Section 23(4) of the Arbitration & Conciliation Act, 1996: Mandatory or Directory ?

The timelines stipulated in the Act which apart from having an indelible footing in the statutory scheme, now also have the imprimatur of the law, are those couched in Section 29A of the Act. The said section contemplates 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 sub-section (4) of section 23”.

Section 23(4) of the Act stipulates that “The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing of their appointment.”

The statutory scheme is unambiguous in as much as - read conjointly, Section 23 and Section 29A provide for a total time period of 2 years to make the award. The time line of the said two years is triggered from the date when the arbitrator receives notice of the arbitration. The question that presents itself is whether Section 23(4) mandatory or directory?

Guided by the fact that neither one of the answers has received the imprimatur of the Hon'ble Courts, the option that the section could be either – mandatory or directory- are both available for discussion. This article endeavours to present both for discussion.

While there is a vast amount of jurisprudence on the timelines envisaged under Section 29A, the timelines couched in Section 23(4) of the Act have yet to come up for a definitive interpretation. As such, the timeline to make an award is triggered only after the pleadings are completed, which in itself is contemplated to be done within a period of 6 months from the date that the tribunal is intimated of its constitution. Thus, on first flush, the tenor of the language of the section would seem to suggest that Section 23(4) of the Act, is intended to be mandatory without any elbow room for play. However, an in-depth study of the interplay of different sections of the Act would present the possibility that, argued with concinnity, the answer to the question posed in this article could easily be one of the two options – the section is mandatory or is directory.

• Intent of the legislature

An inquiry into the purpose of a particular section, must necessarily be predicated on the intention of the legislature while introducing the legislation in question.

Section 23(4) of the Act was inserted by virtue of the Amendment Act of 2019. Prior to this amendment, no timeline to complete pleadings was contemplated in the scheme of the Act. It merits mention that the Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment) Bill, 2019 specifically states: - “to amend section 23 of the Act relating to "Statement of claim and defence" so as to provide that the statement of claim and defence shall be completed within a period of six months from the date the arbitrator receives the notice of appointment” as one of its objects.

It is apposite to note, that contemporaneous to the above-mentioned amendment, an amendment to Section 29A(1) of the Act was also introduced. Prior to the amendment, Section 29A(1) of the Act, read in the following manner :-“The award shall be made within a period of twelve months from the date the arbitral tribunal enters reference.” The said section post the amendment so introduced, read as – “The award in matters other than international commercial arbitration shall be made by the arbitration tribunal within a period of twelve months from the date of completion of pleadings under sub- section (4) of section 23.”

It is thus evident that, not only only has the legislature introduced a timeline for completion of pleadings in arbitration, it has intrinsically linked the said timeline to the timeline for making an award. The report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India also merits mention here, which suggests that there is no provision akin to Section 29(A) of the Act, in most jurisdictions across the world. The above facts could be said to lend force to the suggestion that Section 23(4) of the Act was meant to be mandatory. However, the discussion that follows would couch some incertitude on the said suggestion.

• The timeline envisaged under Section 29(A) of the Act is mandatory.

There is no gainsaying that the purport of Section 29(A) of the Act is mandatory. In State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti, (2018) 9 SCC 472, the Hon'ble Supreme Court reiterated that non-compliance of the timelines under Section 29A, would extinguish the mandate of the arbitrator and the same would be treated as 'terminated'. In fact, several courts including the Hon'ble Delhi High Court in Department of Transport v. Star Bus Services (Neutral Citation No. 2023:DHC:3410) and the Hon'ble Telangana High Court in Roop Singh Bhatty v. Shriram City Union Finance (CRP No.1354 of 2021, decided on 08.04.2022) have held that awards passed in violation of the statutory timelines of Section 29A are a nullity and thus, void-ab-initio.

• Consequence, if any, of the breach of Section 23(4) of the Act

Etymologically reviewed, the jurisprudence as laid down by the Hon'ble Supreme Court would establish that to ascertain if a section is intended to be mandatory or directory, the section must be tested on the touchstone of whether a consequence of non-compliance of the section can be found in the scheme of the statute under consideration. A patent consequence of non- compliance of Section 23(4) of the Act is conspicuous by its absence. However, the same can, by implication, be found in Section 25 of the Act. Section 25 of the Act mandates that the consequence of not filing the statement of claim and defence within the timelines embedded in Section 23 of the Act, would be - termination of the proceedings. Anent to this, the words in the section - 'the arbitrator shall terminate the arbitral proceedings' warrant attention. Albeit, Section 25 of the Act does not specifically allude to the contemplated timelines of Section 23(4), however reading the said sections harmoniously, would probably lead to the conclusion that if parties fail to file their statement of claim and defence within the said 6 months, the arbitral tribunal shall terminate the proceedings.

While the above, may yet again suggest that the purport of section 23(4) is mandatory, but the conspicuous omission of any mention of Section 23(4), from the body of Section 25 of the Act as juxtaposed with the specific mention of Section 23(1) of the Act- is a relevant factor that presents the alternate probability -that of section 23(4) being directory and not mandatory.

Further, if being viewed from the perspective of the possibility of the provisions being directory – the absence of any consequences stipulated by the statutory scheme, for not completing the pleadings in time, would render formidable support to the said perspective. In furtherance of the possibility that Section 23(4) could be directory as opposed to mandatory, the jurisprudence laid down by the Hon'ble Supreme Court in Kailash v. Nankhu, (2005) 4 SCC 480 must be considered. In the said case, the timeline contemplated in Order 8 Rule 1 CPC, for filing written statements was held to be directory. The Court held that even though Order 8 Rule,1 CPC is “couched in negative form, it does not specify any penal consequences flowing from the non-compliance”. Moreover, being in the realm of procedural law which is always treated as the handmaiden of justice, the provision must be interpreted to for the purpose of expediting the proceedings and not to scuttle the hearing. It was also held that it “does not impose an embargo on the power of the Court to extend the time.” Along similar lines, in a more recent case, the Hon'ble Supreme Court in State of Bihar & Ors (Supra), held Sections 34(5) and 34(6) of the Act to be directory despite the phrase “shall” specifically inserted by the legislature.

• Judicial precedent

The Hon'ble High Court of Delhi in Raj Chawla and Co. Stock and Share Brokers v. Nine Media Information Services Ltd. (Neutral Citation Number: 2023/DHC/000580), held that the mandate of the arbitrator stood terminated for breach of the mandatory timelines envisaged under Section 23(4) read with Section 29A of the Act. The Court stated that “If the validity of proceedings were to be viewed on the anvil of Section 29 A as it exists presently, the award would have had to be rendered within a period of twelve months from the date of completion of pleadings as per Section 24 (3). Section 24(3) prescribes that all statements, documents would have to be made to the Arbitral Tribunal within a period of six months from the date when the arbitrator would have received notice in writing of its appointment. Insofar as the present case is concerned, that period of six months would have to be necessarily computed from 02 September 2018. That period too expired long before the sole arbitrator chose to withdraw from the proceedings and the present petition came to be preferred.

12. The aforesaid exposition of the legal regime which prevails was necessary since a failure of parties to abide by the time lines prescribed under the Act leads to certain inevitable consequences. Firstly, Section 25(3) prescribes that where a claimant fails to communicate his statement of claim within the time prescribed by Section 23(4), the Arbitral Tribunal shall terminate proceedings.”

The above ratio would suggest that the Hon'ble High Court of Delhi has read the timelines as contemplated in Section 23(4) into those contemplated in Section 25 of the Act.

What may also warrant mention at this stage is the order of the Hon'ble Supreme Court in- In Re: Cognizance for Extension of Limitation wherein the Hon'ble Court was pleased to observe that “It is further clarified that the period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996.”

• Discussion

The above discussion makes the following unambiguous :-

• the said question in the form that has been put forth by this article, has not presented itself for adjudication before the Hon'ble Courts yet and thus, there cannot be a determinate conclusion in the matter as of now,
• that a patent consequence of non-compliance of Section 23(4), is conspicuous by its absence in the statutory scheme of the Act.

Albeit, the aforestated may lead one to the possible view that Section 23(4) of the Act is directory in its nature as the judgment of the Hon'ble Delhi High Court, the patent braiding of Section 23(4) with Section 29A of the Act and the above referenced observation of the Hon'ble Apex Court, may tilt the balance of the discussion in favour of the proposition that Section 23(4) and Section 29(A) of the Act are inextricably intertwined and are both, thus, mandatory.

The Author would like to thank Amer Vaid for Assistance. 

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