Arbitral Award A Nullity If Passed Beyond Prescribed Period: Telangana High Court
The Telangana High Court has held that the provisions of Section 29A of the Arbitration and Conciliation Act, 1996 (A&C Act) are cast in mandatory terms and the mandate of the arbitrator terminates under Section 29A(4) after the expiry of the prescribed period, making the arbitrator functus-officio and the award passed by him a nullity. The Bench, consisting of Justice P. Naveen...
The Telangana High Court has held that the provisions of Section 29A of the Arbitration and Conciliation Act, 1996 (A&C Act) are cast in mandatory terms and the mandate of the arbitrator terminates under Section 29A(4) after the expiry of the prescribed period, making the arbitrator functus-officio and the award passed by him a nullity.
The Bench, consisting of Justice P. Naveen Rao and Dr. Justice G. Radha Rani, ruled that substitution of Section 29A(1) of the A&C Act by the Amendment Act of 2019, amending the time limit for making an award, does not operate retrospectively, and merely because the word substitution is used the amended provision does not relate back to the date of the original provision.
The respondent M/s Shriram City Union Finance Limited sanctioned a loan to the petitioner Roop Singh Bhatty, which was not discharged by it. The respondent thereafter invoked the arbitration clause. The Arbitrator passed an award against the petitioner. Since the amount quantified by the Arbitrator was not paid by the petitioner, the respondent Shriram City Union Finance filed an Execution Petition before the Additional District Judge (ADJ), who allowed the Execution Petition. The petitioner filed revision petition before the Telangana High Court against the order passed by the ADJ.
The petitioner Roop Singh Bhatty submitted before the High Court that the arbitral award was not passed within one year from the date of filing of the claim by the respondent, therefore, the arbitral award was a nullity and could not be enforced. The petitioner averred that as per the unamended Section 29A(1) of the A&C Act, as it stood when the award was passed, an award should be made within a period of twelve months from the date the Arbitral Tribunal enters upon the reference. The petitioner added that Section 29A(3) of the A&C Act gives power to the parties to extend this time period for a further period not exceeding six months, however, if the award is not passed within the time frame specified under Section 29A(1) and 29A(3), then the mandate of the arbitrator would terminate. The petitioner contended that since the arbitrator was not competent to pass the arbitral award, no question of enforcement could arise.
The respondent Shriram City Union Finance contended that the petitioner dragged on the matter deliberately and wilfully, and took a very long time to file the Statement of Defence. Therefore, the respondent submitted that the period of twelve months should be reckoned from the date the petitioner had filed its Statement of Defence. The respondent averred that Section 29A of the A&C Act only lays down a procedure and therefore, non-compliance of it does not vitiate the arbitral award.
The Court ruled that the provisions of Section 29A of the A&C Act are cast in mandatory terms, leaving no scope for any other inference. The Court held that an arbitrator is a creature of the statute and has to work within the four corners of the Act. The Court added that the mandate of the arbitrator terminates under Section 29A(4), after the initial period of one year and extended period of six months. The Court ruled that the arbitrator thus becomes functus-officio after expiry of the prescribed period and seizes to be an arbitrator.
The Court noted that the provisions of Section 29A were introduced by the Amendment Act of 2016, with retrospective effect from 23.10.2015. Section 29A(1) of the A&C Act, as it stood when the award was passed, mandates that an award shall be made within a period of twelve months from the date the arbitration tribunal enters upon the reference. However, the provisions of Section 29A(1) were substituted by the Amendment Act of 2019, with effect from 30.8.2019. The provisions of the substituted Section 29A(1) provide that an award with respect to matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings before the arbitral tribunal.
The Court rejected the contentions made by the respondent Shriram City Union Finance that the effect of substitution of Section 29A of the A&C Act operated retrospectively and therefore, the award made was legal. The Court ruled that the amended provision did not relate back to the date of the original provision that was amended, merely because the word substitution was used.
The Court held that the disputes raised in the revision petition were covered by the unamended Section 29A. The Court ruled that the arbitrators passed award after one year of entering appearance, and since the arbitrators had become functus officio one year after entering appearance, they were wholly incompetent to deal with the disputes and pass the award.
The Court thus held that the award passed by the arbitrators was a nullity and was void ab initio. Since, the award did not exist in law, the Court ruled that no question of its enforcement could arise.
The Court thus allowed the Civil Revision Petition filed by the petitioner.
Case Title: Roop Singh Bhatty and others versus M/s. Shriram City Union Finance Limited
Citation: 2022 LiveLaw (Tel) 24
Dated: 08.04.2022 (Telangana High Court)
Counsel for the Petitioners: Mr P.V. Ramana
Counsel for the Respondent: Mr P. Gangaiah Naidu, appearing for Mr N. Srikanth Goud