[Saara Mehta]

 

Saara is a 4th year student at NLIU,Bhopal.

Introduction

A case decided on 26^th September, 2018 by a Division Bench of the Supreme Court, P.Radha Bai and Ors. v. P. Ashok Kumar and Anr.[1], is an aid towards understanding how the Limitation Act, 1963 (“Limitation Act”) operates vis-à-vis the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The issue under consideration was whether Section 17 of the Limitation Act could be used to condone the delay in filing an application to set aside the award under Section 34(3) of the Arbitration Act. Under Section 17, the period of limitation begins to run from the time when fraud played against the award debtor is discovered or could have been discovered with reasonable diligence.[2]

Factual Matrix and Adjudication prior to the Supreme Court

An award was made in February, 2010 by a tribunal adjudicating a dispute between the Appellants no. 1-6 and Respondents no. 1 and 2, all heirs of a common descendent. The award was received within 3 days of its delivery. According to the Respondents, the Appellants entered into a Memorandum of Understanding (“MoU”) with the Respondents in bad faith. They submitted that pursuant to this, the Appellants agreed to give certain properties to Respondent no. 1, which cumulatively were more than what the award stipulated. Further, after entering into the MoU,   the   Appellants   were   required   to   execute   Gift   and Release   Deeds   to   give   effect   to   the   MoU. This execution, allegedly, was delayed intentionally, owing to which the limitation period to apply for execution of the award under Section 34(3) (three months and an extended period of 30 days) expired. On expiry, the Appellants filed an Execution Petition for execution of the award, but the trial court held that this was not maintainable. On appeal, the High Court set aside this order; the trial court was directed to decide the petition on its merits.

On realising the intentional delay of the Appellants in executing the gift deed, the Respondents applied under Section 34(3) of the Arbitration Act. They sought to condone the delay in the application on account of fraud by the Appellants. The City Civil Court, Hyderabad, dismissed the application on the ground that it was not empowered to condone delay beyond three months and 30 days, as stipulated in Section 34. Following this, four civil revision petitions were filed by the Respondents before the Andhra Pradesh High Court under Article 227 of the Constitution. The High Court remanded the matter back to the trial court solely for determination of the question of whether Section 17 of the Limitation Act would apply to condone delay in filing an application under Section 34(3) of the Arbitration Act. The Respondents, aggrieved by the High Court’s order, appealed to the Supreme Court in the present case.

The Supreme Court’s Decision

The Respondents submitted that since application of Section 17 of the Limitation Act had not been specifically excluded under the Arbitration Act, the benefit of Section 17 should not be denied to the Respondents. The Supreme Court, in this regard, took note of Section 29(2) of the Limitation Act, which provides: “Where any special or local law prescribes for   any   suit,   appeal   or   application   a   period   of limitation different from the period prescribed by the   Schedule,   the   provisions   of   Section   3   shall apply   as   if   such   period   were   the   period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law”.[3] The case of Vidyacharan Shukla v. Khubchand Baghel and Others[4] was relied on to interpret this section.

This case provides that Section 29(2) has two limbs. The first limb is that the limitation period prescribed by the special law or local law shall prevail over the limitation period prescribed in the Schedule to the Limitation Act. In the present case, the Supreme Court noted that the Arbitration Act was a special law and thus the period in Section 34(3) would apply to filing objections to the arbitral award. The second limb, identified in Vidyacharan, is that Sections   4   to   24   of   the Limitation   Act   will   apply   for   determining   the   period   of limitation “only in so far as, and to the extent to which, they are   not   expressly   excluded   by   such   special   or   local   law.”[5] Thus, the Court held that Sections 4 to 24 would apply towards limitation period under the Arbitration Act only if these sections were not expressly excluded under the Act.

Relying on previous pronouncements, in which Section 12 and 14 of the Limitation Act had been extended to condone delay under Section 34, the Respondents argued that since application of Section 17 had not been expressly excluded by the special law, it could be extended in the same way. Citing Vidyacharan, as well as Hukumdev Narain Yadav v. Lalit Narain Mishra,[6] the Court concluded that “express exclusion can be inferred either from the language of the special law or it can be necessary implied from the scheme and object of the special law”.

The Court observed that there existed a contradiction in the language of Section 17 and Section 34(3). The Supreme Court, inter alia, observed as follows. First, Section 17 of the Limitation Act does not extend or break the limitation period. It only postpones commencement of the limitation period till the applicant has discovered the fraud. Besides, Section 34(3) of the Arbitration Act has a limitation provision built in itself. It provides that the limitation period commences from the when a party making an application had received the arbitral award, or from the disposal of a request under Section 33 of the Arbitration Act for correction and interpretation of the Award. Section 17 of the Limitation Act directly clashes Section 34 (3) of the Arbitration Act on the point of start of limitation period. Second, the proviso of Section 34(3) provides for condonation of delay in certain cases, where the applicant can challenge the award within a period of 30 days from the expiry of three months but not thereafter. The Court observed that the highlighted words would be rendered otiose by the application of Section 17 of Limitation Act. The Court also addressed the importance of time-bound disposal of proceedings connected with arbitration, noting that the Arbitration Act has within its objectives the speedy resolution of disputes.

In any case, the Court observed, that the application of Section 17 was ruled out because the fraud in question did not pertain to the delivery of the award. This conclusion was drawn from a body of case laws which all gave the same ratio: Section 17 comes to the rescue of a party for failing to adopt legal proceedings when the facts or material   necessary   for  him   to   do   so   have   been wilfully concealed from him. Since the award had been received by the Respondents, the application of Section 17 was unlawful, and limitation period under Section 34(3) of the Arbitration Act would run from the date of receipt of the award.

A Comment on the Decision

This decision is a welcome step towards the clarification of how the Limitation Act operates in relation to arbitration. The interpretation of Section 29(2) of the Limitation Act has been made without falling foul of the relevant legal precedent. The fact that the Court has been careful to not apply Section 17 of the Limitation Act for condonation of the delay simply because Sections 12 and 14 have been so applied in previous decisions, and that it has gone into why such an approach would not apply to Section 17, reflects a clear application of judicial mind.

A very commendable aspect of the decision is that the Supreme Court has upheld the Statement of Objects and Reasons of the Arbitration Act, which reflects that the intent behind the Act was to provide parties with an efficient alternative   dispute   resolution   system which   gives   litigants an expedited   resolution   of   disputes, while   reducing   the burden on the courts. It is pertinent to note that relying on the decision in Union of India v. Popular Construction Co.,[7] the Supreme Court observed that timelines are extremely essential to the Arbitration Act. The Court held, by referring to Dr. Peter   Binder’s observations   in   International   Commercial   Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions, 2nd Ed., that the period of limitation under Section 34(3) was meant to be unbreakable and to run continuously, and applying Section 17 of the Limitation Act would be repugnant to this principle. This is extremely encouraging because it shows the willingness of the judiciary to regard the time of the arbitrating parties as paramount, something that is integral to the very nature of arbitration.

The only difficulty that remains is identifying the remedy that the Respondents would have in such a situation, when there has been a genuine fraud committed against them, but in the larger interests of justice, they cannot be redressed. In this regard, all that the court had to say was that the Respondents should, if they were unsatisfied with the award from the beginning, have challenged it within the three months that they were legally guaranteed. Perhaps this decision will serve a cautionary tale for parties seeking to challenge awards in similar circumstances.

 

 

[1] https://supremecourtofindia.nic.in/supremecourt/2012/32981/32981_2012_Judgement_26-Sep-2018.pdf.

[2] Section 17, Limitation Act, 1963.

[3] Section 29(2), Limitation Act, 1963.

[4] https://supremecourtofindia.nic.in/jonew/judis/3373.pdf, 1964 SCR (6) 129.

[5] Supra, Note 2.

[6] https://supremecourtofindia.nic.in/jonew/judis/6370.pdf, (1974) 2 SCC 133.

[7] https://supremecourtofindia.nic.in/jonew/judis/20453.pdf, (2001) 8 SCC 470.