Time Limit for Arbitral Award and Appointment of Arbitrator in India

 

Introduction

 

Today we will discuss another recent judicial pronouncement by the Hon’ble Supreme Court, Haryana Space Application Centre (HARSAC) & Another v. M/s Pan India Consultants Pvt. Ltd., Civil Appeal No. 131/2021. In the present case, even though a period of over 4 years had elapsed since the constitution of the Arbitral Tribunal on 14.09.2016, the Award had not been pronounced. The said Arbitral Tribunal had on two occasions i.e., 03.08.2018 in its 28th sitting, and thereafter in the letter dated 08.02.2019 addressed by the arbitrators, recorded that the Tribunal was ready to pronounce the Award forthwith.

 

Time Limit for Arbitral Award

 

Before adverting any further, let us peruse the relevant excerpts of Section 29A of the Arbitration and Conciliation Act, 1996.

 

“29A. Time limit for arbitral award.—(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.

….

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

….

(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.”

 

This provision provides that an Arbitral Award has to be made within a period of 12 months from the date of reference and if the same is not done so by the Arbitrator, his mandate shall terminate. The Court has the power to extend the mandate of the Arbitrator and even substitute the Arbitrators if it so thinks fit.

 

The Court perused the relevant portions of Section 29A of the Arbitration and Conciliation Act, 1996, more specifically, Section 29A (6) that has been mentioned here and appointed a former Supreme Court Judge as the substitute arbitrator, who would conduct the proceedings in continuation from the stage arrived at and pass the Award within a period of 6 months. Further, the Arbitrator may direct the parties to address final arguments and take him through the entire record of the case.

 

Appointment of Impartial Arbitrator

 

Apart from it, the Court also scrutinized the constitution of the existing Arbitral Tribunal that had a Nominee Arbitrator who had worked for one of the parties to the instant case. The Court observed that such appointment of the said Nominee Arbitrator would be invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule. The relevant portion is as follows: -

 

“Section 12 (5) - Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.”

 

“Item 5 of the Seventh Schedule of the Act – Arbitrator’s relationship with the parties or counsel

5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.”

 

Section 12 (5) read with item 5 of 7^th Schedule of the Act of 1996 provide that any person who is an employee of the parties or their counsel is ineligible to be appointed as an arbitrator.

 

The Court further observed that Section 12(5) read with the Seventh Schedule is a mandatory and non-derogable provision of the Act. Hence, the Nominee Arbitrator who was in the employment of one of the parties would be ineligible to be appointed as an Arbitrator, since he would have a controlling influence on the said party/Appellant being a nodal agency of the State.

 

The Court concluded with a cautious note that “the appointment of the Sole Arbitrator is subject to the declarations being made under Section 12 of the Arbitration and Conciliation Act, 1996 with respect to independence and impartiality, and the ability to devote sufficient time to complete the arbitration within the period of 6 months.”

 

Concluding Remarks

 

It is a welcome judgment and appointment of Arbitrators who are directly associated with the parties or work under them is an issue that is quite often faced in Indian Arbitrations, even more so in cases where one of the parties to Arbitration is the State. The Arbitration Clause in such cases is couched in such a language that at the time of entering into the Arbitration Agreement, the parties ignore the implications that may arise with respect to appointment of a partial Arbitrator and the State being the State always has a dominating hand in awarding of the Contracts. Many times, the Contractor, simply to appease the officials of the State, ignore such Arbitration Clauses and later on, end up in trouble with no fair dispute resolution for them. I am surprised that despite the efforts of the legislature to curb such menace and despite existence of an explicit provision to this effect, such problems are still heard. I hope that this Judgment would serve as a beacon of guiding light to all such people involved in Arbitrations.