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Prior Notice To Other Party Before Filing Application To Set Aside Arbitral Award Not Mandatory

In THE STATE OF BIHAR vs BIHAR RAJYA BHUMI VIKAS BANK SAMIT, the question before the Supreme Court was whether prior notice to the other party before filing an application to set aside an arbitral award is mandatory or directory.

By an amendment brought in 2016, a subsection (5) has been inserted to Section 34 of the Act, which states that application to set aside arbitral award shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

The Bombay and Calcutta high courts held that the provision is directory, largely because no consequence has been provided for breach of the time limit specified. The high courts of Kerala, Himachal Pradesh, Delhi and Gauhati have all taken the view that Section 34(5) is mandatory in nature. The Patna High Court’s view in this regard, which also held that the provision is mandatory, was challenged before the apex court in State of Bihar vs. Bihar Rajya Bhumi Vikas Bank Samiti.

The Supreme Court quoted in approval a passage in the judgment of the Bombay High Court (Global Aviation Services Private Limited v. Airport Authorities of India) wherein it had observed: “Insofar as the submission of the learned counsel for the respondent that if section 34(5) is considered as directory, the entire purpose of the amendments would be rendered otiose is concerned, in my view, there is no merit in this submission made by the learned counsel for the respondent. Since there is no consequence provided in the said provision in case of non-compliance thereof, the said provision cannot be considered as mandatory.”

The court further observed: “We may add that it shall be the endeavour of every Court in which a Section 34 application is filed, to stick to the time limit of one year from the date of service of notice to the opposite party by the applicant, or by the Court, as the case may be. In case the Court issues notice after the period mentioned in Section 34(3) has elapsed, every Court shall endeavour to dispose of the Section 34 application within a period of one year from the date of filing of the said application, similar to what has been provided in Section 14 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.

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