The Bombay High Court has held that a delay of 258 days in filing an application under Section 11 of the Arbitration and Conciliation Act, 1996, may be condoned where the applicant was engaged in protracted litigation to preserve the very subject matter of arbitration during the COVID-19 pandemic and subsequent government acquisition. This ruling reinforces that procedural rigidity must yield to substantive justice in exceptional circumstances.
Background & Facts
The Dispute
The dispute arises from a redevelopment project involving Panwala Chawl Nos. 2 and 3 in Lalbaug, Mumbai. The property, originally owned by a private trust, was acquired by M/s R.B. Builders and Developers (the Firm), a partnership with seven original partners (Respondents 1 to 7). The Firm obtained necessary approvals from MHADA and the Municipal Corporation for redevelopment. The Applicant, Poonam Developers LLP, entered the project through its sister concern, Poonam Infra, which was admitted as the eighth partner in the Firm on 30 April 2011 with a 15% profit-sharing ratio. Subsequently, due to legal constraints on partnership structures, the Deed of Alteration of Partnership dated 10 April 2013 replaced Poonam Infra with the Applicant as the eighth partner.
Key Facts
- The Applicant invested Rs. 4 crores initially through Poonam Infra and later contributed further amounts, totaling approximately Rs. 30 crores in the project.
- Construction commenced after obtaining a commencement certificate on 9 December 2011 but was halted by a stop-work notice in 2012, later revoked in 2013.
- MHADA issued a show cause notice in 2016 and directed redevelopment and rent payment to tenants on 29 December 2016, which the Firm failed to comply with.
- On 20 June 2020, the Applicant issued a notice under Section 21 of the Arbitration Act invoking arbitration for refund of Rs. 29.63 crores.
- On 20 July 2020, the Applicant filed an interim application under Section 9 of the Arbitration Act, securing an ad-interim injunction restraining Respondents and MHADA from altering the property’s status.
- The COVID-19 pandemic disrupted all project activities from March 2020 to February 2022.
- On 11 January 2024, MHADA blacklisted the Firm and ordered acquisition of the property.
- The Applicant filed Writ Petition No. 722 of 2024 challenging the acquisition order and deposited Rs. 2 crores as directed by the Court on 27 February 2024.
- The Writ Petition was disposed of on 21 March 2024 with liberty to make representations.
- Representations made in April and July 2024 were rejected by order dated 14 August 2024.
- Writ Petition (L) No. 32243 of 2024 challenging the rejection is pending.
- On 20 March 2025, MHADA formally acquired the property.
- The Applicant filed the Section 11 application on 15 November 2025.
Procedural History
- 10 April 2013: Deed of Alteration of Partnership executed, incorporating arbitration clause.
- 20 June 2020: Notice under Section 21 of the Arbitration Act issued.
- 20 July 2020: Section 9 application filed; interim injunction granted.
- March 2020 - February 2022: COVID-19 pandemic period.
- 11 January 2024: MHADA orders acquisition of property.
- 27 February 2024: Court directs deposit of Rs. 2 crores as condition for hearing Writ Petition.
- 21 March 2024: Writ Petition No. 722 of 2024 disposed of with liberty to represent.
- 14 August 2024: Representation rejected by MHADA.
- 20 March 2025: Property formally acquired by MHADA.
- 15 November 2025: Section 11 application filed.
- 4 February 2026: Section 9 petition withdrawn in light of Section 11 application.
- 7 April 2026: Judgment pronounced.
The Parties' Positions
The Applicant contends that the delay in filing the Section 11 application was unavoidable due to the necessity of preserving the project through litigation against MHADA and Respondents. It argues that the arbitration claim only became viable after the property was acquired and the project lost. The Respondents, particularly Respondent No. 6, argue that the delay of over five years is inordinate, that the Applicant had access to courts during the pandemic (evidenced by the Section 9 filing), and that the claim is time-barred and dead.
Relief Sought
The Applicant seeks condonation of delay of 258 days and appointment of a sole arbitrator to adjudicate its claim for recovery of Rs. 30 crores invested in the project. The Applicant also seeks to preserve its right to have the dispute resolved on merits.
The Legal Issue
The central question was whether the delay of 258 days in filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, may be condoned under Section 5 of the Limitation Act, 1963, where the applicant was engaged in continuous litigation to preserve the subject matter of arbitration during the COVID-19 pandemic and subsequent government acquisition.
Arguments Presented
For the Appellant/Petitioner
The Applicant’s counsel, Mr. Aman Saraf, argued that the limitation period under Article 137 of the Limitation Act began on 27 June 2020 (after the 7-day window in the Section 21 notice expired). However, the period from 15 March 2020 to 28 February 2022 must be excluded under the Supreme Court’s order in RE: Cognizance for Extension of Limitation. After exclusion, the limitation period expired on 28 February 2025, making the 15 November 2025 filing only 258 days late. He relied on HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad and Tata Motors Passenger Vehicles Ltd. v. Ghosh Brothers Automobiles to argue that Section 5 of the Limitation Act applies to Section 11 applications and that formal condonation applications are not mandatory. He emphasized that the Applicant was not negligent but was compelled to litigate to preserve the project’s subject matter, which was under threat from MHADA’s acquisition. He contended that the Applicant’s claim only crystallized after the property was acquired on 20 March 2025.
For the Respondent/State
Mr. Ziyad Madon, for Respondent No. 6, argued that the cause of action arose on 20 June 2020 and the application was filed five years later, far beyond the three-year limitation. He contended that the Applicant’s filing of a Section 9 petition on 20 July 2020 demonstrated that courts were operational and that the Applicant could have filed the Section 11 application contemporaneously. He relied on Mool Chandra v. Union of India to argue that mere length of delay is not decisive; the cause must be genuine. He asserted that the Applicant’s conduct amounted to deliberate inaction and that the claim was dead, as the property was now vested in MHADA.
The Court's Analysis
The Court began by affirming that the limitation period for Section 11 applications is three years under Article 137 of the Limitation Act, commencing from the date of failure to respond to a Section 21 notice. It acknowledged that the Applicant’s application was filed 258 days after the expiry of this period. However, the Court then turned to the critical issue: whether the delay could be condoned.
The Court recognized the binding precedent of the Supreme Court in RE: Cognizance for Extension of Limitation, which excluded the period from 15 March 2020 to 28 February 2022 for all limitation computations. The Court rejected the Respondent’s argument that the filing of a Section 9 petition negated the applicability of this exclusion, noting that the two remedies serve different purposes: Section 9 preserves the status quo, while Section 11 initiates adjudication. The Court observed:
"Applicant may have filed Section 9 Petition to preserve the subject matter of arbitration. That does not mean that there was any compulsion for him to seek appointment of arbitrator contemporaneously. Considering the limited functioning of Courts during pandemic period, non-filing of Section 11 Application, involving no urgency, was quite justified."
The Court then examined the applicability of HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad, which held that Section 5 of the Limitation Act applies to Section 11 applications, but condonation is permissible only in "exceptional cases" where a "very strong case" is made out. The Court distinguished this case from HPCL Bio-Fuels, where the delay was attributed to strategic forum shopping. Here, the delay was not tactical but necessitated by external, uncontrollable events.
The Court emphasized the unique factual matrix: the Applicant was not idle but engaged in multiple litigations to prevent the loss of the project. The deposit of Rs. 2 crores, the filing of writ petitions, and the representations to the Chief Minister and MHADA demonstrated active, albeit non-arbitral, efforts to preserve the subject matter. The Court held:
"The real cause for seeking arbitration against the Respondents has occurred only after MHADA acquired the property and the Firm has lost the possession."
The Court concluded that the Applicant’s conduct was neither negligent nor dilatory. The delay was directly attributable to the need to resolve the existential threat to the arbitration’s subject matter. The Court found this to be an exceptional case warranting condonation under Section 5.
The Verdict
The Applicant succeeded. The Court condoned the delay of 258 days and appointed Mr. Justice A. A. Sayed, former Chief Justice of the Himachal Pradesh High Court, as sole arbitrator. The Court directed that the Arbitrator be communicated with within one week, and that he file a Statement of Disclosure within two weeks of receipt. The parties are to appear before the Arbitrator for procedural directions. Arbitral costs and fees are to be borne equally by the parties, subject to the final award. All rights and contentions are expressly kept open for adjudication before the Arbitral Tribunal. There shall be no order as to costs.
What This Means For Similar Cases
Preservation of Subject Matter Justifies Delay
- Practitioners may now argue that delays in filing Section 11 applications are excusable if the applicant was actively engaged in litigation to preserve the subject matter of arbitration, especially when external forces (e.g., government acquisition, injunctions, or regulatory actions) threaten the asset.
- The mere existence of parallel litigation under Section 9 does not negate the applicability of pandemic-related limitation extensions.
Exceptional Circumstances Require Exceptional Relief
- Courts will not condone delay routinely under Section 5 of the Limitation Act in arbitration matters; the threshold remains high.
- However, when delay is caused by circumstances beyond the applicant’s control - particularly where the arbitration’s subject matter is under imminent threat - the courts may exercise discretion in favor of substantive justice.
- The absence of a formal condonation application is not fatal, as per Tata Motors and HPCL Bio-Fuels.
Strategic Litigation Is Not Negligence
- Filing multiple petitions (Section 9, writs, representations) to protect arbitration rights is not evidence of delay or laches but may be viewed as diligent stewardship.
- Practitioners should meticulously document all steps taken to preserve the subject matter, including correspondence, court filings, and deposits, to substantiate claims of exceptional cause.
When to File Section 11 After Preservation Efforts
- The limitation clock for Section 11 applications may be deemed to restart only after the threat to the subject matter is resolved or conclusively extinguished.
- In cases involving third-party interference (e.g., MHADA, municipal authorities), the applicant should not be penalized for prioritizing preservation over arbitration initiation.
Key Takeaway for Practitioners
When the subject matter of arbitration is under threat from external forces, prioritize preservation efforts. Document every step. The law now recognizes that justice in arbitration requires not just procedural compliance, but also the preservation of the very dispute that is to be arbitrated.
