‘N V International’ Verdict overruled by the Supreme Court

Overruling “N V International” Verdict, Supreme Court Allows Condonation Of Delay Under Section 37 Of The Arbitration Act, 1996 

This Article is written by Ms. Amishi Sodani and Ms. Mahima Choudhary are 4th-year B.COM LL.B (Hons.) students at the Institute of Law, Nirma University.

BACKGROUND

The Hon’ble Supreme Court in a recent case of Government of Maharashtra vs. M/S Borse Brothers Engineers & Contractors Pvt. Ltd.[i] (hereinafter “present case”) and connected cases (judgment dated 19th March 2021) dealt with the issue of condonation of delay arising under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”) which deals with Appealable Guidelines. The matter came before the Supreme Court as a Special Leave Petition and a substantial question of law arose regarding the correctness of the law laid down by a Division Bench of the Supreme Court in the case of N V International v. State of Assam[ii]. In the case of N V International, a division bench of the Apex Court had held that condonation of a delay of more than 120 days in filing of appeals under Section 37 of the Arbitration Act cannot be done.

ISSUE

The substantial question of law that arose before the Supreme Court was whether, after considering the interplay of Arbitration Act with Commercial Courts Act and Limitation Act, delay in filing of appeals under Section 37 of the Arbitration Act can be condoned and whether the N V International case was wrongly decided.

Held

The three-judge bench of the Supreme court comprising of Justices RF Nariman, BR Gavai and Hrishikesh Roy gave a significant ruling and overruled the verdict laid down in N V International. The Apex Court has now clarified the position regarding Condonation of Delay under Section 37 of the Arbitration Act. While deciding the matter, the Court took into consideration various provisions Commercial Courts Act, 2015 (hereinafter “Act, 2015) and the Limitation Act, 1963 (hereinafter “Limitation Act”) and analyzed their interplay with the Arbitration Act.

Mechanism of Limitation u/s 37 of the Arbitration Act:

  • If the subject matter is below a sum of Rs. 3 lakhs the limitation period applicable on Section 37 is as per the Limitation Act, 1963. Article 116 and Article 117 of the Limitation Act, specify different time periods of limitation according to the forum where appeal is to be filed. An appeal has to be made within 90 days when appealing to the High Court, within 30 days when appealing to any other Court within 30 days when appealing intra-High Court.
  • If the subject matter is above a sum of Rs. 3 lakhs as provided under Section 13(1A) of the Act, 2015 the applicable limitation period as per the aforesaid provision is 60 days.
  • Section 5 of the Limitation Act provides for condonation of delay if the appellant can satisfy the Court that he had a sufficient cause for not appealing within the prescribed time. The Act, 2015 does not contain any capping for condonation of delay and only provides a limitation period. Therefore, the scheme of Act, 2015 does not exclude the applicability of Section 5 on Section 37 of the Arbitration Act.

Condonation of Delay:

  • Delay can be condoned but only by way of exception and not by way of rule. The court also added the stipulation that the objective of expeditiously settling claims under the Arbitration Act should always be considered while condoning such delays.
  • While evaluating the cause of delay, it has to be considered whether the party acted in a bonafide manner or negligently and a short delay can still be condoned.

Overruling of N V International Case:

  • In N V International, the Apex Court did not allow condonation of delay beyond 120 days. The Court relied on the ratio of Union of India Varindera Constructions[iii] Ltd., wherein the Court held that the limitation period as provided under Section 34 is applicable on Section 37 because appellate proceedings is a continuation of the original proceedings. Section 34 provides a period of 120 days which includes a grace period of 30 days.
  • Reasons for Overruling:
  1. The Apex Court in the present case analysed the reasoning of V. International, and observed that case was per incuriam as it did not discuss the incidence of Act, 2015.
  2. Section 34 of Arbitration Act is not applicable on Section 37 because Act, 2015 provides for a 60 days limitation period, and majority cases of Arbitration involve a subject matter value beyond Rs. 3 lakhs.
  • Section 13 of the Act, 2015 does not provide for condonation of delay beyond 60 days, contrary to Section 34, and therefore, the latter is not applicable on Section 37.

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Analysis

The authors rightfully agree with the reasoning that the statutory limitation under Section 34 is not applicable on Section 37. In Simplex Infrastructure v. Union of India[iv], the Apex Court categorically held that Section 34 has to adhere to the limitation period because of the words “but not thereafter”, thereby excluding the applicability of Section 5 of the Limitation Act from the provision. Hence, one cannot request for condonation of delay by way of Section 5 under Section 34.  Furthermore, there is no limitation period prescribed under Section 37 of the Arbitration Act, hence, Limitation Act would apply by virtue of Section 43 of the Arbitration Act.

The point being, even though appellate proceedings are a continuation of original proceedings, it does not imply the applicability of the mechanism of one statutory provision upon the other. Had that been the intent of the legislature, the same period would have been prescribed under Section 37. However, due to the absence of any period, one cannot assume that section 34 will apply. Both N V International Case and Varindera Construction Ltd. Case did not discuss Commercial Court Act applicability which impacts Section 37 in a significant manner. Hence, the reasons to overrule N V International are right.

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The court in the present case stated that condonation of delay should not be a norm, the Court thus considered the objective for which the Act was enacted and therefore, did not deviate from the objective of the Act. The judgment is party-friendly as it balances the interests of a negligent party and inaction on part of the other party. However, it is imperative that parties do not sleep on their rights and are pro-active in dealing with their disputes.

 

-Edited by Samarth Pathak

(Editor, The Legal State)

 References:

[i] https://indiankanoon.org/doc/197941333/

[ii] https://indiankanoon.org/doc/114688149/

[iii] https://indiankanoon.org/doc/16718474/

[iv] https://indiankanoon.org/doc/24322691/

v.https://www.livelaw.in/top-stories/sc-overrules-nv-international-which-held-delay-beyond-120-days-arbitration-appeal-37-cant-be-condoned-171436

Also Read: The Genesis and the Proliferation of Public Interest Litigation in India

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