Considering and allowing a time-barred claim makes the award contrary to public policy of India, and irrational, and perverse, and lacking in judicial approach

    Updates by Saurabh Tiwari

KM Suresh Babu v. Sundaram Finance Limited

Madras High Court; single-judge bench, M Sundar J; 05 March 2020

A. THE BACKGROUND

Sundaram Finance (SF) financed a truck to Suresh under a hire-purchase contract. Suresh defaulted on the repayment of instalments on 06 April 1999. SF seized the truck on 17 January 2002 and sold it on 25 June 2004 to recover the financed sum.  

On 20 March 2007, SF initiated arbitration claiming there was a balance due after the adjustment of sale-proceeds. Suresh disputed the claim on the ground that it had become time-barred under Article 113 of the Schedule to Limitation Act[1]. The tribunal rejected that argument. It ruled that (a) under the contract, SF was entitled to sue for damages, which were quantified on 25 June 2004, and (b) since the arbitration was initiated on 20 March 2007, it was well within the period of three years from the date of crystallization of damages.

Suresh filed an application under Section 34 ACA to set aside the award.

B. THE COURT’S DECISION[2]

M Sundar J accepted the argument that the three years limitation period will run from the date on which instalment fell due and not the date of the sale. He relied on Sundaram Finance Limited v. Noorjahan Beevi and another, (2016) 13 SCC 1 and said that the tribunal’s conclusion was, given the authority of Noorjahan, “obviously and plainly incorrect”.

The question then was the award hit by any of the (narrow) grounds under Section 34 ACA because it accepted a time-barred claim?[3]  Answering yes, the court set aside the award. These were its reasons: –

  1. First, the court cited a 2-judge bench decision of the Supreme Court in N Balakrishnan M Krishnamoorthy, (1998) 7 SCC 123 where the court had held that that limitation is founded on public policy. If that is so, M Sundar J said, “the plea of limitation being raised in a challenge to an arbitral award certainly fits into Section 34(2)(b)(ii) read with Clause (ii) of Explanation 1” (that is, the award is in conflict with the public policy of India).
  2. Second, the court referred to the 2015 Amendments and said that “on and from 23.10.2015, the term/expression ‘public policy’ stood statutorily explained”.
  3. Third, the decisions of the Supreme Court in ONGC Ltd. Western Geco International Ltd., (2014) 9 SCC 263 and Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 were cited to note that these two cases have, dealing with public policy, “culled out three distinct juristic principles” and the “litmus tests” for each of the principles. Those principles, the court noted, were: (a) judicial approach; (b) natural justice; and (c) irrationality/perversity. The court said that these principles were culled out three distinct juristic principles continue to “govern the field” even after the 2015 Amendments and were reaffirmed by the Supreme Court in Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228 which was rendered post 23.10.2015.
  4. Fourth, the court concluded that the award lacks “fidelity of judicial approach” because it considered the date of the sale as the point when limitation started to run “ignoring the factual position” and the fact this date was fully within the control of SF. Besides, the award overlooked the legal principle that the contract stood ipso facto determined on default.
  5. Fifth, the court said the award was irrational/perverse because one cannot choose a date, which is entirely at the discretion of one of the parties, to compute limitation giving a go by to the Limitation Act. The court reasoned that if a finance company chooses to sell the repossessed vehicle a decade later, the goal post cannot be altered by a decade. This, the court noted, “militates the basic principle underlying the law of limitation, which in turn militates against public policy”.

C. NFRAL’S COMMENTS (BY EDITOR)

A 2-judge bench of the Supreme Court of India in the case of Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 discusses the law on the public policy of India under the ACA. It has been cited with approval by a 3-judge bench in Vijay Karia and others v. Prysmian Cavi E Sistemi SRL and others, 2020 SCC OnLine SC 177. Ssangyong summarizes the law before and after the 2015 Amendments.

In the Suresh case, the pre-2015 Amendment law applied, but the court does not directly consider the question of applicability of the amendments. Its reference is to the post-2015 Amendment statute, but also to the cases decided under the pre-2015 Amendments. It applies the ‘judicial approach’ principle set out in Geco, which it should be noted is no longer an aspect of the public policy ground after the 2015 Amendments.

The question of whether considering and accepting a time-barred claim is contrary to the public policy of India requires a sharper discussion than found in Suresh or some of the other judgments which have said the same thing. The discussion should examine rather than stating in a conclusory fashion if the contravention of a statute founded on public policy is automatically a contravention of the fundamental policy of Indian law.

[1] Article 113 of the Schedule to the Limitation Act, 1963 is the residuary clause. For “any suit for which no period of limitation is provided elsewhere in this Schedule”, the limitation period is three years from when the right to sue accrues. It is implicit in the judgment that Article 113 was invoked and applied by the tribunal.

[2] The court made several observations about the limited scope of Section 34 and the need to decide a set-aside application as expeditiously as possible and within the one-year timeline emphasized by the Supreme Court in State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti, (2018) 9 SCC 472. This case was pending for more than six years. On the day of the hearing, no one appeared for SF. Rather than “endlessly waiting” the court decided the matter (“more so” as the lone issue was of limitation).

[3] Editor’s note: M Sundar J said he would choose the expression “slots” rather than grounds and that he would describe the “eight slots adumbrated in Section 34 as eight pigeon holes”. He then graphically added that “some of these pigeon holes are even in the nature of keyholes and pinholes” since some of them “have been circumscribed by limitations”. For instance, he said, the “patent illegality slot is narrowed down in concentric circles by such circumscribing list in proviso making the slot a keyhole or maybe a pinhole”.

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Categories: Fundamental policy of Indian law |  Limitation |  Patent Illegality |  Public Policy of India |  Section 34  

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