Timelines For The Making Of An Arbitral Award In View Of The Arbitration And Conciliation (Amendment) Act, 2019 – The Continuing Saga Of Retrospective Applicability

Section 5 of the 2019 Amendment Act inserted sub-section (4) in Section 23 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act'). By virtue of this insertion, the statement of claim and defence is now required to be completed within a period of six months from the date when the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment.

Section 6(a) of the 2019 Amendment Act substituted Section 29A(1) of the Arbitration Act, which, inter alia, now mandates that the award in 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 under the newly inserted sub-section (4) of Section 23 of the Arbitration Act. The erstwhile section 29A(1) mandated that an arbitral award shall be made within 12 months from the date of entering into reference of the Arbitral Tribunal.

So far so good. But unfortunately, the 2019 Amendment Act, yet again, is silent on the applicability of the amended Section 29A(1). The burning question - does the amended section 29A(1) apply to arbitral proceedings which were pending prior to 30.08.2019? The Delhi High Court has attempted to resolve the confusion, not once but three times.

Earlier this year in January, a single judge of the Delhi High Court in Shapoorji Pallonji and Co. Pvt. Ltd. v. Jindal India Thermal Power Limited^[4] ('Shapoorji') held that the amended Sections 23(4) and 29A(1) were procedural in nature would apply to the pending arbitrations as on the date of the amendment. In effect declaring that Sections 23(4) and 29A(1) are procedural laws and would apply retrospectively. Notably, the Court did not make any reference to Supreme Court's BCCI judgment. In BCCI, the Supreme Court has observed that Section 29A (as it then stood) though procedural in nature would not apply retrospectively. The Supreme Court held that, it is, because timelines for the making of an arbitral award had been laid down for the first time in Section 29A of the Amendment Act, that parties were given the option to adopt such timelines. These timelines, though procedural in nature, create new obligations in respect of a proceeding already begun under the unamended Arbitration Act.

Soon thereafter, in a conflicting judgment in MBL Infrastructures Ltd. v. Rites Limited^[5] ('MBL'), a co-ordinate bench of the Delhi High Court held that upon a bare perusal of the Notification S.O. 3154(E) dated 30.08.2019, it is clear that the amendments do not have a retrospective effect. Interestingly, the Shapoorji judgment was not brought to the notice of the Court and neither did the Court refer to the Supreme Court's BCCI judgment.

Recently, in ONGC Petro Additions Limited vs Ferns Construction Co. Inc.^[6] ('ONGC') another co-ordinate bench of the Delhi High Court sought to resolve this dichotomy of views. At the outset, the Court held the judgment in MBL to be per incuriam because the decision in Shapoorji was not brought to its notice.

So far as the retrospective applicability of newly amended section 29A(1) is concerned, the Court finally referred to the judgment in BCCI and in fact relied upon the same. However, while relying on the BCCI judgment, the Delhi High Court concluded that:

"a. The Supreme Court in BCCI (supra) referring to Section 29A of the Act, as incorporated in by way of Amendment of 2015 held it to be a procedural law, as it does not create new rights and liabilities, but held that amendment to be prospective in view of Section 26 of the Amendment of 2015, which clearly stipulated that the said Amendment Act of 2015 shall apply in relation to arbitration proceedings commenced on or after the date of the commencement of the said Act…"

It was also noted that the 2019 Amendment Act contained no provision para materia to section 26 of the 2015 Amendment Act. Accordingly, it further went on to hold that:

"d. …The prescription of time limit by Amendment Act of 2015 had not conferred any rights or liabilities on a party rather it was a procedural law establishing a mechanism for the Arbitral Tribunal to render the award, which determine the rights and liabilities of parties in twelve months and surely the removal thereof also does not confer/affect rights of any party to be given effect prospectively."

At first blush, it could appear that the controversy has been put to rest. But, on a closer analysis of the BCCI judgment and the correlation between the newly inserted Section 23(4) and the amended Section 29A(1), the issue at hand could be looked at from a different angle.

However, it is incumbent to first point out a glaring error, perhaps, in the ONGC judgment. Apart from the fact that the judgment in ONGC does not analyse the correlation between section 23(4) and 29(A)(1), it also appears to have erred in observing that when referring to Section 29A, the Supreme Court in BCCI "held it to be a procedural law, as it does not create new rights and liabilities, but held that amendment to be prospective in view of Section 26 of the Amendment of 2015". On the contrary, the Supreme Court held that:

"It is, inter alia, because timelines for the making of an arbitral award have been laid down for the first time in Section 29A of the Amendment Act that parties were given the option to adopt such timelines which, though procedural in nature, create new obligations in respect of a proceeding already begun under the unamended Act."

It is clear that firstly, the Supreme Court held that Section 29A does create new obligations; and secondly, the reason for declaring that Section 29A is prospective was because it created new obligations and not because of the presence of Section 26 of the 2015 Amendment Act.

So far as the correlation between Section 23(4) and Section 29A is concerned, clearly section 29(A) as it now stands is intrinsically connected with the new Section 23(4) for its meaningful effect and operation. Section 23(4) imposes (for the first time) a 6-month period for filing of Statement of Claim and Defense and Section 29A(1) states that award shall be made by the Arbitral Tribunal within a period of 12 months from the date of completion of pleadings under Section 23 (4).

Thus, the manner of calculation of the period of 1 year available to an Arbitral Tribunal under Section 29A to render an award has undergone a fundamental change. Applying the observation of the Supreme Court, in the BCCI case (in the context of Section 29A under the 2015 Amendment Act), Section 23(4) under the 2019 Amendment Act also cannot have retrospective application and as such would not apply to arbitration proceedings already started under the 2015 Amendment Act but prior to the 2019 Amendment Act as timelines for completion of pleadings and the making of an arbitral award have been laid down for the first time in Section 23(4) read with Section 29A of the 2019 Amendment, which, though procedural in nature, create new obligations in respect of a proceeding already begun under the 2015 Amendment Act. Hence, retrospective application of the same would "create new disabilities or obligations or impose new duties in respect of transactions already accomplished".^[7] Further, Section 23(4) as it now stands is a "statute which not only changes the procedure but also creates new rights and liabilities"^[8] and accordingly should "be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication".^[9] Accordingly, since Section 23(4) can only be applied prospectively, Section 29A as it now stands, must by necessary implication be resigned to the same fate. Prospective application of the new Section 23(4) makes Section 29A also prospective as both have to go hand in hand since the time period of 12 months for the Arbitral Tribunal to render an award has to be calculated from the date of completion of pleadings under Section 23(4).

Unless interpreted otherwise by the Supreme Court or a larger bench of the High Court, the judgment in ONGC will continue to hold the field. It will be interesting to see how the interpretational saga of the applicability of Section 29A(1) unfolds and reconciles with Supreme Court's judgment in BCCI.