No Second Chance: SC Bars Re-Filing Of Arbitrator Appointment Applications Post Unconditional Withdrawal

Summary:

[1]The Supreme Court bench, comprising Chief Justice DY Chandrachud and Justice JB Pardiwala, ruled that if a party unconditionally withdraws an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, without seeking permission to refile, any subsequent application on the same cause of action is barred. Applying the principles of Order 23 Rule 1 of the Civil Procedure Code (CPC), the Court clarified that such withdrawal constitutes abandonment of both the formal request for arbitration and the arbitration proceedings themselves. However, the Court emphasized that this does not prevent invoking the same arbitration clause for disputes arising from a different cause of action that occurs after the initial invocation. This judgment reinforces procedural discipline while balancing flexibility to address fresh disputes within the framework of the Arbitration Act.

Facts:

• The dispute in the case arose between HPCL Bio-Fuels Ltd. (appellant), a public sector entity engaged in bio-fuel manufacturing, and Shahaji Bhanudas Bhad (respondent), a contractor responsible for supplying equipment and services for bio-fuel projects at HPCL’s facilities in Sugauli and Lauriya.
• Contracts were awarded in 2012 for enhancing plant capacities, and between 2012-2014, the respondent supplied machinery and completed certain contractual obligations.
• Payments amounting to ₹19.02 crores were made by HPCL; however, the company withheld ₹18.12 crores, alleging delays, performance deficiencies, and subpar material quality.
• The respondent issued a legal notice in 2016, invoking the arbitration clause in the agreement, to recover the outstanding payments. Subsequently, an arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, was filed by the respondent but was later withdrawn unconditionally without seeking liberty to refile.
• After the withdrawal, the respondent sought remedies under the Insolvency and Bankruptcy Code (IBC) to recover the dues, but these proceedings were dismissed by the courts due to the existence of pre-existing disputes.
• Following this, in 2022, the respondent filed a fresh petition under Section 11(6) of the Arbitration Act before the Bombay High Court, seeking the appointment of an arbitrator. The High Court ruled in favor of the respondent and appointed a sole arbitrator, rejecting HPCL’s objections that the petition was barred due to the earlier unconditional withdrawal and was also time-barred under the Limitation Act.
• HPCL challenged the High Court’s decision before the Supreme Court, arguing that the unconditional withdrawal of the initial arbitration petition amounted to abandonment of the arbitration proceedings under Section 21 of the Arbitration Act. HPCL relied on the principles of Order 23 Rule 1 of the Civil Procedure Code, 1908, to contend that the subsequent petition was not maintainable on the same cause of action. The appeal raised significant issues about procedural finality in arbitration proceedings.

Issues:

1. Can a second application under Section 11(6) of the Arbitration Act be maintained after the unconditional withdrawal of the first application without liberty to refile?
2. Does Order 23 Rule 1 CPC apply to arbitration applications under Section 11(6) of the Arbitration Act?
3. Would the application be maintainable if based on a new cause of action?

Judgment:

• The Supreme Court, in its judgment, held that when a party unconditionally withdraws an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, without obtaining liberty to refile, any subsequent application on the same cause of action is barred. The Court applied the principles of Order 23 Rule 1 of the Civil Procedure Code, 1908 (CPC), emphasizing that such withdrawal signifies abandonment of both the formal prayer for appointing an arbitrator and the substantive arbitration proceedings initiated under Section 21 of the Arbitration Act.
• The Court reasoned that allowing repeated applications for the same cause would undermine procedural finality and delay the arbitration process, defeating the legislative intent of ensuring expeditious resolution of disputes through arbitration. The bench, comprising Chief Justice DY Chandrachud and Justice JB Pardiwala, clarified that while unconditional withdrawal bars re-litigation of the same cause of action, it does not preclude invoking the same arbitration clause for disputes arising from a distinct cause of action occurring later. In such cases, parties are entitled to file fresh arbitration petitions under Section 11(6).
• The Court highlighted the importance of distinguishing between claims arising from the same contractual relationship but based on different factual contexts or timeframes.
• Further, the Court referred to previous precedents, including Sarguja Transport Service v. State Transport Appellate Tribunal (1987) and Upadhyay & Co. v. State of U.P. (1999), to extend the principles of Order 23 Rule 1 to arbitration applications, reinforcing procedural discipline. The judgment also underscored the public policy objective of preventing repetitive litigation, ensuring certainty for opposing parties, and maintaining the efficiency of arbitration proceedings.
• Thus, the Supreme Court set aside the High Court’s decision to appoint an arbitrator, ruling that the respondent’s second application was not maintainable, having been barred due to the unconditional withdrawal of the first application.

Analysis:

This judgment offers a critical clarification on the procedural finality of arbitration applications under the Arbitration and Conciliation Act, 1996. By applying Order 23 Rule 1 of the Civil Procedure Code, 1908, the Supreme Court emphasized that the unconditional withdrawal of a Section 11(6) application amounts to abandoning both the arbitrator appointment process and the arbitration proceedings. This bars subsequent applications on the same cause of action, ensuring procedural discipline and preventing misuse of legal processes. At the same time, the Court maintained flexibility by clarifying that arbitration clauses can be invoked for disputes arising from a new cause of action, preserving the parties’ rights to seek arbitration when warranted. This decision reinforces the need for careful legal strategy when withdrawing arbitration applications and provides greater certainty for parties entering arbitration agreements. It strengthens arbitration as an effective and efficient mechanism for dispute resolution.

[1] BEFORE THE HON’BLE SUPREME COURT

HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad

CIVIL APPEAL NO. 12233 OF 2024 (ARISING OUT OF SLP (C) NO. 5589 OF 2024)

Judgement dated 7th November, 2024