Demystifying the Rule of Limitation Period Under Section 37 Appeals

By Poojal Agarwal and Prateek Khandelwal, Students at Chanakya National Law University, Patna

Introduction

The conundrum on the limitation period of filing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) seems to be demystified with the Hon’ble Supreme Court of India verdict (“Supreme Court”) in the matter of Government of Maharashtra v. M/s Borse Brothers Engineers & Contractors Pvt. Ltd. (“Borse Brothers”). The Supreme Court with Borse Brothers has overruled its earlier judgement in the case of Union of India v. Varindera Constructions Ltd., (“Varindera Constructions”) and N.V. International v. State of Assam, (“N.V.International”) wherein it was held that limitation period for filing a petition to challenge an award under Section 34(3) of the Arbitration Act could be construed to be the limitation period for filing an appeal against the order, under Section 37 of the Arbitration Act. Moreover, it was also held that delay in filing such appeal could not be condoned as it will defeat the object of speedy resolution of all arbitral disputes.

Analysis of The Judgement

In Borse Brothers, the Supreme Court not only realised its mistake but also took into consideration all related statutory provisions before carving out a rule for limitation for appeals under Section 37 of the Arbitration Act.

The Arbitration Act under Section 34 allows a party to an arbitration to file an appeal for setting aside an arbitral award. Further, Section 37(1) (c) of the Arbitration Act provides an aggrieved party to file an application for appeal against the order of the Court passed under Section 34. Since no time period is prescribed within which such appeals can be preferred, therefore, the Supreme Court in N.V. International was erroneous to read the period of limitation contemplated under Section 34(3) for an appeal filed under Section 37 of the Arbitration Act as it amounted to judicial legislation due to the absence of any period of limitation provided in Section 37. However, in Borse Brothers, the Supreme Court observed that by virtue of Section 43 of the Arbitration Act, it is clear that Limitation Act shall apply to the arbitration. The Limitation Act through Article 116(a) puts a bar of 90 days on the filing of an appeal under the Code of Civil Procedure, 1908 (“CPC”) to a High Court from any decree or order of the lower court. Besides, if an appeal has to be made on a decree or order of any High Court to the same High Court, then it should be within 30 days from the date of such decree or order as mentioned in Article 117. Henceforth, it was held that limitation prescribed under Article 116 and 117 i.e., 90 days and 30 days, respectively, shall apply to appeals preferred under Section 37 of the Arbitration Act. Further, the Supreme Court, by applying Section 5 of the Limitation Act, which provides for an extension of the prescribed limitation period in cases where “sufficient cause” can be established, observed that delay in filing an application for appeal under Section 37 could be condoned if the aggrieved party is able to justify the same with “sufficient cause.”

The Supreme Court, with this judgement, has tried to reconsider its earlier verdict in N.V. International, stating it to be per incuriam and it did not consider provisions of the Commercial Courts Act (“CC Act”). The CC Act through Section 13 provides that a party aggrieved by the judgment or order in a commercial dispute may appeal to the commercial appellate Court or the commercial appellate division of the High Court, as the case may be, within a period of 60 days from the date of such judgment or order. Further, the proviso to Section 13(1A) of the CC Act clearly states that such appeals should specifically be enumerated under Order XLIII of CPC and Section 37 of the Arbitration Act. According to Section 29(2) of the Limitation Act, the CC Act, which is a special law, would prevail over the Limitation Act, which is a general law and also considering the co-relation of Section 13 of the CC Act and Section 37 of the Arbitration Act as observed in the case of Kandla Export Corpn. v. OCI Corporation, the Supreme Court held that the limitation period of 60 days prescribed under Section 13 would apply to Section 37 appeals where the subject matter of the arbitration is of the ‘Specified Value,’ i.e. more than three-lakh rupees. While where the subject matter of the dispute is less than the specified value, Article 116 and 117 of the Limitation Act shall apply.

Having said so, the Supreme Court then determined whether Section 5 of the Limitation Act would apply to Section 13 of the CC Act. It held that Section 5 would be applicable to appeals that are covered under Section 13 of the CC Act, in which there is no restriction on condonation of delay. The Supreme Court, in order to justify such application, had drawn a negative comparison between Section 13(1A) of the CC Act to Order 8 Rule 1 of the CPC and to Section 35-H of the Central Excise Act and said that when the legislation has to specifically mention about the period of limitation, it does in the provision itself as it has done in above two provisions. Since there is no such limitation period prescribed under Section 37, therefore, the application of Section 5 of the Limitation Act in filling the appeal in Section 37 under Section 13 of the CC Act would be valid. Secondly, since there is no prescribed limitation period under Section 37, the Court also noted that the bodily lifting of Section 34(3), which places an embargo on allowing delayed appeals into Section 37, would be unwarranted and ultra vires as the Court does not have the power to make legislation.

Unanswered Contentions

Through Borse Brothers, Supreme Court has redressed many errors of N.V. International Judgement, but there remains some point of contention. To get down to the first line of contention, it is whether the Supreme Court is correct in applying limitation period on Section 37 Appeals same as mentioned under Article 116 of the Limitation Act, which deals with appeals under CPC. In the case of Fuerst Day Lawson Limited vs. Jindal Exports Limited, it was held that the Arbitration Act is a special act and a self-contained code dealing with arbitration. From its inception and right through to 2004 in P.S. Sathappan v. Andhra Bank Ltd., it was held to be a self-contained code and exhaustive. Therefore, application of one of the general principles, i.e. CPC, where the special Act sets out a self-contained code, the applicability of the general law procedure would be impliedly excluded. Hence, Borse Brothers rule out or pose a question on the application of the limitation period prescribed under Article 116 on appeals preferred under Section 37 of the Arbitration Act. Though Section 43 of the Arbitration Act makes Limitation Act applicable to the Arbitral proceeding but the unanswered question is whether it would lead to the application of CPC under Article 116 or not.

The Supreme Court in Borse Brothers judgement establishes the condonation of delay after the prescribed period but with sufficient cause. The Supreme Court explained the term “sufficient cause” which means that the party should not have acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case, or it cannot be alleged that the party has “not acted diligently” or “remained inactive”. The Supreme Court further held that it is, however, necessary to emphasise that even after sufficient cause has been shown, a party is not entitled to the condonation of delay in question as a matter of right. The proof of a sufficient cause is a condition precedent for the exercise of the discretionary jurisdiction vested in the Supreme Court by Section 5 of the Limitation Act. In the opinion of the Supreme Court, the expression “sufficient cause” should be given a liberal interpretation to ensure that substantial justice is done, but only so long as negligence, inaction, or lack of bona fides cannot be imputed to the party concerned, whether or not sufficient cause has been furnished, can be decided on the facts of a particular case and no straitjacket formula is possible. 

Due to allowance of condonation of delay on sufficient cause, Courts still have to hear the matter to appreciate the facts of the case and to decide whether there is sufficient cause or not, which will to some extent burden the courts and will defeat the purpose of Arbitration Act i.e., speedy disposal of cases. Since there is discretionary power given to the judges, which depends upon the facts and circumstances of the case, it will lead to usage of courts precious time in deciding the scope of sufficient cause doctrine in different cases and will also lead to uncertain and unmatched outcomes of different courts.

The Road Ahead

The Supreme Court, through Borse Brothers, has to some extent controlled the storm of questions related to the limitation period for filing appeals under Section 37 after the N.V. International Judgement. However, with the growing scope of arbitration in India, we need an amendment in Section 37 appeals to clarify the limitation period, which will provide stability in matters of arbitration. Such legislative lacuna not only over-burden the courts but also impedes the object of speedy disposal.

However, the Supreme Court, while clearing the air on the issue of the condonation of delay under Section 37, has ignored certain contentions. Firstly, no proper rationale was provided to justify the application of Section 5 of the Limitation Act on Section 13 of the CC Act, as the negative analogy created by the bench is not only insufficient to justify condonation but also amounted to judicial law-making which courts should prohibit. Secondly, how the condonation of delay will keep up with the object of speedy resolution of arbitrations. Besides, the Supreme Court should also justify the applicability of CPC on the Arbitration Act.