[Megha Shaw is an advocate practising in the Supreme Court of India and Sachdev Sharma is a law graduate of NUJS, Kolkata]
In Rohan Builders (India) Private Limited v. Berger Paints India Limited (12 September 2024), a division bench of the Supreme Court of India decided on whether an application for extension of time under section 29A of the Arbitration and Conciliation Act, 1996 (the “A & C Act, 1996) can be filed after the expiry of the period for making of the arbitral award. The Supreme Court answered in affirmative to come to a finding that an application for an extension of time period for passing an arbitral award under section 29A(4) read with section 29A(5) can be filed even after the expiry of the twelve-month or the extended six-month period, as the case may be. This clarification settles the position of law by resolving the conundrum created by conflicting decisions of various High Courts. This post will deal with the interpretation of section 29A(4) of the A & C Act, 1996 while parallelly examining the need for eschewing literal interpretation as courts must strive to avoid unintended consequences.
Timeline under Section 29A of the A & C Act, 1996
Section 29A envisages dual time-limit of either twelve months or eighteen months from the date of completion of pleadings for making an arbitral award in matters other than international commercial arbitration without the intervention of the Court. Firstly, section 29A(1) states that the arbitral award shall be made within twelve months from the date of completion of pleadings. According to section 23(4), pleadings should be completed within a period of six months from the date of appointment of arbitrators. Thus, the ideal time-limit for completion of arbitration envisaged under the A & C Act, 1996 is eighteen months from the date when the arbitrators received notice of their appointment in writing. Secondly, section 29A(3) has devised a mechanism for extension of time by mutual consent of the parties up to another six months after completion of twelve months from the date of completion of pleadings. It is clear that extension beyond these six months, even by consent of the parties, is not permitted without the intervention of the High Court. Thus, after a period of twenty-four months from the date of appointment of arbitrators, the timeline cannot be extended without approaching the High Court for seeking extension of time under section 29A of the A & C Act, 1996.
Further, sections 29A(4) and 29A(5) of the A & C Act, 1996 empower the High Court to extend the period as specified under sub-section (1) and sub-section (3) of section 29A for making the arbitral award, as the case may be, only for sufficient cause and on such terms and conditions as may be imposed by the High Court upon application made by any of the parties. Thus, a party to the arbitration proceeding has to file an application before the High Court for further extension of time for making the award in case the award is not made within twelve months from the date of completion of pleadings or even after the extended six months period, i.e., eighteen months from the date of completion of the pleadings.
The second proviso of section 29A(4) allows the arbitration proceeding to continue during the pendency of the extension application filed under section 29A(5) before the High Court. However, the moot question which arises herein is whether the mandate of the arbitrator will terminate if an application for extension of time is not filed before the High Court even after the expiry of the period as specified in sub-sections (1) and (3) of section 29A.
Can the High Courts Allow an Application for Extension of Time Even After the Expiry of the Period Specified under Sub-sections (1) and (3) of Section 29A of the A&C Act?
After conducting a through examination of all the conflicting decisions of the various High Courts, the Supreme Court held that an application for extension of the time period for passing an arbitral award under section 29A is maintainable even after the expiry of twelve months or eighteen months, as the case may be. In order to understand the purport of sub-sections (4) and (5) of section 29A of the A & C Act, 1996, the relevant portion is extracted below:
Section 29A: Time limit for arbitral award.—
…
(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:
(…)
Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application
(…)
(5) The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the court.
The Supreme Court held in Rohan Builders that the word “terminate” in section 29A(4) makes the arbitral tribunal functus officio, but not in absolute terms and the same must be understood in light of the “syntax of the provision”. It is important to note that there is no full stop after the word “terminate”. The word “terminate” is followed by the connecting word “unless”, which qualifies the first part with the subsequent limb of the section, i.e., “unless the court has, either prior to or after the expiry of the period so specified, extended the period.” The Supreme Court has held that the expression “prior to or after the expiry of the period so specified” has to be understood with reference to the power of the court to grant an extension of time.
Accordingly, the termination of the arbitral mandate is conditional upon the non-filing of an extension application and cannot be treated as termination in a strict manner. It is not mandated that the extension application should be filed before the expiry of the extended period. While interpreting section 29A(4), the Supreme Court has explained that the word “terminate” in the contextual form cannot be interpreted as termination in the literal sense as if the proceedings have come to a legal and final end, and cannot continue even on filing of an application for extension of time. Therefore, the Court has clarified that termination under section 29A(4) is not absolute.
The Supreme Court further elucidated that the interpretation of the provision must be in accordance with the purpose of the legal text. The intention of section 29A is to ensure the timely completion of the arbitral proceedings while allowing the High Courts the flexibility to grant extensions when required. The Supreme Court has held that prescribing any type of limitation when it does not exist would be against the intention of the legislature and result in fatal consequences. The Supreme Court relied on North Eastern Chemicals Industries (P) Ltd. v. Ashok Paper Mill (Assam) Ltd. wherein it was held that when no limitation is prescribed, it would be inappropriate for any court to provide a limitation merely to supplant the legislative wisdom. The Supreme Court held that imposing a limitation for mandating the parties to file an application before the High Court even before the expiry of the time period would be a fallacious and an unacceptable approach as it is the duty of the courts to eschew a literal construction if it amounts to manifest absurdity or unjust result.
In a case where the extension application is not filed before the expiry of the time limit of twelve or eighteen months, as the case may be, from the date of completion of the pleadings, the consequence of non-filing before the said time period could not have resulted in termination of the arbitral mandate leading to complete failure of arbitration with no recourse available to the party after spending eighteen or twenty-four months in arbitration proceedings. Such interpretation would lead to manifest absurdity. Therefore, the Supreme Court held that a statute should not be interpreted in a way that leads to an unreasonable outcome if there is an alternative, equally feasible, interpretation that is logical, practical, and pragmatic.
Concluding Remarks
In light of the aforesaid discussion, the Supreme Court held that an application to extend the time period for delivering an arbitral award under section 29A(4) read with section 29A(5) is maintainable even after the expiry of the initial twelve-month period or the extended six-month period from the date of completion of pleadings, as applicable.
Further, the Supreme Court has unequivocally clarified that while adjudicating extension applications, the Courts must be guided by the principle of sufficient cause as extension should not be granted mechanically without application of mind in order to avoid the misuse of the provision. Under section 29A(5), the Court’s power to extend time should be exercised only when sufficient cause is established. Such extensions should not be granted automatically upon filing of an application and the High Courts should apply judicial discretion to prevent abuse of process or frivolous applications.
– Megha Shaw & Sachdev Sharma