Supreme Court of India: Issuing notice to the opposite party before challenging an award in not a pre-requisite/mandatory

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In the case of The State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti, (Civil Appeal no. 7314 of 2018), the Supreme Court of India dealt with the issue of whether Section 34(5) of the Indian Arbitration Act (the Act) (amended by Act 3 of 2016 (w.e.f. 23rd October, 2015), is mandatory or directory. As per the said provision, the party challenging an award has to issue a notice to other party informing about the initiation of challenge proceedings in court. Read the case analysis below:

Factual Matrix

An application to set aside an award was filed under Section 34 of the Act which was dismissed by the Single Bench of the Patna High Court holding that Section 34(5) is directory and not mandatory. This was over turned by the Division Bench holding that the notice under Section 34(5) is a condition precedent before challenging an award. Before the High Court, the common ground between the parties was that no prior notice was issued to the other party in terms of the said Section 34(5), nor was the application under Section 34 accompanied by an affidavit that was required by the said sub-section. The present case is the result of appeal against the order of the Division Bench of Patna High Court.

Applicable Legal Principles

“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.”

Parties Contentions

The Appellant contended that the aforesaid provision is only directory despite the mandatory nature of the language used therein since the composite object of Section 34(5) & (6) is that an application under Section 34 be disposed of expeditiously within one year.

The Respondent argued that the application filed to challenge the award without giving notice to the other party as set out in Section 34(5) is non est in law. Further, the Respondent claimed that Section 34(5) is directory because no consequence has been provided for breach of the time limit specified.

Analysis

The Court pointed out that there is no doubt that the language of Section 34 does lend itself in support of the Appellant’s argument, as the expressions used are“shall”,“only after”and“prior notice”coupled with such application which again“shall” be accompanied by an affidavit endorsing compliance.

The Court then cited the 246th Report of the Law Commission of India which has introduced the said provision in the Act and noted that the that the object of Section 34(5) and (6) is the requirement that an application under Section 34 be disposed of expeditiously within a period of one year from the date of service of notice.

The Court has drawn analogies with similar provisions in the Consumer Protection Act, the Indian Civil Procedure, the Code of Criminal Procedure in India, and the Government of India Act, 1935 and held 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. (citing Maxwell on Interpretation of Statutes, 10th Edn, p. 376)

In the light of Maxwell on Interpretations (supra), the Court observed that Section 34(5) does not deal with the power of the Court to condone the non-compliance thereof. The provision is procedural, the object behind which is to dispose of applications under Section 34 expeditiously. The Court further commented that all rules of procedure are the handmaids of justice and if, in advancing the cause of justice, it is made clear that such provision should be construed as directory, then so be it. To construe Section 34(5) 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 by burying the element of fairness.

The Court also made comparison between Section 29A of the Act which was also brought under the same amendment (Arbitration Amendment Act 3 of 2016 (w.e.f. 23rd October, 2015)) and Section 34(5). Section 29A set out the time limit for arbitral award. The Court found that unlike Section 34(5) and (6), if an Award is made beyond the stipulated or extended period contained Section 29A, the consequence of the mandate of the Arbitrator being terminated is expressly provided. Section 29A is in stark contrast to Section 34(5) and (6) where, if the period for deciding the application under Section 34 has elapsed, no consequence is provided. This is one more indicator that the same Amendment Act, when it provided time periods in different situations, did so intending different consequences.

Conclusion

The Court concluded that the notice under Section 34(5) is not a condition precedent/mandatory but it is a procedural provision which seeks to reduce the delay in deciding applications under Section 34.

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