Retrospectively Yours, Law Minister: Section 29A of the amended Arbitration Act Shall Apply Prospectively

Ritvik M. Kulkarni

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Immediately after the Arbitration Ordinance was promulgated on October 23, 2015, the legal fraternity stood divided on whether provisions of the Act, Section 29A in particular, would apply retroactively, retrospectively or prospectively. Section 29A requires inter alia that the arbitration be concluded within a period of 12 months; extendable by a maximum 6 months by mutual consent of the parties. The question of its applicability to pending / on-going arbitrations was first raised before the Madras High Court in Delphi TVS Diesel Systems Ltd. v. Union of India[1], wherein the Court directed the Central Government to clarify this anomaly forthwith. The Court correctly noted that,

There would be huge litigations unnecessarily generated in respect of the pending arbitrations and the provision being procedural in nature fixing the time limit, it can be clarified that it would be either not applicable to the pending arbitrations or if it is applicable to the pending arbitrations, the time period specified therein would commence from the date of the Ordinance, to obviate such unnecessary litigations”.

The Lok Sabha on December 17, 2015 passed the Arbitration (Amendment) Bill, 2015 in all its revolutionary glory. One of the most important developments in this Act is that the Law Minister has finally clarified and settled the waters over the temporal applicability of the Act. After due deliberation in Parliament, the Union Law Minister Dr. Sadananda Gowda added the following clause to the amending act:

“Act not to apply to pending arbitral proceedings. 25A. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”.

 

The freshly added Section 25A makes it amply clear that the amended provisions will not apply to or affect arbitration proceedings which have commenced before October 23, 2015. Consequently, it should also mean that the amended law will apply to all arbitrations which “commence” after October 23, 2015, regardless of when the arbitration agreement was entered into by the parties. To the extent that it applies to such arbitration agreements entered into before the said date, the Act will apply retrospectively.

Thanks to the short period of time between the promulgation of the Ordinance and the Legislature’s Winter Session, there are not likely to have been arisen an unnecessarily large number of litigations on the issue. However, the legal implications of violation of Section 29-A clearly lack clarity. Ideally, a violation should mean that the award made post the expiry of the maximum period available would be liable to be set aside by the Court under a Section 34 application. It is also possible that the parties would be required to initiate fresh arbitration proceedings after the lapse of 18 months (or the period further granted by the Court). Both possibilities could encourage the defaulting party to the dispute to cause delays in the arbitration proceedings to push forward its day of reckoning by a long mile.

The Section also empowers a Court to impose a penalty on arbitrators if the delay caused can be attributable to the arbitrator(s). This is also likely to reduce the duration between two tranches as also the instances of excessive leeway granted to parties to take inspection and make further pleadings. However, it would be difficult to determine and lead evidence to prove what among the amount of time delayed is attributable to a particular arbitrator. Nevertheless, arbitrators ought to be deterred from taking up more arbitrations than necessary as the Court’s power to deduct fees is discretionary.

Proposal to Extend Time Period under S. 29A to Twenty Four Months

Mr. B. Senguttuvan (MP, Vellore) raised an apprehension over the 12-month deadline mandated for arbitrators to deliver the final award. He stated that:

“In the Indian context, it would not be possible to wrap up the entire arbitral proceedings in a period of just twelve months. Arbitration is just not restricted to pleadings alone; but may involve reception of oral/documentary evidence. On occasions, the documentary evidence to be adduced in the arbitration proceedings may not be available immediately and the [procurement] of which may take considerable time. Therefore, to expect the arbitrator to conclude the proceedings in twelve months is simply not possible given the circumstances prevailing in India”[2]. However, an amendment to this effect which was unsuccessfully moved by Mr. A. P. Jithender Reddy (MP, Mahabubnagar) to extend the said time period to 24 months.  An amendment moved by Prof. Saugata Roy (MP, Dum Dum) to reduce the period to 6 months was similarly negatived to maintain status quo[3].

Mr. Senguttuvan further pronounced his disquiet with the “carrot and stick” approach employed towards arbitrators to secure a final award in good time. He argued that an arbitrator’s mind must be free of all fear and fervor in adjudging the case before him; and that he “should not be goaded either by the sense of fear of losing his fees or by the motive of aggrandisement which will not be in public interest”. However, his concern was not addressed or engaged with any further in the Session.

All said and done, the commencement of the Amended Act most certainly promises to positively revamp the entire Indian arbitration scenario. Especially with the tight time limits mandated, it may be time for Indian law firms to dissect their respective dispute resolution practices to grant independence to new and specialized arbitration practices.

The transcript of the Lok Sabha Debates is available here.

[1] 2015 SCC OnLine Mad 9768, Decided on November 24, 2015

[2] Lok Sabha Debates, December 17, 2015. (PDF provided in post below)

[3] Ibid

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One thought on “Retrospectively Yours, Law Minister: Section 29A of the amended Arbitration Act Shall Apply Prospectively

  1. Dear Sir. In my case the award was delivered by the Arbitrator on 13-07-2015 against the Govt of Himachal Pradesh. The Govt did not file objections in the HIGH COURT until 07-11-2015. The objection petition is also accompanied by OMP under section 36 (2) of the Act for stay of the award. Please tell me if it is mandatory for the Govt to obtain the stay under section 36 (2) or the award will automatically stay once the objections have been filed in the court in view of the section 26 of amended act. The above issue relates to transitory period between the issue of ordinance in Oct 2015 and passage of bill in Dec 2015.

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