NON-APPEARANCE IN ARBITRATION PROCEEDINGS

In RAJIV GADDH Versus SUBODH PARKASH - 2026 (4) TMI 426 - Supreme Court, the parties to the present appeal jointly participated in an auction conducted by Jammu & Kashmir bank for 550 marlas of land in Punjab. Aastha trading company, the respondent’s firm and JMD Special Steels Private Limited both joined for registration purposes. The parties obtained a loan to the tune of Rs.4.30 crores from HDFC bank by giving security of various properties. The appellant, the respondent and the HDFC bank made a tripartite agreement on 20.03.2013 to regulate the loan liability and to facilitate to release the mortgaged property.

On 02.04.2013 the parties executed three agreements to resolve the disputes, the details of which are as below-

• 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.
• 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.
• The appellant was to hold 16.5 % shares in ‘the Hoshiarpur Land’ with a separate agreement to govern its settlement.

All the agreements are having an arbitration clause.           

The respondent invoked the arbitration clause in the agreements by giving notice to the appellant on 06.05.2015. The respondent also filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (‘Act’ for short) before the High Court with the prayer to appoint an arbitrator to resolve the dispute between the parties. The High Court appointed one Justice M.S. Mullar as sole arbitrator. The said arbitrator later recused himself from the proceedings. Therefore, the High Court appointed Justice V.K Jhanji on 12.08.2016.  The respondent raised the allegations of bias on the newly appointed arbitrator. Therefore, the second arbitrator also recused himself from the proceedings on 11.02.2017. Thereafter, the High Court appointed another Justice Aftab Alam as sole arbitrator in this case.

The parties made their respective claims before the Arbitrator. The Arbitrator gave a final opportunity to the respondent on 10.02.2018 to file his statement of claims. The Arbitrator further intimated that if the statement of claims were not received within that time the arbitration proceedings were liable to be closed. The respondent filed his claim to the tune of Rs.4.16 crores on 16.03.2018. The appellant also filed his reply to the claim of the respondent. The respondent also filed a rejoinder to the reply of the appellant.

On the hearing date fixed by the Arbitrator on 13.05.2019 the respondent did not appear before the Arbitrator. An adjournment was granted by the Arbitrator. Further the Arbitrator tried to resolve the disputes by means of mediation. The respondent did not participate in the proceedings. But he sent an email on 13.07.2019 making allegation of bias against the arbitrator and wanted to replace the arbitrator by appointing a new arbitrator. The arbitrator did not accede his request. The arbitrator proceeded the arbitration. The respondent did not participate in the arbitration proceedings and thus he absented himself from the arbitration proceedings.

The respondent, thereafter, filed a civil suit seeking mandatory injunction for the termination of arbitration proceedings. The Arbitrator passed an award admitting the claim of the appellant and rejecting the claim of the respondent on 30.06.2020. 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 with the same.

The respondent challenged the award passed by the Arbitrator under section 34 of the Act. The Supreme Court, 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’. The respondent issued a fresh notice on 01.09.2021 invoking arbitration based on the judgment passed by the Supreme Court. The appellant contended that the respondent ought to agitate his claim before the Arbitrator. On 25.11.2021 the respondent filed a fresh application for the appointment of arbitrator before the High Court.

The High Court allowed the application filed by the respondent. The High Court held that the issue of res judicata need not be examined at the stage of Section 11 proceedings, leaving it to be decided by arbitral tribunal. In the meantime, the civil suit filed by the respondent was dismissed for non-prosecution on 23.07.2024. The appellant filed the present appeal before the Supreme Court against the order of High Court allowing the application filed by the respondent.

The appellant contended the following before the Supreme Court-

• The respondent abandoned the earlier proceedings of arbitration and therefore, he was not eligible to seek for the fresh appointment of arbitrator.
• 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.

The respondent contended 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 PRABHAT GENERAL AGENCIES & ORS. Versus THE JAMMU AND KASHMIR BANK LTD. & ORS. - 2021 (7) TMI 1488 - Supreme Court.

The Supreme Court considered the submissions of the parties to the appeal and also perused the documents on record. The Supreme Court observed the following-

• 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.
• 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.
• The 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.
•  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.
• The issue, which was sub judice, was with regard to validity of the auction and not on the dispute between the appellant and the respondent.
• On the dismissal of the civil suit no fresh cause of action arose accrued to the respondent.
• A litigant cannot be permitted to abuse the process of Court to file a fresh proceeding again on the same cause of action.

In view of the above, the Supreme Court quashed the order passed by the High Court, which was challenged in the present appeal.