Supreme Court of India: Whether An Order Refusing To Condone The Delay In Filing An Application To Set Aside A Domestic Award Under Section 34 Is Appealable Under Section 37 Of The Indian Arbitration Act

Before dealing with the issue at hand, it is useful to note the appeal mechanism as provided under Section 37 of the Arbitration & Conciliation Act, 1996 (‘Act’) and its interface with Section 34 (Appeal orders) of the Act. Section 37(1)(c) inter alia provides that an appeal shall lie from the following orders (and from no others) to the Courts from original decrees of the Court passing the order setting aside or refusing to set aside an arbitral award under section 34. In turn, the opening wordings of Section 34 provides that recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). Section 34(2) sets out the grounds on which an arbitral award may be set aside whereas Section 34(3) inter alia prescribes a limitation period of three months within which an award can be assailed which can be extended by the court to a further period of thirty more days on showing sufficient cause by the party assailing the award but not thereafter.

In the above legal backdrop, consider a situation where the award was assailed under Section 34 of the Indian Arbitration Act (‘Act’) before the Court. However, the Court, without going into the merits of the award i.e. without dealing with any of the grounds on which the award was assailed, dismissed the application seeking setting aside of the award under Section 34 of the Act finding that the application itself is barred by limitation as prescribed under Section 34(3) of the Act.

In view thereof, the question arises as to whether such an order by which the award was found to be barred by limitation is appealable under Section 37(1)(c) of the Act. In other words, can it be held that since the application to set aside the award under Section 34 is dismissed by this order, the natural corollary of it will be that the award is deemed to be set aside, and which will in turn trigger the appeal under Section 37(1)(c) of the Act under the expression ‘order setting aside or refusing to set aside an arbitral award under section 34. It is noteworthy that Section 37(1)(c) does not specify any sub-clause of Section 34 in particular and simply mentions ‘Section 34’ therein. Does that mean an appeal against an order under Section 34(3) is subsumed in the wider wordings of ‘Section 34’ in Section 37(1)(c) and thus became an appealable order? This reasoning can further be buttressed by the opening wordings of Section 34 which states that an application for setting aside such award in accordance with sub-section (2) “and sub-section (3).

This issue was recently decided by the Supreme Court in Chintels India Ltd. vs Bhayana Builders Pvt. Ltd. Civil Appeal No. 4028 of 2020 decided on 11 February 2021.

Parlance between Appeal Provisions under the 1940 Act and the Present Act

Section 37(1)(c) of the present Act is pari materia with Section 39(1)(vi)[1] of the Arbitration Act, 1940 (‘Erstwhile Act’).[2] This fact attains relevant because of the Supreme Court ruling in Essar Constructions v. N.P. Rama Krishna Reddy[3]. In that case, the Supreme Court, while dealing with Section 39 of the Erstwhile Act decided the similar issue as raised in Chintels and applied the “Effect Test”.

Effect Test

Under this Test, the Court analysed what is the effect of appeal provisions provided under Sections 37(1)(a) (refusing to refer the parties to arbitration under section 8) and 37(2)(a) [accepting the plea referred to in Section 16(2)( that the arbitral tribunal does not have jurisdiction) or in Section 16(3)( that the arbitral tribunal is exceeding the scope of its authority)]. In respect of Section 37(1)(a), where a party is referred to arbitration under section 8, no appeal lies. This is for the reason that the effect of such order is that the parties must go to arbitration, it being left to the learned Arbitrator to decide preliminary points under section 16 of the Act, which then become the subject matter of appeal under section 37(2)(a) or the subject matter of grounds to set aside under section 34 an arbitral award ultimately made, depending upon whether the preliminary points are accepted or rejected by the arbitrator.

The court observed that it is also important to note that an order refusing to refer parties to arbitration under section 8 may be made on a prima facie finding that no valid arbitration agreement exists, or on the ground that the original arbitration agreement, or a duly certified copy thereof is not annexed to the application under section 8. In either case the court finding that prima facie no valid agreement exists is appealable under section 37(1)(a) of the Act.

Likewise, under section 37(2)(a), where a preliminary ground of the arbitrator not having the jurisdiction to continue with the proceedings is made out, an appeal lies under the said provision, as such determination is final in nature as it brings the arbitral proceedings to an end. However, if the converse is held by the arbitrator, then as the proceedings before the arbitrator are then to carry on, and the aforesaid decision on the preliminary ground is amenable to challenge under section 34 after the award is made, no appeal is provided. This is made clear by section 16(5) and (6) of the Act.

Considering the above language of Section 37 from the prism of ‘Effect Test’ the Court appears to have observed that given the fact that the “effect doctrine” is part and parcel of the statutory provision for appeal under section 37, and the express language of section 37(1)(c), it cannot be held that refusal to set aside the award as provided under Section 37(1)(c) can only be on grounds mentioned under Section 34(2)&(2A) and not on limitation as provided under Section 34(3) of the Act.

In the present case, the application of Effect Test would effectively mean that the Court will consider what is the effect of a court’s order refusing to condone the delay in filing of an application to set aside the award. In other words, the order refusing to condone the delay has the effect of finally disposing of the original petition. Such an order can, therefore, be treated as an award and hence it is appealable.[4]  

Whether objections to an award are dismissed on the merits or they are dismissed on the ground that they are filed beyond time, the Court by dismissing them in effect refuses to set aside the award, and therefore, the Courts in the context of Section 39 of the Erstwhile Act have held that an order refusing to set aside an award is clearly appealable under Section 39.[5]

Considering the dictums in the above cases, the Supreme Court in Essar Constructions held that Section 39(1)(vi) of the Erstwhile Act (pari materia to Section 37(1)(c) of the Act) does not indicate the grounds on which the court may refuse to set aside the award. There is nothing in its language to exclude a refusal to set aside the award because the application to set aside the award is barred by limitation. By dismissing the application, the assailability of the award is concluded as far as the court rejecting the application is concerned. Ultimately therefore, it is an order passed in an application to set aside the award.

Supreme Court Decision

In view thereof, the Supreme Court upheld the ratio of its ruling in Essar while holding that an appeal under section 37(1)(c) of the Act would be maintainable against an order refusing to condone delay in filing an application under section 34 of Act to set aside an award. Additionally, the Court held that the words “under section 34” which occur in section 37(1)(c), and which are absent in section 39(1)(vi) [the pari materia provision to section 34 of the Arbitration Act, 1996 being section 30 of the Arbitration Act, 1940] refers to the entire section and not to section 34(2) only, which further strengthens the fact that an arbitral award can be refused to be set aside for refusal to condone delay under Section 34(3) of the Act.

Footnotes


[1]39. Appealable orders:- (1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order:

An order – … (vi) setting aside or refusing to set aside an award;

[2] Chief Engineer of BPDP/REO Ranchi v. Scoot Wilson Kirpatrick India (P.) Ltd. (2006) 13 SCC 622 and Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (2011) 8 SCC 333

[3] (2000) 6 SCC 94

[4] Applied by the High Court of Andhra Pradesh in Babumiyan & Mastan v. K. Seethayamma [AIR 1985 AP 135] and affirmed by the Supreme Court in Chintels

[5] Mafizuddin Bhuyan v. Alimuddin Bhuyan [AIR 1950 Ass 191]

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

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