[Piyush Agrawal and Sunil Singh are students at Hidayatullah National Law University, Raipur.]
On 23 January 2020, the single bench of Delhi High Court in Shapoorji Pallonji and Company Private Limited v. Jindal India Thermal Power Limited, ruled that Section 29A(1) and Section 23(4) of Arbitration and Conciliation Act 1996 (Arbitration Act) has retrospective application. In another case, the single bench of Delhi High Court on 10 February 2020 ruled that Section 29A will not apply to arbitration proceedings commenced before and pending as on the date of the amendment and hence will apply prospectively. The court through its present ruling has resurrected the debate on whether Section 29A of the Arbitration Act can be applied retrospectively or not.
Framework of Section 23 and Section 29A
The Arbitration and Conciliation (Amendment) Act 2019 (Amendment Act 2019) amended sub-section (1) of Section 29A of the Arbitration Act which read as follows:
The arbitral award shall be made by the arbitral tribunal within a time period of twelve months from the date of completion of pleadings as per sub-section (4) of Section 23.
The Amendment Act 2019 substituted the expression ‘arbitral tribunal enters upon reference’ with ‘completion of pleadings under Section 23(4)’ which now reads: within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23. However, there still seems to exist ambiguity on the retrospective application of Section 29A of the Arbitration Act to proceedings commenced before but pending as on the date of the amendment.
Sub-section (4) of section 23 of the Arbitration Act was added by Amendment Act 2019 which states that the pleadings shall be completed within a period of six months from the date the arbitrators receive their notice of appointment.
The essence of the amendment to both the sections is that the parties are now required to apply to extend the time period under Section 29A(4) of the Arbitration Act if the arbitral award has not been made before the expiry of the statutory time limit of twelve months from the date of conclusion of pleadings which is eighteen months from the date when arbitral tribunal enters upon reference compared to twelve months before the amendment.
Conflict between Shapoorji Pallonji and MBL Infrastructure
In Shapoorji Pallonji, the arbitral tribunal entered upon reference on 26 May 2018 and as per Section 23(4) and Section 29A(1) of the Arbitration Act, the time limit for completion of arbitration proceedings expired on 25 November 2019. Both the parties in terms of Section 29A(3) of the Arbitration Act mutually agreed to extend the time limit for another six months, that is, up to 23 May 2020. The court stated Section 23(4) and Section 29A(1) of the Arbitration Act constitute procedural law and, therefore, would be applied retrospectively.
On the other hand, in MBL Infrastructure, the court ruled that from a bare perusal, it is clear that Section 29A of the Arbitration Act does not have a retrospective effect and, therefore, the amendment to Section 29A of the Arbitration Act would not apply to the proceedings existing before as on the date of the amendment. Here the arbitral tribunal entered upon reference on 14 March 2018 and the statutory time limit of twelve months expired on 13 March 2019. Thereafter, parties mutually agreed to extend time till six months, which period expired on 13 September 2019. After the expiry of said period, parties invoked Section 29A of the Arbitration Act seeking further extension of the period for conclusion of arbitration proceedings, and the court, vide its order dated 6 September 2019, extended the time limit for twelve months from 13 September 2019 till 12 September 2020. On 10 February 2020, the petitioner filed the present petition under Section 29A(5) of the Arbitration Act on the ground that the Amendment Act 2019 would apply to the existing arbitration proceedings. The court rejected the contention of the petitioner.
Through this post, the authors seek to analyze the orders of the Delhi High Court through principles laid down by the Hon’ble Supreme Court and the Madhya Pradesh High Court where they cleared the ambiguity with respect to retrospective application of the inserted by Arbitration and Conciliation (Amendment) Act 2015 (Amendment Act 2015).
In 2018, the Supreme Court for the first time in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Ors. (BCCI) dealt with retrospective application of the Amendment Act 2015. In this case, the court examined the scope of Section 26 of the Amendment Act 2015 pertaining to non-applicability of the amendment to pending arbitral proceedings. Section 26 of the Amendment Act 2015 reads as:
26. Act not to apply to pending arbitral proceedings.- Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.
After examining the aforementioned section, the court bifurcated the provision of the section in two parts and held that the amendment would not apply to proceedings commenced before and pending before the arbitral tribunal as on the date of amendment unless the parties otherwise agree. However, the court with respect to the expression ‘in relation to arbitral proceedings’ held that the amendment statute of 2015 would apply to the court proceedings that have commenced on or after the said amendment came into force. To quote the court:
The scheme of Section 26 is thus, clear that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force.
The Madhya Pradesh High Court in the same year in M/s. DivyaDev Developers Private Limited v. M/s. G.S. Developers Private Limited, reiterated the principle laid down by the Supreme Court in BCCI to rule that Section 29A of the Arbitration Act (Amendment Act 2015) would not apply to arbitral proceedings commenced before and pending as on the date of amendment and hence it would have a prospective application. In the present case, the mandate of the arbitrator was terminated because he failed to give an award before the expiry of statutory time limit prescribed under Section 29A(1) of the Arbitration Act and subsequently parties did not respond for extending the time period of six months under Section 29A (3) of the Arbitration Act. Therefore, since the arbitration proceedings in this case had commenced much before the Amendment Act 2015 came into force, Section 29A of the Arbitration Act was declared to have no application on the proceedings.
In light of above two decisions, it is now evident that it is the Shapoorji Pallonji’s decision and not that of MBL Infrastructure that diverted from the principle established in regard to application of amendment on pending arbitral proceedings as on the date of amendment. The court was required to apply the Amendment Act 2019 prospectively and, therefore, the new provisions laid down in Section 23(4) and Section 29A(1) were not to be applied in the present case.
In Shapoorji Pallonji, the arbitrator was supposed to consider mutual consent of the parties under Section 29A(3) of the Arbitration Act for extension of time period for completion of proceedings after 26 May 2019 (after the expiry of twelve months from the date the arbitral tribunal entered upon reference) instead of 26 November 2019 (after the expiry of twelve months from the date of completion of pleadings). Further, to prevent the mandate of the arbitrator from being terminated either or both of the parties were supposed to approach the court under Section 29A(5) of the Arbitration Act for extension of time period for completion of proceedings and the court only after finding “sufficient cause” was supposed to grant the extension. However, the court in the present case preferred to apply the amendments retrospectively to give relief to the parties and thereby held that the time period for completion of proceedings had not expired.
While the decision made by the court is little surprising, the reasoning given for the same is intriguing. The court pointed out that the Amendment Act 2019, being ‘procedural law’, would apply retrospectively. Although the court did not use the term ‘retrospective’, it meant the same while rendering the decision. It is important to note here that the reasoning is in contrary to the principle laid down in BCCI where the Supreme Court held that merely because an amendment is procedural in nature, it would not have retrospective effect ‘unless the parties otherwise agree’. In Shapoorji Pallonji, the parties only agreed to extend the time period under Section 29A(3) of the Arbitration Act for completion of proceedings and passing of award and, therefore, to say that the amendment would have retrospective effect is uncalled for.
Although the principles laid down by the Supreme Court and Madhya Pradesh High Court (as discussed above) discuss about applicability of Amendment Act 2015 to arbitral proceedings and not of Amendment Act 2019, it can still be argued that retrospective application of Amendment Act 2019 in light of Sections 23(4) and 29A(1) of the Arbitration Act is an over-ambitious approach specially where it extends the completion of arbitral proceedings. It defeats the very legislative intent behind those amendments which was to sensitize the parties to expedite their proceedings. Per se the present issue is subject to widespread conclusions and it appears that the final burden rests upon the Supreme Court to determine the issue.
OMP (MISC.)(COMM) 512/2019.
MBL Infrastructure Limited v. Rites Limited, OMP (MISC.)(COMM) 57/2020.