Section 11 Arbitration | Fresh Application Permitted for Unadjudicated Damages After Award Set Aside: Bombay HC

The Bombay High Court has clarified that a party may initiate a fresh arbitration reference for damages after an earlier award is set aside, even if an appeal against the setting-aside order remains pending. This decision reinforces the separability of arbitration agreements and the tribunal’s exclusive authority to adjudicate substantive limitations.

Background & Facts

The Dispute

The dispute arose from a Development Agreement dated 27 August 2005 between Vardhaman Builders (Applicant) and Narendra Balasaheb Ghatge and Anr. (Respondents) for the redevelopment of property at Mahadevbhai Desai Road, Borivali (E). The Agreement provided for a lump-sum payment of Rs. 1.50 crores by the Applicant to the Respondents, along with two free flats and a concessional sale of one flat. The Respondents terminated the Agreement on 24 July 2006.

Key Facts

• The parties had previously entered into a Memorandum of Understanding (MoU) on 30 November 2003, later modified by the 2005 Agreement.
• The Applicant paid Rs. 22,00,000 as security deposit under the Agreement.
• The Applicant invoked arbitration under Clause 18 of the 2005 Agreement by notice dated 2 September 2006.
• The sole Arbitrator issued an Award on 22 November 2011, rejecting both the claim for specific performance and damages.
• The Applicant challenged the Award under Section 34 of the Arbitration and Conciliation Act, 1996.
• On 8 February 2017, the Bombay High Court set aside the Award.
• The Respondents appealed under Section 37; the Division Bench dismissed the appeal on 24 November 2017.
• The Supreme Court set aside the Division Bench’s order on 6 April 2018 and remanded the appeal for fresh consideration.
• The Applicant withdrew its Section 11 application (No. 78 of 2018) following the Supreme Court’s remand.
• The Respondents entered into a new development agreement with a third party on 25 June 2018.
• The Applicant filed a Section 9 petition on 20 June 2023 seeking interim relief, which was dismissed on 11 July 2023 but later remanded by the Division Bench on 19 December 2023.
• The Applicant filed Section 11 Application No. 165 of 2023 seeking arbitration for both specific performance and damages; it was dismissed on 19 April 2024 on grounds of limitation and premature invocation.
• The Applicant filed Section 11 Application No. 383 of 2024, restricting the claim to damages only; it was dismissed on 3 November 2025 but with liberty to issue a fresh invocation notice.
• The Applicant issued a fresh invocation notice on 9 January 2026, limiting the claim exclusively to damages.
• The present Application (No. 115 of 2026) was filed on 30 January 2026 under Section 11.

Procedural History

• 30 November 2003: Original MoU executed between Respondents and late Vasant Ghatge.
• 27 August 2005: Modified Development Agreement executed between Applicant and Respondents.
• 24 July 2006: Respondents terminated the Agreement.
• 2 September 2006: First arbitration invocation notice issued.
• 19 July 2007: Court appointed sole Arbitrator.
• 22 November 2011: Arbitral Award rejecting specific performance and damages.
• 2012: Section 34 petition filed by Applicant.
• 8 February 2017: High Court set aside the Award.
• 24 November 2017: Division Bench dismissed Section 37 appeal.
• 6 April 2018: Supreme Court set aside Division Bench’s order and remanded appeal.
• 2018: Applicant withdrew Arbitration Application No. 78 of 2018.
• 25 June 2018: Respondents entered into new development agreement with third party.
• 20 June 2023: Second invocation notice issued; Section 11 Application No. 165 of 2023 filed.
• 11 July 2023: Section 9 Petition (No. 321 of 2023) dismissed.
• 19 December 2023: Division Bench remanded Section 9 Petition.
• 19 April 2024: Single Judge dismissed Section 11 Application No. 165 of 2023 and Section 9 Petition.
• 2 September 2024: Supreme Court dismissed SLP (C) No. 13686 of 2024.
• 3 November 2025: Single Judge dismissed Section 11 Application No. 383 of 2024 but granted liberty to issue fresh invocation notice.
• 9 January 2026: Fresh invocation notice issued for damages only.
• 30 January 2026: Present Section 11 Application (No. 115 of 2026) filed.
• 10 March 2026: Hearing adjourned to allow Respondents to challenge order dated 3 November 2025.
• 30 April 2026: Supreme Court dismissed SLP (C) No. 21645 of 2026 challenging the 3 November 2025 order.
• 8 May 2026: Present Application decided.

The Parties' Positions

The Applicant contended that the setting aside of the 2011 Award nullified the prior arbitration, entitling it to a fresh reference for damages only. It relied on the liberty granted in the 3 November 2025 order and the Supreme Court’s refusal to interfere.

The Respondents argued that the present application was barred by limitation, premature due to pending appeal, and inconsistent with the 19 April 2024 dismissal. They relied on HPCL Bio-fuels Ltd. v. Shahaji Bhanudas Bhad to assert that limitation must be strictly applied.

Relief Sought

The Applicant sought appointment of an arbitrator to adjudicate its claim for damages, compensation, and losses arising from the wrongful termination of the Development Agreement, with all substantive issues including limitation left to the arbitral tribunal.

The Legal Issue

Can a party file a fresh Section 11 application for arbitration of damages claims after an earlier award has been set aside, even while an appeal against the setting-aside order remains pending, and without the referral court deciding the limitation on the underlying claim?

Arguments Presented

For the Appellant/Petitioner

The Applicant relied on the Bombay High Court’s own order dated 3 November 2025 in Application No. 383 of 2024, which explicitly granted liberty to issue a fresh invocation notice for damages only and permitted a new Section 11 application. It argued that the 2011 Award was set aside, rendering the arbitration agreement intact and capable of fresh invocation. It cited Edelweiss Financial Services Ltd. v. Percept Finserve Pvt. Ltd. to assert that the referral court under Section 11 cannot adjudicate the limitation on the substantive claim, only the limitation on filing the Section 11 application. The Applicant emphasized that the Supreme Court had upheld the 3 November 2025 order, confirming the permissibility of parallel proceedings.

For the Respondent/State

The Respondents contended that the present application was time-barred under Article 137 of the Limitation Act, 1963, with the cause of action arising on 8 February 2017 when the Award was set aside. They argued that the Applicant could not simultaneously rely on the pendency of the appeal to justify delay in filing while also invoking arbitration during its pendency. They asserted that the 3 November 2025 order was inconsistent with the 19 April 2024 dismissal and that the liberty granted was procedural, not substantive. They relied on HPCL Bio-fuels Ltd. to argue that the application was premature and legally unsustainable.

The Court's Analysis

The Court undertook a detailed review of the litigation history and the evolving jurisprudence on Section 11 referrals. It emphasized that the setting aside of the 2011 Award under Section 34 extinguished the prior arbitral proceeding, thereby reviving the arbitration agreement. The Court held that the Applicant’s claim for damages, now clearly delimited and distinct from the earlier claim for specific performance, constituted a new dispute capable of fresh arbitration.

"If the Applicant can invoke arbitration after disposal of the Appeal, it can invoke arbitration now too on the premise that the arbitral award, at present, is not in existence."

The Court noted that the Supreme Court’s dismissal of the Respondents’ SLP against the 3 November 2025 order validated the High Court’s position that parallel proceedings are permissible in exceptional circumstances where the claim remains unresolved and the arbitration agreement survives.

The Court then turned to the issue of limitation. It distinguished between two aspects of limitation: (i) limitation on the substantive claim (first aspect), and (ii) limitation on filing the Section 11 application (second aspect). Citing Edelweiss Financial Services Ltd., the Court reaffirmed that the referral court under Section 11 has no jurisdiction to adjudicate the first aspect. It held that the Section 11 application was filed within three years of the fresh invocation notice dated 9 January 2026, satisfying the second aspect.

"The referral court needs to adopt a 'hands off' approach so far as the issue of limitation in respect of the claim sought to be arbitrated is concerned and same needs to be left open to be determined by Arbitral Tribunal."

The Court rejected the Respondents’ argument that the application was premature due to the pending appeal. It held that the Supreme Court’s observation that the matter was at "square one" for the Applicant, coupled with the express affirmation of the 3 November 2025 order, rendered the Respondents’ objection untenable.

The Verdict

The Applicant succeeded. The Court appointed Mr. Justice M.S. Sanklecha, former Judge of this Court, as the Sole Arbitrator to adjudicate the claim for damages, compensation, and losses arising from the termination of the Development Agreement. The parties were directed to appear before the Arbitrator within two weeks of receiving the order. The Arbitrator’s fees were to be borne equally by the parties in the first instance, subject to final cost allocation. All substantive issues, including limitation on the claim, were expressly left open for determination by the Arbitral Tribunal. Compliance with the appointment order was mandated within one week.

What This Means For Similar Cases

Fresh Arbitration Is Permissible After Award Set Aside

• Practitioners may file a fresh Section 11 application for a distinct claim (e.g., damages only) after an earlier award is set aside, even if an appeal against the setting-aside order is pending.
• The arbitration agreement survives the setting aside of the award unless expressly extinguished by the parties or by law.

Limitation on Claims Is for the Tribunal, Not the Referral Court

• Section 11 courts must confine their inquiry to whether the application was filed within three years of the latest invocation notice (Article 137).
• The limitation on the underlying claim (e.g., breach of contract) is a matter exclusively for the arbitral tribunal to decide under Section 43(4) and Section 21 of the Arbitration Act.
• Do not argue limitation on the claim before the Section 11 court; reserve it for the tribunal.

Parallel Proceedings Are Not Automatically Barred

• Where the Supreme Court has affirmed the permissibility of concurrent proceedings (as in this case), lower courts must respect that position.
• A party may pursue an appeal against a Section 34 order while simultaneously initiating a new arbitration for a narrowed claim, provided the invocation notice is precise and distinct.

Liberty Granted by Court Is Binding Unless Overturned

• A liberty granted by a High Court to issue a fresh invocation notice and file a new Section 11 application constitutes a procedural right that cannot be ignored unless successfully challenged and set aside.
• Failure to challenge such an order within the prescribed time renders it binding for subsequent proceedings.