India has been zealous in its efforts to keep up with global arbitration practices and towards establishing itself as a hub for institutional arbitration for some time now. Every change in law though, comes with its set of challenges, and the legislature has consistently taken steps to ameliorate the arbitration regime.
The Arbitration and Conciliation (Amendment) Act, 2015 ("2015 Amendment Act")1 introduced statutory time limits for the conduct of arbitration proceedings and resultantly created a buzz in the arbitration fraternity. Experts spoke of this as an unprecedented move against party autonomy, a hallmark of arbitration per se, and saw this as an assault on parties' rights to chart their own path for conduct of proceedings2.
Given the nature of discourse on this subject within the international diaspora, the legislature reacted yet again. The time limits to make an award under the Arbitration and Conciliation Act, 1996 ("the Act") was amended by the Arbitration and Conciliation (Amendment) Act, 2019 ("2019 Amendment Act")3. While doing so, the legislature reviewed the feedback it received from arbitral institutions.
In this article, we have reflected upon the amendments to time limits for completion of arbitration proceedings in India and its effect on stakeholders of arbitrations seated in India.
Amendments introduced by the 2015 Amendment Act
In 2015, time limits under section 29-A were introduced in the Act to address the prolonged time that ad-hoc arbitrations were taking in India. These time limits were applicable to all arbitrations seated in India, and therefore included international commercial arbitrations as defined under section 2(1)(f) of the Act ("ICA") and domestic arbitrations – irrespective of whether the arbitration was ad-hoc or through an institutional mechanism.
The time period for completion of arbitral proceedings was 12 months which began from the date on which the arbitral tribunal entered upon reference.4 If the proceedings were not completed within 12 months, parties by consent could extend the time period for a further period of 6 months.5 If the award was not made within 12 months and/or within the enlarged period of 6 months, the mandate of the arbitrator(s) was terminated6 unless the parties made an application to the court to seek an extension of time7 ("Extension Application").
The parties could file the Extension Application either prior to or after the expiry of the time limit to make the award. While determining an Extension Application, the courts were empowered to extend the time period upon parties showing sufficient cause for an extension and subject to any conditions as may be imposed by the courts in accordance with the Act.
The necessity of further amendments
To promote institutional arbitration and to fill the lacunae in the Act, a Committee was constituted under the chairmanship of Hon'ble Justice B.N. Srikrishna (Retd.) ('Committee'). The Committee published its findings in a Report dated 30 July 20178 ('Report').
As set out in the Report, the mandatory time limit introduced through section 29-A was a cause for debate within the international community9. Arbitral institutions often prescribe guidelines for the arbitral tribunal to set out the procedural timetable or the rules themselves may fix timelines for the arbitration proceedings. Thus, the non-derogable nature of section 29-A encroached upon the power of arbitral institutions to govern the conduct of arbitrations, thereby portraying India as a less attractive seat of arbitration for parties.
The international fraternity felt, and rightly so, that in complex and document heavy arbitrations, the impact of time limits was counter-productive and rendered the entire exercise as a mere lip service. An unmalleable time frame, without reference to the nature, complexity, and volume of documents etc. of a dispute was unrealistic.
The time limits went against the grain of an efficient dispute settlement mechanism that necessitated providing a reasonable opportunity to the parties to place their case before a tribunal. Also, it militated against the tribunal's endeavor to do complete justice. This was particularly disconcerting for arbitral institutions that prided themselves on providing speedy, efficient, neutral, cost effective and impartial justice.
Court intervention which is preferred to be minimal was in effect being increased as parties were forced to knock on the doors of the court for extension of time, where further delays were experienced in obtaining such extension.
2019 Amendment Act
After considering the Report, the legislature introduced the Arbitration and Conciliation (Amendment) Bill, 2019 ("Bill"). Among other provisions, the amendments to section 23 (completion of pleadings) and section 29-A (time limits) of the Act were also notified and brought into force.
Time limits no longer applicable to ICAs seated in India.
The 2019 Amendment Act has excluded ICAs from the ambit of section 29-A and the time limits under section 29-A are now applicable only to domestic arbitrations10. While having done so, the legislature has added a proviso to section 29-A(1) which provides that in the matter of an ICA, the award "may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under section 23 (4)". The proviso impresses upon stakeholders that while ICAs are relieved from time limits, efforts may still be made to dispose the arbitration in a timely manner.
Dichotomy between the inspiration for the Report and the 2019 Amendment Act
The Committee in its proposals seemed to be guided by the fact that institutional arbitrations required different treatment from ad-hoc arbitrations. The Report noticed the strong criticism by international arbitral institutions of the time limits in the Act and noted that reputed international arbitral institutions had a strong case management suite. Although inspired by the ability of international arbitral institutions to expeditiously conclude arbitrations without the necessary strictures, the Report itself did not, while proposing a withdrawal of such timelines, draw a distinction between arbitrations which were administered by institutions vis-à-vis ad-hoc arbitrations. However, the 2019 Amendment Act considered ICAs as a separate species from domestic arbitrations.
ICAs vs. Domestic Arbitrations
The 2019 Amendment Act recognized that the needs of an ICA were different from those of a domestic arbitration. The legislature placed party autonomy on a higher pedestal in context of ICAs. In an effort to project India as a favorable seat of arbitration globally, the legislature excluded all ICAs (i.e. institutional and ad-hoc) from the 12-month time limit. By doing so, the interests of both, arbitral institutions in the international diaspora and international parties in ad-hoc ICAs have been met - inasmuch as party autonomy has been preserved. Seemingly, the legislature was aware that the opportunity cost of this amendment was that it may adversely impact a few ad-hoc ICAs.
Since only ICAs are excluded from the realm of section 29-A, arbitral institutions that are administering domestic arbitrations seated in India will continue to be bound by time limits. In practical experience, in domestic arbitrations seated in India, Indian parties have either opted for ad-hoc arbitration or an arbitration under the aegis of an Indian-origin institute. One may argue that there was no need to extend time limits to arbitral institutions that are administering domestic arbitrations since such institutions may already have measures and/or rules in place to ensure timely completion of proceedings. However, from an Indian perspective, while some foreign as well as Indian arbitral institutions do have an excellent regime in place for timely settlement of disputes, there are those Indian arbitral institutions that are yet to tighten procedural timetables. In the author's view, seemingly, the latter may have weighed in on the legislature.
Timeline for completion of pleadings
Prior to the 2019 Amendment Act, section 23(1) provided that the statement of claim and defence shall be filed within the time period agreed upon by the parties or determined by the arbitral tribunal. The un-amended section 23 was applicable to ICAs and domestic arbitrations – irrespective of whether the arbitration was an ad-hoc arbitration or institutional arbitration.
Based on feedback received from arbitrators conducting domestic
arbitrations, the Committee had recommended
that the timeline for completing arbitral proceedings in domestic arbitrations be calculated from the date of completion of pleadings.11 The Committee was of the view that in domestic arbitrations the pleadings ought to be completed within 6 months.
As recommended by the Committee, ICAs were not to be timebound in any manner whatsoever and were thus to be excluded from the purview of section 29-A. A holistic reading of the Committee's recommendations leads to the conclusion that ICAs were also to be exempted from the applicability of the six months' time limit for completion of the pleadings.
The Bill which led to the 2019 Amendment Act, however, adopted, whether consciously or otherwise, a different approach. In its Statement of Objects and Reasons, the Bill set out that an amendment was being carried out to 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. In complete contrast to the Report , which had seemingly suggested that the period for completion of pleadings should apply in cases of domestic arbitrations, the legislature decided to apply it to all arbitrations without any distinction drawn between ICAs and domestic arbitrations.
Expressly restricting the time period for completion of pleadings, the 2019 Amendment Act inserted sub-section (4) in section 2312of the Act. Section 23(4) provides that the pleadings under section 23 shall be completed within a period of 6 months from the date the tribunal enters upon reference. The amended section 23(4) read with the amended section 29-A provides that the 12-month period under section 29-A(1) will commence from the date of completion of pleadings.
Earlier, some arbitrations spilled over the 12-month time limit due to delayed completion of pleadings and administrative snags. The amendments to section 23(4) and section 29-A (1) will ensure timely completion of pleadings and aid parties to comply with the 12-month time limit as the time limit now commences from the date of completion of pleadings and not from the date the tribunal enters upon reference.
Does section 23(4) apply to ICAs?
The amended section 29-A purportedly makes it clear that time limits for completion of proceedings do not apply to ICAs. At the same time, however, proviso to section 29-A(1) when read with the amended section 23, more particularly sub-section (4) leads to an irresistible interpretation that the time limit for completion of pleadings apply as much to ICAs as it applies to domestic arbitration.
From a cumulative reading of section 23(4) with proviso to section 29-A(1), it appears that time limits for completion of pleadings would apply to ICAs as well. What, nevertheless, is left to the discretion of the arbitral tribunal is the time for completion of the proceedings once pleadings have been filed. In such an event, the arbitral tribunal is expected to adhere to the legislative mandate to hasten proceedings and thus endeavour to complete the proceedings within 12 months from the date of completion of pleadings.
This, however, in the author's view runs contrary to and dilutes the objective of the change in law, which intended to treat ICAs from an international standpoint and bring in a parity with those that are institutionally administered. Evidently, the initial goal was to align the procedures followed in ICAs seated in India with those seated outside. Thus, if the time limit under section 23(4) are applicable to ICAs, the intent sought to be achieved by the Committee, appears to have been diluted. Peculiarly, the Statement of Objects and Reasons in the Bill that led to the 2019 Amendment Act makes no such reference to the underlying intent to exclude ICAs completely from all time limits. Instead, it makes a direct reference to the necessity for amending the time limits for completion of pleadings in arbitrations without any distinction between ICAs and domestic arbitrations.
It is difficult for parties involved in a domestic arbitration to seek the court's help to overcome the strict time limits. The question, however, to ask is whether qua ICAs it can be argued that the proper interpretation of section 23(4) is that the timeline provided therein is only suggestive and at best a guiding yardstick? Only time will tell if the timelines under section 23(4) stick in case of ICAs or not. Until such time one needs to proceed on the basis that it does.
Clearly, the Indian legislature seems to have found a hybrid answer to the need of the arbitral institutions to relieve India seated arbitrations administered by them from the constraints of strict statutory timelines. While it sought to break the shackles of the statutory time limit by keeping ICAs out of the purview it yet did not allow an unhindered and unhinged operation.
Mandate of the Arbitrator(s)
In a welcome addition, pursuant to the 2019 Amendment Act, during the pendency of an Extension Application under section 29-A(5), the arbitrator's mandate shall continue and not terminate automatically. Therefore, the arbitrator can continue with the arbitration during the pendency of the Extension Application. Not only will this aid in saving time, it may also ensure that any delays in disposal of an Extension Application before the court, does not have a knock-on effect on the procedural timetable.
The amended section 29-A(5) is applicable to all domestic arbtirations seated in India, including those that are adminstered by arbtiral institutions and those that are ad-hoc.
Retrospective applicability
In Shapoorji Pallonji13, the Delhi High Court held that "the amended Sections 23(4) and 29A(1) of the Arbitration and Conciliation Act, being procedural law, would apply to the pending arbitrations as on the date of the amendment". Contrastingly, shortly thereafter, in MBL Infrastructures14, the Delhi High Court held that the amended section 29-A would be prospective in nature.
Subsequently, in ONGC Petro Additions 15, upholding Shapoorji Pallonji, the Delhi High Court inter alia held that (i) section 29-A was procedural in nature and did not create any rights/liabilities in favor of any of the parties; (ii) MBL Infrastructures was per incuriam; (iii) the amended Section 29A(1) of the Act would be applicable to all pending arbitrations seated in India as on August 30, 2019 (i.e. date on which the 2019 Amendment Act came into effect) and commenced after October 23, 2015 (i.e. the date from which Section 29A came into effect); (iv) that the strict time-line of 12 months was not applicable to proceedings which were in the nature of ICAs and seated in India; and (v) the tribunal would not be bound by the timeline prescribed by the earlier order if the proceedings are in the nature of an ICA.
Resultantly, in ICAs (institutional and ad-hoc) pending as on the date of the amendment, time limits under section 29-A are not applicable.
In domestic arbitrations, the timelines for ongoing arbitrations will be recast and the time limit for completion will now be reckoned from the date of completion of pleadings.
Conclusion
A variety of compulsions pushed for bringing in time limits and reflecting upon the Indian experience, this does seem to be a salutary change. However, any statute that unreservedly infringes upon party autonomy, defeats the very reason for existence of arbitration as an alternate to court proceedings. The legislature could have achieved its objective of making arbitration speedy and efficient in India by providing parties the right to derogate from the mandatory time limits set out under the Act. To protect party autonomy, the statute could have provided that parties' agreements on time limits (or in the case of an institutional arbitration where institutional rules provide for time limits) would supersede the mandatory period set out under the law of the seat. The non-derogable nature of section 29-A as it stands, does little to uphold the spirit of party autonomy.
Overall, despite its challenges, time limits have streamlined arbitration proceedings in India. While the course of the amendments to section 29-A remains to be seen, the relief to ICAs seated in India is welcoming.
Footnotes
1 http://lawmin.gov.in/sites/default/files/ArbitrationandConciliation.pdf
2 Report of the High Level Committee to review the Institutionalisation of Arbitration Mechanism in India (Justice Srikrishna Committee), 30th July 2017, at page 63 and 64,http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf
3 http://egazette.nic.in/WriteReadData/2019/210414.pdf
4 Explanation to sub-section 1 of section 29A provided – For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.
5 Section 29-A(3)
6 Section 29-A(4)
7 Section 29-A(5)
8 Supra at Note-2
9 Supra at Note-2
10 Supra at Note-3
11 Supra at Note-2
12 Supra at Note-3
13 Shapoorji Pallonji and Co. Pvt. Ltd. v. Jindal India Thermal Power Limited, O. O.M.P.(MISC.) (COMM.) 512/2019 decided on January 23, 2020,.
14 MBL Infrastructures Ltd. v. Rites Ltd. O.M.P.(MISC)(COMM) 56/2020, decided on February 10, 2020.
15ONGC Petro Additions Limited v. Fernas Construction Co. Inc, Order dated July 21, 2020 in OMP (MISC) (COMM) 256/2019 & I.A. 4989/2020
This article was published in SIAC India's Newsletter – December 2021 issue
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
