2008 (4) TMI 668 - SC - Companies Law

Whether the defendant proves that the present suit is barred by the limitation under Section 34(3) of the Arbitration and Conciliation Act, 1996? Whether the provisions of Sections 12 and 14 of the Limitation Act, 1963 are applicable to an application filed under Section 34 of the Act was pending for consideration in other matters also? Held that - Judgment rendered by the Division Bench of the High Court of Karnataka dismissing the application filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award of the arbitrator, is set aside, and civil appeal arising from SLP(C) is allowed. The Division Bench of the High Court of Karnataka was not justified in concluding that the appellant had not prosecuted the matter in other courts with due diligence and in good faith. The said finding being against the weight of evidence on record, is liable to be set aside and is hereby set aside. We, therefore, hold that the appellant had prosecuted the matter in other courts with due diligence and in good faith and, therefore, is entitled to claim exclusion of time in prosecuting the matter in wrong courts

Issues Involved:
1. Applicability of Sections 12 and 14 of the Limitation Act, 1963 to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996.
2. Determination of whether the appellant prosecuted the matter in other courts with due diligence and in good faith.

Issue-wise Detailed Analysis:

1. Applicability of Sections 12 and 14 of the Limitation Act, 1963 to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996:
The primary issue before the Court was whether the provisions of Sections 12 and 14 of the Limitation Act, 1963 apply to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside arbitral awards.

The Court noted that Section 34(3) of the Arbitration and Conciliation Act, 1996 prescribes a limitation period of three months for filing an application to set aside an arbitral award, which can be extended by a further 30 days on sufficient cause being shown, but not beyond that. The Court emphasized that this specific limitation period, along with a provision for a limited extension, indicates the legislative intent to exclude the applicability of Section 5 of the Limitation Act, which allows for an extension of the limitation period on sufficient cause being shown.

However, the Court held that the exclusion of Section 5 does not imply the exclusion of Section 14 of the Limitation Act. Section 14 provides for the exclusion of time spent in bona fide proceedings in a court without jurisdiction. The Court reasoned that Section 14 is intended to protect litigants who, despite exercising due diligence and good faith, mistakenly pursue their case in the wrong forum. The Court found no express provision in the Arbitration and Conciliation Act, 1996, excluding the applicability of Section 14. Moreover, Section 43 of the Arbitration and Conciliation Act makes the provisions of the Limitation Act applicable to arbitration proceedings.

The Court concluded that the provisions of Section 14 of the Limitation Act apply to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996. This conclusion aligns with the Court's earlier decision in State of Goa vs. Western Builders, which held that the equity underlying Section 14 should be applied to its fullest extent to exclude time taken in diligently pursuing a remedy in a wrong court.

2. Determination of whether the appellant prosecuted the matter in other courts with due diligence and in good faith:
The second issue was whether the appellant had prosecuted the matter in other courts with due diligence and in good faith, which would entitle them to the exclusion of time under Section 14 of the Limitation Act.

In the first appeal (SLP(C) No.10311 of 2005), the High Court of Karnataka found that the respondents had diligently prosecuted the matter before the wrong court and had acted in good faith. The Supreme Court upheld this finding, noting that there was no lack of bona fide on the part of the respondents, and they had promptly sought to transfer the application to the correct court upon realizing the jurisdictional error.

In the second appeal (SLP(C) No.15619 of 2005), the High Court of Karnataka held that the appellant had not prosecuted the matter in other courts with due diligence and in good faith. The Supreme Court disagreed with this finding, emphasizing that the appellant had approached the courts with an honest belief regarding jurisdiction and had promptly acted to rectify the mistake. The Court noted that the question of jurisdiction was seriously contested and that there was no intentional delay or harassment of the opposite party. The Court concluded that the appellant had acted with due diligence and in good faith, thereby entitling them to the exclusion of time under Section 14 of the Limitation Act.

Conclusion:
The Supreme Court held that Section 14 of the Limitation Act, 1963, applies to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996. The Court dismissed the appeal arising from SLP(C) No.10311 of 2005, upholding the High Court's finding of due diligence and good faith on the part of the respondents. Conversely, the Court allowed the appeal arising from SLP(C) No.15619 of 2005, overturning the High Court's finding and holding that the appellant had prosecuted the matter in other courts with due diligence and in good faith. The High Court of Karnataka was directed to proceed further with the matter in accordance with law. No costs were awarded in both appeals.

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