This article has been written by Dishani Dutta pursuing the Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho. This article has been edited by Aatima Bhatia (Associate, Lawsikho) and Dipshi Swara (Senior Associate, Lawsikho).
Table of Contents
Introduction
Arbitration is an alternative dispute resolution mechanism devised to thrive on party autonomy and accelerated redressal, contrary to litigations before the court. While parties are at liberty to develop an arbitration clause conserving their own convenience, court intervention is minimised to its crude essence. However, the present stature of the Arbitration and Conciliation Act, 1996 is a product of augmenting metamorphosis to cater to the diverse challenges in the arbitration realm. Courts, by virtue of the Arbitration Act, 1940, possessed discretionary powers to arbitrarily grant extensions for issuance of arbitration award, resulting in a perpetual trial. This has ceased to persist in the present scenario as the old statute is held ironically to the very purpose of the arbitration.
Arbitration advocates speedy trials therefore; a time cap is concomitantly necessary – within which the arbitral tribunal must deliver an award. Upon delivery of the award, the tribunal becomes functus officio. However, this article deals with the status of a tribunal that has failed to pass an award within the requisite time. Besides recapitulating provisions that encompass time-fidelity, this article aims at concurring its title, with reference to the statutory ground for termination of arbitrator laid down in the Arbitration and Conciliation Act, 1996 (hereafter referred as “the Act”) elucidated through notable judgements.
Section 14(1)(a) of the Arbitration and Conciliation Act, 1996
In case an arbitrator becomes De Jure and De Facto unable to perform their function or fails to act without undue delay, it constitutes grounds for termination of the arbitrator’s mandate. De Jure inability of an arbitrator refers to their legal incapacity to execute their functions and is disentitled from holding their office. For instance, if the arbitrator is an undischarged insolvent, bankrupt or a convict. De Facto or factual inability refers to circumstantial drawbacks of the arbitrator during the course of arbitration, such as physical ailment or illness, that makes them incapable to deliver themselves.
This provision is applicable to the instance where an arbitrator fails to adjudicate a dispute within a time frame that has been stipulated within the arbitration agreement and exceeds that time limit to deliver an award. Post the 2015 Amendment Act, the time period for each step of an arbitral proceeding has been specified and the law demands strict adherence to them. Therefore, it is binding upon the tribunals to produce and award within respective timespan, violating which shall result in termination of the tribunal’s mandate.
On termination of the mandate of an arbitrator, the law prescribes substitution of arbitrator as resort for aggrieved parties under section 29A (6). The manner of appointing a substitute arbitrator is the same as the arbitrator initially appointed. It is pertinent to recall that parties can mutually appoint an arbitrator or appeal under section 11 of the Act before the court of appropriate jurisdiction for such appointment.
Section 29A of the Arbitration and Conciliation Act, 1996 Section 29A of the Act covers provisions quoting a time limit within which an arbitral award needs to be passed. The section was exteriorised via the Arbitration and Conciliation (Amendment) Act, 2015. The act further underwent a rampant modification in 2019 based on the recommendations of the High Level Committee aimed at reviewing institutionalization of arbitration mechanisms in India. Section 29A, in its present form dictates stipulation of a twelve months span within which an award needs to be passed by the sole arbitrator/tribunal. This time period is accounted from the date of completion of pleadings as under Section 23(4) of the Act,2019. Prior to 2019 amendments, the time specification for passing of an award was twelve months from the date of appointment of arbitrator.
Section 29A (4) provides that on failure to adhere to the time limit under Section 29A (1) or extended-time period under Section 29A (3) to pass an arbitral award, the mandate of the arbitrator is subject to termination. At this juncture of arbitration, the parties may resort to either of these remedies:
- An application under Section 29A (1) can be moved by party consensus before the lapse of the twelve months’ time. Parties can seek a maximum of six months extension period.
- Either party can seek extension of period even beyond six months till the maximum capped limit provided under section 29A (3). Such application can be moved before or after the lapse of the twelve months period.
Any decision passed by the arbitrator post lapse of this time limit is a stigma of law. The court observes such disregard for time-limit as contemptuous (Bharat Oman Refineries Limited v. M/s. Mantech Consultants)
Jayesh Pandya vs. Subhtex India Ltd. In the course of arbitration between the parties, the Respondent has moved an application seeking the appointment of an arbitrator before the Hon’ble Court. Subsequently, the Appellant, in disapproval, has challenged the aforementioned appointment vide writ petition before the Court of Bombay. Here, the Appellant’s petition was rejected which led the application to move before the Supreme Court. The arbitration proceeding was suspended until trial, during which the former arbitrator passed away. The demise of the arbitrator, by virtue of section 14, formed grounds for the Apex court to dismiss the petition and subsequently appoint a new arbitrator.
The duration of procedural hearing of statement of claims and counter-claim has exhausted the time limit for passing of an award, therefore it was practical to appeal for extension of time limit for issue and publication of award. However, the Appellant refused to consent to an appeal for extension. The parties have failed to amicably obtain an extension for issuance of award. At the later stage of arbitration, the appellant has refused to accept the award of a functus officio tribunal, as the four months stipulated time period has been exhausted and the mandate of the arbitrator has become de jure incapable of delivering an award in a timely manner as under section 14(1)(a) of the Act, 1996. The Bombay High Court held that the appellant’s thorough participation corresponds to their waiver of right to challenge the award at this conclusive juncture of arbitration and post publication of award. Therefore, the Bombay High Court ordained against the necessity of Court intervention in this particular judgement. However, the Hon’ble Court fails to understand the veracity of the facts that the award has been passed by a tribunal with no authority to pass the same. The appellant further relied on the NBCC Limited V. JG Engineering Private Limited, upholding the arbitrator’s arbitrary actions in presuming an extended time period whereas, to do so, it needs to seek consent of both the parties.
Overturning the judgement of the Bombay High Court, The Apex Court in its judgement of the case of Jayesh Pandya V. Subhtex India Ltd., levied greater emphasis on the Sections 14 and 15 of the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court, in this case, acknowledges the termination of arbitrator’s mandate on the grounds of incapability to produce an award within time-limit, thereby, failing to act without undue delay.
NBCC Ltd. vs. JG Engineering Pvt. Ltd. Status of an arbitrator post lapse of time limit of arbitration has been subject of judicial concern even prior to the 2015 Amendment Act. The Hon’ble Court commented that the power vest in court by virtue of Section 28 of the Arbitration Act,1940 has been dispossessed and it antithetical to the principles of arbitration.
In this case, where NBCC ltd and JG Engineering pvt ltd have executed a contract on 30th March, 1993 for conducting construction works at Bhubaneshwar Airport, entered into arbitration as per their precluded agreement, the parties had mutually accorded to a specific duration within which the expected a yield of arbitral award. The arbitration agreement explicitly reflects party consensus in stipulating a time period, therefore the arbitral tribunal cannot exercise power to further extend time without parties’ consent. It has been established that the parties have not consented to the arbitrator’s decision to extend time, meaning the arbitrator has acted outside the scope of the arbitration agreement. Since the arbitrator has, within themselves, no power to extend the time period on expiry of the limit set by the parties, their mandate ipso facto stands terminated upon expiry of their tenure under that arbitration agreement. However, an arbitrator reserves the capacity to seek extension in case of predicated delay, which they are required to proceed with after seeking parties’ consent. Same can only be amenable in the instance where the arbitration agreement in itself is silent on such action. Thus, an arbitrator stands obligated to pass an award within the time that parties have mutually decided in the arbitration agreement. This time limit can be expanded only with the consent of parties.
Furthermore, the arbitration between NBCC and JG Engineering has continued over a period of nine years. Such inefficacy defeats the superlative purpose of arbitration as a rapidly efficient dispute redressal forum. Based on this backdrop, the Hon’ble High Court, its impugned order, has dismissed the appellant’s contention, claiming technical complexities associating the primary dispute, as a force majeure instigating an extensive trial, causing the delay in issuance of an award. However, the parties as well as the arbitrator have liberty to move an appeal before the Court seeking further extension to conclude arbitration, which neither entity has done. The Hon’ble Court is of the view that the present arbitral tribunal has no cogent reason for acting in breach of due deadline in passing an award. Its comment is founded on the fact that there have been three reappointments of arbitrators in the course of arbitration – indicating the procedural hearing conducted has already been subject of review, thereby of indispensable authenticity. The arbitral tribunal has no possible cause for further delay in publishing an award.
Conclusion
No conclusive mechanism can be devised dictating the interpretation of statutes by the Courts. It has majorly reflected upon the subject matter of litigation and nature of the dispute. Similarly, the Arbitration and Conciliation Act, 1996 is no exception. Nonetheless, when parties choose to stipulate a time period in their arbitration agreements, despite the existence of statutory provisions prescribing time-limits, it is advisory to me to consider discrepancies that may arise at a later stage in arbitration. The Madras High Court’s judgement of Suryaved Alloys and Power Pvt. Ltd. V. Shri Govindaraja Textile Pvt. Ld. is a recent instance of the judiciary’s perspicuous interpretation of Section 29A, endorsing adherence to statutory time-limit as crucial.
References
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