When the Hourglass Runs Out – Challenge to arbitral awards

Bhimashankar Sahakari Sakkare Karkhane Niyamita v Walchandnagar Industries Ltd.[1]

‘No one told you when to run, you missed the starting gun.’[2]

Recently, the Supreme Court sought to address, once again, David Gilmour’s lamentations. As per Section 34(3) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), an application for setting aside an arbitration award can be preferred within a period of three months from the date of receipt of an award. If sufficient cause is shown, this period of three months is extendable at the discretion of the Court by a further period of thirty days, but not thereafter.

By virtue of Section 43 of the Arbitration Act, the Limitation Act, 1963 applies to the Arbitration Act. Section 4 of the Limitation Act, 1963, provides that in the event the prescribed period for filing any application expires on a day when the court is closed, then the said application may be preferred on the day when the court reopens and thus would not be barred by limitation. A similar provision exists in Section 10 of the General Clauses Act, 1897. Thus, the Supreme Court was required to deal with the situation wherein the further period of thirty days ends when the court is on vacation/closed and a challenge to the award is filed upon the reopening of the court. The Supreme Court held that in such a case, the challenge would be time barred.

The Appellant received an unfavorable award on 24.08.2016. Instead of challenging the award within three months, the Appellant waited. The further period of thirty days which was due to expire in or around 24.12.2016 fell during court vacations. When the Appellant filed its application under Section 34(3) of the Arbitration Act along with an application for condonation of delay immediately upon reopening, the same was rejected. Aggrieved, the Appellant appealed to the High Court of Karnataka. The High Court dismissed the appeal; the Appellant approached the Supreme Court.

In Assam Urban Water Supply and Sewerage Board[3], the Supreme Court had already held that only the three-month period under Section 34(3) of the Arbitration Act could be equated to the prescribed period under Section 4 of the Limitation Act, 1963. The further period of thirty days was a discretionary condonable period and not a prescribed period. Hence, if the three-month period expired during court vacations, a challenge to an award could be filed upon reopening of the court. However, if the further period of thirty days expired during court vacations, the challenge to an award filed upon court reopening would be time barred.

Knowing fully well that the settled law was against it, the Appellant instead relied upon Section 10 of the General Clauses Act, 1897 which according to the Appellant was along the same lines as Section 4 of the Limitation Act, 1963 but broader as it did not have a restrictive definition of prescribed period. The Appellant contended that in Assam Urban Water Supply and Sewerage Board the Supreme Court had not taken into consideration Section 10 of the General Clauses Act, 1897.

The Supreme Court found that the case of Assam Urban Water Supply and Sewerage Board squarely covered the present situation. The Supreme Court held that Section 4 of the Limitation Act, 1963 can only come to the rescue of petitions filed within the prescribed period (three months under Section 34(3) of the Arbitration Act) and not to petitions filed during the discretionary period (further period of thirty days under Section 34(3) of the Arbitration Act) where condonation of delay is in any event required. The Supreme Court held that the right to challenge an award under Section 34 of the Act is a restricted right with a strict timeline and the parties should diligently secure their rights within the available time. In the present case, the Appellant had 25 days after the prescribed period and before the commencement of winter vacation to file the challenge petition but chose not to do so. The Supreme Court concluded that accepting the Appellant’s argument would result in an unduly enlarged time period for delayed presentation of a petition, contrary to the intent of the Arbitration Act.

With respect to the arguments on Section 10 of the General Clauses Act, 1897, the Supreme Court held that the same was excluded wherever the Limitation Act, 1963 was applicable.

Therefore, the Supreme Court upheld the decision of the High Court and dismissed the appeal.

In light of the present decision and other decisions of the Supreme Court, it is necessary for litigants to bear the following in mind:

• The clock starts ticking the minute a party is in receipt of an arbitral award. What constitutes valid receipt is itself captured in decisions such as Dakshin Haryana Bijli Vitran Nigam Ltd[4].
• The prescribed period to file an application for setting aside an award is three months from receipt of the arbitral award. The three months’ period is calculable as calendar months and not a flat period of 90 days.
• If the prescribed period of three months expires on the day when the courts are closed, a party can file the challenge immediately upon reopening and the filing will not be deemed to be time barred.
• If the prescribed period of three months elapses on a regular court working day or on the first working day when the court reopens, a party must show sufficient cause and the court may, at its discretion, extend the period of three months for a further period of thirty days.
• If the further period of thirty days expires on the day when the courts are closed, the limitation period for filing a challenge expires once that date lapses and the challenge will become time barred thereafter.

Simply put, under no circumstance can a challenge petition be permitted post the expiry of the further period of thirty days and the award debtor will be left with David Gilmour’s wistful words: ‘The time is gone, the song is over, thought I’d something more to say.’

We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

Alok Jain, Partner – Email – AlokJain@elp-in.com
Tvisha Desai, Senior Associate – Email – TvishaDesai@elp-in.com

[1] 2023 SCC OnLine SC 382, order pronounced on 10.04.2023.
[2] Time, Pink Floyd, Dark Side of the Moon, 1973
[3] Assam Urban Water Supply and Sewerage Board v Subhash Projects and Marketing Limited, (2012) 2 SCC 624
[4] Dakshin Haryana Bijli Vitran Nigam Ltd v M/s Navigant Technologies Pvt. Ltd., Civil Appeal No. 791 of 2021