India: Saga Of Limitation Under Section 37 Of Arbitration & Conciliation Act, 1996: Supreme Court Finally Settles The Law

Section 37 of the Arbitration and Conciliation Act, 1996 ("A&C Act") prescribe for appeals against certain identified orders¹ of the court and/or arbitral tribunal (as the case may be). However, Section 37 (unlike Section 34) of the Act is silent on the limitation period for filing an appeal. This has led to several conflicting rulings (as discussed below) by the Supreme Court of India ("SCI") and various High Courts to prescribe/clarify a specified period of limitation for an appeal under Section 37 of the A&C Act.

This piece discusses various judicial rulings in relation to limitation period for filing an appeal under Section 37 of the A&C Act. The nexus of limitation with Section 37 of the A&C Act has been subject of a continuous transformation starting from the applicability of the Code of Civil Procedure Code, 1908 ("CPC") and the Limitation Act, 1963 ("Limitation Act") to coming into force of Commercial Courts Act, 2015 ("CCA").

Interplay of A&C Act, Limitation Act and CCA

Limitation Act

Article 116 of Schedule I of the Limitation Act provides a period of 90 days for filing appeals. Section 5 (Extension of prescribed period in certain cases) of the Limitation Act further provides that an appeal filed beyond the prescribed period may be admitted subject to the party concerned explaining the delay to the satisfaction of the court. Consequently, it becomes clear that an appeal under Section 37 of the A&C Act may be filed up to 90 days extendable up to any grace period as deemed appropriate by the concerned court.

The SCI (three judge bench) in Consolidated Engineering Enterprises and Ors. v. Principal Secretary Irrigation Department and Ors.² ("CEE Case") held that the provisions of the Limitation Act shall apply to all proceedings under the A&C Act, both in courts and in arbitrations, unless expressly excluded by the A&C Act. The SCI also observed that if the concerned special or local law is silent on the limitation period then the schedule to the Limitation Act should apply to such appeals or applications under such law.

The position outlined by the CEE Case was followed by the High Court of Bombay ("BHC") (division bench) in ONGC Limited v. M/s Dinamic Corporation³ ("ONGC Case"). The ONGC Case, however, gave further clarification that the limitation period for filing an appeal under Section 37 of the A&C Act shall be:

CCA

Subsequently in 2015, the CCA was implemented which transferred all the pending arbitrations involving commercial dispute of a specified value to commercial courts (so designated in this regard). Section 13 of the CCA provided the limitation period of 60 days (from the date of the judgment or order) for filing any appeal to the commercial appellate division. Section 13(1A) of the CCA also provided that an appeal under Section 37 of the A&C Act would lie before a commercial court.

Consequently, the CCA settled the limitation period for filing an appeal under Section 37 (against the order of commercial courts) at 60 days.

N.V. International v. State of Assam

The SCI in N.V. International v. State of Assam⁴ ("NV Case"), in an appeal under Section 37 of the A&C Act, against the order of the Ld. District Judge Guwahati (not being a commercial court) under Section 34 of A&C Act, held that a grace period of 30 days (in line with Section 5 of the Limitation Act) be added to the 'statutory' period of 90 days for filing appeals under Section 37 of A&C Act. Resultantly, the prescribed limitation period for appeals under Section 37 of the A&C Act was held to be 120 days (i.e. 90 + 30 days).

The SCI also opined that since 120 days is prescribed for petitions under Section 34 of the A&C Act (i.e. first appeal), an appeal from the same proceedings under Section 37 of the A&C Act (i.e. second appeal) should therefore be covered by the same drill.

NV Case is a glaring example of judicial activism which resulted in legislating a limitation timeline when the A&C Act itself is silent. It is a cardinal principle of construction of a statute that the court must give effect to the words used in the statute and not adopt a hypothetical construction on the grounds that such construction is more consistent with the alleged object and policy of the Act.⁵

NV Case suffered from certain flaws which resulted in the following inconsistencies / dubieties:

1. While NV Case was concerned with an order under Section 34 of A&C Act, whether it's ruling will be applicable to appeals against orders of the arbitral tribunal under Section 8 (Power to refer parties to arbitration where there is an arbitration agreement), , Section 16 (Competence of arbitral tribunal to rule on its jurisdiction) and Section 17 (Interim measures ordered by arbitral tribunal) of the A&C Act, as laid under Section 37?; ("First Dubiety")

2. Since the issue of limitation in NV Case was with respect to an order passed by District Court, Guwahati, will NV Case be applicable to intra-court appeals, as differentiated by the BHC in ONGC Case?; ("Second Dubiety") and

3. Whether NV Case will apply to appeals against the orders of commercial courts under Section 34 and Section 9 of the A&C Act? ("Third Dubiety")

(collectively the "Three Dubieties")

High Courts post the NV Case

NV Case being per incuriam (as it failed to consider the applicability of Section 13(1A) of the CCA), led to a heedless approach by various High Courts.

High Court of Delhi ("DHC")

The DHC (division bench) in NTPC Ltd. v. Voith Hydro Joint Venture⁶ ("NTPC Case"), in an intra-court appeal under Section 37 of the A&C Act (with delay exceeding 120 days) against the order passed by the Single Judge (commercial court) under Section 34 of the A&C Act, relied on the NV Case and dismissed the appeal as barred by limitation.

In NHAI v. Bhubaneswar Expressway Pvt. Ltd⁷ ("NHAI Case"), the DHC (division bench) in an appeal against the order of a Single Judge (commercial court) concerning Section 9 of A&C Act, expressed its disagreement on the applicability of NV Case. It was stated that unlike NV Case (which was an inter-court appeal), NHAI Case was an intra-court appeal. The DHC further stated that Limitation Act sets out 30 days for preferring an intra-court appeal which by virtue of Section 13 (1A) of CCA stood increased to 60 days.

The DHC (single judge) in PCDA (R&D) v. Sirius Global Ltd⁸ ("PCDA Case"), in an inter-court appeal under Section 37 of the A&C Act (with delay exceeding 120 days) against the order passed by District Judge, Patiala House Court under Section 34 of the A&C Act relied on the NV Case and dismissed the appeal as being barred by limitation.

High Court of Jharkhand ("JHC")

The JHC in M/s Ex-Servicemen Chotanagpur v. Central Coalfield Limited,⁹ in an inter-court appeal (filed beyond 120 days) against the order of Sub-ordinate Judge, relied on the NV Case to hold that the appeal is barred by limitation.

However, in Rural Development Department (Rural engineering Organization), Government of Jharkhand, Ranchi v. M/s P.B. enterprise¹⁰ ("PB Enterprise Case"), in an appeal under Section 37 of the A&C Act read with Section 13 of CCA (filed with a delay of 28 days, reckoning the period from 60 (sixty) days as prescribed under Section 13 of CCA), against the order of the commercial court under Section 34 of the A&C Act, the JHC framed the following issues of limitation:

1. Whether the appeal should be guided by the limitation prescribed under Section 37 of the A&C Act, 1996, keeping in view the NV Case; or

2. Whether the period of limitation applicable to the instant appeal would be governed by Section 13 of the CCA; and

3. Whether the provision of Section 5 of Limitation Act, is attracted in the case of condonation of delay of 28 (twenty eight) days beyond 60 (sixty) days period prescribed under Section 13 of CCA.

At present, the matter is pending for adjudication by the JHC.

SCI overrules the NV Case

The NV Case, resulted in various contradictory and neglectful approach by various High Courts around the country for almost a year. However, recently the SCI (three judge bench) in Government of Maharashtra (Water Resources Department) v. M/s Borse Brothers Engineers & Contractors Pvt. Ltd.¹¹ ("Borse Brothers Case"), overruled the NV Case. The Borse Brothers Case also settled the law in relation to the limitation period for filing an appeal under Section 37 of the A&C Act.

The SCI's ruling in the Borse Brothers Case as regard the limitation period can be summarized as under:

While the Borse Brothers Case extended direct clarity on the Second Dubiety and Third Dubiety, the clarity on the First Dubiety can be determined from the SCI's reasoning. The Borse Brothers Case holds that the limitation for filing an appeal under Section 37 of the A&C Act will depend on whether the appeal is from a commercial dispute (as per CCA) or against a non-commercial dispute. Accordingly, the category of the dispute will determine the limitation period for an appeal against the order of the arbitral tribunal (under Section 8, Section 16 and Section 17 of the A&C Act) as per the table above.

Prospective applicability of the ruling in Borse Brothers Case

The SCI in Borse Brothers Case while dealing with one of the appeals against the order of the High Court of Madhya Pradesh ("MPHC") (which demurred to follow the ruling in NV Case, by stating that there is a conflict between NV Case and CEE Case) held that MPHC was bound to follow the NV Case, as on the date of the judgment of the MPHC, NV Case was a judgment of two learned judges of the SCI binding upon the MPHC by virtue of Article 141 of the Constitution of India. Concomitantly, the SCI clarified that its ruling in the Borse Brothers Case will be applicable prospectively and not to any of the pending Section 37 appeals which were filed before the judgment in Borse Brothers Case.

Concluding Remarks

The SCI's decision in the Borse Brothers Case introduces a uniformity and alignment of the statute viz-a`-viz the A&C Act. The nature of proceedings / category of dispute will itself determine the limitation period applicable to appeals under Section 37 (i.e. either of the CCA or of the Limitation Act).

Borse Brothers Case rightly holds that since the appealable orders (in general) do have a right of condonation of delay in case of necessary and bonafide reasons, therefore Section 5 of the Limitation Act will be applicable to Section 37 of the A&C Act as well as to Section 13 of the CCA. However, the SCI in order to ensure parity with the objectives of the A&C Act and the CCA (i.e. the expeditious resolution of disputes) narrowed the scope for condoning delay to only exceptional cases having short delays, and where the parties have acted bona fide and not in a negligent manner.

The SCI also observed that the courts will use the same yardstick for considering condonation of delay for all the government bodies, their agencies, and instrumentalities. A concession cannot be given on the mere pretext that the government itself is involved. This is further right as government departments should be under a special obligation to ensure that they perform their duties with diligence and commitment and condonation of delay being an exception should not be used as an anticipated benefit.

Footnotes

1 (a) Refusing to refer the parties to arbitration under Section 8; (b) Granting or refusing to grant any measure under Section 9; (c) Setting aside or refusing to set aside an arbitral award under Section 34; (d) Accepting the plea referred to in sub-Section (2) or sub-Section (3) of Section 16; and (e) Granting or refusing to grant an interim measure under Section 17.

2 (2008) 7 SCC 169

3 2013 (2) BomCR 362

4 (2020) 2 SCC 109. The SCI relied on Union of India v. Varindera Construction, (2018) 7 SCC 794 which held that permitting a delay beyond 120 days will defeat the overall statutory purpose of speedy resolution and utmost dispatch of the arbitral disputes.

5 Union of India vs. Hansoli Devi and ors, 2002 (7) SCC 9.

6 FAO (OS) COMM No. 329/2019

7 FAO (OS) COMM No. 66/2020

8 FAO 136/2020.

9 MANU/JH/0473/2020

10 Commercial Appeal No. 06 of 2018 (decided on 16.12.2020)

11 SLP (Civil) No.665 of 2021 (decided on 19.03.2021)

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.