SUPREME COURT RULES THAT EXTENSION OF LIMITATION PERIOD BY COURTS IS PERMISSIBLE UNDER ARBITRATION AND CONCILIATION ACT 1996 ON THE GROUND OF SUFFICIENT CAUSE

A two-Judge Bench of the Hon’ble Supreme Court comprising of Justice Sanjiv Khanna and Justice R. Mahadevan passed a Judgment dated 12.09.2024 in the matter of Rohan Builders (India) Private Limited vs. Berger Paints India Limited, Special Leave Petition (SLP) (Civil) Nos. 23320 of 2023 and observed that an interpretation to the effect of permitting an extension application after the expiry of limitation period, would encourage dishonest litigants and would undermine the significance of the timeline stipulated for issuing the award. However, it is important to note that under Section 29A(5)[i] (Time limit for arbitral award ) of the Arbitration and Conciliation Act, 1996, the Court’s authority to extend the time is exercised only when there is sufficient cause for doing so. Further, the Court held that this extension is not granted automatically upon filing the application.

That the Appeal mentioned above was filed before the Apex Court by one, Rohan Builders (India) Private Limited (Appellant) against the Berger Paints India Limited (Respondent), who challenged the validity of the Judgment dated 06.09.2023, passed by the Bench of the Calcutta High Court (High Court) in Appeal (AP) No. 328 of 2023 wherein, the High Court has held that an Application for Extension of Time under Sections 29A(4) and 29A(5) of the Arbitration and Conciliation Act, 1996, (A&C Act 1996) can only be entertained if it is filed before the Arbitral Tribunal’s mandate expires. Once the Tribunal’s mandate ends after twelve months, or following a six-month extension with the Parties’ consent, the Court cannot exercise its power to extend time under Section 29A(4) of the Arbitration and Conciliation Act, 1996.

The Bench, in its Judgment dated 12.09.2024 in Rohan Builders (India) Private Limited v. Berger Paints India Limited and related Appeals, addressed a critical question regarding the time limits for making Arbitral Awards under Section 29A of the A & C Act 1996. The primary issue revolved around whether a Court can entertain an application for an extension of time under Sections 29A(4) and 29A(5) of the A & C Act after the expiration of the Arbitral Tribunal’s mandate. The Supreme Court’s decision provides clarity on this matter, affirming that such an Extension Application can indeed be filed before the Court, even after the arbitral mandate has expired.

Background of Section 29A of the Arbitration and Conciliation (Amendment) Act, 2015

Section 29A was introduced in the A&C Act by the Arbitration and Conciliation (Amendment) Act, 2015, to ensure time-bound arbitration proceedings. It mandates that an Arbitral Award should be made within 12 months from the date of completion of pleadings. This timeline can be extended by six months through mutual consent of the parties, but any further extension requires Court approval.

The Court’s role in extending the period for making the award is critical. Under Section 29A(4), if the Arbitral Award is not made within the specified or extended time, the Arbitral Tribunal’s mandate automatically terminates unless the Court intervenes to extend the timeline. Section 29A(5) empowers the Court to extend this time, but it is to be done for sufficient cause and subject to terms and conditions.

Conflicting High Court’s Views

There was a split in judicial opinion regarding whether a time extension application could be entertained after the Tribunal’s mandate expired. The Calcutta High Court, in Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Limited (supra), ruled that such an Application must be made before the expiration of the mandate. The Patna High Court in South Bihar Power Distribution Co. Ltd. v. Bhagalpur Electricity Distribution Co. Pvt. Ltd., Civil Writ Jurisdiction Case No. 20350 of 2021 and other connected matters decided on 26.04.2023, concurred with this view, holding that once the arbitral mandate ends, Courts cannot extend the time.

However, other High Courts, including Delhi, Bombay, and Madras, took the opposite view. These Courts opined that an extension application could be filed even after the expiration of the Tribunal’s mandate. They relied on the flexibility provided under Section 29A(4), which allows Courts to extend the time either “before or after the expiry” of the specified period.

Supreme Court’s Observation:

The Supreme Court resolved this conflict in favour of a more flexible interpretation. The Court acknowledged the concerns about rogue litigants exploiting post-expiry applications to delay proceedings but emphasized that the law itself contained safeguards against abuse.

The Apex Court rejected a rigid and literal interpretation that would bar post-expiry applications. It reasoned that a restrictive reading would defeat the purpose of arbitration, which is to offer a quick and efficient dispute-resolution process. A narrow interpretation would force parties to approach the Courts unnecessarily before the arbitral mandate expires, even in cases where an extension might later become essential.

The Court highlighted that extensions are not automatic; they are granted only for sufficient cause and under strict judicial scrutiny. This mechanism acts as a deterrent to frivolous applications. The Courts retain the discretion to impose terms and conditions and even reduce the Arbitrators’ fees in cases of unjustifiable delay.

The Judgment clarified that the Arbitral Tribunal’s mandate does not end definitively upon the expiration of the prescribed time. The Tribunal becomes “functus officio” conditionally, meaning that its mandate can be revived if an extension application is filed and granted by the Court. The Tribunal’s mandate, therefore, is not terminated in an absolute sense but is subject to judicial review.

The Bench interpreted the legislative intent behind Section 29A as ensuring timely awards while preserving party autonomy. It emphasized that the parties could extend the time by consent, and if they failed to reach an agreement, the Courts could intervene to prevent the entire arbitral process from being derailed.

CONCLUSION

This Supreme Court ruling is significant as it provides clarity on the application of Section 29A and prevents unnecessary complications that could arise from a strict interpretation. By allowing Courts to extend the time for making an Arbitral Award even after the Tribunal’s mandate has expired, the Judgment ensures that arbitration proceedings are not abandoned mid-way due to technicalities.

At the same time, the Court has maintained a balance by reinforcing that such extensions are subject to judicial scrutiny, thus protecting the integrity of the arbitration process from potential misuse. Moreover, the Court’s ability to impose penalties and substitute arbitrators further reinforces accountability.

 

Sakshi Raghuvanshi

Senior Legal Associate

The Indian Lawyer

[i] Section 29A of the A&C Act 1996. Time limit for arbitral award

(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 endeavor 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.]

(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 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. 1

[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.]

(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.