Supreme Court of India: Whether Extension of Time to Pass an Award can be sought after the Expiry of the Prescribed period for Passing an Award
In Rohan Builders (India) Private Limited vs Berger Paints India Limited 2024 INSC 686, the Supreme Court of India decided the issue of whether an application for extension of time under Section 29A of the Arbitration and Conciliation Act, 1996 can be filed after the expiry of the period for making of the arbitral award.
Background
Section 29A(1) of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) provides that an award in matters other than international commercial arbitration is to be made by the arbitral tribunal within a period of 12 months from the date of completion of pleadings. As per Section 29A(3), this period can be further extended for a period of 06 months by consent of parties. Further, Section 29A(5) states that a party to the arbitration proceedings can file an application in court for an extension of time for making the award. However, if the award is not made even in such extended period, then the parties can apply to the Court seeking extension of time for passing of award. This is provided in Section 29A(4) which provides that if the award is not made within 12 months or the extended period of 06 months, then the mandate of the arbitrator(s) will terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period. The words underlined are at the heart of controversy in the present case which has been interpreted by the Supreme Court of India.
Conflicting views of High Courts
In this regard, the High Court at Calcutta in Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Limited,[1] held that the application for extension of time under Sections 29A(4) and 29A(5) of the Arbitration Act can only be entertained if filed before the expiry of the mandate of the arbitral tribunal. The High Court at Calcutta held that once the mandate of the arbitral tribunal is terminated by afflux of time of 12 months, or when so consented to by the parties after a further 06 month extension, the power of the court to extend time under Section 29A(4) cannot be invoked. A similar view has been taken by a Division Bench of the High Court of Judicature at Patna.[2]
However, the High Court of Delhi[3], the High Court of Judicature at Bombay[4], the High Court of Kerala[5], the High Court of Madras[6] and the High Court of Jammu and Kashmir and Ladakh[7] have held that an application for extension of time limit for arbitral award can be filed by a party even after the expiry of the term of 12 months or the extended period of 06 months. The High Court at Calcutta in a subsequent decision of the single Judge[8], has concurred with this view.
Parties Contentions
The parties advocating that the application for extension has to be made before the expiry of statutory period argued that use of the expression “terminate” in Section 29A(4) reflects the legislative intent of terminating the mandate of the arbitral tribunal upon the expiry of the specified period. Relying on the recommendations made by the 176th Report of the Law Commission of India, it was argued that the said report had suggested using the term “suspend” in Section 29A(4) instead of ‘terminate’. In view thereof, it was contended that the use of the expression “terminate” reflects the legislative intent of terminating the mandate of the arbitral tribunal upon the expiry of the specified period.
Therefore, it was argued that on the termination of the mandate, the arbitral tribunal becomes de jure incapable of performing its function. Along the same lines, it is argued that, as a sequitur, a party must file an application for an extension of time to make an arbitral award before the culmination of the initial 12 month period or the extended 06 month period.
Analysis
The Supreme Court analysed the legal position and made the following observations:-
- Section 29A(4) states that where the award is not made within the specified period of 12 or 18 months, the mandate of the arbitral tribunal will terminate. However, this provision does not apply if the court has extended the period, either before or after the expiry of the initial or the extended term.
- As per the second proviso to Section 29A(4), where an application for an extension of time under Section 29A(5) has been filed and is pending, the mandate of the arbitral tribunal shall continue till the disposal of the application.
- The extension of time is to be granted by the court only for ‘sufficient cause’ and on such terms and conditions as may be imposed by the court.
- The word “terminate” in Section 29A(4) has to be read in the context of the said provision and it should not be read as an isolated word with a strict dictionary meaning, which evinces the legislative intent.
- The legislative preference for the term “terminate” over “suspend” is apparent, since the word “suspend” could cause incongruity and a legal conundrum if no party files an application for an extension of time. In such a scenario, the arbitral proceedings would stand suspended ad infinitum.
- The word “terminate” in Section 29A(4) makes the arbitral tribunal functus officio, but not in absolute terms. It is followed by the connecting word “unless”, which qualifies the first part with the subsequent limb of the section, i.e. “unless the court has, either prior to or after the expiry of the period so specified, extended the period.”
- The expression “prior to or after the expiry of the period so specified” has to be understood with reference to the power of the court to grant an extension of time.
- Under 29A, the termination of the arbitral mandate is conditional upon the non-filing of an extension application and cannot be treated as termination stricto sensu. The word “terminate” in the contextual form does not reflect termination as if the proceedings have come to a legal and final end, and cannot continue even on filing of an application for extension of time. Therefore, termination under Section 29A(4) is not set in stone or absolutistic in character.
- Under Section 29A(5), the power of the court to extend the time is to be exercised only in cases where there is sufficient cause for such extension. Such extension is not granted mechanically on filing of the application. The judicial discretion of the court in terms of the enactment acts as a deterrent against any party abusing the process of law or espousing a frivolous or vexatious application.
- The court can impose terms and conditions while granting an extension. Delay, even on the part of the arbitral tribunal, is not countenanced. The first proviso to Section 29A(4) permits a fee reduction of up to five percent for each month of delay attributable to the arbitral tribunal.
Held
In light of the above observations, the Supreme Court accepted the view taken by the High Courts of Delhi, Jammu and Kashmir and Ladakh, Bombay, Kerala, Madras, the subsequent view expressed by the High Court at Calcutta and held as under:-
- The expression “either prior to or after the expiry of the period so specified” is unambiguous. It can be deduced by the language that the court can extend the time where an application is filed after the expiry of the period under subsection (1) or the extended period in terms of sub-section (3).
- The court has the power to extend the period for making an award at any time before or after the mandated period.
- The second proviso to Section 29A(4), by specific mandate, allows the arbitration proceedings to continue during the pendency of the extension application under Section 29A(5) before the court.
- The legislature by using the word “terminate” intends to affirm the principle of party autonomy. Resultantly, if neither party moves an application for an extension of time for making the award, the arbitration proceedings are terminated. Consequences follow. Clearly, the use of the word “suspension” would have led to infeasible ramifications.
- The power to extend time period for making of the award vests with the court, and not with the arbitral tribunal. Therefore, the arbitral tribunal may not pronounce the award till an application under Section 29A(5) of the Arbitration Act is sub-judice before the court. In a given case, where an award is pronounced during the pendency of an application for extension of period of the arbitral tribunal, the court must still decide the application under sub-section (5), and may even, where an award has been pronounced, invoke, when required and justified, sub-sections (6) to (8), or the first and third proviso to Section 29A(4) of the Arbitration Act.
Answering the question of law, the Supreme Court conclusively held that an application for extension of time for passing an arbitral award under Section 29A(4) read with Section 29A(5) of the Arbitration Act is maintainable even after the expiry of the 12 month or the extended 06 month period, as the case may be.
Comment
This judgment has provided much needed clarity to the arbitration fraternity in India. Earlier, as seen, due to divergent views taken by various High Courts in India, the position of law was not settled and therefore, parties used to take selective stands while filing an application seeking extension of time. This judgement will provide much needed clarity as to the timelines to be followed by the parties and remedies available to them in case the award is not passed within the stipulated time period. It shall also discourage frivolous litigation which otherwise used to ensue when a defaulting party used to object to such extension by taking the argument that the mandate of the arbitral tribunal is terminated if the application seeking extension of time was filed post 12 / 18 months period as applicable. This will also reduce the court’s burden as, if the court would have decided otherwise, and such applications were not allowed to be filed post 12 / 18 months period then the parties would have most likely had to file fresh application in courts seeking appointment of arbitrators and start the process de novo. This would have worked against the established ethos of arbitration and its very nature of being time efficient and speedy dispute resolution mechanism.