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.

Footnote:
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.

Disclaimer

– The views expressed in this article are the personal views of the author and are purely informative in nature.