Unravelling the legal conundrum of the Section 29A of the Arbitration and Conciliation Act, 1996 (as amended in 2015)

Time bound Arbitration

Section 29A of the Arbitration and Conciliation Act, 1996 (as amended in 2015) stipulates time for the completion of the arbitration proceedings. Since the advent of the Arbitration and Conciliation Act, 1996, there was a continuous criticism that it takes a lot of time to complete the arbitration proceedings since there is no time set by the Act under which an arbitration proceeding should be completed. Arbitration in India is often criticized as the newest form of litigation, for being slow, expensive and ineffective.

Taking into account the clamour for a complete overhaul of the Act, the Law Commission of India had submitted its 246th report to the Ministry of Law and Justice in August, 2014 (the "Report") with its recommendations to amend the Act.

Comparison of the Old and the New Act with respect to time limit for completing the arbitral proceedings:

While considering the time stipulation according the 2015 amendment, if we compare the Old Act of 1940, and the Act of 1996, it is found that under the Old Act of 1940 the time stipulated for preparing and publishing the award was 4 months subject to the condition that the parties by consent could enlarge such time or under section 28 the Court either before or after the award was made by the Arbitral Tribunal could enlarge the time based on the application made by either of the parties. 

However under the New Act (as amended in 2015), no time limit was placed for publishing the award and to complete the proceedings. This has created huge ruckus and not in consonance with the whole objective of the Arbitration Act, 1996. 

The purpose of the amendment and also recommendations were made in the Report to make the arbitration process quicker and cost effective, reduce the intervention of the courts and make the enforcement of arbitral awards easier. Through the recent amendment a new provision is inserted into the Act (section 29A) requiring Arbitral Tribunals to render awards within 12 months, which can be extended to another six month on mutual agreement between the parties and upon showing sufficient cause, a further extension beyond the period of 6 months would only be sought from the Court. By this newly inserted 29A, the intention of the legislature is to make arbitration more effective and speedy. Further, the counting of period will start from the date of constitution of Arbitral Tribunal.

In addition to the 12 months as prescribed by the Act, parties have the discretion to extend the period by another 6 months, by way of filing of an application for extension. If still the award is not made within the extended period of 6 months, then the mandate of arbitrator’s shall deem to be terminated, unless the court extends the period. On application being made by either of the parties, the Court can extend before expiry of additional 6 months or after expiry of 6 months.

For fast track arbitration (small and simple claims) upper limit of one year time frame would have been ideal. Section 29A to the Act (as amended in 2015) provides for following things in particular:

1.     Every award must be made within twelve (12) months from the date the arbitrator receives a written notice of appointment;

2.     On expiry of the 12 months, as aforementioned, the parties may mutually decide to extend the time limit by not more than six (6) months;

3.     If the award is not made within eighteen (18) months, then only a court can extend the period as it may deem fit, upon an application filed by either of the parties;

4.     That further if, the court, while extending the time for making the award, finds that the delay was attributable to the Tribunal, it may order a reduction in the arbitrator's fee by an amount not exceeding 5 per cent for each month of such delay;

5.     While extending the time limit the court may also change arbitrators as it may deem fit and can also impose certain conditions on the parties and the arbitrators;

6.     Application filed before the Court for extension shall be disposed off within sixty (60) days from the date the opposite party receives the notice; and

7.     In furtherance, if the award is made within six (6) months, the Arbitrators shall be entitled to receive such additional fees as the parties may agree.

Applicability of Section 29A

The primary question which we would discuss is the present provision under discussion is retrospective in nature. Recently, the Hon’ble Madras High Court, in the case of Delphi TVS Diesel Systems Ltd. v. Union of India vide order dated 26th November, 2015, had directed the Center to examine the issue of pending arbitration proceedings as the provision was not the one which was recommended by the Law Commission...

It was quoted,

“here would be huge litigations unnecessarily generated in respect of the pending arbitrations and the provision being procedural in nature fixing the time limit, it can be clarified that it would be either not applicable to the pending arbitrations or if it is applicable to the pending arbitrations, the time period specified therein would commence from the date of the Ordinance, to obviate such unnecessary litigations,”.

Problems in Implementation:

This section is largely based upon the recommendations of the Law Commission in its 246th Report, Section 29A was not an amendment suggested in the Report and seems to be without parallel in any other domestic jurisdiction. Though it’s a novel provision, and certainly directed at an existing weakness in the present context of extremely slow arbitrations, section 29A insofar as it arbitrarily restricts party autonomy is fundamentally opposed to a basic premise of arbitration and is likely to cause a variety of problems in implementation.

Section 29A (1) provides that in all cases, an arbitral award must be rendered within 12 months from the date of entering upon the reference i.e. the effective day on which the tribunal is constituted. Section 29A (3) permits the parties, by agreement, to extend such a period, but only to the extent of 6 months. Article 19 of the UNCITRAL Model Law (on which the Arbitration and Conciliation Act, 1996 (‘Act’) is based) provides that, subject to the provisions of this law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. The purpose of this party autonomy is to allow the parties to structure the proceedings, composition of the tribunal and procedure keeping in mind the nature and complexity of the dispute. By forcing parties to come to court in the event that a dispute cannot be resolved by arbitration within 18 months, the law has unreasonably restricted parties from deciding between themselves the nature of the arbitration, per their needs and more importantly per the dispute.

The scheme of the Act (as amended in 2015) is to minimize judicial intervention as evinced by the inclusion of Section 5. However, by forcing parties to approach the Court in order to extend the period beyond 18 months, even if they mutually agree to such an extension, is to foist judicial intervention upon them in contradiction to the scheme and purpose of arbitration.

It further violates their confidentiality, the sole integration to arbitration proceeding is confidentiality, by opening another avenue for judicialintervention confidentiality of the parties in the ongoing arbitration would seriously be hampered.

It provides a very curious provision because Section 29A (4) provides that, if the Court finds that the reason of the delay is attributable to the arbitral tribunal, it may either appoint a new arbitrator or may order for reduction in the fees of existing arbitrator or arbitrators. Presuming the order passed by the Court is for appointment of a new arbitrator then the parties would have to argue and address all the issues again to the newly appointed arbitrator, when there is Sole Arbitrator for adjudication of disputes.

Section 29A (5) provides that the Court may only grant an extension of the time under Section 29(4) when it is satisfied that there exists ‘sufficient cause.’ The phrase sufficient cause has also been used in Section 5 of the Limitation Act, 1963 which is entitled EXTENSION OF PRESCRIBED PERIOD IN CERTAIN CASES. Given the similarity with the proceedings under this sub-section, it is likely that Courts will turn to judicial decisions on S. 5 for guidance. These decisions generally provide that the power must be applied in a reasonable, pragmatic, practical and liberal manner, depending upon the facts and circumstances of the case, and the type of case. Thus there has been a very wide discretion created by the use of the words ‘may’ & ‘sufficient cause’ granted to the Court in deciding whether or not an arbitration should be extended. This might lead to a scenario wherein lengthy proceedings ensue as parties lead large amounts of evidence and arguments in order to convince the Court of the need for extension or otherwise. Further the decisions of the Courts under this sub section will be judicial decisions and thus open to appeal to the Supreme Court of India under Article 136, a situation which will only further allow parties to delay the proceedings if they so desire. It empowers the Court on their discretion to remove the arbitrator in case they find that there has been delay in the proceedings, I believe this may cause embarrassment to them because the arbitrators are generally the retired High Courts and Supreme Court Judges.

This time limit as stipulated under the present provision appears to be too short for complicated disputes and it should have been at least 2 years instead of 1 year. In the midst of speedy disposal the legislators missed out on the purpose of effective disposal, time bound arbitration will open flood gates for judicial intervention on before, after and ongoing arbitration proceedings.