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Effect Of 2015 Amendment To The Arbitration And Conciliation Act On Limitation Period To Challenge Arbitral Awards

Amit Anand Tiwari
30 May 2020 8:39 AM GMT
Effect Of 2015 Amendment To The Arbitration And Conciliation Act On Limitation Period To Challenge Arbitral Awards
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The regime of alternative dispute resolution worldwide and more specifically in India has attracted small and big commercial enterprises to get their disputes resolved through arbitral proceedings. The Arbitration & Conciliation Act, 1996 ("the Act") governs the procedure relating to such arbitral proceedings from its invocation to rendering of Award and to its challenge in quite some detail.

This Article examines the effect of Arbitration and Conciliation (Amendment) Act 2015 (2015 Amendment) on the issue of period of limitation to challenge an award under Section 34 of the Act. It argues that the period of limitation should be counted only from the day when a duly stamped Award is communicated to the parties and not from the day of mere communication, irrespective of sufficiency of the stamp duty paid on such Award.

It is pertinent to note that the Award delivered by an Arbitral Tribunal is mandatorily required to be stamped as per Section 3 of the Indian Stamp Act (Schedule I, Entry 12) ("Stamp Act"). Duty to pay such stamp by virtue of Section 29 of Stamp Act is on the person drawing, making or executing such instrument meaning thereby the Arbitrator(s) are required to affix a proper stamp on the Award. In practice, the requisite stamp duty to be affixed on the award is paid by the Decree Holder i.e. the party, who is the beneficiary of such Award. Section 33 of the Stamp Act requires that every person having, by law or consent of parties, authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument is produced or comes before in the performance of his functions, to impound the same if he finds that the instrument is not duly stamped. In several judgments, the Courts have held that the use of the word 'shall' in Section 33(1) of the Stamp Act shows that there is no discretion in the authority to impound a document or not to do so. Therefore, impounding such a document is mandatory. (Ref: Government of Andhra Pradesh and Ors. vs. P. Laxmi Devi[1]; Ram Rattan (Dead) by Lrs. vs. Bajrang Lal and Ors.[2]).

It is seen that after passing of Award the Arbitrators, in a routine manner, communicate the Award to the parties without getting it sufficiently stamped. In some cases the Arbitrators add a caveat in the Award itself saying 'the Award shall be enforceable only on affixation of appropriate stamp duty'.

In this context it is to be noted that as per Section 34 (3) of the Act, the period of limitation to challenge an Award starts running from the date the Award is communicated to the parties. As the limitation law is very strict, communication of Awards by the Arbitrators leaves the Judgment Debtor with no choice but to challenge such Award under Section 34 of the Act, without waiting for the Award to be sufficiently stamped by the decree holder.

A scrutiny of judicial pronouncements of earlier period regarding stamping of Arbitral Awards project the view that having regard to the scheme of the Stamp Act, an Award must be stamped before its contents are published and the result known. Courts noted that the duty to stamp an Award is cast upon the Arbitrator, and the Arbitrator ought to direct the party to provide the Arbitral Tribunal with the requisite stamp paper and ensure that the Award is not published on plain paper (Ref: Ramkumar vs. Kushalchand Ganeshdas and Ors.[3], Emperor v. Brij Pal Saran[4]). In Emperor v. Puttoo Lal and Ors.,[5] the Arbitrators were in fact prosecuted for signing an unstamped award. In Union of India v. M/s Delton Cable Company[6], the Delhi High Court had held that an award must be stamped before or at the time that the arbitrator signs it, and it can only begin to have effect after that is done.

In the case of Hindustan Steel Ltd. vs. Dilip Construction Company[7], where an argument was raised that a combined reading of Section 35 & 36 of the Stamp Act shows that an unstamped Award may, on payment of stamp duty and penalty can be taken into evidence, but inspite of such payment, the Award cannot be acted upon. While rejecting this argument the Hon'ble Supreme Court noted that, "The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments, it is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interest of the revenue. Once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument."

Issue regarding challenge to an Award under Section 34 of the Act on the ground of insufficiency of stamp duty was conclusively decided in M. Anasuya Devi and Ors. vs. M. Manik Reddy and Ors.[8], in 2003, wherein the Hon'ble Supreme Court held that the issue of stamping of Award was not required to be gone into in a proceedings under Section 34 of the Act. In reaching this conclusion, the Hon'ble Court held that, "It is not in dispute that an application for setting aside the Award would not lie on any other ground, which is not enumerated in Section 34 of the Act. The question as to whether the Award is required to be stamped and registered, would be relevant only when the parties would file the Award for its enforcement under Section 36 of the Act. It is at this stage the parties can raise objections regarding its admissibility on account of non-registration and non-stamping under Section 17 of the Registration Act." The Court drew a distinction between the nature of proceedings under Section 34 and Section 36 of the Act.

In 2010 in Eider PW1 Paging Limited and Ors. vs. Union of India (UOI) and Ors.[9], a Ld. Single Judge of the Delhi High Court, while referring* 5 issues for consideration to a larger bench, noted that the finding in Anasuya (supra) is at odds with the settled law that an unstamped instrument must be impounded by the authority as given under Section 33 of the Stamp Act. Further, the Hon'ble High Court noted that if Anasuya interpretation is adopted, the intention of the legislature in requiring payment of proper stamp duty will be defeated. The High Court held that some awards never reach the stage of execution at all, and in view of Anasuya there will be no insistence on payment of stamp duty as it has to be seen only at the stage of execution. (*The Reference was returned unanswered by the Division bench vide Order dated 14.09.2011 by holding that the basis of reference, viz whether even in nil award cases stamp duty is payable is already decided as far back as in 1980s).

In 2011 in the case of M. Sons Enterprises Pvt. Ltd. and Ors. vs. Suresh Jagasia and Ors.[10], the Hon'ble High Court of Delhi, dismissed the contention of the Petitioners that the Anasuya judgment (supra) is per-incuriam or sub-silentio on the provisions of the Stamp Act. The Court held that the Apex Court was very much conscious of the said provisions of the Stamp Act and Anasuya only states that the objections on account of deficiency in stamping and registration of the Award fall outside the ambit of Section 34 of the Act. While arriving at this conclusion, the Hon'ble High Court considered that the Act focusses on expediency and taking up issues under the Stamp Act at the Stage of Section 34 of the Act would cause indefinite delay in disposal of objections under the said section.

In the case of DM Jawhar Merican v. Engineers India Ltd.[11], decided by the Hon'ble High Court of Delhi, the Appellant had argued that the period of limitation should only start running when the Appellant received the final award duly stamped. The Hon'ble High Court while rejecting the said argument relied upon the decision of Anasuya (Supra) . The High Court further relied upon the Apex court decision in the case of Chiranji Lal (D) by Lrs. vs. Hari Das (D) by Lrs.[12] wherein the Apex Court held that as the engrossment of a stamp would relate back to the date of decree, therefore the start of period of limitation cannot be dependent upon the engrossment of decree on the stamp paper. The Apex Court also noticed the uncertainty as to the date of furnishing of stamp paper and therefore held that date of stamping of decree has no connection with the date of start of period of limitation.

In this backdrop, the Hon'ble High Court in the DM Jawhar Merican case (supra) drew a distinction between enforceability (the legal validity or correctness) and executability of an award and held that the date when the award is duly stamped is not relevant for the start of period of limitation, but the sole criteria to determine the period of limitation is the date when the award is communicated to the parties.

Therefore, it is evident that law as exists today makes absolutely no distinction between an unstamped/ insufficiently stamped and properly stamped award, for the purpose of calculating the period of limitation.

Effect of 2015 Amendments on the Issue of Limitation

A significant change was brought by 2015 Amendment in the Act. One of amendment relates to Section 36, whereby the provision for an automatic stay of an award, when challenged under Section 34, is done away with. After the 2015 Amendment, Section 36(2) added stating that mere filing of an Application under Section 34 will not render the Award unenforceable unless Court grants an Order of stay of the operation.

With above noted amendments, the issue of enforceability of the Award under Section 36 became intricately entwined with Section 34. Filing of an objection under Section 34 against an Award by an aggrieved party would now require the Court to consider the issue of stay in the context of Section 36. Therefore, Section 36 comes into play immediately after filing of an objection under Section 34.

The judgments noted above, have been relying upon Anasuya (supra), while examining the question of limitation from the perspective of enforceability of the Award, holding that Sections 34 and Section 36 operate in mutually different spheres. This view was based on a reading of the provisions of the Act prior to the 2015 Amendment. Post 2015 Amendment, the entire substratum of Anasuya (supra) which held that lack of improper stamping of the Awards is not required to be examined at the stage of Section 34 objections, and same is an issue required to be dealt with at the stage of Section 36, is no longer available- because after 2015 Amendment, by virtue of Section 36(2), the Award becomes enforceable the very first day of passing of such an Award. Therefore, the issue whether an Award is duly stamped or not is now required to be examined at the Section 34 stage itself.

Further, by virtue of 2015 Amendment, any application for stay of Award has to be proceeded with as if it is seeking stay of money decree under the Civil Procedure Code. Money decrees are generally not stayed or the parties are asked to deposit the sum awarded. Therefore, there is a strong likelihood that in the new regime, the Awards would be enforced at the stage of Section 34 itself. Therefore if view of Anasuya (supra) is followed and sufficiency of stamp is not looked at the stage of Section 34 itself it would jeopardise the revenue of the State and the larger public interest.

In this backdrop, post 2015 Amendment, issue of non-stamping of Award should be examined not only with reference to enforceability under section 36 but also at the stage of Section 34 from the standpoint of counting the period of limitation. In such changed circumstances, it appears that the law laid down in Jawhar (supra) and Anasuya (supra) requires reconsideration.

The significance of this argument can also be seen from the fact that the common practice of the courts is to enforce Awards at Section 34 or appellate stage itself, without requiring the Decree Holder to file an Execution Petition. Hence, requirement of payment of stamp duty by such Decree Holder on insufficiently or unstamped Award remains unfulfilled thereby, causing loss to the public exchequer.

In a recent decision Garware Wall Ropers Ltd. vs Coastal Marine Constructions and Engineering Ltd.[13], the Hon'ble Supreme Court while dealing with the effect of an arbitration clause contained in an unstamped agreement, held that doctrine of harmonious construction of statutes is strongly embedded in our interpretative canon and therefore, the provisions must be construed in a way that reconciles the differences. Here, the Hon'ble Court while dealing with Sections 33 and 34 of the Maharashtra Stamp Act, which provides for impounding of instruments and inadmissibility of unstamped instruments in evidence, decided to enforce a time limit within which the issues qua payment of stamp duty and penalty (if any) are to be decided so that the purpose of the Stamp Act is not defeated and the intent for expeditious disposal of arbitration matters under the Act is also fulfilled.

Doctrine of harmonious construction comes into play furthering the purposes for which the enactment are made. Therefore, in my opinion, with the harmonious construction of Stamp Act with the provisions of the Act, keeping in view the larger public interest and preventing loss of revenue to the State, an Award under Section 34 should be treated as an Award for determining the limitation period only when the Award is duly stamped and communicated to the parties.

Applying the doctrine of harmonious construction to the post-2015 Amendment scenario will ensure that the Decree Holder, from the very first instance of receiving the Award, would take care that the Award is duly stamped. In the event he fails to get the Award duly stamp and in absence of any such communication of duly stamped Award to the Judgment Debtor, the period of limitation will not start running, and such judgment debtor would not be required to approach court under Section 34 and seek stay. This will ensure expeditious payment of stamp duty.

Conclusion

In conclusion, the period of limitation to challenge an Award under Section 34 of the Arbitration and Conciliation Act 1996, should start running only when an Award, which is duly stamped, is communicated to the parties and not from the date of mere communication irrespective of sufficiency of stamp affixed on the Award.

This change can be brought about by suitably interpreting the provisions of the Arbitration and Conciliation Act and Stamp Act or by bringing in legislative changes, casting a responsibility on the Arbitrator to:-

  • Initially communicate only the summary of the Award for facilitating payment of Stamp duty; and
  • To publish the full Award only when the necessary stamp duty is paid on such Award.

Amit Anand Tiwari is an Advocate at the Supreme Court of India. Views are personal only.


[1] (2008) 4 SCC 720

[2] (1978) 3 SCC 236

[3] (1927) SCC OnLine MP 156

[4] (1910) 32 ILR Allahabad 198

[5] AIR 1924 Oudh 240

[6] (ILR (1975) II Delhi 142

[7] (1969) 1 SCC 597

[8] (2003) 8 SCC 565

[9] 2010 (115) DRJ 263

[10] 2011 (123) DRJ 266

[11] ILR (2009) IV Delhi 571

[12] (2005) 10 SCC 746(para 25)

[13] (2019) 9 SCC 209

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