TIME LIMIT FOR REFERRING DISPUTES TO ARBITRATION UNDER SECTION 8 OF THE ACT, 1996- Del HC PROPOUNDS

Shreesh Chadha[1]

INTRODUCTION


The Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) introduced a large number of changes and it’s aspects have been discussed time and again by the Supreme Court of India and various High Courts. However, the same kind of lucidity has not been given to the amendment in Section 8 of the Act, 1996, particularly the limitation for filing an application before the “judicial authority” for appointment of an arbitrator. The unamended Section 8 of Arbitration and Conciliation Act, 1996 (Act) specified the time limit for filing an application in implicit terms as “not later than when submitting his first statement on the substance of the dispute”. Subsequently, Section 8 of the Act, 1996 was amended and currently reads as-“not later than the date of submitting his first statement on the substance of dispute”. Pertinently, issues pertaining to this amendment were raised before the Delhi High Court in SSIPL Lifestyle Pvt. Ltd. vs. Vama Apparels (India) Pvt. Ltd.[2], which recently adjudicated on the purport of the 2015 Amendment in this regard. This article will elucidate the reasoning of the Delhi High Court and the analysis of the position of law on the time limit to refer the dispute to arbitration as per Section 8 of the Act, 1996.


MEANING OF “FIRST STATEMENT” IN SECTION 8 OF THE ACT,1996


The Supreme Court had previously clarified the meaning of “first statement” as used in both the amended and unamended Section 8 of the Act, 1996. In Rashtriya Ispat Nigam Ltd. vs. Verma Transport Company[3] the SC has observed that the term “first statement” in Section 8 of the Act, 1996 means –

“36. The expression “first statement on the substance of the dispute” contained in Section 8(1) of the 1996 Act must be contradistinguished with the expression “written statement”. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived its right to invoke the arbitration clause.”

Further, the Delhi High Court in Sharad P. Jagtiani vs. Edelweiss Securities Limited[4] has opined that the “first statement” in a civil suit, must necessarily mean the “written statement” submitted by the defendant. The Delhi High Court opined as follows:

“15. Section 8 does not specify the manner in which the party has to submit its first statement on the substance of the dispute, and normally with respect to a suit, the first statement on the substance of the dispute by the defendant would be the written statement.”

Therefore, it is an established position that irrespective of the 2015 Amendment, the event that governed the time limit of referring a dispute to arbitration, was the filing of the written statement.


LIMITATION PERIOD UNDER SECTION 8 OF THE ACT, 1996


The issue of time limit under the unamended Section 8 of the Act,1996 was dealt by the Supreme Court in Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. & Ors.[5] It was stated that even though there was no time limit mentioned in Section 8 of the Act, 1996 (before the 2015 Amendment), the provision read with the scheme of the Act indicated that an application before the judicial authority should be filed “at the earliest”. Thus, it follows as a necessary inference that any time before the filing of a written statement, irrespective of whether interim applications were filed by the defendants, or settlement talks were going on between parties, an application under Section 8 of the Act, 1996 for referral of disputes to arbitration can be raised.


Notably, the Amendment 2015, had introduced the words- “not later than the date” in Section 8 of the Act, 1996, and it was the impact of such an amendment which was the issue before the Delhi High Court in SSIPL Lifestyle (supra). In SSIPL Lifestyle case (supra), the issue came up for hearing before a Single Judge when in two connected suits, the Defendants-Vama Apparels filed an application under Section 8 of the Act, 1996 in both suits along with applications for condonation of delay under the Limitation Act,1963. These applications were being heard together in the two suits filed for recovery of sums arising out of a sale-purchase agreement between the parties. The issues that were raised before the Single Judge bench were- (i) Whether the amended Section 8 of the Act, 1996 prescribes a time limit for filing an application? And (ii) Whether the time limit under the Code of Civil Procedure, 1908 (CPC) and Commercial Courts Act, 2015 is applicable to an application under Section 8 of the Act, 1996?


In response to the questions framed, the Bench analysed other decisions of the Delhi High Court which previously dealt with these issues. One of them being, Hughes Communications India Ltd. and Ors. vs. Union of India[6] wherein it was opined that the only time limitation under Section 8 of the Act,1996 is that it should not be filed later than the first statement by the defendant. It was further held, that merely because the time for filing the written statement had expired, the defendant is not estopped from filing an application under Section 8 of the Act, 1996 and seek referral of the dispute to arbitration. This case was cited with disapproval in the SSIPL Lifestyle case (supra), as it relied on a decision of the Madras High Court in M/s Sri Ragavendra Advertising & Anr vs. Prasar Bharti (Broadcasting Corporation of India)[7] which dealt with the unamended Section 8 of the Act, 1996.


A significant ruling by the Delhi High Court in Krishan Radhu vs. Emmar MGF Construction Pvt. Ltd.[8] on the effect of the 2015 Amendment to Section 8 of the Act,1996 was cited with approval in SSIPL Lifestyle (supra). It was held in this case that by inclusion of the words “not later than the date of submitting his first statement on the substance of dispute” a specific time limit for filing a Section 8 application under the Act, 1996 was introduced. Affirming that the words, “first statement” necessarily refer to the written statement, it was propounded that the amended Section 8 of the Act, 1996 required the party to file an application under Section 8 of the Act, 1996 for the referral of the dispute to arbitration, and the words “not later than the date” prescribe the time limit that would concomitantly apply to the filing of the written statement.


The relevant excerpt of the Krishan Radhu (supra) judgement is extracted hereinbelow:


“17. Thus, the third amendment to Section 8 (1) whereby the existing words “not later than when submitting” have been substituted by “not later than the date of submitting” are of some import. Under the amended law the defendant is now required to invoke the arbitration clause and apply to the court for a reference thereunder by moving an application but not required to file his written statement or any answer to set out his statement on the substance of the dispute. Rather, the submission of the written statement or reply indicating his (first) statement on the substance of the dispute may be construed as waiver of the right to seek reference to arbitration, or even as submission to or acquiescence of the jurisdiction of the court where the action has been brought by the claimant (the plaintiff). The amended provision of Section 8 (1), however, sets out a limit to the period within which such application invoking the arbitration agreement must be presented. It is this limitation period which is indicated by the words “not later than the date of submitting.
...
19. It is clear from the above provision of law that a defendant when called upon to respond to the claim brought by a civil suit and upon being served with the summons is required, by the law, to submit his reply or response in the form of “written statement” within the period of thirty (30) days. So read for purposes of the arbitration law, it is this period which is the period within which “first statement on the substance of the dispute” under the amended law is expected to be submitted.”

Therefore, the extendable period of 30 days as mentioned in Order 8 Rule 1, CPC is the stipulated limitation even for an application under Section 8 of the Act, 1996.


The correct position in law as cited by the Bench, was advanced by the Delhi High Court in Anil Mahindra vs. Surender Kumar Makkar[9] wherein it was held that the defendants in this case, had participated in the proceedings before the civil court, by availing the extended 90 day period under Order 8 Rule 1, CPC to file the written statement, and belatedly filing the Section 8 application under the Act, 1996 after expiry of the stipulated period amounts to unnecessarily delaying the adjudication of the dispute. The Section 8 of the Act, 1996 application was hence, denied in this case.


Relying on the abovementioned decisions, in Krishan Radhu (supra) and Anil Mahindra (supra), the Bench observed that the period for filing the written statement in this case was closed, and the Section 8 application could not be filed after the expiry of such period. It was held that the 2015 Amendment was introduced to provide for a time limit under Section 8 of the Act, 1996 and the word “date” in the amended provision implied precision and was incapable of ambiguity. It was also observed that the scheme of the 2015 amendments in other provisions such as Section 9, Section 11, Section 29A, Section 29B has been to “tighten the time limit to commence and conclude arbitration proceedings” and that such an effort to expeditiously resolve arbitration or related proceedings must be given full effect to by the Courts.


Therefore, it was conclusively answered in no uncertain terms that the time limit for filing an application under Section 8 of the Act,1996 is the same as the time limit for filing the written statement under Order 8 Rule 1, CPC, which is 90 days for non-commercial suits, and 120 days (by virtue of Commercial Courts Ac, 2015) for commercial suits.


CONCLUSION


The ruling of the Delhi High Court in SSIPL Lifestyle (supra) is in line with subsequent amendments to the Act,1996 such as the time limit being prescribed for completion of pleadings before the tribunal [in S. 23 by the Arbitration and Conciliation (Amendment) Act, 2019]. It is also pertinent to mention that by implication the time limit for filing a Section 8 application is mandatorily 120 days, and cannot be filed beyond that period, as held by the Supreme Court in M/s SCG Contracts India Pvt. Ltd. vs. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors[10].


The impact of the ruling is vast. It compels the parties to stick to a time limit for referring the dispute to arbitration, and holds the delay in such a request as a waiver of the right to invoke arbitration. Granted, the procedure of arbitration is inherently more flexible, less time consuming and more informal than court proceedings, but the Delhi High Court has proved that such a callous approach to arbitral proceedings is unwarranted and cannot be permitted.


[1] Shreesh Chadha is a final year student at Jindal Global Law School(JGLS), Sonepat and can be reached at shreeshchadha@gmail.com. [2] SSIPL Lifestyle Pvt. Ltd. vs. Vama Apparels (India) Pvt. Ltd. C.S. COMM. 735/2018. [3] Rashtriya Ispat Nigam Ltd. vs. Verma Transport Company 2006 7 SCC 275. [4] Sharad P. Jagtiani vs. Edelweiss Securities Limited, FAO (OS) 188/ 2014. [5] Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. & Ors. (2011) 5 SCC 532. [6] Hughes Communications India Ltd. and Ors. vs. Union of India CS(COMM) 439/2017. [7] M/s Sri Ragavendra Advertising & Anr vs. Prasar Bharti (Broadcasting Corporation of India)2009 -5-L.W.439. [8] Krishan Radhu vs. Emmar MGF Construction Pvt. Ltd. CS(OS) 3281/2014. [9] Anil Mahindra vs. Surender Kumar Makkar C.M.(M) 243/2016. [10] M/s SCG Contracts India Pvt. Ltd. vs. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors. (Civil Appeal No. 1638 of 2019 arising out of S.L.P (C) No. 103/2019).

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