SC Clears the Air on Commencement of Limitation Period for Setting Aside Arbitral Award
[Rishi Sehgal is a fourth-year student at RMLNLU Lucknow.]
On August 8, 2018, the Supreme Court of India, in Ved Prakash Mithal v. Union of India, addressed the issue relating to the commencement of limitation period while filing an application for setting aside an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 (Act). The ruling is significant as it resolves the conflicting views prevalent in several high courts on the question of commencement of limitation period for setting aside the arbitral award when a request for correction has been made under section 33 of the Act. The Court in this case held that in such a scenario, the limitation period for setting aside such award shall begin from the date as provided under section 34(3) of the Act, that being the date of disposal of the request for correction.
In the instant case, a dispute arose between the parties regarding the rate at which amounts are to be awarded with respect to the items mentioned under the head ‘extra items executed’ in the works contract. The sole arbitrator delivered the award on October 30, 2015 which was received by the Respondent on November 7, 2015. Thereafter, the Respondent submitted two applications under section 33 to correct the award, one on November 16, 2015 and the other on November 20, 2015. The arbitrator decided both these applications together and dismissed them on December 14, 2015. Subsequently, the Respondent challenged the said award in the district court by filing an application under section 34 of the Act on March 11, 2016.
The district court held that the application to set aside the award was time-barred as it was filed after the expiry of the time period prescribed under the Act which, according to the learned judge, commenced from the date of delivery of the award to the Respondent and not from the date of dismissal of the application for correcting the award. The rationale of the same was that there arose no question of starting a fresh limitation period when no correction was made to the award passed by the arbitrator. The Respondent appealed against the order of the district judge in the Delhi High Court, which reversed the same on the ground that since the section 33 application had been disposed of on December 14, 2015, the period mentioned in section 34(3) would start running only from that day of disposal, thereby clarifying that the section 34 application is not time-barred. The Petitioner then challenged the High Court order by preferring a special leave petition before the Supreme Court.
Contentions of the Petitioner
Before the High Court
When the matter was before the High Court, the Petitioner argued that the two applications for correction were misconceived as they were in the nature of review and thus did not fell within the contours of section 33. The Petitioner relied on the Supreme Court’s judgment in State of Arunachal Pradesh v. M/S Damani Construction, wherein it was held:
“A Court before holding that the limitation period commences from the date of disposal of the application under Section 33 of the Act has to ensure that the application which is filed under Section 33 of the Act is actually one within the scope of Section 33 of the Act, and that even if on merely because the application is titled as under Section 33 of the Act, but if the same is in fact in the nature of a review petition or an application which does not fall within the four corners of Section 33 of the Act, then the disposal date of such an application will not be the date of commencement of limitation period of ninety days for filing of the objections under Section 34 of the Act.”
Before the Supreme Court
The Petitioner contended before the Supreme Court that the expression “disposed” mentioned in section 34(3) of the Act must be read in consonance and harmony with section 33 of the Act. The Petitioner argued that an application dismissed without making any changes to the award would be contrary to the intentions of the legislature. This implies that there has to be some positive step taken by the arbitrator in the form of change, modification or addition to the award for starting a fresh period of limitation. Therefore, in such circumstances, the limitation period for filing a section 34 application would not commence from the date on which a request for correction of the award is dismissed; rather, it shall begin from the date of receiving the award, which in this case was November 7, 2015. The Petitioner placed reliance on the judgment of the Bombay High Court in the case of Amit Suryakant Lunavat v. Kotak Securities, in which the learned single judge opined that:
“Considering the scheme and purpose of the Act, in an event an application is filed under section 33 of the Act and it was rejected subsequently, the limitation period does not commence afresh from the date of such decision of the award. Therefore, Section 34(3) contemplates only a situation where the Arbitrator corrects or interprets and/or adds or decides to add any additional claims and modifies the award because only in such cases the original award loses its originality and therefore an application for setting aside the award needs to be filed within the stipulated time under the Act from the date of receipt of such corrected or modified award.”
Finding of the Courts
Distinguishing the case of Damani Construction, the Delhi High Court reversed the order of the district court. The learned single judge observed that, unlike in Damini Construction where the application sought the review of the award, the present case involved a request for resolving an administrative mistake in which two views were possible (one being in favour of the party filing the application). The court held that, in such a situation, it cannot be assumed that a section 33 application is wholly misconceived and beyond the scope of section 33.
The Supreme Court, while upholding the order of the High Court to be the correct position in law, rejected the contentions of the Petitioner. The bench was of the view that the section specifically contemplates a “request” for correction of the award from the arbitral tribunal and that the expression “disposed” does not oblige the arbitral tribunal to take an active step and make changes or modifications to the award. A disposal of the request for correction can be done either by allowing or dismissing the application. Therefore, it is on the date of disposal of the request that the limitation period would begin for filing the application under section 34 of the Act. Accordingly, the Supreme Court held the judgment of the Bombay High Court in Amit Suryakant Lunavat to be flawed and not reflecting the correct position in law.
Analysis and Concluding Remarks
The Supreme Court adopted a literal interpretation while deciding the issue in question. One of the important points to note is that the the Court has entirely rejected modification to the award by the arbitral tribunal as a pre-condition for commencement of a fresh period of limitation. Further, the Court has outlined that section 34(3) merely envisages the date beyond which an application for setting aside the award cannot be brought and that the expression “disposed” should not be read to only include some positive act done by the arbitrator to correct the award. Instead, the Court, while establishing the applicability of section 34(3) to the final disposal of arbitral award, has clarified that the expression “disposed” also includes dismissal of a section 33 application. This means that a party which receives the award after the application under section 33 has been decided by the arbitral tribunal will get the benefit of a fresh commencement of limitation either from the date of receipt of the modified/ corrected award or otherwise from the date of dismissal of the application.
The decision of the Supreme Court is noteworthy as it has once and for all resolved the inconsistent views pertaining to the commencement of the limitation period for filing of a section 34 application as provided under section 34(3) of the Act.