Sikkim High Court says arbitral records are mandatory in Section 34 proceedings under Arbitration Act.

News Citation : 2026 LN (HC) 359

May 26, 2026 : The Sikkim High Court has set aside an order of the Commercial Court, Gangtok, in a high-value arbitration dispute between the Union of India and contractor M/s Nar Bahadur Dahal, holding that a court hearing a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 cannot decide the matter without first calling for the arbitral records. The Division Bench observed that examining the arbitral record is an “essential requirement” while considering whether an arbitral award deserves to be interfered with under the law.

The judgment was delivered by a Division Bench comprising Chief Justice A. Muhamed Mustaque and Justice Bhaskar Raj Pradhan in Union of India v. M/s Nar Bahadur Dahal (NBD), an appeal filed under Section 37(1) of the Arbitration and Conciliation Act. The appeal arose from an arbitral award passed by former Calcutta High Court judge Justice Pranab Kumar Chattopadhyay, acting as Sole Arbitrator, who had directed the Union of India to pay ₹23.21 crore to the contractor.

The dispute originated from a contract awarded for road improvement work between Gangtok and Nathula during 2009-10. The contract period was later extended until March 31, 2015. During arbitration proceedings, the tribunal allowed the contractor’s counterclaims while rejecting the claims raised by the Union of India.

Appearing for the Union of India, Deputy Solicitor General Sangita Pradhan, assisted by advocates Sittal Balmiki and Amit Kumar Sharma, argued that the contractor’s counterclaims were barred by limitation. The government contended that the contractor had completed work by March 31, 2015, and therefore any counterclaim raised in September 2022 was beyond the legally permissible limitation period. The Union also relied on a letter dated March 28, 2017, allegedly written by the contractor stating that no claims remained pending, to argue that there was no surviving dispute capable of arbitration.

Senior Advocate Jorgay Namka, appearing for the contractor along with advocates Lahang Limboo and Sawal Rai, defended the arbitral award before the High Court.

The High Court noted that although the plea of limitation had not initially been raised before the arbitral tribunal, it was argued during the arbitration hearing and later specifically urged in the Section 34 proceedings before the Commercial Court. The Bench observed that limitation is not merely a procedural objection but a mixed question of law and fact rooted in public policy under Section 3 of the Limitation Act, 1963.

The Court also made significant observations on the interplay between arbitration and limitation law. It stated that while courts can reject claims barred by limitation even if limitation is not specifically pleaded, arbitration raises a distinct question regarding waiver because arbitral tribunals function as private adjudicatory forums rather than state-created public courts. The Bench remarked, “The question of limitation is the question of facts and law. The law of limitation is very clear from Section 3 of The Limitation Act, 1963, and it is based on public policy.”

However, the High Court clarified that it was not deciding the limitation issue on merits at this stage because the Commercial Court had committed a more fundamental procedural error. According to the Bench, the Commercial Court decided the Section 34 petition without summoning the records from the arbitral tribunal. The High Court held that such an approach was contrary to the statutory framework governing challenges to arbitral awards.

Explaining the legal position, the Court relied on precedents including Oil and Natural Gas Corporation Limited v. H.N. Roy, Alpine Housing Development Corporation Pvt. Ltd. v. Ashok S. Dhariwal, Emkay Global Financial Services Ltd. v. Girdhar Sondhi, and Canara Nidhi Ltd. v. M. Shashikala. Referring to these judgments, the Bench reiterated that proceedings under Section 34 are summary in nature and ordinarily must be decided based on the arbitral record itself. The Court observed, “Without calling for records, and merely on the basis of the arbitral award and upon hearing the parties, the Court cannot arrive at a conclusion with regard to any of the grounds raised under Section 34.”

The judgment assumes importance for arbitration jurisprudence in India because it reinforces procedural safeguards while hearing challenges to arbitral awards. Section 34 of the Arbitration and Conciliation Act permits courts to set aside arbitral awards only on limited grounds such as patent illegality, violation of public policy, procedural irregularity, or lack of jurisdiction. By insisting that courts must examine the arbitral record before deciding such objections, the Sikkim High Court has emphasized judicial discipline in arbitration matters and sought to prevent superficial adjudication of complex commercial disputes.

The ruling is also significant for contractors, government departments, and commercial litigants because it clarifies that courts cannot mechanically affirm or reject arbitral awards without examining the underlying proceedings and evidentiary materials. The decision may influence how commercial courts across the country handle Section 34 petitions, particularly in infrastructure and government contract disputes involving substantial public funds.

Allowing the appeal, the High Court set aside the Commercial Court’s earlier order and remanded the matter back for fresh consideration. The Commercial Court, Gangtok, has now been directed to call for the arbitral records and decide all issues afresh within two months from receipt of the records. The parties have been directed to appear before the Commercial Court on June 1, 2026.

Case Reference : Union of India v. M/s Nar Bahadur Dahal (NBD) — Arb. A. No. 12 of 2025; appellant represented by Deputy Solicitor General Sangita Pradhan with advocates Sittal Balmiki and Amit Kumar Sharma, while Senior Advocate Jorgay Namka appeared for the respondent along with advocates Lahang Limboo and Sawal Rai.