Introduction
The
Arbitration and Conciliation Act of 1996, did not have a time limit upon the
mandate of the Arbitrator.. This limitation, along with other provisions of Sec
29A, were inserted into the principal Act by way of the 2016 Amendment Act.[1] The
Act of 1940, in s. 28, also contained provisions whereby the court could extend
the time for making an award. However, the 1940 Act did not contain any
mandatory limits upon the time available to the Arbitrators. There was an
“implied time limit” condition of four months.[2]
Parties were free to impose such limits by contractual agreement. Further, it
was open to the parties to extend the time by way of mutual consent[3].[4] But
the omission of the provision for extension of time and therefore the absence
of any time limit has given rise to another problem, namely, that awards are
getting delayed before the arbitral tribunal even under the 1996 Act. One view
is that this is on account of the absence of a provision as to time limit for
passing an award.[5]
This
said provision stipulated under Section 29A is only applicable to arbitral
proceedings (both domestic and international arbitrations) commenced on or
after 23rd October, 2015 wherein the place of arbitration is in India. Thus, it
is prospective in nature.
Section. 29 A (1)
The
first subsection of section 29A states-
1. “The
award shall be made within a period of twelve months from the date the arbitral
tribunal enters upon the reference. Explanation.—For the purpose of this
sub-section, an arbitral tribunal shall be deemed to have entered upon the
reference on the date on which the arbitrator or all the arbitrators, as the
case may be, have received notice, in writing, of their appointment.”[6]
The
award in question, would also include an interim award.[7] However,
as per Sec. 32, Arbitral proceedings are terminated upon the delivery of a
final award and not an interim award. [8]This
time limit also applies to International Commercial Arbitrations seated in
India. The Arbitration and Conciliation (Amendment) Bill of 2018 will exempt
International Commercial Arbitrations from any time limits.[9]
The
procedure for the appointment of arbitrators is laid out under section 11 of
the Act. It is worth noting that the time limit begins from the date of the “appointment”
of the Arbitrator(s), as opposed to “commencement of arbitral proceedings”. It
is worth nothing that in the 1940 Act, “reference” was defined as “reference to
arbitration”, which, in turn, meant when the Respondent received notice of
Arbitration proceedings. The UNCITRAL Model Law is also on similar lines.[10]
This appointment may be challenged in accordance with S. 13, based on the
grounds noted in s. 12. It is for the Tribunal to decide upon the validity of
the challenge. The appointment must be according to the rules of the
Arbitration Agreement and the procedure agreed to by the parties, or according
to the directions of the Chief Justice (or his designee). If the appointment
made is not proper, then the award may be rendered void.[11][12]
If the challenge fails, then the date of appointment stands.[13]
However, if the challenge succeeds and a new arbitrator is appointed, then s.
15 (4) comes into effect, which states-
“Unless
otherwise agreed by the parties, an order or ruling of the arbitral tribunal
made prior to the replacement of an arbitrator under this section shall not be
invalid solely because there has been a change in the composition of the
arbitral tribunal.”
Further,
s. 15 (3) states-
“(3)
Unless otherwise agreed by the parties, where an arbitrator is replaced under
sub-section (2), any hearings previously held may be repeated at the discretion
of the arbitral tribunal.”
Thus,
if an Arbitrator is substituted, then the previous proceedings are not held to
be void.
Under
Article 12 (3) of the UNCITRAL Arbitration Rules (as revised in 2010), if a
party’s challenge to the appointment of an Arbitrator fails, he could proceed
to the Court at that stage, instead of waiting for a final award. However, s.
13 (4), (5) of the Arbitration Act make a distinct departure from the same. The
Parliament, with a view to prevent the dilatory tactics of an unsuccessful
party, has compelled it to await an award.[14][15]
The inclusion of this provision is also a departure by the legislature from the
old Act of 1940, where the Court was empowered to remove arbitrators or umpire.[16]
The
International Chambers of Commerce has similar provision in its 2017
Arbitration rules, where Article 31 Provides for the time limit for the final
award.[17]
It should be noted that the ICC clearly refers to the Final award, thus
removing the ambiguity present in the 1996 Indian Act.
In
case the first time period of one year runs out and one or both parties do not
consent to the extension of the proceedings, the Arbitrator / Tribunal shall
terminate the proceedings. This termination cannot be challenged in anyway
except by a petition under section 34 of the Act. [18][19]
Section.
29A (2)
The
second subsection of section 29A states-
“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.”
The
language used here is, “as the parties may agree” and not “as the parties have
agreed”. This implies that there need be no prior agreement of the parties to
the Arbitration with regard to the fee payable to the arbitrators if the award
is made within 6 months. The parties are thus bound to, in concert, agree to
the additional fee payable.[20]
The
Fourth Schedule to the Arbitration and Conciliation Act of 1996 may be of some
benefit in determining the appropriate fee. S. 11 (13) and (14) are relevant in
this regard. They are as follows-
(13) An application made under this section for appointment of
an arbitrator or arbitrators shall be disposed of by the Supreme Court or the
High Court or the person or institution designated by such Court, as the case
may be, as expeditiously as possible and an endeavour 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.
(14) For the
purpose of determination of the fees of the arbitral tribunal and them manner
of its payment to the arbitral tribunal, the High Court may frame such rules as
may be necessary, after taking into consideration the
rates specified in the Fourth Schedule.
Further,
the Court has a certain amount of discretion with regard to the costs of
arbitration.[21]
The
Legislature has proposed an amendment to the current scheme by way of Section 3
of the Arbitration and Conciliation (Amendment) Bill of 2018. It seeks to amend
section 11 of the Principal (1996) Act. After the amendment, the fees of the
Arbitrators shall be decided by the Arbitral Institutions subject to the rates
specified in the Fourth Schedule. Further, the amendment removes International
Commercial Arbitrations from the vice of the Fourth Schedule. It also exempts
parties that have agreed for determination of fees as per the rules of an
arbitral institution. [22]
[THE FOURTH SCHEDULE][23]
|
Sum in
dispute |
Model fee |
|
Up to Rs.
5,00,000 |
Rs. 45,000 |
|
Above Rs.
5,00,000 and up to Rs. 20,00,000 |
Rs. 45,000
plus 3.5 per cent. of the claim amount over and above Rs. 5,00,000 |
|
Above Rs.
20,00,000 and up to Rs. 1,00,00,000 |
Rs. 97,500
plus 3 per cent. of the claim amount over and above Rs. 20,00,000 |
|
Above Rs.
1,00,00,000 and up to Rs.
10,00,00,000 |
Rs. 3,
37,500 plus 1 per cent. of the claim amount over and above Rs. 1,00,00,000 |
|
Above Rs.
10,00,00,000 and up to Rs.
20,00,00,000 |
Rs. 12,
37,500 plus 0.75 per cent. of the claim amount over
and above Rs. 1,00,00,000 |
|
Above Rs.
20,00,00,000 |
Rs. 19,
87,500 plus 0.5 per cent. of the claim amount over and above Rs. 20,00,00,000
with a ceiling of Rs. 30,00,000 |
Section. 29A (3)
The third subsection of section
29A states-
“The parties may, by consent, extend the period specified
in sub-section (1) for making award for a further period not exceeding six
months.”
This
sub-section implies that the parties need to reach a new agreement in order to
extend the time period for further Arbitration. The use of the words “may, by
consent, extend” implies the need for a new agreement. Thus, there may not be a
prior agreement, whether by way of the main contract, or by way of the
Arbitration Agreement.
This
seems to be based on the proposal of the 176th Law Commission
Report.[24]
Section. 29A (4)
The fourth subsection of section 29A states-
“(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 sub-section, if the Court finds that the
proceedings have been delayed for the reasons attributable to the arbitral
tribunal, then, it may order reduction of fees of arbitrator(s) by not
exceeding five per cent for each month of such delay. [25]”
It should be noted that the phrase used in this sub-section is
“the mandate of the arbitrator(s) shall terminate”. This does not mean that the
arbitration proceedings shall terminate. As has been discussed above, there is
a distinction between the termination of an Arbitrator’s mandate and the
termination of proceedings. The later may only be done by an “order passed by
the arbitrator” in terms of s. 32 of the 1996 Act. If the mandate of the
arbitrator terminates as provided in the main provision of s. 29A (4), then it
may be open to the court to appoint new arbitrators. It is implied that the
Arbitrator(s) shall be substituted by the court if it is found that the
Arbitrator(s) has/have failed to act and adjudicate without undue delay. This
becomes amply clear upon an examination of sub-section 6 of section 29A.[26]
It should be noted that once an arbitrator’s mandate has been
terminated, he may be appointed again. There is no specific authority for this
proposition, however, the Supreme Court has decided a case where one of the
Parties challenged the appointment of the Arbitrator on the ground that he had
decided a previous dispute in a prior Arbitration proceeding arising out of the
same Contract, involving identical issues. The ground taken by the Party, among
others, was that the Arbitrator has had “The
arbitrator has previous involvement in the case.” [27]This
is one of the grounds for challenging the appointment of an Arbitrator.[28]
It is also a ground which “gives rise to
justifiable doubts as to the independence or impartiality of arbitrators.”[29]
Another ground taken was that if arbitrator has been appointed as an arbitrator
on more than one occasion by a party, such appointment falls afoul of Clauses
22 and 24 of the Fifth Schedule and therefore it is justified to doubt his
impartiality. It is worth noting that while the Fifth Schedule lays down
certain situations where an Arbitrator’s appointment may be challenged, it is
not an absolute rule. The Seventh Schedule, however, lays down grounds that
render a person “ineligible to be
appointed as an arbitrator”.[30] This must be
interpreted in light of Explanation 3 to
the Seventh Schedule which says-
“For the
removal of doubts, it is clarified that it may be the practice in certain
specific kinds of arbitration, such as maritime or commodities arbitration, to
draw arbitrators from a small, specialised pool. If in such fields it is the
custom and practice for parties frequently to appoint the same arbitrator in
different cases, this is a relevant fact to be taken into account while
applying the rules set out above.”
The Court drew
a distinction between independence and impartiality and held that a person may
not be independent, but may yet be impartial. The observations of the Supreme
Court, as made by Nariman J, in this regard are as follows-
“……………..every arbitrator shall be impartial and
independent of the parties at the time of accepting his/her appointment. Doubts
as to the above are only justifiable if a reasonable third person having
knowledge of the relevant facts and circumstances would reach the conclusion
that there is a likelihood that the arbitrator may be influenced by factors
other than the merits of the case in reaching his or her decision. This test
requires taking a broad common-sensical approach to the items stated in the
Fifth and Seventh Schedules. This approach would, therefore, require a fair
construction of the words used therein, neither tending to enlarge or restrict
them unduly……….”[31]
“…………In this context, it is important to refer to the
IBA Guidelines, which are the genesis of the items contained in the Seventh
Schedule. Under the waivable Red List of the IBA Guidelines, para 2.1.2 states:
“The Arbitrator had a prior involvement in the
dispute.”
24. On reading the aforesaid guideline and reading the
heading which appears with Item 16, namely “Relationship of the arbitrator to
the dispute”, it is obvious that the arbitrator has to have a previous
involvement in the very dispute contained in the present arbitration.”[32]
“It has also been argued by learned counsel appearing
on behalf of the respondent that the expression “the arbitrator” in Item 16
cannot possibly mean “the arbitrator” acting as an arbitrator, but must mean
that the proposed arbitrator is a person who has had previous involvement in
the case in some other avatar. According to us, this is a sound argument as
“the arbitrator” refers to the proposed arbitrator. This becomes clear, when contrasted
with Items 22 and 24, where the arbitrator must have served “as arbitrator”
before he can be disqualified. Obviously, Item 16 refers to previous
involvement in an advisory or other capacity in the very dispute, but not as
arbitrator. [33]
The words “termination of mandate” have been used elsewhere in
the 1996 Act. The provisions of Section 15 are relevant here. It reads as
follows-
“15. Termination of
mandate and substitution of arbitrator.—
(1) In
addition to the circumstances referred to in section 13 or section 14, the
mandate of an arbitrator shall terminate—
(a) where he withdraws from
office for any reason; or
(b) by or pursuant to
agreement of the parties.
(2) Where the
mandate of an arbitrator terminates, a substitute arbitrator shall be appointed
according to the rules that were applicable to the appointment of the
arbitrator being replaced.
(3) Unless
otherwise agreed by the parties, where an arbitrator is replaced under
sub-section (2), any hearings previously held may be repeated at the discretion
of the arbitral tribunal.
(4) Unless
otherwise agreed by the parties, an order or ruling of the arbitral tribunal
made prior to the replacement of an arbitrator under this section shall not be
invalid solely because there has been a change in the composition of the
arbitral tribunal”
A combined reading of Sections 15(2) and 29A (4) tells us that
if the mandate of the Arbitrators terminates, then the rules applicable to the
appointment of the initial arbitrator shall be applicable. This, in turn, means
that if the Parties had decided upon the selection criteria[34]
and procedure for Arbitrators, such rules and procedures shall be followed here
again. If there is no prior agreement, or the parties do not agree again as to
the procedure, then –
1. In an
arbitration with three arbitrators, each party shall appoint one arbitrator,
and the two appointed arbitrators shall appoint the third arbitrator who shall
act as the presiding arbitrator.[35]
2. If the above appointment
procedure applies and—
a. a party fails
to appoint an arbitrator within thirty days from the receipt of a request to do
so from the other party; or
b. the two
appointed arbitrators fail to agree on the third arbitrator within thirty days
from the date of their appointment,
the
appointment shall be made, upon request of a party, by [the Supreme Court or,
as the case may be, the High Court or any person or institution designated by
such Court];[36]
3. Failing any
agreement referred to (1), in an arbitration with a sole arbitrator, if
the parties fail to agree on the arbitrator within thirty days from receipt of
a request by one party from the other party to so agree the appointment shall
be made, upon request of a party, by [the Supreme Court or, as the case may be,
the High Court or any person or institution designated by such Court].
4. Where, under
an appointment procedure agreed upon by the parties,—
a. a party fails
to act as required under that procedure; or
b. the parties,
or the two appointed arbitrators, fail to reach an agreement expected of them
under that procedure; or
c. a person,
including an institution, fails to perform any function entrusted to him or it
under that procedure,
a party may
request [the Supreme Court or, as the case may be, the High Court or any person
or institution designated by such Court] to take the necessary measure, unless
the agreement on the appointment procedure provides other means for securing
the appointment.
The power of the Court to substitute Arbitrators is in addition
to, and not in derogation of, its power to deduct fees. The power of the Court
to deduct fee can be quite severe. Although there is a limit of 5% for every
month, there can be situations where the delay is for multiple months. For example,
the maximum deduction allowed for a delay of 6 months is 30% of the total fee. In such a case, the cumulative deductions can
be quite great. It is also worth observing that the fee paid to an Arbitrator
may be on more than one basis. It may be fixed, per month, or per session. The
imposition of a high deduction can be especially severe and harsh where the
Arbitrator has agreed to a fixed fee. In such a situation, it is in his
interest to make an award as quickly as possible. It is hoped that the Court,
while imposing a deduction, shall both give a hearing to the Arbitrator as to
the quantum of deduction, as well as consider the basis upon which his fee is
paid. This is certainly the current position of the law, which has also been
made clear by the Legislature. The 2018 Bill includes an amendment which will
add a Proviso to Section 29A (4) which specifies the right of the Arbitrator to
be heard by the court before his fee is reduced.[37]
There is, however, a likely and unusual contingency which might arise.
The Fourth Schedule specifies the Arbitrator’s fee based upon the “sum in
dispute”. This term is vague. Often times, the exact amount in dispute is in
question. It can be a tedious and complicated task, for example, to determine
the amount of loss of future profits suffered. The determination of interest
(the rate, as well as the quantum) is also very commonly an issue in commercial
Arbitrations. Parties also usually claim the costs of Arbitration and/or any
associated litigation and other legal expenses. Further, in commercial Arbitrations, for every
claim, there is almost always a counter claim. Thus, even if we assume that the
Legislature intended “sum in dispute” to mean the amount claimed by the party, then
what happens when the Respondent files a counter-claim? Do we take the “sum in
dispute” to mean the sum total monetary value of both the claim, as well as the
counter-claim?
It is worth noting that this provision empowers the court to
deduct fees, and fees only. Black’s Law Dictionary (9th Edn.)
defines fee as “A charge for labor or
services, esp. professional services”[38]. This view is
supported by the fact that section 31 (8) of the 1996 Act uses the words
“costs”, as well as the word “fees”. Costs of Arbitration includes the
Arbitrator’s fees.[39] Article
40, Clause 2 also defines fees as a sub-set of “costs”.[40]The
Court cannot impose such a deduction, that it also eats away at the Arbitrators
out of pocket expenses and costs. For example, if the Arbitration is conducted
by an Institutional Arbitrator which also charges rent to let out the office of
the Arbitrators, the court cannot deduct such amount. There are many expenses
associated with Arbitration apart from the fee simpliciter given to the
arbitrator. The Indian Institute of Arbitration and Mediation has published its
Fee Schedule and this may be
referenced here.
Before the deduction of fee, the Court must follow the
Principles of Natural Justice. One of the principles is the rule of audi alterm paterm, which means “hear
the other side”. The Court is bound to give a hearing to the Arbitrator before
passing any adverse order against him, whether for the deduction of fee, or his
substitution. This adds to the amount of time consumed by the judicial
intervention.
It is noteworthy that most Arbitrators, especially those
appointed by the Court, are retired Judges, who are well versed with the law.
If necessary, the Court may also appoint subject matter experts. Further, the
1996 Act allows the parties to decide the criteria for the appointment of
Arbitrators. This power also includes the ability to specify the qualifications
of the Arbitrators.[41]
As such, Arbitrators are not likely to be incompetent. Thus, the penalties by
way of deduction of fee and/or substation hangs upon an Arbitrator’s head like
the sword of Damocles. While the 1996 Act, by virtue of the 2015 Amendment Act
does contain such provisions for penalties and time restrictions, it did not
contain any such provisions when it was originally enacted. This was a
departure from the 1940 Act which, by virtue of an “implied term” included a
time limit of four months from the date of reference. It seems that the
Legislature regretted its decision to give Arbitrators and Parties a free hand
and in its wisdom, imposed these provisions. Perhaps the Legislature was of the
view that Arbitrations were concluded in a much more rapid manner under the
1940 Act. It may be true that Arbitrations may have been wrapped up faster in
earlier times, but correlation does not equate to causation. Arbitrations today
are far more common that Court litigations, especially in Commercial Contracts
where complex trade deals are involved. In such deals, the Contracts alone
often run into hundreds, if not thousands of pages. This is a clear indicator
of the increase in complexity of today’s commercial disputes. When such
complicated matters are to be adjudicated, it is only natural for the
proceedings to take their time. In order to do complete justice, the
Arbitrators must pay attention to all the materials and arguments advanced by
the parties. It is not reasonable to assume that the Arbitrators are not
working expeditiously, the relevant circumstances must be taken into context.
The 1996 Act remains silent as to what happens when the time has
run out while an application for extension is pending with the court. The 176th
Law Commission in its Report, suggested that in such a situation, Arbitration
proceedings should be allowed to continue.[42][43]
Further, the Commission was of the opinion that if the proceedings have not
been concluded even after an extension by the Court, they should be allowed to
continue.[44]
It is not explicitly stated in the Act what would happen if no
party applies to the court to extend time. The 176th Commission’s
view was that In order that there is no further delay, after the period of
initial one year and the further period agreed to by the is over, the
arbitration proceedings will stand suspended and will get revived as soon as
any party to the proceedings files an application in the Court for extension of
time. In case none of the parties files an application, even then the arbitral
tribunal may seek an extension from the Court.[45]
The Arbitration and Conciliation (Amendment) Bill of 2018 makes a very welcome
improvement to the existing law by stating that while the application for an
extension is pending decision by the Court, the Arbitration proceedings shall
continue till the application is disposed of by the Court.[46]
Section. 29A (5)
The fifth subsection of section 29A states-
“(5) The extension of period
referred to in sub-section (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.”
Looking at the provision, it seems clear that the party applying
for extension must show that an extension of time should be granted. The burden
of proof is upon the applicant. “Party” has been defined in the Act as “party”
means a party to an arbitration agreement. Therefore, the right to apply to a
Court for the extension of time is available only to the parties to the
disputes, and not the Arbitrators. It should be noted that the Law Commission,
in its 176th Report stated that “if the parties do not apply, the
arbitrators can also apply for the same.”[47]
It should be noted that
the phrases “may be granted” and “only
for sufficient cause” has also been used here. “Sufficient cause” has also
been used in section 5 of the Limitation Act.[48] Thus,
this provision gives the Court a wide amount of discretion and places a heavy
burden upon the applicant. The use of the word “only” ensures that the court
can grant an extension under a limited set of circumstances. It is possible
that lengthy proceedings in courts may ensue in order to convince the Court of
the validity and existence of “sufficient cause”. The parties may be faced with
the need to lead a large amount of evidence and arguments in order to get an
extension. As with other previously discussed provisions in the Act which
necessitate judicial intervention, there is a specific requirement given in
this sub-section for the courts to decide the application in an expeditious
manner, as well as a recommended disposal time (60 days from the date of
service of notice on the opposite party).
This requirement for a Court’s approval seems rather contrary to
the objectives and purpose of the Arbitration and Conciliation Act. The entire
point of this Act was to provide for an alternative dispute resolution
mechanism whereby the parties had access to fast and effective remedies and the
over-burdened dockets of the courts could be reduced. The Law Commission in its
76th Report, which recommended certain amendments, including a
proviso to be inserted in section 28 of the Act of 1940 forbidding, an
extension beyond one year, in respect of the time for making the award except
for special and adequate reasons to be recorded.
There is also an unintended consequence of this sub-section. In
order to adjudicate upon the sufficiency of cause for extension of time, one of
the most common reasons may be the inherent complexity of the dispute or the
technical nature of the underlying contract, or even the time taken by an
expert to make his observations and give his evidence. All of these reasons
ensure that the parties must place on the Court’s record a lot of material
which may otherwise be highly confidential. For example, a lot of
joint-ventures or technology transfer agreements involve intellectual property
and trade secrets which need to be protected. The confidentiality inherent in
Arbitration proceedings is not present in courts.
It is worth noting that the above provision does not specify the
amount of additional time the Court can grant to the Arbitrator. As such, it is
entirely up to the Courts discretion. While the76th report of the
Law Commission recommended for fixing maxim period for the court to extend
time, the 176th Commission wanted to leave it to the Court’s
discretion. Further, the Court has the ability to impose terms and conditions.
It is very easy to foresee that the court may order an extension by a
relatively short amount of time, say, one month, and then force the parties to
come back to it. Thus, the Court will have a sort of supervisory jurisdiction
over and above the kind envisioned by the 1996 Act. This is quite clearly
against the intention of the Legislature, as evidenced under section 5 of the
Act (for which, there is no analogous provision in the 1940 Act).
Art.24 (1) of the International Chambers of Commerce Rules, 1998
fixed a period of six months from the date of signature or approval by the
International Court of Arbitration of the terms of reference. However, the
International Court of Arbitration may “pursuant to a reasoned request from the
arbitrator or if need be on its own initiative, extend the time limit if it
decides, it is necessary to do so (Art. 24(2). Where an excessive delay is
attributable to the arbitrators, the International Court of Arbitration may
resort to the provisions of the Rules concerning the replacement of arbitrators,
which apply where the arbitrators fail to perform their duties within the
stipulated time limits.[49]
The
corresponding provision in the English Arbitration Act is as section 50 which
states-
“Extension of time for
making award.
(1) Where the time
for making an award is limited by or in pursuance of the arbitration agreement,
then, unless otherwise agreed by the parties,
the court may in accordance with the following provisions by
order extend that time.
(2) An application for an order under this section may be
made—
(a) by the tribunal (upon notice to the parties), or
(b) by any party to the proceedings (upon notice to the
tribunal and the other parties), but only after exhausting any available
arbitral process for obtaining an extension of time.
(3) The court shall only make an order if satisfied that
a substantial injustice would otherwise be done.
(4) The court may extend the time for such period and on
such terms as it thinks fit, and may do so whether or not the time previously
fixed (by or under the agreement or by a previous order) has expired.
(5) The leave of the court is required for any appeal
from a decision of the court under this section”
Section 79 of the English Act is also relevant in this regard.[50]
The 176th Law Commission Report laid down the
following things to take into account while deciding upon the issue of time
extension-
(a) the extent of work already
done;
(b) the reasons for delay;
(c) the conduct of the parties
or of any person representing the parties;
(d) the manner in which
proceedings were conducted by the arbitral tribunal;
(e) the further work involved;
(f) the amount of money already
spent by the parties towards fee and expenses of arbitration;
(g) any other relevant
circumstances,
Section. 29A (6)
The sixth subsection of section 29A states-
“(6) While extending the period
referred to in sub-section (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.”
As noted
earlier, in addition to sanctions by way of fee deduction, the supervising
court can substitute the Arbitrator(s).
However, this can cause additional delays. While the Legislature has
urged the Courts not to dawdle while appointing substitutes, it will not be
instantaneous. The Courts must appoint substitute Arbitrators within 60 days “from the date of service of notice to the
opposite party.” [51]
The duration is similar to when the Arbitrator is first appointed.[52]
It is worth noting that while the initial appointment may be done only by the
Supreme Court/High Court, a substitute may be appointed by the Court having
supervisory jurisdiction. As such, depending upon which court has jurisdiction,
the parties may be able to approach a district court/Principal Civil Court or
Court of Small Causes as well, which may result in a faster appointment. [53]
This seems to be a trend since the 1996 Act, as it was originally drafted, only
empowered the Chief Justice of the High Court / Supreme Court (or his Designee)
to make an initial appointment.
It is
worth noting that the Act of 1940 also empowered the Court to substitute
Arbitrators when they were the cause of undue delay. This was to be done upon
an application made by a party. Thus, a Party could initiate subsequent
substitution of an Arbitrator, even if the appointment was valid. Under section
11 (1) of the 1940 Act, it was stated-
“The Court may, on the application of any party to a
reference, remove an arbitrator or umpire who fails to use all reasonable
dispatch in entering on and proceeding with the reference and making an award.”
Further, if the arbitrator was removed, he would not have been
entitled to any remuneration.[54]
Upon such removal, any party could apply to have the vacant Arbitrator’s post
filled.[55]
Section. 29A (7)
The seventh subsection of section 29A states-
“(7) In the
event of 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.”
This provision ensures that no additional time is wasted by
restarting the proceedings de novo.
This is in contradistinction to section 15 (3) of the 1996 Act which stated “(3)
Unless otherwise agreed by the parties, where an arbitrator is replaced under
sub-section (2), any hearings
previously held may be repeated at the discretion of the arbitral tribunal.”
The fact that the reconstituted tribunal is deemed to be in continuation of the
previously appointed tribunal means that any orders passed by the previous
tribunal are not rendered ineffective due to their substitution.[56]
This shall hold even if the parties agree otherwise.
According
to Section 27 (4) of the English Arbitration Act, 1996,”The tribunal (when reconstituted) shall determine whether and if so
to what extent the previous proceedings should stand. This does not affect any
right of a party to challenge those proceedings on any ground which had arisen
before the arbitrator ceased to hold office “
Section. 29A (8)
The eighth subsection of section 29A states-
“(8) It shall
be open to the Court to impose actual or exemplary costs upon any of the
parties under this section.“
This
sub-section is incorporated to deter unscrupulous parties, especially those who
are only interested in delaying the cause of justice. The use of the phrase “any of the parties under this section” is ambiguous. Since this
section also refers to Arbitrators, they may be included in the ambit of this
penal provision. As stated earlier, the principles of Natural Justice in
general, and the rule of audi alterem
patrm are to be followed and before imposing any costs, the Court must give
a hearing to the party likely to be effected.
Section. 29A (9)
The ninth subsection of section 29A states-
“(9) An
application filed under sub-section (5) shall be disposed of by the Court as
expeditiously as possible and endeavour 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.”
[1]
Sec 15 of the 2016 Amendment
act.
[2]
See section 3 read with the
First Schedule of the Arbitration Act, 1940.
Section 3- Provisions implied in arbitration agreement- An arbitration agreement, unless a different
intention is expressed therein, shall be deemed to include the provisions set
out in the First Schedule in so far as they are applicable to the reference.
Rule 3, First
Schedule- The arbitrators shall make
their award within four months after entering on the reference or after having
been called upon to act by notice in writing from any party to the arbitration
agreement or within such extended time as the Court may allow.
[3]Shyam
Telecom Ltd. vs Arm Ltd, 2
004 (3) ARBLR 146 Delhi, 2004 (77) DRJ 91 Para 17- “It is true that
1996 Act does not prescribe any time limit for making and publishing the Award
but that does not mean that parties cannot by mutual agreement provide for a
time limit for making the Award by the Arbitrator and if so prescribed it would
run contra to the provisions of the Act. This view appears to be more plausible
and acceptable having regard to the object of having Arbitration as the
alternate mode for settlement of disputes/differences between the parties.”
[4]
28. Power to Court only to enlarge
time for making award.
(1) The Court may,
if it thinks fit, whether the time for making the award has expired or not and
whether the award has been made or not, enlarge from time to time the time for
making the award.
(2) Any provisions
in an arbitration agreement whereby the arbitrators or umpire may, except with
the consent of all the parties to the agreement, enlarge the time for making
the award, shall be void and of no effect.
[5] 176th Law Commission Report, Page 122
[6]
The Arbitration Amendment Bill, 2018 proposes the following substitution to s. 29A
(1)-
"(1) The award in matters other than
international commercial arbitration shall be made within a period of twelve
months from the date of completion of pleadings under sub-section (4) of section 23."; Thus,
the time period shall begin to run from the point when parties have completed
their pleadings. Thus, it seems that the legislature wishes to give a years’
time to the Arbitral Tribunal to deliberate and decide upon the issues, as
opposed to quickly wrap up the proceedings. This proposed amendment requires to
be reconsidered. The term “completion of pleading” is vague. Further, parties
are free, with the leave of the Tribunal, to amend their pleadings. As such, it
would be open for unscrupulous litigators to employ dilatory tactics and keep
extending their pleadings indefinitely. The Act does not specifically authorize
the Arbitrator to compel a Party to quickly wrap up its pleadings.
[7]S
2. (C), Arbitration Act, 1996 “arbitral award”
includes an interim award; whereas the old Act specified that ‘“award” means an
arbitration award”
[8]
Termination of proceedings.—
(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for
the termination of the arbitral proceedings where—
(a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,
(b) the parties agree on the termination of the proceedings, or
(c) The arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.
(3) Subject to section 33 and sub-section (4)
of section 34, the mandate of the arbitral tribunal shall terminate with the
termination of the arbitral proceedings.
[9]
Section 6 of the Arbitration and Conciliation (Amendment) Bill, 2018-
“In section
29A of the principal Act,—
(a) for sub-section (1), the following sub-section shall
be substituted, namely:—
"(1) the award in matters other than
international commercial arbitration shall be made within a period of twelve
months from the date of completion of pleadings under sub-section (4) of section 23.”
[10] Article 21. Commencement of arbitral proceedings- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
[11]
Jimmy Construction Pvt. Ltd. V
UoI, 2008 (2) Arb LR 591 (Bom)
[12] Haresh Chinnubhai Shah v Rajesh Prabhakar Jhaveri, 2004 (1) Arb LR 536 (Bom)
[13] The Observations of the Delhi High Court in Newton Engineering and Chemicals v IOL 2006 (4) Arb LR 257 (para 24) -
“To
conclude, I have no hesitation in holding that there is no provision in the Act
empowering this Court to terminate the mandate of the Arbitrator who has
entered upon the reference and/or to substitute the same with an Arbitrator
appointed by this Court. The necessary corollary is that the challenge to the
appointment of the Arbitrator must be raised by the petitioner before the Arbitral Tribunal itself. If
such challenge succeeds, the petitioner shall have no cause for grievance left.
If, however, the petitioner is unable to succeed before the Arbitral Tribunal,
it shall have no option except to participate in the arbitral proceedings and
if aggrieved by the arbitral award, to challenge the same in accordance with the
provisions of Section 34 of the Act.”
[14]
Harike Rice Mills v State of
Punjab, 1997 (Sup) Arb LR 342
[15]
Assam Urban Water Supply and
Sewerage Scheme v Subhash Projects and Marketing Ltd. AIR 2003 Gau 146
[16]
See S 11, Arbitration Act,
1940-
11. Power of Court to remove arbitrators or
umpire in certain circumstances.
(1) The
Court may, on the application of any party to reference, remove an arbitrator
or umpire who fails to use all reasonable dispatch in entering on and
proceeding with the reference and making an award.
(2) The
Court may remove an arbitrator or umpire who has misconduct himself or the
Proceedings.
(3)
Where an arbitrator or umpire is removed under this section, he shall not be
entitled to receive any remuneration in respect of his services.
(4) For
the purposes of this section the expression “proceeding with the reference”
includes, in a case where reference to the umpire becomes necessary, giving
notice of that fact to the parties and to the umpire.
[17] Article 31 Time Limit for the Final Award
The time limit within which the arbitral tribunal must render its final award is six months. Such time limit shall start to run from the date of the last signature by the arbitral tribunal or by the parties of the Terms of Reference or, in the case of application of Article 23(3), the date of the notification to the arbitral tribunal by the Secretariat of the approval of the Terms of Reference by the Court. The Court may fix a different time limit based upon the procedural timetable established pursuant to Article 24(2).
The Court may extend the time limit pursuant to a reasoned request from the arbitral tribunal or on its own initiative if it decides it is necessary to do so.
[18] In The India Trading Company vs. Hindustan Petroleum Corporation Ltd. 2016 SCC Online Cal 479, a Division Bench of the Calcutta HC has held-
"13. There is a difference between a decision which puts an end to the arbitral proceedings and a decision whereby the arbitrator withdraws from the proceedings. Where the arbitrator withdraws from the proceedings, a substitute arbitrator may appointed in accordance with the procedure, applicable to the appointment of the arbitrator who is replaced, but where the arbitrator puts an end to the arbitral proceedings, the claimant cannot pursue his claim.
14. The decision of the arbitral tribunal to put an end
to the proceedings is a final award which can only be challenged by way of an
application for settling aside under Section 34 Sub-section (2) of the 1996
Act. Once the arbitral proceedings are terminated, the claimant cannot
re-agitate the same claim by initiation of fresh proceedings since the claim
would be hit by principles of constructive res judicata.”
[19] Angelique
International Limited vs SSJV Projects Private Limited & Anr, O.M.P. (T)
(COMM.) 91/2017 & I.A. Nos.13595/2017, 14086/2017
[20]
The Arbitration (Amendment)
Bill, 2018 proposes an amendment in sec. 11-
“(14) The arbitral institutions shall determine the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule.”
Explanation.—For the removal of doubts, it is
hereby clarified that this sub-section shall not apply to international
commercial arbitration and in arbitrations (other than international commercial
arbitration) where parties have agreed for determination of fees as per the
rules of an arbitral institution.’
[21]
Section 39 (4)
“The Court may make
such orders as it thinks fit respecting the costs of the arbitration where any
question arises respecting such costs and the arbitral award contains no
sufficient provision concerning them”.
[22]
S. 11 (14) as proposed in the 2018 Amendment bill-
“The arbitral
institutions shall determine the fees of the arbitral tribunal and the manner
of its payment to the arbitral tribunal subject to the rates specified in the
Fourth Schedule.
Explanation.—For
the removal of doubts, it is hereby clarified that this sub-section shall not
apply to international commercial arbitration and in arbitrations (other than
international commercial arbitration) where parties have agreed for
determination of fees as per the rules of an arbitral institution.”
246thLaw
Commission Report, Page 19, para 11, 12-
11.The model schedule of fees are based on the fee schedule set by the Delhi High Court International Arbitration Centre, which are over 5 years old, and which have been suitably revised. The schedule of fees would require regular updating, and must be reviewed every 3-4 years to ensure that they continue to stay realistic.
12. The Commission notes that International Commercial arbitrations involve foreign parties who might have different values and standards for fees for arbitrators; similarly, institutional rules might have their own schedule of fees; and in both cases greater deference must be accorded to party autonomy. The Commission has, therefore, expressly restricted its recommendations in the context of purely domestic, ad hoc, arbitrations.
[24]
Proposed Section 29A (7)-
“The parties cannot by consent, extend the
period beyond the period specified in sub-section (1) and the maximum period
referred to in sub-section (2) and save as otherwise provided in the said
sub-sections, any provision in an arbitration agreement whereby the arbitral
tribunal may further extend the time for making the award, shall be void and of
no effect.”
[25]
The Arbitration Amendment Bill, 2018 proposes the following amendment to s. 29A (4)
“in sub-section (4), after the proviso, the following
provisos shall be inserted, namely:—
"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 of being heard before the fees is
reduced."
[26]
“(6) While extending the period
referred to in sub-section (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.”
[27]Arbitration and Conciliation Act, 1996, Seventh Schedule, Clause 16
[28] Section 12 (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having
arisen between them, waive the applicability of this sub-section by an express
agreement in writing.]
[29]
See Clause 16, The Fifth
Schedule, 1996 Act
[30]
See ibid, 22
[31]
HRD Corporation v GAIL India Ltd. (Civil Appeal no 11127 of 2017),
[32]
Ibid, Para 23, 24
[33]
Ibid, Para 16
[34]
Section 11 (2) Subject to sub-section (6), the
parties are free to agree on a procedure for appointing the arbitrator or
arbitrators.
[35]
Section 11 (3)
[36]
Section 11 (4)
[37] Section 6, Arbitration and Conciliation
(Amendment) Bill, 2018-
“In section 29A of the principal Act,—
………………………..
(b) in sub-section (4), after the proviso, the following provisos shall be inserted,
namely:—
…………………………..
Provided also that the arbitrator shall be given an
opportunity of being heard before the fees is reduced.”
[38]
Page 718
[39]
Section 31 (8), 1996 Act-
“The costs of an
arbitration shall be fixed by the arbitral tribunal in accordance with section
31A.]
Explanation.—For the purpose of clause (a), “costs” means reasonable costs
relating to—
(I) the fees and expenses of the
arbitrators and witnesses,
(ii) legal fees and expenses,
(iii) any administration fees of the
institution supervising the arbitration, and
(iv) any other expenses incurred in
connection with the arbitral proceedings and the arbitral award.”
[40]
Article 40 (2), UNCITRAL Arbitration Rules, 2010-
2. The term “costs”
includes only:
(a) The fees
of the arbitral tribunal to be stated separately as to each arbitrator and to
be fixed by the tribunal itself in accordance with article 41;
(b) The
reasonable travel and other expenses incurred by the arbitrators;
(c) The
reasonable costs of expert advice and of other assistance required by the
arbitral tribunal;
(d) The
reasonable travel and other expenses of witnesses to the extent such expenses
are approved by the arbitral tribunal;
(e) The legal
and other costs incurred by the parties in relation to the arbitration to the
extent that the arbitral tribunal determines that the amount of such costs is
reasonable;
(f) Any fees
and expenses of the appointing authority as well as the fees and expenses of
the Secretary-General of the PCA.
1[41] Section 11 (8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—
(a) any qualifications required for the arbitrator
by the agreement of the parties;
[42]
Page 124., Para 2.21.3
[43]
Proposed Section 29A (4)-
“Pending
consideration of the application for extension of time before the Court under
sub section (3), the arbitration proceedings shall continue before the arbitral
tribunal and the Court shall not grant any stay of the arbitral proceeding”
[44] 176th Report, page 125,
Para 2.21.5- there
is no point in terminating the arbitration proceedings. We propose it as they
should be continued till award is passed. Such a termination may indeed result
in waste of time and money for the parties after lot of evidence is led. In
fact, if the proceedings were to terminate and the claimant is to file a
separate suit, it will even become necessary to exclude the period spent in
arbitration proceedings, if he was not at fault, by amending sec. 43(5) to
cover such a situation. But the Commission is of the view that there is a
better solution to the problem
[45]
This suggestion was formulated
by the Commission in its proposed version of s. 29A (3)-
“If the award is not made within the period specified in sub-section (1) and the period agreed to by the parties under sub-section (2), the arbitral proceedings shall, subject to the provisions of sub-sections (4) to (6), stand suspended until an application for extension is made to the Court by any party to the arbitration, or where none of the parties makes an application as foresaid, until such an application is made by the arbitral tribunal.
[46] Section 6 of the Arbitration and Conciliation (Amendment) Bill, 2018-
“In section 29A of the principal Act,—
……………………..
(b) in sub-section (4), after the proviso, the following provisos shall be inserted,
namely:—
"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:”
[47]176th Law Commission Report, Page 17
[48] 5. Extension of prescribed period in certain cases.—Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908 (5 of 1908), may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.
Explanation.—The fact that
the appellant or the applicant was missed by any order, practice or judgment of
the High Court in ascertaining or computing the prescribed period may be
sufficient cause within the meaning of this section.
[49] See Art. 12 (2) of the ICC Rules, 1998
[50] 79 Power of court to extend time limits relating to arbitral proceedings.
Unless the parties otherwise agree, the court may by order extend any time limit agreed by them in relation to any matter relating to the arbitral proceedings or specified in any provision of this Part having effect in default of such agreement. This section does not apply to a time limit to which section 12 applies (power of court to extend time for beginning arbitral proceedings, &c.).
An application for an order may be made—
by any party to the arbitral proceedings (upon notice to the other parties and to the tribunal), or
by the arbitral tribunal (upon notice to the parties).
The court shall not exercise its power to extend a time limit unless it is satisfied—
that any available recourse to the tribunal, or to any arbitral or other institution or person vested by the parties with power in that regard, has first been exhausted, and
that a substantial injustice would otherwise be done.
The court’s power under this section may be exercised whether or not the time has already expired.
An order under this section may be made on such terms as the court thinks fit.
The leave of the court is required for any appeal from a
decision of the court under this section.
[51]
Section 29A (9)-
“An application
filed under sub-section (5)
shall be disposed of by the Court as expeditiously as possible and endeavour
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.”
[52]
Section. 11 (13)-” An application made
under this section for appointment of an arbitrator or arbitrators shall be
disposed of by the Supreme Court or the High Court or the person or institution
designated by such Court, as the case may be, as expeditiously as possible and
an endeavour 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.”
[53]
Section 2 (e)-
“Court” means—
(I) in the case of an arbitration
other than international commercial arbitration, the principal Civil Court of
original jurisdiction in a district, and includes the High Court in 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;
(ii) in
the case of international commercial arbitration, the High Court in 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, and in other cases, a High Court having
jurisdiction to hear appeals from decrees of courts subordinate to that High
Court;]
[54] Section 11 (3) “Where an arbitrator or umpire is removed under this section, he shall not be entitled to receive any remuneration in respect of his services”
[55] Section 12 (1) Where the Court removes an umpire who has not entered on the reference or one or more arbitrators (not being all the arbitrators), the Court may, on the application of any party to the arbitration agreement, appoint persons to fill the vacancies.
(2) Where the authority of an arbitrator or arbitrators or an umpire is revoked by leave of the Court, or where the Court removes an umpire who has entered on the reference or a sole arbitrator or all the arbitrators, the Court may, on the application of any party to the arbitration agreement, either-
(a) appoint a person to act as sole arbitrator in the place of the person or persons displaced, or
(b) order that the arbitration agreement shall cease to have effect with respect to the difference referred.
[56] This is similar to Section 15 (4) –“Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.”
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