The Supreme Court, in a recent case of Rohan Builders v Berger Paints, has held that an application for an extension of the time period for passing an arbitral award under Section 29A(4) of the Arbitration and Conciliation Act, 1996 (“Act”) read with Section 29A(5) of the Act is maintainable even after the expiry of the 12 months or the extended 6 month period, as the case may be.

Background

The Calcutta High Court in the case of Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Limited had come to a conclusion on 6 September 2023 that the application for extension of time for passing of the arbitral award can only be entertained under Sections 29A(4) and 29A(5) of the Act, if filed before the expiry of the mandate of the arbitral tribunal. When this decision of the Calcutta High Court was challenged before the Supreme Court, the Apex Court took notice that several other High Courts had taken a contrary view, thus requiring a further judicial inquiry to determine the correct position of law and eliminate any contradictions in the interpretation of Section 29A(4) of the Act.

The Calcutta High Court had taken the view 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 6 month extension, the power of the court to extend time under Section 29A(4) cannot be invoked. Similar view was taken by the Patna High Court. Whereas the High Courts of Delhi, Bombay, Madras, Jammu & Kashmir, and Kerala have taken an contrary view and 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 twelve months or the extended period of six months. As a result, the Supreme Court was required to settle the position of law with respect to the correct interpretation of Section 29A(4) of the Act.

Relevant Law

Section 29A of the Act provides that the arbitral award in domestic and commercial arbitration must be passed by the arbitral tribunal within a period of twelve months from the date of completion of pleadings. The parties can mutually extend this period for a maximum of six months. Section 29A(4) of the Act provides that if the award is not passed within a period of twelve months or eighteen months, as the case may be, the mandate of the arbitrator(s) terminates unless the court has, either before or after the expiry of the period so specified, extended the period. The parties are required to file an application to seek such an extension.

View of the Calcutta High Court:

The Calcutta High Court relied upon the recommendations made by the 176^th Report of the Law Commission of India, which had suggested using the term “suspend”. Juxtaposing the words “terminate” and “suspend” it is noted 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, the reasoning observes that on the termination of the mandate, the arbitral tribunal becomes de jure incapable of performing its function. 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 twelve-month period or the extended six-month period.

View of the Supreme Court:

The Apex Court opined that the legislative preference for the term “terminate” over “suspend” is apparent, since the word “suspend” could cause 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. Therefore, the legislature by using the word “terminate” intends to affirm the principle of party autonomy.

In conclusion, the Apex Court held that an application for extension of the time period for passing an arbitral award under Section 29A(4) of the Act read with Section 29A(5) of the Act is maintainable even after the expiry of the 12 month or the extended six-month period, as the case may be. The court while adjudicating such extension applications will be guided by the principle of sufficient cause and must exercise judicial discretion when deciding the terms and conditions, subject to which, such an order of extension will be passed.

MHCO Comment:

The view taken by the Supreme Court will ensure that parties are at liberty to apply for extension of time for passing of the arbitral award even after the expiry of the specified period. At the same time, the Apex Court has rightly stressed on the need to allow such an extension only when there exists a sufficient cause and subject to stringent terms and conditions. This emphasis by the Supreme Court will curb delaying tactics the parties employ. In conclusion, the Apex Court has taken a balanced view while interpreting Section 29A(4) of the Act.

This update was released on 23 Sep 2024.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
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