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ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO. 1717 OF 2018
IN
ARBITRATION PETITION (L) NO. 899 OF 2018
Larsen And Toubro Limited …Applicant/
Petitioner
Mr. Nimay Dave, a/w Faisal Sayyed & Padmesh Joshi, i/b
Manilal Kher Ambalal & Co., for the Applicant/Petitioner.
Mr. Siddharth Chhabria, a/w Khushnuma Khan & Inayat Ali
Qureshi, i/b K K Associates, for Respondent.
Context and Background:
JUDGMENT
1. The captioned primary proceedings are essentially an application seeking to challenge an arbitral award dated March 3, 2018 (“Impugned Award”) passed by the MSME Facilitation Council, Mumbai (“MSME Council”) under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
2. The Petitioner, Larsen & Toubro Ltd. (“L&T”) seeks to challenge payment of a princely sum of Rs.44,513/- awarded to the Respondent, High Parra Construction Pvt. Ltd. (“High Parra”) with interest thereon to be computed in terms of the Micro, Small and Medium Enterprises Development Act, 2006 (the “MSMED Act”). Till date, L&T has deposited nothing despite a deposit being a statutory percondition for any court to entertain a challenge to an arbitral award passed under the MSMED Act. Ashwini Vallakati Hurdles to the Challenge:
3. That apart, the main hurdle to L&T’s challenge is the admitted delay in filing the application under Section 34 of the Arbitration Act. It is L&T’s case that the delay is within the 30-day window after the expiry of three months from the receipt of the Impugned Award. This is the time window within which it is permissible for this Court to condone delay under Section 34(3) of the Arbitration Act, provided sufficient cause is shown.
4. As noticed above, under Section 19 of the MSMED Act, no Court shall entertain any challenge to an arbitral award passed by the MSME Council unless a deposit of 75% of the amount awarded is made. Section 19 of the MSMED Act contains a statutory embargo on entertainment of the challenge. Admittedly, L&T has not deposited a single rupee since 2018.
5. Mr. Nimay Dave, Learned Counsel representing L&T would submit that L&T is willing to make such a deposit now along with interest computed until today, within a few weeks as permitted by this Court. According to him, L&T has a strong case on merits and the delay ought to be condoned and the deposit ought to be permitted to ensure that a meritorious challenge is not shut out on these two preliminary objections.
6. Mr. Siddharth Chhabria, Learned Counsel representing High Parra would counter these submissions by indicating that there is simply no semblance of a reason in the application for condonation of delay, and that sufficient cause has not been made out. Factual Matrix:
7. The following facts would be relevant to consider whether a delay in filing this challenge under Section 34 deserves to be condoned:a) The Impugned Award is dated March 3, 2018 and is passed by the MSME Council based in Mumbai; b) The Impugned Award is for a sum of Rs. 44,513 being declared as payable by L&T to High Parra, along with interest in terms of the MSMED Act; c) L&T, which is also headquartered in Mumbai claims to have received the Impugned Award only on April 12, 2018, nearly 40 days after the Impugned Award was passed. However, there is nothing to show the actual date of receipt of the Impugned Award; d) Even if one were to accept L&T’s stated date of receipt, the three-month period within which a challenge is permitted under Section 36(3) of the Arbitration Act, would have expired on July 12, 2018; e) The period of thirty days after the aforesaid three-month window, would end on August 11, 2018; and f) This challenge under Section 34 of the Arbitration Act is said to have been filed on August 10, 2018, purporting to be just one day before the last date on which this Court would be denuded of any power to condone the delay. Analysis and Findings: Nothing to Prove Date of Receipt:
8. There is nothing brought to bear by L&T to indicate that it truly received the Impugned Award on April 12, 2018. Since the date of receipt is a positive and specific date being asserted by L&T, it is incumbent on L&T to bring to bear evidence that it actually received the Impugned Award only that date. It appears implausible that despite L&T being located in the same city as the MSME Council, the Impugned Award was received with a delay of 40 days.
9. The date on which actual receipt is claimed, is provocatively close to a date picked consciously, with a 30-day window and a threemonth period prior to such 30-day window, being computed by working backwards from the date on which these proceedings were filed. The date of receipt of the arbitral award is a vital date. This is the date on which computation of limitation would start. The onus of demonstrating the date of receipt is on the party seeking to assert a particular date as that date and L&T has nothing to even circumstantially support the date of receipt of the Impugned Award.
10. Mr. Dave would candidly state that there is nothing on record to demonstrate the date of receipt. However, discounting for the distance in time and the fact that there is no competing date of receipt canvassed by Mr. Chhabria on behalf of High Parra (he would fairly state that High Parra too has nothing to demonstrate the date of receipt), I have proceeded to examine the matter as if the date of receipt is indeed April 12, 2018 as claimed by L&T.
11. Therefore, assuming that the Impugned award dated March 3, 2018 was indeed received within Mumbai by L&T only on April 12, 2018, it would follow that the challenge was filed with a delay of 29 days after the expiry of three-month deadline for challenging the Impugned Award. The three-month period to be computed for limitation under Section 34(3) would start from the purported date of receipt of the Impugned Award. Unacceptable and Untenable Reasons Proffered:
12. Therefore, it would be necessary to examine the reasons for condonation of delay as set out in the motion seeking Condonation of Delay (Notice of Motion No.1717 of 2018). They are extracted below, since they speak for themselves:-
2. I say that after receipt of the Impugned Order on 12.04.2018, the copy of the Impugned Award was sent to Petitioner's Legal Department for determining the necessary steps to be taken in the matter. I say that the Petitioner's Legal department thereafter approached their Advocate for seeking his opinion on the award and also to understand further course of action.
3. I say that pursuant to the opinion of their Advocate, the Legal Department of the Petitioner approached the Board of Directors of the Petitioner for their approval for filing the present petition. I further say that during this period the law officer handling the matter resigned from the company, causing delay in giving necessary instructions to the Advocate for drafting the present petition. [Emphasis Supplied]
13. A plain reading of the foregoing inspires no confidence in the credibility of what is stated. It cannot be forgotten that while this Court has the power to condone delay on the ground of sufficient cause being shown, it is a power coupled with a duty to examine if the sufficiency of cause as claimed, is sound, logical and reasonable. It cannot be forgotten that the sufficiency has to be objectively assessed; and the objectivity for assessing it would be related to the facts and circumstances involved.
14. What is sufficient for a tiny enterprise would not be sufficient for a large corporate. What is sufficient for a commercially savvy private corporate entity may not be sufficient for a government-owned enterprise facing capacity constraints. That apart the reasons cited to indicate the claimed sufficiency should not sound implausible and fanciful.
15. If the grounds cited by L&T are to be believed, a challenge to an arbitral award of less than Rs. 44,000 involves the approval of its Board of Directors. The Court whose discretion to condone delay is sought, cannot be expected not to take judicial notice of public knowledge that L&T is a company that had a consolidated turnover of Rs. 1,41,000 crores in 2018. It would take a high degree of naivete to expect that the Board of Directors of a listed company like L&T is expected to sign off on a decision to challenge an arbitral award of Rs. 44,000.
16. L&T’s contention about its legal department taking time to study the arbitral award and to take legal opinion from its advocate, and worse, a legal officer’s resignation leading to constraints in decisionmaking sounds fanciful to say the least. Such reasons, when proffered even by government agencies have been strictly rebuked and repelled by the Supreme Court. Coming as they do, from a blue-chip large corporate on solemn affirmation in a court, undermines the credibility of application seeking condonation of delay. The Supreme Court has had occasion to point out that state agencies are often given greater leeway owing to the reality of capacity constraints that are well known in the functioning of the State. However, such leeway is always in the context of comparing the State with corporates in the private sector in respect of the speed of decision-making.
17. Mr. Dave would contend that L&T’s background should not be held against it. This cannot be accepted. Sufficiency of cause has to necessarily be objectively linked to the circumstances in which the entity claiming sufficient cause is placed. It can never be without regard to such circumstances. It is when one is blind to the entity’s capacity (or inability for that matter) to act with due dispatch, that would make the consideration arbitrary and unreasonable.
18. One cannot lose sight of the fact that L&T is not just a leading corporate with a huge turnover, but also a company that is deeply involved in litigation across its businesses. To tell a Court that the resignation of an officer affected its ability to act with diligence and dispatch; and worse, that its Board of Directors has to approve decisions involving challenge to a pay-out of Rs. ~44,000, on solemn affirmation cannot be countenanced. One cannot help comment that for a company endowed with a well-oiled litigation machinery, the proffering of such grounds is lackadaisical, cynical and bordering on taking the Court’s process for condonation of delay for granted. Case Law Analysed:
19. Mr. Dave would strenuously urge that the merits of the case would warrant an intervention. He would make bold to say that rejection of such reasons as proffered by L&T would fall in the realm of pedantic rejection of the request for condonation of delay, relying on Delhi Development vs. Tejpal[1]. The extracts relied upon by Mr. Dave, seeking to import the principles applicable for condonation for “sufficient cause” under Section 5 of the Limitation Act, 1963, are extracted below:-
25. As is clear from a plain reading of Section 5 of the Limitation Act, there are exceptions to this general rule. The statute allows for admitting an action provided "sufficient cause" is shown. This vests courts with the discretion to extend the period of limitation if the applicant can show that he had sufficient cause for not preferring an appeal or application within the prescribed period. Section 5 requires analysis of two ingredients: first, an examination of whether "sufficient cause" has been made out; and second, whether such cause has been Delhi Development Authority vs. Tejpal and Others – 2024 SCC OnLine SC shown for not filing the appeal/application "within the prescribed period".
26. As regards the first ingredient, the Limitation Act itself does not provide more guidance on what its constituent elements ought to be. Instead, Section 5 leaves the task of determining appropriate reasons for seeking condonation of delay to judicial interpretation and exercise of discretion upon the facts and individual circumstances of each case.
27. While there is no arithmetical formula, through decades of Judicial application, certain yardsticks for judging the sufficiency of cause for condonation of delay have evolved. Mere good cause is not sufficient enough to turn back the clock and allow resuscitation of a claim otherwise barred by delay. The court ought to be cautious while undertaking such an exercise, being circumspect against condoning delay which is attributable to the applicant. Although the actual period of delay might be instructive, it is the explanation for the delay which would be the decisive factor.
28. The court must also desist from throwing the baby out with the bathwater. A justice-oriented approach must be prioritised over technicalities, as one motivation underlying such rules is to prevent parties from using dilatory tactics or abusing the judicial process. Pragmatism over pedanticism is therefore sometimes necessary - despite it appearing liberal or magnanimous. The expression "sufficient cause” should be given liberal construction so as to advance substantial justice.
29. In addition to "sufficient cause", Section 5 also requires that such cause must be shown within the prescribed period. To satisfy the latter condition, the applicant must show sufficient cause for not filing the appeal/application on the last day of the prescribed period and explain the delay made thereafter. Causes arising after the culmination of the limitation period, despite being sufficient in substance, would not suffice for condonation given this second prong of Section 5 of the Limitation Act. However, the applicant shall not be required to prove each day's delay till the date of filing such appeal/application.
20. I am afraid, nothing in this judgement is of any assistance to L&T in the facts and circumstances of the case. Picking out a line or a phrase from the extract to indicate that one must not be pedantic or that one must not shut out merits can be of no avail. The portions from the extracts highlighted above, when applied to the facts of the instant case, would inexorably provide the reasons for which L&T’s application for condonation of delay deserves emphatic rejection. It would be most unfair to allow a large corporate to continue to frustrate a small scale enterprise from getting the fruits of a Rs. ~44,000 arbitral award on the premise of the untenable reasons cynically and routinely set out in the application seeking condonation.
21. The very reason for extracting the two paragraphs set out by L&T giving reasons for which it seeks condonation of delay, is to also indicate that these are the only reasons offered by L&T. For my reasons articulated above, these ostensible reasons are untenable. Paragraph 27 from Delhi Development v. Tejpal extracted above says everything that has to be said in this case. It is imperative to adopt a justice-oriented approach and prioritise justice over the technicalities sought to be relied upon by L&T. The motivation underlying the power to condone delay is to prevent parties from using dilatory tactics or abusing the judicial process. Pragmatism has to prevail over pedanticism – a large corporate spending a large multiple of the minuscule liability arising from the arbitral award could reasonably indicate that the principle involved would be to send a signal and intimidate that a MSME must not expect to fight and hope to have an easy run.
22. The very principles articulated in the judgement relied upon are the ones that appeal to me as the precise reasons why L&T’s request for condonation of delay are unacceptable, apart from being untenable on their own showing. It is the approach of L&T to providing reasons that is simply pedantic. I have been appropriate circumspect in undertaking this exercise and cannot accept the non-reasons sought to be passed off as reasons showing sufficient cause to condone the delay.
23. Learned Counsel for the Petitioner also intends to draw my attention to Esha Bhattacharjee[2] to contend that the strength of the merits must also be considered as one of the factors while assessing the Esha Bhattacharjee vs. Managing Committee of Raghunathpur Nafar Academy And Others – (2013) 12 SCC 649 condonation of delay. This too is not a reason to be routinely invoked hoping to get over the absence of sufficient cause to have the delay condoned. This facet is in fact, well dealt with in Bherulal[3] by the Supreme Court, which came in for emphatic endorsement in Borse Brothers[4], rendered by a larger reference bench of three judges.
24. The following extracts from Bherulal are noteworthy:
5. A preposterous proposition is sought to be propounded that if there is some merit in the case, the period of delay is to be given a go-by. If a case is good on merits, it will succeed in any case. It is really a bar of limitation which can even shut out good cases. This does not, of course, take away the jurisdiction of the Court in an appropriate case to condone the delay.
7. We are thus, constrained to send a signal and we propose to do in all matters today, where there are such inordinate delays that the Government or State authorities coming before us must pay for wastage of judicial time which has its own value. Such costs can be recovered from the officers responsible. The State Of Madhya Pradesh & Ors. vs Bherulal – (2020) 10 SCC 654 Government of Maharashtra v. M/s Borse Brothers Engineers & Contractors Pvt. Ltd.- (2021)6 SCC 460
8. Looking to the period of delay and the casual manner in which the application has been worded, we consider appropriate to impose costs on the petitionerState of Rs.25,000/- (Rupees twenty five thousand) to be deposited with the Mediation and Conciliation Project Committee. The amount be deposited in four weeks. The amount be recovered from the officers responsible for the delay in filing the special leave petition and a certificate of recovery of the said amount be also filed in this Court within the said period of time.
25. In Borse Brothers, the Supreme Court has ruled that delays, laches and negligence in pursuing an appeal create rights and equities in favour of the counterparties and the disruption of such rights that have accrued to the counterparty must be borne in mind. Para 63 may be fruitfully extracted: In a fit case in which a party has otherwise acted bona fide and not in a negligent manner, a short delay beyond such period can, in the discretion of the court, be condoned, always bearing in mind that the other side of the picture is that the opposite party may have acquired both in equity and justice, what may now be lost by the first party’s inaction, negligence or laches. Legislative Policy of MSMED Act:
26. One cannot lose sight of the fact that the MSMED Act has adopted the Arbitration Act consciously, to bring to bear the benefits of efficiency and speed that is meant to come with the terrain with arbitration. Towards this end, a statutory existence of an arbitration agreement is created under Section 18 of the MSMED Act. Added to that in the legislative scheme is a bundle of incentives and disincentives to nudge a certain behavior when it comes to engaging in business with micro, small and medium scale enterprises. Sections 15 to 17 provide a framework for a special interest rate to create an incentive not to unduly hold up payments owed to such enterprises. Section 19 of the MSMED Act contains a disincentive to unnecessarily challenge an arbitral award made in favour of such enterprises by making it a pre-condition for the Section 34 Court to entertain any challenge to an arbitral award, that 75% of the amount awarded be deposited.
27. While these proceedings are now being disposed of in 2025, since August 2018 when these proceedings were filed, L&T has not deposited a single rupee. The offer to now make the deposit, and that too in the context of how delay is sought to be computed and condoned – dealt with in detail above – is an offer that is late in the day and makes a mockery of the measure of a statutory disincentive to lightly challenge arbitral award of the MSME Council.
28. The MSMED Act has a specific regulatory objective, namely, to enable expeditious and speedy resolution of disputes by resorting to arbitration and by imposing a pre-condition to a challenge. This regulatory objective of speedy justice for small enterprises would be totally undermined, if a condonation of delay is routinely permitted in the teeth of untenable reasons as affirmed by L&T. Conclusion:
29. In these circumstances, for the aforesaid reasons, the delay is not condoned and the request by L&T and the reasons in support are firmly rejected. The failure to deposit the amount awarded along with interest as awarded until the date of filing of the proceedings in this Court is an added failure on the part of L&T.
30. The Notice of Motion No.1717 of 2018 is dismissed. Consequently, the Arbitration Petition (L) No.899 of 2018 cannot be considered and nothing survives in Notice of Motion (L) No.1912 of
2018.
31. All actions required to be taken pursuant to this order shall be taken upon receipt of a downloaded copy as available on this Court’s website. [SOMASEKHAR SUNDARESAN, J.]