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Supreme Court rules on limitation period for setting aside an award - International Law Office

International Law Office

Litigation - India

Supreme Court rules on limitation period for setting aside an award

December 21 2010

Introduction
Facts

Lower court decisions
Supreme Court decision
Comment


Introduction

In its decision regarding Coal India Limited v Ujjal Transport Agency,(1) the Supreme Court has made an important pronouncement on how to calculate the limitation period when filing an application for setting aside an award under the Arbitration and Conciliation Act 1996.

The court considered whether the standard limitation period of three months for an application under Section 34(1) of the act(2) can include the time during which the applicant is prosecuting the matter in good faith and with due diligence, but before the wrong court.

Facts

The first respondent filed an application under Section 11 of the act and an arbitrator was appointed. The arbitrator made an award on February 6 2009.

Application for appeal under Section 34
The appellants were under the impression that the proceedings under Section 34 of the act (for setting aside the award) were in the nature of an appeal against the award. Therefore, on May 6 2009 they filed an appeal under Section 34 before the Guwahati High Court.

On receiving notice in the execution levied in regard to the award, the appellants realised that the proceedings under Section 34 were not by way of an appeal before the High Court, but by way of an original application before the district court. However, as the courts were closed between September 25 2009 and October 19 2009, on October 19 2009 (as soon as the courts reopened) the appellants filed a new application under Section 34 before the district court.

Initial application for extension
Alongside the application for appeal before the district court, the appellants also filed an application under Section 5 of the Limitation Act 1963,(3) requesting an extension in filing the application under Section 34 of the Arbitration and Conciliation Act.

On October 29 2009 the appellants filed their application before the High Court for withdrawal of the original appeal. The next day, the High Court permitted them to withdraw the appeal on the grounds that it was not sustainable. Addditionally, it stated that the extension would be considered by the district court.

Subsequent applications for extension
Following the High Court decision, the appellants retracted the initial application for an extension, as it had been filed under an incorrect provision of law, and filed a fresh application under Section 34(3) on November 3 2009.

At the hearing of the new application on December 21 2009, the court considered that the application should have been filed under Section 34(3) of the act, read with Section 14 of the Limitation Act. The appellants therefore withdrew the second extension application and filed yet another application on January 8 2010 (under Section 34(3), read with Section 14). This final extension relied on the proviso that the limitation period of the application would exclude the time spent in good-faith prosecution of the proceedings before the High Court.

Lower court decisions

On February 26 2010 the district judge dismissed the application for an extension. The appellants filed an appeal before the High Court, but it was rejected on April 7 2010. The appellants then challenged the High Court decision by means of a special leave petition before the Supreme Court of India.

Supreme Court decision

Explanation for application
The first respondent contended that different causes were shown and different explanations were given by the appellants in:

  • the application for an extension filed by the appellant before the district court on November 3 2009;
  • the subsequent application under Section 34(3) of the Arbitration and Conciliation Act read with Section 14 of the Limitation Act, filed on January 8 2010; and
  • the October 29 2009 application for withdrawal of the appeal, filed before the High Court.

The Supreme Court held that the proviso to Section 34(3) enables the court, if satisfied that the applicant was prevented by sufficient cause, to entertain the application within a further period of 30 days, but not thereafter.

Referring to its decision in Consolidated Engineering Enterprises v The Principal Secretary (Irrigation Department),(4) the Supreme Court reiterated that even where there is jurisdiction for applying Section 14 of the Limitation Act, the period of limitation will continue to be three months (subject to extension under the proviso to Section 34(3) of the Arbitration and Conciliation Act). However, in computing the limitation period of three months for the application under Section 34(1) of the act, the time during which the applicant was prosecuting the matter in good faith and with due diligence before the wrong court would have to be excluded.

The court therefore opined that if the appellants could demonstrate that the applications were in good faith and that they pursued the remedy with due diligence before a court without jurisdiction, they would be entitled for exclusion of the period from May 6 2009 to October 30 2009 (or until October 19 2009 when they filed the application before the proper forum).

Accordingly, after considering the appellants' submissions, the court held that a careful examination of the applications showed that there was no inconsistency.

Determination of limitation period
The court considered the fact that the first appellant was a corporation and it had to act through its board of directors, not at the level of individual officers. The court also considered the uncertainty in the appellants' minds as to whether:

  • the application under Section 34 of the Arbitration and Conciliation Act had to be filed in the district court only after the withdrawal of the intended appeal under Section 34 before the High Court;
  • the withdrawal and filing of a fresh application under Section 34 should be simultaneous; or
  • to avoid delay, the application under Section 34 should be filed in the district court immediately, even before the application for withdrawal could be moved before the High Court.

On this basis, the court held that the appellants had demonstrated their diligence by filing the application under Section 34 of the act on October 19 2009, immediately on reopening of court, without waiting for a formal order of withdrawal of the intended appeal under Section 34 before the wrong forum. Therefore, the Supreme Court held that the application under Section 34 (on October 19 2009) was not belated.

The court also considered that if the period spent before the wrong forum were excluded, the application had been filed within three months and the question of delay did not arise. The filing of an application for extension under an incorrect provision of the law would not hinder the application.

The Supreme Court therefore set aside the April 9 2010 judgment of the High Court and held that, by excluding the time spent before the wrong forum, the application under Section 34 of the act was filed in time.

Comment

The judgment reinforces the provisions of Section 34(3) of the Arbitration and Conciliation Act - an application for setting aside an award must be made within three months of the date of receipt of the arbitral award, with a further period of a maximum of 30 days where sufficient cause is proved.

Arbitration as a dispute settlement procedure was envisaged with the idea of reducing the timeframe for the settlement of disputes. Therefore the timeline regarding limitation must be strictly adhered to, unless sufficient cause is shown. However, the determination as to whether the applicant is prevented by sufficient cause is a subjective determination, which is left to the discretion of the court. When a court is making its determination, it must look behind the explanations furnished by the parties to come to a proper and just conclusion. The parties should be aware that ignorance of the law is no excuse.

The court sought to reinforce the primary aim of arbitration proceedings as being an alternative dispute resolution mechanism only between the consenting parties to the contract. A non-party to an agreement, or a party in whose name no specific pleadings have been made with respect of the arbitration agreement, cannot be a party for reference or a subject matter of the award.

Arbitration is essentially a consensual procedure for dispute resolution, and burdening a party that has not consented to it, for whatever reasons, would be against the intention of the act. The courts have rightly deprecated such attempts.

For further information on this topic please contact Bishwajit Dubey or Tamal Mandal at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 4159 0700), fax (+91 11 2692 4900) or email (bishwajit.dubey@amarchand.com or tamal.mandal@amarchand.com).

Endnotes

(1) Civil Appeal 8703 of 2010 (Arising out of SLP (C) 17401/2010), decided on October 21 2010.

(2) Section 34 - Application for setting aside arbitral award - states that:

"1. Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Subsection (2) and Subsection (3).

2. An arbitral award may be set aside by the Court only if:

(a) the party making the application furnishes proof that:

(i) a party was under some incapacity;

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force;

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present his case;

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matter beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or

(ii) the arbitral award is in conflict with the public policy of India.

Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption, or was in violation of Section 75 or Section 81.

3. An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal, provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."

(3) Section 5 - on the extension of prescribed period in certain cases - states that:

"Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure 1908 (5/1908) may be admitted after the prescribed period, if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period;

The fact that the appellant or the applicant was misled by any order, practice or judgment of the High Court in ascertaining or computing the prescribed period may be sufficient cause within the meaning of this section."

(4) (2008) 7 SCC 169.


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