Home » Between The Lines » Supreme Court: Refusal to condone delay under Section 34(3) of the Arbitration and Conciliation Act, 1996, is appealable under Section 37 of the said Act

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The Hon’ble Supreme Court (“SC”) by its judgment in Chintels India Limited v. Bhayana Builders Private Limited [Civil Appeal No. 4028 of 2020], on February 11, 2021, held that refusal to condone delay under Section 34(3) of the Arbitration and Conciliation Act, 1996 (“1996 Act”) was appealable under Section 37 of the 1996 Act.

Facts

Chintels India Limited (“Appellant”) had filed an application for condonation of delay before the Delhi High Court (“DHC”) under Section 34 (application for setting aside arbitral award) of the 1996 Act. The said application was filed after the limitation period prescribed under the 1996 Act. The application related to an award passed on May 3, 2019, and the DHC had dismissed the application by its judgment dated June 4, 2020 (Single Judge). The DHC thereafter issued a certificate under Article 133 (Appellate jurisdiction of Supreme Court in appeals from High Courts in regard to civil matters) read with Article 134A (certificate for appeal to the Supreme Court) of the Constitution of India by its judgment dated December 04, 2020 (Division Bench). The present appeal has been filed in respect thereof.

Issue

  • Whether order passed by single judge refusing to condone Appellant’s delay in filing an application under Section 34 of the 1996 Act is appealable under Section 37(1)(c) of the 1996 Act.

Contentions of the Appellant

The Appellant cited the SC’s judgment in Essar Constructions v. N.P. Rama Krishna Reddy (2000) 6 SCC 94) (“Essar Constructions”). Essar Constructions was passed in respect of Section 39 (appealable orders) of the Arbitration Act, 1940 (“1940 Act”). It was argued that Section 39 of the 1940 Act is in pari materia with Section 37 (appealable orders) of the 1996 Act, in that an appeal lies when a single judge refuses to condone delay, resulting in an order refusing to set aside an arbitral award. Therefore, the ratio of Essar Constructions would apply to Section 37 of the 1996 Act. It was contended that refusal to condone delay would result in a refusal to set aside an award. Therefore, an appeal against such order was maintainable under Section 37 of the 1996 Act. Judgments of various high courts were relied upon to argue that an order refusing to condone delay stands on a completely different footing from an order which condones delay, as the latter order cannot be said to impart any finality to the proceeding. This is because when an order condones delay, the merits of the award are yet to be adjudicated.

When a right of appeal is provided under a statute, dismissing the appeal on a preliminary ground is a dismissal of the appeal itself, as no opportunity of hearing on the merits is afforded post dismissal. Further, right of appeal once provided should not be limited by statutory interpretation when the words used in the provision are capable of a wider construction. In terms of the language of Section 37(1)(c) of the 1996 Act, there must be refusal to set aside an arbitral award “under Section 34”, which includes Section 34(3) of the 1996 Act, under which a court may refuse to condone delay in filing an application. The Appellant argued upon the relevancy of the DHC, in passing its judgement whilst relying on BGS SGS Soma JV. v. NHPC Limited (2020) 4 SCC 234 (“Soma JV”) and State of Maharashtra and Another v. M/s Ramdas Construction Co. and Another [C.A. Nos. 5247- 5248 of 2007] (“Ramdas Construction”). It was argued that in Soma JV, the SC had considered a very different question. The question was whether an application to set aside an award under Section 34 of the 1996 Act should be returned to the proper court dependent upon where the seat of arbitration was located. It was only in the course of discussion relatable to this question that the DHC had approved certain observations made in its decision in Harmanprit Singh Sidhu v. Arcadia Shares and Stock Brokers Private Limited 2016 SCC OnLine Del 5383, in which the single judge had allowed an application for condonation of delay, and the division bench thereafter held that an appeal against such an order was not maintainable under Section 37 of the 1996 Act. It cannot be said that the court has refused to set aside the award under Section 34 of the 1996 Act, as it may yet do so on the merits of the challenge to the award.

Contentions of Bhayana Builders Private Limited (“Respondent”)

The counsels for the Respondent argued that it could not be said that Section 37 of the 1996 Act was pari materia with Section 39 of the 1940 Act. Section 39 of the 1940 Act was materially different and concerns itself with grounds made under Section 30 of the 1940 Act. The grounds thereunder are different from the grounds under Section 34(2) and (2A) of the 1996 Act. Section 37 of the 1996 Act therefore must be interpreted in its own terms and Essar Constructions could not be made applicable in this instance. As per Section 5 of the 1996 Act and the ‘Statement of Objects and Reasons’, it was clear that judicial intervention is to be minimal in the arbitration process. As far as Section 37 of the 1996 Act was concerned, the above object of minimal intervention was reinforced, firstly, by way of the non-obstante clause contained in Section 37(1) of the 1996 Act, secondly, the grounds of appeal provided herein are exhaustive and clarify that appeal shall lie from no other grounds. Upon reading of Section 37 (1)(c) of the 1996 Act it was clear that the refusal to set aside the award could only be on merits and not on some preliminary ground which would then lead to a refusal to set aside the award. Relying on judgement passed by the SC in Union of India v. Simplex Infrastructures Limited (2017) 14 SCC 225 (“Simplex Infrastructures”) it could not be said that by condoning or refusing to condone delay, an arbitral award either gets or does not get set aside. Moreover, the judgement in Ramdas Construction was the correct enunciation of the law, and judgments of the other High Courts should be overruled.

Observations of the Supreme Court

Reading of Section 34 of the 1996 Act made it clear that an application for setting aside the award must be as per the grounds set out under Section 34(2) or Section 34(2A) of the 1996 Act and also would have to be filed within the limitation period provided under Section 34(3) of the 1996 Act. As such it is settled that Section 5 (extension of prescribed period in certain cases) of the Limitation Act, 1963, would not apply herein and any delay beyond 120 days could not be condoned.

Reading of Section 37(1)(c) of the 1996 Act which provides appeal from original decrees of a court passing the order for “setting aside or refusing to set aside an arbitral award under section 34” would go to show that refusal to set aside an award as delay not been condoned under Section 34(3) of the 1996 Act would certainly fall within Section 37(1)(c) of the 1996 Act. The expression, “under section 34” would refer to the entire section and not simply restricted to Section 34(2) of the 1996 Act. The fact that an award can be refused to be set aside for refusal to condone delay under Section 34(3) of the 1996 Act reinforces the contention.

The judgement in Simplex Infrastructures was referred, to hold that the said judgement was not contradicting the SC’s observations. In the said case, in answer to the question as to whether a single judge’s judgment condoning delay in filing an application under Section 34 of the 1996 Act was without jurisdiction, the SC had correctly held that such an order is in exercise of jurisdiction conferred by the statute. This judgment therefore cannot be said to be an authority for the proposition that, as the converse position to the facts contained in the present appeal had been held to be not appealable, it must follow that even where delay is not condoned, the position remains the same.

As far as Soma JV was concerned, the question herein was entirely different as argued by the Appellant. The judgements are not to be construed like Euclid’s theorems, but the observations made therein must relate to the context. In Soma JV, the context was where an application under Section 34 of the 1996 Act would have to be returned to the court which had jurisdiction to decide a Section 34 application, dependent upon where the seat of the arbitral tribunal was located. In this context, it was held that a preliminary step, which did not lead to the application being rejected, could not be characterized as an order which would result in the application’s fate being sealed. The focus therein was neither on the language of Section 37(1)(c) of the 1996 Act, nor were any arguments made as to its correct interpretation. As far as Ramdas Construction was concerned, it could not be said that it had stated the law correctly as it is not in compliance with Essar Constructions and was contrary to the interpretation drawn for Section 37(1)(c) of the 1996 Act so far. As far as the Respondent’s argument was concerned regarding the extent of judicial intervention under Section 5 of the 1996 Act, and the proposition that Section 37 of the 1996 Act was enacted to give limited right of appeal, the SC held that Section 5 of the 1996 Act did not take Respondent’s argument any further. This is because after the non-obstante clause, the section states that no judicial authority shall intervene “except where so provided in this Part”. What is “provided in this part” is Section 37 of the 1996 Act, which therefore brings the argument back to square one. A limited right of appeal is given under Section 37 of the 1996 Act, but it is not the province or duty of the SC to further limit such right by excluding appeals which are in fact provided for, given the language of the provision as interpreted in this judgement.

Decision of the Supreme Court

An appeal under Section 37(1)(c) of the 1996 Act would be maintainable against an order refusing to condone delay in filing an application under Section 34 of the 1996 Act to set aside an award. The matter was thereafter remitted to a division bench of the DHC to decide whether the single judge’s refusal to condone delay was correct.

VA View:

By drawing a literal interpretation of Section 37 of the 1996 Act, the SC has put forth its position on broadening the scope of the said section. As per the SC, the language of Section 37 of the 1996 Act would make clear that it was the legislature’s intention to include the entirety of Section 34 of the 1996 Act within the framework of Section 37 of the 1996 Act.

The implication is that now a Section 34 application dismissed due to delay has a remedy under Section 37 of the 1996 Act. This adds a further strain on the system and recourse for an individual avoiding an arbitral award and possibly result in lengthy proceedings.

For more information please write to Mr. Bomi Daruwala at [email protected]

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