EXTENSION OF MANDATE OF ARBITRAL TRIBUNAL.

[Mr. M. GOVINDARAJAN]

In M/S AJAY PROTECH PVT. LTD. VERSUS GENERAL MANAGER & ANR. - 2024 (11) TMI 1111 - SUPREME COURT, the appellant entered into a contract with respondent No. 1.  A dispute arised between the parties.  Therefore, the appellant invoked the provisions of arbitration and issued a notice, in this regard, to the respondent No.1 on 12.02.2018 and filed a petition before the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 (‘Act’ for short) for the appointment of a Sole arbitrator.  The High Court allowed the petition and appointed the Arbitrator. The Arbitral Tribunal started its proceedings on 24.06.2019.  The Arbitral Tribunal gave the parties the time to complete their pleadings.  The parties completed their pleadings on 09.10.2019.  The parties, by mutual consent, applied before the Court for the extension of the Arbitral Tribunal.  The High Court granted the same.  As such the mandate of the Arbitral Tribunal would expire on 09.04.2021. 

Section 29A of the Act provides the time limit for arbitral award.  Section 29A (1) of the Act provides that the award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of 12 months from the date of completion of pleadings.  Section 29A (3) of the Act provides that the parties may, by consent, extend the period of 12 months for making award for a further period not exceeding six months.  Section 29A (4) of the Act provides that if the award is not made within the period of 12 months or the extended period of 6 months, the mandate of the arbitrator shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period.  Where an application is pending, the mandate of the arbitrator shall continue till the disposal of the said application.   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.

Even before the completion of the extended time as granted by the High Court our country was affected by COVID.  The Supreme Court, IN RE: COGNIZANCE FOR EXTENSION OF LIMITATION - 2022 (1) TMI 385 - SC ORDER, passed orders on 10.01.2022 declaring that the period from 15.03.2020 to 28.02.2022, shall be excluded for the computation of limitation.  The Arbitral Tribunal framed issues on 21.11.2019 and posted for arguments during December 2019 and also January 2020.  No hearing was conducted but the same was adjourned for the reason of COVID. 

The hearing was resumed in the year 2022.  The hearing was concluded on 05.05.2023.  At that time the mandate of the Arbitral Tribunal expired despite excluding the period from 15.03.2020 to 28.02.2022 as ordered by the Supreme Court.  Therefore they moved the Gujarat High Court under Section 29A(4) of the Act for the extension of the mandate of the Arbitral Tribunal on 01.08.2023.  The High Court dismissed the said petition on 03.11.2023 holding that the initial statutory limitation expired on 08.12.2020 and the same was extended till 09.04.2021.  The extension application was filed on 01.08.2023 after a delay of more than 2 years and 4 months.  There was no explanation by the parties for such delay.  As on 09.04.2021 on which the limitation expired, there was no application filed for the extension of mandate of the Arbitral Tribunal.

Against the order of the High Court, the appellant filed the present appeal before the Supreme Court.  The appellant  submitted the following before the Supreme Court-

• The High Court ought to have excluded the period between 15.03.2020 and 28.02.2022 while determining the date on which the Tribunal’s mandate stood terminated.
• The respondent had agreed to apply for extension of time before the Arbitral Tribunal, as is recorded in the Minutes of Arbitral Meeting dated 05.05.2023.

The Additional Solicitor General submitted the following before the Supreme Court-

• Even if the benefit of this Court’s order is considered, the Tribunal’s mandate expired on 31.10.2022, and there is still a nine-month delay in filing the application.
• An application under Section 29A(4) of the Act must be filed before the mandate of the Tribunal expires.
• The application cannot be filed after the expiry of the extended period.

The Supreme Court heard the submissions of both the parties.  The Supreme Court considered the following two issues-

• Whether the application for extension can be entertained if it is filed after the expiry of the Arbitral Tribunal’s mandate?
• If yes, do the facts and circumstances warrant an extension in the present case?

In this regard, the Supreme Court analysed the provisions of Section 29A of the Act and also relied on its own judgment in ROHAN BUILDERS (INDIA) PRIVATE LIMITED VERSUS BERGER PAINTS INDIA LIMITED - 2024 (10) TMI 1393 - SUPREME COURT (LB).  The Supreme Court observed that Section 29A(4) clearly and explicitly enables a court to extend the Tribunal’s mandate after expiry of the statutory and extendable period of 18 months.

The Supreme Court in ‘Rohan Builders’ case (supra) held that even if sub-section (4) provides for the termination of the Tribunal’s mandate on the expiry of the period, it recognises party autonomy to move an application before the Court for further extension.  Thus, the termination of mandate under the provision is only conditional on the non-filing of an extension application, and cannot be taken to mean that the mandate cannot be extended once it expires.  Therefore, for the first question the Supreme Court held that the termination of mandate under the provision is only conditional on the non-filing of an extension application, and cannot be taken to mean that the mandate cannot be extended once it expires before or after the termination of the Tribunal’s mandate upon expiry of the statutory and extendable period.

For the second question, the Supreme Court observed that as per Section 29A(5), the decision to extend the time is an exercise of discretion by the court and must be done on sufficient cause being shown, and on such terms and conditions that the court deems fit.  In this case, even before expiry of the period of 12 months under Section 29A(1), commencing from 09.10.2019 (date of completion of pleadings), the COVID pandemic had started.  As per the Supreme Court’s order the period between 15.03.2020 to 28.02.2022 ought to be excluded.  Therefore, from the date of completion of pleadings till 15.03.2020, only a period of 5 months is taken. If the remainder of the 18 months period is reckoned from 28.02.2022, the said period would expire on 31.03.2023.  But the application was filed on 01.08.2023.  Therefore, this delay is to be considered for condonation.  The Supreme Court, therefore, held that the reasoning adopted by the High Court in holding that there is a delay of 2 years, 4 months in filing the application is erroneous.

Further the Supreme Court considered the sufficient cause shown by the appellant in filing the application with a delay of five months.  The appellant submitted the following reasons for delay in filing the appeal-

• The Arbitral Tribunal proceeded with online hearings in 2022, but was required to adjourn the proceedings on several occasions at the request of the respondents’ counsel as the panel from which the arbitrator was appointed had been changed.
• The dispute involved technical and legal questions, and the record of the case is bulky.
• The delay is neither attributable to the parties, nor to the Arbitral Tribunal, who have acted in a prompt and cautious manner.
• The hearing is complete, and only the award needs to be declared, thereby leading to hardship to the parties if the time for making the award is not extended.  

The appellant sought one month extension.  The Supreme Court observed that the meaning of 'sufficient cause' for extending the time to make an award must take colour from the underlying purpose of the arbitration process. The primary objective in rendering an arbitral award is to resolve disputes through the agreed dispute resolution mechanism as contracted by the parties. Therefore, 'sufficient cause' should be interpreted in the context of facilitating effective dispute resolution.  The Supreme Court was of the opinion that in this case that there was sufficient cause for extension of the time. 

The Supreme Court allowed the appeal and set aside the impugned order of High Court.