Time From Filing Section 34 Petition To 2015 Amendment Excluded From Limitation Period For Enforcing Arbitral Awards: Delhi High Court

It held that the period from the filing of the Section 34 application until the amendment in Section 36 came into effect should be excluded from the limitation period.

The 2015 amendment to Section 36 of the Arbitration Act brought a change in the enforceability of arbitral awards. Prior to the amendment, the mere filing of a petition under Section 34 of the Arbitration Act, which challenges the arbitral award, resulted in an automatic stay on the enforcement of the award.

The post-amendment Section 36 specifies that the filing of an application under Section 34 does not automatically render the award unenforceable.

Section 34 allows a party to file an application for setting aside the award on specific grounds.

Section 36 outlines the process through which an arbitral award is enforced as if it were a decree of the court.

Brief Facts:

Growth Techno Projects Limited (“Petitioner”), who was the decree holder, argued that Ishwar Industries Limited (“Respondent”), the judgment debtor, didn't make any payments toward the arbitral award. Consequently, the Petitioner approached the High Court under under Section 36 of the Arbitration and Conciliation Act, 1996 for requiring the Respondent to pay the awarded amount along with 12% interest per annum.

The judgment debtor challenged the maintainability of the petition on several grounds. First, it argued that the petition was barred by limitation stating that under Article 136 of the Limitation Act, 1963, the time period to seek execution of a decree is twelve years.

The judgment debtor further relied on the Supreme Court's judgments in Hindustan Construction Company Limited v. Union of India and Board of Control for Cricket in India v. Kochi Cricket Private Limited to argue that the 2015 amendment to Section 36 did not create a fresh period of limitation for pre-amendment awards. It maintained that the doctrine of merger does not apply, as the Section 34 petition was still pending, and argued that the enforcement petition should not be considered until the petition under Section 34 is disposed of.

Observations by the High Court:

The issue before the High Court was whether the period of limitation should start from the date of the passing of the arbitral award or from the date of the amendment to Section 36 of the Arbitration Act.

The High Court noted that the pre-amendment Section 36, as interpreted by the judgments in National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd. and Another and Fiza Developers and Inter Trade Private Ltd. v. Amci (India) Private Limited and Another, established an automatic stay on the enforcement of an arbitral award upon the filing of an application under Section 34 of the Arbitration Act. In contrast, the post-amendment Section 36 specifies that the mere filing of an application under Section 34 does not render the award unenforceable.

The High Court noted that the Legislature, through the Arbitration and Conciliation (Amendment) Act of 2015, inserted Section 26, which was later interpreted by the Supreme Court in Kochi Cricket. The Supreme Court held that the amendments were prospective and applied only to arbitral and court proceedings commenced after the Amendment Act came into force. However, the Supreme Court also held that the amended Section 36 applied to Section 34 petitions filed before the commencement of the Amendment Act.

Despite this interpretation, the Legislature, through the Arbitration and Conciliation (Amendment) Act of 2019, omitted Section 26 and inserted Section 87, which stated that the 2015 amendments would not apply to arbitral proceedings commenced before the 2015 amendments, nor to court proceedings arising out of such arbitral proceedings. This position was later struck down by the Supreme Court in Hindustan Construction, which found the deletion of Section 26 and the insertion of Section 87 to be manifestly arbitrary and violative of Article 14 of the Constitution.

The High Court noted that the judgment debtor filed an objection under Section 34 on October 30, 2007. According to the unamended Section 36 and the Supreme Court judgments in National Aluminium and Fiza Developers, the arbitral award was unenforceable until the amendment to Section 36 took effect on October 23, 2015. Therefore, the High Court held that the decree holder was legally barred from enforcing the arbitral award before this date.

The High Court noted that Section 15(1) of the Limitation Act also supports this conclusion, as it excludes the time during which the execution of a decree was stayed by an injunction or order from the period of limitation for executing the decree. Given that the enforceability of the arbitral award was stayed by the pre-amendment Section 36, it held that the period from the filing of the Section 34 application until the amendment came into effect should be excluded from the limitation period. Consequently, it held that the limitation period for enforcing the arbitral award should commence from October 23, 2015, when the amended Section 36 came into force.

Therefore, the High Court held that the decree-holder could not seek enforcement during this period. Considering Section 15(1) of the Limitation Act and the Supreme Court's findings in Anandilal and Another v. Ram Narain and Others, the time from the filing of the Section 34 Petition/Objection until the 2015 amendment should be excluded from the limitation period for enforcing the arbitral award.

It held that the amendment did not intend to restart the limitation period for pre-2015 awards but merely removed the stay on enforcement of these awards upon filing a Section 34 Petition. The limitation period resumed on October 23, 2015, not from scratch but as a continuation.

Therefore, the High Court directed the judgment debtor to deposit a sum of Rs. 8,90,79,455/-, along with awarded interest, with the Registrar General.

Case Title: Growth Techno Projects Limited Vs Ishwar Industries Limited

Citation: 2024 LiveLaw (Del) 764

Case Number: OMP (ENF.) (COMM.) 224/2023

Advocate for the Petitioner: Mr. Manish Vashisht, Sr. Adv. withMr. Vanshay Kaul, Ms. Harshita Nathrani, Mr.Aman Singh, Advs.

Advocate for the Respondent: Ms Ekta Mehta, Ms Zainab Khan, Advs.

Date of Judgment: 01.07.2024

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