Section 29A Of Arbitration & Conciliation Act, 1996: Complications More Than Cure

In order to bring reforms to the Arbitration & Conciliation Act, 1996, the Arbitration & Conciliation (Amendment) Act, 2015 was passed on 31.12.2015, with effect from 23.10.2015. It is with this amendment, a novel provision was included in the Act i.e. Section 29A, which pertains to “Time limit for arbitral award”. The section, as it read when inserted, stated that the award shall be made within a period of twelve months “from the date the arbitral tribunal enters upon the reference”. However, the said sub-section was substituted under Arbitration & Conciliation (Amendment) Act, 2019, with effect from 30.08.2019 to state that the award shall be made within a period of twelve months “from the date of completion of pleadings under sub-section (4) of Section 23”.

Before proceeding to further analyse the provisions of Section 29A, it would be trite to note that the word “pleadings” is not defined under the Arbitration & Conciliation Act, 1996. This, in the authors opinion, does create some confusion in the mind of parties and Arbitral Tribunal. With some Arbitral Tribunal's being lenient to permit filing of Rejoinders inspite of Section 23 only referring to Statements of Claim and Defence, we believe either this practice should stop or the word “pleadings” requires to be defined in order to bring uniformity.

We shall now deal with certain eventualities that arise during arbitration proceedings and its effect under Section 29A. All these eventualities address cases wherein the initial period of twelve (12) months has expired and both the parties have mutually consented for a further extension of six (6) months under sub-section (3) i.e. total eighteen (18) months, which extended period is on the verge of expiration or has expired.

Situation 1: Claimant and Respondent consent for extension of mandate beyond 18 months

As per sub-section (4), in case the award is not passed within eighteen (18) months, the mandate of the Arbitral Tribunal shall terminate unless the Court has extended the period. This extension, as specified under sub-section (5), may be on an application by 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 of India in the recent judgment of M/s.Ajay Protech Pvt. Ltd. v. General Manager & Anr. [2024 LiveLaw (SC) 915], reiterated the principle that the extension of mandate under Section 29A (4) shall be only for a “sufficient cause”. While elaborating, the Court held that “sufficient cause” shall be interpreted in the context of facilitating effective dispute resolution. Since we are dealing with a situation wherein the parties are consenting for extension, we do not see any serious impediment for grant of further extension by the Court under sub-section (4) and (5), provided the Court is satisfied about existence of “sufficient cause” and imposition of terms and conditions, if required.

Situation 2: Either of the party does not consent for extension of mandate beyond 18 months

As mentioned hereinabove, the mandate of the Arbitral Tribunal terminates on the expiry of eighteen (18) months unless the Court extends the same. The wordings of sub-section (5) say that the period beyond eighteen (18) months may be extended on the application “of any of the parties”, meaning thereby that even if one party seeks an extension and the other party is objecting to the same, the application can still be filed before the Court. Once such an application is filed, the party seeking an extension has to pass the test of convincing the Court about existence of “sufficient cause”, which the other party would attempt to dis-prove. In case the Court is convinced about existence of “sufficient cause”, extension as sought for may be granted subject to imposition of terms and conditions, if required. In case the Court is convinced that there is absence of “sufficient cause” to explain the undue delay that has been caused in passing the award, the Court can exercise its powers under sub-section (6) and appoint a Substitute Arbitrator. Therefore, with the Act itself permitting extension applications to be filed by either of the parties, Courts in India have held that consent of both parties is not required when considering application for extension of mandate under Section 29A (4).

In Larsen and Toubro Ltd. v. IIC Limited and Anr. [2024 SCC OnLine Del 832], it is held by the Delhi High Court that the Court is empowered under Section 29A (4) to extend the mandate of the Arbitral Tribunal for sufficient cause, even in the absence of consent of any of the parties to the arbitration. It is further held that consent of the parties is necessary under Section 29A (3) and not Section 29A (4).

Further, in Wadia Techno-Engineering Services Ltd. v. Director General of Married Accommodation Project [2023 SCC OnLine Del 2990], the Delhi High Court has held that Section 29A (3) is regarding consensual extension and the same should not be extended to Section 29A (4) and 29A (5), as that would make the requirement of sufficient cause irrelevant and adjudication by the Court unnecessary. Such a construction of the statute will lead to violence of the statutory provision and permit a recalcitrant litigant to bring proceedings to an end, simply by withholding consent. The Court clarified that the lack of consent from one party in an application under Section 29A (5) cannot be a reason to deny the extension of the Arbitral Tribunal's mandate.

But here comes the all-important question, what are the chances of the party opposing the extension to succeed?

The Courts have time and again stated that parties to arbitration can object to the grant of extension of mandate under Section 29A only on the grounds of “undue delay”. In Poonam Mittal v. Created Pvt. Ltd. [2024 SCC OnLine Del 6621], it is held by the Delhi High Court that “the substitution of an Arbitrator cannot be resorted to at the drop of a hat, else no arbitration would ever proceed to a conclusion. It is only where a clear and substantial case for substitution is made out that a court should resort to it. Substitution of an arbitrator is an extreme measure. It has, in fact, negative connotations even for the Arbitrator concerned”.

Similarly, in Barasat Krishnagar Expressways Ltd. v. National Highways Authority of India [2023 SCC OnLine Del 243], the Delhi High Court reaffirmed that a delay in pronouncing the award alone does not warrant the exercise of the Court's powers under Section 29A (6). The Court made it clear that this provision is meant to address situations where the Arbitral Tribunal's conduct has led to an unjustifiable delay in the proceedings, not to penalize mere delays in issuing the final award.

Therefore, there are closer to no cases where a Substitute Arbitrator is appointed under Section 29A (6) on the grounds of undue delay pleaded by any of the parties under Section 29A (4) proceedings. Further, there is no clarity given in any of the judicial pronouncements as to what constitutes “undue delay”. Also, if such an application is heard and allowed in favour of the party seeking an extension, one can only imagine the fate of the arbitration for the party questioning the Arbitral Tribunal's procedural methods and pointing fingers at his/ her speed.

Hence, even if one party objects to the Arbitral proceedings on the ground of delay, there are closer to no judgments where a Substitute Arbitrator is appointed under Section 29A (6) on the ground of delay, resulting in continuation of arbitral proceedings.

Situation 3: Irrespective of either party wanting an extension, the Court decides not to grant any further extension

As mentioned above, the language of Section 29A (6) suggests that only in cases where the Court is convinced that there is absence of “sufficient cause” to explain the undue delay that has been caused in passing the award, the Court can exercise its powers under sub-section (6) and appoint a Substitute Arbitrator. The exercise of power by Court under sub-section (6) pre-supposes that the Court is not willing to either reduce the Arbitrator's fees after giving him notice or extend the mandate by subjecting the Arbitral Tribunal to certain terms and conditions.

With the old Arbitral Tribunal's mandate having been terminated by the Court due to want of extension, what happens to the arbitration? If the mandate of the Arbitral Tribunal terminates, it is only the mandate of the Arbitral Tribunal that expires and not the mandate of the Arbitral proceedings. The Courts have laid down the difference between termination of mandate of the Arbitral Tribunal and termination of Arbitral proceedings in Chemical Sales Corporation v. A & A Laxmi Sales and Service Private Limited [2011 SCC OnLine Del 3847], wherein the Delhi High Court observed that the termination of arbitral proceedings is different from the termination of the mandate of Arbitrator. The mandate of the Arbitral Tribunal depending upon the facts and circumstances of the case, may come to an end, but not the arbitral proceedings. For example, if the parties to the Arbitration Agreement had fixed a period of six months from the completion of arbitral proceedings and the Arbitral Tribunal fails to do so, the mandate of the Arbitral Tribunal shall come to an end, but not the arbitration proceedings and in such eventually, the Substitute Arbitrator, if appointed, shall continue with the arbitration proceedings from the stage where it had been left by the earlier Arbitral Tribunal.

Similarly, in the decision in the case of SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited [2017 SCC OnLine SC 1210], the Supreme Court of India highlighted that in the case of termination of arbitral proceedings, the proceedings itself do not survive and there is no scope for appointment of a Substitute Arbitrator. Whereas in the case of termination of the mandate of the Arbitrator, the proceedings survive thereby leaving the scope for appointment of a Substitute Arbitrator. This principle was reiterated in the recent judgment in the case of Religare Finvest Ltd. v. Widescreeen Holding Pvt. Ltd. [2024 SCC OnLine Del 2769].

Hence, the termination of mandate of the Arbitral Tribunal leads to appointment of a Substitute Arbitrator, who shall continue the proceedings from the stage it is left at.

Principle of Party Autonomy and limited Judicial intervention at stake?

Party Autonomy is considered as one of the pillars of arbitration, more so since it allows the parties involved in arbitration to make decisions as per their choice and convenience, without being made accountable thereof. However, we believe that the procedure mentioned under Section 29A of the Act in itself is against the principle of Party Autonomy.

Out of the two situations mentioned hereinabove, the principle of Party Autonomy is interfered with in as much as under Situation 1, though both the parties are ad-idem for extension, the said extension is subject to judicial intervention and satisfaction of the Court. Likewise, under Situation 2 where one of the parties is objecting to the extension, judging by the scant judicial pronouncements siding with the objecting party, the objector is forced to continue with the arbitration, which once again vitiates Party Autonomy.

In conjunction to the aforesaid ideology, we also wish to draw your attention to yet another underlying principle of arbitration i.e. limited judicial interference [Refer: Section 5 of the Act] vis-à-vis Situation 3. It is more than well-settled by now that every Court in India is taught and re-taught above the limited scope of judicial interference, specifically while dealing with challenge to arbitration awards under Section 34 of the Act. The scope of challenge is further narrowed down by several judgments while dealing with an appeal under Section 37 of the Act.

Our endeavour is not to propound further on the law under Section 34 and Section 37 of the Act, but if one were to draw a parallel between these sections and Section 29A, the power conferred upon the Court under the latter section is quite wide and dangerous at times. This is because while on one hand we are seeing judgments curtailing the Court's power to re-appreciate evidence under Section 34 because the Arbitrator has examined the same in detail, on the other hand the very same Court (in some states) is sitting in supervisory jurisdiction over the Arbitrator's schedule, who is marshalling the evidence required to render the end arbitral award. This, in the authors perception, is creation of a paradoxical situation which needs a re-look.

The authors are Advocates practicing at Gujarat High Court. Views are personal.