2018 (8) TMI 181 - HC - Indian Laws

Omission to issue the notice under Section 34(5) of the Arbitration Act, 1996, as amended by the Act 3 of 2016 - Held that - The substantive right of a party to challenge an arbitral award is provided by sub-sections (2) and (2A) of Section 34 of the Act stipulating the grounds on which an arbitral award can be set aside by the Court. Sub-sections (3) of the said Section 34 of the Act lays down the statutory period of limitation within which an application for setting aside of an arbitral award has to be filed before the Court - Although, the purpose and intention of incorporation of the provisions contained in sub-sections (4) and (5) of Section 34 of the Act is expeditious disposal of the application for setting aside of the arbitral award, the said provisions being procedural in nature cannot be construed as mandatory. If the provisions of sub-sections (5) and (6) of the Act is held to be mandatory as contended by the respondent, the same would defeat the substantive right of party to file an application for setting aside of the arbitral award under sub-sections (2) and (2A) of the said section within the stipulated time under sub-section (3) - the provisions contained in sub-sections (5) and (6) of Section 34 of the Act are procedural and not mandatory. Applications allowed.

Issues Involved:
1. Maintainability of the application for setting aside the arbitral award.
2. Compliance with Section 34(5) of the Arbitration Act, 1996.
3. Interpretation of procedural versus mandatory requirements.

Detailed Analysis:

1. Maintainability of the Application for Setting Aside the Arbitral Award:

The petitioner filed an application (A.P. No. 346 of 2018) to set aside the arbitral award dated December 11, 2017, along with corrective and additional awards. The respondent raised a serious objection to the maintainability of this application, arguing that the petitioner failed to comply with the mandatory requirement of issuing a prior notice under Section 34(5) of the Arbitration Act, 1996.

2. Compliance with Section 34(5) of the Arbitration Act, 1996:

The respondent argued that sub-section (5) of Section 34 mandates that an application to set aside an arbitral award must be filed only after issuing a prior notice to the other party, accompanied by an affidavit endorsing compliance. The respondent emphasized the mandatory nature of this requirement, citing the use of the words "shall" and "only" in the statute. They supported their argument with references to the Law Commission's 246th report and various judicial precedents, including decisions from the Supreme Court and High Courts, which held that procedural requirements are mandatory.

The petitioner, on the other hand, argued that the provisions of sub-section (5) of Section 34 are procedural and should be considered directory rather than mandatory. They cited several Supreme Court decisions, including Vidyawati Gupta vs. Bhakti Hari Nayak and Sambhaji vs. Gangabai, which held that procedural laws are generally directory and not mandatory. The petitioner also pointed out that they had issued the required notice on June 20, 2018, and submitted an affidavit proving compliance.

3. Interpretation of Procedural Versus Mandatory Requirements:

The court analyzed the arguments and the relevant statutory provisions, including Section 34 of the Arbitration Act, 1996. The court noted that sub-sections (5) and (6) of Section 34 are procedural and do not specify consequences for non-compliance. The court referenced several Supreme Court decisions, including Babu Ram Upadhya and Mohan Singh, which held that the intention of the legislature is crucial in determining whether a provision is mandatory or directory.

The court concluded that the procedural provisions in sub-sections (5) and (6) of Section 34 are directory, not mandatory. The court emphasized that procedural laws are intended to facilitate justice and should not be construed to defeat substantive rights. The court agreed with the Bombay High Court's decisions in Global Aviation Services Pvt. Ltd. vs. Airport Authority of India and Maharashtra State Road Development Corporation Ltd. vs. Simplex Gayatri Consortium, which held that the word "shall" in procedural provisions should be interpreted as directory.

Conclusion:

The court found no merit in the respondent's objections and held that the application for setting aside the arbitral award is maintainable. The court scheduled the application (A.P. No. 346 of 2018) and related applications (G.A. No. 1401 of 2018 and G.A. No. 1555 of 2018) for further hearing on July 16, 2018. The court also noted that since the petitioner had issued the notice under Section 34(5) on June 20, 2018, the application should be deemed to have been filed on June 15, 2018.

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