The government has taken initiatives to ensure that India becomes a preferred destination in terms of doing business and getting disputes resolved efficiently. To make arbitration a preferred mode of dispute resolution by making it more user-friendly, and cost-effective, and ensuring timely disposal of cases, the Arbitration and Conciliation Act, 1996. Then in 2015, the Arbitration and Conciliation (Amendment) Act, 2015 was enacted. To make arbitration process time efficient, a time limit of 12 months for the completion of arbitration proceedings was introduced. The 2019 Amendment established the Arbitration Council of India (ACI) for grading arbitral institutions and accreditation of arbitrators. Despite government efforts and the active role of the judiciary in ensuring the effectiveness of arbitration, the ground realities pose a concerning picture. As per a report, the Majority of the companies in India (91% of the companies surveyed in India), that have a dispute resolution policy, include arbitration (not litigation) for the resolution of future disputes.[1] However, the data for 2022[2] shows that of the pending arbitration cases in India, a majority of around 48 percent were pending for more than a year. Around 23 percent of cases stay pending for ten to twenty years. Nevertheless, Arbitration remains one of the most preferred ways of resolving disputes and the one that is evolving.
The case of Chief Engineer (NH) PWD (Roads) vs. M/S BSC & C and C JV[3], has brought into sharp focus the interpretation of Section 29A of the Arbitration and Conciliation Act, 1996. This landmark case not only challenges the conventional understanding of court jurisdiction in arbitration matters but also promises to reshape the contours of arbitral proceedings across India's diverse judicial landscape. As India continues its ascent as a preferred destination for international arbitration, the outcome of this case could have far-reaching implications for the country's arbitration regime. It raises pivotal questions about the powers vested in different levels of courts, particularly in regions where High Courts lack ordinary original civil jurisdiction.
On May 13, 2024, the Supreme Court of India deliberated on a significant case that brought to the forefront crucial questions about the interpretation and application of the Arbitration and Conciliation Act, of 1996. The case, arising from Special Leave Petition (Civil) No. 10544/2024, was heard by a division bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan. This petition challenged an order dated April 22, 2024, passed by the High Court of Meghalaya at Shillong in CRP No. 2/2024.
The petitioner, in this case, was the Chief Engineer (NH) PWD (Roads). The respondent, M/S BSC & C and C JV. At the heart of this legal dispute lies the interpretation and application of Section 29A of the Arbitration and Conciliation Act, of 1996. This section, which deals with time limits for arbitral awards, was introduced to ensure the speedy resolution of arbitration proceedings.
"29A. The time limit for the arbitral award.—(1) 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 completion of pleadings under sub-section (4) of section 23.
Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavor may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23.
(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.
(3) The parties may, by consent, extend the period specified in sub-section (1) for making the award for a further period not exceeding six months.
(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:
Provided that while extending the period under this subsection, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order a reduction of fees of the arbitrator(s) by not exceeding five percent. for each month of such delay:
Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application:
Provided also that the arbitrator shall be given an opportunity to be heard before the fees is reduced.
(5) The extension of the period referred to in subsection (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.
(6) While extending the period referred to in subsection (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
(7) In the event of the arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.
(9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavor shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party."
This comprehensive section outlines several key aspects of arbitration proceedings. It sets a 12-month time limit for making awards in non-international commercial arbitrations, starting from the completion of pleadings. It allows for a 6-month extension by mutual consent of the parties. It empowers the Court to extend the time period if the award is not made within the specified or extended time. It gives the Court the authority to substitute arbitrators while extending the time. It allows the Court to reduce arbitrators' fees for delays attributable to the arbitral tribunal. It ensures that if arbitrators are substituted, the proceedings continue from the existing stage. It empowers the Court to impose actual or exemplary costs on any party. It directs courts to dispose of extension applications within 60 days.
The crux of the dispute in this case revolves around the interpretation of the term "Court" as used in Section 29A, particularly in relation to the powers vested under sub-sections (4) and (6). To understand this, it's essential to refer to Section 2(1)(e) of the Arbitration Act, which defines "Court" as:
"Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in the exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes.
The petitioner's argument, as presented by the senior counsel, centered on this definition. They contended that since the High Court of Meghalaya does not have ordinary original civil jurisdiction, it lacks the power under Section 29A(4) of the Arbitration Act to extend the time for making the arbitral award.
Furthermore, the petitioner argued that the power to substitute arbitrators under Section 29A(6) is only a consequential power vesting in the Court that is empowered to extend the time. They maintained that this power should be exercised only by the Court empowered to extend time as provided in Section 29A(4).
The Supreme Court's analysis centered on determining which "Court" has the power to extend time limits and replace arbitrators under Section 29A. The court clarified that this power vests in the "Court" as defined in Section 2(1)(e) of the Arbitration Act. According to this definition, the Court refers to the principal Civil Court of original jurisdiction in a district, which can include a High Court, but only if that High Court has ordinary original civil jurisdiction. Hence, in this particular case, the High Court of Meghalaya does not possess ordinary original civil jurisdiction. The Supreme Court emphasized that the power under Section 29A(6) to replace and substitute arbitrators is a consequential power that can only be exercised by the Court empowered to extend the time under Section 29A(4).
The Court's interpretation implies that the authority to extend time limits for arbitral awards and to replace arbitrators in case of delays rests with the principal Civil Court of original jurisdiction in the district, not with the High Court in this instance. This interpretation formed the basis for the Supreme Court's conclusion that there was no merit in the Special Leave Petition filed by the Chief Engineer.
As a result of this reasoning, the Supreme Court dismissed the Special Leave Petition.
The judgment is significant as it provides clear guidance on the interpretation of Section 29A of the Arbitration Act, particularly in determining which court has the authority to extend time limits and replace arbitrators in arbitration proceedings. The outcome of this case could have significant implications for the arbitration landscape in India. It may affect how time extensions are granted and arbitrators are appointed or substituted in regions where the High Court does not exercise ordinary original civil jurisdiction.
[1] PWC “Corporate Attitudes & Practices towards Arbitration in India”, accessed on 21/7/2024, available at: https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practices-towards-arbitration-in-india.pdf
[2] Statista “Age wise pendency of arbitration cases in India 2022”, Dec 14, 2023, available at: https://www.statista.com/statistics/1356526/india-age-wise-pendency-of-arbitration-cases/
[3] 2024 LiveLaw (SC) 425