S.29A Arbitration | 'Sufficient Cause' To Extend Time For Award Should Be Interpreted To Facilitate Effective Dispute Resolution : Supreme Court

Extending the time for an arbitral tribunal to pass its award, the Supreme Court recently observed that extension can be allowed even after the expiry of the statutory period and the phrase "sufficient cause" under Section 29A of the Arbitration and Conciliation Act should take color from the underlying purpose of the arbitration process (ie facilitating effective dispute resolution).

"The meaning of 'sufficient cause' for extending the time to make an award must take colour from the underlying purpose of the arbitration process. The primary objective in rendering an arbitral award is to resolve disputes through the agreed dispute resolution mechanism as contracted by the parties. Therefore, 'sufficient cause' should be interpreted in the context of facilitating effective dispute resolution", said a bench of Justices PS Narasimha and Sandeep Mehta.

Factual background

The dispute between the appellant and respondent No.1 was referred for arbitration. The maximum statutory period for making the award (12 months + 6 months) commenced on 09.10.2019 and would have naturally expired on 09.04.2021.

However, before this period lapsed, India was hit by the Covid-19 pandemic. This caused the arbitral tribunal to adjourn the proceedings, which eventually resumed in 2022. The hearing was concluded on 05.05.2023 and the parties moved the Gujarat High Court under Section 29A(4) of the Act for extension of time in order for the arbitral tribunal to make the award.

The High Court rejected this application on 03.11.2023, on the view that the extension was sought in August 2023, even though the maximum statutory period expired on 09.04.2021. There was no application for extension pending on 09.04.2021 and thus, there was a delay of more than 2 years.

Aggrieved by this order, the appellant approached the Supreme Court.

Appellant's case

The appellant contended that while determining the date on which mandate of the tribunal stood terminated, the High Court ought to have excluded the period between 15.03.2020 and 28.02.2022, in view of the Supreme Court's orders in In Re: Cognizance for Extension of Limitation. It prayed for one-month extension of the mandate of the arbitral tribunal on the following grounds:

(i) the Arbitral Tribunal proceeded with online hearings in 2022, but was required to adjourn the proceedings on several occasions at the request of the respondents' counsel as the panel from which the arbitrator was appointed had been changed;

(ii) the dispute involved technical and legal questions, and the record of the case was bulky;

(iii) the delay was neither attributable to the parties, nor to the Arbitral Tribunal, who acted in a prompt and cautious manner;

(iv) the hearing was complete, and only the award needed to be declared, thereby leading to hardship if the time for making the award was not extended. 

Issues

(i) Whether an application for extension can be entertained if it is filed after the expiry of the arbitral tribunal's mandate? 

(ii) Whether the application filed by the appellant for extension ought to have been allowed by the High Court?

Court observations

The Supreme Court analyzed Section 29A(4) of the Act and observed that sub-section (4) thereof enables a court to extend the tribunal's mandate after expiry of the statutory and extendable period of 18 months.

"The effect of the provision is that if the arbitral award is not made within 12 months from when the pleadings are completed, extendable by a further 6 months by mutual consent of parties, the Tribunal's mandate will terminate, unless the court either prior or after the expiry of the period, extends it. The wording of subsection (4) clearly and explicitly enables a court to extend the Tribunal's mandate after expiry of the statutory and extendable period of 18 months."

Reference was made to the decision in Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Ltd., where it was held that Section 29A(4) recognizes party autonomy to move an application for extension even if the statutory period has expired. The termination of mandate is only conditional on the non-filing of an extension application, and cannot be taken to mean that the mandate cannot be extended once it expires.

On the second issue, it was opined that extension of time is a discretionary power of Courts which must be done on "sufficient cause" being shown.

"While the statute incorporates party autonomy even with respect to the conduct and conclusion of arbitral proceedings, there is a statutory recognition of the power of the Court to step in wherever it is necessary to ensure that the process of resolution of the dispute is taken to its logical end, if according to the Court, the circumstances so warrant. It is in this context that the Arbitration and Conciliation Act adopts the well-known language of limitation statutes and provides that the Court can extend the time if it finds that there is sufficient cause."

Taking note of the fact that the pandemic had commenced even before the expiry of 12 months from the completion of pleadings in the present case, the Court excluded the period between 15.03.2020 to 28.02.2023. Further, considering an agreement between the parties (dated 05.05.2023) to seek extension of time by filing an application before the High Court, it was of the opinion that there was sufficient cause for extension of time.

Conclusion

The appeal was allowed and the period for making the award extended till 31.12.2024.

Case Title: M/S AJAY PROTECH PVT. LTD. VERSUS GENERAL MANAGER & ANR., SLP (C) NO. 2272 OF 2024

Citation : 2024 LiveLaw (SC) 915

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