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7 April 2021

Legal Update: Supreme Court Clarifies That Delay In Filing Appeals Under Section 37 Of The Arbitration Act Can Be Condoned

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The Supreme Court ("Court") was recently called upon to decide on the contours of the limitation period applicable to the appeals filed under Section 37
India Litigation, Mediation & Arbitration

Introduction

The Supreme Court ("Court") was recently called upon to decide on the contours of the limitation period applicable to the appeals filed under Section 37 of the Arbitration and Conciliation Act, 1996, ("Arbitration Act"). Highlighting the object of speedy resolution of disputes in the arbitration regime, the Court on 19.03.2021 in Government of Maharashtra versus M/s Borse Brothers Engineers & Contractors Private Limited1, ("the Judgment") held that delay of more than 120(one-twenty) days in filing appeals under Section 37 of Arbitration Act can be condoned by way of exception and not a norm. In doing so, the Court also overruled its earlier decision rendered in M/S N.V. International v. State of Assam2 ("N.V International") wherein this Court had held that a delay of more than 120 days in filing appeals under Section 37 of Arbitration Act cannot be condoned.

This article encapsulates a brief overview of the Judgment passed by the Apex Court and tries to analyze the rationale behind the decision and its implications thereof on the law.

Factual Matrix

Three separate appeals arose out of the judgments of the Bombay, Delhi, and Madhya Pradesh High Courts with respect to the condonation of delay in filing the Appeal under Section 37 of Arbitration Act.

The High Courts of Bombay and Delhi, separately, dismissed the Appeals filed by the Government of Maharashtra and the Union of India, refusing to condone delay beyond 120 days period in filing the Appeal under Section 37 of the Arbitration Act. The Madhya Pradesh High Court, alternatively, demurred to follow the dictum laid down by the Supreme Court in NV International, stating that there is a conflict between the judgment of NV International and a decision rendered by a larger bench of the Supreme Court in Consolidated Engg. Enterprises v. Irrigation Department,3 ("Consolidated Engineering"). Having noted the divergent views in which the limitation period has been perceived by courts so far, the Supreme Court was asked to settle the question in relation to the period of limitation applicable to Appeals filed under Section 37 of the Arbitration Act and also to consider the correctness of the law laid down in N.V International.

Issues for consideration:

  1. Whether application of Section 5 of the Limitation Act, 1963 ("Limitation Act") is excluded by the scheme of the Commercial Courts Act?
  2. Whether the judgment the Supreme Court in N.V International lays down the law correctly?
  3. Whether the application of Section 5 of the Limitation Act will apply to Appeals which are governed by a uniform 60- day period of limitation?

Interplay between Arbitration, Commercial Courts Act and Limitation Act.

To clear the air relating to the issue of period of limitation applicable to Appeals filed under Section 37 of the Arbitration Act, the Supreme Court exhaustively discussed the relevant statutory provisions of three statutes vis-à-vis: Arbitration Act, Limitation Act, and Commercial Courts Act, 2015 ("Commercial Courts Act"). The Court stated that Section 37 of the Arbitration Act when read with Section 43 thereof, makes it clear that the provisions of the Limitation Act will apply to Appeals that are filed under Section 37 of the Arbitration Act. Having said so, Articles 116 and 117 of the Limitation Act will automatically come into play. Articles 116 and 117 of the Limitation Act provide for a limitation period of 90 days and 30 days, depending upon whether an Appeal is from any other court to a High Court or an intra High Court Appeal. In pursuance thereof, Section 5 of the Limitation Act will apply to the aforesaid Appeals, both by virtue of Section 43 of the Arbitration Act and by virtue of Section 29(2) of the Limitation Act.

However, given the definition of "specified value" under the Commercial Courts Act and when the said Act is applied to the aforesaid Appeals, in cases where the subject matter of an Arbitration is a commercial dispute whose specified value is for a sum above than three lakh rupees, the limitation period of 60 days under Section 13(1A) of the Commercial Court Act would apply. On the contrary, it is only when the subject matter of an Arbitration is a commercial dispute whose specified value is for a sum less than three lakh rupees, then the appellate provision contained in Section 37 of the Arbitration Act will be governed, for the purposes of limitation, by Articles 116 and 117 of the Limitation Act. However, the main object of the Arbitration Act requiring speedy disposal of the disputes would be of paramount importance when applications under Section 5 of the Limitation Act are filed to condone the delay.

Whether application of Section 5 of the Limitation Act is excluded by the scheme of the Commercial Courts Act?

The Respondent in one of the Appeals, argued that having regard to the object of speedy disposal of disputes under Commercial Court Act, Section 13 of the said Act excludes the applicability of Section 5 of the Limitation Act. With reference to the same, the Respondent referred upon the decision of CCE & Customs v. Hongo India Pvt. Ltd4, wherein this Court while dealing with Section 35-H (1) of Central Excise Act, 1944 ("Central Excise Act"), held that the prescribed limitation period under Section 35-H (1) is absolute and cannot be extended by invoking the provisions of Section 5 of the Limitation Act.

Noting the above, it became necessary for the Court to determine whether the application of Section 5 of the Limitation Act is excluded by the scheme of Commercial Courts Act or not. Negating the arguments of the Respondent, the Court extensively examined Section 13 (1A) of the Commercial Courts Act and held that on a plain reading of Section 13(1A), it becomes clear that the above-cited section does not contain any provision analogous to Section 34(3) of the Arbitration Act. Section 13(1A) of the Commercial Courts Act only provides for a limitation period of 60 (sixty) days from the date of the judgment or order appealed against, without further going into whether delay beyond this period can or cannot be condoned.

The Court highlighted a stark contrast between Section 13(1A) and Section 16 of the Commercial Court Act read with Schedule thereof and the amendment to Order VIII Rule 1 & Rule 10 of the CPC. Court also referred to certain relevant provisions of the Central Excise Act and held that a bare perusal of the above-citied provisions shows that a double and triple period is provided for filing the written statement under Order VIII Rule 1 & Rule 10 of CPC or Appeals under Section 35, 35-B, 35 G & H of the Central Excise Act. The Court stated that the double or triple period included the ordinary period in addition to the grace period. In contrast, Section 13(1A) of the Commercial Courts Act only provides an intermediate period for filing an Appeal that is, a period that is halfway between 30 (thirty) days and 90 (ninety) days provided by Articles 116 and 117 of the Limitation Act. Since, no other provisions in the Commercial Courts Act provide for the period of limitation coupled with condonation of delay provision, the application of Section 5 of the Limitation Act cannot be said to be excluded by the scheme of the Commercial Courts Act.

The Court however noted that keeping in mind the scheme of the Arbitration Act, condonation of delay under Section 5 of the Limitation Act has to be seen in the context of the object of speedy resolution of disputes.

Overruling of NV International

On December 06, 2019, in the matter of N.V. International, the question of computing the limitation period for filing an appeal under Section 37 of the Arbitration Act had arisen before the Supreme Court. In this case, the Arbitral Award was rendered on 19.12.2006. A challenge to the Arbitral Award was made in accordance with Section 34 of the Arbitration Act, however, the same was dismissed on 30.05.2016. Aggrieved by the same, the Petitioner preferred an Appeal under Section 37 of the Arbitration Act. However, the said Appeal was filed after a delay of 189 days beyond the 90 days of the prescribed time limit under Article 116 of the Limitation Act.

Upholding the dismissal of Appeal under Section 37 of the Arbitration Act by relying on its earlier decision in Union of India v. Varindera Constructions Limited5("Varindera"), the Supreme Court held that since an application under Section 34 of the Arbitration Act has to be filed within the period of 90 days in addition to the grace period of 30 days (i.e. 120 days) an Appeal arising from the self-same proceedings under Section 37 should also be filed within the same period i.e. 120 days. The Court also held that if the party filing the Appeal fails to make an Application within 120 days from the day its petition under Section 34 of the Arbitration Act was either allowed or dismissed, the delay shall not be condoned as it would frustrate the objective of the Arbitration Act which is intended to promote speedy resolution of disputes.

While examining the law laid down in N.V International, the Court opined that the distinction between legislation and interpretation is a fine one. Given the constitutional spectre of separation of powers under Article 141 and Article 245 of the Constitution of India, the legislature is intended to make law and the judiciary can only declare the law. The judiciary should not transgress its powers. In the view of the aforesaid, the Court opined that the 120 days cap which bars the condonation of delay by even one day cannot be judicially engrafted onto an Appeal provision that has no cut-off point beyond which delay can be condoned. The Court stated that in doing so, the judiciary will cross the Lakshman Rekha and become a legislator stating what the law ought to be, instead of what law the law is.

Having said that, the Court held that that the judgment in N.V. International does not lay down the correct exposition of the law and cannot be relied upon vis a vis on three grounds:

  • Firstly, because the judgment failed to notice the provisions of the Commercial Courts Act.
  • Secondly, the period of 90 days in addition to the 30 (thirty) days grace period provided in Section 34(3) of the Arbitration Act cannot apply to the Appeals filed under Section 37, since the prescribed period of limitation for filing of Appeals under Section 13(1A) of the Commercial Courts Act is provided as 60 (sixty) days and not 90(ninety) days.
  • Thirdly, in the absence of a provision curtailing the condonation of delay beyond the period prescribed under Section 13 of the Commercial Courts Act, bodily lifting the same from the last part of Section 34(3) into Section 37 of the Arbitration Act cannot be warranted.

'Sufficient Cause' in condoning the delay - Explained

To examine the application of Section 5 of the Limitation Act to Appeals which are governed by a uniform 60- day period of limitation, the Court after examining and analyzing the plethora of judgments endeavored to crystalize the meaning of 'sufficient cause' in condoning the delay for filing Appeals under Section 37 of the Arbitration Act. The Court held that on reading of Section 37 of Arbitration Act with either Article 116 or 117 of the Limitation Act or Section 13(1A) of the Commercial Courts Act as a whole, it is evident that the objective of the above-cited statutes is to ensure speedy disposal of Appeals filed under Section 37 of the Arbitration Act. The challenge however, is to read the expression "sufficient cause" as enshrined in Section 5 of the Limitation Act, harmoniously with the aforesaid objective.

The Court said that the expression "sufficient cause" contained in Section 5 of the Limitation Act "is elastic enough to yield different results depending upon the object and context of a statute". However, keeping in mind the objective of speedy resolution of disputes under both the Arbitration Act and the Commercial Courts Act, the word "sufficient cause" is not flexible enough to cover long delays beyond what the Appeal provision lays down. Hence a delay beyond the period of 90 days, 30 days, or 60 days, is to be condoned by way of exception and not by way of rule.

The court further added that: "In a fit case in which a party has otherwise acted bona fide and not in a negligent manner, a short delay beyond such period can, in the discretion of the court, be condoned, always bearing in mind that the other side of the picture is that the opposite party may have acquired both in equity and justice, what may now be lost by the first party's inaction, negligence or laches".

Fate of the Appeals

The appeals against Delhi and Bombay High Court judgments were dismissed. However, the Apex Court set aside the judgment of the Madhya Pradesh High Court on the ground that it was bound to follow the judgment of NV International which was at that point of time-binding on it by virtue of Article 141 of the Constitution of India.

Footnotes

1 Government of Maharashtra versus M/s Borse Brothers Engineers & Contractors Private Limited , 2021 SCC OnLine SC 233

2 M/S N.V. International v. The State of Assam, (2020) 2 SCC 109

3 Consolidated Engg. Enterprises v. Irrigation Department, (2008) 7 SCC 169

4 CCE & Customs v. Hongo India Pvt. Ltd, (2009) 5 SCC 791

5 Union of India v. Varindera Constructions Limited, (2020) 2 SCC 111

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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