company did not set right the System and deliver performance trial, the total amount paid to the petitioner-Company should be refunded otherwise legal proceedings shall be taken against the petitioner-Company, the petitioner-Company responded by stating that it had discharged all its obligations in 1994. The Corporation sent yet another letter dated 19th August, 1998 requiring the petitioner-Company to set right the System immediately so that it can run in the ensuing cane crushing season failing which the Corporation shall be forced to take steps for the recovery of the amount paid to the petitioner-Company with interest but it is the case of the Corporation that neither any reply was given nor the System was set right. 19. 19. It is, therefore, clear that by the letters dated 15th July, 1998 and 19th August, 1998, the Corporation had clearly informed the petitioner-Company to set right the System immediately, otherwise, the Corporation shall be compelled to proceed legally against the petitioner-Company and take steps for recovery of the amount paid. The petitioner-Company, however, by the letter dated 5th August, 1998 had clearly expressed its opinion that it had discharged the duties and the System had been handed over in a satisfactory running condition. Thus, in view of the decision of the Supreme Court in Asia Resorts Ltd. (supra) and Hari Shanker Singhania (supra), the cause of action had accrued when the communication dated 5th August, 1998 sent by the petitioner-Company was received by the Corporation. 20. The Arbitrator proceeded to examine the subsequent communications made after gap of 7 years and has held that the differences between the parties had come to an end by the letter dated 19th May, 2005. Once the petitioner-Company had clearly expressed its opinion, by the letter dated 5th August, 1998, the Corporation should have initiated appropriate legal proceeding but it indulged in unnecessary correspondence with the petitioner-Company and the Arbitrator has proceeded to draw an inference from these communications that the cause of action had subsequently arisen in 2005. 21. It is, therefore, not possible to sustain the order dated 2nd June, 2009 passed by the Arbitrator since admittedly the arbitration proceedings had been initiated in 2006 much after the prescribed period of three years from 1998. The order dated 2nd June, 2009 passed by the Arbitrator is, accordingly, set aside and it is held that the claim referred for decision before the Arbitrator was barred by limitation. 22. The writ petition succeeds and is, accordingly, allowed. ————