2024 (11) TMI 352 - SC - IBC

Maintainability of fresh application under Section 11(6) of the Arbitration and Conciliation Act, 1996, when no liberty to file a fresh application was granted by the High Court at the time of withdrawal of the first application - time limitation of fresh application under Section 11(6) of the Act, 1996 filed by the respondent on 09.12.2022 - entitlement for benefit of Section 14 of the Limitation Act - condonation of delay in filing the fresh arbitration application under Section 11(6) of the Act, 1996. Whether a fresh application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is maintainable when no liberty to file a fresh application was granted by the High Court at the time of withdrawal of the first application? - HELD THAT - Undoubtedly, an application under Section 11(6) of the Act, 1996 is not a suit and hence will not be governed stricto-sensu by Order 23 Rule 1 of the CPC. However, in a number of decisions, this Court has extended the principle underlying Order 23 Rule 1 to proceedings other than suits on the ground of public policy underlying the said rule. The appellant has submitted that in view of the aforesaid decisions, there is no reason why the principles of Order 23 Rule 1 should not be extended to an application for appointment of arbitrator under Section 11(6) of the Act, 1996. The principles of Order 23 Rule 1 are extended to proceedings other than suits with a view to bring in certainty, expediency and efficiency in legal proceedings. However, at the same time, it must also be kept in mind while extending the principles to legal proceedings other than suits that the principles are not applied in a rigid or hyper-technical manner. In the case of Vanna Claire Kaura v. Gauri Anil Indulkar Ors. 2009 (7) TMI 1401 - SUPREME COURT the applicant filed a Section 11(6) application before the High Court of Bombay. A dispute was raised that the application was not maintainable as the agreements were in the nature of international commercial arbitration agreement under the Act, 1996 and the application for appointment would only lie before the Chief Justice of India. Accordingly, the applicant withdrew the Section 11 application and filed a Section 11(6) application before this Court. The subsequent application was opposed inter alia on the ground that arbitration was invoked by notice dated 14.03.2006 and was thereafter abandoned with the withdrawal of the petition from the High Court. Hence, the second application without the leave of the High Court would not be maintainable. However, this Court, negatived the objections against the application and proceeded to appoint the arbitrator. Coming to the facts of the case at hand, both the applications under Section 11(6) of the Act, 1996 were filed seeking adjudication of the dispute which arose on 02.02.2014 upon refusal of the appellant to pay the dues of the respondent. The first application under Section 11(6) was filed on 16.02.2018 and was subsequently withdrawn unconditionally on 01.10.2018. After a gap of more than four years, the respondent filed a subsequent application under Section 11(6) before the High Court on 09.12.2022 which came to be allowed by the impugned order - the respondent did not withdraw the first arbitration application because of some defect which would have led to its dismissal. It is also clear from the order dated 01.10.2018 of the High Court permitting the respondent to withdraw the application that neither any liberty was sought by the respondent nor the court had granted any liberty to file a fresh arbitration application - it can be said without any doubt that the respondent took a calculated risk of abandoning the arbitration proceedings to maximise the chances of succeeding in the IBC proceedings. Thus, in the absence of any liberty sought by the respondents from the High Court at the time of withdrawal of the first arbitration application, the fresh Section 11 petition arising out of the same cause of action cannot be said to be maintainable. A petition under Section 11(6) of the Act, 1996 is not a proceeding merely seeking the appointment of an arbitrator. It is in reality a proceeding for appointing an arbitrator and for commencing the actual or real arbitration proceedings. Whether the fresh application under Section 11(6) of the Act, 1996 filed by the respondent on 09.12.2022 is time-barred and if the respondent is entitled to the benefit of Section 14 of the Limitation Act? - HELD THAT - In the case at hand, the respondent invoked the arbitration clause vide a notice dated 09.07.2016. Since there was no response to the said notice by the appellant, the respondent filed an application for appointment of arbitrator before the High Court under Section 11(6) of the Act, 1996 on 16.02.2018. Subsequently, it abandoned the application to pursue proceedings under the IBC - the first application under Section 11(6) filed on 16.02.2018 was well within the prescribed limitation period of three years for filing such applications. However, even assuming that the second application under Section 11(6) is not barred by the principles underlying Order 23 Rule 1, the same was required to be filed within a period of three years from the expiry of one month from the date of receipt of the notice invoking arbitration by the appellant. This period of three years came to an end in August, 2019. The second application under Section 11(6) came to be filed by the respondent much later on 12.12.2022 and is clearly timebarred. The High Court fell in error in holding that an application under Section 9 of the IBC and an application under Section 11(6) of the Act, 1996 are filed for seeking the same relief. While the relief sought in the former is the initiation of the CIRP of the corporate debtor, the relief sought in the latter is the appointment of an arbitrator for the adjudication of disputes arising out of a contract. Whether the delay in filing the fresh arbitration application under Section 11(6) of the Act, 1996 can be condoned under Section 5 of the Limitation Act? - HELD THAT - The period of limitation to file an application under Section 11(6) of the Act, 1996 is governed as provided in Article 137 of the Schedule to the Limitation Act, that is, three years. It is observed that the benefit available under Section 14 of the Limitation Act will also be available in respect of applications made under Section 11(6) of the Act, 1996. Thus, in the absence of any specific statutory exclusion, there is no good reason to hold that the benefit under Section 5 of the Limitation Act cannot be availed for the purpose of condonation of delay caused in filing a Section 11(6) application. In Deepdharshan Builders Pvt. Ltd. v. Saroj, Widow of Satish Sunderrao Trasikar 2018 (11) TMI 1867 - BOMBAY HIGH COURT , the Bombay High Court held that Section 5 of the Limitation Act would apply to an application filed under Section 11(6) of the Act, 1996. Similarly, the Delhi High Court in Yogesh Kumar Gupta v. Anuradha Rangarajan 2007 (2) TMI 714 - DELHI HIGH COURT had observed that in view of Section 43 of the Act, 1996, Section 5 of the Limitation Act would be applicable to applications filed under Section 11(6) of the Act, 1996. The benefit under Section 5 of the Limitation Act is available in respect of the applications filed for appointment of arbitrator under Section 11(6) of the Act, 1996. Further, the requirement of filing an application under Section 5 of the Limitation Act is not a mandatory prerequisite for a court to exercise its discretion under the said provision and condone the delay in institution of an application or appeal. Thus, the only question that remains to be considered is whether in the facts of the present case, the respondent could be said to have made out a case for condonation of delay in instituting the fresh Section 11(6) application. The legislative intent of expeditious dispute resolution under the Act, 1996 must also be kept in mind by the courts while considering an application for condonation of delay in the filing of an application for appointment of arbitrator under Section 11(6). Thus, the court should exercise its discretion under Section 5 of the Limitation Act only in exceptional cases where a very strong case is made by the applicant for the condonation of delay in filing a Section 11(6) application. The appeal filed by the appellant is allowed and the impugned order passed by the High Court of Bombay is hereby set aside.

Summary

Issues Involved:

1. Whether a fresh application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is maintainable when no liberty to file a fresh application was granted by the High Court at the time of withdrawal of the first application.
2. Whether the fresh application under Section 11(6) of the Act, 1996 filed by the respondent on 09.12.2022 is time-barred and if the respondent is entitled to the benefit of Section 14 of the Limitation Act.
3. Whether the delay in filing the fresh arbitration application under Section 11(6) of the Act, 1996 can be condoned under Section 5 of the Limitation Act.

Detailed Analysis:

Issue No. 1: Maintainability of Fresh Application Under Section 11(6)

The court analyzed whether the principles underlying Order 23 Rule 1 of the CPC, which prevents the institution of subsequent proceedings without liberty from the court, apply to applications under Section 11(6) of the Arbitration and Conciliation Act, 1996. It was noted that although an application under Section 11(6) is not a suit, the principles of Order 23 Rule 1 have been extended to various proceedings, including writ petitions and special leave petitions, based on public policy considerations. The court emphasized that these principles aim to prevent abuse of the judicial process by filing multiple applications for the same cause of action. The respondent withdrew the first Section 11(6) application without seeking liberty to file a fresh one, and the withdrawal was not due to any formal defect or sufficient grounds. Thus, the court concluded that the fresh application was not maintainable.

Issue No. 2: Time-barred Nature of Fresh Application and Section 14 of the Limitation Act

The court examined whether the fresh application under Section 11(6) was time-barred. The limitation period for such an application is three years from the date when the right to apply accrues. The respondent's first application was within the limitation period, but the second application was filed much later, beyond the prescribed period. The respondent sought to exclude the time spent in pursuing IBC proceedings under Section 14 of the Limitation Act. However, the court held that the proceedings under the IBC and the application under Section 11(6) were not for the same relief. The relief under IBC is for initiating corporate insolvency resolution, whereas the relief under Section 11(6) is for appointing an arbitrator. Since the proceedings were not for the same relief, the benefit of Section 14 was not available.

Issue No. 3: Condonation of Delay Under Section 5 of the Limitation Act

The court considered whether the delay in filing the fresh arbitration application could be condoned under Section 5 of the Limitation Act, which allows for the extension of the prescribed period if sufficient cause is shown. The court noted that the benefit of Section 5 is discretionary and not mandatory. The respondent did not file an application for condonation of delay and failed to demonstrate sufficient cause for the delay. The court emphasized that the legislative intent of expeditious dispute resolution under the Arbitration Act must be considered, and discretion under Section 5 should only be exercised in exceptional cases. The respondent's conscious decision to abandon the first application and pursue IBC proceedings did not warrant condonation of delay.

Conclusion:

The court concluded that the fresh application under Section 11(6) was not maintainable due to the absence of liberty at the time of withdrawal of the first application. The fresh application was also time-barred, and the respondent was not entitled to the benefits of Section 14 or Section 5 of the Limitation Act. Consequently, the appeal was allowed, and the impugned order of the High Court was set aside.