M/s HPCL Bio-Fuels Ltd. vs M/s Shahaji Bhanudas Bhad

Held: In the instant case, both the applications u/s.11(6) of the Act, 1996 were filed seeking adjudication of the dispute which arose on 02.02.2014 upon refusal of the appellant to pay the dues of the respondent – The first application u/s.11(6) was filed on 16.02.2018 and was subsequently withdrawn unconditionally on 01.10.2018 – After a gap of more than four years, the respondent filed a subsequent application u/s.11(6) before the High Court on 09.12.2022 which came to be allowed by the impugned order – The chronology of events clearly indicates that the respondent did not withdraw the first arbitration application because of some defect which would have led to its dismissal – It is also clear from the order dated 01.10.2018 of the High Court permitting the respondent to withdraw the application that neither any liberty was sought by the respondent nor the court had granted any liberty to file a fresh arbitration application – It appears that the only reason the respondent withdrew the arbitration application was to get his application u/s.9 of the IBC any how admitted by the NCLT – It can be said without any doubt that the respondent took a calculated risk of abandoning the arbitration proceedings to maximise the chances of succeeding in the IBC proceedings – The respondent was within its right to abandon the arbitration proceedings in favour of IBC proceedings – However, having done so, it would no longer be open to it to file a fresh application for appointment of arbitrator without having obtained the liberty of the court to file a fresh application at the time of the withdrawal – The principles underlying Order 23 Rule 1 can be extended to applications for appointment of arbitrator, the only recourse to the respondent to defend the second application as maintainable despite it having been withdrawn earlier without liberty was to show bona fides on its part – From the conduct of the respondent, it is evident that it thought fit to initiate insolvency proceedings perhaps thinking that the issues existing between the parties may not get resolved through arbitration – The failure on the part of the respondent to withdraw the first Section 11 application without seeking any liberty cannot be condoned in the facts of the present case – Therefore, 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 cannot be said to be maintainable. [Paras 51, 52, 55, 58, 59, 61] Arbitration and Conciliation Act, 1996 – Code of Civil Procedure, 1908 – Insolvency & Bankruptcy Code, 2016 – Limitation Act, 1963 – s.14 – Whether the fresh application u/s.11(6) of the Act, 1996 filed by the respondent on 09.12.2022 could be said to be time-barred – If yes, whether the respondent is entitled to the benefit of s.14 of the Limitation Act:

Held: The first application u/s.11(6) filed on 16.02.2018 was well within the prescribed limitation period of three years for filing such applications – The second application u/s.11(6) was required to be filed within a period of three years from the expiry of one month from the date of receipt of the notice invoking arbitration by the appellant – This period of three years came to an end in August, 2019 – The second application u/s.11(6) came to be filed by the respondent much later on 12.12.2022 and is clearly time-barred – As far as benefit of s.14 of the Limitation Act is concerned, there is a body of decisions of this Court taking the view that by virtue of s.43 of the Act, 1996, the Limitation Act is applicable to applications for appointment of arbitrator filed u/s.11(6) of the said Act – It thus follows that the benefit u/s.14 of the Limitation Act can be availed by an applicant subject to the fulfilment of the conditions specified therein – First, the benefit of s.14(1) can be availed of where the subsequent proceeding is a suit, whereas the benefit of s.14(2) can be availed of where the subsequent proceeding is an application – Secondly, s.14(1) applies if both the earlier and the subsequent proceedings have the same matter in issue, whereas s.14(2) applies when both the earlier and the subsequent proceedings are filed for seeking the same relief – As a petition u/s.11(6) of the Act, 1996 is not a suit, hence it would not be governed by sub-section (1) of s.14 of the Limitation Act – Instead, it would be governed by sub-section (2) of s.14 of the Limitation Act – As far as same relief is concerned, the High Court fell in error in holding that an application u/s.9 of the IBC and an application u/s.11(6) of the Act, 1996 are filed for seeking the same relief – While the relief sought in the former is the initiation of the CIRP of the corporate debtor, the relief sought in the latter is the appointment of an arbitrator for the adjudication of disputes arising out of a contract – As the relief sought in an application u/s.11(6) of the Act, 1996 is not the same as the relief sought in an application u/s.9 of the IBC, the benefit of s.14(2) cannot be given to the respondent in the present case. [Paras 74, 77, 83, 107]

Arbitration and Conciliation Act, 1996 – Code of Civil Procedure, 1908 – Insolvency & Bankruptcy Code, 2016 – Limitation Act, 1963 – Whether the respondent was prosecuting the IBC proceedings in good faith and in a bonafide manner. Held: The respondent couldn’t be said to have had been prosecuting the IBC proceedings in good faith and in a bonafide manner – An element of mistake is inherent in the relief envisaged under Section 14 of the Limitation Act – In the present case, the respondent had initially approached the High Court with an application u/s.11(6) – However, for reasons best known to it, the respondent abandoned the said proceedings for appointment of arbitrator and approached the NCLT, Kolkata with an application u/s.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 u/s.8 of the IBC – Despite having preferred an application u/s.11(6) of the Act, 1996 before the jurisdictional court, and also being fully aware of the infirmities in the s.9 application filed under the IBC, the respondent took a conscious decision to abandon the right course of proceedings – The conduct of the respondent cannot be termed to be a mistake in any manner – Having taken a conscious decision to opt for specific remedy under the IBC which is not for the same relief as an application u/s.11(6) of the Act, 1996, the respondent cannot be now allowed to take the plea of ignorance or mistake and must bear the consequences of its decisions. [Para 110]

Arbitration and Conciliation Act, 1996 – s.11(6) – Code of Civil Procedure, 1908 – Insolvency & Bankruptcy Code, 2016 – Limitation Act, 1963 – s.5 – Whether the delay caused by the respondent in filing the fresh arbitration application u/s.11(6) of the Act, 1996 can be condoned u/s.5 of the Limitation Act: Held: The position of law is that the benefit u/s.5 of the Limitation Act is available in respect of the applications filed for appointment of arbitrator u/s.11(6) of the Act, 1996 – Further, the requirement of filing an application u/s.5 of the Limitation Act is not a mandatory pre-requisite for a court to exercise its discretion under the said provision and condone the delay in institution of an application or appeal – The respondent took a conscious decision to abandon its first s.11(6) application with a view to pursue proceedings u/s.9 of the IBC – The respondent made such choice despite a specific objection raised by the appellant in its reply to the statutory demand notice that there were pre-existing disputes between the parties – In view of this, maximisation of the chances of getting the application u/s.9 of the IBC admitted by the NCLT seems to have been the only reason for the abandonment of the first s.11(6) application by the respondent – In light of such conduct on the part of the respondent, this Court is of the view that the present case does not warrant the exercise of discretion u/s.5 of the Limitation Act. [Paras 121, 122] Limitation – Object of having a limitation period: Held: The basic premise behind the statutes providing for a limitation period is encapsulated by the maxim “Vigilantibus non dormientibus jura subveniunt ” which means that the law assists those who are vigilant and not those who sleep over their rights – The object behind having a prescribed limitation period is to ensure that there is certainty and finality to the litigation and assurance to the opposite party that it will not be subject to an indefinite period of liability – Another object achieved by a fixed limitation period is that only those claims which are initiated before the deterioration of evidence takes place are allowed to be litigated – The law of limitation does not act to extinguish the right but only bars the remedy. [Para 68]

Arbitration and Conciliation Act, 1996 – s.11(6) – Limitation Act, 1963 – When the limitation period for filing an application seeking appointment of arbitrator would commence: Held: On the aspect of when the limitation period for filing an application seeking appointment of arbitrator would commence, it is only after a valid notice invoking arbitration has been issued by one of the parties to the other party and there has been either a failure or refusal on part of the other party to make an appointment as per the appointment procedure agreed upon between the parties, that the clock would start ticking for the purpose of the limitation of three years. [Para 70]

Limitation Act, 1963 – s.14 (1) – Ingredients need to be fulfilled for the applicability of Section 14(1):

Held: (i) The subsequent proceeding must be a suit; (ii) Both the earlier and the subsequent proceeding must be civil proceedings;

(iii) Both the earlier and subsequent proceedings must be between the same parties; (iv) The earlier and subsequent proceeding must have the same matter in issue; (v) The earlier proceeding must have failed owing to a defect of jurisdiction of the earlier court or any other cause of a like nature; (vi) The earlier proceedings must have been prosecuted in good faith and with due-diligence; and (vii) Both the earlier and the subsequent proceedings must be before a court. [Para 78]

Limitation Act, 1963 – s.14 (2) – Conditions required to be fulfilled for seeking the benefit of exclusion u/s.14(2) are as follows:

Held: (i) Both the earlier and the subsequent proceeding must be civil proceedings; (ii) Both the earlier and subsequent proceedings must be between the same parties; (iii) The earlier and subsequent proceeding must be for the same relief; (iv) The earlier proceeding must have failed owing to a defect of jurisdiction of the earlier court or any other cause of a like nature; (v) The earlier proceedings must have been prosecuted in good faith and with due-diligence; and (vi) Both the earlier and the subsequent proceedings are before a court. [Para 83]

Limitation Act, 1963 – s.14(1) and s.14(2) – The key difference between sub-sections (1) and (2) of Section 14 respectively is two-fold:

Held: (i) First, the benefit of Section 14(1) can be availed of where the subsequent proceeding is a suit, whereas the benefit of Section 14(2) can be availed of where the subsequent proceeding is an application; (ii) Secondly, Section 14(1) applies if both the earlier and the subsequent proceedings have the same matter in issue, whereas Section 14(2) applies when both the earlier and the subsequent proceedings are filed for seeking the same relief. [Para 84]

Arbitration and Conciliation Act, 1996 – s.11(6) – Insolvency & Bankruptcy Code, 2016 – Object of initiation of insolvency proceedings and the objective behind the appointment of an arbitrator:

Held: The object of initiation of insolvency proceedings under the IBC is to seek rehabilitation of the corporate debtor by appointment of a new management, whereas the objective behind the appointment of an arbitrator is to resolve the disputes arising between the parties out of a private contract – As soon as the CIRP of a corporate debtor is initiated, it becomes a proceeding in rem – On the contrary, arbitration being concerned with private disputes is not an in-rem proceeding. [Para 98] Insolvency & Bankruptcy Code, 2016 – Distinguishing feature that sets apart ordinary recovery proceedings from insolvency proceedings:

Held: Insolvency proceedings are fundamentally different 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 – No doubt both proceedings contemplate an aspect of recovery of debt, however in insolvency proceedings, the recovery is only a consequence of the rehabilitation/resolution of the corporate debtor and not the main relief – 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 former is only for the benefit of the individual creditor who initiates the recovery proceedings whereas the latter is for the benefit of all creditors irrespective of who initiates insolvency – The last 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 – Whereas, the underlying intention behind initiating insolvency is not with the intention of recovering the amount owed to it, but rather with the intention that the corporate debtor is resolved / rehabilitated through a new management as soon as possible before it becomes unviable with no prospect of any meaningful recovery of its dues in the near future. [Paras 103, 104, 105]