Amendments to applications under the Arbitration Act
Time limit for applications
Pleadings and particulars are required by a court in order to decide a case that has been brought before it; amendments to such pleadings are sometimes therefore required. As a matter of procedure, the granting or refusal of a request for an amendment by a party is left to the discretion of the court. Over time, certain legal principles have evolved with regard to the exercise of such discretion.
The Supreme Court of India(1) has stated that the procedural law is intended to facilitate, not to obstruct, the course of substantive justice. Provisions relating to pleadings in civil cases are meant to give each side an intimation of the opposing party's case, so that it can be met, in order to enable the courts to determine what is really at issue between the parties and to prevent deviations from the course that litigation on particular causes of action must take.
In 1884(2) the Court of Appeal in England held that the rule of conduct of the court in such a case should be that, however negligent or careless the first omission may have been and however late the proposed amendment, the amendment should be allowed if it can be made without injustice to the other side. There is no injustice if the opposing party can be compensated by costs. However, if the amendment would put it into such a position that it would be injured, it should not be made.
In 1920 the Privy Council(3) similarly held that although the power of a court to amend the plaint in a suit should not, as a rule, be exercised where the effect is to take away from the defendant a legal right which has been accrued to it by lapse of time, that consideration may sometimes be outweighed by the special circumstances of the case.
In a 1969 case(4) the Supreme Court held that:
"Rules of procedure are intended to be a handmaid to the administration of justice. A party cannot be refused just relief merely because of some mistake, negligence, inadvertence or even infraction of the Rules of procedure. The Court always gives leave to amend the pleading of a party, unless it is satisfied that the party applying was acting malafide or that by his blunder, he had caused injury to his opponent which may not be compensated for by an order of costs. However negligent or careless may have been the first omission, and, however late the proposed amendment, the amendment may be allowed if it can be made without injustice to the other side."
Order VI, Rule 17 of the Code of Civil Procedure 1980 provides for the amendment of pleadings, detailing that at any stage of the proceeding the court may allow either party to alter or amend its pleading in such manner and on such terms as may be just. All such amendments shall be made as may be necessary for the purpose of determining the real question in dispute between the parties.
As far as the amendment of grounds of appeal is concerned, Order XLI, Rule 2 of the code provides that the appellant shall not, except by leave of the court, be allowed to urge or be heard in support of any grounds of objection not set forth in the memorandum of appeal. It further provides that although the appellant shall not be allowed to bring in further grounds, the appellate court (in deciding the appeal) shall not be confined to the grounds of objections set forth in the memorandum of appeal or taken by leave of the court. These provisions make it clear that the appellate court has power to grant leave to amend the memorandum of appeal. In fact, with regard to the legal position of memorandum of appeal, the Supreme Court(5) observed that it takes the same position as the plaint in a suit, stating that:
"When an appeal is preferred the memorandum of appeal has the same position like the plaint in a suit because plaintiff is held to the case pleaded in the plaint. In the case of memorandum of appeal same situation obtains in view of Order 41, Rule 3. The appellant is confined to and also would be held to the memorandum of appeal. To overcome any contention that such is not the pleading the appellant sought the amendment."
Amendments to applications under the Arbitration Act
Given the abovementioned legal position in respect to the amendment of pleadings, questions sometimes arise before the court as to whether the same principles must govern the amendment of an application for setting aside an award under the Arbitration and Conciliation Act 1996 or an appeal under Section 37 of the act.
Provisions of the Arbitration Act 1940 were interpreted by the Supreme Court(6) to the effect that under the act, an application to set aside an award must be made within the period of limitation. An objection to the award after the limitation period had lapsed could not be entertained. The court held that:
"It is clear, therefore, from the scheme of the Act that if a party wants an award to be set aside on any of the grounds mentioned in Section 30 it must apply within 30 days of the date of service of notice of filing of the award as provided in Article 158 of the Limitation Act. If no such application is made the award cannot be set aside on any of the grounds specified in Section 30 of the Act. It may be conceded that there is no special form prescribed for making such an application and in an appropriate case an object of the type made in this case may be treated as such an application, if it is filed within the period of limitation. But if an objection like this has been filed after the period of limitation it cannot be treated as an application to set aside the award, for if it is so treated it will be barred by limitation.
It is not in dispute in the present case that the objections raised by the appellant were covered by Section 30 of the Act and though the appellant did not pray for setting aside the award in his objection that was what he really wanted the Court to do after hearing his objection. As in the present case the objection was filed more than 30 days after the notice it could not be treated as an application for settling the award, for it would then be barred by limitation. The position thus is that in the present case there was no application to set aside the award on grounds mentioned in Section 30 within the period of limitation and therefore the Court could not set aside the award on those grounds. There can be no doubt on the scheme of the Act that any objection even in the nature of a written statement which falls under Section 30 cannot be considered by the Court unless such an objection is made within the period of limitation (namely 30 days), though if such an objection is made within limitation that objection may in appropriate cases be treated as an application for setting aside the award."
Section 5 of the Limitation Act 1963 should also be kept in mind, which reads as follows:
"Extension of prescribed period in certain cases:
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.
Explanation - The fact that the appellant or the applicant was misled by any order, practice or judgment of the High Court in ascertaining or computing the prescribed period may be sufficient cause within the meaning of this section."
The controversy arises as to whether the same would prevail or the limitation set out in Section 34 of the Arbitration and Conciliation Act would decide the limitation. Section 34 of the act reads as follows:
"Application for setting aside arbitral award:
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with subsection (2) and subsection (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.- Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
(3) 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 it may entertain the application within a further period of 30 days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
Time limit for applications
The crucial difference in the above section lies in the words "not thereafter" as set out in Section 34(3) of the act, which thus puts a limit on the time for the court to entertain an application to set aside the award. Under Section 5 of the Limitation Act, there is no such bar.
In a ruling in relation to this controversy, the Supreme Court(7) held that:
"As far as the language of Section 34 of the 1996 Act is concerned, the crucial words are 'but not thereafter' used in the proviso to sub-section (3). In our opinion, this phrase would amount to an express exclusion within the meaning of Section 29(2) of the Limitation Act, and would therefore bar the application of Section 5 of the Act. Parliament did not need to go further. To hold that the Court could entertain an application to set aside the award beyond the extended period under the proviso, would render the phrase 'but not thereafter' wholly otiose. No principle of interpretation would justify such a result.
Apart from the language, 'express exclusion' may follow from the scheme and object of the special or local law:-
Even in a case where the special law does not exclude the provisions of Sections 4 to 24 of the Limitation Act by an express reference, it would nonetheless be open to the Court to examine whether and to what extent the nature of those provisions or the nature of the subject matter and scheme of the special law exclude their operation.
Here the history and scheme of the 1996 Act support the conclusion that the time limit prescribed under Section 34 to challenge an award is absolute and unextendible by the Court under Section 5 of the Limitation Act. The Arbitration and Conciliation Bill, 1995 which preceded the 1996 Act stated as one of its main objectives the need 'to minimize the supervisory role of Courts in the arbitral process'."
In a more recent judgment the Supreme Court(8) further observed that:
"A bare reading of sub-section (3) of Section 34 read with the proviso makes it abundantly clear that the application for setting aside the award on the grounds mentioned in sub-section (2) of Section 34 will have to be made within three months. The period can further be extended, on sufficient cause being shown by another period of 30 days but not thereafter. It means that as far as application for setting aside the award is concerned, the period of limitation prescribed is three months which can be extended by another period of 30 days, on sufficient cause being shown to the satisfaction of the Court."
In a 2010 case(9) the Supreme Court was again faced with the question as to whether, in a appeal under Section 37 of the Arbitration and Conciliation Act from an order refusing to set aside the award, an amendment in the memorandum of appeal that raises additional or new grounds can be permitted. Upon reviewing the case law as well as the legal position in the matter, the court observed that there was no doubt that an application to set aside an arbitral award under Section 34 of the act must be made within the time prescribed under Section 34(3) - that is, within three months (and a further period of 30 days on sufficient ground being shown).
When considering whether incorporation of an additional ground by way of an amendment to the application under Section 34 is tantamount to filing a fresh application in all situations and circumstances, the court observed that if that were to be treated as such, it would follow that no amendment in the application for setting aside the award would be possible, regardless of how material it may be for consideration of the court. In addition, it would not be possible to amend the existing grounds after the prescribed period of limitation had expired, although an application to set aside the arbitral award had been made in time.
The court has held that this is not, and could not be, the intention of the legislature when enacting Section 34 of the act. Furthermore, Section 32(2)(b) enables the court to set aside the arbitral award if it finds that the subject matter of the dispute was not capable of settlement by arbitration under the law in force at the time being or the arbitral award conflicted with the public policy of India. The court further observed that the words "the Court finds that" enable the court to grant leave to amend the application under Section 34, where such application has been made within the prescribed time, if the peculiar circumstances of the case so warrant it and it is so required in the interest of justice.
The court further held that its previous judgments had clearly held that courts would, as a rule, decline to allow the amendments if a fresh claim based on the proposed amendments would be barred by limitation on the date of application. The same would be a factor for consideration in exercise of its discretion as to whether the leave of amendment should be granted, but the same does not affect the power of the court to order it if so required in the interest of justice. The court held that there is no reason why the same rule should not be applied when considering an application for amendment of grounds in an application to set aside the arbitral award or an amendment to the grounds of appeal under Section 37 of the act.
The Supreme Court also observed that the decision of the Division Bench of the Bombay High Court,(10) in which it held that an independent ground of challenge to an arbitral award cannot be entertained after a period of three months, plus the 30-day grace period, constituted a ground amounting to a fresh application to set aside an arbitral award. The Supreme Court further held that this dictum was not intended to lay down an absolute rule that in no case could an amendment application to set aside the award be moved after the expiry of the limitation period. Furthermore, in one of its decisions, the Supreme Court(11) highlighted the distinction between 'material facts' and 'material particulars' and held that an amendment relating to material facts could not have been allowed after the expiry of limitation.
The legal position as it exists is clear. The court has the power to allow an amendment where an application under Section 34 of the act has been made within the prescribed limits, if the peculiar circumstances of the case so warrant and it is so required in the interest of justice. However, if the proposed amendment introduces a fresh claim, which would be barred by limitation on the date of application, such amendment cannot be allowed.
The fine distinction between what is a permissible amendment and what may be impermissible in the sound exercise of judicial distinction must be kept in mind by the court. Although not every amendment in an application to set aside an arbitral award will be taken as a fresh application, no new grounds can be inserted by way of an amendment after the prescribed period of limitation under the act.
For further information on this topic please contact Chakrapani Misra at Khaitan & Co by telephone (+91 11 4151 5454), fax (+91 11 4151 5318) or email ([email protected]).
(1) (1978) 2 SCR 614.
(2) 32 WR 262.
(3) (1920) 22 BOMLR 1370.
(4) (1969) 1 SCC 86.
(5) (1982) 3 SCC 408.
(6) AIR 1967 SC 1233.
(7) (2001) 8 SCC 470.
(8) (2008) 7 SCC 169.
(9) AIR 2010 SC 1299.
(10) (2001) 2 BOMLR 156.
(11) (1994) 6 SCC 117.