The party of a suit is free to attend the proceedings even if the suit is going exparte against it. If he is doing that and attending the proceedings without filing an application for setting aside the exparte order under Order 9 rule 7 Civil Procedure Code, 1908, the court can note this fact and pass an exparte decree against him. The effect of an exparte order is that the written statement of the defendant will not be taken into account and he will not be allowed to give evidences on the same statments. Though he can participate in the final arguements, if he wants.
Here, in your case, as the defendant has not filied any application for setting aside an exparte order, the court will/should not set aside the exparte order passed against him. The application for condonation of delay under section 5 of Limitation Act has to filed to take the benefit of the provisions of Limitation Act and to extend the period of limitation already expited. Normally this application is to be filed with the main application for which the applicant wants to extend the limitation period. However, in your case, as the defendant has filed only condonation application, he will file the setting aside application once the court will allow the previous one. You can argue that both the applications must be filed together coz otherwise the defendant could unnecessarily delay the proceedings.