[Divyansha Agarwal and Kunwar Abhay Singh are practicing lawyers at the Delhi High Court, and are associate lawyers with Advani and Co.]
On July 21,2020, the Delhi High Court, in the matter of ONGC Petro Additions v Fernas Constructions Co. Inc., finally brought an end to the long-drawn confusion on the applicability of the amended timelines under section 29A of the Arbitration and Conciliation Act, 1996, brought into effect by the Amendment Act of 2019 (‘2019 Amendments’). Before this, there were two conflicting judgments of coordinate benches of the Delhi High Court, namely Shapoorji Pallonji & Co. Pvt. Ltd v Jindal India Thermal Power Ltd and MBL Infrastructures Ltd v Rites Ltd (discussed by the authors on this Blog here), on the same issue, causing ambiguity regarding the operative timelines for ongoing arbitrations. In this post, the authors will analyze the High Court’s judgement in Fernas Constructions, and its implications on ongoing arbitrations in India.
The dispute in Fernas Constructions arose out of a contract executed between the ONGC and Fernas India. Pursuant to the dispute, ONGC invoked arbitration against Fernas India and Fernas Constructions. Fernas Constructions, a company incorporated under the laws of Turkey, is the parent company of Fernas India. Fernas Constructions filed an anti-arbitration suit before the Delhi High Court claiming that it is not a proper party to the dispute. The Delhi High Court referred the matter back to arbitral tribunal for adjudication, and the same stands pending as of date.
Thereafter, ONGC filed a petition before the Delhi High Court for extension of time under section 29A, whereby the High Court, by way of its order dated September 25, 2019, allowed additional 18 months to the arbitral tribunal to complete the proceedings and render the award. After the disposal of the petition, an interesting question arose before the arbitral tribunal which probed a clarification on the order of the High Court. The arbitral tribunal observed, that if the Fernas Constructions was to become a party to the arbitration, then the arbitration would become an international commercial arbitration, and according to section 29A, the statutory limit of concluding the arbitration within 12 months of completion of pleadings would not apply to it. Hence, the arbitral tribunal directed the parties to seek a clarification on the said order of the High Court.
The issue of the applicability of the amended section 29A to this case arose, as a section 29A application was filed by ONGC before the amended section came into effect. This application was filed on May 31, 2019 (and refiled on June 17, 2019). However, the amended Section 29A of the Act came into effect on August 30, 2019. The High Court, while deciding on the application seeking clarification, held that the amended section 29A would be applicable to all the pending arbitrations, as on August 30, 2019, and initiated after October 23, 2015.
Factors for the decision
In order to decide this case, the High Court delved upon the issues arising out of the contradicting case laws on the applicability of amended section 29A to pending arbitrations as on August 30, 2019.
As already discussed in this blog here, the existing case laws on the issue before this judgement were Shapoorji Pallonji and MBL Infrastructures. In Shapoorji Pallonji, it was decided that the amended section 29A is procedural in nature, and hence, should be applicable retrospectively. On the other hand, in MBL Infrastructures,it was held that, from the perusal of the notification dated August 30, 2019, the amended section 29A did not appear to have retrospective effect. However, the Court in the present case highlighted that the order in MBL Infrastructures was made without reference to the order in Shapoorji Pallonji, which was decided prior in time, and to that extent, the order in MBL Infrastructures was held per incuriam.
Further supporting the position in Shapoorji Pallonji, the Court referred to BCCI v Kochi Cricket (P) Ltd. and Hindustan Construction Company Ltd v Union of India. In BCCI, the Supreme Court held that although section 29A of the Act was procedural in nature, it created a new obligation in respect of a proceeding already begun under the unamended Act, as envisaged under section 26 of the Act. Accordingly, owing to section 26, retrospective application of section 29A was held impermissible.
In Fernas Constructions, a distinction was made by the Court from the position in BCCI, as section 29A of the Amendment Act of 2015 (‘2015 Amendment’) was accompanied by section 26, which restricted the retrospective operation of section 29A. However, it was observed that section 29A, after the amendment of 2019, is not accompanied by a similar section which would restrict the application of the provision on pending arbitrations initiated before the 2019 Amendments. In fact, the 2019 Amendments further deleted the said section 26 of the 2015 Amendments. However, the said deletion was set aside in Hindustan Constructions.
Hence, the High Court held that the amended section 29A, being procedural in nature, would be applicable to all the pending arbitration as on August 30, 2019, which were initiated after October 23, 2015, as per Hindustan Constructions.
The judgement highlights the distinction between substantive and procedural laws: while the former creates and bestows rights on the parties, the latter provides a procedure to exercise those vested rights. Further, the Court acknowledged that while procedural laws, as conventionally understood, are considered to have a retrospective application, in cases where the statute explicitly provides that procedural laws shall be prospectively applied, the same shall be given effect to.
In light of the above understanding, section 29A of the 2015 Amendments is procedural in nature. However, as observed in BCCI, it is bound by section 26 of the Act, which renders the application of section 29A prospective.
The genesis of the present conundrum originated with the advent of the 2019 Amendments, which amended the statutory timelines in section 29A, and deleted section 26 of the Act. Further, no specific or separate section replaced section 26, defining the periphery of application for the amended section 29A. In this scenario, the amended section 29A would have been retrospectively applicable, binding all the arbitrations initiated before August 30, 2019 (enactment of the 2019 Amendments) to the statutory timelines in the domestic arbitrations, and the courts would have been flooded with section 29A applications, seeking extension of time. This is in consonance with the view taken by High Court in Shapoorji Pallonji.
However, the Supreme Court made its knight move in Hindustan Constructions, wherein it restored section 26 of the 2015 Amendments. Now, in an interesting development, the amended section 29A, without a mast until Hindustan Constructions, again applies along with section 26 of the 2015 Amendments. However, since section 26 came into being on October 23, 2015 (enactment of the 2015 Amendments), it binds section 29A of the 2015 Amendments to apply prospectively from this date. Therefore, the amended section 29A shall be applicable to all the arbitrations initiated after October 23, 2015. For the sake of convenience, this period of application can be divided into two parts, i.e., retrospective application from October 23, 2015 to August 30, 2019, and prospective application on all arbitrations initiated after August 30, 2019.
The High Court has taken a pragmatic approach in reaching its decision. Strict timelines for conducting arbitrations under section 29A were first introduced in 2015, and appropriately revised in 2019. However, the application of the concerned provision had been a subject of confusion for a long time. Going forward, in the absence of a relevant pronouncement by the Supreme Court, except in the case of BCCI Kochi, the judgement of the Delhi High Court in Fernas Constructions concludes the issue of the applicability of the statutory timelines.
– Divyansha Agarwal and Kunwar Abhay Singh