Section 34 of the Indian Arbitration and Conciliation Act, 1996 ("The Act") provides for the grounds for setting aside an arbitral award. However, it is important to note that there is also a limitation period within which an application to set aside an award may/can be filed. The Supreme Court has emphasized the importance of filing an application under Section 34 of the Act within the prescribed limitation period of 90 days to claim exclusion of the period during which the Court remained closed. Section 34(3) of the Act specifies a time limit of 90 days for filing an application to challenge the award. The three-month limitation period is intended to ensure that the finality of an arbitral award is not unduly delayed. The time limit is also consistent with the principle of party autonomy, which allows parties to resolve their disputes through arbitration and have the finality of the arbitral award. However, the Proviso to Section 34(3) allows for an extension of 30 days if the applicant has sufficient cause for not filing the application within the initial 90- day period.
It is important to note that the limitation period under Section 34(3) starts from the date on which the party making the application receives the award.
This means that the party making the application must be careful to keep track of when they receive the award and ensure that they file their application within the prescribed time. If a party fails to file an application within the prescribed time, they will be barred from challenging the award in court. This means that the award will become final and binding on the parties and cannot be challenged on any ground.
In a recent ruling, the Court clarified that if the applicant files the application by invoking the proviso to Section 34(3) of the Act, which grants an additional 30 days on the Court's discretion, they would not be entitled to the benefit of such exclusion. Bhimashankar Sahakari Sakkare Karkhane Niyamita v Walchandnagar Industries Ltd.7 (Walchandnagar) highlights the importance of adhering to the prescribed time limit for Section 34 applications under the Arbitration Act. This articles discusses the ruling in Walchandnagar in detail.
Background of the Case
In the present case, an arbitral award was passed against the Appellant, Bhimashankar Sahakari Sakkare Karkhane Niyamita under the provisions of the Act on 24.08.2016 and the period of 90 days prescribed under Section 34(3) of the Act expired on 24.11.2016.
The trial Courts were closed on account of Winter vacations from 19.12.2016 to 01.01.2017. However, it so happened that the extendable/condonable period of 30 days as contemplated in the proviso to Section 34(3) expired on 24.12.2016 on which day the trial Court was closed on account of winter/Christmas vacation. The Appellant filed the application under Section 34 of the Act, challenging the award passed by the Arbitral Tribunal. Additionally, the Appellant also filed Interlocutory Application (IA No. 1) for condonation of delay. Both the Section 34 application as well as the application for condonation of delay were filed on the reopening day i.e. on 02.01.2017.
As the application under Section 34 of the Act was beyond the prescribed period provided under Section 34 of the Act as well as beyond the condonable period of 30 days, the learned trial Court dismissed the IA No. 1 and refused to condone the delay by observing that the period beyond 120 days is not condonable as under the Act, the maximum period provided for preferring an application under Section 34 is 120 days.
Aggrieved with the Order passed by the learned Trial Court refusing to condone the delay in preferring application under Section 34 of the Act, the Appellant preferred an appeal before the High Court.
Findings of the High Court
In the appeal at the High Court against the Order of the Trial Court, the Appellant argued that according to Section 4 of the Limitation Act, 1963, if the prescribed period for filing an application ends on a day when the court is closed, the application can be submitted on the day the court reopens. Additionally, the Appellant relied on Section 10 of the General Clauses Act, 1897, which allows for the filing of an application on the first day the court reopens if the last day of the prescribed period falls on a court holiday.
However, rejecting the contention of the Appellant, the High Court ruled that the term "prescribed period" in Section 4 of the Limitation Act, 1963 refers exclusively to the period of limitation. Therefore, any period beyond the prescribed period, during which the Court or Tribunal has the discretion to allow a person to institute the proceeding, cannot be considered a prescribed period. Consequently, the High Court dismissed the appeal, prompting the Appellant to file an appeal before the Supreme Court.
The issue, therefore, that arose was that when the last day of condonable period of 30 days falls on a holiday or during the Court vacation, would the benefit of Section 10 of the General Clauses Act, 1897 be available to party seeking to challenge the award?
Findings of the Supreme Court
The Supreme Court Bench comprising of Justice MR Shah and Justice Krishna Murari, relied on the judgment in Assam Urban Water Supply and Sewerage Board v Subash Projects and Marketing Limited8, which held that the benefit of excluding the period during which the Court is closed from the computation of limitation is available only when the application for setting aside the award is filed within the prescribed period of limitation. The benefit is not available for any period that is extendable by the Court in the exercise of its discretion.
In addition to the above, the Court also addressed the applicability of Section 10 of the General Clauses Act, of 1897. The Court noted that the Proviso to Section 10 explicitly excludes the application of Section 10 to any act or proceeding to which the Indian Limitation Act, 1877 applies. The reference to the 1877 Act must now be read as a reference to the Limitation Act, 1963 in view of Section 8 of the General Clauses Act, 1897. As the Limitation Act applies to arbitration proceedings, Section 10 of the General Clauses Act cannot be relied upon to seek condonation of delay.
In a present case, the Court has clarified that the benefit of exclusion of the period during which the Court is closed shall only be available when the application for setting aside award is filed within the "prescribed period of limitation" of 90 days under Section 34(3) of the Arbitration Act.
This means that if the last day of the condonable period falls on a Court holiday or during vacation, the benefit of exclusion of that period from the computation of limitation will only be available if the application is filed within the 90- day prescribed period. The Court also held that the benefit of exclusion of time during which the Court is closed will not be available for any period that is extendable by the Court in the exercise of its discretion, such as the additional 30 days under Proviso to Section 34(3) of Arbitration Act.
The Court upheld the High Court's decision of refusing to condone the delay and dismissed the appeal. It was emphasized that the provisions of the Limitation Act, 1963 apply to proceedings under the Arbitration and Conciliation Act, and Section 10 of the General Clauses Act, 1897 cannot be pressed into service for seeking condonation of delay, as it is specifically excluded from such applications by its proviso.
The importance of limitation in arbitration lies in the need to ensure the finality and certainty of arbitral awards. Without a time-limit, parties could potentially challenge or enforce awards indefinitely, leading to delay, uncertainty, and the erosion of the benefits of arbitration. The limitation period provides parties with a clear deadline for bringing any claims related to the award, and also protects the finality of the award once the limitation period has expired.
In addition, limitation periods also promote efficiency in the arbitration process by encouraging parties to act quickly and diligently in pursuing their claims.
It is important for parties to be aware of the limitation periods applicable to their arbitration proceedings, and to take appropriate steps to ensure that they comply with these limitations. Failure to comply with the limitation period can result in the forfeiture of the party's rights to challenge or enforce the award, which could have significant legal and financial consequences. The Supreme Court elucidated that an application for a delay in filing an application connected to arbitration proceedings cannot be made under Section 10 of the General Clauses Act, 1897. The Proviso to Section 10 unambiguously excludes its application to any act or proceeding governed by the Indian Limitation Act, 1877 (now superseded by the Limitation Act, 1963), which applies to arbitration proceedings.
While the benefit of exclusion of the period during which the Court is closed shall be available if the application to challenge an arbitral award must be filed within the limitation period of 90 days the Court determined that the provision cannot be used to seek relief on the basis that the last day of the condonable period falls on a Court holiday. This goes hand in hand with the intent and object of Arbitration to act as a faster mechanism for dispute resolution. Thus, this judgment provides important and crucial guidance on the scope and applicability of Section 10 of the General Clauses Act to arbitration-related proceedings.
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