NPAC's Arbitration Review: Extension of time under Section 29A of the Arbitration Act and the limited scope of examination by the Court

One of the major areas of concern that the Arbitration and Conciliation (Amendment) Act, 2015 (‘Amendment Act’) sought to address was the malaise of delayed adjudication that had bedeviled the majority of arbitration proceedings in India.

Two possible avenues were open to the legislature in this regard viz. a soft approach built upon incorporating a ‘pious hope’ provision underlining the desirability of early conclusion of the arbitral proceedings on the one hand, and a harder approach focusing on inviolable time-limits and the incentivization, monetary or otherwise, of swift completion of arbitration proceedings on the other.

By introducing Section 29A through the Amendment Act, it is evident that the legislature has largely opted for the latter approach.

In a nutshell, Section 29A of the Amendment Act mandates that an arbitral tribunal is required to render an arbitral award within a period of twelve months from the date on which the arbitral tribunal is constituted, subject to a further extension of a maximum period of six months by consent between the parties.

By virtue of the Arbitration and Conciliation (Amendment) Act, 2019 (‘2019 Amendment Act’), a further period of up to six months was added for the purpose of completion of pleadings, thereby effectively requiring an award to be passed within a period of eighteen months from the date on which the arbitral tribunal was constituted, subject to a further extension of a maximum period of six months by consent between the parties.

Therefore, as the position stands today, upon failure to render the arbitral award within this period of twenty four months (in case an extension of six months is agreed to between the parties) or eighteen months (in case the parties are unable to agree upon an extension), the mandate of the arbitral tribunal would terminate, and it would be unable to proceed further with the matter irrespective of the stage the proceedings would be at.

The only avenue for the revival and/or continuation of the arbitral proceedings in this regard would be to approach the competent Court with an application under Section 29A(5) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) seeking extension of time for completion of the arbitral proceedings (‘application for extension’). While adjudicating upon such a request, a Court is competent to impose costs on a party as also direct a reduction in the professional fees of the arbitral tribunal, if it were to specifically attribute responsibility for the delay in the conduct of the arbitral proceedings to the concerned entity(s), while ultimately extending the time for completion of the arbitration proceedings.

However, in a case where the Court finds the arbitration proceedings conducted by the arbitral tribunal to be completely unconducive to a structured and timely completion of the arbitration process, the Court may very well exercise an option to substitute one or all of the arbitrators, and if one or all of the arbitrators are so substituted by the Court, then the arbitration proceedings would continue from the stage already reached and on the basis of the evidence and material already on record.

As would be evident from the above, when the time for rendering the award has expired, the adjudication of the application for extension is critical for the continuation of the proceedings. At the said stage, the parties would have invested significantly in the arbitration proceedings in the form of financial expenditure and man-hours, and an adverse decision in the form of the substitution of the arbitral tribunal, particularly when the proceedings are at an advanced stage such as the parties having already commenced oral arguments, could effectively set the arbitration back by many months as also lead to the attendant wastage of resources.

Though the further amendment to Section 29(A)(4) by the 2019 Amendment Act now mandates that the arbitration proceedings shall continue during the pendency of an application for extension before the Court has provided some succour by ensuring that the arbitration proceedings are not unnecessarily paused and derailed for the period when an application for extension is pending consideration before the Court, the ultimate fate of the continuing proceedings would still rest on the result of the final adjudication by the Court.

Considering the stakes involved, and the very real statutory possibility of the Court substituting the arbitral tribunal, it is but natural for a disgruntled party that has serious reservations about continuing with the arbitration proceedings to attempt to utilize this opportunity to get rid of an ostensibly unfavourable arbitral tribunal or arbitrator on issues completely unrelated to the aspect of delay.

For instance, a party apprehending that a particular arbitrator or the arbitral tribunal as a whole is biased against it, or that any decision taken by the arbitral tribunal in matters of procedure or on the merits at an interim stage may seriously disadvantage it, would attempt to use this as an opportunity to try and have the unpalatable arbitral tribunal or arbitrator substituted by the Court.

In the aforesaid background, what is of significance for the purpose of the present piece is the scope of the adjudication which the Court undertakes while considering an application for extension, and which scope is seemingly articulated in Section 29(A)(5) of the Arbitration Act as under:

“(5) The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.”

As is evident, the usage of the somewhat nebulous term “sufficient cause” in the context of the extension of time results in some ambiguity. Would the term “sufficient cause” refer only to the aspect of delay or would it also encompass within itself other elements which may give the Court serious food for thought as to the manner in which the arbitral tribunal has conducted the proceedings?

It is evident that adopting the latter approach could, in many cases, result in an application for extension resulting in a mini-trial pertaining to the conduct of the arbitration proceedings by the arbitral tribunal till the date of the filing of the application for extension before the Court. This would inevitably be coupled with a minute examination of each and every action or decision taken by the arbitral tribunal during the course of the proceedings, all from the prism of whether the Court, on an overall conspectus of the proceedings, is satisfied that “sufficient cause” has been demonstrated to extend the tenure of the arbitral tribunal.

In the aforesaid background, if one were to undertake a review of the judicial precedents on the issue, the Courts appear to have unanimously veered towards an extremely restrictive understanding of the term “sufficient cause” as appearing in Section 29A by inter-linking it with the element of delay alone. The High Court of Delhi in NCC Ltd. v. Union of India¹ has unequivocally held that Section 29A of the Arbitration Act is intended to counter the delay in the conclusion of arbitration proceedings alone, and cannot be sought to be utilized for the achievement of objectives that are alien to the said purpose in the following words:

“11. Section 29A of the Act is intended to sensitize the parties as also the Arbitral Tribunal to aim for culmination of the arbitration proceedings expeditiously. It is with this legislative intent, Section 29A was introduced in the Act by way of the Arbitration and Conciliation (Amendment) Act, 2015. This provision is not intended for a party to seek substitution of an Arbitrator only because the party has apprehension about the conduct of the arbitration proceedings by the said Arbitrator. The only ground for removal of the Arbitrator under Section 29A of the Act can be the failure of the Arbitrator to proceed expeditiously in the adjudication process.”

The Court then further went on to observe that an allegation that the arbitral tribunal was biased against the resisting party would not be a relevant factor which would detain the Court while considering an application for extension in the following words:

“14. As far as the grievance of the respondents that the conduct of the arbitration proceedings are biased is concerned, the same cannot be the subject matter of the present proceedings. The respondents have also filed an application under Section 13 of the Act before the Arbitrator, which is pending adjudication. This Court, therefore, refrains from making any observation on the said application. Even otherwise, in term of Section 13(4) of the Act, in case the said application is decided against the respondents, the remedy provided to the respondents would be to challenge the same alongwith the ultimate Award passed by the Arbitrator.”

In a similar vein, in an unreported decision in Orissa Concrete and Allied Industries Ltd. v. Union of India & Anr.², the High Court of Delhi observed as under while brushing aside the resistance to an application for extension on the ground that the arbitral tribunal had allegedly not afforded the resisting party a sufficient opportunity of hearing:

“In my view, any issue with respect to the conduct of the Arbitration Proceedings, except the one relating to the expeditious disposal of the Arbitration Proceedings, cannot be raised by the respondent at this stage. These contentions can be raised by the respondent before the Arbitrator himself or in an application under Section 34 of the Act while challenging the award passed by the Arbitrator, if the respondent is aggrieved of the same. In exercise of power under Section 29A(5) of the Act, the Court is only to see if there is sufficient cause shown to extend the time for making of the award.”

The aforesaid principle was further reiterated by the High Court of Delhi in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India³.

Various other High Courts have also arrived at a similar conclusion. To elucidate with a few examples, the High Court of Bombay in FCA India Automobiles Pvt. Ltd. v. Torque Motor Cars Pvt. Ltd. & Anr⁴., while granting the extension prayed for, refused to examine the correctness of various orders passed by the arbitral tribunal relating to fixation of fees and rejection of the application for termination of mandate filed by the resisting party under Sections 12 and 13 of the Arbitration Act, by holding the same to be beyond the purview of examination under Section 29A. Further, on a related note, the High Court of Gujarat in Nilesh Ramanbhai Patel & Ors. v. Bhanubhai Ramanbhai Patel⁵ has pertinently observed that Section 29A of the Arbitration Act represents a complete code in itself.

An examination of the aforesaid precedents would categorically demonstrate that the scope of adjudication in an application for extension under Section 29A pertains only to the aspect of delay.

Insofar as other issues such as alleged bias and/or incorrect decisions on the merits or on matters of procedure by the arbitral tribunal are concerned, the applicable relevant provisions of the Arbitration Act would have to be taken recourse to by the parties, and these grievances cannot be sought to be dovetailed into and made part of the arsenal when seeking to resist an application for extension. It is evident that such an approach is not only in line with the legislative intent behind the incorporation of Section 29(A), which was to eschew delay rather than to enable a review by the Court of the conduct of the proceedings by the arbitral tribunal at the said stage.⁶

Yet further, it also facilitates an early adjudication of the application for extension of time which is statutorily intended, in a directory sense, to be disposed of within a period of sixty days.⁷

The authors are Advocates practicing before the High Court of Delhi

1. 2018 SCC OnLine Del 12699.

2. Order dated 05.03.2018 in O.M.P. (MISC.) (COMM.) 10/2018.

3. 2018 SCC OnLine Del 10184.

4. 2018 SCC OnLine Bom 4371.

5. MANU/GJ/1549/2018.

6. It is a settled proposition that there should be minimal interference by Courts in matters relating to arbitration, and even the limited scope of interference should be specifically sanctioned by the Arbitration Act. Reference in this regard may be made to the judgment of the Supreme Court in Fiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited and Anr. (2009) 17 SCC 796.

7. See Section 29A(9) of the Arbitration Act.