Procedural Issues Concerning Challenge of an Arbitral Award

Recourse against an arbitral award may be taken under section 34 of the Arbitration and Conciliation Act, 1996. Section 34(2) enumerates certain grounds on which an arbitral award may be challenged and restricts the basis for challenge to grounds mentioned therein. Section 34(3) prescribes the time-period for filing an application challenging an award. This post discusses several issues regarding the interpretation of section 34(3) that have come before courts.

Section 34(3) of the Arbitration and Conciliation Act reads as follows:

“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months if may entertain the application within a further period of thirty days, but not thereafter.”

Evidently, the time period for filing an application challenging an award is three months and a further extension of thirty days may be granted by the Court in certain situations. An interesting issue that came for consideration was whether this period had to be strictly followed or whether an application challenging an award could be admitted after the expiry of this period, by relying on section 5 of the Limitation Act, 1963. The relevant portion of section 5 reads: “Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908 (5 of 1908) may be admitted after the prescribed period, if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period...” This question was answered by the Supreme Court in Union of India v. M/s Popular Construction Co. : (2001) 8 SCC 470 : where it held section 5 of the Limitation Act to be inapplicable in instances where an application challenging an award is filed under section 34. The Court emphasised on the words “but not thereafter” used in the proviso to section 34(3), declaring that these words indicate that the application of section 5 is excluded in matters governed by section 34(3).

Thus, it is now established that an application challenging an arbitral award has to be necessarily filed within the time period prescribed in section 34(3). A crucial question that next arises is whether an application to amend the original application challenging an award, adding new grounds of challenge, can be made after the expiry of this time period. This question was first decided by the Bombay High Court in Vastu Invest & Holdings Pvt. Ltd. v. Gujarat Lease Financing Ltd. : 2001 (2) Arb. LR 315. Justice Srikrishna, delivering the judgment for the Court, held:

“In these circumstances, we are of the view that the Chamber Summons, if it was intended to raise an independent ground of challenge to the arbitral award, could not have been entertained after the period of three months plus the grace period of 30 days as provided in the proviso to sub-section (3) of Section 34. If, on the other hand, it was not intended to raise an independent ground, on the basis that the petition Itself contained the ground, the chamber summons was wholly unnecessary as necessary amplifications could be put forward during submissions.”

Therefore, the view adopted was that additional grounds for challenging an award could not be added after the time period prescribed in sub-section (3) had elapsed. This was followed in several other judgments of the Bombay High Court (Maharashtra Industrial Development Corporation v. Govardhani Construction Co., Jigar Vikamsey v. Bombay Stock Exchange). The issue came up before the Supreme Court in State of Maharashtra v. Hindustan Construction Co. : AIR 2010 SC 1299 in the context of an appeal under section 37 of the Arbitration Act. In this case, new grounds for challenge to an award were sought to be added in the memorandum of appeal. The High Court had dismissed the application for an amendment to the memorandum of appeal, holding that a ground not raised initially in the petition cannot be raised later - after the period prescribed in section 34(3) had expired. On appeal, the Supreme Court held:

“There is no doubt that application for setting aside an arbitral award under Section 34 of 1996 Act has to be made within time prescribed under Sub-section (3) i.e., within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situations and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the Court can be added nor existing ground amended after the prescribed period of limitation has expired although application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of Legislature while enacting Section 34.”

Interpreting Vastu, the Court said:

“...in our view, by `an independent ground' the Division Bench [in Vastu] meant a ground amounting to a fresh application for setting aside an arbitral award. The dictum in the aforesaid decision was not intended to lay down an absolute rule that in no case an amendment in the application for setting aside the arbitral award can be made after expiry of period of limitation provided therein.”

On facts, the Court dismissed the appeal and its observations in this regard are pertinent to note:

“The grounds sought to be added in the memorandum of arbitration appeal by way of amendment are absolutely new grounds for which there is no foundation in the application for setting aside the award. Obviously, such new grounds containing new material/facts could not have been introduced for the first time in an appeal when admittedly these grounds were not originally raised in the arbitration petition for setting aside the award.” (emphasis supplied)

According to Hindustan Construction's interpretation of Vastu, a situation may arise where new grounds may be added after the expiry of the 34(3) period if they do not amount to filing a fresh application. An amendment to the petition adding new grounds would be refused only in instances where the grounds sought to be added are ‘absolutely new grounds’. However, a correct reading of Vastu suggests that it only contemplated a situation where amplifications could be made to the existing grounds, that too "during submissions". Therefore, Hindustan Construction’s interpretation of Vastu is questionable.

Further, it is possible to argue that the observations of Justice Lodha in Hindustan Construction regarding the amendment to an application filed under section 34 constitute obiter dictum since the issue before the Court was amendment to the memorandum of appeal and not an amendment to the petition filed under section 34. In fact, the Apex Court upheld the High Court’s ground for dismissal viz. “the grounds of appeal which are now sought to be advanced were not originally raised in the arbitration petition and that the amendment that is sought to be effected is not even to the grounds contained in the application under Section 34 but to the memorandum of appeal”.

However, in light of the decision in Venture Global Engineering v. Satyam Computer Services : AIR 2010 SC 3371 : such a contention is difficult to sustain. In Venture Global, a Division Bench of the Supreme Court made a passing observation to this effect: “[T]his Court in Hindustan Construction made it clear that it cannot be the intention of the Legislature to shut out amendments, as a result of which incorporation of relevant materials in a pending setting aside proceeding is prevented... this Court opined that where application under Section 34 has been made within the prescribed time, leave to amend grounds, in such an application, if the peculiar circumstances of the case and the interest of justice so warrant, can be granted”.