Appeal under Arbitration Act Maintainable Against Order Refusing to Condone Delay

[Pinak Parikh is a graduate of the Institute of Law, Nirma University and practises before the High Court of Gujarat and NCLT, Ahmedabad]

Recently, in Chintels India Ltd. v Bhayana Builders Pvt. Ltd., the Supreme Court (“SC”) of India answered a perennial question of law pertaining to maintainability of an appeal under section 37(1)(c) of the Arbitration and Conciliation Act, 1996, against an order refusing to condone delay in filing an application under section 34 of the Act. The SC unequivocally held that an order refusing to condone delay under section 34(3) amounts to refusal to set aside an arbitral award under section 34, and is therefore appealable under section 37(1)(c) of the Act. Further, the SC, in the present case, held that expression “under section 34” appearing in section 37(1)(c) refers to the entire section, which includes order under section 34(3) and is not limited to grounds being set out in section 34(2) of the Act. This decision has the potential to open narrow doors of litigation before Appellate Courts, and at the same time reduce the burden of the SC, which, prior to this decision, in some instances, had to directly deal with delay condonation applications under Article 136 of the Constitution of India from Commercial courts, without appellate courts being approached first.

Refusal to Condone Delay as “refusal to set aside award under section 34” of the Act

This was not the first time that the SC was faced with the issue of maintainability of appeal against order refusing to condone delay in filing an application for setting aside an award. In Essar Constructions v. N.P. Rama Krishna Reddy (2000), the SC was faced with A similar question as to maintainability of appeal under section 39 of the Arbitration Act, 1940 (“Old Act”), which is in pari materia with section 37 of the present Act, against an order refusing to condone delay. The SC in Essar applied the “effect test” and made a two-fold observation: first, the effect of order refusing to condone delay, is that the application for setting aside an arbitral award gets refused and the award becomes final as far as the court rejecting the delay condonation application is concerned. According to the “effect test”, the delay-condonation application is not to be seen on a standalone basis; it has to be seen in light of its effect on the main application challenging the arbitral award. Second, section 39(1)(vi) of the Old Act does not specify the grounds on which arbitration award has to be set aside. There is nothing in the section which leads to the conclusion that refusal to set aside award does not include refusal on the grounds that application is barred by limitation. Further, as the expression “refusal on merits” is conspicuous by its absence in section 39(1)(vi) of the Old Act, the word ‘refusal’ cannot be interpreted to mean only refusal on merits, and will also include refusal on preliminary grounds like limitation. Therefore, appeal against order refusing to condone delay was held maintainable under section 39(1)(vi) of the Old Act.

The SC heavily relied on Essar decision to conclude that order refusing to condone delay, and consequently dismissing an application to set aside award under section 34, has the effect of refusal to set aside arbitral award under section 34 of the Act. As a corollary, such an order is appealable under section 37(1)(c) of the Act. The SC rejected the argument of Bhayana Builders (Respondents) that the decision of Essar will not apply to the present case as it was handed down under the provisions of the Old Act. Relying on Chief Engineer of BPDP/REO Ranchi v. Scoot Wilson Kirpatrick India (P.) Ltd. (2006), the SC clarified that section 39 of the Old Act was in pari materia with section 37 of the Arbitration Act, and hence the decision of Essar will be squarely applicable to the facts of the present case.

To fortify its argument that order refusing to condone delay amounts to refusal to set aside award under section 34, the SC observed that the “effect test” is already entrenched in section 37 of the Act, particularly in section 37(1)(a) and 37(2)(a). According to section 37(1)(a), appeal is provided against order refusing to refer parties to arbitration under section 8 of the Act. If seen in the context of the “effect test”, then order refusing to refer parties to arbitration has the effect of applying brakes to the entire arbitration proceeding. Therefore, an appeal is provided only against order refusing to refer parties to arbitration, and not against order referring parties to arbitration, which will not bring the arbitration proceeding to a halt. Interestingly, an appeal is provided against orders refusing to refer parties to arbitration under section 8, both, on preliminary ground- by not annexing the original arbitration agreement, or a duly certified copy- and on merits. This further strengthens the argument that expression “refusal to set aside award under section 34” occurring in section 37(1)(c) is not limited to orders on merits, but also includes preliminary grounds like limitation.

If the parties are referred to arbitration, then the “effect” of such order is that parties must go to arbitration, and the challenge with respect to jurisdiction is left for the arbitrator to decide under section 16 of the Act. If the plea assailing the jurisdiction of the arbitrator is allowed, then the “effect” of such order is that the arbitration proceeding will come to an end. Therefore, again, where the effect of the order is to bring arbitration proceeding to an end, an appeal is provided under section 37(2)(a) of the Act.  On the other hand, if the plea challenging the jurisdiction is not made out, then as per section 16(5) & 16(6) of the Act, then no appeal is provided under section 37 therein. In this case, the arbitration proceeding will continue, and the aggrieved party can challenge the jurisdiction while challenging the final award under section 34 of the Act.  

From the above discussion, it is clear that legislature intended to provide appeal under section 37 of the Act against such order which seals the fate of the arbitration proceeding or against such order which closes all the doors for the aggrieved party to challenge the arbitral award by way of an application under section 34 of the Act. On the other hand, legislature did not envisage to provide appeal under section 37 against order which does not bring the arbitration proceeding to a halt. In such cases, the remedy is not extinguished, but merely deferred till award is made and challenged under section 34 of the Act.

BGS SGS SOMA Distinguished

The 3-judge bench of the SC in BGS SGS SOMA JV v. NHPC Limited (2020) in paragraph 17 of the judgment approved the findings of Division Bench judgment of Delhi High Court in Harmanprit Singh Sidhu v. Arcadia Shares and Stock Brokers Pvt. Ltd. (2016), which created an artificial distinction between judgments which either set aside, or refuse to set aside, an arbitral award on merits under section 34 of the Arbitration Act, and preliminary orders of condonation of delay, which has no impact on the award. Bhayana Builders (Respondents), in the present case, trained their guns to rely on this judgment, and argued that refusal to set aside award referred to in section 37(1)(c) can only be on merits and not on some preliminary ground which would then lead to refusal to set aside award.

The SC, in the present case, clarified that the decision of the SC in BGS SOMA was made in context in which an application under section 34 has to be returned to the appropriate court depending upon where seat of arbitration was located. Moreover, the question before the SC in BGS SOMA was altogether different, and it was not concerned with interpretation of section 37(1)(c) of the Act. Lastly, the SC held that observations made in the judgment are to be seen in their context, and they cannot be cherry-picked and seen completely divorced from the context, to make it applicable to the situation at hand. Therefore, the decision in BGS SOMA will not be applicable to the present case.

Conclusion

Although minimal judicial intervention is one of the bed-rock principles of arbitration law, right of appeal, already limited by section 37 of the Act, cannot be further narrowed down to exclude appeals which are provided for in the section. Based on modified version of minimal judicial intervention, i.e., minimal Supreme Court intervention, this decision will potentially reduce the burden of SC, which was envisaged to hear matters relating to important questions of law, and not to hear matters of condonation of delay.

Pinak Parikh

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