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Commissioner, M.P Housing Board And Others (S) v. M/S. Mohanlal And Company (S)
Factual and Procedural Background
The respondent–contractor entered into a contract dated 29 June 2009 with the appellant, Madhya Pradesh Housing Board, for construction of a commercial complex at Bittan Market, Bhopal. Clause 29 of the contract provided for reference of disputes, in the first instance, to departmental authorities (Deputy Housing Commissioner/Additional Housing Commissioner) and, if necessary, to arbitration.
Disputes arose and were referred to the Additional Housing Commissioner acting as sole arbitrator. On 11 November 2010 the arbitrator rejected all claims of the respondent. Instead of promptly challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996, the respondent filed an application under Section 11 of that Act in the High Court seeking appointment of a fresh arbitrator, contending that Clause 29 was not an arbitration clause. A learned Single Judge dismissed the application, holding that an award had already been rendered under Clause 29 and granting liberty to challenge the award in accordance with law. That order attained finality.
Subsequently, on 26 September 2011—well beyond the three-month period prescribed by Section 34(3)—the respondent filed objections to the award under Section 34(2) along with an application under Section 14 of the Limitation Act, 1963, seeking exclusion of the time spent in the Section 11 proceedings. The Additional District Judge condoned the delay, treating the period as excludable under Section 14. The High Court, in revision, affirmed that order on 12 August 2013.
The appellant obtained special leave to appeal to the Supreme Court, challenging the High Court’s affirmation of the condonation of delay.
Legal Issues Presented
- Whether, on the facts of the case, the respondent could invoke Section 14 of the Limitation Act, 1963 to exclude the period spent in prosecuting an unsuccessful Section 11 application when computing the limitation period prescribed in Section 34(3) of the Arbitration and Conciliation Act, 1996.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Popular Construction Co., (2001) 8 SCC 470 | Section 34(3) prescribes a strict limitation period of three months plus a further thirty days; the words “but not thereafter” expressly exclude Section 5 of the Limitation Act. | Used to emphasise that an application filed beyond the extended period is not maintainable under the 1996 Act. |
| State of Goa v. Western Builders, (2006) 6 SCC 239 | Section 14 of the Limitation Act can apply to proceedings under Section 34 of the 1996 Act. | Cited to acknowledge that Section 14 may, in principle, be invoked when its conditions are satisfied. |
| Consolidated Engineering Enterprises v. Irrigation Department, (2008) 7 SCC 169 | Enumerates conditions for application of Section 14 (same matter in issue, due diligence, good faith, etc.) and advocates liberal construction to advance justice. | Provided the framework against which the facts were tested; the Court found that the respondent failed to meet the requisite conditions of “same matter in issue,” diligence, and good faith. |
| Ramadhar Shrivas v. Bhagwandas, (2005) 13 SCC 1 | Defines the expression “matter directly and substantially in issue.” | Relied on to hold that the Section 11 proceedings and Section 34 objections did not involve the same matter directly and substantially in issue. |
Court's Reasoning and Analysis
The Court began by reiterating the mandatory nature of the limitation period in Section 34(3) of the 1996 Act, as clarified in Popular Construction. While acknowledging that Section 14 of the Limitation Act can, in theory, apply to Section 34 proceedings (Western Builders; Consolidated Engineering), the Court scrutinised whether the statutory pre-conditions for such exclusion were satisfied.
Applying the five conditions set out in Consolidated Engineering:
- Same matter in issue: The Section 11 application sought appointment of an arbitrator—a proceeding at the initiation stage—whereas the Section 34 petition sought to set aside an already-rendered award, a proceeding at the culmination stage. The two were held to concern different matters.
- Due diligence and good faith: The respondent had participated fully in the arbitration, knew of the award, and nonetheless opted to pursue an untenable Section 11 route. The Court characterised this conduct as lacking diligence and good faith, even describing it as an “innovative path” devised to “contrive a way.”
- Defect of jurisdiction: The failure of the Section 11 proceeding was not due to lack of jurisdiction but because an award had already been made.
Because these essential conditions were unmet, Section 14 could not be invoked to rescue the delayed Section 34 application. The High Court, by affirming the Additional District Judge’s contrary view, had therefore committed a “grave error.”
Holding and Implications
The appeal is allowed; the orders of the High Court and the Additional District Judge condoning delay under Section 14 are set aside.
Immediate consequence: the respondent’s Section 34 objections are time-barred, and the arbitral award dated 11 November 2010 stands enforceable against the respondent. The judgment reinforces the strict limitation regime under Section 34 and clarifies that Section 14 relief will be denied where the earlier proceedings do not involve the same matter or lack bona fide prosecution; no new legal doctrine is created, but the decision underscores existing jurisprudence on limitation in arbitration matters.
Dipak Misra, J.— Leave granted. The present appeal, by special leave, is directed against the order dated 12-8-2013, passed by the High Court of Madhya Pradesh, Principal Seat at Jabalpur, in M.P. Housing Board v. Mohanlal and Co. 2013 SCC OnLine MP 6215, (2014) 1 MPLJ 121, whereby the High Court has affirmed the view expressed by the learned Additional District Judge, Bhopal, that the objection preferred by the respondent under Section 34(2) of the Arbitration and Conciliation Act, 1996 (for short “the 1996 Act”) was condonable in aid of Section 14 of the Limitation Act, 1963 (for brevity “the Act”).
2. The present litigation has a history. The respondent had entered into a contract for construction of a commercial complex at Bittan Market, E-5, Arera Colony, Bhopal on 29-6-2009. During the subsistence of the contract, certain disputes arose between the parties and the matter was arbitrated upon. Clause 29 of the contract, on the basis of which the matter was referred to arbitration, reads as follows:
“29. Except as otherwise provided in this contract, all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions, hereinbefore mentioned and as to thing whatsoever, in any way, arising out of or relating to the contracts, designs, drawings, specifications, estimates, concerning the work, or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof, shall be referred to the Deputy Housing Commissioner in writing for his decision within a period of thirty days of such occurrence. Thereupon, the Deputy Housing Commissioner shall give his written instructions and/or decision within a period of sixty days of such written request. This period can be extended by mutual consent of the parties. If decided amount is more than Rs 25,000 the same shall be referred to the Housing Commissioner for his perusal.
Upon receipt of written instructions, or decision, the parties shall promptly proceed without delay to comply such decision or instructions. If the Deputy Housing Commissioner fails to give his instructions or decision in writing within a period of sixty days or mutually agreed time after being requested, if the parties are aggrieved against the decision of the Deputy Housing Commissioner the parties may within thirty days prefer such dispute/disputes for arbitration to the Additional Housing Commissioner subject to the jurisdiction and limitations in accordance with the provisions of the Madhyastham Adhikaran Adhiniyam, 1995. In case the dispute is within the jurisdiction of the Additional Housing Commissioner he shall then act as sole arbitrator, and he shall pass an award after hearing both the parties, strictly in accordance with the provisions of the Arbitration Act, 1940 and the Rules made thereunder for the time being in force.
If the contractor does not make any demand for arbitration in respect of claim(s) in writing within ninety days on receiving information from the Executive Engineer that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and shall be absolutely barred and the Board shall be discharged or released of all the liabilities under the contract in respect of such claim(s).
A reference to the arbitration shall be no ground for not continuing the work on the part of the contractor and payment as per the terms and conditions of the agreement shall be continued by the Board.”
3. Relying on the said clause, the matter was referred to the Additional Housing Commissioner, the sole arbitrator, who passed an award on 11-11-2010. Be it stated, both the parties appeared before the learned arbitrator and on the basis of the materials brought on record, the learned arbitrator passed the award. As is manifest from record, the arbitrator did not find any justification to allow any of the claims of the respondent contractor.
4. When the matter stood thus, as it appears, wisdom dawned upon the respondent and he thought that he could take a somersault. And that propelled him to file an application under Section 11 of the 1996 Act before the High Court of Madhya Pradesh, which formed the subject-matter of Arbitration Case No. 135 of 2010, for seeking appointment of an arbitrator to adjudicate the disputes. It was contended before the High Court that Clause 29 of the contract could not be treated as an arbitration clause and, therefore, the court should appoint an arbitrator. To bolster the said stand, reliance was placed on M.P. Housing Board v. Sohanlal Chourasia (2008) 2 MPLJ 103, 2007 SCC OnLine MP 431.
5. The learned Single Judge reproduced the relevant passages from the said judgment and came to hold as follows:
“From the aforesaid clause, it is seen that if any dispute arises between the parties, the matter has to be resolved by reference to the Deputy Housing Commissioner and, thereafter, to the Additional Housing Commissioner. The provisions of the arbitration clause clearly indicate that the arbitrator appointed under the agreement is a named arbitrator, namely, the Additional Housing Commissioner and he has to exercise powers available under the Arbitration Act of 1940. Available on record is an award passed by the arbitrator i.e. the Additional Housing Commissioner vide Annexure P-5 and once in terms of Clause 29 of the agreement, the arbitrator i.e. the Additional Housing Commissioner has adjudicated the dispute and has passed an award, no further action is to be taken in these proceedings against under Section 11, as the sole arbitrator in accordance with arbitration agreement has already adjudicated the dispute between the parties. If the petitioner is aggrieved by the adjudication of the dispute, he can now challenge the award of the arbitration in accordance with law.
In the light of the resolution of the dispute by the sole arbitrator in accordance with Clause 29 of the agreement, this Court does not find any ground to interfere in the matter. The judgment relied upon by Shri Shashank Shekhar is clearly distinguishable. In that case the question and the power is exercised by the Additional Housing Commissioner under Section 29 of the agreement in question. In the said case, it is only held that a Deputy Housing Commissioner deciding the claim under Clause 29 is not an arbitrator.”
6. We must immediately state that the said order was not assailed and, has been allowed to attain finality.
7. After facing non-success before the High Court in his effort to get an arbitrator appointed, the respondent thought it appropriate to file an objection under Section 34(2) of the 1996 Act to challenge the award. The said application was filed on 26-9-2011. It is apt to note here that the award was passed on 11-11-2010.
8. The respondent, along with his objection, filed an application under Section 14 of the Act seeking exclusion of the time consumed in the proceedings asserting that he was bona fidely prosecuting the case in the court having no jurisdiction. The learned Additional District Judge, upon hearing the learned counsel for the parties, allowed the application on the foundation that the respondent was entitled to exclusion of time under Section 14 of the Act.
9. Being grieved by the aforesaid order, the appellant preferred civil revision before the High Court and, as has been stated earlier, the High Court did not find any infirmity in the order passed by the learned Additional District Judge and, accordingly, gave the stamp of approval to the same.
10. We have heard Mr Sushil Dutt Salwan, learned counsel for the appellants and Mr Shekhar Sharma, learned counsel for the respondent.
11. The singular issue that emerges for consideration is whether in the obtaining factual scenario, Section 14 of the Act would be applicable. To appreciate the controversy, it is necessary to refer to Section 34(3) of the 1996 Act. It reads as follows:
“34. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the Arbitral Tribunal:
Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.”
12. This Court in Union of India v. Popular Construction Co. (2001) 8 SCC 470 interpreting the said provision has held that:
“12. As far as the language of Section 34 of the 1996 Act is concerned, the crucial words are “but not thereafter” used in the proviso to sub-section (3). In our opinion, this phrase would amount to an express exclusion within the meaning of Section 29(2) of the Limitation Act, and would therefore bar the application of Section 5 of that Act. Parliament did not need to go further. To hold that the court could entertain an application to set aside the award beyond the extended period under the proviso, would render the phrase “but not thereafter” wholly otiose. No principle of interpretation would justify such a result.”
And again:
“16. Furthermore, Section 34(1) itself provides that recourse to a court against an arbitral award may be made only by an application for setting aside such award “in accordance with” sub-section (2) and sub-section (3). Sub-section (2) relates to grounds for setting aside an award and is not relevant for our purposes. But an application filed beyond the period mentioned in Section 34 sub-section (3) would not be an application “in accordance with” that sub-section. Consequently by virtue of Section 34(1), recourse to the court against an arbitral award cannot be made beyond the period prescribed. The importance of the period fixed under Section 34 is emphasised by the provisions of Section 36 which provide that:
‘36. Enforcement.—Where the time for making an application to set aside the arbitral award under Section 34 has expired … the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court.’
This is a significant departure from the provisions of the Arbitration Act, 1940.”
13. The aforesaid authority makes it absolutely clear that the scheme of limitation provided under the 1996 Act is different than the 1940 Act; and, therefore, an application filed beyond the period of limitation under Section 34(3) of the 1996 Act would not be an application in accordance with the said provision. As is evident from factual narration, the application was filed beyond the period prescribed in the said provision. Therefore, it could not have been entertained under the 1996 Act. However, the appellants sought exclusion of the time spent in the proceedings in court as envisaged under Section 14 of the Act. It is settled in law that Section 14 of the Act applies to Section 34(3) of the 1996 Act. It has been so held in State of Goa v. Western Builders (2006) 6 SCC 239 and Consolidated Engg. Enterprises v. Irrigation Department (2008) 7 SCC 169.
14. Having stated thus, we are obliged to scrutinise under what situations Section 14 of the Act gets attracted. Section 14(1) of the Act, which is relevant for the present purpose, reads as follows:
“14. Exclusion of time of proceeding bona fide in court without jurisdiction.—(1) In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the defendant shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.”
15. In Consolidated Engg. Enterprises (2008) 7 SCC 169, the Court, while dealing with the conditions in which Section 14 will be applicable, enumerated five conditions which are as follows:
“(1) Both the prior and subsequent proceedings are civil proceedings prosecuted by the same party;
(2) The prior proceeding had been prosecuted with due diligence and in good faith;
(3) The failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature;
(4) The earlier proceeding and the latter proceeding must relate to the same matter in issue and;
(5) Both the proceedings are in a court.”
In the said case, it has also been stated that:
“22. … While considering the provisions of Section 14 of the Limitation Act, proper approach will have to be adopted and the provisions will have to be interpreted so as to advance the cause of justice rather than abort the proceedings. It will be well to bear in mind that an element of mistake is inherent in the invocation of Section 14. In fact, the section is intended to provide relief against the bar of limitation in cases of mistaken remedy or selection of a wrong forum. 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.”
16. From the aforesaid passage, it is clear as noonday that there has to be a liberal interpretation to advance the cause of justice. However, it has also been laid down that it would be applicable in cases of mistaken remedy or selection of a wrong forum. As per the conditions enumerated, the earlier proceeding and the latter proceeding must relate to the same matter in issue. It is worthy to mention here that the words “matter in issue” are used under Section 11 of the Code of Civil Procedure, 1908. As has been held in Ramadhar Shrivas v. Bhagwandas (2005) 13 SCC 1 the said expression connotes the matter which is directly and substantially in issue. We have only referred to the said authority to highlight that despite liberal interpretation placed under Section 14 of the Act, the matter in issue in the earlier proceeding and the latter proceeding has to be conferred requisite importance. That apart, the prosecution of the prior proceeding should also show due diligence and good faith.
17. In the case at hand, the respondent appeared before the learned arbitrator and after the award was passed, chose not to file any objection to the award immediately. On the contrary, the respondent filed an application under Section 11 of the 1996 Act before the High Court for appointment of an arbitrator. As has been stated earlier, the learned Single Judge of the High Court distinguished the decision in Sohanlal Chourasia (2008) 2 MPLJ 103, 2007 SCC OnLine MP 431 and came to hold that the application was not maintainable. However, he granted liberty to the respondent to file an objection in accordance with law. The words “in accordance with law” gain significance. It allows an argument to be canvassed by the respondent that the time spent in earlier proceeding deserved exclusion while computing the period of limitation. But, an ominous one for the respondent, whether Section 14 is at all attracted? Had the learned Single Judge stated that the period consumed for pursuing the remedy under Section 11 of the 1996 Act, would be excluded for filing objection, possibly the matter would have been different. In any case, we do not intend to dilate further on that aspect. It is quite clear that the quoted portion hereinabove does not so indicate. It only grants liberty to the respondent to file an objection in accordance with law. Section 14(1) of the Act which we have reproduced, lays down that the proceedings must relate to the same matter in issue. It emphasises on due diligence and good faith. Filing of an application under Section 11 of the 1996 Act for an appointment of arbitrator is totally different than an objection to award filed under Section 34 of the 1996 Act. To put it differently, one is at the stage of initiation, and the other at the stage of culmination. By no stretch of imagination, it can be said that the proceedings relate to “same matter in issue”. Additionally, the respondent had participated in the arbitral proceeding and was aware of passing of the award. He, may be, by design, invoked the jurisdiction of the High Court for appointment of an arbitrator. We are absolutely conscious that liberal interpretation should be placed on Section 14 of the Act, but if the fact situation exposits absence of good faith of great magnitude, law should not come to the rescue of such a litigant. We say so because the respondent instead of participating in the arbitration proceedings, could have immediately taken steps for appointment of arbitrator as he thought appropriate or he could have filed his objections under Section 34(2) of the Act within permissible parameters but he chose a way, which we are disposed to think, an innovative path, possibly harbouring the thought that he could contrive the way where he could alone rule. Frankly speaking, this is neither diligence nor good faith. On the contrary, it is absence of both.
18. In view of the aforesaid analysis, we find that the High Court has fallen into grave error by concurring with the opinion expressed by the learned Additional District Judge and, therefore, both the orders deserve to be lancinated and, accordingly, we so direct.
19. The appeal is, accordingly, allowed. There shall be no order as to costs.
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