[Rhythm Buaria is an advocate practicing commercial and matrimonial disputes before courts in Delhi]
The Supreme Court in Bhimashankar Sahakari Sakkare Karkhane Niyamita v. Walchandnagar Industries Ltd. (WIL) held that a challenge to an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 cannot be entertained under the proviso to section 34(3) even if the 30-day period expires on a holiday or during court vacation. Section 34(3) of the Arbitration Act prescribes a three month period for challenging an arbitral award with a further period of 30 days if the award debtor can show sufficient cause for delay in presenting the challenge within three months. This ruling, the author argues is based on an incorrect application of the law and divests the award debtor from exercising a very valuable right which in any case is severely restricted under the statute.
The facts germane to the present analysis are: i) an arbitral award dated 24 August 2016 was passed against Bhimashankar which it received on the same day; ii) Bhimashankar filed a challenge against this arbitral award on 2 January 2017; and iii) the 30-day period under the proviso to section 34(3) for the purposes of this challenge expired on 24 December 2016 during the currency of court vacation which commenced on 19 December 2016 and ran until 1 January 2017.
Submissions of the parties
Several submissions were made on either side. The submissions actually considered by the Court and relevant to the present discussion are stated below.
The main plank of Bhimashankar’s submission was that section 10 of the General Clauses Act, 1897 would be applicable to proceedings under section 34(3) of the Arbitration Act. The effect being: Bhimashankar’s filing of the challenge to the arbitral award on the day immediately after the court vacation ended would in law be considered as a challenge within the prescribed period and therefore maintainable. This submission was based on the underlying principle of section 10 of the General Clauses Act which is, that a party cannot be compelled by law to do an impossible act. Bhimashankar further argued that non-applicability of section 10 of the General Clauses Act would lead to unequal treatment as some award debtors would be able to take refuge under the proviso to section 34 while others similarly placed would not have the benefit of this rule on account of fortuitous circumstances. Bhimashankar also argued that section 4 of the Limitation Act, 1963 (which is inapplicable to all proceedings to which the Limitation Act is not applicable) when it speaks about expiry of ‘prescribed period’ (see section 2(j)) on a day the court is closed does not deal with statutorily condonable period and this vacuum could be filled by section 10 of the General Clauses Act which is wider in import. In view of the above, Bhimashankar argued that the Supreme Court’s decision in Assam Urban Water Supply and Sewerage Board v. Subash Projects and Marketing Limited ruling that section 4 of the Limitation Act was inapplicable was incorrect, inasmuch as the Court in that case did not consider section 10 of the General Clauses Act. Finally, Bhimashankar argued that in any case the Limitation Act was not applicable to a proceeding under section 34 of the Arbitration Act and therefore, section 10 of the General Clauses Act would be applicable.
WIL on the other hand heavily relied on Assam Urban and argued that the 30-day period under the proviso to section 34(3) did not fall under the meaning of ‘prescribed period’ under section 4 of the Limitation Act. It was therefore of little consequence if this period expired during the court vacation. WIL also relied on Consolidated Engineering Enterprises vs. Principal Secretary, Irrigation Department and Government of Maharashtra v. Borse Brothers Engineers and Contractors Pvt. Ltd. to argue that the Limitation Act is applicable to the Arbitration Act (albeit in a limited sense) which precluded the application of the General Clauses Act.
Judgment and Analysis
The only question that arose before the Court in the facts and circumstances was whether section 10 of the General Clauses Act would apply to proceedings under section 34(3) of the Arbitration Act which it answered in the negative. In coming to this decision, the Court followed Assam Urban.
It is submitted that Assam Urban considered the Supreme Court’s judgment in Union of India v. Popular Construction Co. which specifically held that section 5 of the Limitation Act stood excluded from application to proceedings under section 34(3) of the Arbitration Act in view of section 29(2) of the Limitation Act. However, the Court in Assam Urban as well as in the present case failed to launch an enquiry into the applicability of sections 4 and 2(j) to the Arbitration Act which is a special statute (see Popular Construction). This enquiry which ought to have been made (in view of section 29(2) of the Limitation Act) would lead to the conclusion that section 4 of the Limitation Act is inapplicable to proceedings under section 34(3) of the Arbitration Act. The reasons for this conclusion are these. section 34(3) of the Arbitration Act is a complete code insofar as it prescribes the time period within which an arbitral award can be challenged which is three months plus 30 days. The latter being premised on the ability of the award debtor to satisfy the court about the existence of “sufficient cause” for not filing the challenge until that point. It is submitted that to deprive Bhimashankar of an opportunity to even explain the delay would render the proviso to section 34(3) otiose in circumstances which were beyond its control. This, could not have been the intention of the legislature as is clear from a plain reading of the relevant provision. The language of section 34(3) is clear in that an award debtor as a matter of right can file an application challenging an arbitral award anytime during the 120 days (three months plus 30 day period). Whether the application will be entertained if filed in the extended 30 day period is the only matter left to the discretion of the court. It is submitted that the Court erred inasmuch as it failed to give effect to the true intention of the provision as evinced from a plain reading of the provision.
The Court also erred by applying the definition of ‘prescribed period’ under section 2(j) which expressly states that it means “period of limitation computed in accordance with the provisions of this Act.” As pointed above, the period of limitation for making a challenge under section 34 is computed according to section 34(3) of the Act and not the Limitation Act. Therefore, the definition under section 2(j) could not have been imported to the Arbitration Act.
The above discussion leads to the conclusion that section 43(1) of the Arbitration Act which states that the Limitation Act would be applicable to proceedings under the Act would not be applicable to a proceeding under section 34(3) of the Arbitration Act. Consequently, an award debtor could successfully argue that section 10 of the General Clauses Act would be applicable in facts like that in Bhimashankar. Pertinently, the proviso to section 10 expressly states that it would not apply to any act or proceeding to which the Limitation Act applies. A proceeding under section 34(3) of the Arbitration Act not being hit by the Limitation Act would therefore follow the General Clauses Act. The Court’s finding in Bhimashankar to the contrary lays down incorrect law as it fails to take notice of previous decisions of the Court on the applicability or inapplicability of the Limitation Act to different proceedings under the Arbitration Act .
It is submitted that the right to explain sufficient cause under the proviso to section 34(3) is distinct from the right to be heard on merits of the challenge to the arbitral award. While the former is predicated on filing of an application to explain the delay, the latter is predicated on the satisfaction about the explanation. The Supreme Court’s interpretation of the relevant provisions in Bhimashankar is erroneous inasmuch as it treats it as one and the same thing. The prescribed period therefore for filing an application under section 34(3) of the Arbitration Act is three months plus 30 days, the latter of which too cannot be curtailed on account of fortuitous circumstances. In any case, a challenge made in the extended period can always be thrown out by the court even if the award debtor is given the full benefit on this period by excluding the number of days lost on account of non-working of the court. For now, the Court has missed an opportunity to correct the wrong precedent set a decade ago.
– Rhythm Buaria