Introduction
Role of respondent in proceedings under section 34 of 1996 Act
Comment
With the advent of the pro-arbitration approach that has emerged from the Indian judicial narrative, reduced judicial intervention has been the key to promoting arbitration as an effective mode of dispute resolution. Since the enactment of the Arbitration and Conciliation Act 1996 (the 1996 Act) and its subsequent amendments in 2015 and 2019, the focus has been to minimise the courts' interference at pre-reference stage, during the pendency of arbitration proceedings and post-award stage. Consequently, it is well known that courts today have a limited role to play in arbitral proceedings in general and the post-award challenge stage under the 1996 Act in particular. Keeping with this outlook, the limited grounds on which an applicant party may challenge an arbitral award have also been strictly interpreted in terms of section 34(2) of the 1996 Act. While this is common knowledge, an issue that has seldom been addressed by the existing literature on the subject is the role of a respondent party (a respondent) in proceedings under section 34 of the 1996 Act. This article attempts to understand the exact nature and extent of the rights of a respondent in such proceedings.
Briefly, post passing of an arbitral award, the parties to the arbitration may, within the mandatorily prescribed period of limitation:
- accept the award in its entirety and subsequently execute it as it has been passed;
- file an application under the provisions of section 33 of the 1996 Act to seek correction in case of any clerical, typographical or computational errors, or seek an interpretation of a specific point or part of the award (within 30 days of receipt of the award), subject to the specific conditions laid down in section 33 of the 1996 Act being satisfied; or
- challenge part of the award or the award in its entirety under section 34 of the 1996 Act.
In certain circumstances, it may be the case that an award is equally favourable or unfavourable to all parties to the arbitration. In such an eventuality, while neither party may be fully satisfied with the award, keeping in mind a cost-benefit and risk analysis of pursuing a challenge under section 34 of the 1996 Act, a party may choose to refrain from pursuing such remedy immediately, with a view to gauging the stance of the other party. Given the strict limitation period prescribed by the 1996 Act (with no discretion provided to the courts to condone delay beyond the mandatory period), a party may lose their right to challenge the arbitral award in the process and still face the possibility of being put in the shoes of a respondent in challenge proceedings initiated by the other party.
Role of respondent in proceedings under section 34 of 1996 Act
The question that then arises is whether such a party, being a respondent in the proceedings, can raise any grievance or objection in addition to the points of contention raised by the applicant under section 34 of the 1996 Act.
In this context, it is imperative to understand the scheme of section 34 of the 1996 Act as follows:
- Section 34(1) of the 1996 Act provides that "recourse to a Court against an arbitral award may be made 'only' by an application for setting aside such award in accordance with sub-section (2) and sub-section (3)".
- Further, section 34(2) of the 1996 Act provides that "[a]n arbitral award may be set aside by the Court only if — (a) the party making the application furnishes proof that . . . ".
- Furthermore, section 34(3) of the 1996 Act provides that:
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.
From a reading of section 34 of the 1996 Act, it is evident that an award or part of an award, if not challenged by a party within the statutory period, attains finality as per the provisions of section 35 of the 1996 Act and may be enforced by the parties under section 36 of the 1996 Act. The unambiguous language of the section also suggests that an award may be challenged only by filing a separate application objecting to an arbitral award or part of the arbitral award and on the limited grounds of challenge specified under section 34 of the 1996 Act.
In support of this, the Delhi High Court in its decision in the matter of NBCC v Lloyd Insulations India Ltd,(1) also observed and held as follows:
with regard to the enforceability of the award during the pendency of the objections under Section 34 of the Act is concerned, it may be noted at once that the award of the arbitrator in this case is not entirely in favour of one party but it is in favour of both the parties as it has allowed some claims as well as some counter-claims. The appellant M/s. National Buildings Construction Corporation Ltd. did not challenge any part of the award by filing objections within the stipulated period as provided under Section 34(3) of the Act and, therefore, the award so far as it has allowed certain claims of the claimant M/s. Lloyd Insulations (India) Ltd., has attained finality and has become capable of enforcement as a decree in accordance with the Code of Civil Procedure. However, the award of counter-claim in favour of M/s. National Buildings Construction Corporation Ltd. has not yet attained finality and it is not enforceable, it being the subject of challenge in the application under Section 34 of the Act. It is, therefore, not possible to hold that the entire award has not become final and is not enforceable unless the application under Section 34 of the Act is disposed of. We are clearly of the opinion that that part of the award which is not under challenge has become final and is enforceable under Section 36 of the Act irrespective of the pendency of the application under Section 34 of the Act challenging and seeking the setting aside of the other part of the award.
In view of the judgment cited above and the unambiguous language of section 34 of the 1996 Act, it may be concluded that any part of an arbitral award that remains unchallenged by a party within the statutory limitation period attains finality and is ripe for execution.
In other words, a party who has not exercised its rights under section 34 of the 1996 Act may only respond to the specific objections raised by the other party – that is, the applicant in their challenge under section 34 of the 1996 Act. Such a respondent may not raise additional grounds of challenge, claims or counterclaims on its own behalf, in addition to responding to the challenge filed by the applicant.
Therefore, the role of a respondent in a challenge under section 34 of the 1996 Act is limited to opposing or responding to the grounds of the challenge raised by an applicant and cannot be extended beyond this. So, a party who is aggrieved by an arbitral award or a part of such an award must file an application under section 34 of the 1996 Act independently, within the prescribed period. Needless to mention, one has to factor in the implication of the orders passed by the Supreme Court in Re Cognizance for extension of limitation,(2) on the extension of limitation as may be applicable.
For further information on this topic please contact Jeevan Ballav Panda, Shalini Sati Prasad or Meher Tandon at Khaitan & Co by telephone (+91 22 6636 5000) or email ([email protected], [email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
Endnotes