Limitation period u/s. 17 of Limitation act or u/s. 34(3) of Arbitration Act ?

The Hon’ble Supreme Court in the matter of P. Radha Bai and Ors. v. P. Ashok Kumar and Anr. on 26.09.2018  pronounced that Section 17 of the Limitation Act cannot be invoked to condone delay in filing an application for getting an Arbitration award set aside.

Observations of the Court

Section 17 of the Limitation Act, does not extend or break the limitation period. It only postpones or defers the commencement of the limitation period as it was evident from the phrase “the period of limitation shall not begin to run”.  (Para 32)

The inconsistencies with the language of Section 34(3) of Arbitration and Conciliation Act tantamount to an “express exclusion” of Section 17 of Limitation Act. (Para 36)

In the context of Section 34, a party can challenge an award as soon as it receives the award. Once an award is received, a party has knowledge of the award and the limitation period commences. The objecting party is therefore precluded from invoking Section 17(1)(b) & (d) once it has knowledge of the Award. Section 17(1)(a) and (c) of Limitation Act may not even apply, if they are extended to Section 34, since they deal with a scenario where the application is “based upon” the fraud of the respondent or if the application is for “relief from the consequences of a mistake”. Section 34 application is based on the award and not on the fraud of the respondent and does not seek the relief of consequence of a mistake. (Para 47)

(Para 34) The characteristics of Section 34(3)  of the Arbitration and Conciliation Act are:

(a)  Section 34 is the only remedy for challenging an award passed under Part I of the Arbitration and Conciliation Act. Section 34(3) is a limitation provision, which is an inbuilt into the remedy provision. One does not have to look at the Limitation Act or any other provision for identifying the limitation period for challenging an Award passed under Part I of the Arbitration and Conciliation Act.

(b)  The time limit for commencement of limitation period is also provided in Section 34(3) i.e. the time from which a party making an application “had received the Arbitral Award” or disposal of a request under Section 33 for corrections and interpretation of the Award.

(c)  Section 34(3) prohibits the filing of an application for setting aside of an Award after three months have elapsed from the date of receipt of Award or disposal of a request under Section 33. Section 34(3) uses the phrase “an application for setting aside may not be made after three months have elapsed”. The phrase “may not be made” is from the UNCITRAL Model Lawand has been understood to mean “cannot be made”.

(d) The limitation provision in Section 34(3) also provides for condonation of delay. Unlike Section 5 of Limitation Act, the delay can only be condoned for 30 days on showing sufficient cause. The crucial phrase “but not thereafter” reveals the legislative intent to fix an outer boundary period for challenging an Award.

(e) Once the time limit or extended time limit for challenging the arbitral award expires, the period for enforcing the award under Section 36 of the Arbitration and Conciliation Act commences. This is evident from the phrase “where the time for making an application to set aside the arbitral award under Section 34 has expired”. There is an integral nexus between the period prescribed under Section 34(3) to challenge the Award and the commencement of the enforcement period under Section 36 to execute the Award.

(Para 35) If Section 17 of the Limitation Act was to be applied to determine the limitation period under Section 34(3) of the Arbitration and Conciliation Act, it would have the following consequences:

(a) In Section 34(3), the commencement period for computing limitation is the date of receipt of award or the date of disposal of request under Section 33 (i.e correction/additional award). If Section 17 were to be applied for computing the limitation period under Section 34(3), the starting period of limitation would be the date of discovery of the alleged fraud or mistake. The starting point for limitation under Section 34(3) would be different from the Limitation Act.

(b) The proviso to Section 34(3) enables a Court to entertain an application to challenge an Award after the three months period is expired, but only within an additional period of thirty dates, “but not thereafter”. The use of the phrase “but not thereafter” shows that the 120 days period is the outer boundary for challenging an Award. If Section 17 were to be applied, the outer boundary for challenging an Award could go beyond 120 days. The phrase “but not thereafter” would be rendered redundant and otiose. This Court has consistently taken this view that the words “but not thereafter” in the proviso of Section 34 (3) of the Arbitration and Conciliation Act are of a mandatory nature, and couched in negative terms, which leaves no room for doubt.

(Para 38) The exclusion of Section 17 is also necessarily implied when one looks at the scheme and object of the Arbitration and Conciliation Act as:

Firstly, the purpose of Arbitration Act was to provide for a speedy dispute resolution process. The Statement of Objects and Reasons reveal that the legislative intent of enacting the Arbitration and Conciliation Act was to provide parties with an efficient alternative dispute resolution system which gives litigants an expedited resolution of disputes while reducing the burden on the courts. Article 34(3) reflects this intent when it defines the commencement and concluding period for challenging an Award. The finality is a fundamental principle enshrined under the Arbitration and Conciliation Act and a definitive time limit for challenging an Award is necessary for ensuring finality. If Section 17 were to be applied, an Award can be challenged even after 120 days. This would defeat the Arbitration and Conciliation Act’s objective of speedy resolution of disputes. The finality of award would also be in a limbo as a party can challenge an Award even after the 120 day period. (Para 39)

Secondly, extending Section 17 of Limitation Act to Section 34 would do violence to the scheme of the Arbitration and Conciliation Act. As discussed above, Section 36 enables a party to apply for enforcement of Award when the period for challenging an Award under S.34 has expired. However, if Section 17 were to be extended to Section 34, the determination of “time for making an application to set aside the arbitral award” in Section 36 will become uncertain and create confusion in the enforcement of Award. This runs counter to the scheme and object of the Arbitration and Conciliation Act. (Para 40)

Thirdly,Section 34(3) reflects the principle of unbreakability. (Para 41) Whereas Extending Section 17 of the Limitation Act would go contrary to the principle of ‘unbreakability’ enshrined under Section 34(3) of the Arbitration and Conciliation Act. (Para 42)

Once the party has received the Award, the limitation period under Section 34(3) of the Arbitration and Conciliation Act commences. Section 17 of the Limitation Act would not come to the rescue of such objecting party. (Para 49)

Copy of the judgement: Judgement 26-Sep-2018

-Tushar Kaushik

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