Section 29A of the Arbitration and Conciliation Act, 1996 (“A&C Act”) empowers the ‘Court’ to either extend the mandate of the arbitrator or substitute the arbitrator or terminate the arbitration proceedings.
While the interpretation of the aforesaid provision has been dealt with authoritatively by the Supreme Court of India (“Supreme Court”) in Rohan Builders (India) Private Limited v. Berger Paints India Limited, until recently there existed some uncertainty as to the meaning of ‘Court’ under Section 29A of the A&C Act. Would the interpretation of ‘Court’ under Section 29A of the A&C Act be guided by the definition as provided under Section 2(1)(e) of the A&C Act or would it be the Referral Court (i.e., the Supreme Court or the High Courts, as the case may be, since only they have the power to appoint an arbitrator under Section 11 of the A&C Act)?
In Jagdeep Chowgule v. Sheela Chowgule (“Jagdeep Chowgule”), the Supreme Court analysed the conflicting judgments of various High Courts on the aforesaid issue and held that the definition of Court under Section 29A of the A&C Act will be determined as per Section 2(1)(e) of the A&C Act.
This article aims to analyse the aforesaid issue in greater detail and contends that given the scheme of the A&C Act, it is only the Referral Court which can be the Court for the purposes of Section 29A of the A&C Act, irrespective of whether the parties themselves appointed an arbitrator or the appointment was done by the Referral Court under Section 11 of the A&C Act.
As set out in the judgment itself, this is the first judgment of the Supreme Court which has addressed this issue. Before this, there were conflicting judgments of various High Courts. One of the bases for the conflict between the High Courts was whether the appointment of the arbitral tribunal had been done by the Referral Court under Section 11 of the A&C Act or by the parties themselves. Thus, while some judgments observed that since the appointment was done by the Referral Court under Section 11 of the A&C Act, the definition of Court would be determined in accordance with Section 11 of the A&C Act (see, DDA v. M/s Tara Chand Sumit Construction Co. (“Tara Chand”)), the other judgments observed that the constitution of the Arbitral Tribunal either by the parties themselves or the by Court under Section 11 would have no bearing to the interpretation of the term ‘Court’ appearing in Section 29A and it will be the Court under Section 2(1)(e) of the A&C Act which will be determinative of the issue (see, M/s Magnum Opus IT Consulting Private Limited v. M/s Artcad Systems).
The Supreme Court observed, and rightly so, that irrespective of whether the Arbitrator was appointed by a Referral Court under Section 11 of the A&C Act or by the parties themselves, the same would have no bearing on the interpretation of ‘Court’ under Section 29A of the A&C Act.
The question thus framed by the Supreme Court was “If an arbitral tribunal - appointed by the High Court or by the parties concerned – do not complete proceedings within the required or extended time limit, can an application to extend time under Section 29A of the Act can be filed before the High Court or the Civil Court?”
One of the arguments before the Supreme Court was that since the appointment of the Arbitrator under Section 11 can only be done by the Referral Court, it cannot be that a Civil Court would be empowered to extend the mandate or substitute an arbitrator under Section 29A of the A&C Act. This reasoning also formed the basis of the rulings in Tara Chand.
However, this argument was rejected by the Supreme Court observing that a statutory provision, i.e., Section 29A of the A&C Act, cannot be interpreted “based on a perception of status or hierarchy of Courts”, when the statute clearly provides for the power to be exercised by ‘Court’, which is duly defined under Section 2(1)(e) of the A&C Act. Therefore, there will be no “hierarchical difficulties, conflict of power or jurisdictional anomaly if a Civil Court entertains application under Section 29A” of the A&C Act.
The Supreme Court followed its previous judgment in Nimet Resources Inc. v. Essar Steels Limited, where a Single Judge of the Supreme Court held that an Application under Section 14(2) of the A&C Act will lie before the Court as defined under Section 2(1)(e) of the A&C Act. Placing reliance on Nimet Resources, the Supreme Court also observed that once an Arbitrator gets appointed under Section 11 of the A&C Act, the Referral Court becomes functus officio.
Another argument raised before the Supreme Court was that given the scheme of Section 42 of the A&C Act, once an Application is disposed of under Section 11 of the A&C Act, all subsequent applications, including the one under Section 29A of the A&C Act, must be made to the Referral Court. Relying on its previous judgment in State of Jharkhand v. Hindustan Construction Co., the Supreme Court noted that merely because a Referral Court has exercised its jurisdiction, it does not become a ‘Court’ for the purpose of the A&C Act.
Therefore, the Supreme Court concluded that ‘Court’ under Section 29A of the A&C Act will be determined as per Section 2(1)(e) of the A&C Act, irrespective of whether the Arbitrator was appointed by a Referral Court under Section 11 of the A&C Act or by the parties mutually.
The authors respectfully submit that given the scheme of the A&C Act, any application under Section 29A of the A&C Act must be only filed and entertained by the High Court or the Supreme Court, as the case may be.
This is for a number of reasons. Firstly, Section 2(1)(a) of the A&C Act itself uses the expression “unless repugnant to the context”. The same rationale was also adopted by the High Courts while arriving at the conclusion in Tara Chand, KIPL Vistacore Infra Projects v. Municipal Corporation and M/s. Dredging & Desiltation Co. Pvt. Ltd., Kolkata v. The Board of Trustees of Paradip Port Trust, etc.
Secondly, the powers under Sections 11 and 29A, pertain to the same issue but at different time intervals. At Section 11 stage, a High Court or the Supreme Court, as the case may be, is not commenting on the merits of the dispute but merely appointing an Arbitrator, or rejecting the Application for appointment. Similarly, under Section 29A, the Court will either allow the application for extension of mandate, or refuse it, or substitute the arbitrator. In fact, Section 29A complements Section 11 inasmuch as borrowing from the but–for test, if the power under Section 29A of the A&C Act is not exercised, the mandate of the arbitrator would expire.
The authors also argue that whether the arbitrator was appointed by the Court under Section 11 or the parties themselves will have no bearing on the definition of ‘Court’ under Section 29A of the A&C Act inasmuch as there cannot be two different avenues on the same cause of action. Fundamentally, the central aim of the A&C Act is to bring about consistency in the area of arbitration law. The approach as adopted by the Bombay High Court in Magnum Opus will bring about uncertainty and will lead to scenarios as envisaged by the Patna High Court in South Bihar Power Distribution Company.
Unlike in the context of Section 29A of the A&C Act, the definition of the Court in the context of Section 14 of the A&C Act is much more settled. In Nimet Resources Inc. v. Essar Steels Limited, a Single Judge of the Supreme Court held that an Application under Section 14(2) of the A&C Act will lie before the Court as defined under Section 2(1)(e) of the A&C Act.
More recently, in Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, a two–Judge Bench of the Supreme Court observed: “However, in case of any of the eventualities mentioned in Section 14(1)(a) of the 1996 Act and the mandate of the arbitrator is sought to be terminated on the ground that the sole arbitrator has become de jure and / or de facto unable to perform his functions or for other reasons fails to act without undue delay, the aggrieved party has to approach the “court” concerned as defined under Section 2(1)(e) of the 1996 Act”.
The judgment in Swadesh Kumar Agarwal was followed by the Delhi High Court in National Highways Authority of India v. Third Rock Consultants Private Limited. Interestingly, in Third Rock, the Single Judge noted the judgment of the coordinate Bench in Tara Chand and the applicability of its logic to Section 14 Application but distinguished the same by observing: “While Mr. Bishnoi may be right in submitting that this reasoning would apply equally to the power of substitution under Sections 14 and 15 of the Act, I am of the view that this argument cannot survive the decision of the Supreme Court in Swadesh Kumar Agarwal, cited by Mr. Gupta”.
Even in Ovington, the Single Judge of the Delhi High Court had observed that “…such an interpretation will give the power to the civil court to substitute and also to appoint arbitrators under Sections 14 and 15 of the Arbitration and Conciliation Act who can be appointed only by the High Courts or the Supreme Court in case of domestic and international arbitration respectively…”
Therefore, the authors respectfully submit that the Parliament must amend the A&C Act to clarify that for the purpose of Sections 14, 15 and 29A, the term ‘Court’ would refer to the jurisdictional Referral Court. A further Explanation must also be added that irrespective of whether the arbitrator was appointed under Section 11 of the A&C Act or by the parties themselves, an Application under Sections 14 and 15 or 29A would only lie before the High Court or the Supreme Court, as the case may be. This will bring about consistency and clarity, the cornerstone of the law of Arbitration.
Samar Bansal and Rohan Bhatia are Advocates.