CHINTELS INDIA V. BHAYANA BUILDERS: CAN A DELAY BE CONDONED UNDER SECTION 37 OF A&C ACT
Updated: Apr 6, 2021
Author: Monika Prajapat, IV Year of B.A.,LL.B(Hons) from Institute of Law, Nirma University.
Co-author: Charu Kasera, IV Year of B.A.,LL.B(Hons) from Institute of Law, Nirma University.
The Indian Courts have now and again interpreted the rule of appeals under sections 34 and 37 of the Indian Arbitration and Conciliation Act, 1996 (“the A&C Act”) through several judgments. However, the question as to whether condonation of delay applications can be entertained under section 37 of the Act has been recently answered by the Hon’ble Supreme Court in the Judgment of Chintels India Ltd v. Bhayana Builders Pvt. Ltd.
In this post, the authors will analyze the scope of appealability of an arbitral award if it is refused on grounds of the limitation period and whether the same can be condoned under the ambit of section 37 of the A&C Act.
On February 11, 2021, the Hon’ble Supreme Court deciphered the horizon of section 37 of the A&C Act (that provides for appeal) and established the rule as to what is the remedy for the petitioner company, whose application for condonation of delay was rejected by the single judge of High Court and the appeal against the same was dismissed by the division bench.
The series of events can be traced back to the year 2019 when M/s Chintels India Limited (“the petitioner company” or “the appellant company”) challenged the arbitral award passed by the arbitral tribunal before the single judge of Delhi High Court. The grounds proposed for the challenge of the award was the rejection of claims of the petitioner by the tribunal.
Interestingly, the petition was itself filed after a delay of 28 days in filing and 16 days in re-filing of the petition, which clearly made the petition outside the scope of the maximum limitation period of 3 months as given under section 34 (3) of the A&C Act. Hence, the petition was dismissed by a single judge of the High Court.
Aggrieved by the dismissal, the petitioner company filed an appeal under section 37 of the A&C Act before the division bench of Delhi High Court. Herein, the first question addressed by the Court was to determine whether section 37 provides a proper redressal for filing an appeal against the rejection of petition on the ground of exceeding the maximum limitation period of 120 days as specified under Section 34 (3) of A&C Act. The next question before the court was to examine whether the expression “setting aside of an arbitral award under section 34” in section 37 of A&C act can be restricted to grounds given under section 34 (2) only or it would cover the grounds given under the entire section 34.
CONUNDRUM OF INTERPRETATION OF SECTION 37 OF A&C ACT
Prior to this Judgment, the interpretation of section 37 of the A&C Act by several High Courts of India and the Judgment of BGS SGS Soma JV v. NHPC Ltd by the Hon’ble Supreme Court had created a dilemma for appealability of condonation of delay. Hence, in the present judgment, the Supreme Court weighed the reasonability of the arguments to determine the scope of section 37. Herein, the construction of section 34 of the A&C Act played an important role.
It was highlighted by Bhayana Builders (“the respondent”) that it is only sub-section 2 of section 34 that contains the grounds for rejection of the arbitral award whereas sub-section 3 of section 34 simply lays down the limitation period. Also, it is an established practice that “refusal to set aside any award” can be solely on merits and not on preliminary grounds. Hence under section 37 of the A&C Act, usage of the words “setting aside or refusing to set aside an arbitral award” followed by the expression “under article 34” demonstrates that appeal can only be made for refusal to set aside an award under subsection 2 of section 34. This argument was strengthened by the rationale that where grounds under section 34 are not applied and the application is simply returned, the appeal against the same won’t fall under the ambit of section 37, as held by the Hon’ble Supreme Court in the case of BGS Soma JV v. NHPC Ltd.
A similar construction was also given by the Delhi High Court in the case of Harmanprit Singh Sidhu v. Arcadia Shares and Stock Brokers Pvt. Ltd, wherein court dismissed on the law point that condonation of delay applications are appealable under section 37 of A&C Act.
In opposition to the above-mentioned construction of the law, the appellant company presented before the court that the case of BGS Soma is inapplicable in the present case and that statutory right of appeal shall be constructed widely.
It was contended by the appellant that BGS Soma case dealt with the Jurisdictional issue wherein section 34 applications was presented before the Court, which was incompetent to deal with the application. Hence, that case was based on entirely different question in contrast with the present facts of the case. Additionally, dismissal of a statutory appeal on the preliminary ground would amount to the dismissal of the appeal as it narrows down the scope of remedy for the aggrieved litigant.
Moreover, another interpretation of section 37 in the case of Essar Constructions v. N.P Rama was brought before the Supreme Court by the appellant, who contended that section 37 of Arbitration Act, 1996 is para-materia with section 39 of 1940 Act. In this judgement, the Apex court allowed that an appeal can be presented under section 39 of the Act when there is a refusal to pardon delay, as it results in an order refusing to set aside the arbitral award.
Clearly, this construction was refuted by the respondent stating that the above-mentioned judgment falls under the scope of the old arbitration act and the section 37 of A&C Act, 1996 and section 39 of Arbitration Act, 1940 are not para-materia. This claim was based on the reasoning that the grounds for setting aside arbitral award under the 1940 Act are altogether different from grounds mentioned 1996 A&C Act
DISSEMINATING THE GAMUT OF APPEALS
In the judgment delivered by the learned single judge of the High Court, it refused to entertain the application of condonation of delay in filing of Section 34 applications. Due to this order of refusal to condone delay, the court also indirectly denied setting aside of the arbitral award. Hence, the appellant being remediless approached the Hon’ble Supreme Court to decide the issue of appealability of such orders.
On the paramount issue of interpretation of the statute, the Apex Court in this case took the literal interpretation of the language of Section 37(1)(c) of Arbitration Act, 1996. In this Section, the phrase “setting aside or refusing to set aside an arbitral award” should not be read alone, it has to be read with the phrase “under section 34”, deducing that the grounds for appeal are not restricted to be grounds given in Section 34(2) but includes the whole Section 34 for the purpose. If the Legislature intended to limit the scope of an appeal to grounds given in Section 34(2), it could have explicitly mentioned it in Section 37(1)(c). Since it refers to the entire section 34, the appeal shall lie from the order of refusal to condone the delay, as this denial is ultimately leading to the refusal of setting aside an arbitral award.
The court applied one crucial test known as “effects doctrine” referred to in Essar Constructions v. N.P. Krishna Reddy (2000) which is statutorily incorporated in Section 37 of the 1996 Act. It was observed that when an application for setting aside an award is dismissed either on merits or on the ground of being filed beyond the time limit prescribed, the effect of this dismissal order is a refusal to set aside an award and this refusal order is appealable.
On the significant concern of “sufficient causes cases”, the legal principle of lex special is derogat legi generali (Special laws repeals general laws) and the decision of case Union of India v. M/s. Popular Construction was applied by the Supreme Court observing that Section 34(3) of the Arbitration Act, 1996 being a special provision dealing with condonation of delay will override or derogate Section 5 of the Limitation Act, 1963 which is the general provision relating to condonation of delay.
The Apex court discerned that on bare reading and literal interpretation of the new and old statute, Section 39(1)(vi) of the 1940 Arbitration Act is in pari materia with Section 37(1)(c) of the 1996 Arbitration Act. Citing the judgment of Union of India v. Simplex Infrastructures Ltd. (2017), the Court pondered on the question of exercise of jurisdiction by Single Judge while condoning the delay in filing Section 34 applications and declared such jurisdiction as valid.
Moreover, in the verdict, the Court crucially examined that it is indisputable that Arbitration Act, 1996 under Section 5 calls for Minimal judicial intervention. But the Apex court while stressing on the phrase “except where so provided in this Part” of Section 5 held that Section 37 is provided in this part. The scope of section 37 of the 1996 Act though provides for the limited right of appeal, but this limited right of appeal cannot be further limited by Court by ruling out appeals which are statutorily part and parcel of the provision.
A WAY FORWARD
The Right to appeal is an indispensable right, which is allowed to parties when there is the determination of the question of law which fundamentally affects the right of one or more parties and where it seems just and proper for the Court to determine the question. Even though the Arbitration Act provides for the limited scope of the appeal, the aim is to secure the interests of the aggrieved party.
When a party is denied condonation of delay in application for setting aside of the award, the consequence is that the aggrieved is left with no recourse but either to surrender to the given award even when there were admirable grounds for setting aside the award or to approach Supreme Court via Special leave petition. Courts have to be flexible while looking at the sufficient causes of delay as it can happen due to various reasons depending on social and economic factors faced by the aggrieved litigant. It is unfair and unreasonable to not even allow Courts to look at applications that have been filed beyond time.
After this judgment, the Courts have the authority to deal with section 34 applications on merits even when the application is filed beyond time and reduce case inflow towards the Supreme Court.