# M/s HPCL Bio-Fuels Ltd v. M/s Shahaji Bhanudas Bhad

- **Citation:** 2024 INSC 851
- **Court:** Supreme Court of India
- **Decided:** 2024-11-07
- **Case number:** Civil Appeal No. 12233 of 2024
- **Bench:** Dr Dhananjaya Y. Chandrachud, J.B. Pardiwala
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-hpcl-bio-fuels-ltd-v-m-s-shahaji-bhanudas-bhad-37333
- **Pages:** 69

## Headnote

(i) Whether a fresh application u/s.11(6) of the Arbitration and
Conciliation Act, 1996 filed by the respondent could be said to
be maintainable more particularly when no liberty to file a fresh
application was granted by the High Court at the time of withdrawal
of the first application u/s.11(6) of the Act, 1996; (ii) whether the
fresh application u/s.11(6) of the Act, 1996 filed by the respondent
on 09.12.2022 could be said to be time-barred. If yes, whether the
respondent is entitled to the benefit of Section 14 of the Limitation
Act. In other words, whether the period spent by the respondent in
pursuing proceedings under the IBC is liable to be excluded while
computing the limitation period for filing the application u/s.11(6);
(iii) whether the delay caused by the respondent in filing the fresh
arbitration application u/s.11(6) of the Act, 1996 can be condoned
u/s.5 of the Limitation Act.
Headnotes†
Arbitration and Conciliation Act, 1996 - s.11(6) - Code of Civil
Procedure, 1908 - Or.23 , R.1 - Insolvency & Bankruptcy Code,
2016 - Whether a fresh application u/s.11(6) of the Arbitration
and Conciliation Act, 1996 filed by the respondent could be said
to be maintainable more particularly when no liberty to file a
fresh application was granted by the High Court at the time of
withdrawal of the first application u/s.11(6) of the Act, 1996 -
The appellant contended that in lieu of the principles contained
in Or.23 R.1 of the CPC, the respondent could not have filed a
subsequent application u/s.11(6) for adjudication of the same
disputes, having previously withdrawn unconditionally an
application filed for the same purpose:
*Author
134
[2024] 12 S.C.R.
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Held: In the instant case, both the applications u/s.11(6) of the
Act, 1996 were filed seeking adjudication of the dispute which
arose on 02.02.2014 upon refusal of the appellant to pay the dues
of the respondent - The first application u/s.11(6) was filed on
16.02.2018 and was subsequently withdrawn unconditionally on
01.10.2018 - After a gap of more than four years, the respondent
filed a subsequent application u/s.11(6) before the High Court on
09.12.2022 which came to be allowed by the impugned order -
The chronology of events clearly indicates that the respondent
did not withdraw the first arbitration application because of some
defect which would have led to its dismissal - It is also clear
from the order dated 01.10.2018 of the High Court permitting
the respondent to withdraw the application that neither any
liberty was sought by the respondent nor the court had granted
any liberty to file a fresh arbitration application - It appears
that the only reason the respondent withdrew the arbitration
application was to get his application u/s.9 of the IBC any how
admitted by the NCLT - It can be said without any doubt that the
respondent took a calculated risk of abandoning the arbitration
proceedings to maximise the chances of succeeding in the IBC
proceedings - The respondent was within its right to abandon the
arbitration proceedings in favour of IBC proceedings - However,
having done so, it would no longer be open to it to file a fresh
application for appointment of arbitrator without having obtained
the liberty of the court to file a fresh application at the time of the
withdrawal - The principles underlying Order 23 Rule 1 can be
extended to applications for appointment of arbitrator, the only
recourse to the respondent to defend the second application as
maintainable despite it having been withdrawn earlier without
liberty was to show bona fides on its part - From the conduct of
the respondent, it is evident that it thought fit to initiate insolvency
proceedings perhaps thinking that the issues existing between
the parties may not get resolved through arbitration - The failure
on the part of the respondent to withdraw the first Section 11
application without seeking any liberty cannot be condoned in
the facts of the present case - Therefore,

## Text

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[2024] 12 S.C.R. 133 : 2024 INSC 851
M/s HPCL Bio-Fuels Ltd.
v.
M/s Shahaji Bhanudas Bhad
(Civil Appeal No. 12233 of 2024)
07 November 2024
[Dr Dhananjaya Y. Chandrachud, CJI and
J.B. Pardiwala,* JJ.]
Issue for Consideration
(i) Whether a fresh application u/s.11(6) of the Arbitration and
Conciliation Act, 1996 filed by the respondent could be said to
be maintainable more particularly when no liberty to file a fresh
application was granted by the High Court at the time of withdrawal
of the first application u/s.11(6) of the Act, 1996; (ii) whether the
fresh application u/s.11(6) of the Act, 1996 filed by the respondent
on 09.12.2022 could be said to be time-barred. If yes, whether the
respondent is entitled to the benefit of Section 14 of the Limitation
Act. In other words, whether the period spent by the respondent in
pursuing proceedings under the IBC is liable to be excluded while
computing the limitation period for filing the application u/s.11(6);
(iii) whether the delay caused by the respondent in filing the fresh
arbitration application u/s.11(6) of the Act, 1996 can be condoned
u/s.5 of the Limitation Act.
Headnotes†
Arbitration and Conciliation Act, 1996 - s.11(6) - Code of Civil
Procedure, 1908 - Or.23 , R.1 - Insolvency & Bankruptcy Code,
2016 - Whether a fresh application u/s.11(6) of the Arbitration
and Conciliation Act, 1996 filed by the respondent could be said
to be maintainable more particularly when no liberty to file a
fresh application was granted by the High Court at the time of
withdrawal of the first application u/s.11(6) of the Act, 1996 -
The appellant contended that in lieu of the principles contained
in Or.23 R.1 of the CPC, the respondent could not have filed a
subsequent application u/s.11(6) for adjudication of the same
disputes, having previously withdrawn unconditionally an
application filed for the same purpose:
*Author
134
[2024] 12 S.C.R.
Digital Supreme Court Reports
Held: In the instant case, both the applications u/s.11(6) of the
Act, 1996 were filed seeking adjudication of the dispute which
arose on 02.02.2014 upon refusal of the appellant to pay the dues
of the respondent - The first application u/s.11(6) was filed on
16.02.2018 and was subsequently withdrawn unconditionally on
01.10.2018 - After a gap of more than four years, the respondent
filed a subsequent application u/s.11(6) before the High Court on
09.12.2022 which came to be allowed by the impugned order -
The chronology of events clearly indicates that the respondent
did not withdraw the first arbitration application because of some
defect which would have led to its dismissal - It is also clear
from the order dated 01.10.2018 of the High Court permitting
the respondent to withdraw the application that neither any
liberty was sought by the respondent nor the court had granted
any liberty to file a fresh arbitration application - It appears
that the only reason the respondent withdrew the arbitration
application was to get his application u/s.9 of the IBC any how
admitted by the NCLT - It can be said without any doubt that the
respondent took a calculated risk of abandoning the arbitration
proceedings to maximise the chances of succeeding in the IBC
proceedings - The respondent was within its right to abandon the
arbitration proceedings in favour of IBC proceedings - However,
having done so, it would no longer be open to it to file a fresh
application for appointment of arbitrator without having obtained
the liberty of the court to file a fresh application at the time of the
withdrawal - The principles underlying Order 23 Rule 1 can be
extended to applications for appointment of arbitrator, the only
recourse to the respondent to defend the second application as
maintainable despite it having been withdrawn earlier without
liberty was to show bona fides on its part - From the conduct of
the respondent, it is evident that it thought fit to initiate insolvency
proceedings perhaps thinking that the issues existing between
the parties may not get resolved through arbitration - The failure
on the part of the respondent to withdraw the first Section 11
application without seeking any liberty cannot be condoned in
the facts of the present case - Therefore, in the absence of any
liberty sought by the respondents from the High Court at the time
of withdrawal of the first arbitration application, the fresh Section 11
petition arising out of the same cause of action cannot be said to
be maintainable. [Paras 51, 52, 55, 58, 59, 61]
[2024] 12 S.C.R.
135
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
Arbitration and Conciliation Act, 1996 - Code of Civil Procedure,
1908 - Insolvency & Bankruptcy Code, 2016 - Limitation Act,
1963 - s.14 - Whether the fresh application u/s.11(6) of the
Act, 1996 filed by the respondent on 09.12.2022 could be said
to be time-barred - If yes, whether the respondent is entitled
to the benefit of s.14 of the Limitation Act:
Held: The first application u/s.11(6) filed on 16.02.2018 was well
within the prescribed limitation period of three years for filing such
applications - The second application u/s.11(6) was required to be
filed within a period of three years from the expiry of one month
from the date of receipt of the notice invoking arbitration by the
appellant - This period of three years came to an end in August,
2019 - The second application u/s.11(6) came to be filed by the
respondent much later on 12.12.2022 and is clearly time-barred -
As far as benefit of s.14 of the Limitation Act is concerned, there
is a body of decisions of this Court taking the view that by virtue of
s.43 of the Act, 1996, the Limitation Act is applicable to applications
for appointment of arbitrator filed u/s.11(6) of the said Act - It thus
follows that the benefit u/s.14 of the Limitation Act can be availed
by an applicant subject to the fulfilment of the conditions specified
therein - First, the benefit of s.14(1) can be availed of where the
subsequent proceeding is a suit, whereas the benefit of s.14(2) can
be availed of where the subsequent proceeding is an application -
Secondly, s.14(1) applies if both the earlier and the subsequent
proceedings have the same matter in issue, whereas s.14(2) applies
when both the earlier and the subsequent proceedings are filed for
seeking the same relief - As a petition u/s.11(6) of the Act, 1996
is not a suit, hence it would not be governed by sub-section (1)
of s.14 of the Limitation Act - Instead, it would be governed by
sub-section (2) of s.14 of the Limitation Act - As far as same
relief is concerned, the High Court fell in error in holding that an
application u/s.9 of the IBC and an application u/s.11(6) of the Act,
1996 are filed for seeking the same relief - While the relief sought
in the former is the initiation of the CIRP of the corporate debtor,
the relief sought in the latter is the appointment of an arbitrator for
the adjudication of disputes arising out of a contract - As the relief
sought in an application u/s.11(6) of the Act, 1996 is not the same
as the relief sought in an application u/s.9 of the IBC, the benefit
of s.14(2) cannot be given to the respondent in the present case.
[Paras 74, 77, 83, 107]
136
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Arbitration and Conciliation Act, 1996 - Code of Civil Procedure,
1908 - Insolvency & Bankruptcy Code, 2016 - Limitation Act,
1963 - Whether the respondent was prosecuting the IBC
proceedings in good faith and in a bonafide manner.
Held: The respondent couldn't be said to have had been
prosecuting the IBC proceedings in good faith and in a bonafide
manner - An element of mistake is inherent in the relief envisaged
under Section 14 of the Limitation Act - In the present case,
the respondent had initially approached the High Court with an
application u/s.11(6) - However, for reasons best known to it, the
respondent abandoned the said proceedings for appointment of
arbitrator and approached the NCLT, Kolkata with an application
u/s.9 of the IBC - The respondent was fully aware of the
objection of a pre-existing dispute raised by the appellant in
response to its second statutory demand notice issued u/s.8 of
the IBC - Despite having preferred an application u/s.11(6) of
the Act, 1996 before the jurisdictional court, and also being fully
aware of the infirmities in the s.9 application filed under the IBC,
the respondent took a conscious decision to abandon the right
course of proceedings - The conduct of the respondent cannot be
termed to be a mistake in any manner - Having taken a conscious
decision to opt for specific remedy under the IBC which is not for
the same relief as an application u/s.11(6) of the Act, 1996, the
respondent cannot be now allowed to take the plea of ignorance
or mistake and must bear the consequences of its decisions.
[Para 110]
Arbitration and Conciliation Act, 1996 - s.11(6) - Code of Civil
Procedure, 1908 - Insolvency & Bankruptcy Code, 2016 -
Limitation Act, 1963 - s.5 - Whether the delay caused by the
respondent in filing the fresh arbitration application u/s.11(6)
of the Act, 1996 can be condoned u/s.5 of the Limitation Act:
Held: The position of law is that the benefit u/s.5 of the
Limitation Act is available in respect of the applications filed for
appointment of arbitrator u/s.11(6) of the Act, 1996 - Further,
the requirement of filing an application u/s.5 of the Limitation
Act is not a mandatory pre-requisite for a court to exercise its
discretion under the said provision and condone the delay in
institution of an application or appeal - The respondent took a
conscious decision to abandon its first s.11(6) application with a
view to pursue proceedings u/s.9 of the IBC - The respondent
[2024] 12 S.C.R.
137
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
made such choice despite a specific objection raised by the
appellant in its reply to the statutory demand notice that there were
pre-existing disputes between the parties - In view of this,
maximisation of the chances of getting the application u/s.9 of the
IBC admitted by the NCLT seems to have been the only reason for
the abandonment of the first s.11(6) application by the respondent -
In light of such conduct on the part of the respondent, this Court
is of the view that the present case does not warrant the exercise
of discretion u/s.5 of the Limitation Act. [Paras 121, 122]
Limitation - Object of having a limitation period:
Held: The basic premise behind the statutes providing for a
limitation period is encapsulated by the maxim "Vigilantibus non
dormientibus jura subveniunt " which means that the law assists
those who are vigilant and not those who sleep over their rights -
The object behind having a prescribed limitation period is to ensure
that there is certainty and finality to the litigation and assurance to
the opposite party that it will not be subject to an indefinite period
of liability - Another object achieved by a fixed limitation period is
that only those claims which are initiated before the deterioration
of evidence takes place are allowed to be litigated - The law of
limitation does not act to extinguish the right but only bars the
remedy. [Para 68]
Arbitration and Conciliation Act, 1996 - s.11(6) - Limitation
Act, 1963 - When the limitation period for filing an application
seeking appointment of arbitrator would commence:
Held: On the aspect of when the limitation period for filing an
application seeking appointment of arbitrator would commence, it
is only after a valid notice invoking arbitration has been issued by
one of the parties to the other party and there has been either a
failure or refusal on part of the other party to make an appointment
as per the appointment procedure agreed upon between the parties,
that the clock would start ticking for the purpose of the limitation
of three years. [Para 70]
Limitation Act, 1963 - s.14 (1) - Ingredients need to be fulfilled
for the applicability of Section 14(1):
Held: (i) The subsequent proceeding must be a suit; (ii) Both the
earlier and the subsequent proceeding must be civil proceedings;
138
[2024] 12 S.C.R.
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(iii) Both the earlier and subsequent proceedings must be between
the same parties; (iv) The earlier and subsequent proceeding must
have the same matter in issue; (v) The earlier proceeding must
have failed owing to a defect of jurisdiction of the earlier court
or any other cause of a like nature; (vi) The earlier proceedings
must have been prosecuted in good faith and with due-diligence;
and (vii) Both the earlier and the subsequent proceedings must
be before a court. [Para 78]
Limitation Act, 1963 - s.14 (2) - Conditions required to be
fulfilled for seeking the benefit of exclusion u/s.14(2) are as
follows:
Held: (i) Both the earlier and the subsequent proceeding must be
civil proceedings; (ii) Both the earlier and subsequent proceedings
must be between the same parties; (iii) The earlier and subsequent
proceeding must be for the same relief; (iv) The earlier proceeding
must have failed owing to a defect of jurisdiction of the earlier court
or any other cause of a like nature; (v) The earlier proceedings
must have been prosecuted in good faith and with due-diligence;
and (vi) Both the earlier and the subsequent proceedings are
before a court. [Para 83]
Limitation Act, 1963 - s.14(1) and s.14(2) - The key difference
between sub-sections (1) and (2) of Section 14 respectively
is two-fold:
Held: (i) First, the benefit of Section 14(1) can be availed of
where the subsequent proceeding is a suit, whereas the benefit of
Section 14(2) can be availed of where the subsequent proceeding
is an application; (ii) Secondly, Section 14(1) applies if both the
earlier and the subsequent proceedings have the same matter in
issue, whereas Section 14(2) applies when both the earlier and
the subsequent proceedings are filed for seeking the same relief.
[Para 84]
Arbitration and Conciliation Act, 1996 - s.11(6) - Insolvency
& Bankruptcy Code, 2016 - Object of initiation of insolvency
proceedings and the objective behind the appointment of an
arbitrator:
Held: The object of initiation of insolvency proceedings under
the IBC is to seek rehabilitation of the corporate debtor by
[2024] 12 S.C.R.
139
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
appointment of a new management, whereas the objective behind
the appointment of an arbitrator is to resolve the disputes arising
between the parties out of a private contract - As soon as the
CIRP of a corporate debtor is initiated, it becomes a proceeding
in rem - On the contrary, arbitration being concerned with private
disputes is not an in-rem proceeding. [Para 98]
Insolvency & Bankruptcy Code, 2016 - Distinguishing feature
that sets apart ordinary recovery proceedings from insolvency
proceedings:
Held: Insolvency proceedings are fundamentally different from
proceedings for recovery of debt such as a suit for recovery
of money, execution of decree or claims for amount due under
arbitration, etc. - The first distinguishing feature that sets apart
ordinary recovery proceedings from insolvency proceedings is that
under the former the primary relief is the recovery of dues whereas
under the latter the primary concern is the revival and rehabilitation
of the corporate debtor - No doubt both proceedings contemplate
an aspect of recovery of debt, however in insolvency proceedings,
the recovery is only a consequence of the rehabilitation/
resolution of the corporate debtor and not the main relief -
The second distinguishing feature is that although both proceedings
entail recovery of debt to a certain extent, however they are
different inasmuch as when it comes to recovery proceedings it
is the individual creditor's debt which is sought to be recovered,
whereas in insolvency proceedings it is the entire debt of the
company which is sought to be resolved - The former is only for
the benefit of the individual creditor who initiates the recovery
proceedings whereas the latter is for the benefit of all creditors
irrespective of who initiates insolvency - The last distinguishing
feature is that, a recovery proceeding be it a suit or arbitration is
initiated by a creditor where an amount is due and is unpaid by
a debtor, in other words the intention behind initiating a recovery
proceeding is simpliciter for the full recovery of amount which is
unpaid to it - Whereas, the underlying intention behind initiating
insolvency is not with the intention of recovering the amount
owed to it, but rather with the intention that the corporate debtor
is resolved / rehabilitated through a new management as soon
as possible before it becomes unviable with no prospect of any
meaningful recovery of its dues in the near future. [Paras 103,
104, 105]
140
[2024] 12 S.C.R.
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Case Law Cited
Vallabh Das v. Madan Lal (Dr) [1971] 1 SCR 211 : (1970) 1
SCC 761; V. Rajendran v. Annasamy Pandian [2017] 2 SCR
508 : (2017) 5 SCC 63; Sarguja Transport Service v. State
Transport Appellate Tribunal, M.P., Gwalior and Others [1987]
1 SCR 200 : (1987) 1 SCC 5; Upadhyay & Co. v. State of
U.P. and Others [1998] Supp. 3 SCR 234 : (1999) 1 SCC 81;
Commissioner, Madhya Pradesh Housing Board & Ors. v. Mohanlal
and Company [2016] 3 SCR 357 : (2016) 14 SCC 199; Swiss
Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. [2019] 3 SCR
535 : (2019) 4 SCC 17; Pioneer Urban Land & Infrastructure
Ltd. & Anr. v. Union of India & Ors. [2019] 10 SCR 381 :
(2019) 8 SCC 416; Hindustan Construction Company Ltd. & Anr.
v. Union of India [2019] 17 SCR 331 : (2020) 17 SCC 324; Jaypee
Kensington Boulevard Apartments Welfare Assn. v. NBCC (India)
Ltd. [2021] 12 SCR 603 : (2022) 1 SCC 401; Yeshwant Deorao
Deshmukh v. Walchand Ramchand Kothari [1950] 1 SCR 852;
Pathapati Subba Reddy (Died) by Lrs. and Others v. The Special
Deputy Collector (LA) [2024] 4 SCR 241 : (2024) 4 SCR 241;
Ramlal v. Rewa Coalfields Ltd. [1962] 2 SCR 762 : 1961 SCC
OnLine SC 39 - relied on.
Arif Azim Co. Ltd. v. Aptech Ltd. [2024] 3 SCR 73 : 2024 SCC
OnLine SC 215; BSNL v. Nortel Networks (India) (P) Ltd.
[2021] 2 SCR 644 : (2021) 5 SCC 738; Natesan Agencies
(Plantations) v. State [2019] 11 SCR 508 : (2019) 15 SCC 70;
Consolidated Engg. Enterprises & Ors. v. Principal Secy. Irrigation
Department & Ors. [2008] 5 SCR 1108 : (2008) 7 SCC 169; J.
Kumaradasan Nair v. Iric Sohan [2009] 3 SCR 238 : 2009 (12)
SCC 175; Union of India v. West Coast Paper Mills Ltd. [2004]
2 SCR 642 : (2004) 3 SCC 458; Maharashtra State Farming
Corporation Ltd. v. Belapur Sugar & Allied Industries Ltd., 2004 (3)
MHLF 414; Sarva Shramik Sanghatana v. State of Maharashtra
[2007] 12 SCR 645 : 2008 1 SCC 494; Vanna Claire Kaura v.
Gauri Anil Indulkar & Ors. [2009] 11 SCR 280 : (2009) 7 SCC
541; Mobilox Innovations Private Limited v. Kirusa Software
Private Limited [2017] 10 SCR 1006 : (2018) 1 SCC 353; M.P.
Housing Board v. Mohanlal & Co. [2016] 3 SCR 357 : (2016)
14 SCC 199; Sesh Nath Singh v. Baidyabati Sheoraphuli Coop.
Bank Ltd. [2021] 3 SCR 806 : (2021) 7 SCC 313; BSNL v.
[2024] 12 S.C.R.
141
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
Telephone Cables Limited [2010] 3 SCR 291 : 2010 5 SCC
213 - referred to.
Deepdharshan Builders Pvt. Ltd. v. Saroj, Widow of Satish
Sunderrao Trasikar, 2018 SCC OnLine Bom 4885; Yogesh
Kumar Gupta v. Anuradha Rangarajan, 2007 SCC OnLine
Del 287 - referred to.
Books and Periodicals Cited
Treatise on the Insolvency and Bankruptcy Code, 2016
by Dr. Dilip K. Sheth.
List of Acts
Insolvency & Bankruptcy Code, 2016; Code of Civil Procedure, 1908;
Arbitration and Conciliation Act, 1996; Companies Act, 2013;
Limitation Act, 1963; Code of Civil Procedure (Amendment)
Act, 1976; Industrial Disputes Act, 1947.
List of Keywords
Section 11(6) of the Arbitration and Conciliation Act, 1996;
Section 14 of Limitation Act, 1963; Order 23 Rule 1 of the Code
of Civil Procedure, 1908; Object of having a limitation period;
Recovery Proceedings; Insolvency Proceedings; Appointment
of an arbitrator; Ordinary recovery proceedings; Vigilantibus non
dormientibus jura subveniunt.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 12233 of 2024
From the Judgment and Order dated 31.01.2024 of the High Court
of Judicature at Bombay in COMAP No. 1 of 2023
Appearances for Parties
Tushar Mehta, Solicitor General, Sanjay Kapur, Surya Prakash,
Ms. Mahima Kapur, Ms. Divya Singh Pundir, Advs. for the Appellant.
Jay Savla, Sr. Adv., Prakash Shah, Durgaprasad Poojari, Jasdeep
Singh Dhillon, Prabhat Kumar Chaurasia, Anirudh Jamwal, M/s.
Mps Legal, Advs. for the Respondent.
142
[2024] 12 S.C.R.
Digital Supreme Court Reports
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgment is divided into the
following parts:
A.
FACTUAL MATRIX.........................................................
2*
i.
Proceedings under the IBC.......................................
5*
ii.
Proceedings before the High Court........................
10*
B.
SUBMISSIONS ON BEHALF OF THE APPELLANT.....
14*
C.
SUBMISSIONS ON BEHALF OF THE RESPONDENT.....
17*
D.
ISSUES FOR DETERMINATION...................................
19*
E.
ANALYSIS........................................................................
20*
i.
Issue No. 1................................................................
23*
a.
Scope and applicability of Order 23 Rule 1 of
the CPC to proceedings other than suits........
23*
ii.
Issue No. 2..............................................................
44*
a.
Application under Section 11(6) of the Act,
1996 is not for the same relief as an application
under Section 9 of the IBC.............................
57*
iii.
Issue No. 3................................................................
67*
F.
CONCLUSION.................................................................
78*
1.
Leave granted.
2.
This appeal arises from the final judgment and order dated 31.01.2024
("impugned order") passed by the High Court of Judicature at
Bombay in Commercial Arbitration Petition No. 1 of 2023, wherein
the High Court allowed the petition filed under Section 11(6) of the
Arbitration and Conciliation Act, 1996 (for short, "the Act, 1996") at
the instance of the M/s Shahaji Bhanudas Bhad ("the respondent")
and appointed Justice (Retd.) Dilip Bhosale as the sole arbitrator
* Ed. Note: Pagination as per the original Judgment.
[2024] 12 S.C.R.
143
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
to adjudicate the disputes and differences between HPCL Biofuels
Ltd. ("the appellant") and the respondent.
A.
FACTUAL MATRIX
3.
The appellant is a Government company within the meaning of
Section 4(35) of the Companies Act, 2013 and is engaged inter alia
in the business of manufacturing bio-fuels. The appellant is a whollyowned subsidiary of Hindustan Petroleum Corporation Ltd.
4.
The respondent is engaged in the business of manufacture, supply
and erection of the equipment and machinery required for the setting
up of sugar factories and allied products in the name of M/s S.S.
Engineer, as a sole proprietor.
5.
Between 27.06.2012 and 30.08.2012, the appellant floated tenders
for enhancing the capacity of various process stations and Boiling
House at Lauriya (West Champaran) and Sugauli (East Champaran).
The respondent participated in the bidding process and was declared
as the successful bidder. Subsequently, in accordance with the terms
and conditions of the tender, the appellant in October and November
of 2012 issued purchase orders in favour of the respondent for
enhancing the capacity of the concerned Boiling House on a turnkey basis. Between 21.11.2012 and 25.03.2014, the respondent
supplied various equipment under the purchase orders and raised
invoices for the same.
6.
While the work was in progress, the appellant expressed its concerns
about the slow progress of work, quality of materials supplied and
non-adherence to timelines by the respondent and attempts were
made to resolve the same through mutual discussions between the
parties.
7.
On 13.06.2013, the appellant floated two more tenders for the
purpose of completion of certain work and supplies at the Sugauli
and Lauriya plants respectively. In August 2013, the appellant
issued purchase orders in favour of the respondent, for completing
various works including supplies on a lump-sum turnkey basis. The
respondent raised invoices between 29.03.2013 & 25.03.2014 for
the service portion of the turn-key contract. Accordingly, as per the
respondent, the total sum payable to it under the various purchase
orders aggregated to Rs. 38,18,71,026/-.
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8.
Between 18.12.2012 and 07.11.2013, the appellant made an aggregate
payment of Rs. 19.02 crore to the respondent, with the last payment
being made on 07.11.2013. As per the case of the respondent, the
balance amount of Rs. 18,12,21,452/- remained outstanding. The
discussions between the parties undertaken between October 2013
and January 2014 did not yield any fruits as the issues relating to
payment and deficiency in services rendered could not be resolved.
In this regard, the respondent vide an e-mail dated 02.02.2014 made
a request to release the balance amount at the earliest, so as to
enable it to complete the balance work. The appellant vide an e-mail
dated 04.02.2014 responded to the said email and reiterated that
the performance of the respondent was unsatisfactory and it had
failed in fulfilling its obligations in accordance with the terms of the
purchase orders. In such circumstances, the appellant refused to
clear the outstanding dues of the respondent.
9.
On 09.07.2016, the respondent issued a legal notice to the appellant,
seeking release of the alleged outstanding payment amounting to
Rs. 18,12,21,452/- along with interest. The respondent also specified
in the said notice that in the event of failure of the appellant to settle
the outstanding amount, the notice shall be construed as the notice
for invocation of arbitration in terms of Clause 14 of the tender. The
appellant, however, did not respond to the aforesaid notice.
10. On 16.02.2018, the respondent filed Arbitration Petition (ST) No.
5095 of 2018 before the High Court of Judicature at Bombay seeking
appointment of an arbitrator in terms of Section 11 of the Act, 1996.
However, prior to filing the Section 11 application, the respondent
also sent a demand notice dated 30.08.2017 under Section 8 of
the Insolvency & Bankruptcy Code, 2016 (for short "the IBC") to
the appellant, claiming the alleged outstanding amount along with
interest.
11. On 01.10.2018, upon the request made by the respondent, the
Arbitration Petition (ST) No. 5095 of 2018 was disposed of as
withdrawn. The relevant portions of the order dated 01.10.2018 are
reproduced below: -
"1. Not on board. Upon mentioning, taken on board.
2. The Learned Advocate appearing for the Petitioner
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145
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
on instructions seeks to withdraw the above Arbitration
Petition. In view thereof, the above Arbitration Petition is
disposed of as withdrawn."
i.
Proceedings under the IBC
12. After withdrawing the Section 11(6) application from the High Court,
the respondent, on 15.10.2018, filed CP(IB) No. 1422/KB/2018 under
Section 9 of the IBC before the National Company Law Tribunal,
Kolkata ("NCLT, Kolkata") seeking initiation of the corporate
insolvency resolution process of the appellant. The appellant opposed
the application, inter alia, on the ground that there were disputes
between the parties even prior to the issuance of demand notice
under Section 8 of IBC. The appellant also relied on the notice
invoking the arbitration clause in support of its contention.
13. The NCLT, Kolkata vide order dated 12.02.2020, admitted the
application of the respondent and appointed an Interim Resolution
Professional (IRP). On the aspect of existence of disputes between
the parties, the following observations were made:
"17. As regards the pre-existing dispute, we have gone
through all the facts stated by the Corporate Debtor but
having regard to the quantum of claim in respect of supplies
order, in our considered view, the amount of disputed claim
due and payable will be more than Rs. One lakh in any
case. Hence, such claims do not help the case of Corporate
Debtor in substantial manner. Having said so, we would
further refer to the provisional statement attached with the
letter of the Corporate Debtor dated June 25, 2014 copy
of which has been placed at Page 1779 of Vol. 10 of the
paper book to find as to what is the factual position as
per the stand of Corporate Debtor on various issues. As
per this provisional statement, the total purchase order
value has been shown as Rs. 3818.72 lakhs. There have
been several deductions including for services provided
by Corporate Debtor to the Operational Creditor in the
execution of the contract, entry tax, TDS, WCD, payment to
parties/ payment to Operational Creditor by the Corporate
Debtor / sub-vendors and sub-contractors/vendors of the
Operational Creditor. These are normal deductions as
per business practice and terms of contract. However, it
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is noteworthy that Liquidated Damage @ 5% amounting
to Rs. 190.94 lakhs, Performance Bank Guarantee to
the tune of 673.6 lakhs, work claim of Rs. 352.00 lakhs
for boiler house extension P.O. finalisation and additional
work 71 lakh have also been considered. The net effect
has been worked out by Corporate Debtor as Rs. 500 lakhs
receivable from the Operational Creditor. If the boiler
house extension and additional work are ignored, the
amount recoverable from the Operational Creditor gets
reduced to 63.13 lakhs. Further, if the amount retained for
Performance Bank Guarantee is taken into consideration,
then the amount payable to Operational Creditor works out
at Rs. 610.23 lakhs (i.e., 673-63.13). As noted earlier, L.D.
is applicable @ 5% amounting to Rs. 190.94 lakhs has
already been deducted. Further, amount of Rs. 400.55
lakhs in respect of Purchase Orders issued at the risk
and cost of the vendor have also been deducted. Thus,
all recoveries for non-performance / default has been
considered and therefore, amount of Performance Bank
Guarantee minus recovery i.e., 610.23 lakhs at least
becomes payable by Corporate Debtor to the Operational
Creditor. As an adjudicating authority in the proceedings,
we are not supposed to do this kind of working, but to find
out the genuineness of the claim of pre-existing dispute,
and amount of outstanding debt, it was necessary in the
facts and circumstances of the case, hence, it has been
so analysed on the basis of the provisional statement
prepared and filed by the Corporate Debtor itself. At the
cost of repetition, we again state that this statement takes
into consideration all these disputes raised by the Corporate
Debtor, hence, the amount payable by the Corporate Debtor
remains in positive which is more than one lakh ultimately
that too when we have considered the project as a whole
against the claim of Operational Creditor of undisputed
dues of supply portion only. We have also gone through
the emails which have been taken into consideration while
preparing this provisional statement. Hence, on the basis
of material on record, it cannot be said that any other
dispute remains to be considered. Apart from this, the
fact which is crucial to note is that the Corporate Debtor
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147
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
has awarded new work orders to the Operational Creditor
subsequently which means that all the disputes relating to
this contract had been considered / resolved and this fact
has remained undisputed. Further, Form "C"s have been
issued as late as up to March 2018. We further make it
clear that we have analysed the provisional statement
with limited objective of admissibility of this application
and this analysis cannot be considered as expression of
opinion on the amount of claim in any manner which may
be actually due and payable."
(Emphasis supplied)
14. The order of the NCLT, Kolkata was subsequently set aside by the
NCLAT, New Delhi vide order dated 10.01.2022. The NCLAT, on the
aspect of pre-existing disputes between the parties, observed thus:
"18. It is clear from Section 8(2)(a) that 'Existence of a
Dispute', (if any, or) record of the pendency of the Suit
or Arbitration Proceeding filed before the receipt of such
Notice or invoice in relation to such dispute should be
brought to the notice of the 'Operational Creditor' within
10 days of receipt of the Demand Notice. In this case,
the Demand Notice under Section 8 of the Code claiming
a sum of Rs.13.69 Crores was issued on 25.07.2018.
On 07.08.2018, the 'Corporate Debtor' responded to the
Demand Notice referring to various communications,
Minutes of the Meeting and submitted that there was a
'Pre-Existing Dispute'. Though we are conscious of the
fact that the 'Corporate Debtor' responded to the Demand
Notice belatedly, the fact remains that the Appellant raised
the issue of Existence of a Dispute' in their Reply filed
before the Adjudicating Authority with all the supporting
documents.
19. It is pertinent to note that on 09.07.2016, 'prior to
the issuance of the Demand Notice under Section 8 of
the Code', the 'Operational Creditor' invoked Arbitration
pursuant to the 8 project orders issued by the 'Corporate
Debtor', which itself substantiates the 'Existence of a
Dispute'. In the 'Notice' invoking Arbitration, the 'Operational
Creditor' has stated that there is an outstanding of
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Rs. 18,12,21,452/- and has further stated that they are
ready to settle the disputes through Arbitration. A brief
perusal of the documents on record evidence that the
'Operational Creditor' admitted that the contract was on
lumpsum turnkey basis and stated in the Arbitration 'Notice'
that the 'Corporate Debtor' had raised issues relating to
non-adherence of the terms of the contract.
xxx xxx xxx
21. The facts of the present case are being examined in the
light of the law laid down by the Hon'ble Supreme Court,
though the Learned Counsel for the 'Operational Creditor'
has strenuously contended that the issuance of further work
orders and the Notice issued by the Operational Creditor
invoking Arbitration does not amount to Existence of a
Dispute', the nature of communication on record with rival
contentions clarify the 'Existence of a Dispute' between
the parties prior to issuance of the Demand Notice. It has
been time and again held that it is enough that a 'dispute
exists' between the parties.
22. The communication between the parties as noted in
para 10 read together with the Arbitration invoked by the
'Operational Creditor', we are of the considered view that
there is an Existence of a Dispute between the parties
which is a genuine dispute and not a spurious, patently
feeble legal argument or an assertion of fact unsupported
by evidence. Therefore, we are of the opinion that the ratio
laid down by the Hon'ble Apex Court in the aforenoted
'Mobilox Innovations (P) Ltd.' (Supra) and 'K. Kishan'
(Supra) is squarely applicable to the facts of this case."
(Emphasis supplied)
15. The respondent challenged the aforesaid order of the NCLAT before
this Court by filing the Civil Appeal No. 4583 of 2022. The appeal
ultimately came to be dismissed by a two-Judge Bench vide judgment
dated 15.07.2022 wherein the order of the NCLAT was upheld. The
relevant observations made by this Court are reproduced below:
"30. This Court finds that there was a pre-existing dispute
with regard to the alleged claim of the appellant against
[2024] 12 S.C.R.
149
M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad
HPCL or its subsidiary HBL. The NCLAT rightly allowed
the appeal filed on behalf of HBL. It is not for this Court to
adjudicate the disputes between the parties and determine
whether, in fact, any amount was due from the appellant
to the HPCL/HBL or vice-versa. The question is, whether
the application of the Operational Creditor under Section 9
of the IBC, should have been admitted by the Adjudicating
Authority. The answer to the aforesaid question has to be
in the negative. The Adjudicating Authority (NCLT) clearly
fell in error in admitting the application.
31. The NCLT, exercising powers under Section 7 or
Section 9 of IBC, is not a debt collection forum. The IBC
tackles and/or deals with insolvency and bankruptcy. It is
not the object of the IBC that CIRP should be initiated to
penalize solvent companies for non-payment of disputed
dues claimed by an operational creditor.
32. There are noticeable differences in the IBC between the
procedure of initiation of CIRP by a financial creditor and
initiation of CIRP by an operational creditor. On a reading
of Sections 8 and 9 of the IBC, it is patently clear that an
Operational Creditor can only trigger the CIRP process, when
there is an undisputed debt and a default in payment thereof.
If the claim of an operational creditor is undisputed and the
operational debt remains unpaid, CIRP must commence, for
IBC does not countenance dishonesty or deliberate failure to
repay the dues of an Operational Creditor. However, if the
debt is disputed, the application of the Operational Creditor
for initiation of CIRP must be dismissed.
33. We find no grounds to interfere with the judgment and
order of the NCLAT impugned in this appeal.
34. The appeal is dismissed.
35. Needles to mention that the appellant may avail such
other remedies as may be available in accordance with
law including arbitration to realise its dues, if any."
ii.
Proceedings before the High Court
16. Consequent to the dismissal of the insolvency proceedings,
the respondent, on 09.12.2022, filed a fresh petition under the
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Section 11(6) of the Act, 1996 before the High Court of Bombay
seeking appointment of an arbitrator in terms of clause 14 of the
tender. The appellant opposed the petition, inter-alia on the ground
that the same was barred by limitation and that the claim sought to
be referred to arbitration was also a deadwood.
17. The High Court vide the impugned order allowed the application of
the respondent and proceeded to appoint an arbitrator. The High
Court took the view that the fresh Section 11 petition filed by the
respondent, after withdrawal of the first, was not time-barred and
neither the claim was a deadwood. The relevant observations of the
High Court are reproduced below:
"8. As regards the first submission of Mr.