Rajiv Gaddh vs Subodh Parkash

Alok Aradhe, J

Leave granted.

This  appeal  arises  from  the  order  dated  08.11.2024  passed  by the Punjab and Haryana High Court (High Court) whereby application filed by the respondent under Section 11 of the Arbitration and Conciliation  Act,  1996 (Act) was allowed and sole arbitrator was appointed. In order to appreciate the challenge laid by the appellant to the impugned order, it is necessary to set out relevant facts which are stated hereinafter.

The parties jointly participated in an auction conducted by Jammu & Kashmir Bank for auction of 550 marlas of land situated in Hoshiarpur, Punjab (‘the Hoshiarpur Land’). The primary bid in respect of said land was made through respondent’s firm M/s. Aastha Trading Company. A new entity, namely M/s. JMD Special Steel Pvt. Ltd., in which both the parties were directors, was utilized for funding and registration  purposes.  A  loan  of  Rs.  4.30  crores  was  obtained from HDFC Bank by mortgaging various properties. A Tripartite  Agreement  dated  20.03.2013  was  executed  between the appellant, the respondent and HDFC Bank to  regulate the loan liability and to facilitate release of the mortgaged properties.

On 02.04.2013, the parties executed three agreements to resolve disputes relating to ‘the Hoshiarpur Land’ and other joint ventures. The substance of the three agreements is as follows: -

(i) Agreement 1: The appellant was required to execute a sale deed in respect of 8 Kanal Land in favour of respondent  on  or  before  05.04.2014,  upon  its  release  from HDFC Bank.

(ii) Agreement 2: The joint ventures between the parties except ‘the Hoshiarpur Land’ stood dissolved. The mortgaged properties were to be released in favour of appellant’s entity for a sum of Rs. 3.75 crores.

(iii) Agreement 3: The appellant was to hold 16.5 % shares in ‘the  Hoshiarpur Land’ with a  separate agreement to govern its settlement.

Clause 6 of the aforesaid agreements contains an arbitration clause. The respondent invoked the arbitration clause by a notice dated 06.05.2015 and subsequently filed an application under Section 11 of the Act seeking appointment of an arbitrator. The High Court, by order dated 27.11.2015, appointed Justice M.S. Sullar, as sole Arbitrator, who later recused himself. Thereafter, Justice V.K. Jhanji was appointed on 12.08.2016. Allegations of bias were raised by the  respondent  on  10.02.2017,  leading  to  arbitrator’s  recusal on 11.02.2017. Subsequently, Justice Aftab Alam, was appointed as sole Arbitrator, on 01.09.2017.

Competing claims were made before the sole Arbitrator, by both parties. On 10.02.2018, the respondent was granted a final opportunity to file his statement of claim, failing which the  proceedings  were  liable  to  be  closed.  The  respondent  filed his claim on 16.03.2018, seeking  recovery of Rs.4.16 crores. The appellant filed his statement of defence, followed by a rejoinder from the respondent.

On 13.05.2019, the respondent and his counsel failed to appear  before  the  sole  Arbitrator.  Despite  adjournment  and  a failed  mediation  attempt,  the  respondent  ceased  participation in the proceedings and, on  13.07.2019, sent an email to the sole Arbitrator alleging bias. Further, allegations were raised on 14.08.2019 along with an indication to appoint another arbitrator.  The  Arbitrator declined  this  request  and  proceeded with the arbitration. By communication dated 29.08.2019, respondent  refused  to  accept arbitrator’s  authority  and  stated that  he  would  not  participate  further.  He  remained  absent  on 03.10.2019.

The  respondent  filed  a  civil  suit  seeking  mandatory  injunction seeking termination of Arbitrator’s mandate. The sole Arbitrator passed an award on 30.06.2020 observing that claims were intertwined and overlapping. The Arbitrator decreed the claim of appellant and dismissed the claim of respondent.  While  noting  the  power  to  terminate  proceedings for non-prosecution, the Arbitrator granted a final opportunity to revive its claim by giving three months time to file an amended statement of claim, failing which the proceeding would stand terminated in respondent’s claim. The respondent failed to comply.

The respondent challenged the arbitral award dated 30.06.2020, under Section 34 of the Act. This Court, by a judgment  dated  09.07.2021,  passed  in  Civil  Appeal  No.  1599 of 2011, upheld the auction held by the Jammu & Kashmir Bank regarding ‘the Hoshiarpur Land’ and held that auction purchaser namely, the appellant and the respondent were entitled to ‘the Hoshiarpur Land’.

On  01.09.2021,  the  respondent  issued  a  fresh  notice  invoking arbitration based on aforesaid judgment of this Court. The appellant replied on 06.10.2021, asserting that respondent should agitate his claim before the Arbitrator. Thereafter, on 25.11.2021, the respondent filed a fresh application under Section 11 of the Act seeking appointment of an arbitrator.

By the impugned order dated 08.11.2024, the High Court allowed the application and held that issue of res judicata need  not  be  examined  at  the  stage  of  Section  11  proceedings, leaving it to be decided by arbitral tribunal. The  civil suit filed by  the  respondent  seeking  termination  of  the  mandate  of  the Arbitrator  was  dismissed  for  non-prosecution  on  23.07.2024. In the aforesaid factual background, this appeal arises for our consideration.

Learned senior counsel for the appellant contended that the respondent had abandoned the earlier arbitration proceedings and  was,  therefore,  barred  from  seeking  a  fresh  appointment of an Arbitrator. It is submitted that Order 23 Rule 1(3) of the Code of Civil Procedure, 1908 (Code) imposes a bar on the substitution  of  subsequent  proceedings  for  the  same  cause  of action.  In  support  of  the  aforesaid  submissions,  reliance  has been placed on the decision of this Court ‘HPCL Bio-Fuels Ltd., v. Shahaji Bhanudas Bhad; 2024 SCC OnLine SC 3190’.

Learned counsel for the respondent, on the other hand, submitted that the issue of res judicata does not arise in a proceeding  under  Section  11  of  the Act and a fresh cause  of action accrued to the respondent, after judgment of this Court dated 09.07.2021 in Civil Appeal No. 1599 of 2011. In support of  the  aforesaid  submission,  reliance  has  been  placed  on  the decision of this Court ‘ Indian Oil Corporation Limited v. SPS Engineering Limited; (2011) 3 SCC 507’.

We have considered the rival submissions and have perused the record.

The scope and ambit of Section 11 of the Act is well settled. The jurisdiction under Section 11 of the Act is primarily confined to determining existence of an arbitration agreement. The  issue  of  res  judicata  does  not  arise  for  consideration  in  a Section  11  proceeding ‘Indian Oil Corporation Limited (supra)’. Order  23  Rule  1  of  the  Code  provides that if the plaintiff either abandons the suit or part of the claim  or  withdraws  the  same  without  leave  of  the  court,  then he is precluded from instituting a fresh suit in respect of such subject matter or such part of the claim. The plaintiff on abandoning a suit or part of the claim or withdrawing the same without leave of the court, also becomes liable to pay such costs as may be imposed by the court as provided under Order 23 Rule 1(4) of the Code. This Court in HPCL Bio-Fuels Ltd.,  (supra)  dealt  with  the  issue,  whether  a  fresh  application under Section 11(6) of the Act would 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.  A two-Judge  Bench of  this Court  held that principles of Order 23 Rule 1 of the Code prohibiting the institution of fresh  proceeding  on  the  same  cause  of  action  without  seeking leave of the court to file a fresh application, would apply to proceeding  under  Section  11(6)  of  the  Act.  It  was  further  held that  in  the  absence  of  any  liberty  at  the  time  of  withdrawal  of the first application, the fresh application under Section 11 of the Act is not maintainable.

Another two-Judge Bench of this Court ‘Dani Wooltex Corporation and Ors., v. Sheil Properties Pvt. Ltd. and Anr.; (2024) 7 SCC 1’ has held that the abandonment of the proceedings cannot be readily inferred and only if the established conduct of the claimant is such that  it  leads  to  only  one  conclusion  that  he  has  given  up  the claim, any inference of abandonment can be drawn.

In  the  present  case,  the  respondent  himself  by  a  notice  dated 06.05.2015 had invoked the arbitration clause contained in the  agreements  dated  02.04.2013  and  had  filed  a  petition  on 03.07.2015 under Section 11(6) of the Act. The High Court, on the application of the respondent, appointed an Arbitrator. From the communication dated 29.08.2019 sent by sole respondent  to  the  Arbitrator  informing  him  that  he  would  not participate in the proceeding, it is evident that respondent had abandoned the proceeding.

Now, we may examine whether the subsequent petition filed by the  respondent  was  based  on  a  different  cause  of  action.  It  is noteworthy that auction of ‘the Hoshiarpur Land’ by Jammu & Kashmir Bank was held in 2005. The owners of the land had challenged the same before the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal. The Writ Petition preferred by the owners of the  land, namely, W.P. No. 8412 of 2009,  was  dismissed  by  High  Court  of  Judicature  at  Bombay vide judgment dated 30.09.2009, and the validity of the auction was upheld. Thereafter, the owners approached this Court by filing Civil Appeal No. 1599 of 2011. During the pendency  of  the  aforesaid  Civil  Appeal,  the  appellant  and  the respondent entered into three agreements on 02.04.2013. The respondent, during the pendency of the Civil Appeal filed by the owner of the land, invoked the arbitration clause by issuing  a  notice  on  06.05.2015.  The  Civil  Appeal  preferred  by the  owners  of  the  land  was  dismissed  on  09.07.2021  by  this Court.

It is pertinent to note that the issue, which was sub judice, was with regard to validity of the auction. The dispute between the appellant and the respondent was not the subject matter  of  the  Civil  Appeal.  Therefore,  on  dismissal  of  the  Civil Appeal filed by the owner of the land, no fresh cause of action accrued to the respondent. Thus, it is axiomatic that the subsequent application filed under Section 11(6) was based on same cause of action and was barred on the principles contained in Order 23 Rule 1 of the Code. A litigant cannot be permitted to abuse the process of Court to file a fresh proceeding again on the same cause of action. The bar contained in Order 23 Rule 1 of the Code which applies to proceeding  under  Section  11  of  the Act is founded  on Public Policy. For the aforementioned reasons, we hold that the subsequent application filed by the respondent was not maintainable.

Accordingly, the  impugned  order  dated  08.11.2024,  passed  by the High Court is quashed and set aside. The appeal is allowed. There shall be no order as to costs.