Timelines for the making of an arbitral award in view of the Arbitration and Conciliation(Amendment)

The Arbitration and Conciliation(Amendment) Act, 2019 (‘2019 Amendment Act’) came into force on30.08.2019.[1]Since then, it has already been the subject of judicial scrutiny/criticism bythe Supreme Court[2]given its ignorance of the judgment in BCCI v KochiCricket Pvt Ltd[3](‘BCCI’) which had finally put to rest the debate on the question of theretrospective application of the Arbitration and Conciliation (Amendment) Act,2015 (‘2015 Amendment Act’). Unfortunately, it now appears that the sagaof confusion continues, but this time the cause célèbre is the retrospectiveapplicability of the 2019 Amendment Act.

Section 5of the 2019 Amendment Act inserted sub-section (4) in Section 23 of theArbitration and Conciliation Act, 1996 (‘ArbitrationAct’). By virtue of thisinsertion, the statement of claim anddefence is now required to be completed within a period of six months from thedatewhenthe arbitrator or all the arbitrators, as the case may be, received notice, inwriting, of their appointment.

Section6(a) of the 2019 Amendment Act substituted Section 29A(1) of the ArbitrationAct, which, inter alia, now mandates that theaward in matters other than international commercial arbitration shall be madeby the Arbitral Tribunal within a period of twelve months from the date ofcompletion of pleadings under the newly inserted sub-section (4) of Section 23of the Arbitration Act. The erstwhile section 29A(1) mandated that an arbitralaward shall be made within 12 months from the date of entering into referenceof the Arbitral Tribunal.

So far so good. But unfortunately,the 2019 Amendment Act, yet again, is silent on the applicability of theamended Section 29A(1). The burning question - does the amended section 29A(1)apply to arbitral proceedings which were pending prior to 30.08.2019? The DelhiHigh Court has attempted to resolve the confusion, not once but three times.

Earlier this year inJanuary, a single judge of the Delhi High Court in Shapoorji Pallonji and Co.Pvt. Ltd. v. Jindal India Thermal Power Limited[4] (‘Shapoorji’) held that the amended Sections 23(4) and29A(1) were procedural in nature would apply to the pending arbitrations as onthe date of the amendment. In effect declaring that Sections 23(4) and 29A(1)are procedural laws and would apply retrospectively. Notably, the Court did notmake any reference to Supreme Court’s BCCI judgment. In BCCI, the Supreme Courthas observed that Section 29A (as it then stood) though procedural in naturewould not apply retrospectively. The Supreme Court held that, it is, becausetimelines for the making of an arbitral award had been laid down for the firsttime in Section 29A of theAmendment Act, that parties were given the option to adopt such timelines.These timelines, though procedural in nature, create new obligations in respectof a proceeding already begun under the unamended Arbitration Act.

Soon thereafter, in aconflicting judgment in MBL Infrastructures Ltd. v. Rites Limited[5] (‘MBL’), aco-ordinate bench of the Delhi High Court held that upon a bare perusal of the Notification S.O. 3154(E) dated 30.08.2019, itis clear that the amendments do not have a retrospective effect.Interestingly, the Shapoorji judgment was not brought to the notice of theCourt and neither did the Court refer to the Supreme Court’s BCCI judgment.

Recently, in ONGC PetroAdditions Limited vs Ferns Construction Co. Inc.[6] (‘ONGC’) another co-ordinatebench  of the Delhi High Court sought toresolve this dichotomy of views. At the outset, the Court held the judgment inMBL to be per incuriam because the decision in Shapoorji was not brought to itsnotice.

So far as theretrospective applicability of newly amended section 29A(1) is concerned, theCourt finally referred to the judgment in BCCI and in fact relied upon the same.However, while relying on the BCCI judgment, the Delhi High Court concludedthat:

“a. TheSupreme Court in BCCI (supra) referring to Section 29A of the Act, asincorporated in by way of Amendment of 2015 held it to be a procedural law, asit does not create new rights and liabilities, but held that amendment to beprospective in view of Section 26 of the Amendment of 2015, which clearlystipulated that the said Amendment Act of 2015 shall apply in relation toarbitration proceedings commenced on or after the date of the commencement ofthe said Act…”

It was also noted thatthe 2019 Amendment Act contained no provision para materia to section 26 of the2015 Amendment Act. Accordingly, it further went on to hold that:

“d. …Theprescription of time limit by Amendment Act of 2015 had not conferred anyrights or liabilities on a party rather it was a procedural law establishing amechanism for the Arbitral Tribunal to render the award, which determine therights and liabilities of parties in twelve months and surely the removalthereof also does not confer/affect rights of any party to be given effectprospectively.”

At first blush, it could appearthat the controversy has been put to rest. But, on a closer analysis of theBCCI judgment and the correlation between the newly inserted Section 23(4) and theamended Section 29A(1), the issue at hand could be looked at from a differentangle.

However, it is incumbent to firstpoint out a glaring error, perhaps, in the ONGC judgment. Apart from the factthat the judgment in ONGC does not analyse the correlation between section23(4) and 29(A)(1), it also appears to have erred in observing that when referringto Section 29A, the Supreme Court in BCCI “held it to be a procedurallaw, as it does not create new rights and liabilities, but held that amendmentto be prospective in view of Section 26 of the Amendment of 2015”. On thecontrary, the Supreme Court held that:

“It is, interalia, because timelines for the making of an arbitral award have been laid downfor the first time in Section 29A of the Amendment Act that parties were giventhe option to adopt such timelines which, though procedural in nature, createnew obligations in respect of a proceeding already begun under the unamendedAct.”

It is clear that firstly, theSupreme Court held that Section 29A does create new obligations; and secondly,the reason for declaring that Section 29A is prospective was because it creatednew obligations and not because of the presence of Section 26 of the 2015Amendment Act.

So far as the correlation betweenSection 23(4) and Section 29A is concerned, clearly section 29(A) as it nowstands is intrinsically connected with the new Section 23(4) for its meaningfuleffect and operation. Section 23(4) imposes (for the first time) a 6-monthperiod for filing of Statement of Claim and Defense and Section 29A(1) statesthat award shall be made by the Arbitral Tribunal within a period of 12 monthsfrom the date of completion of pleadings under Section 23 (4).

Thus, the manner of calculation ofthe period of 1 year available to an Arbitral Tribunal under Section 29A torender an award has undergone a fundamental change. Applying the observation ofthe Supreme Court, in the BCCI case (in the context of Section 29A under the2015 Amendment Act), Section 23(4) under the 2019 Amendment Act also cannothave retrospective application and as such would not apply to arbitrationproceedings already started under the 2015 Amendment Act but prior to the 2019Amendment Act as timelines for completion of pleadings and the making of anarbitral award have been laid down for the first time in Section 23(4) readwith Section 29A of the 2019 Amendment, which, though procedural in nature,create new obligations in respect of a proceeding already begun under the 2015Amendment Act. Hence, retrospective application of the same would “createnew disabilities or obligations or impose new duties in respect of transactionsalready accomplished”.[7] Further, Section 23(4) asit now stands is a “statute which not only changes the procedure but alsocreates new rights and liabilities”[8]and accordingly should “be construed to be prospective in operation, unlessotherwise provided, either expressly or by necessary implication”.[9] Accordingly, since Section23(4) can only be applied prospectively, Section 29A as it now stands, must bynecessary implication be resigned to the same fate. Prospective application ofthe new Section 23(4) makes Section 29A also prospective as both have to gohand in hand since the time period of 12 months for the Arbitral Tribunal torender an award has to be calculated from the date of completion of pleadingsunder Section 23(4).

Unless interpreted otherwise by theSupreme Court or a larger bench of the High Court, the judgment in ONGC will continueto hold the field. It will be interesting to see how the interpretational sagaof the applicability of Section 29A(1) unfolds and reconciles with SupremeCourt’s judgment in BCCI.

Authors: Milanka Chaudhury, Partner and Naina Dubey, Principal Associate (Link Legal India Law Services)

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