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Termination of an Arbitrator's Mandate on Failure to Issue an Award in a Time-Bound Manner: Fair or Unfair? (Part 1)

Rohit Dalai*

 

INTRODUCTION  

Party autonomy has been described as the “cornerstone of modern arbitration”. [[i]] Additionally, it is termed to be the bedrock of arbitration law and its guiding principle. This fundamental principle of party autonomy has been constantly emphasized by courts across jurisdictions and endorsed by national laws. Notably, the principle of party autonomy was “accepted without opposition” [[ii]] when the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) was adopted. A perusal of the aforementioned instances leads to the inference that party autonomy is given primacy in arbitration.


However, it is to be noted that distinct approaches exist, with each country adopting its stance in the context of the party autonomy principle. Most national legislations on arbitration do not mandate a time limit for pronouncing an award. [[iii]] Interestingly, the approaches adopted by the most popular seats of arbitration, such as London and Singapore, involve the non-specification of time limits. [[iv]] For instance, the United States Federal Arbitration Act, 2018 and the English Arbitration Act, 1996 (“English Arbitration Act”) do not stipulate any time limit for rendering an arbitral award. [[v]] It is important to note that Section 50 of the English Arbitration Act does provide for extension of time for making an award. However, this extension is pursuant to the time limit fixed by an arbitration agreement and not the statute. In the Indian scenario, a distinct approach has been adopted. Involving the prescription of time limits, the extension of time limits, and “the expiration of time upon an ongoing arbitration proceeding”. [[vi]]


The formalization of this distinct approach through the fixation of time limits has been realised by the Arbitration and Conciliation Act of 1996 (“A&C Act”). Section 29A of the A&C Act is one of the provisions in the said Act that mandates a time limit within which an arbitral award is to be pronounced. Pertinently, Section 29A consists of two distinct but interconnected aspects. First, it fixates time limits for the conduct of arbitration proceedings. Second, it establishes a time limit for the pronouncement of an arbitral award. The consequence of failing to adhere to the time limit set under Section 29A is the termination of the mandate of the arbitral tribunal. Although Section 29A does specify the conditions for extending the time fixed, the consequences have been deemed incongruous with the party autonomy principle. Moreover, concerns regarding the fairness of the procedure stipulated under Section 29A have also been raised.


This article shall analyse Section 29A of the A&C Act from the perspective of party autonomy vis-à-vis state regulation of arbitration. Additionally, the article shall delve into the question of whether the termination of an arbitrator’s mandate upon failure to pronounce the award on time is fair. The article will conclude by arguing that a nuanced and flexible time limit regime is the way forward.


FIXING OF TIME LIMITS: STATE REGULATION OVER PARTY AUTONOMY?

The fixing of time limits has been in place for a considerable period in the Indian regime. Rule 3 of the First Schedule of the Arbitration Act, 1940 (the “1940 Act”), mandated an arbitrator to pass an award within four months after entering upon the reference. Furthermore, under Section 28(1) of the 1940 Act, courts were empowered to extend the time for pronouncing an award. However, the aforementioned provisions were not retained when the A&C Act was enacted, largely due to the Model Law’s influence.


It was soon realized that the absence of a fixed time period for passing of awards led to “massive delays in arbitration proceedings”. [[vii]] Despite the delays, there was a consistent judicial understanding that time was of essence in arbitral proceedings. Consequently, even before the enactment of Section 29A, if the stipulated period under an arbitration agreement expired “without any further provisions for an extension of the period”, courts consistently ruled that proceedings had concluded, and the arbitrators’ mandate terminated. [[viii]] However, due to prolonged delays in arbitral proceedings, state intervention became necessary.


The need for state intervention is evident from the recommendations of the Law Commission of India (the “LCI”) in its 176th Report on the Arbitration and Conciliation (Amendment) Bill, 2001. The 176th Report noted that the absence of time limits for conclusion of arbitration proceedings led to “long delays and huge expenses involved in arbitration”. According to the LCI, these delays discouraged both domestic and international parties from choosing India as their preferred seat of arbitration. The LCI proposed a solution in the form of a new statutory provision for fixing time limits, exemplified by procedure stipulated under draft Section 29A, in order to make conclusion of arbitral proceedings efficient. Despite the LCI’s proposal, the ultimate onus vests with the legislature to intervene to amend and add to the A&C Act.


Section 29A and State Regulation of Arbitration: Fair or Unfair?

Legislative intervention to mitigate delays in arbitral proceedings was enacted through the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment Act”). Section 29A, introduced by the 2015 Amendment Act, mandated the conclusion of arbitration proceedings within a specified time. According to Section 29A (1) of the 2015 Amendment Act, the arbitral award had to be pronounced within a period of 12 months, extendable to 18 months with parties’ consent, from the date on which the arbitral tribunal entered upon reference. Notably, Section 29A (1) was further modified by the Arbitration and Conciliation (Amendment) Act, 2019 (“2019 Amendment Act”).


The 2019 Amendment Act replaced Section 29A of the 2015 Amendment Act by changing the starting date from which the time limit runs. Accordingly, an arbitral award is now required to be made within a period of 12 months, extendable by 6 months with parties’ consent, from the date of completion of pleadings. It is pertinent to note that Section 29A (1) pertains only to domestic arbitration and not international commercial arbitration.


The reason behind limiting the applicability of Section 29A (1) to domestic arbitration is the State’s desire “for its courts to have greater or firmer control on the arbitrations”. Since domestic arbitrations typically involve citizens of the same state, the state aims to exercise “firmer control” over such arbitrations. In contrast, control may not be as desirable in international arbitrations, as they may take place in a state’s territory due to geographical convenience.


A non-binding proviso to Section 29A (1) of the 2019 Amendment Act provides for international commercial arbitrations to be completed “expeditiously as possible” with an endeavour to dispose of a matter within a period of 12 months from the date of filing of pleadings. If an arbitral award is not made within the statutory period or the extended period, the mandate of the arbitrator/ arbitral tribunal stands terminated.


Madras High Court’s Judgment in Suryadev Alloys and Power Pvt. Ltd. v. Shri Govindraja Textiles Pvt. Ltd.

The Madras High Court (“Madras HC”) in Suryadev Alloys and Power Pvt. Ltd. v. Shri Govindaraja Textiles Pvt. Ltdfaced a similar scenario, where the award was passed after the 12-month statutory period and the 6-month extension had also lapsed. Although the case was decided in the context of the unamended Section 29A, it remains relevant because the basis of the amended Section 29A remains similar. First, as per the amended Section 29A, the 12-month period starts from the date of completion of pleadings under Section 23(4). Second, pending the disposal of an application made under Section 29A(5), the mandate of the tribunal shall continue. In spite of the modifications in amended Section 29A vis-à-vis unamended Section 29A, the emphasis on time limits and the provision for making an application remain consistent.


Notably, this case arose from an application being preferred under Section 34, with the respondents contending that the award was pronounced after the termination of the mandate of the arbitrator. Despite the application being preferred under Section 34, Suryadev Alloys is important from a Section 29A perspective for two reasons, as set out hereinbelow:


First, the Madras HC explained the conditions under which Section 29A would be applicable, considering Sections 29A(1), (3) and (5). The Madras HC observed that courts could extend the period for pronouncing an award even after the expiration of 12 months or the extended period under Section 29A(3). However, the extension could only be granted based on an application being moved by either party under Section 29A(5).


Second, the Madras HC interpreted the scope of power of courts under Section 29A, juxtaposing it with Section 28(1) of the 1940 Act. Unlike Section 28(1), which gave wide powers to courts to extend the time for pronouncing an award even after expiry of the stipulated time, the A&C Act restricted these powers and limited the extension only within the scope of Section 29A(3) and 29A(4). Put simply, the power to extend the period for pronouncing the award after the expiry of 12 months period under Section 29A(1) or the extended period under Section 29A(3) was with reference to Section 29A(4) read with Section 29A(5).


Having delineated on the courts’ powers under Section 29A, the Madras HC ruled that if an arbitral award is not pronounced within the statutory time period or the extended period, then the mandate of the tribunal stands terminated as it becomes functus officio. However, as stated hereinabove, courts could extend the period as specified in Sections 29A(1) and 29A(3) with the condition precedent being the filing of an application. If no application was made, the court cannot ratify an award ex post facto by extending the period in a petition filed under Section 34. Based on this reasoning, the Madras HC held that the award was not valid as the mandate of the tribunal stood terminated as it had become functus officio. However, not all cases feature a factual matrix where parties seek to set aside an arbitral award upon the expiration of the stipulated time.



[[i]] Christopher Lau and Christin Horlach, Party Autonomy - The Turning Point, 4 Disp. Resol. INT’l 121 (2010).

[[ii]] Nigel Blackaby, Constantine Partasides QC, Alan Redfern & Martin Hunter, Redfern and Hunter on International Arbitration 355 (Oxford University Press 2015).

[[iii]] Aanchal Basur, As the Clock Ticks Away: The Indian Experiment with Time Limits in Arbitration, 12 Disp. Resol. INT’l 59,63 (2018).

[[iv]] Id.

[[v]] Id. at 63.

[[vi]] Id. at 64.

[[vii]] Id. at 61.

[[viii]] Bharat Oman Refineries Ltd v. Mantech Consultants, (2012) SCC OnLine Bom 669.



(*) Rohit Dalai is a Penultimate year law student at National Law School of India University, Bangalore. He has a keen interest in reading, writing and researching on the developments related to the area of alternate dispute resolution mechanism. For any discussion related to the article, he can be contacted via email, rohitdalai@nls.ac.in.



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