The State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti

Civil Appeal · 2018 INSC 648Decided 30 Jul 2018
Civil Appeal No. 7314 of 2018
Justice Rohinton Fali Nariman · Justice Indu Malhotra

Background

An arbitral award was made in 2016 in favour of the Bihar Rajya Bhumi Vikas Bank Samiti. The State of Bihar filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 to challenge that award, but did not give prior notice to the other side or file the affidavit that a 2016 amendment (Section 34(5)) newly required. A Single Judge of the Patna High Court held this requirement was only "directory" (i.e., non-fatal if not followed) relying on an earlier Supreme Court ruling, but a Division Bench on appeal took the opposite view, holding the requirement "mandatory" and treating it as a strict precondition, similar to a mandatory notice before suing the government.

Decision Breakdown

The Supreme Court surveyed its own case law and recent High Court rulings (Bombay and Calcutta) and held that Section 34(5)'s notice-and-affidavit requirement is procedural/directory, not a mandatory precondition whose breach would invalidate the challenge petition altogether. The Court reasoned that treating it as mandatory would cause hardship disproportionate to its purpose, which was about procedural discipline and timely disposal, not about barring access to justice. It also directed, as a matter of general practice, that courts should strive to dispose of Section 34 applications within about a year of filing. The appeal was allowed, the Patna High Court Division Bench's ruling was set aside, and the State's original Section 34 challenge to the award was sent back to be decided on its actual merits.

Lesson Learnt

Not every new procedural requirement added to arbitration law is automatically "mandatory" in the strict sense that non-compliance kills the case: courts will look at the provision's underlying purpose, and a requirement aimed at speeding up the process (like prior notice) can be treated as directory so the real dispute still gets decided on its merits.

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