In a recent case before the Supreme Court, the Court opined, the court should exercise its discretion under Section 5 of the Limitation Act only in exceptional cases, where a very strong case is made for the condonation of delay in filing a Section 11(6) application.
Facts of the case:
The appellant, a government company which was engaged inter alia in the business of manufacturing bio-fuels, floated tenders in the course of its business, where the Respondent was declared as the successful bidder.
Disputes arose between the parties, which they attempted to resolve through mutual discussion, however the discussions were not fruitful.
The Respondent issued a legal notice to the appellant, and sought repayment of the alleged outstanding payment, along with interest. The said notice specified that in the event of failure of the appellant to settle the outstanding amount, it shall be construed as notice for invocation of arbitration as per the terms of Clause 14 of the Tender. The appellant did not respond to the aforesaid notice.
The Respondent also sent a demand notice under Section 8 of the Insolvency & Bankruptcy Code, 2016 (for short “the IBC”) to the appellant, claiming the alleged outstanding amount along with interest. Thereafter, the Respondent filed a Section 11 Petition for appointment of an Arbitrator before the appropriate court.
The Respondents, however, unconditionally withdrew the arbitration petition and initiated proceedings under the corporate insolvency resolution process [CIRP] before the National Company Law Tribunal, Kolkata (“NCLT, Kolkata”).
The NCLT admitted the application of the respondent and appointed an Interim Resolution Professional (IRP). However, the NCLAT set aside the order of the NCLT and dismissed the petition.
The Respondent challenged the order of the NCLAT before the Supreme Court, when a two-judge bench of the upheld the order of the NCLAT and dismissed the appeal.
Consequent to the dismissal of the insolvency proceedings, the Respondent filed a fresh petition for appointment of an Arbitrator before the High court, which was opposed by the Appellant on grounds of limitation and submitted that the time for applying for an arbitrator had passed and was now time barred. The Appellants also submitted that the claim sought to be referred was also ‘deadwood’.
The High Court allowed the application and held that as the Respondent was pursuing remedy for recovery of his dues before a wrong forum, he was entitled to the benefit of Section 14 of the Limitation Act, 1963. The court also held that the claim was not ‘deadwood’ and could be arbitrated upon.
Aggrieved by the impugned order, the appellant approached the Supreme Court.
Submissions of the Appellant:
The Respondent had unconditionally withdrawn the earlier Sec 11 petition, and the present petition could not be filed as it was time barred.
The claim sought to be referred to arbitration was also time barred, that is, three years had expired from the date when the cause of action first arose.
There was a bar on the institution of subsequent proceedings against the same defendant for the same cause of action where liberty to institute fresh proceedings has not been granted by the court
The respondent cannot avail the benefit available under Section 14 of the Limitation Act, 1963, as the same is provided for exclusion of time spent in prosecuting proceedings in a non-jurisdictional court, where the earlier and the later proceedings relate to the same matter in issue or are for seeking the same relief. However, the insolvency and arbitral proceedings are distinct proceedings and are not for seeking the same relief.
The Court had only granted conditional liberty to the respondent to pursue arbitration, which would be permitted only if it is available in law. However, since the Section 11 application as well as the claims are time-barred, the remedy of pursuing arbitration cannot be available to the respondent in law.
Submissions of the Respondents:
The High Court had rightly excluded the time taken by the respondent in pursuing the IBC proceedings, while calculating the limitation period for the purpose of filing a fresh application under Section 11(6) of the Act, 1996.
The second application under Section 11(6) of the Act, 1996 was maintainable as the first application was withdrawn without any adjudication on merits and even before any formal notice could be issued by the High Court.
The withdrawal of an application under Section 11(6) of the Act, 1996 is not the same as withdrawal of a suit or a claim, and thus the principles enshrined under the CPC will have no application to the present case.
The Respondents had invoked the arbitration which was yet to be terminated as per the provisions of Sec 32 of the Act, 1996, and as there was no express bar on filing of more than one 11(6) application under the provisions of the Act, 1996, the second 11(6) application filed by the respondent is maintainable.
Issues framed by the court:
“ Whether a fresh application under section 11(6) of the Act, 1996 filed by the respondent could be said to be maintainable more particularly when no liberty to file a fresh application was granted by the high court at the time of withdrawal of the first application under section 11(6) of the act, 1996?
Whether the fresh application under section 11(6) of the Act, 1996 filed by the respondent could be said to be time-barred? if yes, whether the respondent is entitled to the benefit of section 14 of the limitation act? in other words, whether the period spent by the respondent in pursuing proceedings under the IBC is liable to be excluded while computing the limitation period for filing the application under section 11(6)?
Whether the delay caused by the respondent in filing the fresh arbitration application under section 11(6) of the Act, 1996 can be condoned under section 5 of the Limitation Act?”
The analysis and the order of the Court:
The court noted that the appellant has not disputed the existence or the validity of the arbitration agreement but has challenged the maintainability of the application as it was filed for a second time having been withdrawn previously without seeking any liberty to file afresh and has argued that about the limitation of the application.
The court observed that the respondent took a calculated risk of abandoning the arbitration proceedings to maximise the chances of succeeding in the IBC proceedings, however, failed to seek liberty to file afresh at the time of the unconditional withdrawal. Therefore, the court opined that the fresh Section 11 petition arising out of the same cause of action, is not maintainable.
As regards the question of the second Sec. 11 application, being time-barred, the Respondents submitted that they are entitled to invoke the benefit under Section 14 of the Limitation Act, 1963 and seek exclusion of the period spent by it in pursuing the proceedings under Section 9 of the IBC. The court held that the relief sought in an application under Section 11(6) of the Act, 1996 is not the same as the relief sought in an application under Section 9 of the IBC and the Respondents cannot be entitled for the benefit of Section 14(2) in the present case.
The Respondents took a conscious decision to opt for specific remedy under the IBC which is not for the same relief as an application under Section 11(6) of the Act, 1996, and the respondent cannot now take the plea of ignorance or mistake and must bear the consequences of its decisions.
The unconditional withdrawal of the first petition under Section 11(6) amounts to abandoning the arbitration. The second petition is time barred and the Respondents in an effort to save the second Section 11(6) application contended that they are entitled to invoke the benefit under Section 14 of the Limitation Act, 1963 to seek exclusion of the period spent by it in pursuing the proceedings under Section 9 of the IBC.
The Court held that fresh Section 11(6) application was time-barred and that the respondent is not entitled to the benefit of Section 14(2) of the Limitation Act.
The court also held that the Respondents were not entitled for any discretion under Section 5 of the Limitation Act for condoning the delay in filing the second 11(6) application before the High Court.
The court allowed the appeal and set aside the impugned order.
In the Supreme Court of India
Civil Appellate Jurisdiction
Civil Appeal No. 12233 of 2024
(Arising out of SLP (C) No. 5589 of 2024)
M/S HPCL Bio-Fuels Ltd. …Appellant
Versus
M/S Shahaji Bhanudas Bhad …Respondent
Authors:
Ms. Mahua Roy Chowdhury
Managing Partner
Mr. Sanjay Visen
Partner [Litigation]
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