Formal Notice Of Arbitral Award Not Always Needed To Start Limitation For Challenge: Bombay HIgh Court

The Bombay High Court has reiterated that the limitation for challenging an arbitral award under the Arbitration Act, 1940, need not remain paused until formal court notice is issued if the party is otherwise aware of the award.

Relying on apex court rulings, the court ruled,

“The precise form of what constitutes as a 'notice' of filing the Award is unspecified. However, interpreted reasonably, what must be required is that the parties come to know about the existence of the Award so that any objections to it may be filed. What appears from the usage of the word 'notice' is that the parties merely reach a state of awareness about the Award and plan their next steps accordingly, and not the imposition of another procedural step. If the literal interpretation is taken and limitation is paused until a formal notice is issued by the Court, it would allow a party otherwise aware of the Award to sit over the Award and delay filing objections. This would undercut the speedy intent governing arbitration," the court ruled.

Justice Arun R. Pednekar was dealing with a challenge by the Municipal Corporation of Greater Bombay to an arbitral award dated March 28, 1996. The award arose from a March 1991 work order for road construction at Wadala-Ghatkopar Road.

The original contract was worth ₹1.87 crore. The amount was later revised to ₹4 crore, while the completion period was increased from 18 months to 24 months, excluding the monsoon period.

The contractor raised four claims totalling ₹65.84 lakh. The arbitrator awarded ₹88.76 lakh, including amounts towards the claims, past interest, interest during the proceedings, and arbitration costs.

The corporation challenged the award on June 8, 1998, after a delay of 802 days. It contended that it had not received notice from the court regarding the filing of the award.

The contractor pointed out that the arbitrator had informed both parties that the award had been published. The award also recorded the parties' consent to extend the time for signing and publication until April 5, 1996.

The court considered earlier Supreme Court decisions that had held that notice of filing of the award by the court was necessary for limitation to begin. It also considered the later Supreme Court decision in Krishna Devi alias Sabitri Devi (Rani).

In Krishna Devi, the Supreme Court held that the purpose of notice is to ensure that parties become aware of the award so that they can file objections. The court noted that the law does not prescribe a particular form of notice.

The Bombay High Court observed that waiting for formal notice despite awareness of the award could allow a party to delay filing objections.

It held that this would be inconsistent with the speedy resolution intended in arbitration.

The court found that the corporation was aware of the award. It also noted that the corporation had not clearly stated when it became aware of it. The notice issued by the Prothonotary and Senior Master indicated that it had been sent to both parties.

The court therefore held that the challenge was barred by limitation. It noted that the applicable limitation period was 30 days from the relevant notice under the 1940 Act.

The court nevertheless examined the corporation's objections to the award for completeness.

On the first claim, the court found that the arbitrator had relied on the measurement book, joint measurements and the rates agreed between the parties. The arbitrator had awarded ₹15.73 lakh for work completed but unpaid, along with ₹4.30 lakh towards overtime.

The court held that the corporation's challenge essentially sought a reappreciation of the evidence. It found no ground to interfere with the arbitrator's findings.

On the second claim, the contractor had sought compensation for increases in material, labour and machinery costs, along with overheads and profit. The contract provided for 25% towards overheads and profit for additional work where the original contract exceeded ₹1 crore.

The arbitrator awarded 22.5% towards overheads and profit and 2.5% towards machinery and equipment for the balance work. The court found no ground to interfere with the award on this claim.

The court also considered the award of interest at 18%. It noted that the arbitrator had before him evidence that the contractor had paid bank interest at 25%, while the corporation itself had claimed 25% interest on its counterclaim.

The court rejected reliance on Hyder Consulting because that decision concerned the Arbitration and Conciliation Act, 1996, whereas the present dispute was governed by the 1940 Act.

It observed that under the 1940 Act, courts ordinarily could not grant interest on interest without statutory or contractual authority. The court accepted the corporation's objection that the award granted interest on interest in relation to the first claim.

However, since the challenge itself was barred by limitation, the court did not interfere with the award on that ground.

The court dismissed the challenge to the award. It also rejected the request for a stay, noting the substantial delay in bringing the challenge.

For Petitioner (The Municipal Corporation of Greater Bombay): Advocates Ms. Madhavi Nallure, Ms. Pooja Yadav and Mr. Sunil Khandagle, i/b Ms. Komal Punjabi.

For Respondent (Atul Raj Builders Pvt. Ltd.): Senior Advocate Mr. Mukesh Vashi with Ms. Aparna Devkar, i/b M. P. Vashi & Associates.