Summary
The Supreme Court set aside the appointment of an arbitrator. The respondent had unconditionally withdrawn its first Section 11(6) application, without liberty, to improve its chances in insolvency proceedings under Section 9 IBC, and the principles of Order XXIII Rule 1 CPC barred a fresh application on the same cause of action. The fresh application was also time-barred under Article 137: time spent in the IBC proceedings could not be excluded under Section 14(2) of the Limitation Act because they were not for the 'same relief', and delay was not condoned under Section 5.
Issues
- Whether a fresh application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is maintainable after an earlier application on the same cause of action was withdrawn without liberty to file afresh.
- Whether the fresh Section 11(6) application was time-barred and whether the time spent prosecuting an application under Section 9 of the IBC could be excluded under Section 14(2) of the Limitation Act.
- Whether Section 5 of the Limitation Act applies to a Section 11(6) application, whether delay can be condoned without a formal application, and whether it should be condoned here.
- Whether the liberty to pursue remedies 'including arbitration' in the Supreme Court's earlier judgment in the IBC appeal saved the fresh application.
Provisions considered
- Order XXIII Rule 1, Code of Civil Procedure, 1908Though not applicable stricto sensu to a Section 11(6) application, its public-policy principle barring fresh proceedings after abandonment or withdrawal without liberty was extended to such applications, subject to the bona fides of the party, and applied to bar the respondent's second application. (¶¶ 36, 37, 38, 39, 40, 41, 46, 50, 51, 52, 53, 58, 59, 60, 61)
- Section 11(6), Arbitration and Conciliation Act, 1996Held to be an 'application' for limitation purposes, governed by Article 137; it was treated as a proceeding to appoint an arbitrator and to commence the actual arbitration, so its unconditional withdrawal abandons the arbitration itself. (¶¶ 34, 51, 52, 65, 66, 82, 83)
- Sections 21 and 43(2), Arbitration and Conciliation Act, 1996Quoted; commencement of arbitration on receipt of the notice invoking it was held to be a deemed, notional commencement for limitation, while actual proceedings begin only on appointment of the arbitrator. (¶¶ 62, 63, 64, 65, 66)
- Schedule, Article 137, Limitation Act, 1963Applied, following Arif Azim, to give three years for a Section 11(6) application running from the failure or refusal to appoint after a valid notice invoking arbitration; the fresh application was well beyond that period. (¶¶ 69, 70, 74, 117)
- Section 14(1) and (2), Limitation Act, 1963Quoted; sub-section (2), not (1), governs a Section 11(6) application, and it requires the earlier proceeding to be for the 'same relief', a narrower test than 'same matter in issue'. An application under Section 9 IBC was held not to be for the same relief, and the conscious choice of that forum showed no good-faith mistake. (¶¶ 76, 77, 78, 81, 83, 84, 85, 89, 97, 106, 107, 110)
- Section 2 (definitions of 'application' and 'suit'), Limitation Act, 1963Relied on to show that a suit does not include an application and that an application includes a petition, so a Section 11(6) petition is an application. (¶¶ 80, 81, 82)
- Section 5, Limitation Act, 1963Quoted; held available for a Section 11(6) application, with no formal application required, but discretionary and to be exercised in such cases only where a very strong case is made out; declined on the respondent's conduct. (¶¶ 113, 114, 117, 120, 121, 122, 124)
- Section 9 (with Sections 3(11) and 3(12)), Insolvency and Bankruptcy Code, 2016Contrasted with arbitration: an operational creditor's application seeks initiation of CIRP, an in rem proceeding aimed at resolving and rehabilitating the corporate debtor, not recovery of an individual creditor's debt. (¶¶ 93, 94, 97, 98, 103, 104, 105)
Held
- The principles underlying Order XXIII Rule 1 CPC rest on public policy and are not confined to suits. They extend to an application under Section 11(6), so a party that withdraws such an application without liberty cannot file a fresh one on the same cause of action. The bar does not prevent invoking the same arbitration clause for disputes arising later, and the principle is not to be applied hyper-technically: a party's bona fides must be considered. (¶¶ 50, 51, 52, 53)
- The respondent withdrew its first Section 11(6) application not to cure a formal defect or for other sufficient ground, but as a calculated step to have its Section 9 IBC application admitted, knowing the appellant had pleaded a pre-existing dispute; with no liberty sought or granted and no proof of the claimed wrong legal advice, the fresh application was not maintainable. (¶¶ 58, 59, 60, 61)
- Because commencement of arbitration under Sections 21 and 43(2) is only notional and actual proceedings begin on appointment, unconditional withdrawal of a Section 11(6) petition abandons the arbitration itself, which makes applying the Order XXIII Rule 1 principles all the more important. (¶¶ 64, 65, 66)
- Limitation for a Section 11(6) application is three years under Article 137, starting after a valid notice invoking arbitration and the other party's failure or refusal to appoint; the fresh application here was filed long after that period expired. (¶¶ 69, 70, 74)
- A Section 11(6) petition is an application, so exclusion of time is governed by Section 14(2), which requires the earlier proceeding to be for the same relief. An application under Section 9 IBC seeks initiation of CIRP for resolution of the corporate debtor, a proceeding in rem for the benefit of all creditors, and is not for the same relief as appointment of an arbitrator to adjudicate a private contractual dispute; the High Court erred in excluding the time spent before the NCLT. (¶¶ 83, 84, 85, 97, 98, 103, 104, 105, 106, 107)
- Section 14 contemplates a bona fide mistake; a party that consciously abandoned the correct proceeding to pursue an IBC remedy despite knowing of the objection of a pre-existing dispute was not prosecuting the earlier proceeding in good faith. (¶ 110)
- Section 5 of the Limitation Act applies to Section 11(6) applications, and a court may condone delay without a formal application if sufficient cause is shown. But the relief is discretionary, and given the legislative aim of speedy arbitration it should be granted only in exceptional cases on a very strong showing; it was refused here because of the respondent's deliberate abandonment of the first application. (¶¶ 114, 117, 120, 121, 122, 123, 124)
- An observation that a party may avail remedies 'as may be available in accordance with law including arbitration', prefixed by 'Needless to mention', is clarificatory; it confers no right to bring proceedings otherwise barred and does not take away the opposite party's defences. (¶¶ 126, 127, 128, 129, 130)
Result
Appeal allowed. The High Court's order appointing a sole arbitrator on the respondent's fresh Section 11(6) application set aside; parties to bear their own costs.