2008 (4) TMI 668 - SC - Companies Law

Section 14 permits excluding bona fide litigation delay in Section 34 arbitration challenges; four-month limit can be extended

CONSOLIDATED ENGG. ENTERPRISES Versus PRINCIPAL SECY. IRRIGATION DEPTT. & ORS.

The SC held that Section 14 of the Limitation Act applies to applications under Section 34 of the Arbitration and Conciliation Act, permitting exclusion ... Jurisdiction under Section 34 - Exclusion of time as contemplated by Section 14 of the Limitation Act - due diligence and in good faith - applicability of the provisions of Section 14 of the Limitation Act to an application submitted under Section 34 - Whether the defendant proves that the present suit is barred by the limitation under Section 34(3) of the Arbitration and Conciliation Act, 1996 - HELD THAT:- On reading Section 14 of the Act it becomes clear that the legislature has enacted the said section to exempt a certain period covered by a bona fide litigious activity. Upon the words used in the section, it is not possible to sustain the interpretation that the principle underlying the said section, namely, that the bar of limitation should not affect a person honestly doing his best to get his case tried on merits but failing because the court is unable to give him such a trial, would not be applicable to an application filed under Section 34 of the Act of 1996. The principle is clearly applicable not only to a case in which a litigant brings his application in the court, that is, a court having no jurisdiction to entertain it but also where he brings the suit or the application in the wrong court in consequence of bona fide mistake or law or defect of procedure. Having regard to the intention of the legislature this Court is of the firm opinion that the equity underlying Section 14 should be applied to its fullest extent and time taken diligently pursuing a remedy, in a wrong court, should be excluded. The jurisdiction under Section 34 of the Act, cannot be exercised, suo motu. The total period of four months within which an application, for setting aside an arbitral award, has to be made is not unusually long. Section 34 of the Act of 1996 would be unduly oppressive, if it is held that the provisions of Section 14 of the Limitation Act are not applicable to it, because cases are no doubt conceivable where an aggrieved party, despite exercise of due diligence and good faith, is unable to make an application within a period of 4 months. From the scheme and language of Section 34 of the Act of 1996, the intention of the Legislature to exclude, the applicability of Section 14 of the Limitation Act, is not manifest. It is well to remember that Section 14 of the Limitation Act does not provide for a fresh period of limitation but only provides for the exclusion of a certain period. Having regard to the legislative intent, it will have to be held that the provisions of Section 14 of the Limitation Act, 1963 would be applicable to an application submitted under Section 34 of the Act of 1996 for setting aside an arbitral award. As this Court holds that Section 14 of the Limitation Act, 1963 is applicable to an application filed under Section 34 of the Act, 1996 for setting aside an award made by an arbitrator, the appeal arising from Special Leave Petition (C) No.10311 of 2005 will have to be dismissed because the Division Bench of the High Court of Karnataka has in terms held that there was no lack of bona fide on the part of the respondents and that the respondents had diligently prosecuted the matter before the other court and had also immediately after coming to know the lack of jurisdiction of the court had filed the memo seeking withdrawal of the appeal and presented the same before the lower court which had the jurisdiction. Appeal arising from SLP(C) No.10311 of 2005 fails and is dismissed. Issues Involved:1. Applicability of Sections 12 and 14 of the Limitation Act, 1963 to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996.2. Determination of whether the appellant prosecuted the matter in other courts with due diligence and in good faith.Issue-wise Detailed Analysis:1. Applicability of Sections 12 and 14 of the Limitation Act, 1963 to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996:The primary issue before the Court was whether the provisions of Sections 12 and 14 of the Limitation Act, 1963 apply to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside arbitral awards.The Court noted that Section 34(3) of the Arbitration and Conciliation Act, 1996 prescribes a limitation period of three months for filing an application to set aside an arbitral award, which can be extended by a further 30 days on sufficient cause being shown, but not beyond that. The Court emphasized that this specific limitation period, along with a provision for a limited extension, indicates the legislative intent to exclude the applicability of Section 5 of the Limitation Act, which allows for an extension of the limitation period on sufficient cause being shown.However, the Court held that the exclusion of Section 5 does not imply the exclusion of Section 14 of the Limitation Act. Section 14 provides for the exclusion of time spent in bona fide proceedings in a court without jurisdiction. The Court reasoned that Section 14 is intended to protect litigants who, despite exercising due diligence and good faith, mistakenly pursue their case in the wrong forum. The Court found no express provision in the Arbitration and Conciliation Act, 1996, excluding the applicability of Section 14. Moreover, Section 43 of the Arbitration and Conciliation Act makes the provisions of the Limitation Act applicable to arbitration proceedings.The Court concluded that the provisions of Section 14 of the Limitation Act apply to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996. This conclusion aligns with the Court's earlier decision in State of Goa vs. Western Builders, which held that the equity underlying Section 14 should be applied to its fullest extent to exclude time taken in diligently pursuing a remedy in a wrong court.2. Determination of whether the appellant prosecuted the matter in other courts with due diligence and in good faith:The second issue was whether the appellant had prosecuted the matter in other courts with due diligence and in good faith, which would entitle them to the exclusion of time under Section 14 of the Limitation Act.In the first appeal (SLP(C) No.10311 of 2005), the High Court of Karnataka found that the respondents had diligently prosecuted the matter before the wrong court and had acted in good faith. The Supreme Court upheld this finding, noting that there was no lack of bona fide on the part of the respondents, and they had promptly sought to transfer the application to the correct court upon realizing the jurisdictional error.In the second appeal (SLP(C) No.15619 of 2005), the High Court of Karnataka held that the appellant had not prosecuted the matter in other courts with due diligence and in good faith. The Supreme Court disagreed with this finding, emphasizing that the appellant had approached the courts with an honest belief regarding jurisdiction and had promptly acted to rectify the mistake. The Court noted that the question of jurisdiction was seriously contested and that there was no intentional delay or harassment of the opposite party. The Court concluded that the appellant had acted with due diligence and in good faith, thereby entitling them to the exclusion of time under Section 14 of the Limitation Act.Conclusion:The Supreme Court held that Section 14 of the Limitation Act, 1963, applies to applications filed under Section 34 of the Arbitration and Conciliation Act, 1996. The Court dismissed the appeal arising from SLP(C) No.10311 of 2005, upholding the High Court's finding of due diligence and good faith on the part of the respondents. Conversely, the Court allowed the appeal arising from SLP(C) No.15619 of 2005, overturning the High Court's finding and holding that the appellant had prosecuted the matter in other courts with due diligence and in good faith. The High Court of Karnataka was directed to proceed further with the matter in accordance with law. No costs were awarded in both appeals.