Twelve-Month Period For Arbitral Award Begins From Completion Of Pleadings, Not Statement Of Defense: Delhi High Court

The bench held that the twelve-month period is to be calculated from the completion of pleadings, not from the date of filing the Statement of Defense (SOD).

It held that the phrase “under sub-section (4) of Section 23” is included because Section 23(4) refers to the filing of the SOD, but it does not mean that the twelve-month period should start from the SOD filing date. It held that interpreting Section 29A(1) to require the award to be issued within twelve months from the SOD filing date would effectively rewrite the provision.

Section 23(4) states that the statement of claim and the statement of defense shall be completed within six months from the date of the arbitrator receiving notice of his appointment, unless the parties agree otherwise.

Section 29A(1) requires that the arbitral tribunal must make its award within twelve months from the date when the pleadings are completed.

Section 29A(4) that if the arbitral tribunal does not make the award within the twelve-month period specified in Section 29A(1), the tribunal's mandate will terminate unless the Court extends it.

Brief Facts:

The dispute originated from two Purchase Orders issued by the Delhi Transco Limited (Respondent) to Emco Limited (Petitioner) which included a provision for resolving disputes through arbitration. When the parties could not agree on arbitration, the Petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking the appointment of an arbitrator. On 22 May 2018, the High Court referred the matter to the Delhi International Arbitration and Conciliation Centre (DIAC) to appoint an arbitrator. Almost a year later, on 7 May 2019, Justice M.K. Mittal, a former Judge of the Allahabad High Court, was appointed as the Arbitrator.

During the interim period, the Petitioner filed a statement of claim and the Respondent responded with a statement of defence and counter claim. On 25 May 2019, during the first personal hearing, the Arbitrator allowed the petitioner time to file a rejoinder to the defence and a reply to the counter claims and to settle the pending arbitral fees.

By 4 July 2019, the Arbitrator noted that the Petitioner had not filed the rejoinder as required. Despite the Petitioner's submission of financial constraints, the Arbitrator suspended the Petitioner's claim under Section 38(2) of the Arbitration Act and asked the Respondent whether it wished to proceed with its counter claims. On 22 July 2019, the petitioner entered into corporate insolvency proceedings before the National Company Law Tribunal (NCLT) in Mumbai. Consequently, the Petitioner was absent from the next hearing. The Arbitrator rescheduled the matter and again directed the Petitioner to file the rejoinder by the subsequent date.

On 31 October 2019, the Arbitrator recorded that the hearing was adjourned sine die, with the liberty for the parties to apply for revival post the completion of the Corporate Insolvency Resolution Process (CIRP). The proceedings remained adjourned sine die until 10 June 2024. During this period, the Petitioner's insolvency was not revived leading to liquidation proceedings initiated on 9 August 2021. On 9 September 2022, the petitioner was acquired by Sherisha Powertech Pvt Ltd (SSPL) which undertook to continue all ongoing claims and receivables.

Despite attempts to revive the proceedings, the DIAC erroneously informed the parties via email that the arbitral proceedings had been terminated and requested bank details for a refund of fees. On 10 June 2024, the Arbitrator revisited the matter and acknowledged the DIAC's erroneous email. The Petitioner argued that the time for passing the award had not expired as per Sections 29A(1) and 23(4) of the Arbitration Act, while the Respondent contended that the proceedings should be deemed terminated due to the prolonged inaction. The Arbitrator granted the Petitioner time to initiate appropriate proceedings under Section 29A which lead the Petitioner to approach the High Court for the extension of the arbitral mandate.

Submissions of Ms. Bhargavi Kannan for the Petitioner

Ms. Bhargavi Kannan, representing the Petitioner, argued that the petition for extending the mandate of the arbitral tribunal was filed out of an abundance of caution. She contended that, in reality, the mandate of the arbitral tribunal has not yet terminated because the rejoinder has not been filed and there has been no order from the Arbitrator closing the right to file it. According to Ms. Kannan, after the Arbitrator granted time to the petitioner to file the rejoinder, the Petitioner entered CIRP proceedings which were followed by liquidation. The petitioner was subsequently acquired by SSPL as a going concern. Throughout this period, the Petitioner remained proactive, engaging in extensive correspondence with the DIAC to revive the arbitral proceedings. The email from DIAC which erroneously indicated that the proceedings were terminated was issued under a misconception. Ms. Kannan pointed out that a clarificatory email from the DIAC reaffirmed that the arbitral proceedings had only been adjourned sine die as per the order dated 31 October 2019. Consequently, Ms. Kannan requested the Court to clarify that the arbitral mandate had not expired or, alternatively, to extend the mandate if the Court found that it had indeed lapsed.

Submissions of Ms. Anubha Dhulia for the Respondent

Ms. Anubha Dhulia, representing the Respondent, argued forcefully against the continuation of the arbitral mandate. She contended that the mandate of the Arbitrator must be considered as terminated due to the excessive delay since 2019 when the Petitioner was given time to file a rejoinder and the proceedings were adjourned sine die. She argued that Section 23(4) of the Arbitration Act does not require the filing of a rejoinder for determining the termination of the arbitral mandate. In her view, the mandate would have expired 12 months after the filing of the Statement of Defence, as stipulated by Section 29A(1) of the Arbitration Act.

Observations by the High Court:

The High Court noted that the DIAC indicated in an email that the arbitral mandate had been terminated. However, DIAC later retracted this statement in an email asserting that the earlier email was sent inadvertently with regard to the termination of the arbitral proceedings.

The High Court noted that the determination of whether the arbitral mandate had indeed terminated could not solely rely on DIAC's statements. Instead, it required an application of the relevant statutory provisions to the facts of the case. The primary provisions under consideration were Section 23(4) and Section 29A(1) of the Arbitration Act. Section 23(4) refers to the completion of the statement of claim and defense within six months of the arbitrator receiving notice of their appointment, but it does not directly address the termination of the arbitral mandate. The interplay between the termination of the mandate and Section 23(4) is found in Section 29A(1), which outlines that the arbitral tribunal must make the award within twelve months of the completion of pleadings as defined under Section 23(4).

The high Court analyzed the wording of Section 29A(1) and Section 29A(4), which collectively provide that if the award is not made within the specified twelve-month period from the completion of pleadings, the mandate of the arbitral tribunal terminates unless extended by the Court. This interpretation suggests that the twelve-month period should be calculated from the completion of pleadings, not from the date of filing of the statement of defense. The High Court found that the phrase “under sub Section (4) of Section 23” refers to the completion of pleadings as a whole and not to the specific date of filing of the statement of defense.

Further, the High Court considered whether a rejoinder should be included in the definition of "pleadings" for the purpose of Section 29A(1). Previous judgments, including that of R.C. Lahoti J in Anant Construction (P) Ltd v. Ram Niwas and the Division Bench of the Andhra Pradesh High Court in Nicolas Piramal India Ltd v. Cultor Food Science Inc, confirmed that rejoinders and replications are indeed considered part of pleadings. This view was reinforced by the Karnataka High Court's decision in Buoyant Technology Constellations Pvt Ltd v. Manyata Infrastructure Developer Pvt Ltd.

The High Court then addressed the Respondent's argument that the petitioner should have filed the rejoinder despite the pendency of CIRP proceedings. The High Court found this argument untenable since the Respondent had itself sought the adjournment of proceedings sine die. The High Court noted that during the adjournment period, particularly given the uncertainties surrounding CIRP, the Petitioner could not have been expected to finalize the rejoinder.

Therefore, the High Court held that the arbitral process should not be disrupted without cause and that a course of action that leaves disputes unresolved should be avoided. It held that the Arbitrator showed willingness to continue with the proceedings, and the High Court decided to extend the mandate by one year to ensure the arbitration could proceed to a resolution.

Case Title: Emco Limited Vs Delhi Transco Limited

Citation: 2024 LiveLaw (Del) 988

Case Number: O.M.P.(MISC.)(COMM.) 638/2024

Advocate for the Petitioner: Ms. Bhargavi Kannan, Advocate.

Advocate for the Respondent: Ms. Anubha Dhulia, Advocate.

Date of Judgment: 04.09.2024

Click Here To Read/Download Order or Judgment