The Hon’ble Supreme Court in the matter of Rajiv Gaddh V. Subodh Parkash¹ examined the scope applying of the principal of res judicata at the time of appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act, 1996”).

The Appellant and the Respondent (collectively referred to as "Parties") jointly participated in the auction of 550 marlas of land. Both parties participated through a company in which they were Directors. A loan of INR 4,30,00,000 was obtained from HDFC Bank ("Bank") by mortgaging various properties. Subsequently, a Tripartite Agreement was executed between the Parties and the Bank to regulate the loan liability and facilitate the release of the mortgaged properties.

Thereafter, the Parties executed three agreements to resolve the dispute that had arisen concerning the Hoshiarpur land. Clause 6 of all three agreements contained an arbitration clause, pursuant to which the Respondent invoked arbitration by sending an invocation notice to the Appellant. Subsequently, the Respondent filed a petition under Section 11 before the High Court of Bombay seeking appointment of an arbitrator.

Pursuant to the said petition, an Arbitrator came to be appointed. However, what followed thereafter is where, in my view, the entire controversy takes shape. The arbitral proceedings did not reach their logical conclusion with participation from both sides. The Respondent, despite having invoked the arbitration clause himself, gradually chose to disengage from the proceedings. He raised allegations of bias, stopped appearing before the learned Arbitrator, and eventually, through his communication, clearly indicated that he would no longer participate in the arbitration.

The learned Arbitrator nevertheless proceeded with the matter and ultimately passed an award. Interestingly, even at that stage, an opportunity was granted to the Respondent to revive his claims by filing an amended statement, which he failed to avail. This conduct, as I observed while reading the judgment, becomes extremely crucial because it lays the foundation for what the Supreme Court later terms as "abandonment" of proceedings.

What then followed is something often seen in litigation strategy, a second attempt. After the arbitral award and subsequent developments, including a judgment of the Supreme Court upholding the validity of the auction of the Hoshiarpur land, the Respondent issued a fresh notice invoking arbitration once again and proceeded to file a second application under Section 11 of the A&C Act, 1996.

The High Court, while allowing this second application, took a rather limited view of its jurisdiction under Section 11. It held that issues such as res judicata need not be examined at that stage and could be left open for the arbitral tribunal to decide. On the face of it, this reasoning aligns with the settled principle that the scope of interference under Section 11 is confined primarily to examining the existence of an arbitration agreement.

However, the Supreme Court, in my reading, goes a step deeper and draws a fine but important distinction. While reiterating that res judicata may not strictly fall within the scope of Section 11 proceedings, the Court simultaneously considered the applicability of Order XXIII Rule 1 of the Code of Civil Procedure, 1908, which deals with withdrawal and abandonment of proceedings.

The Court carefully analysed whether the Respondent's conduct in the earlier arbitration amounted to abandonment. It concluded that the Respondent, by unequivocally refusing to participate and walking out of the arbitral process, had in fact abandoned his claims. This was not merely a procedural lapse but a conscious relinquishment of his right to pursue the claim in that forum.

The Court then examined whether the second Section 11 application was based on a fresh cause of action. The Respondent argued that a fresh cause of action arose after the Supreme Court upheld the auction. The Court rejected this contention, holding that the dispute between the parties was independent of the validity of the auction and existed even prior to the said judgment. Therefore, no new cause of action could be said to have arisen.

In essence, the Court held that once a party abandons its claim in earlier proceedings without seeking liberty to reinitiate the proceedings, it cannot be permitted to re-agitate the same cause of action by filing a fresh application under Section 11. The principles underlying Order XXIII Rule 1 are founded on public policy to prevent multiplicity of proceedings and abuse of process, and these principles equally apply to arbitration related proceedings.

Accordingly, the Supreme Court set aside the High Court's order and held that the second Section 11 application was not maintainable.

By - Akarsh Pandey