Supreme Court clarifies appealability of order refusing to condone delay under Section 34 of the Arbitration Act: Chintels India Ltd. vs. Bhayana Builders Pvt. Ltd. (2021) INSC 70 (11 February 2021)

LEGAL ISSUE: Whether an order refusing to condone delay in filing an application to set aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 is appealable under Section 37 of the same Act.

CASE TYPE: Arbitration

Case Name: Chintels India Ltd. vs. Bhayana Builders Pvt. Ltd.

[Judgment Date]: 11 February 2021

Date of the Judgment: 11 February 2021

Citation: (2021) INSC 70

Judges: R.F. Nariman, J., Navin Sinha, J., K.M. Joseph, J. (Majority Opinion by R.F. Nariman, J.)

Can a party appeal an order that rejects their request to excuse a delay in challenging an arbitration award? The Supreme Court of India recently addressed this critical question, which impacts how arbitration disputes are resolved in India. This case clarifies whether a refusal to condone delay in filing an application to set aside an arbitral award is appealable. The Supreme Court, in this judgment, has held that such an order is indeed appealable. The judgment was delivered by a three-judge bench comprising Justice R.F. Nariman, Justice Navin Sinha, and Justice K.M. Joseph, with the majority opinion authored by Justice R.F. Nariman.

Case Background

The case involves a dispute where Chintels India Ltd. (the Appellant) sought to challenge an arbitration award by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996. However, the application was filed after the prescribed limitation period. The Appellant also filed an application to condone the delay. The learned single Judge of the High Court dismissed the application for condonation of delay on 04.06.2020, and consequently dismissed the Section 34 application itself.

Timeline:

Course of Proceedings

The Appellant’s application to condone the delay in filing the challenge to the arbitration award was dismissed by a single judge of the High Court. The Appellant then appealed this dismissal. The Division Bench of the High Court, while acknowledging the arguments in favor of appealability, felt bound by previous Supreme Court decisions and dismissed the appeal as not maintainable. However, the High Court granted a certificate under Article 133 read with Article 134A of the Constitution of India, allowing the Appellant to approach the Supreme Court.

Legal Framework

The core legal provisions at play in this case are:

• Section 34 of the Arbitration and Conciliation Act, 1996: This section deals with applications to set aside an arbitral award. Sub-section (3) specifies the time limit for filing such applications, including a provision for condonation of delay up to a maximum of 30 days beyond the initial three-month period.

  “34. Application for setting aside arbitral award. — (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).”

  “(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.”

• Section 37 of the Arbitration and Conciliation Act, 1996: This section outlines which orders are appealable under the Act. Specifically, sub-section (1)(c) allows appeals against orders “setting aside or refusing to set aside an arbitral award under section 34”.

  “37. Appealable orders. —(1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely: — (c) setting aside or refusing to set aside an arbitral award under section 34.”

The interplay of these sections determines whether an order refusing to condone delay, which ultimately leads to the rejection of an application to set aside an award, is itself appealable.

Arguments

Appellant’s Arguments:

• The Appellant argued that Section 37(1)(c) of the Arbitration Act, 1996, which allows appeals against orders “refusing to set aside an arbitral award under Section 34,” should be interpreted broadly to include cases where the refusal is due to delay.
• The Appellant contended that Section 39 of the Arbitration Act, 1940, which is in pari materia with Section 37 of the Arbitration Act, 1996, has been interpreted to allow appeals in cases where delay was not condoned, as held in Essar Constructions v. N.P. Rama Krishna Reddy (2000) 6 SCC 94.
• The Appellant emphasized that the phrase “under Section 34” in Section 37(1)(c) refers to the entire Section 34, including sub-section (3), which deals with limitation and condonation of delay.
• The Appellant argued that an order refusing to condone delay effectively affirms the underlying arbitral award, thus falling within the scope of “refusing to set aside an arbitral award.”
• The Appellant relied on judgments from various High Courts, such as Madhya Pradesh, Bombay, Karnataka, Delhi, and Calcutta, which have held that an order refusing to condone delay is appealable.
• The Appellant argued that the judgments of the Allahabad High Court in Union of India v. Radha Krishna Seth and Anr., 2005 SCC OnLine All 8400 and the Bombay High Court in State of Maharashtra v. Ramdas Construction Co., 2006 (6) Mah. L.J. 678, which held that such orders are not appealable, are incorrect and should be overruled.
• The Appellant contended that the Supreme Court’s observations in BGS SGS Soma JV. v. NHPC Limited (2020) 4 SCC 234, were in a different context and did not address the issue of whether refusal to condone delay is appealable.
• The Appellant submitted that the Supreme Court’s order in State of Maharashtra and Anr. v. M/s Ramdas Construction Co. and Anr. [C.A. Nos. 5247-5248 of 2007] did not delve into the maintainability aspect, but dismissed the appeal on the specific facts of the case.

Respondent’s Arguments:

• The Respondent argued that Section 37 of the Arbitration Act, 1996, should be interpreted strictly, as it is a self-contained code for appeals, and that the grounds for appeal are exhaustive.
• The Respondent contended that Section 39 of the 1940 Act is not in pari materia with Section 37 of the 1996 Act, as the grounds for setting aside an award under the two Acts are different.
• The Respondent relied on Section 5 of the Arbitration Act, 1996, which mandates minimal judicial intervention in arbitration matters, and argued that allowing appeals on delay condonation would undermine this principle.
• The Respondent argued that the expression “under Section 34” in Section 37(1)(c) should be read to mean a refusal to set aside an award on merits, not on preliminary grounds like limitation.
• The Respondent relied on the Supreme Court’s judgment in BGS SGS Soma (supra), which approved the decision in Harmanprit Singh Sidhu v. Arcadia Shares and Stock Brokers Pvt. Ltd. 2016 SCC OnLine Del 5383, which held that an order condoning delay is not appealable.
• The Respondent relied on the judgment in Union of India v. Simplex Infrastructures Ltd. (2017) 14 SCC 225, to argue that condoning or refusing to condone delay does not impact whether the arbitral award is set aside.
• The Respondent supported the Bombay High Court’s view in Ramdas Construction Co. (supra) that an order rejecting an application for condonation of delay is not appealable.

Innovativeness of the Argument: The Appellant’s argument was innovative in emphasizing that the phrase “under Section 34” in Section 37(1)(c) should be interpreted to include the procedural aspects of Section 34, specifically the limitation period under Section 34(3).

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether a learned single Judge’s order refusing to condone the Appellant’s delay in filing an application under section 34 of the Arbitration and Conciliation Act, 1996 is an appealable order under section 37(1)(c) of the said Act.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

The Court also considered the following legal provisions:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on Essar Constructions v. N.P. Rama Krishna Reddy [CITATION], Chief Engineer of BPDP/REO Ranchi v. Scoot Wilson Kirpatrick India (P.) Ltd. [CITATION], and Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. [CITATION] to establish that Section 37(1)(c) of the Arbitration Act, 1996 is in pari materia with Section 39(1)(vi) of the Arbitration Act, 1940, and that an order refusing to condone delay is appealable.

The Court distinguished BGS SGS Soma JV. v. NHPC Limited [CITATION] and Union of India v. Simplex Infrastructures Ltd. [CITATION], stating that the observations in these cases were in different contexts and did not address the issue of whether an order refusing to condone delay is appealable.

The Court overruled State of Maharashtra v. Ramdas Construction Co. [CITATION] and Union of India v. Radha Krishna Seth and Anr. [CITATION], holding that these judgments did not state the law correctly.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Literal Interpretation of Section 37(1)(c): The Court emphasized the literal meaning of the phrase “under Section 34” in Section 37(1)(c), stating that it refers to the entire Section 34, including the limitation period under Section 34(3).
• Pari Materia Provision: The Court relied on the principle that Section 37(1)(c) of the Arbitration Act, 1996 is in pari materia with Section 39(1)(vi) of the Arbitration Act, 1940, and that the interpretation of the latter in Essar Constructions (supra) should apply.
• Effect Doctrine: The Court applied the “effect doctrine,” stating that the effect of refusing to condone delay is that the application to set aside the award is rejected, thus making it appealable.
• Statutory Scheme: The Court noted that the legislature, when it wished to refer to part of a section, as opposed to the entire section, did so. The fact that Section 37(1)(c) refers to “under Section 34” without any limitation indicates that the entire section is considered.
• Limited Right of Appeal: The Court acknowledged that the right of appeal under Section 37 is limited, but it should not be further restricted by excluding appeals that are provided for in the language of the provision.

Logical Reasoning:

The Court considered alternative interpretations, such as the argument that “under Section 34” should only refer to a decision on the merits of the award, but rejected this interpretation as it would exclude the procedural aspects of Section 34, such as the limitation period.

The final decision was reached by applying a literal interpretation of Section 37(1)(c), supported by the principle that Section 39(1)(vi) of the Arbitration Act, 1940 is in pari materia, and the “effect doctrine.”

The Court held that the refusal to condone delay results in the rejection of the application to set aside the award. Therefore, it is an order “refusing to set aside an arbitral award under Section 34” and is appealable under Section 37(1)(c).

The Court’s reasoning is based on the following key points:

• The phrase “under Section 34” in Section 37(1)(c) refers to the entire Section 34, including sub-section (3) on limitation.
• The effect of refusing to condone delay is that the application to set aside the award is rejected.
• The provision for appeal under Section 37(1)(c) should be interpreted broadly to include cases where the refusal to set aside the award is due to delay.

“A reading of section 34(1) would make it clear that an application made to set aside an award has to be in accordance with both sub-sections (2) and (3). This would mean that such application would not only have to be within the limitation period prescribed by sub-section (3), but would then have to set out grounds under sub-sections (2) and/or (2A) for setting aside such award.”

“Obviously, therefore, a literal reading of the provision would show that a refusal to set aside an arbitral award as delay has not been condoned under sub-section (3) of section 34 would certainly fall within section 37(1)(c).”

“Given the fact that the “effect doctrine” is part and parcel of the statutory provision for appeal under section 37, and the express language of section 37(1)(c), it is difficult to accede to the argument of Shri Rohatgi.”

There was no minority opinion in this case.

The Court’s analysis included an interpretation of the language of Section 37(1)(c) and a comparison with Section 39(1)(vi) of the Arbitration Act, 1940. The Court also addressed the “effect doctrine” by stating that the effect of refusing to condone delay is that the application to set aside the award is rejected.

The decision has significant implications for future cases, as it clarifies that orders refusing to condone delay in filing applications to set aside arbitral awards are appealable. This ensures that parties have an avenue to challenge such orders, which effectively affirm the underlying arbitral awards.

The Court did not introduce any new doctrines or legal principles but reinforced the existing principles of statutory interpretation and the “effect doctrine.”

Key Takeaways

✓ An order refusing to condone delay in filing an application under Section 34 of the Arbitration and Conciliation Act, 1996, is appealable under Section 37(1)(c) of the same Act.

✓ The phrase “under Section 34” in Section 37(1)(c) refers to the entire section, including the limitation period under Section 34(3).

✓ The effect of refusing to condone delay is that the application to set aside the award is rejected, thus falling under the scope of “refusing to set aside an arbitral award.”

✓ The principle established in Essar Constructions v. N.P. Rama Krishna Reddy (2000) 6 SCC 94, regarding the appealability of orders refusing to condone delay, applies to Section 37(1)(c) of the 1996 Act.

✓ This judgment overrules the contrary views held by the Bombay High Court in State of Maharashtra v. Ramdas Construction Co. 2006 (6) Mah. L.J. 678 and the Allahabad High Court in Union of India v. Radha Krishna Seth and Anr., 2005 SCC OnLine All 8400.

✓ The Supreme Court has clarified the law regarding appealability of orders refusing to condone delay in filing applications to set aside arbitral awards.

✓ The judgment ensures that parties have an avenue to challenge orders that effectively affirm arbitral awards due to delay, thereby promoting fairness and justice in arbitration proceedings.

Impact of the Judgment:

The judgment has clarified a significant ambiguity in the interpretation of Section 37(1)(c) of the Arbitration and Conciliation Act, 1996. It has ensured that parties have an opportunity to challenge orders that effectively affirm arbitral awards due to delay. This promotes fairness and justice in arbitration proceedings.

The judgment has overruled the contrary views of the Bombay and Allahabad High Courts, bringing uniformity in the interpretation of Section 37(1)(c) across the country.

The judgment also reinforces the principle that the right of appeal, though limited, should not be further restricted by excluding appeals that are provided for in the language of the provision.

The judgment will likely reduce the number of cases where parties are denied a hearing on the merits of their challenge to an arbitral award solely due to a technicality of delay, thereby promoting the substantive resolution of disputes.

Future Implications:

The judgment will serve as a precedent for all future cases involving the appealability of orders refusing to condone delay in filing applications to set aside arbitral awards.

It will likely lead to an increase in the number of appeals against orders refusing to condone delay, as parties now have a clear legal basis for such appeals.

The judgment may also encourage parties to be more diligent in filing their applications within the prescribed limitation period, as they now know that they have an avenue for appeal if their delay is not condoned.

The judgment will contribute to the development of a more consistent and predictable body of arbitration law in India.