Consolidated Engg.Enterprises vs Principal Secy. Irrigation Deptt. & Ors

3. The appellant is an enterprise engaged in civil engineering construction as well as development of infrastructure. It entered into an agreement dated January 20, 1989 with the respondent for construction of earthen bund, head sluices and the draft channel of the Y.G. Gudda tank. During the subsistence of the contract, disputes arose between the parties. Therefore, the appellant invoked Arbitration clause No.51 of the agreement pursuant to which the disputes were referred to the sole arbitrator for adjudication. The sole arbitrator made his award on April 10, 1999 in favour of the appellant. Feeling aggrieved by the said award, the respondents preferred an application dated July 5, 1999 to set aside the award as contemplated by Section 34 of the Act in the court of learned Civil Judge (Senior Division), Ramanagram, Bangalore Rural District. The said application was registered as A.C. No.1 of 1999. It was realized by the respondents that an application for setting aside the award should have been filed before the learned Principal District Judge, Bangalore District (Rural). Therefore, the respondents submitted an application on July 26, 2000 in the Court of learned Civil Judge (Senior Division), Ramanagaram with a request to transfer the application made for setting aside the award to the court of learned Principal District Judge (Rural), Bangalore. The learned Civil Judge (Senior Division), Ramanagaram passed an order directing return of the suit records for presentation before the proper court. The respondents collected the papers from the court of learned Civil Judge (Senior Division), Ramanagaram and presented the same in the court of learned Principal District Judge, Bangalore (Rural) on August 21, 2000. The present application for setting aside the award, filed by the respondents, was numbered as A.S. No.2 of 2000. The District Court framed preliminary issue for determination which was as under:

7. The appellant is a public sector undertaking of the Government of Karnataka. It had invited tenders by way of public notification for mining and transporting ore from Ajjanahalli mine to Ingaldal. The tender submitted by the respondent was accepted on May 10, 1999 and an agreement was entered into between the parties. The respondent was directed to commence the work from May 26, 1999 and to deploy required number of vehicles etc. The respondent did not follow the instructions given by the appellants and, therefore, disputes arose between the parties. The appellant and the respondent mutually agreed to terminate the contract as per the clause mentioned in the contract. The respondent made claim with respect to the works done by it during the subsistence of the contract. The claim was not accepted by the appellant. Therefore the dispute was referred to the sole arbitrator for adjudication as stipulated by the contract. The arbitrator made his award on March 15, 2002. The appellant filed an application on June 6, 2002 in the court of learned Civil Judge (Senior Division), Chitradurga to set aside the award made by the arbitrator on the footing that the court of learned Civil Judge (Senior Division) was the Principal Civil Court of original jurisdiction in the District and that two other cases, namely, Arbitration Case No.1/97 and 1/2001 were also pending in the court of learned Civil Judge (Senior Division), Chitradurga. After sometime, the appellant realized that the appropriate court before which an application for setting aside the award should have been made was the court of learned District Judge, Chitradurga. Therefore, the appellant filed an application under order VII Rule 10A seeking prayer to return the application to it for presentation before the District Court, Chitradurga. The learned Civil Judge (Senior Division), Chitradurga after hearing the learned counsel for the parties directed the appellant to present the application made under Section 34 of the Act before the District Court, Chitradurga by an order dated October 29, 2002 and directed the parties to appear before the learned District Judge on November 21, 2002. In view of the directions given by the learned Civil Judge (Senior Division), Chitradurga the appellant presented the application filed under Section 34 of the Act before the District Court Chitradurga on November 21, 2002. The respondent raised a preliminary objection regarding jurisdiction of the learned District Judge, Chitradurga to entertain the application submitted under Section 34 of the Act on the ground that the agreement was entered into between the parties within the jurisdiction of city of Bangalore and, therefore, the City Civil Court, Bangalore had jurisdiction to entertain the application filed by the appellant. The learned District Judge, Chitradurga by an order dated February 3, 2003 held that he had no jurisdiction to entertain the application submitted by the appellant and accordingly returned the application, for presentation before the appropriate court. The appellant thereafter presented the application for setting aside the award, before the VIth Additional City Civil Court, Bangalore on February 10, 2003 which was registered as an appeal. Along with the appeal, the appellant also filed an application under Section 14 read with Section 5 of the Limitation Act and prayed to exclude the time taken in prosecuting the proceedings bona fide before the two courts which had no jurisdiction. The learned Judge of City Civil Court, Bangalore dismissed the application, as time barred, by an order dated July 17, 2003. Thereupon the appellant invoked extra- ordinary jurisdiction of the High Court of Karnataka under Article 226 of the Constitution by filing Writ Petition No.7089 of 2003. The questions posed for consideration of the High Court was, whether the provisions of Sections 12 and 14 of the Limitation Act were applicable to an application filed under Section 34 of the Act and whether the appellant had prosecuted the matter in other courts with due diligence and in good faith. After hearing the learned counsel for the parties, the High Court by Judgment dated April 4, 2005 held that the provisions of Sections 12 and 14 of the Limitation Act are applicable to a proceeding under the Act. However, on appreciation of facts the High Court held that the appellant had not prosecuted the matter in other courts, with due diligence and in good faith. In view of the above-mentioned conclusion the High Court has dismissed the writ petition filed by the appellant vide Judgment dated April 4, 2005, giving rise to the instant appeal.

(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:

18. As far as the appeal arising from Special leave Petition (C) No.15619 of 2005 is concerned, this Court finds that the view taken by the High Court of Karnataka that the provisions of Sections 12 and 14 of the Limitation Act, 1963 are applicable to the proceedings under the Arbitration and Conciliation Act, 1996 is eminently just and is hereby upheld. However, this Court finds it difficult to uphold the finding recorded by the Division Bench of the High Court that the appellant had not prosecuted the matter in other courts with due diligence and in good faith and was, therefore, not entitled to exclusion of time taken in prosecuting the matter in wrong courts.

19. To attract the provisions of Section 14 of the Limitation Act, five conditions enumerated in the earlier part of this Judgment have to co-exist. There is no manner of doubt that the section deserves to be construed liberally. Due diligence and caution are essentially pre-requisites for attracting Section 14. Due diligence cannot be measured by any absolute standards. Due diligence is a measure of prudence or activity expected from and ordinarily exercised by a reasonable and prudent person under the particular circumstances. The time during which a court holds up a case while it is discovering that it ought to have been presented in another court, must be excluded, as the delay of the court cannot affect the due diligence of the party. Section 14 requires that the prior proceeding should have been prosecuted in good faith and with due diligence. The definition of good faith as found in Section 2(h) of the Limitation Act would indicate that nothing shall be deemed to be in good faith which is not done with due care and attention. It is true that Section 14 will not help a party who is guilty of negligence, lapse or inaction. However, there can be no hard and fast rule as to what amounts to good faith. It is a matter to be decided on the facts of each case. It will, in almost every case be more or less a question of degree. The mere filing of an application in wrong court would not prima facie show want of good faith. There must be no pretended mistake intentionally made with a view to delaying the proceedings or harassing the opposite party. In the light of these principles, the question will have to be considered whether the appellant had prosecuted the matter in other courts with due diligence and in good faith. As is evident from the facts of the case, initially the appellant had approached the court of learned Civil Judge, Senior Division, Chitradurga for setting aside the award made by the arbitrator. On direction dated October 29, 2002 issued by the learned Civil Judge (Senior Division), Chitradurga, the appellant had presented the application for setting aside the award before the learned District Judge, Chitradurga. Before the learned District Judge, Chitradurga an objection was raised by the respondent that the application was not maintainable before the said court and that the application was maintainable before the learned Judge, City Civil Court, Bangalore. The District Judge, Chitradurga by an order dated February 3, 2003 held that it had no jurisdiction to entertain the application submitted by the applicant and accordingly returned the application for presentation before the appropriate court. The question of jurisdiction was seriously contested between the parties not only before the court of learned Civil Judge (Senior Division), Chitradurga but also before the learned District Judge, Chitradurga. The question of jurisdiction had to be considered by the courts below because of establishment of City Civil Court, Bangalore under a special enactment and in view of the definition of the word court as given in Section 2(e) of the Arbitration and Conciliation Act, 1996 which means the principal civil court of original jurisdiction in a district. The record does not indicate that there was pretended mistake intentionally made by the appellant with a view to delaying the proceeding or harassing the respondent. There was an honest doubt about the court competent to entertain the application for setting aside the award made by the arbitrator. The mere fact that the question of jurisdiction is an arguable one would not negative good faith because the appellant believed bona fide that the court in which it had instituted the proceeding had jurisdiction in the matter. By filing the application in the courts which had no jurisdiction to entertain the same, the appellant did not achieve anything more particularly when the lis was never given up. Under the circumstances this Court is of the opinion that the Division Bench of the High Court of Karnataka was not justified in concluding that the appellant had not prosecuted the matter in other courts with due diligence and in good faith. The said finding being against the weight of evidence on record, is liable to be set aside and is hereby set aside. We, therefore, hold that the appellant had prosecuted the matter in other courts with due diligence and in good faith and, therefore, is entitled to claim exclusion of time in prosecuting the matter in wrong courts. Therefore, the appeal arising from SLP(C) No.15619 of 2005 will have to be allowed.

20. For the foregoing reasons civil appeal arising from SLP(C) No.10311 of 2005 fails and is dismissed. The judgment rendered by the Division Bench of the High Court of Karnataka on April 4, 2005, in W.P. No. 7089 of 2003 dismissing the application filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award of the arbitrator, is set aside, and civil appeal arising from SLP(C) No.15619 of 2005, is allowed. The Division Bench of the High Court of Karnataka is directed to proceed further with the matter in accordance with law. There shall be no order as to costs in both the appeals.