Annual Arbitration Review 2018

P Radhabai v Ashok Kumar

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Judgment: P Radhabai v Ashok Kumar

 

Citation:(Civil Appeal no 7710-7713 of 2013)

 

Court: Supreme Court of India

 

Coram:Mr. Justice N V Ramana and Ms. Justice S Abdul Nazeer

 

Date: September 26th, 2018

 

Overview:In the present case, the issue which arose for consideration before the Supreme Court was whether section 17 of the Limitation Act, 1963 (Limitation Act), which provides that the period of limitation shall begin to run when fraud played on the award debtor is discovered or could have been discovered with reasonable diligence, can cure the delay in filing an application to set aside an award under section 34(3) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The Supreme Court examined the objective of the Arbitration Act and judicial precedents to conclude that section 17 of the Limitation Act would not come to the rescue of a party seeking to challenge an award under section 34 of the Arbitration Act, when there was no fraud specific to the delivery of the award and where receipt of the award is admitted.

 

Issue:Whether section 17 of the Limitation Act, 1963 (Limitation Act), which provides that the period of limitation shall begin to run when fraud played on the award debtor is discovered or could have been discovered with reasonable diligence, can cure the delay in filing an application to set aside an award under section 34(3) of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

 

Factual background:

A dispute in relation to the division of properties and businesses between eight heirs of Mr. P. Kishan Lal i.e. Appellant Nos. 1 to 6 (Appellant) and Respondent No.1 and 2 (Respondent) was referred to arbitration. An award was subsequently passed by the arbitral tribunal.

 

The Respondent contended that subsequent to the award, the Appellant entered into a Memorandum of Understanding (MoU) with the Respondent, whereunder the Appellant agreed to give properties in addition to those set out in the Award to Respondent No.1. In terms of the MoU, while the Appellant was required to execute a ‘gift deed’ and a ‘release deed’ in favour of the Respondent, the Respondent alleged that the Appellant intentionally delayed the execution of the said deeds. In the meanwhile, the limitation period for the Respondent to file an application to set aside the Award under section 34(3) of the Arbitration Act expired.

 

The Appellant proceeded to file an execution petition for the execution of the Award. While the trial court held that the execution petition was not maintainable, on appeal, the High Court set aside the order of the trial court and directed the trial court to determine the petition on merits.

 

Considering the conduct of the Appellant and the delay in the execution of the gift deed envisaged under the MoU, the Respondent alleged fraud. Subsequently, the Respondent filed an application under section 34(3) of the Arbitration Act to set aside the Award, along with an application seeking condonation of the delay of 236 days, before the Trial Court. The Trial Court subsequently dismissed the application inter aliastating that the court is devoid of power to condone the delay beyond the maximum period prescribed in section 34 of the Arbitration Act i.e. three months and 30 days.

 

Aggrieved by the Trial Court Order, the Respondent filed four civil revision petitions before the High Court of Andhra Pradesh (High Court) under Article 227 of the Constitution of India. The High Court remanded the matter back to the Trial Court on the sole point, i.e. to determine whether section 17 of the Limitation Act would be applicable to condoning delay in the filing of an application under section 34 of the Arbitration Act. The Appellant appealed against this order given by the High Court to the Supreme Court.

 

Analysis:

The Respondents in their arguments relied upon Section 17 of the Limitation Act. They contended that since the operation of the section had not been specifically excluded under the Arbitration Act, the benefit of Section 17 should not be denied to the Respondents. In dealing with this argument, the Supreme Court looked at Section 29(2) of the Limitation Act, which provides: “Where any special or local law prescribes for   any   suit,   appeal   or   application   a   period   of limitation different from the period prescribed by the Schedule, the provisions of Section 3 shall apply  as  if  such period  were  the  period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law”.[1]The case of Vidyacharan Shukla v. Khubchand Baghel and Others[2] was relied on to interpret this section. This case provides that Section 29(2) has two limbs. The first limb is that the limitation period prescribed by the special law or local law shall prevail over the limitation period prescribed in the Schedule to the Limitation Act. In the present case, the Supreme Court noted that the Arbitration Act was a special law and thus the period in Section 34(3) would apply to filing objections to the arbitral award. The second limb, identified in Vidyacharan, is that Sections   4   to   24   of   the Limitation   Act   will   apply   for   determining   the   period   of limitation “only in so far as, and to the extent to which, they are   not   expressly   excluded   by   such   special   or   local   law.” Thus, the Court held that Sections 4 to 24 would apply towards limitation period under the Arbitration Act only if these sections were not expressly excluded under the Act.

The Court observed that there existed a contradiction in the language of Section 17 and Section 34(3). The Supreme Court, inter alia, observed as follows. First, Section 17 of the Limitation Act does not extend or break the limitation period. It only postpones commencement of the limitation period till the applicant has discovered the fraud. Besides, Section 34(3) of the Arbitration Act has a limitation provision built in itself. It provides that the limitation period commences from the when a party making an application had received the arbitral award, or from the disposal of a request under Section 33 of the Arbitration Act for correction and interpretation of the Award. Section 17 of the Limitation Act directly clashes with Section 34 (3) of the Arbitration Act on the point of start of limitation period. Second, the proviso of Section 34(3) provides for condonation of delay in certain cases, where the applicant can challenge the award within a period of 30 days from the expiry of three months but not thereafter. The Court observed that the highlighted words would be rendered moot by the application of Section 17 of Limitation Act. The Court also addressed the importance of time-bound disposal of proceedings connected with arbitration, noting that the Arbitration Act has within its objectives the speedy resolution of disputes.

A further observation in relation to the factual matrix of the case was made that the application of Section 17 was ruled out because the fraud in question did not pertain to the delivery of the award. Since the award had been received by the Respondents, the application of Section 17 was unlawful, and limitation period under Section 34(3) of the Arbitration Act would run from the date of receipt of the award.

Conclusion:

This judgment has settled the issue on application of Sections 4 to 24 of the Limitation Act to an award passed under the Arbitration Act. Owing to finality of arbitral awards being the crux of the Arbitration Act, this judgment of the Supreme Court will help in ensuring finality and speedy disposal of cases under the Arbitration Act.

[1]Section 29(2), Limitation Act, 1963.

[2]1964 SCR (6) 129.

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