2016 (7) TMI 1147 - SC - Indian Laws

Appointment of arbitrator - Held that - Had the learned Single Judge stated that the period consumed for pursuing the remedy under Section 11 of the 1996 Act, would be excluded for filing objection, possibly the matter would have been different. In any case, we do not intend to dilate further on that aspect. It is quite clear that the quoted portion herein-above does not so indicate. It only grants liberty to the respondent to file an objection in accordance with law. Section14(1) of the Act which we have reproduced, lays down that the proceedings must relate to the same matter in issue. It emphasises on due diligence and good faith. Filing of an application under Section 11of the 1996 Act for an appointment of arbitrator is totally different than an objection to award filed under Section 34 of the 1996 Act. To put it differently, one is at the stage of initiation, and the other at the stage of culmination. By no stretch of imagination, it can be said that the proceedings relate to same matter in issue . Additionally, the respondent had participated in the arbitral proceeding and was aware of passing of the award. He, may be, by design, invoked the jurisdiction of the High Court for appointment of an arbitrator. We are absolutely conscious that liberal interpretation should be placed on Section 14 of the Act, but if the fact situation exposits absence of good faith of great magnitude, law should not come to the rescue of such a litigant. We say so because the respondent instead of participating in the arbitration proceedings, could have immediately taken steps for Appointment of arbitrator as he thought appropriate or he could have filed his objections under Section 34(2) of the Act within permissible parameters but he chose a way, which we are disposed to think, an innovative path, possibly harbouring the thought that he could contrive the way where he could alone rule. Frankly speaking, this is neither diligence nor good faith. On the contrary, it is absence of both. In view of the aforesaid analysis, we find that the High Court has fallen into grave error by concurring with the opinion expressed by the learned Additional District Judge and, therefore, both the orders deserve to be lancinated and, accordingly, we so direct.

Summary

Issues Involved:
1. Applicability of Section 14 of the Limitation Act, 1963 to Section 34(2) of the Arbitration & Conciliation Act, 1996.
2. Whether the time spent in proceedings under Section 11 of the Arbitration & Conciliation Act, 1996 can be excluded under Section 14 of the Limitation Act, 1963.

Detailed Analysis:

1. Applicability of Section 14 of the Limitation Act, 1963 to Section 34(2) of the Arbitration & Conciliation Act, 1996:
The Supreme Court was tasked with determining whether Section 14 of the Limitation Act, 1963 (the Act) could be applied to exclude the time spent in proceedings under Section 11 of the Arbitration & Conciliation Act, 1996 (the 1996 Act) when computing the limitation period for filing an objection under Section 34(2) of the 1996 Act.

The Court referenced Section 34(3) of the 1996 Act, which stipulates that an application for setting aside an arbitral award must be made within three months from the date of receipt of the award, with a possible extension of thirty days if sufficient cause is shown, but not thereafter. The Court cited the case of Union of India vs. Popular Construction Co., which emphasized that the phrase "but not thereafter" in Section 34(3) amounts to an express exclusion of Section 5 of the Limitation Act. This means that the time limits in Section 34(3) are strict and cannot be extended beyond the prescribed period.

However, the Court also noted that Section 14 of the Limitation Act, which allows for the exclusion of time spent in bona fide proceedings in a court without jurisdiction, does apply to Section 34(3) of the 1996 Act. This was supported by precedents such as State of Goa vs. Western Builders and Consolidated Engineering Enterprises vs. Principal Secretary, Irrigation Department and others.

2. Whether the time spent in proceedings under Section 11 of the Arbitration & Conciliation Act, 1996 can be excluded under Section 14 of the Limitation Act, 1963:
The Court examined the conditions under which Section 14 of the Limitation Act would be applicable, as enumerated in Consolidated Engineering Enterprises. These conditions include:
- Both prior and subsequent proceedings must be civil proceedings prosecuted by the same party.
- The prior proceeding must have been prosecuted with due diligence and in good faith.
- The failure of the prior proceeding must be due to a defect of jurisdiction or other similar cause.
- The earlier and latter proceedings must relate to the same matter in issue.
- Both proceedings must be in a court.

The Court found that while Section 14 should be interpreted liberally to advance the cause of justice, the earlier and latter proceedings must relate to the same matter in issue. The Court emphasized that the phrase "matter in issue" connotes the matter which is directly and substantially in issue, as per the case of Ramadhar Shrivas vs. Bhagwandas.

In the present case, the respondent had participated in the arbitral proceedings and was aware of the award. Instead of filing an objection under Section 34(2) immediately, the respondent filed an application under Section 11 for the appointment of an arbitrator, which was dismissed by the High Court. The High Court granted liberty to the respondent to file an objection in accordance with law but did not explicitly state that the time spent in the Section 11 proceedings would be excluded.

The Supreme Court concluded that the proceedings under Section 11 for the appointment of an arbitrator and the objection to the award under Section 34(2) do not relate to the same matter in issue. One is at the stage of initiation, and the other at the stage of culmination. Therefore, Section 14 of the Limitation Act was not applicable in this case.

The Court held that the respondent's actions did not exhibit due diligence or good faith. The respondent's choice to pursue an application under Section 11 instead of filing an objection under Section 34(2) was seen as an attempt to contrive a way to extend the limitation period.

Conclusion:
The Supreme Court found that the High Court erred in concurring with the Additional District Judge's opinion that the time spent in the Section 11 proceedings should be excluded under Section 14 of the Limitation Act. Consequently, the orders of the High Court and the Additional District Judge were set aside, and the appeal was allowed. There was no order as to costs.