Power to extend time for passing an arbitral award by the courts

RECAPITULATING SECTION 29A OF THE ARBITRATION AND CONCILIATION ACT,1996.

INTRODUCTION

This article attempts to analyze a purely legal question as to whether an award can be passed after the mandate of an arbitrator has terminated, by placing reliance on a recent judgment of the Hon'ble High Court of Madras ('this Court' titled SURYADEV ALLOYS AND POWER VS SHRI GOVINDARAJA TEXTILES1 passed on 08.05.2020. The Court, while setting aside the award passed by the sole arbitrator has clarified that no award can be passed after the mandate of the arbitrator has been terminated by efflux of time as provided under the amended Arbitration Act. 

In its recent decision, the Hon'ble High Court of Madras has reiterated and clarified that an arbitral award cannot be ratified ex post facto by extending the time. The Court while clarifying the position has juxtaposed provisions relating to time period to make an arbitral award and power of extension of such time period under Section 28 of Arbitration and Conciliation Act, 19402 ('the Previous Act' with the amended provisions under Section 29A of Arbitration and Conciliation Act, 19963 ('the Act'.   

FACTS

The facts of the case giving rise to determination of these two questions are as follows:

A dispute arose between the parties for failure to clear invoices for power supply agreed under a Power Purchase Agreement ('the Agreement'. To settle the dispute, the parties invoked arbitration clause provided in the Agreement and approached the Court by filing an application seeking appointment of an arbitrator under Section 11 of the Act.

Accordingly, a sole arbitrator was appointed by the Court and the arbitrator entered reference by notice dated 20.03.2017. Further, an application was filed by the parties for extension of time before the Court prior to the date of conclusion of arbitral proceedings. The Court vide its order dated 04.09.2018 extended the period by six months commencing from the date of receipt of the order.

The arbitrator by his award dated 12.09.2019 allowed the claim filed by the claimant awarding interest on amount recoverable from the date of the award and the counterclaim filed by the respondent was outrightly rejected. Aggrieved by the award, the parties filed two separate applications for setting aside the award under Section 34 of the Act before the Hon'ble Court. While one application challenged the award for non-award of pendente lite interest, the other application challenged the award for not being valid as the mandate of the arbitrator had terminated long before the award was passed.

ISSUE INVOLVED

The question that arose for consideration before the Court was whether the award was valid as it had been passed after efflux of time as fixed by the Court.   

FINDINGS OF THE COURT

To put the ambiguity to rest, the Court opined, clarified and concluded that the award had been passed after the expiry of extended time granted by this Court. The Court also took into consideration that the pleadings and arguments were concluded within the prescribed timelines under the Act but the award was made after the expiry of extended time-period i.e. when the arbitrator became functus officio as the arbitrator's mandate terminated.

The Court also observed that the matter was reserved for orders much prior to the termination of the mandate of the arbitrator and as such there was no concrete reason for such delay in making the award.   

The Court while recapitulating the law, relied upon law previously laid in various judgments passed by the Apex Court and other courts on similar issue. The Court placed reliance on following judgments:

1. 'NBCC Ltd. vs J.G. Engineering Private Limited': The Court took cognizance over the issues pertaining to failure of an arbitrator to publish an award within extended period consented by the parties. The Apex Court while addressing the issue also took into consideration sections dealing with time limit for making an arbitral award as well as power of courts to grant such extension both under the Previous Act and Arbitration and Conciliation Act, 1996.

The Court while dealing with this question stated that there are no provisions under the Act to grant inherent power to the courts to extend period fixed for making an award. However, such time-period can be extended only if the parties consents to the same. Also, in cases where the parties have already taken recourse to enlarge time period under an arbitration agreement, the court cannot exercise its inherent power to extent such time, in the absence of consent of either of the parties.

2. 'M/s. Satyam Caterers Pvt. Ltd. vs The Assistant Commercial Manager (PS and CATG) and others': The High Court of Madras in this case held that it is mandatory for the arbitrator to make an award within the prescribed period of one year or such extended grace period of six months, if granted. The Court further summarized the position that an award should be passed within a maximum period of 18 months. Any further extension beyond a period of 18 months shall be granted only with the consent of the parties. Accordingly, an award passed after the stipulated period is not valid.

3. In 'M/s Bharat Oman Refineries Ltd. vs M/s Mantech Consultants': The Division Bench of the Bombay High Court, in this case held that'…,after the lapse of the agreed time, the Arbitrator looses his jurisdiction as per the mandate of Section 14 and 15 of the Act. Such defect is incurable. The implied consent cannot confer jurisdiction once again after the agreed period lapses….'

Lastly, the Court also placed reliance on judgment of the High Court of Calcutta which was upheld by the Apex Court titled 'NBCC Ltd. vs J.G. Engineering Private Ltd.' In the said judgment, the mandate of the arbitrator was terminated on application by the Parties for failure of the arbitrator to pass an award without any concrete reason even after the extension of time by consent of the Parties.

CONCLUSION

The decision of the Court in the present case has recapitulated the law previously laid in various judgments of the Apex Court and has further clarified the position as it stands today in terms of validity of the award passed after the termination of the mandate.

The contradistinction in position relating to extension of time to make an award and power of the court to grant such extension under the Previous Act and the Present Act has been elaborated by this Court. A clear reading of both the sections implies that the power granted to courts were much wider and unrestricted under the Previous Act. There is an absolute divergence in the powers granted to the courts for enlargement of time to make an award under the Previous Act and the present act. Moreover, these sections deviate partially in terms of applicability under different circumstances.  

It is wrong to say that the newly inserted section in the Act is replicated with minor changes in Section 28 of the Previous Act. A reasonable construction of intention of legislature should be placed upon the provisions of the Act which aims expeditious disposal of proceedings prescribing strict timelines for conclusion of proceedings.

It appears that this decision will significantly curtail filing of petitions for extension of the time limit for making of arbitral awards under Section 29A of the Act and will ultimately boost speedy resolution of arbitral disputes.

Footnotes:

1. Suryadev Alloys and Power Pvt. Ltd. vs. Shri Govindaraja Textiles Pvt. Ltd. (08.05.2020 - MADHC): MANU/TN/2967/2020.
2. NBCC Ltd. vs J.G. Engineering Private Limited: AIR2010SC640.
3. M/s. Satyam Caterers Pvt. Ltd. vs The Assistant Commercial Manager (PS and CATG) and others O.P.No.592 of 2018- High Court of Madras.
4. M/s Bharat Oman Refineries Ltd. vs M/s Mantech Consultants: 2012 (2) ARBLR 482 (Bom).

**The content of this article is intended to provide an idea to the subject matter.