Monday, May 17, 2010

Guest Post: Permissibility of amendments to applications under S. 34 of the Arbitration and Conciliation Act - Supreme Court disagrees with the AP High Court's position in Satyam v Venture

I had discussed in an earlier post the decision of the Andhra Pradesh High Court in the Satyam Venture dispute that no application under Section 34 can be amended after the limitation period for filing such application has passed. I had argued that this amounted to judicial law making and had no statutory basis. Badri Srinivasan, a reader of our blog brought to our attention a recent judgment of the Honourable Supreme Court on the same point that takes a stand diametrically opposite to the position advocated by the AP High Court. In the following paragraphs, Badri provides a summary of the decision and highlights the portions relevant to the question of whether an application under Section 34 can be amended after the limitation period to file the application has passed. This decision is of interest especially given that the Satyam venture dispute is soon making its second trip to the Apex Court.

Badri is an alumnus of NUJS and currently works for a corporation. He writes on a wide range of topics on the Practical Academic blog.

Here goes Badri's post:

RV Raveendran & RM Lodha, JJ.
Civil Appeal No. 2928/ 2010 (Out of SLP (C) No. 3937/ 2009)

The State of Maharashtra (SOM) and Hindustan Construction Company (HCC) entered into an agreement in 1992 for construction by HCC of some civil works. Certain disputes arose between the parties, which were referred to an arbitral tribunal. The arbitral tribunal rendered the award in 2003. SOM applied to the court to set aside the award. The District Court rejected SOM’s application. An appeal was filed before the High Court of Bombay on 6th February 2007. More than a year after the filing of the appeal, on 23rd June 2008, SOM applied to the said court for allowing amendment of the memorandum appeal.

The court had to decide whether such an appeal adding additional grounds challenging the award is allowable notwithstanding the fact that S 34(3) allows a party to file an application for setting aside the arbitral award within a maximum period of three months plus 30 days.

A brief summary of the decision of the Supreme Court is given below|:

1.         Amendment of pleadings is a matter of procedure. Granting leave for amendment             is a matter of discretion of the court, to be exercised based on settled principles.
2.         Amendments which evade the laws of limitation shall not, as a rule, be allowed.    However, even such amendments may be allowed in the interests of justice
4.         The above stated principles would apply even in case of memoranda of appeal.
5.         The period allowed for filing petition under S 34 is prescribed by S 34(3) and is     not extendable.

6.         However, amendments to file additional grounds may not always amount to filing             fresh application. If that is so, no material or relevant ground for setting aside             award may be added.
7.         Under S 34(2)(b), if the court finds that the award deals with a dispute that           is not arbitrable or if the award is against public policy. The wordings of S     34(2)(b) allow the court to grant leave for such amendments even after the period   prescribed in S 34(3).
8.         Every amendment in an application for setting aside an arbitral award cannot be    taken as a fresh application.

The court, unlike the AP HC in Satyam v. Venture Engineering seems to allow amendments adding additional grounds to an application for setting aside an arbitral award:
(a)        where justice demands it or
(b)        where such amendments do not amount to filing a fresh application.

[In Satyam v. Venture Engineering, the AP HC had made a blanket prohibition against amendments to S 34 petitions beyond period specified in S 34(3).]

Considering the structure of the Arbitration and Conciliation Act, 1996 and the liberal attitude of the courts in allowing amendments to pleadings, the court should sparingly and only when the situation absolutely demands it allow such amendments. It must also be noted that an award cannot be enforced if an application is filed for setting aside an award (S 36). Hence, a court should ideally decide a S 34 petition as soon as possible and should ensure there is no delay in finally deciding on the matter. The Court should have strictly gone by the well-established legal principle: What cannot be done directly cannot be indirectly. However, Instead the court seeks to employ a test that, I believe, is nebulous, and would result in courts allowing amendments akin to what was done with Order VI Rule 17. I would only quote the following portion of the Supreme Court’s decision in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors.:

31. In a recently published unique, unusual and extremely informative book "Justice, Courts and Delays", the author Arun Mohan, a Senior Advocate of the High Court of Delhi and of this Court, from his vast experience as a Civil Lawyer observed that 80% applications under Rule VI Order 17 are filed with the sole objective of delaying the proceedings, whereas 15% application are filed because of lackadaisical approach in the first instance, and 5% applications are those where there is actual need of amendment. His experience further revealed that out of these 100 applications, 95 applications are allowed and only 5 (even may be less) are rejected. According to him, a need for amendment of pleading should arise in a few cases, and if proper rules with regard to pleadings are put into place, it would be only in rare cases. Therefore, for allowing amendment, it is not just costs, but the delays caused thereby, benefit of such delays, the additional costs which had to be incurred by the victim of the amendment. The Court must scientifically evaluate the reasons, purpose and effect of the amendment and all these factors must be taken into consideration while awarding the costs.
According to the view of the learned author Arun Mohan as observed in his book, although the proviso has improved the position, the fact remains that amendments should be permissible, but only if a sufficient ground therefore is made out, and further, only on stringent terms. To that end, the rule needs to be further tightened”.

In fact, as the said judgement notes, in 1999 Order VI Rule 17 was proposed to be deleted in on recommendations by the Justice Malimath Committee. However, due to protests from the Bar, the said provision was left unamended except for a proviso, which read:

Provided that no application for amendment shall be allowed after the trial has commenced, unless the Court comes to the conclusion that is spite of due diligence, the party could not have raised the matter before the commencement of trial.”

On the other hand, taking an absolute view that no amendments should be permitted (as the AP HC did) may also lead to unwarranted results. For example, additional grounds that have been discovered post-expiry of limitation under S 34(3) have to be allowed. Hence, proper balancing needs to be done. It would have been better if the court had more clearly defined the circumstances that might warrant allowing such amendments. The point is that when the court allows new grounds to be added "in the interests of justice".

As a general rule in case of adding additional grounds beyond the period specified in S 34(3) should be strictly dealt with. I only cite certain provisions to state that the Act does not give a second chance to do what one had not done in the first instance. For example, in case you contend in your S 34 petition that the arbitration agreement suffered some incapacity, you'll have to make objection to the tribunal first. If the tribunal rejects such contention, you may make it subsequently before the setting aside court. S 4 is another example. What these provisions tend to do is that it negates all "afterthought"-contentions and reduce the time for settlement of the dispute finally.

As far as amendments which are not in the nature of additional grounds, they may be less strictly viewed and the directions given in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors may strictly be followed, relevant portions of which are quoted herebelow:

65. The Courts have consistently laid down that for unnecessary delay and inconvenience, the opposite party must be compensated with costs… The costs cannot and should not be imposed arbitrarily. In our view, the following parameters must be taken into consideration while imposing the costs. These factors are illustrative in nature and not exhaustive.
(i) At what stage the amendment was sought?
(ii) While imposing the costs, it should be taken into consideration whether the amendment has been sought at a pre-trial or post-trial stage;
(iii)The financial benefit derived by one par- ty at the cost of other party should be properly calculated in terms of money and the costs be awarded accordingly.
(iv) The imposition of costs should not be symbolic but realistic;
(v) The delay and inconvenience caused to the opposite side must be clearly evaluated in terms of additional and extra court hearings compelling the opposite party to bear the extra costs.
(vi) In case of appeal to higher courts, the victim of amendment is compelled to bear considerable additional costs.
All these aspects must be carefully taken into consideration while awarding the costs.

66. The purpose of imposing costs is to:
a) Discourage malafide amendments designed to delay the legal proceedings;
b) Compensate the other party for the delay and the inconvenience caused;
c) Compensate the other party for avoid- able expenses on the litigation which had to be incurred by opposite party for opposing the amendment; and
d) To send a clear message that the par- ties have to be careful while drafting the original pleadings.
[S]ome basic principles emerge [] ought to be taken into consideration while allowing or rejecting the application for amendment.
(1) Whether the amendment sought is imperative for proper and effective adjudication of the case?
(2) Whether the application for amendment is bona fide or mala fide?
(3) The amendment should not cause such prejudice to the other side which cannot be compensated adequately in terms of money;
(4) Refusing amendment would in fact lead to injustice or lead to multi- ple litigation;
(5) Whether the proposed amendment constitutionally or fundamentally changes the nature and character of the case? and
(6) As a general rule, the court should decline amendments if a fresh suit on the amended claims would be barred by limitation on the date of application.

To paraphrase the caution which the Supreme Court in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors gave, the decision on an application made for amending a S 34 petition is a very serious judicial exercise and the said exercise should never be undertaken in a casual manner.

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