Another Supreme Court Decision on Limitation under the Arbitration Act
Recently, the Courts have been called upon to adjudicate a few vexed questions arising out of various provisions of the Arbitration and Conciliation Act. On 28 February, the Supreme Court in State of Maharashtra v. Ark Builders Pvt. Ltd. (available here) decided a question of limitation under S. 34 of the Act. The issue was seemingly innocuous: whether the limitation period would start running from the time a copy of the award was received by the objector from any means, or whether it would start running from the time a signed copy of the award was delivered to him by the arbitrator. Nevertheless, it was a question of significant importance, since often the winning party would send a copy of the award to the losing party for enforcement at the earliest; and the time lag between the two would often decide the maintainability of an application to set aside an award, based upon the time from which the limitation period commenced running.
The key section is S. 31(5), which states:
“After the arbitral award is made, a signed copy shall be delivered to each party.” (Emphasis Supplied)
S. 34(3) states:
“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award.” (Emphasis Supplied)
The High Court found in favour of the first of the two abovementioned alternatives. In the High Court, the judgment turned upon the meaning of the word “delivered” in S. 31(5). The Court distinguished between the words “delivered” and “dispatched”, and held that “delivered” simply means that a copy of the award should be handed over to the proper parties. It went on to hold that there had been “sufficient compliance” with S. 31(5), as the Respondents had delivered a copy of the Award to the representative of the appellants nine months before the Appellants filed their S. 34 application.
Rejecting the decision of the High Court, the Supreme Court observed that S. 31(1) mandated an arbitral award to be signed by members of the arbitral tribunal, and S. 31(5) referred to a signed copy that was required to be delivered to each party. On this ground, the Court held that what was required was the delivery of a signed copy by the arbitrator, and not any other copy. The Court then went on to hold that S. 34(3)’s requirement of the receipt of an arbitral award could not be read in isolation, and that in the context of S. 31(5), the receipt of the arbitral award referred to the award signed by the arbitrator, as required by S. 31(1).
The Court then relied upon its decision in 2005, in Tecco Trichy Engineers, to hold that the delivery contemplated by S. 31(5) was not a matter of mere formality, but a matter of substance, since the termination of the arbitral proceedings could take place only after its completion. Furthermore, since this led to the creation of certain rights (such as, for instance, the right to file an application to set aside the award), it was an important stage in the arbitral proceedings, and could not lightly be ignored.
Thus, the Court held that: “If the law prescribes that a copy of the order/award is to be communicated, delivered, dispatched, forwarded, rendered or sent to the parties concerned in a particular way and in case the law also sets a period of limitation for challenging the order/award in question by the aggrieved party, then the period of limitation can only commence from the date on which the order/award was received by the party concerned in the manner prescribed by the law.”
Finally, the Court rejected the suggestion that it should interpret the Section the other way in light of the unfair consequences that ensued. While accepting the fact that the Appellants appeared to have derived an undue advantage from the arbitrator’s omission coupled with the Respondents providing them a copy, it held that “that would not change the legal position and it would be wrong to tailor the law according to the facts of a particular case.”
It is interesting to note the Court’s rejection of the substantial compliance doctrine in the present case, in favour of a strict construction of the terms of the statute. Although in many situations, the parties may indeed receive the terms and substance of the award before the arbitrator’s official signed copy, the Court nevertheless preferred to stick to the text of the statute, and avoid relaxing its operation by bringing in the doctrine of substantial compliance, or a like concept. This is a clear example of the Court’s refusal to allow policy considerations to affect its interpretation of a commercial statute. Whether or not that is desirable is an open question.