Supreme Court: In an appeal against the decision of the Bombay High Court, wherein, the Commercial Arbitration Petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘the Act, 1996’) at the instance of the Shahaji Bhanudas Bhad (‘present respondent’) was allowed and sole arbitrator was appointed to adjudicate the disputes and differences between HPCL Biofuels Ltd. (‘the appellant’) and the respondent, the Division Bench of CJI Dr. DY Chandrachud and JB Pardiwala*, JJ. allowing the appeal set aside the impugned decision. The Court held that, in the absence of any liberty being granted at the time of withdrawal of the first application under Section 11(6) of the Act, 1996, the fresh application filed by the respondent under the same provision was not maintainable and the fresh application was time-barred, hence, the respondent was not entitled to the benefit of Section 14(2) of the Limitation Act.
The Court also ruled that the respondent was also not entitled to the benefit of condonation of delay under Section 5 of the Limitation Act.
Background
The appellant, a Government company engaged inter alia in the business of manufacturing bio-fuels in 2012 floated tenders for enhancing the capacity of various process stations and Boiling House at Lauriya (West Champaran) and Sugauli (East Champaran).
The respondent, engaged in the business of manufacture, supply and erection of the equipment and machinery required for the setting up of sugar factories and allied products, participated in the bidding process and was declared as the successful bidder. Subsequently, in accordance with the terms and conditions of the tender, the appellant in October and November of 2012 issued purchase orders in favour of the respondent for enhancing the capacity of the Boiling House on a turn-key basis. The respondent supplied various equipment under the purchase orders and raised invoices for the same. While the work was in progress, the appellant expressed its concerns about the slow progress of work, quality of materials supplied and non-adherence to timelines by the respondent and attempts were made to resolve the same through mutual discussions between the parties.
On 13-06-2013, the appellant floated two more tenders for the purpose of completion of certain work and supplies at the Sugauli and Lauriya plants respectively. In August 2013, the appellant issued purchase orders in favour of the respondent, for completing various works including supplies on a lump-sum turnkey basis. The respondent raised invoices between for the service portion of the turn-key contract. Accordingly, as per the respondent, the total sum payable to it under the various purchase orders aggregated to Rs. 38,18,71,026/-. Between 2012 and 2013, the appellant made an aggregate payment of Rs. 19.02 crore to the respondent, with the last payment being made on 07-11-2013. As per the case of the respondent, the balance amount of Rs. 18,12,21,452/- remained outstanding. The appellant took the stand that the performance of the respondent was unsatisfactory, and it had failed in fulfilling its obligations in accordance with the terms of the purchase orders, hence refused to clear the outstanding dues of the respondent.
The respondent filed Arbitration Petition before the High Court seeking appointment of an arbitrator in terms of Section 11 of the Act, 1996. The said arbitration petition was withdrawn by the respondent.
However, before filing the Section 11 application, the respondent sent a demand notice dated 30-08-2017 under Section 8 of the Insolvency & Bankruptcy Code, 2016 (‘the IBC’) to the appellant, claiming the alleged outstanding amount and interest.
IBC Proceedings
The National Company Law Tribunal (NCLT), Kolkata vide order dated 12-02-2020, admitted the respondent’s application seeking initiation of the corporate insolvency resolution process of the appellant and appointed an Interim Resolution Professional (IRP). The order of the NCLT, Kolkata was subsequently set aside by the NCLAT, New Delhi vide order dated 10-01-2022, opining that the communication between the parties read together with the Arbitration invoked by the ‘Operational Creditor’ (respondent), there is an existence of a dispute between the parties which is a genuine dispute and not a spurious, patently feeble legal argument or an assertion of fact unsupported by evidence.
Consequent to the dismissal of the insolvency proceedings, the respondent, filed a fresh petition under Section 11(6) of the Act, 1996 before the High Court seeking appointment of an arbitrator. The High Court vide the impugned order allowed the application of the respondent appointed an arbitrator.
Issues
1. 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?
The Court on perusal of Section 11 of the Act, 1996 said that there is nothing therein which prevents a party from filing more than one application seeking the appointment of an arbitrator for adjudicating disputes arising from the same contract. The appellant contended that in lieu of the principles contained in Order 23 Rule 1 of the CPC, the respondent could not have filed a subsequent application under Section 11(6) for adjudication of the same disputes, having previously withdrawn unconditionally an application filed for the same purpose.
The Court elaborated that the main purpose of permitting the withdrawal of a suit and its re-filing is to ensure that justice is not thwarted due to technicalities. Where permission under Order 23 Rule 1 to withdraw the suit is granted, the principle of estoppel does not operate and the principle of res judicate would also not apply. However, Order 23 Rule 1 is not intended to enable the plaintiff to get a chance to commence litigation afresh in order to avoid the results of his previous suit, or to engage in multiple proceedings with the motive of bench-hunting. Further, the Court said that Order 23 Rule 2 of CPC stipulates that any fresh suit instituted on permission granted under Order 23 Rule 1 shall be governed by the law of limitation in the same manner as if the first suit had not been instituted. The object underlying this Rule is to prevent a party from misusing the liberty of filing a fresh suit for evading the limitation period governing the said suit.
The Court referred to Sarva Shramik Sanghatana (KV) v. State of Maharashtra, (2008) 1 SCC 494 and said that while it with the decision in the aforesaid case to the extent that it declined to apply the principles of Order 23 Rule 1 and refused to dismiss a bonafide subsequent application filed after the earlier one was withdrawn in good faith to attempt conciliation, however, viewed that it cannot be declared as a general rule that merely because a legal proceeding is not a ‘suit’, it would be completely exempted from the application of principles underlying Order 23 Rule.
The Court cautioned that, while applying the principles of Order 23 Rule 1 to applications under Section 11(6) of the Act, 1996, it must be kept in mind that it will act as a bar to only those applications which are filed subsequent to the withdrawal of a previous Section 11(6) application filed on the basis of the same cause of action. The extension of the said principle cannot be construed to mean that it bars the invocation of the same arbitration clause on more than one occasion. The Court stated that “it is possible that certain claims or disputes may arise between the parties after a tribunal has already been appointed in furtherance of an application under Section 11(6). In such a scenario, a party cannot be precluded from invoking the arbitration clause only on the ground that it had previously invoked the same arbitration clause. If the cause of action for invoking subsequent arbitration has arisen after the invocation of the first arbitration, then the application for appointment of an arbitrator cannot be rejected on the ground of multiplicity alone.”
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 matter at hand, the Court ruled that 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 was not maintainable.
2. Whether the fresh application under Section 11(6) of the Act, 1996 filed by the respondent on 09-12-2022 could be said to be time-barred? Whether the period spent by the respondent in pursuing proceedings under the IBC was liable to be excluded while computing the limitation period for filing the application under Section 11(6)?
In the matter at hand, the Court noted that the respondent initially approached the High Court with an application under Section 11(6), however, the respondent abandoned the said proceedings for appointment of arbitrator and approached the NCLT, Kolkata with an application under Section 9 of the IBC. The respondent was fully aware of the objection of a pre-existing dispute raised by the appellant in response to its second statutory demand notice issued under Section 8 of the IBC. The Court also pointed out that the respondent took a conscious decision to abandon the right course of proceedings. Hence, the respondent’s conduct could not be termed to be a mistake. Having taken 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, the respondent could not be allowed to take the plea of ignorance or mistake and must bear the consequences of its decisions.
The Court opined that by no stretch of imagination insolvency proceedings can be construed as being for the same relief as any ordinary recovery proceedings, and therefore no case was made out for exclusion of time under Section 14(2) of the Limitation Act, 1963. The Court said that, as the relief sought 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, the benefit of Section 14(2) could not be granted to the respondent in the present case.
Further, the Court distinguished insolvency proceedings from proceedings for recovery of debt such as a suit for recovery of money, execution of decree or claims for amount due under arbitration, etc. The first distinguishing feature that sets apart ordinary recovery proceedings from insolvency proceedings is that under the former the primary relief is the recovery of dues whereas under the latter the primary concern is the revival and rehabilitation of the corporate debtor. The second distinguishing feature is that although both proceedings entail recovery of debt to a certain extent, however they are different inasmuch as when it comes to recovery proceedings it is the individual creditor’s debt which is sought to be recovered, whereas in insolvency proceedings it is the entire debt of the company which is sought to be resolved. The third distinguishing feature is that, a recovery proceeding be it a suit or arbitration is initiated by a creditor where an amount is due and is unpaid by a debtor, in other words the intention behind initiating a recovery proceeding is simpliciter for the full recovery of amount which is unpaid to it. However, in an insolvency proceeding there is no guarantee of recovery of the entire debt.
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