Navigating Commercial Disputes: Limitation in Section 37 Appeals - Unanswered Questions

The issue of limitation for filing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“ACA”) may require reconsideration. This matter was seemingly resolved by a three-judge bench in the case of Government of Maharashtra v. Borse Bros Engineers & Contractors (P) Ltd. (“Borse Brothers”). This judgment has been subsequently followed by the Delhi High Court in cases such as Union of India v. Incom Cables (P) Ltd., Telecommunication Consultants India Ltd. v. NGBPS Ltd., and more recently, Union of India v. Rishabh Constructions.

However, in my respectful view, the decision of Borse Brothers, has left several questions unanswered, which require consideration.   

The issue of limitation in appeals under Section 37 of the ACA is undeniably complex, and it is no surprise that it has evolved over time, as evidenced by the intricate judicial journey it has undertaken.

In Union of India v. Varindera Constructions Ltd., it was held, by the Supreme Court, that an application under Section 37 of the Arbitration and Conciliation Act, 1996 ("ACA") must be filed within a maximum period of 120 days, inclusive of a 30-day grace period. In Varindera Constructions, it was held that appeals filed under Section 37 of the ACA are subject to the “selfsame” time period as is applicable to a Section  34 petition, i.e., 3 months and 30 days, to maintain the “overall statutory purpose of arbitration proceedings being decided with the utmost dispatch”. In reaching this conclusion, the Court relied on the 1940 decision in Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri, which held that appellate proceedings are a continuation of the original proceedings. This judgement was subsequently followed in N.V. International v. State of Assam.

The controversy arose when the Madhya Pradesh High Court, in M.P. Poorv Kshetra Vidyut Vitran Co. Ltd. v. Swastik Wires (“Swastik Wires”), declined to follow the judgment in N.V. International, citing a conflict with the larger bench decision in Consolidated Engineering Enterprises v. Irrigation Department (“Consolidated Engineering”). The Court held that courts could condone delays in arbitration matters by invoking Section 5 of the Limitation Act, 1963, and that the Court in N.V. International had failed to consider the decision in Consolidated Engineering.

In the meantime, the High Courts of Bombay and Delhi dismissed Section 37 appeals filed after the 120-day period had expired. Given the conflicting decisions among the High Courts of Madhya Pradesh, Bombay, and Delhi, the issue escalated to the Supreme Court in the case of Borse Brothers (supra).

In Borse Brothers, the Court observed that Swastik Wires had been incorrectly decided and that the Madhya Pradesh High Court’s reliance on Consolidated Engineering was “wholly incorrect”. The Consolidated Engineering case dealt with the provisions of Section 14 of the Limitation Act and had no relevance to the application of Section 5 of the Limitation Act. Moreover, N.V. International, being a binding precedent, was required to be followed by the Madhya Pradesh High Court under Article 141 of the Constitution of India.

That said, in Borse Brothers, the Court questioned the correctness of the N.V. International decision, holding that it had been wrongly decided and accordingly overruled it.

While Section 34(3) of the ACA imposes a strict timeline for filing objections, no specific time limit is prescribed under Section 37. Under Section 43 of the ACA and Section 29(2) of the Limitation Act, Section 5 of the Limitation Act applies to Section 37 appeals, allowing courts to condone delays—unlike Section 34.

Adding to the complexity is Section 13(1A) of the Commercial Courts Act, 2015 (“CC Act”). In Borse Brothers, the Court held that Section 37 appeals are governed by the 60-day limitation period under Section 13(1A) of the CC Act. However, not all Section 37 appeals fall within the scope of Section 13(1A), as appeals can also arise from Sections 8, 9, 16(1), 16(2), and 17 of the ACA.

Further complicating matters are Articles 116 and 117 of the Limitation Act, 1963. Article 116 provides a 90-day limitation period for appeals under the Civil Procedure Code (CPC) to the High Court, and 30 days for appeals to any other court. Article 117 prescribes 30 days for appeals within the same High Court.

In essence, Section 37 appeals may fall into two categories: (1) those governed by the CC Act with a 60-day limitation, and (2) those outside its purview, subject to Articles 116 and 117 of the Limitation Act, with either 30 or 90-day limits. The Court in Borse Brothers says – “[…] it is clear that it is only when the specified value is for a sum less than three lakh rupees that 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.”

The Court in Borse Brothers acknowledged that Section 5 of the Limitation Act applies to Section 37 appeals, allowing the condonation of delays. However, it expressed reservations about interpreting Section 5 as an "open-ended provision" that could condone any amount of delay. The Court emphasized the need to strike a balance between two extremes: one being a strict limitation period, as held in N.V. International, and the other, an open-ended delay condonation.

The Court observed that the expression “sufficient cause” in Section 5 of the Limitation Act is elastic enough to yield different results depending upon the object and context of a statute, and therefore must be interpreted in the context of the Arbitration and Commercial Courts Acts, in a manner that aims for the speedy resolution of disputes.

The Court relied on the “judicial tool” of the Latin maxim “ut res magis valeat quam pereat” to solve the predicament. According to this principle, a “constitution which reduces the statute to futility has to be avoided. A statute or enactment provision therein must be so constructed as to make it effective and operative…”,  and that condonation should be permitted only in exceptional cases, where parties have acted in good faith and without negligence.

The Court recognized that Section 5 of the Limitation Act applies to Section 37 appeals, allowing for condonation of delays. While the Court may provide guidance on the timely filing of appeals, particularly in arbitration and commercial matters, given the objective of the ACA and the Commercial Courts Act is the speedy resolution of disputes. However, the Court cannot impose fetters on the statutory language of Section 5 of the Limitation Act, as it allows flexibility in condoning delays where sufficient cause is shown. What cannot be done directly, cannot be done indirectly is a settled principle of law (Delhi Administration v. Gurdip Singh Uban). The courts must provide some guidelines for the Section 37 appeals and the condonation of delay applications.

Another concerning aspect of Borse Brothers is how the Court distinguished CCE & Customs v. Hongo India (P) Ltd. ("Hongo").

In Hongo, a three-judge bench addressed whether Section 5 of the Limitation Act could apply to (unamended) Section 35-H of the Central Excise Act, specifically whether the Court could condone delays beyond the 180-day period set by Section 35-H. Unlike other sections in the Excise Act, Section 35-H provides no provision to extend the limitation period for filing applications with the High Court.  The Court in Hongo held that the Central Excise Act is a complete Code and the legislature intended the statute alone to govern matters therein and that - “(i)n the absence of any clause condoning the delay by showing sufficient cause after the prescribed period, there is complete exclusion of Section 5 of the Limitation Act”.

While distinguishing Hongo, the Court in Borse Brothers observed that Section 35-H provided a period of 180 days, which "was double and triple the period provided for appeals under the other provisions of the same Act," and, by contrast, noted that Section 13(1A) of the Commercial Courts Act provides a 60-day period for filing an appeal, which is "halfway between 30 days and 90 days provided by Articles 116 and 117 of the Limitation Act”.

There is no quarrel with the proposition that the Court in Borse Brothers could have distinguished itself from Hongo. But the reasoning has left much to be desired. Whether Hongo is the correct exposition of the law is not the domain of this article. However, given that Hongo was decided by a bench of equal strength, Borse Brothers should have been referred to a larger bench to address the apparent conflict regarding the application of Section 5 where no provision exists to extend the limitation period in a special statute.

Payal Chawla is the founder of JusContractus, a Delhi based all-women law firm, specialising in commercial law and arbitrations. The author recognises the assistance of Hina Shaheen, advocate.