The Supreme Court’s (“SC”) recent[1]interpretation of the intent and scope of Section 29A of the Arbitration and Conciliation Act, 1996 (“Act” or “Arbitration Act”) has sent ripples through the Indian arbitration landscape. In this landmark verdict, Justices Sanjiv Khanna and R. Mahadevan have provided much-needed clarity and guidance on the extension of time limits for arbitral awards beyond the stipulated timeframe under Section 29A of the Act.
The Arbitration Act, enacted to provide a comprehensive framework for arbitration in India, has undergone several amendments, including the significant amendment vide the Arbitration and Conciliation (Amendment) Act, 2015(“2015 Amendment”). Pertinently, Section 29A of the Act, introduced via the 2015 Amendment, mandates the completion of arbitral proceedings within 12 months from the date of completion of pleadings under Section 23(4) of the Act, with an option of additional 6-month extension by mutual consent of the parties. Courts have often been called upon to ascertain if they have the authority under Section 29A of the Act to extend the said time limit for making an arbitral award beyond the prescribed timeframe.
Divergent Views of High Courts
The High Courts of Calcutta[2] and Patna[3] have taken a view that once the arbitral tribunal’s mandate expires after the initial 12 months (or the extended 6-month period), the courts do not have the authority under Section 29A (4) of the Act to extend the time for making an arbitral award. However, the Delhi[4], Bombay[5], Kerala[6], Madras[7], and Jammu and Kashmir and Ladakh[8] High Courts have taken a contrary view, allowing parties to file an application for extension even after the time limit has lapsed. The same view was adopted recently by Hon’ble High Court of Calcutta (“Calcutta HC”) in Ashok Kumar Gupta v. M.D. Creations and Others[9].
In light of the divergent views of the High Courts, the SC was faced with the question of ascertaining “whether an application for extension of time under Section 29A of the Arbitration and Conciliation Act, 1996 can be filed after the expiry of the period for making of the arbitral award”.
Analysis
To comprehensively understand the court’s powers to extend the time limit under Section 29A of the Act, the SC needed to reflect on the historical development of the said section. Initially, Section 28(1) of the Arbitration Act, 1940 (“1940 Act”) specifically empowered the courts to extend the time for making an arbitral award, irrespective of whether the original time had expired or the award had already been made. Section 28(2) of the 1940 Act allowed the parties to extend the time limit for making an award by mutual consent. Before the enactment of Section 29A, the Arbitration Act did not specify any time limit for making an award. It was only after the implementation of the 2015 Amendment that a time limit for making an award was prescribed.
As elucidated above, Section 29A prescribes time limit of 12 months (or the extended period of 6 months) from the completion of pleadings. Pertinently, Section 29A (4) states that if the arbitral award is not made within the said timeline, the mandate of the arbitral tribunal terminates unless the court has, either prior to or after the expiry of the period so specified, has extended the period.
The SC, while interpreting the Section 29A (4) of the Act, clarified that this provision is not applicable “…if the court has extended the period, either before or after the expiry of the initial or the extended term”. Therefore, it is abundantly clear that the court can extend the time limit for making an award. This has also been specifically mandated by Section 29A (5) of the Act, which allows arbitration proceedings to continue during the pendency of the extension application. However, the SC clarified that such extension is not granted mechanically as a right on filing of the extension application but only on providing sufficient cause, that too on the terms and conditions deemed just by the court.
SC’s Verdict
The SC, in its judgment, overturned the Calcutta HC’s decision in Rohan builders (supra), which was based on the reasoning that) the expression “terminate” in Section 29A (4) reflected the legislature’s intent to end the mandate of the arbitral tribunal once the specified (or the extended) timeline expired. The Calcutta HC held this view by relying upon the 176th Law commission report. However, the SC did not concur with the reasoning of the Calcutta HC in Rohan builders (supra) and concurred with the view adopted by Ashok Kumar Gupta (supra), another case decided by the Calcutta HC. The SC held that “…the legislature by using the word “terminate” intends to affirm the principle of party autonomy… .Clearly, the use of the word “suspension” would have led to infeasible ramifications”.
The apex court held that courts possess the discretion to extend the limitation period under Section 29A (5) of the Act, provided sufficient cause is demonstrated. The SC emphasised that an interpretive process should recognise the goal or purpose of the legal text. By giving a narrow interpretation to Section 29A (4), the court would be indulging in judicial legislation and prescribing a limitation period for filing application under Section 29A, which is not contemplated by the legislation.
It was concluded that Section 29A of the Act aims at ensuring the timely completion of arbitral proceedings, thereby focusing on the efficiency of the arbitration mechanism in India. A rigid interpretation of Section 29A would lead to several complexities, belying the objective of the Act. If the extension of time limit is not permitted, a party would have to run to court even before the expiry of the specified period. Hence, the SC offered a broad interpretation of Section 29A and permitted the extension of time as mandated under the Act.
Conclusion and the Way Forward
The SC’s verdict is a landmark in the arbitration landscape, recognising the importance of party autonomy by allowing parties to seek extensions when necessary. It is relevant to note that the SC has not neglected the importance of timelines; instead it emphasised that judicial discretion must be exercised cautiously, highlighting the safeguards given under the Act to ensure extensions are not granted mechanically.
The SC gave a meaningful interpretation to the Section 29A of the Act to avoid consequences that would result in unworkable or impracticable scenarios. Further, the court can also impose terms and conditions while granting such extension. In some cases, the court can reduce the fee up to 5 percent for each month of delay attributable to the arbitral tribunal as permitted by the first proviso to Section 29A (4) of the Act. Therefore, by clarifying the scope of Section 29A of the Act, the SC has ensured that arbitration proceedings are conducted efficiently and effectively.
For further information, please contact:
Shikha Tandon, Partner, Cyril Amarchand Mangaldas
shikha.tandon@cyrilshroff.com
[1] Rohan Builders (India) Private Limited v. Berger Paints India Limited, 2024 SCC OnLine SC 2494.
[2] Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Limited, A.P. 328 of 2023.
[3] South Bihar Power Distribution Company Limited v. Bhagalpur Electricity Distribution Company Private Limited, Civil Writ Jurisdiction Case No. 20350 of 2021.
[4] ATC Telecom Infrastructure Pvt. Ltd. v. BSNL, 2023 SCC OnLine Del 7135.
[5] Nikhil H. Malkan v. Standard Chartered Investment & Loans (India) Ltd., 2023 SCC OnLine Bom 2575
[6] Hiran Valiiyakkil Lal v. Vineeth M.V., 2023 SCC OnLine Ker 5151.
[7] G.N. Pandian v. S. Vasudevan, 2020 SCC OnLine Mad 737.
[8] H.P. Singh v. G.M. Northern Railways, 2023 SCC OnLine J&K 1255.
[9] 2024 SCC OnLine Cal 6909.
