Unconditional Withdrawal Of Arbitrator Appointment Application Bars Second Application On Same Cause Of Action: Supreme Court

The Supreme Court observed that when a party seeking appointment of an arbitrator unconditionally withdraws its application, then the subsequent application for an appointment of an arbitrator on the same cause of action would be barred.

The bench comprising Chief Justice DY Chandrachud and Justice JB Pardiwala ruled that Order 23 Rule 1 of Civil Procedure Code, 1908 (“CPC”) would be made applicable to applications seeking appointment of an arbitrator under Section 11(6) of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) to restrain the party from filing second arbitrator appointment application when it had abandoned (unconditionally withdrawn the application without leave to file fresh application) the arbitration in its first application.

“If that is so, the unconditional withdrawal of a Section 11(6) petition amounts to abandoning not only the formal prayer for appointing an arbitrator but also the substantive prayer for commencing the actual arbitration proceedings. It amounts to abandoning the arbitration itself. It results in abandonment of the notional 'arbitration proceeding' that had commenced by virtue of Section 21 and thus amounts to an abandonment of a significant nature. Therefore, it is all the more important to import and apply the principles underlying Order 23 Rule 1 of the CPC to abandonment of applications under Section 11(6).”, the court held.

The court, however, clarified that the second application under Section 11(6) would be maintainable when the invocation of the same arbitration clause is sought for a different cause of action that arose later.

“One important aspect that needs to be kept in mind while applying the principles of Order 23 Rule 1 to applications under Section 11(6) of the Act, 1996 is 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 aforesaid principle cannot be construed to mean that it bars invocation of the same arbitration clause on more than one occasion. 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 arbitrator cannot be rejected on the ground of multiplicity alone.”, the court observed.

Background

This case centers on a dispute regarding an arbitration clause. The respondent initially filed, then withdrew, an arbitration application under Section 11(6) of the Arbitration Act without court permission to apply afresh. After an unsuccessful attempt at resolution through the IBC, the respondent filed a new application seeking an arbitrator appointment. Solicitor General Tushar Mehta appearing for the appellant opposed this, citing Order 23 Rule 1 of the CPC, which aims to prevent repeated applications on the same matter, arguing that re-filing would prolong the dispute and contradict the legislative intent of Order 23 Rule 1 CPC to avoid repetitive litigation.

Senior Advocate Jay Savla appearing for the respondent, on the other hand, supported the maintainability of the second application contending that Order 23 Rule 1 of CPC wouldn't apply to applications but suits. Since Section 11(6) isn't filed as a suit but as an application, thus, it argued that maintainability of the second application would not be barred under Order 23 Rule 1 CPC.

Issue

Whether a Fresh application filed by the Respondent under Section 11(6) of the Arbitration Act could be said to be maintainable 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.

Observation

Answering negatively, the judgment authored by Justice Pardiwala observed that the second application under Section 11(6) would not be maintainable when no liberty to file a fresh application was granted at the time of withdrawal of the first application under Section 11(6) of the Act. Since the first application was withdrawn unconditionally without the liberty to apply afresh, the court noted that the respondent had abandoned the arbitration proceedings becoming ineligible to file a second application on the same cause of action.

Although the Court agreed with the respondent's contention that Order 23 Rule 1 CPC applies to suit and not applications, however, upon noting that previously the very same principles have been extended to writ proceedings before High Courts under Articles 226 & 227 in Sarguja Transport Service v. State Transport Appellate Tribunal, M.P., Gwalior and Others (1987) and SLPs before the Court under Article 136 in Upadhyay & Co. v. State of U.P. and Others (1999), the Court held that since the legislative intent of Order 23 Rule 1 CPC inclines with the intention of Section 11 (6) therefore there could not be a bar to the applicability of Order 23 Rule 1 CPC to Section 11(6) applications.

“One important policy consideration which permeates the scheme of Order 23 Rule 1 is the legislative intent that legal proceedings in respect of a subject matter are not stretched for unduly long periods by allowing a party to reagitate the same issue over and over again, which also leads to uncertainty for the responding parties. Arbitration as a dispute resolution method, too, seeks to curtail the time spent by disputing parties in pursuing legal proceedings. This is evident from the various provisions of the Act, 1996 which provide a timeline for compliance with various procedural requirements under the said Act. An application for appointment of arbitrator under Section 11(6) of the Act, 1996 is required to be filed when there is failure on the part of the parties or their nominated arbitrators to commence the arbitration proceedings as per the agreed upon procedure. This Court, being conscious of the temporally sensitive nature of proceedings under Section 11(6), has issued various directions from time to time to ensure that applications for appointment of arbitrators are decided in an expeditious manner. Keeping in view the approach of this Court and the nature of applications under Section 11(6) of the Act, 1996, we find no reason to not extend the principles of Order 23 Rule 1 to such proceedings, when the very same principles have been extended to writ proceedings before High Courts under Articles 226 & 227 and SLPs before this Court under Article 136.”, the court observed.

Case Title: M/S HPCL BIO-FUELS LTD. VERSUS M/S SHAHAJI BHANUDAS BHAD, CIVIL APPEAL NO. 12233 OF 2024

Citation : 2024 LiveLaw (SC) 879

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