1191 Days Delay By State Agency In Filing Arbitration Appeal: Allahabad High Court Orders Inquiry Against Erring Officers

Recently, the Allahabad High Court has directed the Principal Secretary / Additional Chief Secretary, Medical and Health Services, U.P. to conduct an inquiry against the erring officers due to which appeal under Section 37 of the Arbitration and Conciliation Act, 1996 has been filed with a delay of 1191 days.

An arbitral award of Rs.34,21,423/- as principal and Rs.1,67,16,033/- as interest up to was passed in favour of M/S Supreme Electrical and Mechanical Works, respondent. The same was challenged under Section 34 of the Arbitration and Conciliation Act, 1996. However, the appeal under Section 34 was rejected on grounds on non-compliance of Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006.

Section 19 of the MSMED Act provides that no application for setting aside of any award, decree or order under the Act can be entertained by any Court unless the appellant (other than supplier) deposits 75% of the decretal amount.

The appellant, State Government, Uttar Pradesh, appearing through Mahanideshak Chikitsalaya Medical Services, filed an appeal against the order passed by the Commercial Court, Kanpur Nagar under Section 34 of the Arbitration Act.

In the delay condonation application filed along with the appeal under Section 37, the appellant pleaded that against the order under challenge, passed on 10.02.2021, a writ under Article 227 of the Constitution of India was filed in May, 2023. It was stated that the petition was withdrawn in July, 2023. After permission was obtained from the Law Department in May, 2024, appeal under Section 37 of the Arbitration Act was filed.

Appellant pleaded that due to wrong advice, writ remedy was being pursued which was corrected as soon as the availability of alternate remedy came to their knowledge. Further, it was stated that lenient view should be taken as huge amount of public money was involved.

The Court observed that appellants chose to not comply with the condition of pre-deposit under Section 19 of the MSMED Act which kept the proceedings under Section 34 of the Arbitration Act pending for 4 years. It was further observed that the sanction for appeal under Section 37 of the Arbitration Act was granted after an year of withdrawing petition under Article 227.

The bench of Chief Justice Arun Bhansali and Justice Vikas Budhwar observed that “the entire conduct of the appellants in dealing with the matter before the Commercial Court and after passing of the order by the Commercial Court on 10.02.2021 till filing of the present appeal is wholly negligent.”

The Court held that the appellant lacked bona-fide as it acted in a completely reckless manner as there was no “promptness and diligence” on their part at the stage of proceedings under Section 34 of the Arbitration Act and after the rejection order was passed.

Accordingly, while dismissing the appeal, the Court directed the Principal Secretary / Additional Chief Secretary, Medical and Health Services, U.P. to conduct an inquiry against the lapses by the erring officers who were responsible for proceedings before the Court.

Case Title: State of UP Through Mahanideshak Chikitsalaya Medical Services v. M/S Supreme Electrical and Mechanical Works [APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 DEFECTIVE No. - 216 of 2024]

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