The Supreme Court has underscored how “overbearing intellectualisation” by courts has become the “bane of Indian arbitration”, in a pointed critique of the judiciary’s expansive intervention and interpretation of the Arbitration and Conciliation Act, 1996 (ACA).
While examining a case involving the interplay of ACA and the Limitation Act, the top court flagged how a strict reading of the provisions curtails the right of parties to challenge arbitral awards and urged Parliament to step in to address the issue.
A bench comprising justices PS Narasimha and Pankaj Mithal delivered the judgment, noting that the current position of law creates a stringent limitation framework that may deter parties from opting for arbitration.
“The purpose of reading the Limitation Act alongside the ACA is not to restrict the special remedy under the ACA but to enable exercise of such remedy in circumstances as contemplated under the Limitation Act,” observed the bench in a January 10 judgment.
The judgment arose from a dispute where the appellants received an arbitral award on February 14, 2022. The statutory three-month period to challenge the award under Section 34(3) of ACA ended on May 29, 2022, which was a working day. Following the expiration of this period, the courts were closed for vacation between June 4 and July 3, 2022. The appellants filed their challenge on July 4 — the day the courts reopened.
However, both the single judge and division bench of the Delhi high court dismissed the petition as time-barred. Upholding these rulings, the Supreme Court clarified that while Section 4 of the Limitation Act allows for filing an application on the next working day if the limitation period expires on a court holiday, this relief does not extend to the additional 30-day condonable period provided under Section 34(3) of ACA.
The bench also cited the previous rulings of the Supreme Court that interpreted the provisions of the two statutes to hold that although Section 4 of the Limitation Act applies to ACA, it is limited to cases where the three-month limitation period expires on a court holiday and cannot come to the rescue of the parties who wish to see the benefit by virtue of the additional 30-day condonable period under ACA.
Lamenting the restrictive reading of the limitation provisions, the bench held that “this interpretation is quite stringent and unduly curtails a remedy available to arbitrating parties to challenge the validity of an arbitral award.” It emphasised the need for reform, stating that it is for the legislature to take note of this position and bring about clarity and certainty.
The court further remarked on the broader consequences of such an approach, warning that “if this limited remedy is denied on stringent principles of limitation, it will cause great prejudice and, in the long run, will have the effect of dissuading contracting parties from seeking resolution of disputes through arbitration. This is against public policy.”
Penning a separate opinion, justice Mithal emphasised the need for uniformity in limitation periods across all statutes, asserting that the current system often causes confusion and inequities. He suggested that the legislature adopt the principle of condoning delays as enshrined under Section 5 of the Limitation Act, allowing courts greater discretion to consider sufficient cause for delay beyond fixed condonable periods of 15 or 30 days.
The court’s observations add to the ongoing debate about judicial interference in arbitration, a mechanism designed to provide a swift and efficient resolution of disputes. Referring to its own precedents, the bench highlighted how excessive court intervention and overly intellectualised interpretations have frustrated the objective of ACA.
In State of UP Vs Allied Constructions (2003), the Supreme Court had underscored that once it is found that the view of the arbitrator is a plausible one, the court must refrain itself from interfering. Similarly, in McDermott International Inc Vs Burn Standard Co Ltd (2006), the court held that the interpretation of a contract is a matter for the arbitrator, cautioning courts against re-evaluating such findings. In Bharat Coking Coal Ltd Vs LK Ahuja (2004), it observed that courts should not treat arbitration proceedings as a conventional appeal, emphasising the finality of arbitral awards unless they violate basic principles of justice.
Taking a dim view of the interference by courts despite their inability to decide the matter quickly, a 2014 Law Commission of India’s report had also stated that “judicial intervention in arbitration proceedings adds significantly to the delays in the arbitration process and ultimately negates the benefits of arbitration.”
It added: “Two reasons can be attributed to such delays. First, the judicial system is overburdened with work and is not sufficiently efficient to dispose of cases, especially commercial cases, with the speed and dispatch that is required. Second, the bar for judicial intervention (despite the existence of section 5 of ACA) has been consistently set at a low threshold by the Indian judiciary, which translates into many more admissions of cases in court which arise out of or are related to the Act.”