Supreme Court Erases Legal Cavity in Section 37 Appeals under Arbitration Act

On 19 March 2021, A three-judge bench of Justices RF Nariman, BR Gavai, and Hrishikesh Roy, in the case of Government Of Maharashtra Vs Borse Brothers EngineersPvt. Ltd explicated the law regarding condonation of delay in filing of appeals falling under section 37 of the Arbitration and Conciliation Act, 1996.

Overturning its earlier decision in the case of N.V International Vs State of Assam, the court said that the very foundation of the judgment in N.V International was ‘erroneous in law’. The court criticized the judgment in N.V. International for failing to recognize that the issue fell under the purview of the Commercial Courts Act.

Stating that the line between interpretation and legislation can be blurry at times since it has been consistently held that judges do more than interpret the law; they also establish it.

The court examined the conflicting provisions of the Arbitration and Conciliation Act, the Commercial Courts Act, and the Limitations Act. Seeking to contrive a harmonious interpretation of the provisions of the concerned statutes, the Apex Court stated that the provisions of one section of the statute cannot be used to contradict those of another unless it is impossible to effect a reconciliation between them. The court also opined on the limit of judicial intervention and stated that extraneous meddling of the court in matters that don’t merit its perusal could amount to judicial legislation. Overturning the judgment in N.V. International, the court allowed condonation of ‘short’ delays insofar as such action was not prejudicial to the opposite party and the delay wasn’t a result of negligence.

In its findings, the bench expressed that the objective and spirit of the provisions of the Arbitration and Conciliation Act was to ensure speedy disposal of the matters.

Constructively analyzing the applicability of separate provisions along with the definition of ‘specified value’, the supreme court laid down specific guiding principles for posterity.

  1. If the subject matter in an appeal under Section 37 is less than the Specified Value (3 Lakh rupees), Article 116 or Article 117 of the Limitation Act will apply, which specify a 90-day or 30-day limitation period depending on whether the appeal is from a lower court to the high court or an intra-high court appeal.
  2. If the subject matter in an appeal under Section 37 is more than the specified value, the Limitation period of 60 days specified in section 13(1A) of the commercial court Act would be applicable.

The Supreme court also confirmed that Section 5 of the Limitation Act would apply to the above-mentioned appeals, both by virtue of section 43 of the Arbitration Act and by virtue of section 29(2) of the Limitation Act.

Counsel for Borse Brothers Engineers (respondent) argued that with respect to the objective of speedy resolutions under the Commercial Courts Act, Section 13 of the CC Act excluded the applicability of section 5 of the Limitation Act.

The court delved deeply into the supposed exclusion of the provisions of the Limitation Act by scheme of Commercial Courts Act. Section 13(1A) of the Commercial Courts Act only provided for a Limitation of 60 days from the date of the judgment, without elucidating on condonation of any delay beyond the specified period.

It drew a contrast between section 13 of the commercial court Act and section 16 read with Schedule thereof and the amendment made to Order VIII Rule 1 of CPC. A careful scrutinization of section 16 and the supplementary CPC provisions made it clear that the defendant in a suit is given 30 days to file a written statement, such period cannot be extended beyond 120 days from the date of serving of the summons; and upon expiration of the aforementioned term, the defendant forfeits the right to file a written statement, and the court cannot allow the written statement to be taken into consideration. The court pointed out the absence of any such provision in section 13 (which only provided an immediate period of filing the appeal), or any other section of the Commercial Courts Act.

Section 21 of the Act was also addressed, where the court held that the non-obstante clause contained in the provision could not be considered to override the Limitation Act. Therefore, the applicability of section 5 of the Limitation Act could be excluded by the scheme of the Commercial Courts Act.

Conclusion

Expounding on the scope for condoning delays, the Apex Court undisguised the law and addressed the lacuna situated in such appeals. This inconsistency in law was not dealt with in various iterations of judicial decisions interpreting the Limitation period for appeals arising out of section 37.

The bench reiterated the following principles to distinguish when a condonation of delay was merited and when one was not.

  • The Actions of the parties seeking delay must be bona fide and devoid of any negligence.
  • The condonation of delay must not be at the expense of the other party and must not cause any disbenefit to them.

The position on appeals remains unclear even after this ruling. The Court has simply made broad remarks in favor of applying Section 5 of the Limitation Act to section 37 appeals without presenting any convincing reasons for doing so, and the judicial precedents relied on by the Court were also of no substantive assistance. It’s worth noting that the Court hasn’t provided a single positive rationale for applying section 5 of the Limitation Act to section 37 appeals filed under section 13(1A) of the Commercial Courts Act for claims worth more than INR three lakhs, and the Court’s entire rationale in favor of condonation of delay is based on the Court’s negative comparison with other provisions under the Code of Civil Procedure. This, by itself, cannot be considered a sufficient and compelling basis to excuse the delay. Simply because the bench had the power to overrule the N.V. International ruling does not mean it was warranted in doing so without articulating a compelling reason for doing so.

The Court emphasized the sufficient cause’ theory to qualify such applications in its patchwork attempt to limit the inflow of condonation of delay applications that the courts will have to deal with in light of the floodgates that the Court had opened by its ruling. Despite the Court’s citation of previous precedents interpreting the phrase ‘sufficient cause,’ the standard still has a lot of room for interpretation. The authority to forgive fundamentally remains discretionary, leaving it up to the courts to determine based on the facts and circumstances of each case. In light of both the legislative void and the Borse Brothers Eng. decision, would be worth the legislature’s and the Supreme Court’s consideration, respectively.

Author: Sehaj Mahajan – a student of Bharati Vidyapeeth University (New Delhi), an intern at Khurana & Khurana, Advocates and IP Attorney,  in case of any queries please contact/write back to us via email vidushi@khuranaandkhurana.com

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