THE STATE OF BIHAR vs. BIHAR RAJYA BHUMI VIKAS BANK SAMITI BIHAR JHARKHAND

1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7314 of 2018 (Arising out of SLP (Civil) No.4475 of 2017) THE STATE OF BIHAR & ORS. … APPELLANTS VERSUS BIHAR RAJYA BHUMI VIKAS BANK SAMITI … RESPONDENT J U D G M E N T R.F. NARIMAN, J. 1. Leave granted. 2. The question raised in this appeal pertains to whether Section 34(5) of the Arbitration and Conciliation Act, 1996, inserted by Amending rd Act 3 of 2016 (w.e.f. 23 October, 2015), is mandatory or directory. 3. The present appeal arises out of an arbitration proceeding which commenced on 24.05.2015. An arbitral award was made on Signature Not Verified 06.01.2016. A Section 34 petition challenging the said award was filed Digitally signed by SHASHI SAREEN Date: 2018.07.30 16:54:57 IST Reason: on 05.04.2016 before the Patna High Court, in which notice was issued to the opposite party by the Court on 18.07.2016. Despite the coming 2 into force of Section 34(5), the common ground between the parties is that no prior notice was issued to the other party in terms of the said Section, nor was the application under Section 34 accompanied by an affidavit that was required by the said sub-section. 4. A learned Single Judge of the Patna High Court, by a judgment dated 06.09.2016, held that the provision contained in Section 34(5) was only directory, following our judgment in Kailash v. Nanhku and Ors. , (2005) 4 SCC 480. A Letters Patent Appeal to a Division Bench yielded the impugned order dated 28.10.2016, by which it was held, adverting to the Law Commission Report which led to the 2015 amendment, that the mandatory language of Section 34(5), together with its object, made it clear that the sub-section was a condition precedent to the filing of a proper application under Section 34, and, on the analogy of a notice issued under Section 80 of the Code of Civil Procedure, 1908, being a condition precedent to the filing of a suit against the Government, the Division Bench held that since this mandatory requirement had not been complied with, and as the period of 120 days had run out, the Section 34 application itself would have to be dismissed. In the end, it allowed the appeal and set aside the judgment of the learned Single Judge. 5. Shri Nagendra Rai, learned Senior Advocate appearing on behalf of the Appellants, has argued that the Letters Patent Appeal itself was not maintainable. He further went on to argue that in any event, Section 3 34(5) and (6) form part of a composite scheme, the object of which is that an application under Section 34 be disposed of expeditiously within one year. He points out that as no consequence is provided if such application is not disposed of within the said period of one year, the aforesaid provisions are only directory, despite the mandatory nature of the language used therein. He also added that procedural provisions ought not to be construed in such a manner that justice itself gets trampled upon. For this purpose, he referred to and relied upon various judgments of this Court. 6. Shri Parag P. Tripathi, learned Senior Advocate appearing on behalf of the Respondent, defended the High Court judgment, both on maintainability as well as on Section 34(5) being a mandatory provision. According to the learned Senior Advocate, despite the fact that no consequence has been provided if the time period of Section 34(6) goes, yet, an application that is filed under Section 34 without complying with the condition precedent as set out in Section 34(5), is an application that is non est in law. He further argued that the consequence that follows, therefore, follows not from sub-section (6) of Section 34 but from sub- section (3) thereof, under which, such application cannot be considered if it is beyond the stipulated period and/or extended period mentioned in Section 34(3). He relied upon the Law Commission Report which led to the 2015 amendment, as well as the mandatory nature of the language 4 of Section 34(5). Also, according to the learned Senior Advocate, the vast majority of High Courts have decided in favour of the provision being construed as mandatory, the only discordant note being struck by the Bombay High Court. 7. Section 34(5) and (6) are set out hereunder as follows:

xxx xxx xxx (5) An application under this section 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. (6) 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.” 8. There is no doubt whatsoever that the language of Section 34 does lend itself in support of the argument of Shri Tripathi, as the expressions used are “shall”, “only after” and “prior notice” coupled with such application which again “shall” be accompanied by an affidavit endorsing compliance. th 9. The 246 Law Commission Report, which introduced the aforesaid provision, also makes interesting reading, which is set out hereinbelow: “3. The Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the 5 UNCITRAL Conciliation Rules, 1980. The Act has now been in force for almost two decades, and in this period of time, although arbitration has fast emerged as a frequently chosen alternative to litigation, it has come to be afflicted with various problems including those of high costs and delays, making it no better than either the earlier regime which it was intended to replace; or to litigation, to which it intends to provide an alternative. Delays are inherent in the arbitration process, and costs of arbitration can be tremendous. Even though courts play a pivotal role in giving finality to certain issues which arise before, after and even during an arbitration, there exists a serious threat of arbitration related litigation getting caught up in the huge list of pending cases before the courts. After the award, a challenge under section 34 makes the award inexecutable and such petitions remain pending for several years. The object of quick alternative disputes resolution frequently stands frustrated. 4. There is, therefore, an urgent need to revise certain provisions of the Act to deal with these problems that frequently arise in the arbitral process. The purpose of this Chapter is to lay down the foundation for the changes suggested in the report of the Commission. The suggested amendments address a variety of issues that plague the present regime of arbitration in India and, therefore, before setting out the amendments, it would be useful to identify the problems that the suggested amendments are intended to remedy and the context in which the said problems arise and hence the context in which their solutions must be seen. xxx xxx xxx 25. Similarly, the Commission has found that challenges to arbitration awards under sections 34 and 48 are similarly kept pending for many years. In this context, the Commission proposes the addition of sections 34(5) and 48(4) which would require that an application under those sections shall be disposed of expeditiously and in any event within a period of one year from the date of service of notice. In the case of applications under section 48 of the Act, the Commission has further provided a time limit under section 48(3), which mirrors the time limits set out in section 34(3), and is aimed at ensuring that parties take 6 their remedies under this section seriously and approach a judicial forum expeditiously, and not by way of an afterthought …………” 10. There is no doubt that the object of Section 34(5) and (6) is, as has been stated by the Law Commission, the requirement that an application under Section 34 be disposed of expeditiously within a period of one year from the date of service of notice. We have to examine as to whether this, by itself, is sufficient to construe Section 34(5) as mandatory, keeping in view the fact that if the time limit of one year is not adhered to under Section 34(6), no consequence thereof is provided. 11. Some of the judgments of this Court throw considerable light on similar provisions being construed as being only directory in nature. Thus, in Topline Shoes v. Corporation Bank , (2002) 6 SCC 33, Section 13(2)(a) of the Consumer Protection Act, 1986, spoke of a reply being filed by the opposite party “within a period of 30 days or such extended period not exceeding 15 days, as may be granted by the District Forum”. This Court referred to the Statement of Objects and Reasons of the Consumer Protection Act, 1986, which is similar to the object sought to be achieved by the amendment made in Section 34(5) and (6) of the Arbitration and Conciliation Act, 1996, as follows: “ 8. The Statement of Objects and Reasons of the Consumer Protection Act, 1986 indicates that it has been enacted to promote and protect the rights and interests of consumers and to provide them speedy and simple 7

8 such cases keeping in mind the principles of natural justice as well. The Forum may refuse to extend time beyond 15 days, in view of Section 13(2)( a ) of the Act but exceeding the period of 15 days of extension, would not cause any fatal illegality in the order.” The Court further held:

12. In Kailash (supra), this Court was faced with the question whether, after the amendment of Order VIII Rule 1 of the CPC by the Amendment Act of 2002, the said provision must be construed as being mandatory. The provision is set out in paragraph 26 of the judgment as follows:

9 Provided that where the defendant fails to file the written statement within the said period of thirty days, he shall be allowed to file the same on such other day, as may be specified by the court, for reasons to be recorded in writing, but which shall not be later than ninety days from the date of service of summons.” In an instructive judgment, this Court held:

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11 court to extend time for filing the written statement beyond the time schedule provided by Order 8 Rule 1 CPC is not completely taken away. xxx xxx xxx” 13. To similar effect are the observations of this Court in Salem Advocate Bar Association v. Union of India, (2005) 6 SCC 344 at paragraph 20, which is reproduced hereinbelow:

14. However, a discordant note was struck by a Judgment dated 04.12.2015, reported in New India Assurance Co. Ltd. v. Hilli Multipurpose Cold Storage Pvt. Ltd. , (2015) 16 SCC 20. A Bench of three learned Judges resurrected the judgment of J.J. Merchant (Dr.) v. Shrinath Chaturvedi , (2002) 6 SCC 635. J.J. Merchant (supra) was distinguished in Kailash (supra) as follows: 12

Despite this observation, New India Assurance Co. Ltd. (supra) went on to follow the judgment in J.J. Merchant (supra), and stated:

15. J.J. Merchant (supra) arose out of a miscellaneous petition which was filed before the National Consumer Disputes Redressal Commission, praying that the complaint filed for alleged medical 13 negligence be decided by the Civil Court, as complicated questions of law arise. A criminal prosecution against the said doctors was also pending. In paragraph 4 of the judgment, the Court stated that some guidelines need to be laid down with regard to the type of cases which the Consumer Forum will not entertain. After noticing that there was an inordinate delay of almost nine years in disposal of the complaint, this Court felt that such delay would not be a ground for rejecting the complaint and for directing the complainant to approach the Civil Court. In answering the contention that complicated questions of fact cannot be decided in summary proceedings, this Court held that speedy trial does not mean that justice cannot be done when questions of fact are to be dealt with and decided. It was in this context of speedy trial that the Court made an observation about the legislative mandate of not granting more than 45 days in submitting the written statement. In fact, the Court was alive to the fact that there was no time frame under the unamended Consumer Protection Act, 1986 for disposing of complaints, appeals and revisions. This Court, therefore, stated: “ 23. For reducing the arrears and for seeing that complaints, appeals and revisions are decided speedily and within the stipulated time, we hope that the President of the National Commission would draw the attention of the Government for taking appropriate actions within the stipulated time and see that the object and purpose of the Act is not frustrated. xxx xxx xxx 14

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The Court was, therefore, alive to the fact that no consequence is prescribed for non-adherence to the time limit of three months. In the result, the case was disposed of with certain directions for avoiding delay in disposal of proceedings under the Consumer Protection Act, 1986. 16. It will thus be seen that there was no focused argument in J.J. Merchant (supra) on whether the provisions of Section 13(2)(a) of the Consumer Protection Act, 1986 could be held to be directory in as much as no consequence was provided for a written statement being filed beyond 45 days. In point of fact, this Court’s judgment in Topline Shoes (supra) was not even cited before the Bench hearing J.J. Merchant (supra). 17. In this view of the matter, it is a little difficult to appreciate how the three-Judge Bench in Kailash (supra) ought to have respected an obiter dictum view of Order VIII Rule 1, CPC in J.J. Merchant (supra). Unfortunately, what was missed in New India Assurance Co. Ltd. (supra) is paragraph 38 of Kailash (supra) which has been extracted hereinabove. The fact that Topline Shoes (supra) was not cited before 16 the three-Judge Bench in J.J. Merchant (supra), as has been held in

vulnerable on Section 13(2)(a) of the Consumer Protection Act, 1986 being held to be mandatory. An earlier judgment cannot be overruled sub silentio without upsetting the reasons on which it is based. J.J. Merchant (supra) does not deal with Topline Shoes’ (supra) ratio – namely, that no penal consequence was provided in case the extended time of 15 days was exceeded; that therefore, no substantive right accrued in favour of the claimant; and that the Statement of Objects and Reasons of the Act also provided that the principles of natural justice be kept in mind. The judgment in New India Assurance Co. Ltd. (supra) did not refer to paragraph 38 of Kailash (supra) or appreciate that J.J. Merchant (supra) was distinguished correctly on the ground that Order VIII Rule 1, CPC did not directly arise for consideration in J.J. Merchant (supra). The observations on Order VIII Rule 1, CPC in paragraphs 14 and 15 of J.J. Merchant (supra) were correctly held to be in the nature

Kailash (supra). Insofar as Kailash (supra) is concerned, it is a binding judgment on the effect of Order VIII Rule 1, CPC, whose reasoning has been confirmed by a three-Judge Bench in Salem Bar Association (supra). 18. In State v. N.S. Gnaneswaran , (2013) 3 SCC 594, this Court was 17 concerned with whether Section 154(2) of the Code of Criminal Procedure, 1973 was mandatory or directory. The said Section reads as follows:

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Despite the mandatory nature of the language used in the provision, no consequence was provided if the Section was breached. This Court referred to a number of judgments which laid down tests for determining whether a provision is mandatory or directory, and then held that Section 154(2) was directory. 19. However, Shri Tripathi has relied strongly upon the judgment of Bikhraj Jaipuria v. Union of India , (1962) 2 SCR 880. In that case, this Court held that the provision contained in Section 175(3) of the Government of India Act, 1935, which requires that contracts on behalf of the Government of India shall be executed in the form prescribed, was mandatory in nature, despite the fact that the Section did not set out any consequence for non-compliance. This Court referred to an instructive th passage in Maxwell on Interpretation of Statutes , 10 Edn, p. 376, as 18 follows:

It then went on to hold that the provision was in the interest of the general public because the question whether a binding contract has been made between the State and the private individual should not be left open to dispute and litigation. We must not forget that, as has been laid down in Maxwell (supra), considerations of convenience and justice are uppermost, and if general inconvenience or injustice results, without promoting the real aim and object of the enactment, the provision must be declared to be directory. 20. It will thus be seen that Section 34(5) does not deal with the power of the Court to condone the non-compliance thereof. It is imperative to note that the provision is procedural, the object behind which is to dispose of applications under Section 34 expeditiously. One must 1 Bikhraj Jaipuria v . Union of India , (1962) 2 SCR 880, para 16. 19 remember the wise observation contained in Kailash (supra), where the object of such a provision is only to expedite the hearing and not to scuttle the same. All rules of procedure are the handmaids of justice and if, in advancing the cause of justice, it is made clear that such provision should be construed as directory, then so be it. 21. Take the case of Section 80 of the CPC. Under the said provision, the Privy Council and then our Court have consistently taken the view that a suit against the Government cannot be validly instituted until after the expiration of two months after the notice in writing has been delivered to the parties concerned in the manner prescribed by the said Section. If such suit is filed either without such notice or before the said two months’ period is over, such suit has to be dismissed as not maintainable. The reason for this is felicitously set out in Bihari Chowdhary and Anr. v. State of Bihar and Ors. , (1984) 2 SCC 627, as follows:

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22. Section 80, though a procedural provision, has been held to be mandatory as it is conceived in public interest, the public purpose underlying it being the advancement of justice by giving the Government the opportunity to scrutinize and take immediate action to settle a just claim without driving the person who has issued a notice having to institute a suit involving considerable expenditure and delay. This is to be contrasted with Section 34(5), also a procedural provision, the infraction of which leads to no consequence. 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. 23. However, according to Shri Tripathi, an application filed under 21 Section 34 is a condition precedent, and if no prior notice is issued to the other party, without being accompanied by an affidavit by the applicant endorsing compliance with the said requirement, such application, being a non-starter, would have to be dismissed at the end of the 120 days’ period mentioned in Section 34(3). Apart from what has been stated by us hereinabove, even otherwise, on a plain reading of Section 34, this does not follow. Section 34(1) reads as under:

What is conspicuous by its absence is any reference to sub-section (5). The only requirement in Section 34(1) is that an 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, sub- section (5) is not a condition precedent, but a procedural provision which seeks to reduce the delay in deciding applications under Section 34. One other interesting thing needs to the noted – the same Amendment Act brought in a new Section 29A. This provision states as follows: “ 29A. Time limit for arbitral award .— (1) The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference. Explanation .— For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in 22

24. It will be seen from this provision that, unlike Section 34(5) and (6), if an Award is made beyond the stipulated or extended period contained in the Section, the consequence of the mandate of the Arbitrator being terminated is expressly provided. This provision is in stark contrast to Section 34(5) and (6) where, as has been stated hereinabove, if the period for deciding the application under Section 34 has elapsed, no consequence is provided. This is one more indicator that the same Amendment Act, when it provided time periods in different situations, did so intending different consequences. 25. Shri Tripathi then argued that Section 34(5) is independent of Section 34(6) and is a mandatory requirement of law by itself. There are 23 two answers to this. The first is that sub-section (6) refers to the date on which the notice referred to in sub-section (5) is served upon the other party. This is for the reason that an anterior date to that of filing the application is to be the starting point of the period of one year referred to in Section 34(6). The express language of Section 34(6), therefore, militates against this submission of Shri Tripathi. Secondly, even if sub- section (5) be construed to be a provision independent of sub-section (6), the same consequence in law is the result – namely, that there is no consequence provided if such prior notice is not issued. This submission must therefore fail. 26. We come now to some of the High Court judgments. The High 2 3 4 5 6 Courts of Patna, Kerala, Himachal Pradesh, Delhi, and Gauhati have all taken the view that Section 34(5) is mandatory in nature. What is strongly relied upon is the object sought to be achieved by the provision together with the mandatory nature of the language used in Section 34(5). Equally, analogies with Section 80, CPC have been drawn to reach the same result. On the 2 Bihar Rajya Bhumi Vikas Bank Samiti v . State of Bihar and Ors ., L.P.A. No. 1841 of 2016 in C.W.J.C. No. 746 of 2016 [decided on 28.10.2016]. 3 Shamsudeen v . Shreeram Transport Finance Co. Ltd., Arb. A. No. 49 of 2016 [decided on 16.02.2017]. 4 Madhava Hytech Engineers Pvt. Ltd. v . The Executive Engineers and Ors. , O.M.P. (M) No. 48 of 2016 [decided on 24.08.2017]. 5 Machine Tool (India) Ltd. v . Splendor Buildwell Pvt. Ltd. and Ors., O.M.P. (COMM.) 199- 200 of 2018 [decided on 29.05.2018]. 6 Union of India and Ors. v . Durga Krishna Store Pvt. Ltd ., Arb. A. 1 of 2018 [decided on 31.05.2018]. 24 other hand, in Global Aviation Services Private Limited v. Airport 7 Authorities of India , the Bombay High Court, in answering question 4 posed by it, held, following some of our judgments, that the provision is directory, largely because no consequence has been provided for breach of the time limit specified. When faced with the argument that the object of the provision would be rendered otiose if it were to be construed as directory, the learned Single Judge of the Bombay High Court held as under:

The aforesaid judgment has been followed by recent judgments of the 8 9 High Courts of Bombay and Calcutta. 7 Commercial Arbitration Petition No. 434 of 2017 [decided on 21.02.2018]. 8 Maharashtra State Road Development Corporation Ltd. v. Simplex Gayatri Consortium and Ors ., Commercial Arbitration Petition No. 453 of 2017 [decided on 19.04.2018]. 9 Srei Infrastructure Finance Limited v . Candor Gurgaon Two Developers and Projects Pvt. Ltd ., A.P. No. 346 of 2018 [decided on 12.07.2018]. 25 27. We are of the opinion that the view propounded by the High Courts of Bombay and Calcutta represents the correct state of the law. However, we may add that it shall be the endeavour 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 endeavour 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. This will give effect to the object sought to be achieved by adding Section 13(6) by the 2015 Amendment Act. 28. We may also add that in cases covered by Section 10 read with Section 14 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, the Commercial Appellate Division shall endeavour to dispose of appeals filed before it within six months, as stipulated. Appeals which are not so covered will also be disposed of as expeditiously as possible, preferably within one year from the date on which the appeal is filed. As the present appeal has succeeded on Section 34(5) being held to be directory, we have not found it necessary to decide Shri Rai’s alternative plea of maintainability 26 of the Letters Patent Appeal before the Division Bench. 29. As a result, the appeal is allowed and the judgment of the Patna High Court is set aside. The Section 34 petition that has been filed in the present case will now be disposed of on its merits. ………..……………… J. (R. F. Nariman) …..…………………… J. (Indu Malhotra) New Delhi. July 30, 2018. 27 ITEM No. 1501         Court No. 9             SECTION  XVI                  S U P R E M E   C O U R T   O F   I N D I A                          RECORD OF PROCEEDINGS                 CIVIL APPEAL  No.  7314  of 2018            (Arising out of SLP (Civil) No. 4475 of  2017) THE STATE OF BIHAR AND ORS.               Appellant(s)                                 VERSUS BIHAR RAJYA BHUMI VIKAS BANK SAMITI       Respondent(s) JHARKHAND   Date : 30.07.2018   This matter  was called on for pronouncement of judgment today. For Appellant(s) Mr. N.Rai, Sr. Adv. Mr. Gopal Singh , Adv. Mr. Manish Kumar, Adv. Mr. Shivam Singh, Adv. Mr. Aditya Raina, Adv. Mr. Shreyas Jain, Adv. Ms. Aprajita Sud, Adv. Mr. Kumar Milind, Adv.                          For Respondent(s) Mr. Jayant Kumar Mehta, Adv.          Hon'ble   Mr.   Justice   Rohinton   Fali   Nariman pronounced the judgment of the Bench comprising His Lordship and Hon'ble Ms. Justice Indu Malhotra. Leave granted  The   appeal   is   allowed   in   terms   of   the   signed reportable judgment. Pending applications, if any, shall stand disposed of.