The Uncertain Fate of Arbitrations Terminated under Section 29A of the Arbitration and Conciliation, 1996

[Sanjana Muraleedharan is a Senior Associate at Keystone Partners, Bengaluru]

A division bench of the Supreme Court is set to examine the position on termination of the mandate of an arbitrator where the application for extension under section 29A(5) of the Arbitration and Conciliation Act, 1996 (‘Act’) was not filed prior to termination of the mandate. The Special Leave Petition in Rohan Builders (India) Pvt Ltd. v. Berger Paints India Limited (SLP(c) No. 23320 of 2023) arises out of the judgment of the Calcutta High Court in Rohan Builders (India) Private Limited v. Berger Paints India Limited which held that where the application for extension was not filed by the parties before the expiry of the timeline under S.29A, the mandate of the arbitral tribunal would stand terminated.

Section 29A, which was incorporated under the Arbitration and Conciliation (Amendment) Act, 2015 (‘2015 Amendment’), introduced a timeline for passing the arbitral award within 12 months from when the arbitral tribunal entered reference. Under the Arbitration and Conciliation (Amendment) Act, 2019, the starting point for the 12-month timeline was amended to run from the date of completion of pleadings. The timeline provided is extendable in two stages: the first of six months through consent of parties under section 29A(3) and the second in the event the award is not passed in 18 months, through an application to court under section 29A(4). A second extension through the court is to be granted only “for sufficient cause and on such terms and conditions as may be imposed by the Court”. The court is also empowered under section 29A(6) to substitute one or all of the arbitrators while extending the timeline.

The question that arose before the Calcutta High Court, and now being considered by the Supreme Court, is the fate of an arbitration where the parties have approached the court for an extension under section 29(4) after the lapse of 24 months from the completion of pleadings. While section 29A(4) permits continuation of the proceedings while an application under section 29A(5) is pending consideration before the court, the Act is silent on the consequences of the parties having approached the court only after the expiry of the 24-month timeline. While the order of extension by the court may be passed after the expiry of the 24-month timeline, can the parties prefer such an application after the timeline has passed? In such circumstances, can the arbitration continue unabated in the interim? The Calcutta High Court answered the question in the negative, holding that in the absence of an application for extension filed within the timeline of 24 months of completion of pleadings, the mandate of the arbitrator would stand terminated.

The reasoning of the Calcutta High Court centered on the language of section 29A(4) that provides for the termination of the arbitral tribunal’s mandate “unless the Court has either prior to or after the expiry of the period so specified, extended period”, contrasted with the recommended language under the 176th Law Commission Report, which provided only for suspension of the mandate “until an application for extension is made to the Court by any party to the arbitration..”. The Court found that the legislature had departed from the Law Commission’s recommendation of only suspending the arbitral proceedings, choosing instead to provide for termination of the proceedings where the application for extension was not filed prior to termination of the mandate.

The Court also noted that the usage of the word “extend” in section 29A(4) to find that the question of “extension” of mandate would arise only where the mandate was alive and not otherwise. Lastly the Court found that the object of section 29A was to expedite the arbitration process – with an obligation being cast on both the tribunal as well as the parties to ensure that the award is made within the prescribed time period. To allow a party to file an application for extension at any point after the mandate expires would lead to an inevitable breach of the timelines envisaged and would go against the object of section 29A.

While different High Courts have taken divergent views in extending the timeline under section 29A, parties have filed the application for extension only after the mandate of the arbitrator had already ended. The inevitable question that arises relates to the fate of the arbitral proceedings when the mandate of the arbitrator prematurely terminates for want of an extension under section 29A.

Appointment of substitute arbitrators under S. 15 and continuation of the arbitration proceedings

While not elaborating on the issue, the Calcutta High Court observes that once the mandate of the arbitral tribunal terminates, the tribunal become de jure unable to perform its functions akin to a situation under section 14(1)(a) of the Act. With this position follows the conclusion that an arbitrator whose mandate has ended under section 29A can be simply substituted by parties in terms of section 15(2), which provides for appointment of a substitute arbitrator by the parties as per the original rules applicable to the appointment of the arbitrator. The substituted arbitrator could choose to continue the arbitration from where the proceedings were halted or may rehear matters already heard. Such an interpretation would mean that the arbitration proceedings itself would not be impacted by termination under section 29A – but the mandate of the individual arbitrator(s) alone.

A similar view has been taken by the Karnataka High Court in CG Gurucharan v. RK Estates (CMP 292/2015, Karnataka High Court Order dated 13 June 2019) in similar circumstances where the arbitrator’s mandate had ended without parties seeking an extension under section 29A. The High Court exercised its jurisdiction under section 15(2) to permit the appointment of a substitute arbitrator. The Court however did not examine the question of the applicability of section 15 to substituting an arbitrator whose mandate had ended under section 29A.

Appointment of an arbitral tribunal to commence fresh arbitration proceedings

The Delhi High Court took a divergent view in Raj Chawla and Co. Stock and Share brokers v. M/s Nine Media and Information Services Ltd. and Angelique International Ltd. v. SSJV Pvt Ltd. holding that the question of substitution of an arbitrator under section15(2) does not arise where the arbitrator’s mandate already stood terminated under section 29A. The same view has also been adopted by the Patna High Court in South Bihar Power Distribution Company Ltd v. Bhagalpur Electricity Distribution Company Pvt. Ltd. where the High Court took the view that the mandate of the arbitrator could not be extended when the application under section 29A was filed after the extended 18-month timeline. A new tribunal was constituted by the Patna High Court and the arbitral proceedings directed to be conducted afresh.

Closure of arbitration as a mechanism by the parties to resolve their dispute

While the Calcutta High Court has held that the same arbitration would continue, albeit through substituted arbitrators, the Delhi and Patna High Courts that a fresh arbitration would commence, the Bombay High Court has in the judgment in Fedbank Financial Service Ltd v. Narendra H Shelar taken the view that arbitration proceedings would be foreclosed to the parties in such circumstance.  This Bombay High Court in its judgment rendered though under section 11 of the Act declined the appointment of another arbitrator where the earlier arbitrator’s mandate ended under section 29A. In doing so, the Bombay High Court found that allowing appointment of another arbitrator would simply give a second go around for the same arbitration. The Court held that with the emphasis of arbitration law being on speedy and timebound disposal, the arbitration clause cannot be revived and brought to life a second time. The parties were left only at liberty to pursue other means of dispute resolution, with the arbitral remedy being closed.

It remains to be seen if the Supreme Court while considering the challenge to the judgment of the Calcutta High Court in Rohan Builders will also consider the fate of the arbitration and resolution of the disputes between the parties where the arbitral tribunal’s mandate has terminated prematurely under section 29A. The key questions are whether a substitute arbitrator ought to be appointed as the Karnataka High Court did in CG Gurucharan under section 15(2), or whether the arbitration in such event have to commence afresh or, in the alternative, whether the termination forecloses any further arbitration between the parties entirely.

Sanjana Muraleedharan

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