India: Limitation Under Section 29a Of The Arbitration And Conciliation Act Does Not Apply To International Commercial Arbitrations

INTRODUCTION

Section 29A of the Arbitration and Conciliation Act, 1996 ("Act") was introduced through the Amendment Act of 2015. Under the Amendment Act of 2015, the Arbitral Tribunal was obligated to pass an award within a period of twelve months from the date the Arbitral Tribunal entered upon reference. The said time period could be extended for a further period of six months by mutual consent of parties. Furthermore, the Section provided that upon the completion of eighteen months, the mandate of the Arbitral Tribunal stood terminated unless the same was extended by the Court.

Section 29A of the Act was further amended by the Amendment Act of 2019. The amended Section 29A of the Act provides for completion of arbitral proceedings and passing of award within twelve months from the date of completion of pleadings under sub-section (4) of Section 23 of the Act. This period is extendable for another six months by mutual consent of parties. Furthermore, International Commercial Arbitrations ("ICAs") have been exempted from the applicability of stringent timeline provided under Section 29A. In case of ICAs, the award is to be made expeditiously with an endeavour to conclude the proceedings within twelve months.

Recently, the Hon'ble Supreme Court of India in its judgment titled Tata Sons Pvt. Ltd. Vs. Siva Industries and Holdings Ltd. & Ors.¹ has clarified that the time limit of twelve months as prescribed under Section 29A is not applicable to ICAs. The judgment was passed by a division bench of Justice D.Y. Chandrachud, Chief Justice of India and Justice P.S. Narasimha, wherein the Hon'ble bench has restricted the applicability of the amended Section 29A of the Act to domestic arbitrations.

BRIEF FACTS

Tata Sons Private Limited ("Applicant"), Siva Industries and Holdings Ltd. ("Respondent No. 1") and Tata Tele Services Ltd. ("TTSL") executed a share subscription agreement on 24.02.2006 for allotment of shares of TTSL to the Respondent No. 1. The Respondent No. 2, C Sivasankaran, who was the promoter of the Respondent No. 1, was a resident of Seychelles.

The Applicant entered into another share subscription agreement dated 12.11.2008 with NTT Docomo Inc. ("Docomo") and TTSL, wherein Docomo sought to acquire equity shares of TTSL.

Since Respondent No. 1 was an existing shareholder of TTSL and was invited to participate in the sale of secondary shares to Docomo, accordingly, Docomo and Respondent No. 1 executed a secondary share purchase agreement dated 03.03.2009 in terms of which Docomo acquired equity shares of TTSL from Respondent No. 1. The Applicant, TTSL and Docomo executed a Shareholders' Agreement dated 25.03.2009 to record the terms and conditions of the understanding between the parties regarding the rights, obligations and duties with respect to Docomo's ownership of shares of TTSL. Thereafter, the Applicant, TTSL and the Respondents executed an Inter Se Agreement. The Agreement, inter alia, obliged the Respondents to purchase the TTSL shares on a pro-rata basis in the event Docomo exercised its sale option under the Shareholder's Agreement.

Certain disputes arose with respect to the terms and conditions of the Shareholders' Agreement and Docomo invoked arbitration against the Applicant under the Rules of the London Council for International Arbitration. The Arbitral Tribunal passed an award on 22.06.2016, basis which the Applicant was called to make payment to Docomo and acquire shares of TTSL which were put by Docomo. Thereafter, basis the Inter Se Agreement, the Applicant called upon the Respondents to acquire Docomo's shareholding in TTSL.

Dispute arose between the Applicant and the Respondents and the Applicant invoked arbitration on 15.06.2017 under the Inter Se Agreement. Clause 10 of this Agreement stated that arbitration shall be at Mumbai and Mumbai courts have exclusive jurisdiction.

However, the Respondents failed to appoint their nominee arbitrator. Since Respondent No. 2 was a foreign party, the Applicant filed a petition before the Supreme Court of India under Section 11 (6) of the Act for constituting the Arbitral Tribunal in an ICA. The Supreme Court appointed a Sole Arbitrator on 17.01.2018. On 21.03.2018, a preliminary meeting was held where the parties agreed for extension of time period by six months (till 14.06.2019), if the proceedings could not be completed within twelve months commencing from the date the Arbitral Tribunal entered reference.

In the meantime, IDBI Bank Ltd. initiated insolvency proceedings against Respondent No. 1 and moratorium was imposed on all proceedings against Respondent No. 1, including arbitral proceedings. Therefore, on 14.12.2019, the Applicant filed a Miscellaneous Application seeking extension of the mandate of the Arbitral Tribunal for a period of six months after the date on which the moratorium imposed upon Respondent No. 1 would stand vacated.

Subsequently, an Interlocutory Application was filed on behalf of the Applicant in the Miscellaneous Application in view of the fact that the Respondent was freed from the rigours of the insolvency proceedings on 03.06.2022. Further, in view of the amendment of Section 29A of the Act, the Applicant submitted that the arbitration proceedings before the Sole Arbitrator should be allowed to automatically continue.

ARGUMENTS OF PARTIES

The counsel for the Applicant argued that as a result of the amendment of Section 29A of the Act by the Amendment Act of 2019, the period of twelve months prescribed for making an award from the date of completion of pleadings ceased to apply to ICAs. Since the amendment was procedural in nature, the amended provision would apply to the arbitral proceedings in the matter at hand following the appointment of Sole Arbitrator in 2018. Alternatively, it was argued that in the event the Court was of the opinion that the amended Section 29A was inapplicable to the present arbitration, a further extension of time should be granted to the Sole Arbitrator to complete the arbitral proceedings.

Per contra, the counsel for Respondent No. 2 submitted that the amendment of Section 29A in 2019 would not lead to the conclusion that an ICA lies outside the purview of the provision. He further submitted that reading the provisions of Section 29A in the manner in which the Applicant sought to read them would result in a situation where there would be no timeline under the statute for an ICA. It was further argued that where an ICA was governed by the Rules of an arbitral institution, such rules would structure the conduct of the arbitration and it was not the intention of the legislature that in a case which was not governed by an arbitral institution, the Court would have no control over the time taken in the course of the arbitral proceedings leaving the matter entirely within the discretion of the arbitral forum in a situation such as the present, where the arbitral proceeding was governed by Indian Law and had a seat within the country.

ISSUES IN QUESTION

1. Whether the time period for making an arbitral award under the amended Section 29A of the Act is applicable to ICAs?
2. Whether the amended Section 29A of the Act applies retrospectively?

OBSERVATIONS OF THE COURT

The Hon'ble Court examined the provisions under Section 29A in detail and observed that after the 2019 Amendment, Section 29A(1) stipulated that the award "in matters other than international commercial arbitration" shall be made by the Arbitral Tribunal within a period of twelve months from the date of the completion of the pleadings under Section 23(4). The Court further observed that "The expression "in matters other than an international commercial arbitration" makes it abundantly clear that the timeline of twelve months which is stipulated in the substantive part of Section 29A(1), as amended, does not apply to international commercial arbitrations. This is further reaffirmed in the proviso to Section 29A(1) which stipulates that the award in the matter of an international commercial arbitration "may be made as expeditiously as possible" and that an "endeavour may be made to dispose of the matter within a period of 12 months" from the date of the completion of pleadings.

The expression "as expeditiously as possible" coupled with the expression "endeavour may be made" demonstrate that the intent of Parliament is that the period of twelve months for making the award is not mandatory in the case of an international commercial arbitration."

The Court further opined that in an ICA, the Arbitral Tribunal was required to endeavor, that is, make an effort to render the arbitral award within twelve months or in a timely manner in contrast to domestic arbitrations, where Section 29A stipulated a mandatory period of twelve months for the arbitrator to render the award. Therefore, the Court held that post the amendment of 2019, the time limit of twelve months as prescribed in Section 29A was applicable only to domestic arbitrations and the twelve month period was only directory in nature for an ICA.

The Court further observed that in the opinion of the High Level Committee Report dated 30.07.2017 of the committee chaired by Justice B N Srikrishna, the international arbitral institutions had been critical of setting up timelines for conducting ICAs. The intervention of the Court in the extension of timelines had been criticized by arbitral institutions and eventually led to the formulation of the amended provisions of Section 29A which expressly kept ICAs outside the purview of the mandatory timelines provided in Section 29A. Therefore, ICAs are only expected to make an endeavour to complete the proceedings within twelve months and are not bound to abide by the time limit prescribed for domestic arbitrations.

The Court observed that the provisions of Section 29A are prospective in nature by virtue of Section 26 of the Amendment Act of 2015, which states that Section 29A was introduced with effect from 23.10.2015 and applied to all arbitration proceedings that commenced on or after 23.10.2015. The Court further referred to the judgment of Board of Control for Cricket in India Vs. Kochi Cricket Pvt. Ltd.² to observe that Section 29A was procedural in nature, it created new obligations in respect of a proceeding which had already commenced since it laid down a strict timeline for rendering an arbitral award for the first time in the framework of the Act.

The Court further observed that the amended provisions of Section 29A were remedial in nature and it had excepted ICAs from the mandate of the timeline provided therein. The amendment was intended to meet the criticism over the timeline in its application to ICAs. Since the removal of the mandatory time limit for making an arbitral award in the case of an ICA did not confer any rights or obligations on any party, it ought to be applicable to all pending arbitral proceedings as on 30.08.2019.

CONCLUSION

Based on the aforementioned observations, the Court allowed the Miscellaneous Application and the Interlocutory Application and decided that the Sole Arbitrator in the present case would decide upon any further extension of time beyond what was originally stipulated in the preliminary meeting held in March 2018. The Court directed the Sole Arbitrator to issue appropriate procedural directions for extension of time while at the same time endeavouring an expeditious conclusion of the arbitration.

ANALYSIS

By way of this judgment, the Supreme Court has clarified that the stringent timelines under the amended Section 29A is applicable to domestic arbitrations only and ICAs have been kept out of its purview. This judgment further emphasizes upon the limited intervention of Indian courts in ICAs, especially with respect to timelines and extensions thereof. It is an encouraging step for the international arbitral institutions to monitor and control the timelines for conclusion of arbitral proceedings in ICAs without being bound by statutory timelines.

Footnotes

1. Miscellaneous Application No. 2680 of 2019 in Arbitration Case (Civil) No. 38 of 2017, decided on 05.01.2023

2. (2018) 6 SCC 287

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