The 246th report of the Law Commission of India, dealing with delay in arbitration, recommended numerous changes to the Arbitration and Conciliation Act, 1996. One cause of delay was that “challenges to arbitration awards … are kept pending for many years.” Following the recommendations, section 34 of the act was amended, introducing two preconditions. Firstly, notice to the other party must precede a challenge to an award; secondly, the applicant must file an affidavit deposing that such notice was served on the opposition. The court is required to dispose of the challenge “expeditiously and in any event within … one year from the date on which the notice” was served.
Inevitably, a measure designed to make arbitration more efficient has led to litigation! Patna High Court, considering the object of the amendment, namely speedy disposal, and the mandatory language of the amendment held that, absent notice, the challenge to the award must fail. The high courts of Himachal Pradesh, Delhi and Gauhati concurred. The Bombay High Court, on the contrary, held that the prescription was only directory. The Kolkata High Court agreed.
The opposing decisions were considered by the Supreme Court in the case of State of Bihar v Bihar Rajya Bhumi Vikas Bank Samiti (2018). The Supreme Court upheld the view of the Mumbai and of the Kolkata high courts.
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Karthik Somasundram is a partner and Shreya Gupta is a senior associate at Bharucha & Partners.
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