Legal Brief : Application for arbitrator’s appointment cannot be rejected on multiplicity alone if cause of action for subsequent arbitration arise.
Case : M/S HPCL Bio-Fuels Ltd. Vs M/S Shahaji Bhanudas Bhad
Court : Hon’ble Supreme Court Of India
Date of Judgment: 07.11.2024
By : Adv. Saksham Mathur
Facts
- The appeal arose from a contractual dispute between the parties regarding the enhancement of the capacity of a boiling house on a turnkey basis. The respondent, having been declared the successful bidder in a tender process, received purchase orders from the appellant in 2012. After supplying equipment and rendering services, the respondent invoiced the appellant for a total of Rs. 38,18,71,026/-. The appellant made partial payments, amounting to Rs. 19.02 Crore, but withheld the remaining balance, citing performance The tender document contained an arbitration clause.
- The respondent, after sending a legal notice in 2016, initiated arbitration proceedings in 2018. However, before the court could appoint an arbitrator, the respondent withdrew the application and pursued insolvency proceedings against the appellant under the Insolvency and Bankruptcy Code, 2016. The National Company Law Tribunal admitted the insolvency application, but the National Company Law Appellate Tribunal reversed this decision, citing the existence of a pre-existing dispute that should be resolved through arbitration. The Supreme Court upheld the NCLAT’s decision.
- Following the dismissal of the insolvency proceedings, the respondent filed a fresh application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The appellant opposed the application, arguing that it was time-barred. The High Court, however, allowed the respondent’s application and appointed an arbitrator. This appeal challenges the High Court’s order.
Issues
- Whether or not the respondent can file a fresh application under Section 11(6) of the Act, 1996, especially when the first application was withdrawn unconditionally, without liberty to file a fresh application?
- Whether or not the fresh application under Section 11(6) was time- barred?
- Whether or not the delay in filing the fresh arbitration application can be condoned under Section 5 of the Limitation Act?
Legal Analysis
That the Hon’ble Supreme Court discussed the principles underlying Order 23 Rule 1 of the Code of Civil Procedure, 1908 (CPC). Although Order 23 Rule 1 applies specifically to suits, the court recognized that its underlying principles have been extended to other legal proceedings to prevent abuse of process and promote efficiency. The court held that a Section 11(6) application is not merely about appointing an arbitrator but also signifies the commencement of actual arbitration proceedings. Therefore, unconditionally withdrawing a Section 11(6) application amounts to abandoning the arbitration itself. Applying these principles to the present case, the Supreme Court concluded that the respondent, having withdrawn the first arbitration application without seeking liberty to file a fresh one, could not file a second application based on the same cause of action.
Hon’ble Court determined that the respondent’s second Section 11(6) application was time-barred. The respondent attempted to invoke Section 14 of the Limitation Act, arguing that the time spent in IBC proceedings should be excluded when calculating the limitation period. The court analyzed Section 14(2), which deals with excluding the time spent in a court lacking jurisdiction. Crucially, the court determined that Section 14(2) requires that both the earlier and subsequent proceedings be “for the same relief”. The Supreme Court extensively analyzed the objectives and nature of IBC proceedings, citing various precedents. It concluded that insolvency proceedings under the IBC are fundamentally distinct from ordinary debt recovery proceedings. The court highlighted that IBC proceedings aim primarily for the revival and rehabilitation of the corporate debtor, while recovery proceedings like arbitration focus on the recovery of debt. Consequently, the court held that a Section 9 IBC application and a Section 11(6) arbitration application are not for the same relief, making Section 14(2) inapplicable.
The respondent requested Hon’ble Court to condone the delay in filing the second Section 11(6) application under Section 5 of the Limitation Act. The court acknowledged that Section 5 empowers courts to condone delays in appeals and applications if “sufficient cause” is shown. While a formal application is generally expected, the court clarified that it can still condone delay even without a formal application, provided the applicant demonstrates sufficient cause. However, the Supreme Court emphasized that Section 5 is a discretionary remedy, not to be granted lightly. The court scrutinized the respondent’s conduct, finding that they deliberately chose to abandon the first Section 11(6) application to pursue IBC proceedings despite knowing that there was an existing dispute. This calculated decision to abandon the correct legal course disentitled the respondent to the benefit of Section 5.
Conclusion
That the Hon’ble Supreme Court allowed the appeal and set aside the High Court’s order appointing an arbitrator. The court concluded:
- The respondent’s fresh Section 11(6) application was not maintainable due to the unconditional withdrawal of the first
- The fresh application was time-
- The respondent was not entitled to exclude the time spent in IBC proceedings under Section 14(2) of the Limitation Act.
- The respondent was not entitled to condonation of delay under Section 5 of the Limitation Act.
This judgment emphasizes the importance of due diligence and good faith in legal proceedings. The court upheld the principle of preventing abuse of process by disallowing the respondent from reviving an abandoned arbitration after an unsuccessful attempt at insolvency proceedings. The decision also underscores the distinction between IBC proceedings and ordinary debt recovery mechanisms, clarifying that they serve different purposes and are not interchangeable remedies.