[Nitesh Mishra is a 4th year B.A., LL.B. (Hons.) student at National Law University Delhi]
The Supreme Court in its recent judgment in Government of Maharashtra v. Borse Brothers Engineers & Contractors Pvt. Ltd. (19 March 2021) has attempted to clarify the law on the applicability and scope of condonation of delays in filing of appeals under section 37 of the Arbitration and Conciliation Act, 1996, and has ‘overruled’ the previously existing law on the issue, as laid down in N.V. International v. The State of Assam.
The Court has acknowledged the difference between the two categories of appeals filed under section 37 of the Arbitration Act based on their value, and has recognised the differing limitation periods for such claims respectively. For claims valuing less than INR three lakhs, the limitation period is provided under articles 116 and 117 of the Limitation Act, 1963 as either 90 days or 30 days, depending on the court which has issued the decree, while for the claims valuing more than INR three lakhs the limitation period is governed by section 13(1A) of the Commercial Courts Act, 2015 and has been prescribed to be 60 days.
The crux of the judgment revolves around the holding of the Court that section 5 of the Limitation Act applies to either types of the above-mentioned claims, thereby allowing for condonation of delay in filing of appeal under section 37 of the Arbitration Act, in cases where there exists ‘sufficient cause’ to do so. The Court, however, cautions against condoning the delay in filing of section 37 appeals as a matter of course, and has stated that such powers must be exercised by the court only in exceptional circumstances.
The Law: Before and After the Judgment
In N.V. International, the Court was faced with the issue whether a delay of 189 days beyond the statutorily provided 90-day limitation period (under article 116 of the Limitation Act) in filing a section 37 appeal against an order of rejection of a section 34 application under the Arbitration Act should be condoned. Justice Nariman, relying on the decision in Union of India v. Varindera Construction Ltd., ruled that after the grace period of 30 days has expired (thereby effectively increasing the limitation period for a section 37 appeal to 120 days), no further condonation of delay is possible, keeping in view “the object of speedy resolution of all arbitral disputes”.
Interestingly, Justice Nariman had himself penned the judgment in Borse Brothers Engineers, wherein the N.V. International order has been overruled. In Borse Brothers Engineers, the Court has held that the N.V. International order is per incuriam, as it did not take into consideration the provisions of the Commercial Courts Act, wherein the limitation period prescribed for section 37 appeals is different from what has been prescribed under articles 116 and 117 of the Limitation Act.
The Court had held in favour of a condonation of delay for either types of appeals, valuing below and above INR three lakhs, stating that section 5 of the Limitation Act shall apply to either of them. The Court presented the following rationale for such holding:
- With respect to appeals valuing below INR three lakhs, the Court held that the limitation period is governed by articles 116 and 117 of the Limitation Act. By virtue of section 43 of the Arbitration Act (which makes the provisions of Limitation Act applicable to proceedings under the Arbitration Act) and section 29(2) of the Limitation Act (which provides for the limitation period provided for in any special law to be treated the same as the ones provided under the articles of the Limitation Act), the Court held that section 5 of the Limitation Act shall apply to such claims, thereby allowing for condonation of delay.
- The bulk of the appeals, the Court noted, would value above INR three lakhs, and their limitation period was prescribed under section 13(1A) of the Commercial Courts Act. It was held that section 5 of the Limitation Act was applicable to such appeals essentially owing to the scheme of the Commercial Courts Act which, in the opinion of the Court, did not suggest an embargo on the condonation of delay. The Court compared section 13(1A) of the Commercial Courts Act to order 8 rule 1 of the Code of Civil Procedure 1908 and to section 35-H of the Central Excise Act, and held that there were significant differences in the texts of these provisions, wherein the latter provisions did not allow for condonation of delay. Hence, in the opinion of the Court, there existed no bar on condonation of delay by applying section 5 of the Limitation Act, in filing a section 37 appeal under section 13(1A) of the Commercial Courts Act.
While deciding on the question whether the court should condone the delay in filing of section 37 appeals filed under section 13(1A) of the Commercial Courts Act, it was held that any bodily lifting of the last part of section 34(3), which places a hard limit on the limitation period and prohibits further condonation of delay, into section 37 of the Arbitration Act shall be unwarranted, as it shall amount to judicial law-making.
Finally, after diluting the standard for limitation period in filing section 37 appeals, the Court has attempted to stitch a patchwork of sorts, by stating that any condonation of delay should only be allowed as an exception, wherein the ‘sufficient cause’ criterion is met, and not as a rule.
The Inherent Uncertainty in Law
This entire conundrum involving these various judicial interpretations arises out of a legislative lacuna with respect to the limitation period for section 37 appeals under the Arbitration Act, and the scope of condonation of delay in filing of such applications. This legislative void exists despite the Law Commission of India recommending, in its 176th Report, the addition of a ‘Section 37A’ into the Arbitration Act, which inter alia provided for a six-month time limit from the date of service to the opposite party, for disposal of appeals filed under section 37 of the Act. The lackadaisical attitude of the legislature is not in consonance with the object of speedy disposal of arbitration matters, and unnecessarily puts the burden on courts to extract a limitation period and scope of condonation of delay in filing of such applications under section 37 of the Arbitration Act.
Be as it may, the Supreme Court has, in an attempt to clarify the law on the issue in Borse Brothers Engineers, further muddied the waters in the following manner. Firstly, the Court held that engrafting the latter part of section 34(3) into section 37 of the Arbitration Act amounted to judicial law-making and was, hence, illegal. However, the Court has effectively embarked upon a similar exercise of judicial law-making while allowing for condonation of delay in filing of either types of appeals under section 37 of Arbitration Act, thereby rendering the legality of the judgment questionable.
The Court has merely made blanket statements in favour of application of section 5 of Limitation Act in section 37 appeals, without providing any cogent reasons for the same, and the judicial decisions relied upon by the Court were of no substantive help either. It is pertinent to note that with respect to claims valuing above INR three lakhs, the Court has not provided a single positive rationale for application of section 5 of Limitation Act to section 37 appeals filed under section 13(1A) of the Commercial Courts Act, and the entire rationale of the Court in favour of condonation of delay is based on the negative comparison that the Court draws out with other provisions under Code of Civil Procedure and Central Excise Act. This, in itself, cannot amount to a sufficient and cogent reason in favour of condonation of delay. Merely because the bench had the power to overrule the N.V. International order does not make it justified for it to overrule such order without providing a cogent rationale against the order.
Secondly, in its patchwork attempt to curtail the inflow of condonation of delay applications that the courts shall have to deal with, in light of the floodgates that the Court had opened by its decision, the Court stressed on the ‘sufficient cause’ doctrine to qualify such applications. However, despite the Court citing judicial precedents interpreting the phrase ‘sufficient cause’, there remains a substantial degree of uncertainty with the standard. The power to condone essentially remains discretionary and leaves it in the hands of the courts to decide in accordance with the facts and circumstances of every case. In light of these, both, the legislative lacuna and the judgment in Borse Brothers Engineers would be worth reconsideration by the legislature and the Supreme Court, respectively.
– Nitesh Mishra