India: Section 29A Of The Indian Arbitration And Conciliation Act: Possibility Of Timebound Arbitration

Introduction

One of the most significant legal changes made by the Indian legislature in recent years has been the introduction of the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act). The Amendment Act seeks to resolve issues that have traditionally afflicted the alternative dispute resolution framework in India, for example, protracted disputes , excessive judicial intervention, dearth of qualified and impartial arbitrators, and so on.

While most changes effected in the Arbitration and Conciliation Act (Act) by the Amendment Act are based on the recommendations of the 246th Law Commission Report, an important deviation from the said Law Commission Report is the incorporation of Section 29A into the Act. Not only does the concerned section not figure anywhere in the recommendations made by the 246th Law Commission Report, it also has very few parallels in other jurisdictions of the world. Needless to say, Section 29A has been one of the most talked about and controversial sections pursuant to the amendment of the Act raising doubts about its application and efficacy.

Section 29A seeks to impose a time limit of 12 months on the conduct of arbitrations. It mandates that an award shall be passed in a matter within 12 months of the arbitral tribunal entering upon the reference.i The parties may, by consent, extend the time for making an award by another six months . Interestingly, the section goes on to state that in the event that the award is not made within the stipulated 18 months, the mandate of the arbitral tribunal shall terminate, unless the court has either before or after the lapse of the 18-month period extended the time. Moreover, the proviso to the sub-section empowers the court to deduct fees of the tribunal if the court is of the view that the delay is attributable to the tribunal. Section 29A also empowers the court to substitute one or all arbitrators. As can be clearly seen, Section 29A is unprecedented in terms of what it empowers the courts to do.

Its incorporation in the Act is undoubtedly aimed at reducing inordinate delays that plague dispute resolution in India, but as will be seen in the sections that follow, effective implementation of the provision remains a question and most stakeholders believe that it will resurrect the same demons that the Amendment Act purports to slay.

Infirmities In The Section

1. Curtailment of party autonomy

One of the most prominent features of arbitration is party autonomy. Parties, by an agreement between themselves, agree to refer their current and future disputes to a private forum for resolution, and it is this agreement to refer to and be bound by the decision of such forum that confers upon the forum, i.e., the arbitral tribunal, the power to pass an award of binding nature. Parties also have the freedom to agree on the procedure of arbitration within the confines of law.

The principle of party autonomy is therefore one of the edifices on which the arbitration framework rests and explicitly figures in most statutes and institutional rules regarding arbitration. Even the Act recognizes the principle of party autonomy and states that subject to the provisions of law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in the course of arbitral proceedings.ii Parties, therefore, have very broad freedoms in selecting an arbitration regime and in prescribing the procedure to be followed, which are circumscribed only by mandatory provisions of law.

In view of the aforesaid points, Section 29A raises serious concerns about the curtailment of party autonomy. The section, as it stands now, allows the parties to extend the period for passing an award by another six months if the award is not passed within 12 months. However , if the award is not passed despite this extension of six months, the mandate of the tribunal automatically terminates and it is only the court, which on an application by one of the parties and upon being satisfied of sufficient cause, can extend the period for passing the award further. The parties, even if they mutually agree, cannot extend the mandate of the arbitral tribunal beyond the 18-month period allowed by Section 29A. This mandatory requirement to file an application before the court, an agreement between the parties notwithstanding, is antithetical to the idea of parties having the autonomy to set down time limits and procedures for the adjudication of disputes.

2. Increased judicial intervention and protracted disputes

As stated above, once the 18-month period allowed under Section 29A lapses, the parties no longer have the freedom to extend the mandate of the arbitral tribunal any further. The power to grant further extensions then vests in courts. It is only upon an application being made by one of the parties that courts can grant further extensions upon being shown sufficient cause and subject to certain terms and conditions if required.

It is common knowledge that the Act had to be brought in, in the year 1996, to bring the domestic arbitration law at par with the UNCITRAL Model Law. It, inter alia, sought to reduce the extent of judicial intervention that had been the hallmark of Indian arbitration till then. In fact, it expressly recognizes the principle of minimum judicial intervention in Section 5 that states that notwithstanding anything contained in any other law, no judicial authority shall intervene except as provided in the Act itself.

In light of objects of the Act and the express statutory provision mandating minimum judicial intervention, a bare reading of Section 29A suggests that it will not only have the effect of increasing judicial intervention in the arbitration process but will be counterproductive as in reality, it will have an effect of increasing the time involved in the adjudication of disputes through arbitration. While sub-section (9) of Section 29A states that a court shall make all endeavors to dispose of an application thereunder within 60 days, anyone who is acquainted with the pace at which court proceedings progress will be aware that the timeline is rather unrealistic in the Indian scenario wherein courts are overburdened and seldom manage to dispose of applications within 60 days. It is ironical that a section that seeks to ensure the speedy resolution of arbitral disputes may in all likelihood have the effect of substantially prolonging the process of adjudication. It is an inevitable consequence as a court will grant an extension only once it has been shown sufficient cause. Moreover, a court's decision under Section 29A will also be amenable to further challenge by an aggrieved party, thus significantly increasing the time involved in the entire process. While an order under Section 29A is not an appealable order under Section 37 of the Act, a person aggrieved by such an order may still challenge it before the Supreme Court by way of a Special Leave Petition. This leaves the process quite vulnerable to dilatory tactics by unscrupulous parties. Moreover, such a challenge can considerably increase the time involved in the adjudication of a dispute and is completely opposed to the object sought to be achieved by Section 29A, that is, the timely adjudication of disputes.

In fact, at this juncture, it is important to mention that the earlier statute governing domestic arbitration in India, i.e., Indian Arbitration Act, 1940, had a similar provision which mandated that all arbitral disputes be adjudicated within four months of entering upon reference. Past experience under the earlier 1940 Act has shown that it is extremely unlikely that a provision of this nature will have the desired effect. Under the 1940 Act, the disposal rate of arbitral disputes was abysmal and it can be said with certainty that adjudication within four months as envisaged by the older Act was an object that was rarely achieved. The fact that India has already experimented with timebound arbitration and has failed to achieve the desired results is a red flag as far as Section 29A is concerned. This has increased the scepticism and apprehension among stakeholders.

3. Reduction of arbitrators' fees

What renders the section even more opaque and uncertain is the sub-section that empowers courts to pass an order reducing the fees of arbitrators should it be of the view that the delay is attributable to the arbitrators.iii The principles of natural justice embedded in the Indian judicial system mandate that arbitrators be given an opportunity to be heard before an adverse order reducing their fees can be passed by courts. This presents a rather peculiar and possibly unforeseen situation wherein arbitrators themselves become parties to adversarial proceedings.

Another possible consequence is arbitrators' reluctance to adjudicate disputes that are very complicated or voluminous in nature such that their adjudication is likely to take more than 18 months. In such cases, knowing that their conduct shall be susceptible to judicial scrutiny and their fees can be reduced by courts if the delay is attributable to them, experienced arbitrators might distance themselves from complicated disputes that are likely to overshoot the 18-month period set down by Section 29A.

Similar Provisions In Other Jurisdictions And Institutions

A somewhat similar provision is Section 50 of the UK Arbitration Act, 1996, which states that in cases where the time for making an award is limited by an arbitration agreement and a tribunal fails to pass an award within that agreed upon period, then a court may extend the time upon an application being made by the tribunal or parties upon being satisfied that substantial injustice would be done otherwise.

While statutes setting down a time limit for arbitration are rare, such clauses appear fairly regularly in the rules of arbitration institutions . Prominent examples are Article 30 of the ICC Arbitration Rules and Article 37 of the Stockholm Chamber of Commerce Arbitration Rules, both of which lay down a time limit of six months for passing an award. Indian arbitration institutions also have similar rules laying down a time limit for conduct of arbitrations, for example, Rule 22 of the Nani Palkhivala Arbitration Centre Rules sets a time limit of 12 months for the completion of arbitration proceedings. It also, under exceptional circumstances, allows the arbitral tribunal to extend this period of 12 months by another six months. It is also added in the same rule that this power of the tribunal to extend the time period by six months is subject to the inherent power of the tribunal to extend the time period by 12 months in cases of extreme complexity.iv The Rules of the Court of Arbitration at the Indian Merchants' Chambers and the FICCI Tribunal of Arbitration Rules have similar rules with time limits ranging from six months to two years.v In fact, the introduction of Section 29A raises an additional issue of these institutional rules being at variance with the domestic law. As far as domestic arbitration is concerned, these institutions will have to amend their rules so as to bring them in consonance with Section 29A.

It must also be added that arbitration laws in most jurisdictions and rules governing procedure in various arbitration institutions routinely have provisions that allow parties to choose expedited procedure under which the arbitral tribunal must pass the award within a certain time period. These provisions are, however, clearly distinguishable from Section 29A since in the former case, it is an alternative available to the parties which can be chosen of their own volition and not a mandatory provision. Another major distinction between the rules laying down a time limit or providing for expedited hearing and Section 29A is that the former seldom mandate the automatic termination of the tribunal's mandate and subsequent referral of the issue of extension to courts.

Conclusion And Suggestions

It remains to be seen whether Section 29A manages to accomplish what it sets out to do, that is, ensure the timely disposal of disputes. If the criticism directed against the section by various stakeholders is any indication , the section appears to be set to further aggravate problems that afflict arbitration in India. There seems to be a consensus that the introduction of Section 29A will lead to more protracted disputes and increased judicial intervention and will make the arbitral process more amenable to dilatory tactics . Further, there remain grey areas with regard to ascertaining when the delay can be attributed to the arbitral tribunal necessitating a reduction in its fees. Another problem with the section is that it seems to incentivize arbitrators withdrawing themselves from voluminous disputes likely to stretch beyond 18 months and choosing more lucrative, simpler disputes instead.

In view of the abovementioned points, implementing a blanket rule where the time limit is set at 18 months without making any distinction as regards the nature of the dispute might not work in the Indian scenario. The government may consider exempting a certain class of disputes from the application of Section 29A, for example, disputes of subject matter higher than a certain amount may be exempted from the application of Section 29A. It is also extremely important that permanent benches be constituted in courts for dealing with disputes arising out of arbitration, including applications under Section 29A. Constituting permanent benches dedicated to adjudicating applications arising out of the Act will ensure that the applications made under Section 29A do in fact get disposed of within 60 days as envisaged by the statute . The government may also consider exempting arbitration institutions from the application of this rule and restrict it to ad-hoc arbitrations since they already have a robust system in place for the timely adjudication of disputes.

Footnotes

i As Per sub-section (2) of Section 29A, an arbitral tribunal is deemed to have entered upon reference on the date on which all the arbitrators have received notice in writing, of their appointment.

ii Section 19 of the Act.

iii Section 29A(4) of the Act.

iv Rule 22(c) of the Nani Palkhivala Arbitration Centre Rules.

v Rule 62 of the Rules of the Court of Arbitration of the Indian Merchants' Chamber and Rule 49 of the FICCI Tribunal of Arbitration Rules.

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.

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