Is 34(6) of Arbitration Act is mandatory directory?

[Rajvansh singh]

Is section 34(6) of Arbitration Act, 1996 mandatory or directory?

The Arbitration and Conciliation (Amendment) Act 2015 was a big move from the government to improve the ranking of India in contract enforcement. Although, the amendment resulted in lot of positive change in the act but stood rich in loopholes.

One such addition was Section 34(6), which reads-“An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.” The legislative intent behind this was to provide expeditious disposal of an application made under Section 34. There have been instances in which the genuine party (award holder) is not able to enjoy the fruit of award because the court was not able to render its decision in proper time. As mentioned by the Amendment bill 2018, section 34(6) has created a controversy pertaining to its nature and has opened floodgates for litigation. Although, the intent seems to be arbitration friendly but the interpretation of the sub section has to be liberal or needs to be changed.

 One may argue that if 34(6) is not given a strict interpretation than the purpose of legislature will be defeated. Hon’ble Bombay High Court in Global Aviation Services (P) Ltd v Airport Authority of India 2018 (2) TMI 1757 - BOMBAY HIGH COURT decided that sub- section 6 is directory in nature stating various reasons for the same. The most important reason given was provisions in the act like 8(1), 16(2), 25(a) and 34(3) clearly provides for consequences of not complying with them. However, no consequence is provided in section 34(6) and 34(5) if the arbitration petition is not disposed within one year. On plain reading, section 34(5) and section 34(6) form part of a composite scheme. In The State of Bihar and Ors. Vs. Bihar Rajya Bhumi Vikas Bank Samiti 2018 (8) TMI 34 - SUPREME COURT OF INDIA the apex court decided that section 34(6) should be considered directory in nature as no consequence is provided by the legislature. The Hon’ble Court referred to several judgment in which provision similar to 34(6) were challenged. Thus, when legislator wants a section to be construed mandatory in nature then it provide for consequences of not complying with them.

The word “shall” is used in the section, which gives a mandatory nature to sub section 6. A similar problem arose in Salem advocate bar association V. Union of India, 2005 (8) TMI 714 - SUPREME COURT the Hon’ble Court held - “The use of the word shall in Order 8 Rule 1 by itself is not conclusive to determine whether the provision is mandatory or directory. We have to ascertain the object, which is required to be served by this provision and its design and context in which it is enacted. The use of the word shall is ordinarily indicative of mandatory nature of the provision but having regard to the context in which it is used or having regard to the intention of the legislation, the same can be construed as directory. The Rule in question has to advance the cause of justice and not to defeat it. The Rules of procedure are made to advance the cause of justice and not to defeat it. Construction of the Rule or procedure, which promotes justice and prevents miscarriage, has to be preferred. The Rules of procedure are the handmaid of justice and not its mistress. In the present context, the strict interpretation would defeat justice.”

Section 34(6) is a procedural provision. In Kailash v Nanhku 2005 (4) TMI 542 - SUPREME COURT the apex court was of the view that main objective of any procedure is to advance the cause of justice. The procedural provision should be construed in such a manner, which should not leave the court helpless to meet extraordinary situation in the ends of justice. There can be cases in which court has to enter in the complexity of the case for the sake of justice. Hence, this can cross the time limit set under section 34(6). If the sub section is given a strict interpretation, the court will be powerless to decide on the case, which has exceeded the time period of one year as a result justice will be denied to an innocent party.

The clause seems to be vague when section 34(5) is read with section 34(6); one-year time period is calculated from the date of notice served. There is no clarity as to when the application has to be filed from the date of notice served. Suppose, notice has been served on the 1^st January 2018, then the court has to dispose the case before 31^st December. Under section 34(3) the application was filed on 30^th March before the court. In this case, court will only get 9 months, which cannot be the intent of legislature.

In some case, the challenge application can take more 3 or 4 year. Therefore the time limit of one year is welcome. But, due to high pendency of cases in courts, strict adherence is not possible. As mentioned in the Srikrishna report, commercial court (for arbitration and other commercial matter) are busy in solving matters other than commercial like family related matters etc. if commercial division judge are tasked with such matter, it is not possible to dispose cases in a year.

It can be safely concluded that section 34(6) is directory in nature as setting one-year time period seems impractical from various perspective. Thus to avoid any further litigation; the legislature needs to follow judiciary. Arbitration and Conciliation (Amendment Bill), 2018 has proposed to substitute the words “in any event” with the words “an endeavor shall be made to dispose of the application”. If the proposed change is passed, it will clear the intention of legislator and uphold the view given by judiciary. Apart from this, courts should try its best to adhere with the time limit so that the intention of the legislator should not go in vain.