The Delhi High Court (“Delhi HC”), in its judgement dated December 12, 2023, in the matter of U.P. Jal Vidyut Nigam Limited v. C.G. Power and Industrial Solutions Limited [FAO(OS) (COMM) 120/2019], has held that the benefit under Section 14 (Exclusion of time of proceeding bona fide in court without jurisdiction) of the Limitation Act, 1963 (“Limitation Act”) would not be available to a petitioner who, through lack of diligence, allowed its petition under Section 34 (Application for setting aside arbitral awards) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) to be dismissed twice for non-prosecution.

U.P. Jal Vidyut Nigam Limited (“Appellant”) had notified tenders for the execution of power house electrical equipment at Saharanpur district, which was awarded to C.G. Power and Industrial Solutions Limited (“Respondent”) and a contract dated September 28, 1988 was executed between them. Subsequently, disputes arose between the Appellant and the Respondent, and it was referred to arbitration. On March 15, 2001, the arbitral tribunal pronounced an award for INR 95,74,733 in favour of the Respondent (“Arbitral Award”).

Aggrieved by the Arbitral Award, the Appellant filed an application challenging the Arbitral Award under Section 34 of the Arbitration Act (“Section 34 Petition”) before the Civil Judge, Saharanpur on July 2, 2001, that is, after a lapse of 110 days from the Arbitral Award. The Section 34 Petition faced procedural challenges, including transfers between different courts and dismissals on 2 occasions. Resultantly, the Respondent filed an execution petition before the District Judge, Saharanpur for execution of the Arbitral Award. In the meantime, an application for the stay on execution was filed by the Appellant before the District Judge, Saharanpur, and the same was rejected by the District Judge, Saharanpur, vide its order dated January 6, 2018 (“Order”). With a view to challenge the Order, the Appellant filed a petition (“Restoration Application”) under Article 227 (Power of superintendence over all courts by the High Court) of the Constitution of India before the Allahabad High Court (“Allahabad HC”), in order to restore the application filed for the stay of execution proceedings. By an order dated February 19, 2018, the Allahabad HC allowed the Restoration Application and directed the Appellant and Respondent to refrain from seeking adjournment till the Restoration Application was adjudicated upon. In the meantime, the proceedings filed by the Respondent before the District Judge, Saharanpur for execution of the Arbitral Award was to also remain in abeyance.

On March 14, 2018, a trial court in Allahabad allowed the Restoration Application filed by the Appellant, thereby reviving the Section 34 Petition. Subsequently, the Appellant filed an application before the District Judge, Saharanpur for the withdrawal of the Section 34 Petition with liberty to file the same before a court of competent jurisdiction. This was allowed by the District Judge, Saharanpur vide its order dated May 3, 2018. Owing to the aforementioned events, the Section 34 Petition was pending adjudication in the courts at Saharanpur for more than 15 years.Thereafter, the Appellant filed the Section 34 Petition before the District Judge, Patiala House Court, New Delhi (“Patiala House Court”) on May 8, 2018, which petition was returned by the Patiala House Court to be filed before a single-judge bench of the Delhi HC, in view of the fact that the Patiala House Court lacked pecuniary jurisdiction to entertain the Section 34 Petition. Consequently, the Appellant proceeded to file the Section 34 Petition before a single judge bench of the Delhi HC on August 25, 2018. Hence, the Section 34 Petition was filed before the Delhi HC after more than 17 years from the date of the Arbitral Award. This Section 34 Petition was accompanied by an application under Section 14 of the Limitation Act seeking the exclusion of 6,263 days which had been spent in the proceedings before the courts at Saharanpur. The single judge of the Delhi HC, vide its order dated April 12, 2019 (“Impugned Order”) dismissed the Appellant’s application filed under Section 14 of the Limitation Act and the Section 34 Petition.

Aggrieved by the Impugned Order, the Appellant filed the present appeal under Section 37 (Appealable orders) of the Arbitration Act before the Division Bench of Delhi HC to set aside the Impugned Order.

Issue

Whether for the purposes of calculating limitation under Section 34(3) of the Arbitration Act, the delay of 6,263 days can be excluded and condoned in terms of Section 14 of the Limitation Act.

Arguments

Contentions of the Appellant:

The Appellant contended that it was entitled to the exclusion of the period during which it was prosecuting the Section 34 Petition before the courts at Saharanpur and the Patiala House Court, as the same was due to wrong legal advice received by the Appellant. Further, the Appellant submitted that it was pursuing the instant case in a bona fide and diligent manner, and that the Section 34 Petition was wrongly filed before the Patiala House Court instead of the Delhi HC due to incorrect legal advice.

The Appellant submitted that the applicability of Section 14 of the Limitation Act was not excluded under Section 34(3) of the Arbitration Act, and that Section 14 of the Limitation Act should be interpreted and adopted liberally to advance the cause of justice. In order to support this argument, the Appellant relied on the judgment of the Hon’ble Supreme Court (“SC”) in the case of Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department and Others [(2008) 7 SCC 169] (“Consolidated Engineering Case”), wherein the SC had held that Section 14 of the Limitation Act would be applicable to proceedings under Section 34(3) of the Arbitration Act.

Contentions of the Respondent:

The Respondent submitted that the Section 34 Petition was initially filed before the Civil Judge, Saharanpur, which was dismissed twice due to non-prosecution. Even upon the withdrawal of the Section 34 Petition from the court of the Additional District Judge, Saharanpur, the Appellant had wrongly filed the Section 34 Petition before the Patiala House Court, albeit being fully aware of the fact that the Patiala House Court lacked pecuniary jurisdiction to entertain the said petition. The Respondent also contended that the Appellant had prosecuted the Section 34 Petition filed before the Patiala House Court despite an objection for lack of jurisdiction of court being raised by the Respondent. Besides, the Appellant had taken steps towards filing the Section 34 Petition before the Delhi HC only after a lapse of 63 days after the Patiala House Court allowed the Respondent’s objection for lack of jurisdiction of the Patiala House Court.

The Respondent relied on several judgements pronounced by the SC, including the case of Madhavrao Narayanrao Patwardhan v. Ramkrishnagovind Bhanu and Others [(1959) SCR 564] (“Madhavrao Narayanrao Case”), in order to support its submission that the Appellant had failed to demonstrate due diligence and good faith while prosecuting the case.

Observations of the Delhi HC

The Delhi HC observed that Section 14 of the Limitation Act had been enacted to exempt a period covered by litigious activity and to protect a litigant against the bar of limitation, where a proceeding is dismissed on account of a technical defect instead of being decided on merits. Therefore, the intent of the legislature is to prevent a litigant from being saddled with an adverse decision, which is, on account of the fact that a court did not have the jurisdiction to entertain the case.

The Delhi HC observed that, in the Consolidated Engineering Case, the SC, while elaborating on the principles laid down in the Madhavrao Narayanrao Case, had detailed the pre-conditions which must co-exist and ought to be satisfied for application of the benefit under Section 14 of the Limitation Act, which pre-conditions have been reproduced below:
“21.……
(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.…”

The Delhi HC observed that Section 2(h) of the Limitation Act defines the term ‘good faith’ as “nothing shall be deemed to be done in good faith which is not done with due care and attention”. The Delhi HC further observed that the SC, while discussing the term ‘due care and attention’ in the context of Section 14 of the Limitation Act, in the Madhavrao Narayanrao Case, had held that what ought to be considered is whether a plaintiff had brought on record any evidence to show that he was prosecuting the previously instituted suit with due diligence. The measure of due diligence and prosecuting in good faith would have to be decided based on the facts of each case.

The Delhi HC observed that sequence of the events in the instant case demonstrated a complete absence of due diligence on the part of the Appellant. The Appellant had not provided an explanation for either the transfers or pendency of the Section 34 Petition or for the dismissals thereof. Moreover, the Appellant had also failed to provide an explanation as to why the Section 34 Petition was filed before the Patiala House Court which lacked jurisdiction to entertain such a petition.

Furthermore, the Appellant was completely devoid of any reasons why the Section 34 Petition was pending adjudication in the courts at Saharanpur for more than 15 years. The Delhi HC observed that the conduct of the Appellant clearly established that the prior proceedings were not being prosecuted diligently or in good faith. Further, the 5 pre-conditions for allowing the application under Section 14 of the Limitation Act did not co-exist.

Decision of the Delhi HC

In view of the above, the Delhi HC found no reason to interfere with the Impugned Order and dismissed the appeal filed by the Appellant.

VA View:

The Delhi HC has rightly observed that the Petitioner’s conduct, at the time of prosecuting the prior proceedings before the courts at Saharanpur and Patiala House Court, failed to demonstrate due diligence and good faith.

Through this judgement, the Delhi HC has emphasized that due diligence and good faith are essential pre-requisites for invoking the benefit under Section 14 of the Limitation Act, which exempts a period covered by litigious activity and protects a litigant against the bar of limitation when a proceeding is dismissed on account of a technical defect instead of being decided on merits. Therefore, an application under Section 14 of the Limitation Act would not be available to a petitioner who, through its lack of diligence, allowed its petition to be dismissed twice for non-prosecution.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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