India: Hon'ble Supreme Court Clarifies That The Benefit Of Exclusion Of The Time Period When The Courts Are Closed Is Available Only When The Arbitral Award Is Challenged Within The Prescribed Period Of Three Months, Not The Extended Period Of Thirty Days

A division bench of the Hon'ble Supreme Court comprising of Hon'ble Justice M.R Shah and Justice Krishna Murari in Bhimashankar Sahakari Sakkare Karkhane Niyamita vs Walchandnagar Industries Ltd¹, upheld the order dated 23rd February 2022 passed by the High Court of Karnataka whereby the first appeal filed by the Appellant was dismissed. While deciding the Appeal, the Hon'ble Supreme Court clarified that for availing the benefit of excluding the time period when courts are closed the "prescribed period" of limitation to challenge an arbitral award is 3 months. This benefit is not available for the condonable period of 30 days provided in Section 34(3) of the Arbitration Act, 1996 ("Arbitration Act").

Background facts of the Appeal:

An arbitral award dated 24th August 2016 was passed in favour of the Respondent by the Arbitral Tribunal. The Appellant challenged the arbitral award under Section 34 of the Arbitration Act alongwith an application seeking condonation of delay before the Ld. Additional District and Sessions Judge, Vijayapur ("Ld. Trial Court").

The Appellant received the arbitral award on 24th August 2016 and the prescribed period of 3 months for filing the application seeking setting aside of arbitral award expired on 24th November 2016 and the extended period of 30 days expired on 24th December 2016. The Ld. Trial Court was on winter vacations from 19th December 2016 to 1st January 2017. The Appellant had filed the application seeking to set aside the arbitral award on the 2nd January 2017 i.e., on the day of reopening of the court.

The Ld. Trial Court by an order dated 2nd April 2018, dismissed the application filed by the Appellant seeking condonation of delay, as the same was filed beyond the prescribed period of 3 months as well as the condonable period of 30 days under the provisions of Section 34 of the Arbitration Act. Aggrieved by the order passed by the Ld. Trial Court, the Appellant preferred a first appeal before the Hon'ble High Court of Karnataka. The Hon'ble High Court dismissed the first appeal and affirmed the order of the Ld. Trial Court on the ground that the prescribed period under Section 4 of the Limitation Act,1963 ("Limitation Act") cannot be construed to be anything other than the period of limitation. The application for setting aside the arbitral award was filed beyond the prescribed period as well as the condonable period during which the Court has the discretion to allow a person to institute the proceeding.

Aggrieved by the aforesaid order passed by the Hon'ble High Court, the Appellant preferred an appeal before the Hon'ble Supreme Court of India.

Question of Law:

Whether the benefit of Section 10 of the General Clauses Act, 1897 and Section 4 of the Limitation Act is available when the last date of the condonable period of 30 days under Section 34 (3) of the Arbitration Act, falls on a holiday or during Court vacations?

Observations by the Hon'ble Supreme Court of India:

In an earlier judgement passed by the Hon'ble Supreme Court of India, Assam Urban Water Supply and Sewerage Board vs Subash Projects and Marketing Limited²,a similar question of law was raised, wherein the Hon'ble Supreme Court had settled the position that the benefit for exclusion of the period when the Court are closed is only available when the application for setting aside the arbitral award is filed within the prescribed period and not in the condonable period i.e., 30 days which is in the exercise of the discretion.

However, while considering this aspect of law in Assam Urban (Supra), the provisions of Section 10 of the General Clauses Act,1897 ("General Clauses Act") were not considered and the court had only dealt with the 'prescribed period' of limitation under the Limitation Act leaving a vacuum as far as the statutory condonable period is considered.

The proviso to Section 34 (3) of the Arbitration Act, gives limited powers to the court to condone the delay in filing the application for setting aside the arbitral award under Section 34 (1) of the Arbitration Act. The scope of condoning the delay is narrow and only on sufficient cause being shown for condoning the delay.

The Hon'ble Supreme Court observed that the court vacations are notified well in advance and would not amount to a fortuitous circumstance. Upon the receipt of the arbitral award, a party is well aware that the limitation of filing an application for setting aside the award is 3 months. The parties ought to diligently act upon filing the application to set aside the arbitral award within the said period to secure its right. The extendable period of 30 days is only available when the court is satisfied that sufficient cause has been shown by the parties for its failure in filing the application to set aside the arbitral award. Therefore, the condonable period of 30 days does not fall within the "prescribed period" for filling an application for setting aside the arbitral award.

As regards the question of whether the benefit of Section10 of the General Clauses Act was separately available, the Hon'ble Supreme Court elucidated that considering the proviso to Section 10 of the General Clauses Act and in view of the applicability of the Limitation Act to the proceedings under the Arbitration Act, the benefit of Section 10 of the General Clauses Act will not be available in calculating the limitation period.

The Hon'ble Supreme Court expounded that in accordance with Section 2(j) of the Limitation Act read with Section 34(3) of the Arbitration Act, the "prescribed period" for filing an application for setting aside the arbitral award is 3 months from the receipt of the award. The condonable period of 30 days will not fall under the heading of the prescribed period for filing an application for setting aside the arbitral award. The benefit of Section 4 of the Limitation Act shall not apply to the extendable period of 30 days. Any period beyond the "prescribed period" wherein a Court or Tribunal has the discretion to allow the institution of a proceeding cannot be said to be a prescribed period under law.

With the above observations, the Hon'ble Supreme Court of India dismissed the appeal filed by the Appellant and held that the Ld. Trial Court and the High Court have correctly refused to condone the delay in filing an application for setting aside the arbitral award under Section 34 of the Arbitration Act.

CONCLUSION

The Supreme Court has clarified the position of law that Section 10 of the General Clauses Act would have no application while calculating the period of limitation under the Arbitration Act. The Supreme Court has further cemented the position that the outer limitation period for filing an application for setting aside the arbitral award of 3 months plus 30 days, is sacrosanct.

Footnotes

1. 2023 SCC Online 382

2. [(2012) 2SCC 624]

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