An Analysis of amended Sections 34(5) and 34(6) of the Arbitration and Conciliation Act, 1996

Bar & Bench October 31 2018
Arbitration and Conciliation

Siddhartha Shankar Ray

The Supreme Court earlier this year laid down a remarkable judgment in the case titled The State of Bihar & Ors. Vs. Bihar Rajya Bhumi Vikas Bank Samiti . The judgment, delivered by a two-Judge Bench of Justices Rohinton Fali Nariman and Indu Malhotra, deals with the nature of Sections 34(5) and (6) of the Arbitration and Conciliation Act, 1996.

The said clauses have been added to the Act of 1996 by Amending Act 3 of 2016 (w.e.f. October 23, 2015). The aforementioned judgment stands as a landmark precedent for every lawyer and court to follow when an issue arises as to whether the amended Sections 34(5) and (6) of the Arbitration and Conciliation Act, 1996, are to be treated as mandatory or directory in nature.

Most interestingly, the precedent highlights the manner by which these amendments have been given interpretation to, and how an amendment brought to a provision in a statute is made use of when the ends of justice are to be met, pushing technicalities to the background.

For the sake of convenience, the inserted Sections 34 (5) and (6) of the amended provisions of the Arbitration and Conciliation Act, 1996, are reproduced herein:

“34. Application for setting aside arbitral award.—

(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. 

(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.” 

The Supreme Court in this case has gone into much depth while interpreting the aforementioned amended provisions. It has relied upon several other precedents to come to a conclusion that the nature of the amended provisions is directory, and not mandatory. These precedents were examined to determine the nature of the amended provisions.

The Legislature has intentionally kept the language of the amended provisions mandatory by using the word ‘shall’ for the parties to strictly comply with the provisions. However, these provisions do not entail any penal consequences, thus, their nature transits from mandatory to directory.

To illustrate the legal position, the Supreme Court in dealt with its few judgments as elucidated below.

In Topline Shoes v. Corporation Bank, the Supreme Court dealt with Section 13(2) (a) of the Consumer Protection Act, 1986, which permits the opposite party to file its reply “within a period of 30 days or such extended period not extending 15 days, as may be granted by the District Forum”. The Court read the same in conjunction with the Statement of Objects and Reasons of the Act which provides that the principles of natural justice have to be kept in mind and thus, held the provision to be directory in nature.

In J Merchant (Dr.) v. Shrinath Chaturvedi, there was an inordinate delay of almost 9 years in disposal of the complaint under the Consumer Protection Act, 1986. The Supreme Court applied the concept of speedy trial and felt that such delay would not be a ground for rejecting the complaint and directed the complainant to approach the civil court.

The Court was alive to the fact that no consequence is prescribed for non-adherence to the time limit of three months as envisaged under the Consumer Protection (Amendment) Bill, 2002, which envisaged insertion of sub-section (3-A) in Section 13 of the Act. But the Court held the provision Section 13(2) (a) of the Consumer Protection Act, 1986, as mandatory and not directory in nature, which is in contradiction to the view held in the judgment of Topline Shoes (supra). 

In Kailash v. Nankhu and Ors, the Court dealt with the amendment of Order VIII Rule 1 of the CPC under the Amendment Act of 2002. Order VIII Rule 1 is circumscribed by the words “shall not be later than ninety days”.

The Court observed that the provision is procedural in nature and that its object is to curb the mischief of unscrupulous defendants adopting dilatory tactics by delaying the disposal of cases. The language of the proviso to Order VIII Rule 1 is couched in negative form, it does not specify any penal consequences flowing from the non-compliance. The provision being in the domain of the procedural law, was to be held directory and not mandatory.

In New India Assurance Co. Ltd. v. Hilli Multipurpose Cold Storage Pvt. Ltd., a bench of three judges went on to revive the judgment of JJ Merchant (supra). The issue involved is with regard to Section 13(2)(a) of the Consumer Protection Act, 1986, as noted above. The court held that the judgment delivered in JJ Merchant holds the field and the view that the district forum can grant a further period of 15 days to the opposite party for filing reply and not beyond that, is incorrect.

Therefore, while deciding Kailash (supra), the Court ought to have respected and followed the view expressed in JJ Merchant (supra) as the latter judgment was delivered earlier. The judgment of New India Assurance (supra), thus, held that Section 13(2) (a) of the Consumer Protection Act, 1986, is to be treated mandatory in nature and not directory.

Bihari Chowdhary and Anr. v. State of Bihar and Ors. dealt with Section 80 of the Civil Procedure Code. The provision affords the government or public officer an opportunity  to scrutinize the claim proposed to be filed against them, thereby avoiding unnecessary litigation and saving public time and money by settling the claim without driving the person who has issued the notice to file a suit. The object of the section is the advancement of justice and the securing of public good by avoidance of unnecessary litigation.

The Supreme Court in The State of Bihar (supra) observed that Section 80 of the CPC, even though a procedural provision, is mandatory in nature as it is conceived in public interest.

This provision is to be contrasted with Section 34(5), also a procedural provision, the infraction of which leads to no consequence. To construe such a provision as being mandatory would defeat the advancement of justice, as it would provide the consequence of dismissing an application filed without adhering to the requirements of Section 34(5), thereby scuttling the process of justice.

In Global Aviation Services Private Limited v. Airport Authorities of Indiathe Bombay High Court held that Section 34(5) of the Arbitration and Conciliation Act is directory, because no consequence has been provided for breach of the limit specified.

The Supreme Court, in The State of Bihar (supra), has set aside a number of high court judgments that have all taken the view that Section 34(5) is mandatory in nature. It allowed the appeal by holding Section 34(5) to be directory and set aside the judgment of the Patna High Court.

In conclusion, the Supreme Court in The State of Bihar (supra) referred to an instructive passage in Maxwell on Interpretation of Statutes, 10th Edition, which says that considerations of convenience and justice are uppermost, and if general inconvenience or injustice results, without promoting the real aim and object of the enactment, the provision must be declared to be directory.

The judgment of the Court has uniquely been dealt with, whereby the Court has given a liberal interpretation to the amended Sections 34(5) and 34(6) of the Arbitration and Conciliation Act. It ruled that a matter cannot be dismissed without being heard on merits simply because there is non-compliance of the amended provisions.

Moreover, the Supreme Court has been more particular to see that on account of strict interpretation of the amended provisions, justice is not seen to be defeated in a matter.

Siddhartha Shankar Ray is an advocate at the Supreme Court of India. 

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