CHINTELS INDIA LTD. v. BHAYANA BUILDERS PVT. LTD: AWARD-DEBTORS PARADISE & AWARD-HOLDERS LOSS

-Rohan Gulati*


INTRODUCTION


There has been a discernable trend in India where arbitration and courts have not been able to work without the other. Based on this trend, it is perhaps ironic that the Arbitration and Conciliation Act, 1996 (“1996 Act”) was inspired and based on the UNCITRAL Model Law of 1985 (“Model Law”) that is founded on the key feature of judicial non-intervention. However, the 1996 Act was not entirely based on the Model Law. Interestingly, the 1996 Act is the outcome of a synergized blend between the age-old Arbitration Act of 1940 (“1940 Act”) and the Model Law. While the 1996 Act adopted certain provisions of the Model Law, it retained, modified, and carried forward some from the 1940 Act. A prime example of a modified provision is Section 37 as we now read it under the 1996 Act. Section 37 is a statutorily conferred right to appeal against orders on certain grounds, however, it has often been an area of misinterpretation and misuse that has stalled several arbitration proceedings.

In the recent case of Chintels India Ltd. v. Bhayana Builders Pvt. Ltd.,[1] the Hon’ble Supreme Court of India (“Court”) has to put the rest a pertinent issue of law i.e., whether or not an order refusing to condone the delay in filing a Section 34 application is appealable under Section 37(1)(c) of the 1996 Act.

Accordingly, this article strives to critically analyze the afore-stated judgment, and to facilitate analysis, it is divided as follows – Part I will briefly scan the development of the law; Part II will concisely discuss the facts; Part III will succinctly highlight the decision of the Court and reasons thereof; Part IV entails a critique of the judgment; and lastly, Part V concludes by suggesting a plausible way ahead.

THE LAW: PAST & PRESENT


Not to put the cart before the horse, it is pertinent to highlight the minute difference between Section 39(1)(vi) of the 1940 Act and Section 37(1)(c) of the 1996 Act in order to set the tone for the analysis.

Section 39(1)(vi) of the 1940 Act read as follows:


39. Appealable orders.— (1) An appeal shall lie from the following orders passed under this Act (and from no others) to the court authorised by law to hear appeals from original decrees of the court passing the order:

An order—

***

(vi) setting aside or refusing to set aside an award:”

Whereas, Section 37(1)(c) of the 1996 Act stands as follows:

37. (1) An appeal shall lie from the following orders (and from no others) to the court authorized by law to hear appeals from original decrees of the court passing the order, namely—

***

(c) setting aside or refusing to set aside an arbitral award under Section 34.


Therefore, the primary difference between the text of the 1940 Act and the 1996 Act only witnesses an inclusion of the words – “under Section 34.” Incidentally, Section 37 is a ‘consequential provision’ under the 1996 Act that is absent from the Model Law given its principle feature of judicial non-intervention.


FACTS OF THE CASE


Chintels India Ltd. (“Appellant”) had approached the Hon’ble Delhi High Court (“High Court”) by way of an application under Section 34 for setting aside an award dated 3rd May 2019 passed by an Arbitral Tribunal. Notably, the Appellant had also filed applications seeking condonation of delay of 28 days in filing and an additional 16 days in re-filing the petition. These applications were filed in light of filing the Section 34 application beyond the statutory limit of 3 months. The Appellant had averred the ground of change in counsel in his submissions concerning the applications seeking condonation of delay.


However, the learned single judge of the High Court after perusing the record carefully, categorically observed that the applications seeking condonation of delay were itself filed only after the period of 120 days. Therefore, the Appellant must have filed the applications along with the Section 34 application at the first instance. In view of the afore-stated, the learned single judge of the High Court was not inclined to condone the delay and accordingly dismissed the applications that in effect led to the dismissal of the Section 34 application as well.


Aggrieved by the decision of the learned single judge, the Appellant preferred an appeal under Section 37(1)(c) of the 1996 Act before a Division Bench of the High Court. However, the Division Bench of the High Court being bound by the decision of the Court in the case of State of Maharashtra v. Ramdas Construction Co.,[2] held that such an appeal is not maintainable. However, the Division Bench granted a certificate to appeal under Article 133 read with Article 134A of the Constitution of India, 1950 to the Appellant that granted liberty to approach the Court concerning the pertinent question of law involved.

DECISION OF THE SUPREME COURT


The Court mapped out the question of law involved lucidly and authoritatively held that an order refusing to condone delay under Section 34 that in effect leads to dismissal of the Section 34 application itself would be incorrect in law. To arrive at this decision, the reasons were manifold;


Firstly, the Court observed that Section 39(1)(vi) of the 1940 Act is pari materia to Section 37(1)(c) of the 1996 Act. The reasoning behind the same was pointed towards the substance of the provision that is identical to the 1940 Act. Moreover, the 1996 Act went a step ahead to refine the provision and cover Section 34 in its entirety.


Secondly, and pertinently, the court relied upon the ‘effect test’ that was discussed earlier in the case of Essar Constructions v. N.P. Rama Krishna Reddy[3] (“Essar Constructions”). Identical to the principles of cause and effect, the effect test pertains to the decision of the court on the ‘cause’ that leads to an ‘effect’. In the present context, the cause refers to the refusal to condone the delay, however, the effect will be the dismissal of the Section 34 application, being a harsh move on the award-debtor. To further provide clarity upon the effect test, the Court discussed Section 37(1)(a) wherein no appeal lies from an order referring parties to arbitration under Section 8 since that is the intended effect of the provision itself.


Thirdly, the Court reiterated that the principle of minimal judicial intervention as enshrined under Section 5 of the 1996 Act could not be narrowed down to limit appeal provisions within the statute itself. In other words, the principle of judicial non-intervention cannot be absolute concerning the 1996 Act.

CRITIQUE


The judgment of the Court without an iota of doubt provides clarity and settles the law upon a pressing issue. In doing so, the Court overruled Union of India v. Radha Krishna Seth[4] and State of Maharashtra v. Ramdas Construction Co.[5] that stated the law incorrectly. While the decision may seem worthwhile, it suffers from certain pitfalls. Accordingly, to facilitate a critique, the present part is divided into two distinct categories i.e. (i) The Good and (ii) The Bad & Ugly.


(i) The Good


First and foremost, the decision will favor the award-debtors wherein the application for condonation of delay had been dismissed by the courts that in effect dismissed the Section 34 application as well. The effect test as upheld by the Court will by and large favor award debtors that raise legitimate grounds for setting aside the arbitral award under Section 34 and would not have to worry in case the statutory limit for three months has elapsed. Given the diverse variety of social, geographical, and economic factors in India that often lead to delays in filing, the decision is certainly a precedent that the award-debtors would look to rely upon proactively.


Noteworthy, the judgment opens up another avenue of remedy, albeit narrow, for award debtors under the 1996 Act itself. Prior to the judgment, in case of dismissal of the Section 34 application, the award debtors would rest hopes on Article 136 of the Constitution that provides for a Special Leave to Appeal before the Court. However, due to the present decision, the narrow scope of appeal under Section 37(1)(c) is more likely to be invoked. It may provide the award-debtor a reasonable opportunity in case the application under Section 34 was dismissed in effect due to refusal to condone the delay.

Notably, the Court made a relevant distinction between the return of application under Section 34 due to lack of jurisdiction and the dismissal of the application under Section 34 on account of delay. While doing so, the Court distinguished the judgment in the case of BGS SGS Soma JV v. NHPC[6] and clarified that the case pertained to return of the application due to lack of jurisdiction of the court and whereas, the present case dealt with the refusal to condone delay that led to the dismissal of the Section 34 application itself.

Prior to the present decision of the Court, there had been differing positions that caused a muddled regime. Therefore, in light of the same, the present decision settles yet another ambiguous area of arbitration law.

(ii) The Bad & Ugly


Pertinently, in order to arrive at the reasoning in the present judgment, the Court had to first consider Section 39(1)(vi) of the 1940 Act pari materia to Section 37(1)(c) of the 1996 Act and only then rely upon a case decided in accordance with the scheme of the 1940 Act i.e., Essar Constructions. However, considering that there have been ‘words of caution’ in relying upon the scheme of the 1940 Act and the cases decided as per the same if the basis of the present judgment is questioned, its foundation may start to fumble.


In the case of Sundaram Finance v. NEPC India Ltd.,[7] the Court had authoritatively observed that the provisions of the 1996 Act must be interpreted and construed independently to avoid any misconstruction. In simpler terms, the 1996 Act must be interpreted on its own strength without being influenced by the scheme of the 1940 Act. Additionally, in the case of Ashok Traders v. Gurumukh Das Saluja,[8] the Court had observed that the 1996 Act is a long leap in the direction of alternative dispute resolution systems and the cases decided as per the 1940 Act must be ‘applied with caution’ for determining the issues under the 1996 Act.


Whereas, in the present case, there seems to be an absence of any caution that the Court may have considered. Section 37(1)(c) of the 1996 Act could have very well been interpreted on its own strength and in doing so, the Court could have taken cue of the effect test from the case of Essar Constructions and reiterated the principle rather than considering Section 39(1)(vi) of the 1940 Act pari materia to Section 37(1)(c) of the 1996 Act.


Retreating to the key feature of the Model Law of judicial non-intervention, the present decision appears to be in murky waters. The statutory right of appealable orders under Section 37 could very well be subjected to misuse on account of delaying the enforcement of the award. In a jurisdiction like India, where the fate of litigation is summed up based on delay and prolonged cases, decisions opening up multiple avenues for award debtors are strong weapons that could be deployed very often leading to delay in awards attaining finality. Ultimately, the faith in the arbitration process from the award holder's viewpoint is bound to diminish and may result in laxity and increased legroom for the award debtors.


Lastly, the award debtor may not always be a private entity, and where the instrumentalities or extended limbs of the State are involved, they may drag their feet for a considerable time. This would result in the award-holder being entangled in several rounds of litigation despite possessing an award in their favor.


CONCLUSION


The present decision may have settled one area, however, it has added yet another hurdle before the awards attain finality as it may lead to prolonging litigation arising out of or in relation to arbitration. As a plausible way ahead, the courts must consider two indispensable aspects viz., (i) in case the Section 34 application is filed beyond the limitation period of 3 months, the application seeking condonation of delay must be filed with the Section 34 application itself and not on any date thereafter and (ii) the award-debtors must precisely set-out the grounds under Section 34(2) and/or 34(2A) for setting aside the award. The former aspect will be particularly helpful in not letting the award debtors misuse the present decision to condone the delay beyond the outer limit of 30 days [as per the proviso to Section 34(3)].


However, in case the award-debtors do not comply with Section 34(2) and sub-section (3) of the 1996 Act, the courts must preclude the award-debtors from utilizing the present judgment as a dilatory tactic in an attempt to impede the enforcement and finality of awards.



* Rohan Gulati is a Junior Staff Editor for the Arbitration Workshop Blog. He is currently a fourth-year law student pursuing BB.A LL.B at Symbiosis Law School, Hyderabad. His primary area of interest is Alternative Dispute Resolution (ADR) with a specific focus on arbitration law. He can be contacted at rohan.gulati@student.slsh.edu.in

[1] 2021 SCC OnLine SC 80. [2] Order dated 12.04.2017 in C.A. Nos. 5247-5248/2007. [3] (2000) 6 SCC 94. [4] 2005 SCC OnLine All 8400. [5] (2006) 6 Mah LJ 678. [6] (2020) 4 SCC 234. [7] (1999) 2 SCC 479. [8] (2004) 3 SCC 155.

242 views0 comments