SUPREME COURT DETERMINES THAT “SUFFICIENT CAUSE” SHOULD BE INTERPRETED TO FACILITATE EFFECTIVE DISPUTE RESOLUTION

A two-Judge Bench of the Supreme Court comprising of Justice Pamidighantam Sri Narasimha and Sandeep Mehta passed a Judgement dated 22-11-2024 in the matter of M/S Ajay Protech Pvt. Ltd. vs. General Manager & Anr. Special Leave Petition (Civil) No. 2272 of 2024 and held that arbitration is intended to resolve disputes through a process mutually agreed upon by the parties. Consequently, “sufficient cause” should be interpreted to prioritize effective dispute resolution over rigid adherence to time limits.

FACTS:

That in the aforesaid Appeal filed before the Supreme Court by one, M/s Ajay Protech Pvt. Ltd. (Appellant) against one, General Manager & Anr (Respondents), filed by the Appellant against the Order dated 03.11.2023 passed by the High Court. Whereas, the High Court ought to have allowed the Appellant’s Application under Section 29A(4)[i] of the Arbitration and Conciliation Act, 1996 (Time limit for arbitral award), seeking an extension of the Arbitral Tribunal’s mandate.

The Appellant entered into a works contract with the Respondents, leading to disputes. The Appellant initiated arbitration proceedings by issuing a notice on 12.02.2018, and the High Court appointed a sole arbitrator through Orders dated 08.02.2019 and 15.02.2019. The first meeting of the Arbitral Tribunal was held on 24.06.2019, and pleadings were completed by 09.10.2019. The statutory period under Section 29A(1) for rendering the award began on 09.10.2019 and was extended by mutual consent under Section 29A(3) until 09.04.2021.

During the COVID-19 pandemic, the Supreme Court’s Judgment in Re: Cognizance for Extension of Limitation (2022) excluded the period from 15.03.2020 to 28.02.2022, from limitation timelines. Arbitration proceedings were delayed due to the pandemic and resumed in 2022, with hearings concluding on 05.05.2023. The Appellant subsequently filed an Application under Section 29A (4) for an extension of the tribunal’s mandate on 01.08.2023, before the Gujarat High Court. The High Court dismissed the Application, citing an unexplained delay of over two years and holding that the tribunal’s mandate had terminated on 09.04.2021.

The Appellant challenged the High Court’s decision in the Supreme Court, arguing that the exclusion of the COVID-19 period extended the timeline and that there was sufficient cause for the delay.

ISSUES:

Whether post-expiry extensions under Section 29A(4) are permissible and, if so, whether the circumstances justified granting such an extension.

HIGH COURT:

The High Court observed that the statutory period for the Arbitral Tribunal’s mandate, as prescribed under Section 29A(1) of the Arbitration and Conciliation Act, 1996, began on 09.10.2019, upon the completion of pleadings. This period expired on 08.10.2020 and was extended by mutual consent under Section 29A(3) until 09.04.2021. The Court noted that no further extension was sought within this time, resulting in the termination of the tribunal’s mandate.

The Appellant’s Application for extension under Section 29A(4), filed on 01.08.2023, was considered inordinate and unexplained. The High Court held that there was a delay of over two years and four months in approaching the court after the expiry of the mandate on 09.04.2021. It concluded that such a delayed Application was contrary to the statutory framework, which emphasizes adherence to the prescribed timelines.

Furthermore, the High Court rejected the Appellant’s reliance on the Supreme Court’s decision in Re: Cognizance for Extension of Limitation (2022), which excluded the COVID-19 period from limitation. It reasoned that this exclusion could not retrospectively revive the mandate, which had already terminated. Consequently, the application was deemed misconceived, and the High Court dismissed it.

SUPREME COURT:

The Supreme Court observed that Section 29A (4) of the Arbitration and Conciliation Act, 1996, explicitly allows courts to extend the mandate of an Arbitral Tribunal both before and after the expiry of the statutory period. It disagreed with the High Court’s view that the Tribunal’s mandate could not be revived once expired. The Court emphasized that the provision empowers courts to extend the mandate if “sufficient cause” is demonstrated, even after the statutory and extendable periods have lapsed.

The Court highlighted the exclusion of the COVID-19 period (March 15, 2020, to February 28, 2022) as per its earlier decision in Re: Cognizance for Extension of Limitation (2022). Accounting for this exclusion, the tribunal’s mandate, which initially expired on April 9, 2021, was effectively extended to 31.03.2023. The Court found that the delay in filing the extension application from 31.03.2023 to 01.08.2023, was approximately four months and could be justified by sufficient cause, including pandemic-related disruptions and the complexity of the case.

Additionally, the Supreme Court underscored that the purpose of arbitration is to resolve disputes efficiently and effectively. It held that “sufficient cause” should be interpreted in a manner that facilitates dispute resolution rather than enforcing rigid timelines. Recognizing that the hearings had concluded and only the award remained pending, the Court extended the tribunal’s mandate until 31.12.2024, and set aside the High Court’s decision.

CONCLUSION:

The Supreme Court allowed the Appeal, setting aside the Gujarat High Court’s Order. The Arbitral Tribunal’s mandate was extended until 31.12.2024. The Court clarified that each party would bear its costs.

Sakshi Raghuvanshi

Senior Associate

The Indian Lawyer

 

Editor’s Comments:

The Supreme Court of India has given a breather to many ongoing as well in pending litigations by granting an extension of limitation during the COVID-19 period. The Supreme Court in the matter of Re: Cognizance for Extension of Limitation (2022) extended limitations by excluding the period of March 15, 2020, to February 28, 2022, thereby helping many litigants to safeguard their rights to file for relief despite the lapse of the limitation period. This Judgment explains how the Supreme Court’s suo moto intervention during the COVID-19 period has helped the litigants to preserve their legal rights despite the expiry of the limitation period.

 

Sushila Ram Varma

Chief Legal Consultant

The Indian Lawyer

 

[i] [29A.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.

[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.