The Supreme Court ruled that the unconditional withdrawal of an arbitration petition bars fresh filing and held that IBC proceedings do not justify the exclusion of time under Section 14 of the Limitation Act.
The Supreme Court Bench of Dr. Dhananjaya Y. Chandrachud, CJI and Justice J.B. Pardiwala reviewed an appeal and held that the respondent's unconditional withdrawal of the first Section 11(6) application in 2018 amounted to an abandonment of arbitration, barring a fresh petition. It further ruled that the fresh application was time-barred under Article 137 of the Limitation Act, with no scope for exclusion under Section 14, reaffirming that insolvency proceedings and arbitration serve distinct purposes.
The Supreme Court, while adjudicating the appeal against the judgment of the Bombay High Court in Commercial Arbitration Petition No. 1 of 2023, examined the maintainability of a fresh Section 11(6) application under the Arbitration and Conciliation Act, 1996, and the applicability of Section 14 of the Limitation Act, 1963. The High Court had appointed Justice (Retd.) Dilip Bhosale as the sole arbitrator to adjudicate disputes between HPCL Biofuels Ltd. and M/s Shahaji Bhanudas Bhad. The disputes originated from turnkey purchase orders issued by the appellant in 2012 for capacity enhancement at its biofuel plants, with the respondent supplying machinery and raising invoices. Non-payment due to alleged performance deficiencies led the respondent to invoke arbitration in 2016, issue a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC) in 2017, and later initiate insolvency proceedings before the NCLT in 2018. The NCLT admitted the insolvency petition, but the NCLAT set aside the order, affirming the existence of a pre-existing dispute, a decision upheld by the Supreme Court in 2022.
The appellant contested the High Court's decision to entertain the fresh Section 11(6) petition, arguing that it was time-barred and that the respondent was not entitled to benefit under Section 14 of the Limitation Act. The respondent, relying on judicial precedents, asserted that its pursuit of insolvency proceedings was bona fide and that the withdrawal of the initial arbitration petition did not preclude a fresh application. The Supreme Court, framing key issues for determination, analyzed the scope of Order 23 Rule 1 of the CPC, which prevents re-litigation upon withdrawal of proceedings without liberty. Applying these principles, the Court held that the respondent's unconditional withdrawal of the first Section 11(6) petition in 2018 amounted to an abandonment of arbitration. It rejected the argument that the Supreme Court's 2022 decision granting liberty to seek remedies permitted the respondent to file a fresh arbitration petition.
Examining the limitation issue, the Court reiterated that the limitation period for filing an arbitration application under Section 11(6) is governed by Article 137 of the Limitation Act, which prescribes a three-year period from when the right to apply accrues. Since the arbitration clause was invoked on 09.07.2016, the limitation expired in August 2019. The fresh application, filed in December 2022, was held to be time-barred. The respondent’s plea for exclusion under Section 14 of the Limitation Act was also rejected, as the Court found no jurisdictional defect justifying the delay. The Court clarified that proceedings under Section 9 of the IBC and arbitration serve distinct purposes—while insolvency proceedings aim at corporate resolution, arbitration adjudicates contractual disputes. The Court disagreed with the High Court’s equating of insolvency with arbitration and emphasized that pursuing CIRP before the NCLT did not justify the exclusion of time under Section 14 of the Limitation Act.
In conclusion, the Supreme Court allowed the appeal, setting aside the Bombay High Court’s order appointing an arbitrator. It ruled that the fresh Section 11(6) application was neither maintainable nor within the prescribed limitation period. The judgment reaffirmed that litigants cannot manipulate legal proceedings by withdrawing and refiling applications in different forums without sufficient cause, thereby reinforcing the principles of finality in litigation and the distinct purposes of insolvency and arbitration mechanisms.
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