Prolonging arbitration proceedings: The Supreme Court's order in Chintels India

A three-judge Bench of the Supreme Court recently, in the case of Chintels India Ltd v. Bhayana Builders Pvt Ltd, held that an order refusing to condone the delay under Section 34(3) of the Arbitration and Conciliation Act, 1996 is appealable under Section 37 of the Act.

The Supreme Court passed the verdict in an appeal against a Delhi High Court order which issued a certificate under Article 133 of the Constitution of India (appellate jurisdiction of Supreme Court in appeals from High Courts in regard to civil matters). The issue referred was whether a Single Judge’s order refusing to condone an appellant’s delay in filing an application under Section 34 is appealable under Section 37.

The petitioner in the above case first approached the Delhi High Court to set aside the award under Section 34 of the Act. The petition was filed after the statutory period of 3 months, but within the 30 days extended period as provided in the proviso of Section 34(3). However, it is pertinent to note that the application for condonation of delay was filed after a combined period of 120 days, and not with the petition. Owing to this, the learned Single Judge dismissed the petition under Section 34 of the Act.

Reasoning behind the Supreme Court verdict

The Supreme Court has taken the literal interpretation of the expression “setting aside or refusing to set aside an arbitral award under section 34” in Section 37 rather than narrowing to just grounds set out in Section 34(2) of the Act. The Court has held the intention of the legislature was made clear by including the whole of Section 34 in Section 37(1)(c). The decision of the Court was also based on the judgment in Essar Construction v. NP Rama Krishna Reddy, which deals with Section 39 of the Arbitration Act, 1940.

Applicability of the judgment: Prospective or retrospective?

It is not very long ago that the Supreme Court had to step in to clarify the issue of retrospective effect of the 2015 amendments to the Act after various High Courts passed conflicting judgements. The issue of retrospective effect is integral in this judgment, as it will give the right to appeal the order refusing to condone the delay. But, in the current case, the Court has not mentioned whether this judgement will be applicable retrospectively or prospectively.

The Court in MA Murthy v. State of Karnataka held,

“It is for this Court to indicate as to whether the decision in question will operate prospectively. In other words, there shall be no prospective overruling, unless it is so indicated in the particular decision. It is not open to be held that the decision in a particular case will be prospective in its application by application of the doctrine of prospective overruling.”

So as of now, it is not clear whether orders refusing to condone any delay prior to this judgment would be appealable or not. Another technicality that awaits clarity is, what kind of order would be appealable? One which is within the limitation period under Section 37 or all orders passed prior to the judgment? It is pertinent to note that the issue as to the appropriate period of limitation under Section 37 of the Act, is still pending before the Court.

The Contentious Part

The judgment in question will certainly prolong arbitration proceedings, owing to the fact that the court which will hear the appeal against an order refusing to condone the delay cannot go into the merits of the issue, as provided in Section 34(2). If they are not previously decided, the Court will have to remand the petition back to the court of original jurisdiction.

In this case, the learned Single Judge acted in strict compliance with the precedent set by the Supreme Court, and more so, the provision of Section 34 of the Act, which specifically says “….may entertain the application within a further period of thirty days, but not thereafter.” Moreover, there are a plethora of judgments passed by both the Supreme Court and the High Courts.

We may refer to Simplex infrastructure v. UOI, in which the Supreme Court held,

“The use of the words “but not thereafter” in the proviso makes it clear that the extension cannot be beyond thirty days”.

By passing the above judgment, the Court has somewhat watered down the mandate in Section 34(3) which was provided by the court itself and the legislature.

Section 34(1) contemplates application for setting aside in terms of Section 34(2) and 34 (3), while Section 34(2) enumerates substantial grounds for setting aside the award. Section 34(3) provides the procedural time limit for filing such an application. The filing of petitions and applications are should be strictly adhered to so as to provide certainty in the minds of litigants. The judgment of the Court in ascertaining the dismissal of an application condoning delay as dismissal of a Section 34 petition is big blow to procedural timelines mentioned in Act.

Effect of the judgment on award holders

Courts in India are infamous for their delays and this judgement will further add to the issue. This can be illustrated by a small hypothetical situation. A judgement-debtor can file an application for condonation of delay after 3 months and in case it gets dismissed, he/she can now challenge that order in terms of Section 37 of the Act. Previously, the only remedy to that was the extraordinary jurisdiction of the Supreme Court under Article 136. But now, since the dismissal of this application is covered under the head of "appealable order" under Section 37, the judgement-debtor can have two avenues for the same.

The Arbitration and Conciliation Act, 1996 is made on the lines of the UNCITRAL Model Law on International Commercial Arbitration. The clear intention of the legislature was to bring Indian Arbitration Law at par with laws all over the world. In the past few years, we have seen some path-breaking judgements where the Supreme Court has taken it upon itself to give more teeth to the Act. The Court in P Radha Bai v. P Ashok Kumar has recognised the principle of unbreakability, and held concerning Section 34(3),

“According to this “unbreakability” of time-limit and true to the “certainty and expediency” of the arbitral awards, any grounds for setting aside the award that emerge after the three-month time-limit has expired cannot be raised.”

It seems that through the judgment in question, the Court has diverted a bit from its arbitration-friendly approach, as now, judgment-debtors will have more avenues to avoid awards passed by arbitral tribunals.

I firmly believe that the Supreme Court will soon provide some clarity on the issue and answer all the questions raised.

The author is a Delhi-based advocate.

Disclaimer: The views and opinions expressed in this article are those of the author's and do not necessarily reflect the views of Bar & Bench.