India: Interpretation Of Appealable Orders Under Section 37 Of The Arbitration Act, 1996: Analysis Of Chintels India Ltd. V. Bhayana Builders Pvt. Ltd.

INTRODUCTION

Sub-section (3) of Section 34 of the Arbitration and Conciliation Act, 1996 (Act) provides that an application for setting aside an arbitral award must be made within three months from the date on which the party making that application had received the arbitral award. The sub-section provides that a delay of up to 30 days and not thereafter may be condoned provided an accompanying application for condonation of delay is made for such purpose. In terms of adjudication under Section 34 of the Act, an order refusing to condone delay in submission of an application under Section 34(3) of the Act may however result in shutting the door for the aggrieved party seeking the remedy of setting aside of award under Section 34 of the Act. A refusal to condone delay under Section 34(3) of the Act, it is submitted, has the effect of foreclosing any adjudication on the substantive merits of the application in accordance with sub-section (2) of Section 34 of the Act.

As a result, an order rejecting the application for condoning the delay in filing of the application under section 34 of the Act may 'in effect' be an order which refuses to set aside the arbitral award without considering the grounds provided under sub-section (3) of Section 34 of the Act. This anomaly was addressed by the Supreme Court in Chintels India Ltd v. Bhayana Builders Pvt Ltd¹ (Chintels) wherein it addressed the question of whether an order refusing to condone the delay in filing of the application under section 34 of the Act was an appealable order under section 37(1)(c) of the Act. The said question has seen conflicted and divided opinion in M.P,² Bombay,³ Karnataka,⁴ Delhi⁵ and Calcutta High Courts.⁶ The Supreme Court answered the same in the affirmative holding that a rejection of condonation of delay under section 34(3) of the act was indeed an appealable order under section 37 of the Act. Consequently, parties aggrieved by the refusal of the court to grant condonation of delay may approach the appellate court under Section 37 of the Act. The court's interpretation of order refusing delay, role of sub-section (3) vis-a-vis merit of the application and recourse to appeal can be understood by studying two of its implications in greater detail.

ORDER REFUSING CONDONATION AS A SUBSTANTIVE ORDER: EFFECT BASED INTERPRETATION OF SECTION 34(2) VIS-AVIS SECTION 34(3) OF THE ACT.

The proviso to sub-section (3) provides 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. The bar on entertaining application under Section 34(3) of the Act read with Section 5 of the Act cannot be interpreted with reference to the Section 5 of the Limitation Act, 1963.⁷

In Chintels, the court placed an order refusing to condone delay as one step above the preliminary question as illustrated in BGS SGV Soma⁸ of returning application for its submission before the court which had jurisdiction to decide the said application. Unlike preliminary issues, a refusal to condone the delay was held to have an element of finality vis-a-vis rights and liabilities of the parties to the proceedings. The court, referring to Essar Constructions v. N.P. Rama Krishna Reddy,⁹ ruled that a refusal to condone delay would result in a refusal to set aside the arbitral award without adjudicating upon the merits of the award under Section 34 of the Act. In Essar Constructions, it was ruled by the court that an appeal lies where a single judge refuses to condone the delay, resulting in an order refusing to set aside an arbitral award. However, it must be noted that Essar Construction's ruling was in the context of Section 39 of the Arbitration Act, 1940. The court in Chintels, referring to Chief Engineer of BPDP/REO Ranchi,¹⁰ affirmed that Section 39 of the Arbitration Act, 1940 was in pari materia with Section 37 of the Arbitration Act, 1996. Conversely, in Union of India v. Simplex Infrastructure Ltd,¹¹ a refusal to condone the delay in filing of application, not being related to the merits of the application, was held to not extend to the subject matter of the application for setting aside the award under Section 34 of the Act. In Jayshri Ginning, it was held that the real test of effect or result under Section 34 of the Act was whether the decision on the application referring condonation of delay would amount or result into final adjudication of the rights of the parties.¹² In Chintels, the court ruled that an order rejecting application for condonation of delay would amount to or result in final adjudication of the rights of the parties and thus warrants an appeal under Section 37 of the Act. However, it is only the order refusing to condone the delay in filing of application that would be an appealable order under Section 37 of the Act. This is because, unlike refusal, an order condoning delay merely defers and does not extinguish the right of the aggrieved party to seek redress for condonation of delay as and when it assails the award under Section 37 of the Act.

THE AMBIT OF "SETTING ASIDE OR REFUSAL TO SET ASIDE" IN SECTION 37(1)(C ) OF THE ACT

Sub-section (3) of Section 37 of the Arbitration Act provides for an appeal against an order setting aside or refusing to set aside an arbitral award under section 34 of the Act. The reference in Section 37(1)(c) of the Act to section 34 and not section 34(2) specifically of the Act was interpreted by the court in Chintels as covering an order under sub-section (3) of Section 34 of the Act. Furthermore, the court ruled that "effect doctrine" referred to in Essar Constructions was statutorily inbuilt in Section 37 of the Act inasmuch Section 37(1)(a) and Section 37(2)(a) of the Act provides a right to appeal against any order wherein determination is final as it brings the arbitral proceedings to an end. Section 34 of the Act interprets "recourse against arbitral award" to only mean an application for setting aside such award as per sub-section (2) and sub-section (3) of Section 34 of the Act. A successful application for setting aside an arbitral award under Section 34 of the Act must conform to the requirements of sub-section (2), (2A) as well as sub-section (3) of Section 34 of the Act. The court desisted from interpreting a reference to setting aside in Section 37 as a reference to subsection (2) of section 34 of the Act and enlarged the ambit of appealable order to include an order condoning or refusing to condone the delay in filing an application for setting aside the arbitral award.

CONCLUSION

More than anything, the ruling in Chintels streamlines the judicial approach on appealable order against an application for setting aside an arbitral award. The greater emphasis on 'effects' and 'results' as well as party's ability to seek redress may prove useful in resolving many interpretative anomalies present in or those that will arise in the future under the Act. However, there is need for greater clarity on how an order refusing condonation of delay under Section 34(3) and appeal thereof under Section 37 of the Act would address the question of limitation and enforcement of award.

Footnotes

1 Chintels India Ltd v. Bhayana Builders Pvt Ltd. Civil Appeal No. 4028 of 2020.

2 Bisleri International Pvt Ltd and Ors. v. Sun Petpack Jabalpur Pvt Ltd and Anr, 2009 (4) M.P.L.J. 514.

3 E-Square Leisure Pvt Ltd., Pune v. K.K.Dani Consultants and Engineers Pvt. Ltd. 2013 (3) Mh.L.J. 24; Jayshri Ginning & Spinning Pvt. Ltd. v. C.A. Galiakotwala & Company Pvt Ltd. 2016 SCC OnLine Bom 5067.

4 M/s Crompton Greaves Ltd. v. M/s Annapurna Electronics and Ors, ILR 2015 KAR 4199.

5 Harmanprit Singh Sindhu v. Arcadia Shares & Stock Brokers Pvt. Ltd. (2016) 234 DLT 30.

6 Damodar Valley Corporation v. Sanjay Singh Rathor 2018 SCC OnLine Cal 4014.

7 Union of India v. Popular Constructions. (2001)8 SCC 470. Turnkey Constructions Pte Ltd, Bangalore v Mrs. VR Bur and Ors 2001 (3) ARBLR 31(Kar).

8 BGS SGS Soma JV v. NHPC Limited (2020) 4 SCC 234.

9 Essar Constructions v. N.P.Rama Krishna Reddy (2000) 6 SCC 94.

10 Chief Engineer of BPDP/REO Ranchi v. Scoot Wilson Kirpatrick India (P) Ltd. (2006) 13 SCC 622 ¶ 7-10.

11 Union of India v. Simplex Infrastructure Ltd (2017) 14 SCC 225.

12 Jayshri Ginning & Spinning (P) Ltd. v. C.A. Galiakotwala & Company Pvt Ltd. MANU/MH/1185/2016. ¶ 9.

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