Saturday 23 July 2022

Can the court permit amendment to application U/S 34 of Arbitration Act if it constitutes a fresh challenge?

 At the outset it is necessary to bear in mind that by way of the proposed amendment the grounds which are now being sought to be inserted have absolutely no foundation in the petitioner’s application preferred under Section 34 of the Arbitration Act. As has been rightly noticed by the learned District Judge at no point of time any objection about neutrality of the Arbitrator was raised by resorting to Section 12, 13 or 15 of the Arbitration Act. This needs to be emphasized for the sole reason to ascertain as to if, the proposed amendment merely intends to add some facts to the pending challenge to the award or is it that it is intended to put forth absolutely new challenge. {Para 8}

9. In the matter of Hindustan Construction Ltd (supra) it has been

held that in an appropriate case amendment of an application under

Section 34 can be allowed even beyond the period provided that is three months under sub Section 3 of Section 34 and a further period of one month as provided under the proviso to that subsection. However, it has also been made clear that such amendment cannot be allowed if it constitutes a fresh challenge. 

Understood in the light of the above observations it is abundantly clear that under the garb of amendment of the application preferred under Section 34, absolutely new grounds to challenge the award are being sought to be incorporated without there being any foundation, beyond the statutory period prescribed under Section 34(3) of the Arbitration Act. This certainly cannot be permitted to happen.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

BENCH AT AURANGABAD

WRIT PETITION NO. 6501 OF 2022

Friends & Friends Shipping Private Limited Vs Central Warehousing Corporation

CORAM : MANGESH S. PATIL, J.

PRONOUNCED ON :12.07.2022


Heard. Rule. The Rule is made returnable forthwith. With the

consent of both the sides, the matter is heard finally at the stage of

admission.

2. The petitioner which has suffered an arbitration award has

challenged it under Section 34 of the Arbitration and Conciliation Act,

1996 (hereinafter, ‘the Arbitration Act’) before the District Court. He is

aggrieved by the common order passed on his applications (Exhibits 14

and 15) whereby it had prayed for amendment of the application

preferred under Section 34 and also had prayed for stay to the execution

of the award.

3. Learned advocate Mr. Totala would submit that the award was

passed on 31.03.2018. It has been challenged by the petitioner under

Section 34 of the Arbitration Act. The respondent was prosecuting

execution of the award which it had filed during the Covid period. No

effective hearing in the execution was taking place. While preparing for

the submissions on the said application it was realized that some

important legal points to challenge the award were not taken and the

petitioner is seeking amendment of the application under Section 34.

Mr. Totala would submit that an additional ground raising objection

regarding neutrality of the arbitrator in the light of the provision of

Section 12(5) which was inserted by way of amendment in the year

2015 with effect from 23.10.2015, was sought to be raised. By referring

to the decision in the matter of Ellora Paper Mills Limited Vs. State of

Madhya Pradesh; (2022) 3 Supreme Court Cases 1, he would submit

that even in pending arbitration proceeding, the provision has been

applied and it is not merely a prospective one. He would further submit

that an additional ground to demonstrate fraud was also sought to be

inserted. Both these grounds go to the root of the legality of the award

and the District Court should have allowed such amendment to be

carried out.

4. Mr. Totala would refer to following decisions as well :

(i) PSA SICAL Terminals Pvt. Ltd. Vs. Board of

Trustees of V.O. Chidambranar Port Trust Tuticorin and

others; A.I.R. 2021 Supreme Court 4661.

(ii) Bharat Broadband Network Limited Vs. United

Telecoms Ltd.; (2019) 5 Supreme Court Cases 755.

(iii) Perkins Eastman Architects DPC and Another

Vs. HSCC (India) Ltd.; (2020) 20 SCC 760.

(iv) Bharat Heavy Electricals Ltd. Vs. Sudhir Cranes

Pvt. Ltd. in C.R.P.(PD) No. 3790 of 2019 decided on

04.01.2022 by the Madras High Court.

(v) TRF Limited Vs. Energo Engineering Projects

Limited; (2017) 8 Supreme Court Cases 377.

(vi) State of Maharashtra Vs. Hindustan

Construction Company Limited; (2010) 4 Supreme

Court Cases, 518.

(vii) State of Chattisgarh & Anr. Vs. M/s. Sal Udyog

Private Limited; (2022) 2 SCC 275.

5. Learned advocate Mr. Totala also submitted that since admittedly

there was a proceeding challenging the award under Section 34 which

was pending before the District Court, even the District Court ought to

have allowed the application for stay which was preferred under Section

36 (2) and (3) of the Arbitration Act.

6. Mr. Uttarwar learned advocate for the respondent would support

the order of the District Judge. He would submit that absolutely new

grounds to challenge the award in a pending proceeding under Section

34 of the Arbitration Act were being sought to be inserted by way of the

proposed amendment. He would submit that it is during execution, even

according to the petitioner, that it realized absence of such grounds

which clearly demonstrates that under the garb of the proposed

amendment absolutely new grounds having no foundation in the

application under Section 34 are now being sought to be inserted. This

cannot be permitted to happen. He would submit that the decisions

cited on behalf of the petitioner are not applicable to the fact situation of

the matter in hand. There is no illegality in the order and the petition be

dismissed.

7. I have carefully considered the rival submissions and perused the

decisions cited at the bar and the papers.

8. At the outset it is necessary to bear in mind that by way of the

proposed amendment the grounds which are now being sought to be

inserted have absolutely no foundation in the petitioner’s application

preferred under Section 34 of the Arbitration Act. As has been rightly

noticed by the learned District Judge at no point of time any objection

about neutrality of the Arbitrator was raised by resorting to Section 12,

13 or 15 of the Arbitration Act. This needs to be emphasized for the sole

reason to ascertain as to if, the proposed amendment merely intends to

add some facts to the pending challenge to the award or is it that it is

intended to put forth absolutely new challenge.

9. In the matter of Hindustan Construction Ltd (supra) it has been

held that in an appropriate case amendment of an application under

Section 34 can be allowed even beyond the period provided that is three

months under sub Section 3 of Section 34 and a further period of one

month as provided under the proviso to that subsection. However, it has

also been made clear that such amendment cannot be allowed if it

constitutes a fresh challenge. While interpreting the ratio in the matter

of Hindustan Construction Ltd (supra) it has been observed in the matter

of M/s. Sal Udyog Private Limited (supra) as under :

“24. Reliance placed by learned counsel for the respondent-

Company on the ruling in the case of Hindustan Construction

Company Limited (Supra) is found to be misplaced. In the

aforesaid case, the Court was required to examine whether in

an appeal preferred under Section 37 of the 1996 Act against

an order refusing to set aside an Award, permission could be

granted to amend the Memo of Appeal to raise

additional/new grounds. Answering the said question, it was

held that though an application for setting aside the Arbitral

Award under Section 34 of the 1996 Act had to be moved

within the time prescribed in the Statute, it cannot be held

that incorporation of additional grounds by way of

amendment in the Section 34 petition would amount to filing

a fresh application in all situations and circumstances, thereby

barring any amendment, however material or relevant it may

be for the consideration of a Court, after expiry of the

prescribed period of limitation. In fact, laying emphasis on the

very expression “the Courts find that” applied in Section

34(2)(b) of the 1996 Act, it has been held that the said

provision empowers the Court to grant leave to amend the

Section 34 application if the circumstances of the case so

warrant and it is required in the interest of justice. This is

what has been observed in the preceding paragraph with

reference to Section 34 (2A) of the 1996 Act.

25. To sum up, existence of Clause 6(b) in the Agreement

governing the parties, has not been disputed, nor has the

application of Circular dated 27th July, 1987 issued by the

Government of Madhya Pradesh regarding imposition of 10%

supervision charges and adding the same to cost of the Sal

seeds, after deducting the actual expenditure been questioned

by the respondent-Company. We are, therefore, of the view

that failure on the part of the learned Sole Arbitrator to

decide in accordance with the terms of the contract governing

the parties, would certainly attract the “patent illegality

ground”, as the said oversight amounts to gross contravention

of Section 28(3) of the 1996 Act, that enjoins the Arbitral

Tribunal to take into account the terms of the contract while

making an Award. The said ‘patent illegality’ is not only

apparent on the face of the Award, it goes to the very root of

the matter and deserves interference. Accordingly, the present

appeal is partly allowed and the impugned Award, insofar as

it has permitted deduction of ‘supervision charges’ recovered

from the respondent-Company by the appellant-State as a

part of the expenditure incurred by it while calculating the

price of the Sal seeds, is quashed and set aside, being in direct

conflict with the terms of the contract governing the parties

and the relevant Circular. The impugned judgment dated 21st

October, 2009 is modified to the aforesaid extent.”

Understood in the light of the above observations it is abundantly clear

that under the garb of amendment of the application preferred under

Section 34, absolutely new grounds to challenge the award are being

sought to be incorporated without there being any foundation, beyond

the statutory period prescribed under Section 34(3) of the Arbitration

Act. This certainly cannot be permitted to happen.

10. True it is that in the matter of Ellora Paper Mills Limited (supra),

the Section 12(5) which is inserted in the year 2015 has been held to

govern a pending arbitration proceeding. However, it is to be borne in

mind that it was a proceeding which was initiated under Sections 11, 14

and 15 and although the Arbitral Tribunal was constituted many years

ago it had never commenced its proceeding. This is not the fact situation

in the matter in hand. In this matter, without raising any objection at

any earlier point of time on account of neutrality of the arbitrator by

resorting to Sections 12, 13 and 14, an award has been passed and even

it has been put to execution. Therefore, the petitioner is not entitled to

derive any benefit from the decision in the matter of Ellora Paper Mills

Limited (supra) as well.

11. Same is the case with another clause sought to be inserted by the

proposed amendment to make out an additional ground of fraud. Again,

even the fact sought to be inserted do not have any foundation and was

never raised till the award was passed. Even this ground has been

sought to be added beyond the period of limitation prescribed by Section

34(3).

12. The observations and the conclusions of the learned District Judge

in the impugned order refusing the proposed amendment are clearly

unassailable. The award in the matter was passed way back on

31.03.2018. Though the proceeding to challenge it was initiated on

26.06.2018, simultaneously, the execution was filed. At no point of time

an attempt was made to raise the additional grounds immediately after

the application under Section 34 was filed. The application seeking

amendment was filed in November 2021, after a lapse of two and half

years of preferring a proceeding under Section 34 and when the

petitioner was served with a notice in the execution. I find no illegality

in the order passed by the learned District Judge.

13. However, the learned District Judge has refused to decide the

application (Exh. 15) preferred under Section 36(2) and (3) under an

erroneous belief that by way of such application the interim relief/stay

has been sought only till the decision on the application (Exhibit 14)

whereby the petitioner had prayed for amendment of the application,

when the prayer in the application (Exh. 15) clearly shows that the

petitioner was seeking stay to the execution of the award till decision of

the arbitration application. Therefore, the learned District Judge has

clearly erred in refusing to decide the application for stay (Exhibit 15) on

its own merits. It would, therefore, be appropriate that the District Judge

is now directed to decide the application (Exhibit 15) on its own merits

by hearing the parties.

14. The Writ Petition is partly allowed.

15. The Writ Petition to the extent of putting up a challenge to the

order rejecting application (Exh. 14) is dismissed.

16. The order passed by the District Judge to the extent of rejection of

application for stay (Exh. 15) is quashed and set aside, to that extent the

matter is remitted back to the District Judge who shall now decide the

application for stay (Exh. 15) on its own merits after hearing the parties

as early as possible.

17. The Rule is made absolute in above terms.

(MANGESH S. PATIL, J.)


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