This article is written by Paridhi Dave, a student at the Institute of Law, Nirma University. This article is an attempt to understand the impact of COVID-19 on the arbitration proceedings conducted in India.
Table of Contents
Introduction
The onset of COVID-19 has radically affected the functionality of private as well as the public sector in the country. Lockdown is an emergency protocol whereby people are confined to a specified area to prevent the spread of disease. This has disrupted work deadlines and obligations of individuals and businesses across the world since most of the working population is confined to their homes with limited access to resources of a workplace. The world of arbitration is not untouched by the consequences of this pandemic. This lockdown has disarrayed and delayed the schedules and timelines of arbitration proceedings, especially in the domestic arbitration.
In this context, it is important to understand the impact of the COVID-19 on the time limit of Arbitral awards.
Alternative Dispute Resolution Mechanism
Alternative Dispute Resolution or simply ADR refers to a mechanism wherein the disputes are settled outside the courtroom. The three major categories of ADR are Arbitration, Mediation and Conciliation. In the adversarial legal system, the burden on the courts is ever-increasing. Due to the long pendency of cases, huge costs of litigation and the time involved in the traditional dispute resolution scheme, people now tend to resort to these alternative mechanisms. The parties can enter into this either voluntarily or the Court could direct them to do so.
The primary advantage of this mechanism is that parties are in control of the process and can play an active role in the determination of the solution.
Arbitration is one of the mechanisms available under alternative dispute resolution. This practice is less formal than Courts but more formal than other processes such as mediation and conciliation. Commercial arbitration is currently on the rise, in terms of dispute resolution for complex commercial issues. The governing act for arbitration in India is the Arbitration and Conciliation Act, 1996.
An arbitral award is the arbitration tribunal’s decision based on the merits of the case. It is deemed as equivalent to a court judgment. The arbitral award is considered final and binding on the disputing parties. The arbitral award could either be a final award or an interim award. It could be a domestic award or a foreign award.
Time limit on arbitral awards
The Arbitration and Conciliation (Amendment) Act, 2015 introduced a new provision wherein a stipulated time limit is prescribed for the completion of the arbitration proceedings. Section 29A of the Act provides that an arbitration award shall be passed within 12 months from the date when the arbitral tribunal enters upon the reference. This duration can be extended by 6 months with the consent of both the parties.
Therefore, this Section provides a total period of 12+6 months, i.e. 18 months, for the completion of the arbitral proceedings and to pass an award. If the arbitrator fails to pass an award within this stipulated time frame, then his mandate shall be terminated, unless this period is further extended by the grant of a competent court.
The provision also states that, if the Court concludes that there has been a delay in the proceedings due to reasons attributable to the arbitral tribunal, then the Court has the discretion to order some reduction in fees of the arbitrator. This provision applies to arbitral proceedings, either domestic or international arbitrations, which commenced on or after 23rd October 2015; wherein India is the place of arbitration.
Section 29B of the Act mentions the fast track procedure. The parties to an arbitration agreement may enter into an agreement in writing, to have their dispute resolved by the fast track procedure. The objective of introducing these provisions was to make the arbitrators hear and decide matters expeditiously, within a stipulated time.
COVID-19
In December 2019 China reported to the World Health Organisation that there were several severe-pneumonia like cases in Wuhan. It came to be known as COVID-19 later, eventually growing into a pandemic. It spread rapidly across the entire globe. The virus belongs to the family of coronaviruses and is similar to SARS and MARS. The virus is capable of human to human transmission, which has resulted in several fatalities around the world.
Due to the spread of this epidemic, the Government of India imposed a lockdown on 15th March 2020. There is no possibility of the lockdown ending anytime soon with the exponentially increasing COVID-19 patients across the country. Most of the arbitration proceedings in India have been on a break since this period and are faced with the problem of completing the arbitral proceedings within 18 months (12+6 months) period as prescribed by the Act.
Impact on the time-limit of the arbitral award due to COVID-19 in India
Due to the pandemic, there is a world-wide crisis. This crisis has severely affected the financial conditions of countries as well. In light of the lockdown imposed, the functioning of the legal system has come to a halt. The pandemic has affected the third pillar of democracy, i.e. judiciary, as the Courts have stopped functioning except in urgent matters. The Courts have also shifted to the online mode and rely on video conferencing for hearings.
This lockdown will have an impact on the performance of obligations of parties, across all sectors. Most obligations would become impossible to perform. The impossibility of performance is dealt with in Contract Law under Section 56 of the Indian Contract Act, 1872 but the ramifications can be observed in the field of arbitration as well. Most importantly, it will affect the timelines within which the arbitral proceedings have to be completed and an arbitral award has to be rendered.
As explained above, Section 29A of the Arbitration and Conciliation Act, 1996 deals with the provision of the time-limit for arbitral awards. Along with this, Section 29B was also introduced in the Amendment Act, which provides for a ‘fast-track procedure’ for conducting the arbitration. There are consequences if the arbitral award is not rendered in the prescribed time. The Supreme Court in Jayesh Pandya vs. Subhtex India Ltd. & Ors. held that if there is a contractual term specifying a time limit in which the award must be rendered, then the arbitrator is duty bound to do so in that stipulated time, otherwise their mandate would be cancelled automatically.
The procedure can only continue if the courts extend the time limit. The Courts have to be given justification and evidence that there was a sufficient cause behind the delay. This depicts all arbitration proceedings must culminate in a time-bound manner.
COVID-19 has disarrayed all timelines in all arbitration proceedings across the world. The domestic arbitration is especially hit by the lockdown. Due to this, the conductance of an arbitration proceeding has become impossible. India has a considerable number of arbitrations taking place across the country; therefore, arbitral tribunals that have entered into reference are now timebound.
But, a pragmatic and holistic view of the issue has to be considered. The time lost due to COVID-19 should be excluded from the time-limit because it was impossible for the continuation of the arbitration.
Supreme Court’s Order
The Supreme Court of India took suo-moto cognizance of the issue and passed an order for the extension of the limitation. The Court stated that irrespective of the period of limitation in all court proceedings, prescribed either under the general or the special laws, will be extended till the Court passes further orders. This step was taken to ensure that the physical presence of the litigants or the lawyers is not required in the respective Courts or Tribunals. The Court exercised this power under Article 142 read with Article 141 of the Indian Constitution. As per Article 141, this order is binding on all Tribunals/Courts and authorities. The Supreme Court has thus stopped the limitation to run with effect from 15 March, 2020 till it passes any further orders.
Although the Supreme Court has extended the period of limitation for court proceedings but a plain reading of the order shows that there is no relaxation for the mandatory and non-extendable timelines prescribed under special laws. This means that timelines which are not related to filing of cases in Tribunals and Courts have to be compulsorily adhered to by the lawyers and litigating parties.
Consequently, the Indian Commercial and Arbitration Bar Association (ICABA) wrote a letter to the Apex Court. They sought clarification regarding the order dated 23 March and requested that the ambit of the said order should be extended to include circumstances such as time limit for an arbitral award under Section 29A. In such circumstances, the parties will be rendered remedy-less as they would not be able to approach the Courts for extension of time limit during the lockdown.
The imposition of a lockdown is reasonable cause for the extension of the mandate of the Arbitral Tribunal. If the arguments have been concluded by the respective parties in the arbitration proceedings and the Arbitral Tribunal has reserved the Arbitral Award, then due to the lockdown, the award passed by the Tribunal shall not be legally binding on the parties after the expiry of 18 months. Therefore, it becomes important to temporarily dilute the provisions of Section 29A. This would result in either suspension or extension of the statutory time limit for arbitration proceedings.
Impact on the time-limit of the arbitral award due to COVID-19 on International Commercial Arbitration
The Arbitration and Conciliation (Amendment) Act, 2019 brought some changes in Section 29A of the Act. Through this Amendment, it was decided that international commercial arbitrations would be excluded from the purview of the prescribed time-limit provided in this section. In spite of this, the parties should endeavour to adhere to the time limits.
The Amendment brought a significant change by taking international commercial arbitrations out of the purview of the duration of 18 months adjudication period. However, this Amendment had a prospective application, wherein it became applicable only in cases where the Arbitral Tribunal entered into reference after 30th August, 2019.
Hence, in cases of international commercial arbitration wherein the Arbitral Tribunal entered into reference before 30th August, 2019 – the provisions of Section 29A are applicable. Therefore, due to the imposition of the lockdown and further procedural difficulties, it can be inferred that there would be a cascading effect on foreign parties who belong to such countries where the effect of the pandemic is much less.
Several efforts have been made across the world to shift the process to Online Dispute Resolution in this difficult period of lockdown. In India itself, the Courts have started exploring the avenues of video-conferencing and teleconferencing. Some of the processes under arbitration, for instance, recording of witnesses are being done online but a specific order under Section 19 of the Act would be required at the initial stage of the commencement of the proceedings to implement this online process for the entire arbitration proceedings.
International Arbitral Tribunals across the world such as ICC International Court of Arbitration, Hong Kong International Arbitration Centre, Singapore International Arbitration Centre and other such international organisations have been actively making efforts to secure the rights of the litigants across the globe.
Therefore, till the time that an online system is devised for the conductance of the arbitration proceedings, the respective arbitrators should pass an order akin to the Supreme Court’s order for the suspension of arbitration proceedings.
Conclusion
The COVID-19 disease has spread globally, thereby affecting multiple institutions in multifarious ways. Since all proceedings have mostly been held in person, there are significant difficulties in embracing this change of hearing cases through video-conferencing. Digitalization is encouraged in India and therefore, platforms and software will have to be designed to accommodate the growing concerns of the litigants.
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