Unraveling the Dilemma of Application of Amended Section 29A of Arbitration and Conciliation Act 1996

 

[Anshika Sharma and Khyati Mehrotra are students at ILS Law College, Pune.]

 

Section 29A of the Arbitration and Conciliation Act 1996 (Act) was introduced by the Arbitration and Conciliation (Amendment) Act 2015 (2015 Amendment) to achieve the object of establishing a speedy remedial mechanism in alternative dispute resolution. This provision imposed a time limit for rendering an arbitral award. However, to combat the issue of excessive litigations for extending time period under this provision, Section 29A was amended by the Arbitration and Conciliation (Amendment) Act 2019 (2019 Amendment), and the time limit for rendering the award was extended. Whether Section 29A could be applied retrospectively or prospectively was a long-standing question when it was introduced, however, the courts across India gradually resolved the same. Post the  2019 Amendment, the issue with respect to Section 29A’s application is again in question.

 

Section 29A as Introduced by 2015 Amendment

 

Section 29A, introduced by 2015 Amendment, mandated that an arbitral award should be rendered within a period of 12 months from the date the tribunal enters upon reference i.e.  the date on which the arbitrators receive notice of their appointment. It further provides that the parties can consent to extension of this time period by 6 more months. If the award is not made within the said time frame then the mandate of the arbitrator shall be terminated unless the time limit is extended by a court.

 

It is understood that Section 29A was given a prospective effect owing to the presence of Section 26 in the 2015 Amendment (Section 26), which provided that the amendment shall not apply to arbitration proceedings which commenced before 2015 Amendment came into effect i.e. before 23 October 2015. Further, the Madhya Pradesh High Court in Divya Dev Developers Private Limited v. M/s. G.S. Developers Private Limited took Section 26 into account and also relied upon the apex court’s judgement in Board of Control for Cricket in India v. Kochi Cricket Private Limited (BCCI case) to conclude that Section 29A has prospective application.

 

Section 29A as Amended by 2019 Amendment

 

Need for Amendment

 

Though the introduction of Section 29A was to speed up the process of dispute resolution, it was not free from adverse consequences. Setting the time limit of 12 months for passing of the arbitral award was a very ambitious step as it was nearly impossible to complete the proceedings within the given time frame in spite of the extension of 6 months. This prompted most parties to go to court for seeking extension of time, which increased the burden of courts and defied the objective of the 2015 Amendment which aimed at reducing judicial intervention. This ambitious time frame even discouraged parties to choose India as their seat of arbitration in complicated matters. Owing to these flaws, the legislature introduced changes in Section 29A by introducing the 2019 Amendment.

 

Amended Section 29A

 

Section 29A was amended by the 2019 Amendment with effect from 9 August 2019 (effective date). It stipulated that in matters other than international commercial arbitration, award shall be passed within a period of 12 months from the date of completion of pleadings instead of the date of commencement of proceedings. The amendment also fixed a time period of 6 months starting from the date of appointment of arbitrators for the completion of pleadings by amending Section 23(4). Extending the time limit for completion of proceedings will make the timeline more attainable and reduce the number of cases before the court seeking extension. It also provided for the mandate of arbitrators to continue during the pendency of application under Section 29A(5) so that there is no inordinate delay and unwanted judicial intervention. Thus, the amended Section 29A eradicated the shortcomings of the former provision to an extent.

 

Courts on Application of Amended Section 29A

 

However, the question regarding the application of amended Section 29A remains unsettled. The High Courts have taken a contradictory stance on this issue, thus leaving ambiguity on the same.

 

Recently, in Shapoorji Pallonji and Co. Private Limited v. Jindal India Thermal Power Limited (Shapoorji case), the Delhi High Court (Court)  in its order dated 23 January 2020 held that amended Section 29A(1) is procedural in nature and will have a retrospective application. Therefore, the court extended the time limit for completion of proceedings which began before the effective date.

 

In stark contrast to the above order, the Court, in its order dated 10 February 2020 in MBL Infrastructure Limited v. Rites Limited[1], stated that pursuant to a bare perusal of 2019 Amendment, it can be said that the amended Section 29A shall be given a prospective effect.

 

Analysis

 

The order delivered in the Shapoorji case can be considered good in law. Giving amended Section 29A a retrospective application is in line with the general principles of determining scope, ambit and operation of an amending statute.

 

To reiterate this stance, it becomes pertinent to bring Hitendra Vishnu Thakur v. State of Maharashtra (Hitendra’s case) into light,. In this case, the Supreme Court laid down principles to determine the prospective or retrospective operation of an amending statute. It clarifies that the law relating to limitation is considered to be procedural in nature, and any such statue which affects procedure is presumed to be retrospective. Section 29A(1) sets a limitation on the duration for completion of arbitral proceedings, and the amending section extends the given time frame. Thus, one can conveniently draw an inference that the law in amended Section 29A is procedural in nature and its application shall be presumed to be retrospective.

 

Further, it also becomes vital to take note of Securities and Exchange Board of India v. Classic Credit Limited, where the Supreme Court reinstated the principle that procedural amendments are presumed to be retrospective in nature, unless the amending statute expressly or impliedly provides otherwise. With respect to the current issue, there is no section in 2019 Amendment akin to Section 26 of 2015 Amendment that could deter the retrospective application of the amended Section 29A. Hence, the presumption of retrospective application of Section 29A stands correct.

 

At this juncture, it is important to refer to Hitendra’s case, where the Supreme Court had also laid down the following conditions in which the presumption of a procedural law to be retrospective will stand rebutted:

 

  1. When the procedural law results in creation of new disabilities or obligations, or imposition of new duties in respect of transaction already accomplished, the procedural statute should not be applied retrospectively.

  2. When a statue not only changes the procedure but also creates new rights and liabilities, it shall be prospectively applied, unless otherwise provided, either expressly or impliedly.

 

To check the applicability of these conditions in the present scenario, it becomes necessary to analyse the scope of both the original and amended Section 29A. In light of these conditions, the Supreme Court observed in the BCCI case that when Section 29A was introduced by 2015 Amendment, it laid down a strict timeline for passing of an award for the first time. It inferred that even though the section is procedural in nature, it created new obligation in respect of existing proceedings under the un-amended Act. In accordance with this observation, the original Section 29A was rightly regarded as prospective in application.

 

However, the situation differs with respect to the operation of amended Section 29A. Unlike the former Section 29A, it does not introduce any new limitation but only extends the time period for completion of arbitral proceedings set by 2015 Amendment. No new obligation, right or liability with respect to arbitration proceedings is being created by such extension. Hence, according to the principles laid down in Hitendra’s case, amended Section 29A, being procedural in nature, shall be applied retrospectively. This rationale has also been reflected in BCCI case. In BCCI case, the Supreme Court dealt with the application of 2015 Amendment. The court held that by virtue of Section 26, 2015 Amendment has prospective application. However, it carved out an exception for Section 36 of the Act. It held that Section 36 provides for enforcement of arbitral award, which is procedural in nature, and could be applied retrospectively, as a judgement debtor does not have the substantive vested right of an automatic stay on execution of award when petition under Section 34 has been filed. Similarly, as amended Section 29A does not create any right or obligation, it shall be given a retrospective effect and be applied even to proceedings which commenced before the effective date. Thus, the order laid in the Shapoorji case shall be perceived to be accurate on account of the above-mentioned cases. Courts, while dealing with the question of application of amended Section 29A, should give due regard to its procedural nature and the principles laid down in Hitendra’s case. Section 29A was amended to achieve the object of the Act of reducing court interference, thus giving it a retrospective effect would help in attaining this object efficiently.

 

 

[1] MBL Infrastructures Ltd. v. Rites Limited [judgment dated 10 February 2020 in OMP (Misc) (Comm.) 56/2020].

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