2018 (8) TMI 34 - SC - Indian Laws

Whether Section 34(5) of the Arbitration and Conciliation Act, 1996, inserted by Amending Act 3 of 2016 (w.e.f. 23rd October, 2015), is mandatory or directory? Held that - It is seen that Section 34(5) does not deal with the power of the Court to condone the non-compliance thereof. It is imperative to note that the provision is procedural, the object behind which is to dispose of applications under Section 34 expeditiously - One must remember the wise observation contained in the case of Kailash v. Nanhku and Ors. 2005 (4) TMI 542 - SUPREME COURT , where the object of such a provision is only to expedite the hearing and not to scuttle the same. All rules of procedure are the handmaids of justice and if, in advancing the cause of justice, it is made clear that such provision should be construed as directory, then so be it. Section 80, though a procedural provision, has been held to be mandatory as it is conceived in public interest, the public purpose underlying it being the advancement of justice by giving the Government the opportunity to scrutinize and take immediate action to settle a just claim without driving the person who has issued a notice having to institute a suit involving considerable expenditure and delay - This is to be contrasted with Section 34(5), also a procedural provision, the infraction of which leads to no consequence. To construe such a provision as being mandatory would defeat the advancement of justice as it would provide the consequence of dismissing an application filed without adhering to the requirements of Section 34(5), thereby scuttling the process of justice by burying the element of fairness. It shall be the endeavour of every Court in which a Section 34 application is filed, to stick to the time limit of one year from the date of service of notice to the opposite party by the applicant, or by the Court, as the case may be. In case the Court issues notice after the period mentioned in Section 34(3) has elapsed, every Court shall endeavour to dispose of the Section 34 application within a period of one year from the date of filing of the said application, similar to what has been provided in Section 14 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. This will give effect to the object sought to be achieved by adding Section 13(6) by the 2015 Amendment Act - in cases covered by Section 10 read with Section 14 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, the Commercial Appellate Division shall endeavour to dispose of appeals filed before it within six months, as stipulated. Appeals which are not so covered will also be disposed of as expeditiously as possible, preferably within one year from the date on which the appeal is filed. Thus, Section 34(5) is held to be directory - appeal allowed.

Summary

Issues Involved:
1. Whether Section 34(5) of the Arbitration and Conciliation Act, 1996 is mandatory or directory.
2. Maintainability of the Letters Patent Appeal.

Detailed Analysis:

Issue 1: Whether Section 34(5) of the Arbitration and Conciliation Act, 1996 is mandatory or directory.

The core issue in this appeal was the interpretation of Section 34(5) of the Arbitration and Conciliation Act, 1996, which mandates that an application under this section shall be filed only after issuing a prior notice to the other party and be accompanied by an affidavit endorsing compliance. The appellant challenged an arbitral award without issuing the required prior notice and without the accompanying affidavit.

The Single Judge of the Patna High Court initially held that Section 34(5) was directory, relying on the Supreme Court's judgment in Kailash v. Nanhku. However, the Division Bench reversed this, holding that Section 34(5) was mandatory, drawing an analogy to Section 80 of the Code of Civil Procedure, which mandates a notice before suing the Government.

The appellant argued that procedural provisions should not be construed in a manner that tramples justice, citing various judgments to support the view that the provision is directory. The respondent countered, asserting that Section 34(5) is a mandatory provision, supported by the Law Commission Report and the majority view of High Courts.

The Supreme Court examined the language of Section 34(5) and (6) and the Law Commission's intent to expedite arbitration-related litigation. The Court noted that procedural provisions are meant to advance justice, not defeat it. The Court referred to several precedents where procedural timelines were held to be directory, such as Topline Shoes v. Corporation Bank and Kailash v. Nanhku, emphasizing that procedural rules are the handmaids of justice.

The Court also compared Section 34(5) with Section 80 of the CPC, which has been held mandatory due to its public interest objective. However, the Court distinguished Section 34(5) as it does not stipulate any consequence for non-compliance, unlike Section 80.

The Court concluded that Section 34(5) is directory, not mandatory, as interpreting it otherwise would scuttle the process of justice. The absence of any consequence for non-compliance and the procedural nature of the provision led the Court to this conclusion.

Issue 2: Maintainability of the Letters Patent Appeal.

Given that the main issue was resolved by holding Section 34(5) as directory, the Supreme Court did not find it necessary to decide on the maintainability of the Letters Patent Appeal.

Conclusion:

The Supreme Court allowed the appeal, setting aside the Patna High Court's judgment. The Section 34 petition will now be disposed of on its merits, with the Court emphasizing that procedural provisions like Section 34(5) should be interpreted to advance justice rather than impede it.