Application for arbitrator’s appointment cannot be rejected on multiplicity alone if cause of action for subsequent arbitration arises: Supreme Court

Introduction

In a recent appeal brought before the Supreme Court against a decision of the Bombay High Court where a Commercial Arbitration Petition was filed under Section 11(6) of the Arbitration and Conciliation Act 1996 by the respondent which was allowed and a sole arbitrator was appointed to adjudicate the disputes between the appellant and the respondent.

A two judge bench of the Supreme Court consisting of ex – Chief Justice DY Chandrachud and Justice JB Pardiwala set aside the impugned decision and held that in absentia of any liberty which has been granted at the time of withdrawal of the first application under Section 11(6) of the 1996 Act, any fresh application which is filed by the respondent under the same provisions was not maintainable and therefore disentitles the respondent with the benefit of Section 14(2) of the Limitation Act. Additionally, it was also observed by the court that the benefit of condonation of delay cannot be therefore granted to the respondent.

Brief Background of the case

In the present case, the appellant company is a government entity engaged in business of manufacturing of bio fuels and in 2012 it had floated tenders for enhancement of the capacity of its various process stations and business houses in Champaran District, Bihar. The respondent which was another business entity participated in the process of bidding and was declared as a successful bidder.

In accordance with the terms and conditions of the tender, the appellant in October and November 2012 had issued various purchase orders in favour of the respondent for the purpose of enhancing its capacity of boiler houses and the same was supplied duly along with raising invoices in reference to the same. During the entire process, the appellant had raised various concerns pertaining to the quality of the supply, slow progress of the work, non – adherence to the timelines and various other parameters wherein attempts were made to resolve the same through mutual discussions between both the parties. Subsequently an arbitration petition was filed by the Respondent before the Hon’ble High Court seeking appointment of an arbitrator in accordance with Section 11 of the Act which was however withdrawn by the Respondent.

Issues Framed and Court’s Analysis

Since before filing an application for appointment of an arbitrator, the respondent had also raised a ‘demand notice’ under Section 8 of the Insolvency and Bankruptcy Code 2016 for claiming outstanding dues along with interest. The National Company Law Tribunal (Kolkata) admitted the application of the respondent seeking initiation of corporate insolvency resolution and appointed an interim Resolution Professional (IRP). However the same order was stuck down by the NCLAT, New Delhi which opened up a platform for dispute resolution through arbitration.

The primary issue which arose before the court was whether any fresh application under Section 11(6) of the Arbitration Act filed by the respondent could be maintained particularly when no liberty to file a fresh application was granted by the High Court while withdrawing the first application by the Respondent. While addressing this issue, the court noted that there was nothing under law which prevented a party from filing more than one application for seeking appointment of an arbitrator for adjudication of contractual disputes from a single contract. As contended by the Appellant in lieu of the principles contained under Order 23 Rule 1 of the CPC, the respondent could not have filed any subsequent application under Section 11(6) for adjudication of the same disputes where the previous application filed for the same purpose had been unconditionally withdrawn.

While upholding the principle that justice should not be thwarted merely due to technicalities, the court noted that main purpose of allowing withdrawal of a suit and its subsequent refiling is that where the permission to withdraw a suit is granted under Order 23 Rule 1, the principle of estoppel does not operate and principle of Res Judicata also does not apply. However, this provision under Order 23 Rule 1 does not intend to enable the plaintiff to get a chance to commence another litigation afresh in order to avoid or override the judgment given in the earlier suit. Moreover the bench also held that there exists a caution while applying Order 23 Rule 1 to applications under Section 11(6) wherein it must be kept in mind that this will act as a bar to only those applications which have been filed subsequently to the withdrawal of previous applications based upon the same cause of action. Additionally, the principles of Order 23 Rule 1 shall be extended to proceedings other than suits with an aim to bring in certainty, expediency, and efficiency in legal proceedings though it should be kept in mind while extending this principle to proceedings other than suits that such principles have not been applied in a rigid and excessively – technical manner.

Conclusion

The present judgment has distinguished the proceedings of insolvency from those of debt recovery such as money recovery suits, execution of decrees or amounts due under arbitration etc., wherein the first different which sets apart a normal suit for recovery from that of an insolvency suit is that while the former grants primary relief for recovery of dues, the latter pertains to revival or rehabilitation of the corporate debtor. The second difference lies that although both the proceedings pertain to recovery of money involved to an extent, the difference lies in the recovery from the targeted entity since in the first case money may be recovered from individual creditor while in insolvency proceedings such recovery may be aimed at from an entire company or corporate creditor.

Lastly, in every arbitration proceeding or recovery suit the aim of the debtor is to recover the amount in totality while in an insolvency proceeding there is no guarantee for the recovery of entire amount in case the company has been duly declared insolvent. Therefore the present case has laid down the benchmark for future judgments pertaining to recovery suits of applications for appointment of arbitrator under Section 11 of the Act.

King Stubb & Kasiva,
Advocates & Attorneys

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