Prior Notice to other party before filing application to set aside arbitral award not mandatory

The Supreme Court has held that the requirement [under Section 34(5)] of Arbitration and Conciliation Act of prior notice to the other party before filing an application to set aside an arbitral award is directory and not mandatory. This judgment has set at rest conflicting views of the different High Courts.

The Apex Court held the same in the matter of State of Bihar vs. Bihar Rajya Bhumi Vikas Bank Samiti [Civil Appeal No. 7314 of 2018 (Arising out of SLP (Civil) No.4475 of 2017)], decided on 30.07.2018.

Challenge

By an amendment brought in 2016, a subsection (5) has been inserted to Section 34 of the Act, which states that application to set aside arbitral award shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

There have been several contradicting and contrasting views taken by the High Courts on this point of law. The Bombay and Calcutta High courts held that the provision is directory, largely because no consequence has been provided for breach of the time limit specified. The High courts of Kerala, Himachal Pradesh, Delhi and Gauhati have all taken the view that Section 34(5) is mandatory in nature.

Held

The Apex Court held and cleared the air on the contradiction by holding that 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.

The bench also took note of Section 34(1), in which the only requirement for filing the application for setting aside an award be in accordance with sub-sections (2) and (3). This, again, is an important pointer to the fact that even legislatively, subsection (5) is not a condition precedent, but a procedural provision which seeks to reduce the delay in deciding applications under Section 34.

The court further observed: “We may add that it shall be the endeavor 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 endeavor 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.”