Delhi High Court on Amended Timelines under the Arbitration and Conciliation Act

[Divyansha Agrawal and Kanwar Abhay Singh are practicing lawyers at the Delhi High Court and are associate lawyers with Advani and Co.]

Section 29A of the Arbitration and Conciliation Act, 1996 deals with the time limit for passing an arbitral award. Currently, the Act provides a time limit of 12 months after the pleadings are complete for the tribunal to complete the arbitration proceeding and pass the arbitral award. According to section 23 of the Act, the filing of pleadings, i.e., statement of claim, statement of defence and rejoinder, if any, must be completed within six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment. Accordingly, a total period of 12 months from the time of completion of pleadings is available for an arbitral tribunal to pass an award in a matter, i.e., a maximum of six months for completion of pleadings and another 12 months for completion of the rest of the proceedings. The timeline can be further extended by another six months only by the mutual consent of the parties. The said timeline has been introduced through the amendment of the Act made by way of the Arbitration and Conciliation (Amendment) Act of 2019, which was rendered effective through a notification dated 30 August 2019. While the said timeline under section 23 is mandatory for domestic arbitration, it is only recommendatory for international commercial arbitration. Before the amendment of 2019, a total time of 12 months was available to the tribunal to complete the entire arbitral proceeding including the pleadings.

The merits and demerits of the said amendment to sections 23 and 29A of the Act have been widely discussed. The authors of this post are of the opinion that while the amendments were well intentioned they have had several unintended consequences in practice. Some of the already and rightly discussed outcomes include the resulted restriction on the parties regarding bifurcation of issues at several stages.  In this post, the authors aim to examine the confusion caused by the amended sections pertaining to timeline on the ongoing references to arbitration.

Early this year, two judgements have been pronounced, both by the single judge bench of the Delhi High Court, discussing the nature of these amendments in order to decide the timelines for arbitral reference in question. By way of an order dated 23 January 2020 in Shapoorji Pallonji and Co. Pvt. Ltd. v. Jindal India Thermal Power Limited, the Delhi High Court inter alia decided upon the applicability of the current section 29, as after the amendment to the Act in 2019, to an arbitral reference made before the amendment.  In this matter, the arbitral tribunal entered upon the reference on 26 May 2018. In terms of the unamended section 29A(1) of the Act, the time limit for completion of arbitration would expire on 26 May 2019. However, applying the amendment of 2019 to the case, the Court opined that, according to the current sections 23(4) and 29A (1) of the Act, the time limit for conclusion of the arbitration would be 25 November 2019, i.e., six months for completion of pleadings and 12 months for completion of rest of the arbitration proceedings. Further, under section 29A(3), parties are entitled to mutually extend the time limit by another six months and, accordingly, it was held that since both the parties consented to such an extension, the time period for conclusion of the arbitration could now be extended up to 23 May 2020. While making this order, the Court took a view that the amended sections 23(4) and 29A(1) of the Act, being procedural law, would be applicable to the pending arbitrations as on the date of the amendment.  

Interestingly, in a similar case brought before another single judge of the Delhi High Court, a contrary view was adopted on the retrospective applicability of the amended section 29A. In MBL Infrastructures Ltd. v. Rites Limited, a petition was filed before the Delhi High Court seeking extension of time for completion of arbitral proceedings and passing of award. Similar to the case of Shapoorji, here also the arbitral arbitral tribunal entered upon reference on 14 March 2018 and the statutory period of 12 months under the unamended section 29A(1) of the Act expired on 13 March 2019. The timeline was further extended by another six months by the mutual consent of both the parties and the final deadline was set for 13 September 2019. The timeline was further extended after permission by a court order dated 6 September 2019 until 12 March 2020. In the present petition for extension, it was contended that the amended timeline under section 29A should be applicable to the pending arbitrations and, accordingly, the original timeline for the arbitration would have expired on 13 August 2019, i.e., 12 months from the completion of the pleadings in that matter. It was requested that the timeline be recorded accordingly. However, while considering the applicability of the 2019 amendment to the Act, the Court in MBL Infrastructures held that the amended provisions of the Act will not apply to the facts of the present case as it is evident from a bare perusal of the notification dated 30 August 2019 that it does not have a retrospective effect.  Applying the unamended section 29A, the Court opined that the statutory period of 12 months for conclusion of arbitration expired on 13 March 2019, i.e., 12 months from the date of reference, and that a valid extension was granted by the court as on 6 September 2019. However, since both the parties submitted that the arbitration was at the stage of evidence and further time was required for an effective conclusion, a period of another six months was granted by the court. It is pertinent to note that, although granting an extension, it was made clear in MBL infrastructurethat there is no presumption regarding applicability of the amended sections 23(4) and 29A(1) of Act to pending arbitrations as on the date of the amendment.

Both of the above discussed cases have been pronounced by the single judge benches of the Delhi High Court, and they take inconsistent views on the applicability and interpretation of amended timelines under sections 23(4) and 29A(1) of Act to pending arbitrations. In terms of the view taken in Shapoorji Pallonji, according to the amended provisions of the Act, a total of 18 months would be applicable to the pending arbitrations, whereas in MBL infrastructure the Court opined that, even if the amendment was applicable to the pending arbitration, the timeline would expire upon the completion of pleadings. However, in MBL infrastructure it was clearly decided that the amended provisions are only prospectively applicable. The authors of this post have not come across any similar case laws on the matter. No pronouncement has been made by the Supreme Court on the issue leaving us in the dark regarding the correct position in law.

Conclusion

In the current scenario, with two contradictory judgments in hand, the applicable timeline for completion of an arbitral proceeding remains uncertain. Myriad of cases can be expected to seek the same clarification, as the schedules and the cost of arbitration will have to be ascertained accordingly. Although it is a general principal of law that procedural laws are retrospectively applicable, it is pertinent to note that if the same is taken true for sections 23(4) and 29A (1) without appropriate examination of the consequent results; the timelines of various pending arbitrations will be affected in ways unknown.

In case a retrospective application is allowed, one will have to decide which interpretation of the amended section 23(4) is to be adopted. It will have to examined whether a time limit of 18 months will be applicable to all the pending arbitrations as a matter of statutory right, as envisaged in Shapoorji Pallonji,or whether there will be a literal reading of the law as can also be inferred from the judgement in MBL Infrastructure whereby the timeline available will be 12 months from the completion of pleadings, which could even be less than 18 months.

Irrespective of the interpretation, it is bound to disturb the ongoing proceedings. In the opinion of the authors, it would be right to make the amendment applicable in a prospective manner without affecting any arbitration proceeding pending as on the date of the notification of bringing the amendment.

Divyansha Agrawal & Kanwar Abhay Singh

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