Source: Bombay High Court  

Why in News? 

The Bombay High Court ruled that service of a signed arbitration award on an unauthorized employee, such as a clerk, does not constitute valid service under Section 31(5) of the Arbitration and Conciliation Act, 1996. The judgment observed that each party to an arbitration agreement must receive a signed copy of the award for the limitation period under Section 34(3) to commence.  

• Justices A.S. Chandurkar and Rajesh S. Patil held in the matter of Health Care, Medical & General Stores v. Amulya Investment (2025) . 

What was the Background of Health Care, Medical & General Stores v. Amulya Investment? 

• Health Care, Medical & General Stores (Partnership Firm) and Amulya Investment (Proprietary Firm) had business dealings, governed by letters dated 15th January, 2016, and 7th February, 2016, containing an arbitration clause. 
• The Partnership Firm consisted of three partners: 
  • Sitaram Govind Narkar,  
  • Swapnil Vijay Shetye, and  
  • Dayanand Vidyadhar Shetye. 
• Disputes arose between the parties, leading Amulya Investment to invoke the arbitration clause and initiate proceedings before the Sole Arbitrator, Mr. Chirag J. Shah. 
• The Arbitrator passed an award on 1st July, 2017, granting various reliefs to Amulya Investment as the Claimant. 
• According to paragraph 51 of the award, the Arbitrator signed and issued two stamped original copies, one for each party, while retaining one copy. 
• The Partnership Firm and its partners claimed they were never served in the arbitration proceedings or with the award. 
• On 5th August, 2023, the counsel for the Partnership Firm requested certified copies of the proceedings from the Arbitrator. 
• The Arbitrator, in his reply dated 10 August 2023, informed that he had returned all papers to the Claimant and did not have custody of them10th August 2023, informed that he had returned all papers to the Claimant and did not have custody of the same. 
• Subsequently, the Partnership Firm filed an Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act) on 7th September 2023.

What were the Court’s Observations?

• The Court noted that Section 2(1)(h) of the A & C Act defines "party" as a person who is a party to an arbitration agreement, and this definition is not qualified to include agents or representatives. 
• The Court observed that Section 31(5) mandatorily requires delivery of a signed copy of the award to each party, making it impossible to satisfy this requirement with only two signed copies for five parties. 
• The Court found that acknowledgment by Mr. Botekar, an employee of the Partnership Firm, did not constitute valid service under Section 31(5) of the Act, as service on an employee holds a lower status than service on an agent. 
• The Court observed that the postal acknowledgment for the third appellant bore no signature whatsoever, clearly indicating absence of service. 
• The Court noted that the Single Judge had not adequately examined the aspect of non-compliance with Section 31(5) requirements. 
• The Court observed that treating only the Claimant and Partnership Firm as parties, while ignoring individual partners, violated the statutory requirement of serving each party. 
• The Court determined that the limitation period for challenging the award should commence from 10th August, 2023, when the Arbitrator denied issuing a copy of the award. 
• The Court observed that service of arbitral award is not a mere formality but a matter of substance affecting parties' rights and limitation periods. 

What is Section 31 of the Arbitration and Conciliation Act, 1996 ? 

• Form of Award: The award must be in written form and signed by the arbitral tribunal members. 
• Multiple Arbitrators: In cases with multiple arbitrators, majority signatures suffice if reasons for omitted signatures are stated. 
• Reasoned Award: The award must state the reasons on which it is based, unless:  
  • Parties agree that no reasons are needed, or 
  • It is an award on agreed terms under Section 30 
• Essential Details: The award must specify:  
  • Date of the award 
  • Place of arbitration (as per Section 20) 
  • The award is deemed made at that place 
• Service Requirement: After making the award, a signed copy must be delivered to each party. 
• Interim Awards: The tribunal can make interim awards during proceedings on matters eligible for final award. 
• Interest Component:  
  • The tribunal may include interest at reasonable rates from cause of action to award date 
  • Post-award interest at 2% higher than current rate from award date to payment date 
  • Current rate refers to Interest Act, 1978 definition 
• Cost Determination: The arbitral tribunal shall fix costs as per Section 31A. 

What is Section 34 of the Arbitration and Conciliation Act, 1996 ? 

• Section 34 
  • Section 34 is a crucial provision that governs the process of challenging an arbitral award, providing the sole remedy for parties seeking to set aside an award. 
  • It provides specific grounds under which a court can set aside an arbitral award, including incapacity of parties, invalid arbitration agreement, improper notice, awards exceeding scope, and procedural irregularities. 
  • The provision includes both domestic and international commercial arbitration awards, with additional grounds for domestic awards under Section 34(2A) regarding patent illegality. 
  • The section emphasizes that awards can be challenged if they conflict with public policy of India, which includes fraud, corruption, contravention of fundamental policy, or conflict with basic notions of morality or justice. 
• Section 34(3)  
  • Section 34(3) sets a strict limitation period of three months for filing an application to set aside an arbitral award, starting from the date of receipt of the award by the challenging party. 
  • If a request for correction or interpretation is made under Section 33, the three-month period begins from the date of disposal of such request by the tribunal. 
  • The proviso to Section 34(3) allows courts to extend the limitation period by up to 30 days (but not beyond) if satisfied that the applicant was prevented by sufficient cause from making the application within the initial three months. 
  • The provision establishes an absolute bar on entertaining any application after the expiry of the three months plus the additional 30 days, making it a mandatory and jurisdictional requirement. 
  • This strict timeline reflects the legislative intent to ensure finality of arbitral awards and prevent prolonged challenges, promoting efficiency in arbitration proceedings.