Applicability of Section 29A of the Arbitration and Conciliation Act

Introduction

The Arbitration and Conciliation Act, 1996, was amended in 2015 and passed on 17 December 2015 by Lok Sabha and Rajya Sabha passed it on 23 December. On 31 December 2015, the act received Presidential assent. Section 29A is one of the notable provisions introduced to the act after the amendment. As per section 29A of the act, all arbitrations must be concluded within one year of the arbitral tribunal being constituted. The parties by the means of a mutual agreement may extend this period for up to six months, giving the arbitration tribunal a total period of eighteen months to complete the arbitration proceedings. If such an award has not been given within eighteen months, the parties can approach the appropriate court which can grant an extension if it is satisfied that the delay is due to a reasonable reason, without which the arbitrators’ mandate is terminated.[1] The bill was based in large part on the Law Commission’s recommendation in its 246th Report[2]. The Section 29A contains certain provisisons which was completely new in the Indian Jurisdiction and in contrary to most of the provisions of the Act, Section 29A doesn’t have any mention in the 246th Report. The said clause, stipulated in Section 29A of the Act, extends to domestic as well as international arbitration. The only catch with respect to the applicability of the clause is that it must begin on or after 23 October 2015 where the place of arbitration is anywhere within the geographical boundaries of India. With respect to Section 29A, two potential paths were available to the legislature. On the one hand, the soft solution focused on the inclusion of a ‘pious hope’ clause underpinning the desirability of early completion of the arbitral proceedings. The harder approach focused on inviolable time-limits and incentivizing the rapid conclusion of arbitration proceedings, monetary or otherwise, on the other.

In order to critically analyze the application of Section 29A of the act, the article is divided into three parts. The first part of the article will look into the interpretation of the Section 29A, while the second part will take into consideration, the views taken up by the Court regarding the applicability of the Section 29A. The article will finally culminate into understanding the applicability of Section 29A in the times of Covid-19 pandemic.

Interpretation of Section 29A of the Arbitration and Conciliation Act, 1996

Section 29A (1)[3] specifies that an arbitral award shall be granted in all cases within 12 months of the date on which the appeal is joined, i.e. the effective day on which the tribunal is appointed. Section 29A (3)[4] requires the parties to extend such a time by consent but only within 6 months. Article 19 of the UNCITRAL Model Law[5] on which the Arbitration and Conciliation Act of 1996 is based specifies that, according to the terms of that statute, the parties are free to decide on the procedure to be followed in the conduct of the proceedings by the arbitral tribunal.The object of this party autonomy is to allow the parties to arrange the proceedings, tribunal composition and procedure, taking into account the nature and complexity of the dispute. By requiring parties to come to court in the event that a dispute cannot be settled by arbitration within 18 months, the statute has unreasonably prevented parties from determining the essence of the arbitration, by their needs and, more importantly, by the dispute, within themselves.[6]

The Arbitration and Conciliation Act system is intended to limit judicial interference to the fullest. Section 5 of the 1996[7] Act reads as: “Notwithstanding anything found in any other law for the time being in effect, no judicial authority shall interfere in matters regulated by this Part except as provided for in this Part.” However, section 29(4) of the act requires the parties to the arbitration proceedings to file a petition to the competent court with a view to extending the time period beyond the 18-month time frame, even though the parties consent to such an extension unanimously. Such conduct by the parties imposes on them judicial interference which is in total contradiction with the arbitration scheme and intent stated in the 1996 Act. Such judicial interference is in turn likely to cause further delay in resolving the conflict. The Amendment Act, 2015 stipulates that a request for extension shall be disposed of as soon as possible and the Court shall attempt to dispose of the request within a period of sixty days from the date of the amendment. However, this approach may be excessively optimistic given the overburdened state of the Indian judiciary.

One of the main features regarding the Arbitration proceeding is the confidentiality of the proceedings.[8] The parties may choose to come for the arbitration proceeding because of the fact of keeping the matter away from the reportable public domain by taking it to the court of law. In cases where the parties to the arbitration agreement are required to appear before a competent court to document the arbitration process, they may be compelled to violate their own confidentiality accords.

Section 29A (4) provides that, if the Court considers the reason for the delay to be due to the arbitral tribunal, it the order a reduction in the arbitrators’ fees. In accordance with the principles of natural justice and “audialtermpaterm,” it is important to consider the responsible party, which would be the arbitral tribunal itself in the present scenario.[9] Nevertheless, an adversarial process involving the tribunal itself would hardly be realistic. Additionally, once such an appeal is determined, the complexities of the tribunal may be shot to bits.In the event that a party requested the arbitral tribunal to impose expenses, and the same was rejected and the extension granted, the party could also demand recusal from the arbitral tribunal based on the tribunal’s perception of prejudice.

View taken by the Court in the cases related to article 29A of the Act

The Courts have times and again had conflicted views regarding the usefulness of Article 29A of the Arbitration and Conciliation Act, 1996. As is obvious, there is some ambiguity in the use of the somewhat nebulous term “sufficient cause” in the context of time extension.The term “sufficient cause” only refers to the aspect of delay or itwould also include other elements within itself which could give the Court serious consideration as to how the arbitral tribunal conducted the proceedings?[10] In the aforementioned context, if one were to conduct a study of the judicial precedents on the subject, the courts seem to have veered uniformly towards an extremely restrictive interpretation of the term “sufficient cause” as it appears in Section 29A by interlinking it with the delay aspect alone.

In the case of ‘Nilesh Ramanbhai Patel v Bhanubhai Ramanbhai Patel[11]’, the Gujarat High Court considered whether the term ‘Court’ could be interpreted in the light of Section 29A as referred to in Section 2(1)(e) of the Act[12]. The Gujrat high court named the arbitrator. The proceedings could not, however, be concluded within the specified time period. Consequently, a case for extension was lodged before the Gujrat High Court. It was argued, however, that the Gujarat High Court, having appointed the arbitrator, had become a ‘functus officio’ and the appeal for an extension of time will lie only before the Civil Court.The Gujarat High Court, after reviewing the scheme of Section 29A, challenged whether it was the legislature’s intention to vest the Civil Court with the power to appoint arbitrators by substituting the arbitrators named by the High Court under Section 11 of the Act. The Gujarat High Court also noted that in the case of international commercial arbitrations the same condition will occur, where the power to select the arbitrator resides solely with the Supreme Court. Accordingly, the High Court concluded that this dispute can only be avoided by recognizing the word “Court” for the purpose of Section 29A as the Court which appointed the arbitrator.[13]

A similar view was taken by the High Court of Bombay in “Cabra Instalaciones Y Servicios, S.A. v Maharashtra State Electricity Distribution Company Limited[14]”.Under Section 29A of the Act, the petitioner approached the High Court and requested a six-month extension for the arbitral proceedings to be completed and the award passed. The arbitration was an international commercial arbitration, and under Section 11 of the Act[15] the arbitrator had been appointed by the Supreme Court. It seems that in this situation, this was the second time an extension had been requested from the High Court, and the arbitral tribunal’s term had already been extended by the High Court on a previous occasion.Notwithstanding an earlier extension, the High Court considered whether, under Section 29A, it would have jurisdiction to entertain the request for an extension of time when the arbitrator was appointed by the Supreme Court under Section 11 of the Act. The High Court concluded that it did not have the jurisdiction to pass any orders under Section 29A in the case of international commercial arbitrations, and that such power would lie solely with the Supreme Court. Noting that Section 29A also provided for the court in question to substitute the arbitral tribunal when considering a request for an extension of time, the High Court held that this would be the Supreme Court’s exclusive power and jurisdiction.[16]

The Kerala High Court, however, took a completely different view. In the seminal judgment of “M / s. URC Construct (Private) Ltd. v M / s. BEML Ltd[17]”, the High Court of Kerala held that, in the case of domestic arbitration, in the light of Section 2(1)(e), the appeal for an extension of time pursuant to Section 29A will rest with the central Civil Court, because the High Court of Kerala did not have the original civil jurisdictions.

In the unreported decision of ‘Orissa Concrete and Allied Industries Ltd. v. Union of India &Anr[18]’, the High Court of Delhi noted, as before, the opposition to the appeal for extension on the ground that the arbitral tribunal allegedly did not have a proper opportunity for the resisting party to hear it. The aforesaid principle was further reiterated by the High Court of Delhi in “Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India[19]”.Various other High Courts have also arrived at a similar conclusion. To elucidate with a few examples, the High Court of Bombay in the judgment of ‘FCA India Automobiles Pvt. Ltd. v. Torque Motor Cars Pvt. Ltd. & Anr[20]’, while granting the extension for which he requested, the court declined to investigate the validity of the various orders issued by the arbitral tribunal concerning the payment of fees and the rejection of the request for termination of the contract submitted by the resisting party pursuant to Sections 12 and 13 of the Arbitration Act[21], finding the same to be outside the reach of the review pursuant to Section 29A.

COVID-19 effect on the time limit for arbitration, as set out in Section 29A of the ActCOVID-19 pandemic has undoubtedly disarranged all timelines and schedules in each and every arbitration across the globe, in particular domestic arbitrations due to the lockdown. None of the parties or the arbitrators might have foreseen this condition and it has led to a case of arbitration proceedings becoming difficult to execute.Nevertheless, taking a realistic and holistic view of the matter, this time lost in the lockdown due to COVID-19 virus is liable to be omitted as a time of inability to continue with arbitration.In fact, taking notice of this horrible situation in which the parties and their lawyers were unable to take legal action to pursue their petitions / applications / appeals / other proceedings, the ‘suomotu’ of the Supreme Court raised the issue of the extension of the restriction vide order of 23-03-2020 in the matter of “Cognizance of Extension of Limitation[22]”. The court held that, “In order to resolve these difficulties and to ensure that lawyers / litigators do not have to come physically to file these proceedings in their respective courts / courts throughout the world, including this Court, it is hereby ordered that a limitation period in all such proceedings be extended, irrespective of the limitation prescribed by general law or by special laws, whether to be acceptable or not”. Supporting the order passed by the Court in the interests of justice, the time lost due to corona virus pandemic, i.e. at least from 15-03-2020 before further orders of the Apex Court restarting the time of limitation, must also be removed. The schemes under Sections 29-A and 29-B of the Arbitration & Conciliation Act, 1996 are also kept on  hold. [23]

Conclusion 

The Section 29(A) of the act specifically seeks to remove the problems encountered during the execution of arbitration proceedings and the subsequent court proceedings. A separate time frame to conclude the complaint, the arbitral tribunal will have a full one-year cycle to completethe trail and move the award. But the section 29(A) does come with certain limitations that will in the long run affect the arbitration proceedings. The Section defies the two biggest pillars of arbitration namely the confidentiality and the notion of “audialtermpaterm”.[24] The very act of going to a competent court of law in solving the issue of extension of time and the tribunal gives the entire power of deciding the issues completely takes the good will of the section to a haywire. In its present form, Section 29A is only likely to prolong the proceedings further and enable parties to prolong the arbitration proceedings that are pending when they find the arbitral tribunal unlikely to rule in their favor. The recent Covid-19 pandemic has put the entire notion of timely completion of the arbitration proceeding in a sleep box.

References:

[1]RuchikaDarira, Section 29A Of The Amended Indian Arbitration And Conciliation Act, 1996, SINGH & ASSOCIATES (July 24th, 2020, 12.30AM), https://www.mondaq.com/india/arbitration-dispute-resolution/592764/section-29a-of-the-amended-indian-arbitration-and-conciliation-act-1996#:~:text=India%3A%20Section%2029A%20Of%20The,Arbitration%20And%20Conciliation%20Act%2C%201996&text=If%20the%20arbitral%20award%20is,jurisdiction%20grants%20a%20further%20extension.

[2] Law Comission Report 246th.

[3] The Indian Arbitration and Conciliation Act 1996 § 29A (1).

[4] The Indian Arbitration and Conciliation Act 1996 § 29A (3).https://thecorporate.ninja/wp-admin/post.php?post=1657&action=edit

[5] UNICITRAL Model Law § 19.

[6] Gaurav Juneja and Aayush Jain, Applications for Extension of Time for Passing the Award in India: Which Court to Entertain?, KLUWER ARBITRATION BLOG (July 24th, 2020, 11.30AM), http://arbitrationblog.kluwerarbitration.com/2020/01/01/applications-for-extension-of-time-for-passing-the-award-in-india-which-court-to-entertain/?doing_wp_cron=1595483588.7652850151062011718750.

[7] The Indian Arbitration and Conciliation Act 1996 § 5.

[8] VikasGoel, Insight to the Arbitration and Conciliation Act, 1996, SINGHANIA & PARTNERS (July 24th, 2020, 12.30AM), https://singhania.in/insight-to-the-arbitration-and-conciliation-amendment-act-2019/.

[9] SanjeeviSeshadri, S. 29A of the New Indian Arbitration Act: An attempt at slaying Hydra, KLUWER ARBITRATION BLOG (July 24th, 2020, 02.30AM), http://arbitrationblog.kluwerarbitration.com/2016/02/02/s-29a-of-the-new-indian-arbitration-act-an-attempt-at-slaying-hydra/?doing_wp_cron=1595483412.2007770538330078125000.

[10] The Indian Arbitration and Conciliation Act 1996 § 11.

[11]NileshRamanbhai Patel v BhanubhaiRamanbhai Patel 2019 (2) GLR 1537.

[12] The Indian Arbitration and Conciliation Act 1996 § 2(1)(e).

[13] Amit George and Piyo Harold Jaimon, NPAC’s Arbitration Review: Extension of time under Section 29A of the Arbitration Act and the limited scope of examination by the Court, BAR & BENCH (July 24th, 2020, 6.30PM), https://www.barandbench.com/columns/npacs-arbitration-review-extension-of-time-under-section-29a-of-the-arbitration-act-and-the-limited-scope-of-examination-by-the-court.

[14] CabraInstalaciones Y Servicios, S.A. v Maharashtra State Electricity Distribution Company Limited 2019 SCC OnLineBom 1437.

[15] The Indian Arbitration and Conciliation Act 1996 § 11.

[16] Smriti Shukla, Section 29A: Hurdle to the Confidentiality of Arbitral Proceedings, RMLNLU ARBITRATION BLOG (July 23rd, 2020, 3.40PM), https://rmlnluseal.home.blog/2020/02/15/section-29a-hurdle-to-the-confidentiality-of-arbitral-proceedings/.

[17] M / s. URC Construct (Private) Ltd. v M / s. BEML Ltd (2017) 4 KLT 1140.

[18] Orissa Concrete and Allied Industries Ltd. v. Union of India &Anr 1998 SCC OnLine Cal 556.

[19] Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India 2017 SCC OnLine Del 6851.

[20] FCA India Automobiles Pvt. Ltd. v. Torque Motor Cars Pvt. Ltd. &Anr 2018 SCC OnLineBom 4371.

[21] The Indian Arbitration and Conciliation Act 1996 § 12.: The Indian Arbitration and Conciliation Act 1996 § 13.

[22] Cognizance for Extension of Limitation, 2020 SCC OnLine SC 343.

[23]Alok Jain and Dhruv Jain, Arbitration in the time of COVID-19, BAR & BENCH (July 23rd, 2020, 1.45PM), https://www.barandbench.com/columns/arbitration-in-the-time-of-covid-19.

[24]Smriti Shukla, Section 29A: Hurdle to the Confidentiality of Arbitral Proceedings, RMLNLU ARBITRATION BLOG (July 23rd, 2020, 3.40PM), https://rmlnluseal.home.blog/2020/02/15/section-29a-hurdle-to-the-confidentiality-of-arbitral-proceedings/.