The Supreme Court of India, in a significant ruling on arbitration law, has held that the three-month limitation period for filing an application to set aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, commences only when a signed copy of the award is delivered to the actual ‘party’ to the agreement, specifically a person competent to take a decision on the matter, and not merely to an authorized representative.
A bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan dismissed an appeal in the case of M/s. Motilal Agarwala vs. State of West Bengal & Anr., thereby upholding a Calcutta High Court judgment. The Court ruled that the State of West Bengal’s application to set aside an award was not barred by limitation because the award had been served on an Assistant Engineer, who was not the designated ‘party’ under the Act.
Background of the Case
The case originated from an arbitral award passed on November 12, 2013, in favour of the appellant, M/s. Motilal Agarwala. On the same day, a xerox copy of the signed award was collected by an Assistant Engineer, who was an authorized representative for the respondent, the State of West Bengal.
Under Section 34(3) of the Arbitration and Conciliation Act, 1996, an application to set aside an award must be made within three months of receiving it. The State of West Bengal did not challenge the award within this period, which would have expired on February 12, 2014. The State contended that it only became aware of the award when the appellant initiated execution proceedings. Subsequently, the State filed an application to set aside the award on March 20, 2014.
The District Court dismissed the State’s application, holding it to be time-barred. However, the Calcutta High Court overturned this decision, leading the original award-holder, M/s. Motilal Agarwala, to appeal to the Supreme Court.
Arguments Presented
Mr. Ajit Kumar Sinha, Senior Counsel for the appellant, argued that the authorized representative had actively participated in the arbitration and his receipt of the award copy constituted valid service. He contended that the representative’s knowledge of the award should be imputed to the State, and thus, the limitation period began on November 12, 2013.
On behalf of the State of West Bengal, counsel Ms. Madhumita Bhattacharjee submitted that while the representative had received the award copy, he was not a ‘party’ as defined by Section 2(1)(h) of the Act. She argued that the representative had failed to inform the competent authorities—the Secretary of the Irrigation and Waterways Department or the Executive Engineer—who were the only officials empowered to decide on challenging the award. Therefore, the limitation period could not be said to have commenced.
Court’s Analysis and Reasoning
The Supreme Court framed the central legal question as: “whether the delivery of the true/xerox copy of the Arbitral Award duly signed by the Arbitrator to an authorised representative of the State on 12.11.2013 would constitute delivery upon the respondent herein in accordance with Section 31 (5) of the Act 1996?”
The bench analysed the interplay between Section 34(3), which sets the limitation period from the date a ‘party’ receives the award, and Section 31(5), which mandates that a signed copy of the award “shall be delivered to each party.” The Court emphasized that Section 2(1)(h) of the Act defines a ‘party’ as “a party to an Arbitration Agreement.”
The Court concluded that the Assistant Engineer did not fit this definition. The judgment heavily relied on the precedent set in Union of India vs. Tecco Trichy Engineers & Contractors (2005), where it was held that for large organizations like government departments, effective service requires delivery to a person who is not only knowledgeable about the proceedings but is also in a position to make a decision on challenging the award.
The Court observed, “The delivery of an arbitral award under sub-section (5) of Section 31 is not a matter of mere formality. It is a matter of substance.” It further noted that the delivery triggers crucial timelines for seeking corrections or setting aside an award.
Reinforcing its position, the bench also cited Benarsi Krishna Committee and others v. Karmyogi Shelters Private Limited (2012), which clarified that the term ‘party’ refers to the principal party to the arbitration agreement and not their agent or advocate. The court in that case held:
“Any reference, therefore, made in Section 31(5) and Section 34(2) of the 1996 Act can only mean the party himself and not his or her agent, or advocate empowered to act on the basis of a Vakalatnama.”
Applying these principles, the Court found that the award should have been served on the Executive Engineer or the Secretary of the concerned department, who were parties to the arbitration and had the authority to act on it. Service on the Assistant Engineer was deemed insufficient to trigger the limitation period.
Final Decision
The Supreme Court dismissed the appeal, affirming the High Court’s order. The bench concluded that the State’s application under Section 34 was filed within the permissible time frame, as the limitation period had not commenced on the date the representative received the copy.
Noting that the litigation had been pending for nearly 12 years, the Court directed the District Court to hear the Section 34 application on its merits and dispose of it within six months.
