Article

Section 29A of the Arbitration and Conciliation Act, 1996 prescribes the time limit for passing of arbitral award in case of domestic arbitrations. As per section 29A(1), the award shall be made by the arbitral tribunal within a period of 12 months from the date of completion of pleadings. As per sub-section (3), the parties by consent extend the period of 12 months for a further period not exceeding 6 months. As per sub-clause (4), the mandate of the arbitrator shall terminate in the event the award is not made within the period prescribed or within the extended period unless the court extends the period either prior to or after the expiry of the period so specified or extended. Any extension can be granted only on application of any of the parties stating sufficient cause. The Court may impose any terms and conditions while extending the time period. The Court deciding an application under section 29A of the 1996 Act is also empowered to order reduction in the fees of the arbitral tribunal if the Court is of the opinion that the delay in delivering award is attributable to the arbitral tribunal. The Court can further impose actual or exemplary costs upon any of the parties.

The question that arises for consideration is whether an award that is passed after the expiry of the period prescribed under section 29A of the 1996 Act or after the extended period, is a nullity and is unenforceable in law? The question is also whether section 29A addresses the said issue at all or it is a grey area? It is also important to understand as to under which proceeding the objection of award being nullity can be raised.

Hon’ble Division Bench of the Telangana High Court has recently in the matter of Roop Singh Bhatty v. M/s. Shriram City Union Finance Limited C.R.P.NO.1354 OF 2021 [decide on 08.04.2022] held that the award passed by the arbitral tribunal after one year of entering into reference is nullity and void ab initio since after one year so prescribed under Section 29A as it then existed, the arbitral tribunal became functus officio and is wholly incompetent to deal with the disputes or pass the arbitral award. Thus, in law there does not exist an arbitral award and therefore there is no question of enforcement of the award.

In the matter of Roop Singh Bhatty the dispute arose out of the default in repayment of loan by the petitioner to the respondent subsequent to which the Respondent invoked the arbitration clause. The arbitrator passed the award on 27.12.2017 in favour of the respondent. The respondent filed a petition in the Court seeking execution of the arbitral award which was allowed in favour of the Respondent. The Petitioner preferred a revision against the said execution order. The fulcrum of challenge was that award was not passed within one year from the date of filing claim, and therefore the award is a nullity and therefore cannot be enforced. When asked if such plea can be taken at the execution stage, it was submitted that plea of nullity can be raised in execution proceedings and not at the Section 34 proceeding as the scope of challenge to the award under Section 34 is limited. The Counsel for the respondent on the other hand argued that Section 29A of the 1996 Act only lays down procedure and non-compliance thereof does not vitiate the award.

The Hon’ble High Court began its analysis by looking into the relevant provision under section 29A and its scope as it stood at the time of adjudication of the disputes between the parties. As of then, Section 29A provided that the award should be passed within a period of twelve months from the date Arbitration Tribunal enters appearance. The relevant provision is reproduced herein below:

Section 29A. (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.

(2) 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.

(3) The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.

(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under subsection (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, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay.

(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.

(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.

(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.

(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.

(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.

The arbitral tribunal is deemed to have entered the appearance when he receives the notice for its appointment from the parties. The date on which the arbitral tribunal entered the appearance was not disputed between the parties. The award, however, was not made within 1 year from that date. As per the Court, the provision under section 29A is in mandatory terms. The Court observed that “The provision as it stood was in mandatory terms and leaves no scope to infer otherwise. The intention of the Parliament is made abundantly clear from the reading of Sub-sections (3) and (4). Subsection (3) enables parties by consent to extend the time by further period of six months. But it also makes it clear that it should not be extended beyond six months. According to sub-section (4), after the initial period of one year and extended period of six months, if extended by consent, the mandate of the arbitrator terminates. Thus, he becomes functus-officio after that period and, therefore, seizes to be an arbitrator. An arbitrator is a creature of the statute and has to work within the four corners of the Act.”

This provision was subsequently amended vide Arbitration and Conciliation (Amendment) Act, 2019. As per section 6 of the Amendment Act of 2019 – “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 by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23: Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-Section (4) of Section 23.”; (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: Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced”.”

As per the counsel of the respondent, the operation of amendment was retrospective in nature. The argument was rejected by the Court. Although the amendment takes care of the drawbacks in the earlier provision, the Court explained that “merely because word substitution is used [in section 6 of the Arbitration and Conciliation (Amendment) Act, 2019], the amended provision does not relate back to the date of original provision that was amended. It depends on the language employed, effect of the amendment and the intendment of the legislature.” The position is rather made clear by the notification which appointed the effective date for the amendments under 2019 Amendment Act as 30^th August, 2019.

The Court therefore finally concluded that the execution Court grossly erred in not appreciating the fact that the arbitral tribunal passed the award after one year of appearance when it became functus officio and wholly incompetent to deal with the disputes or pass the arbitral award. Thus, award passed by the arbitrator was nullity and void ab initio. Thus, in law there did not exist any arbitral award and there was no question of enforcement of the award.

The provision under section 29A of the 1996 Act or any other provision does not provide a clear answer to the question raised in the present case. It is however stated that the mandate of the arbitrator shall terminate after the expiry of the term provided under section 29A(1) or 29A(3) of the 1996 Act, as the case may be.  The position remains unchanged so far as the two amendments of 2015 and 2019 in the 1996 Act are concerned and therefore the reasoning given by the Hon’ble Telangana High Court shall be equally applicable to the disputes being adjudicated by the arbitral tribunals after the amendment to section 29A of 1996 Act in 2019.