In the article the author considers the mandatory time limits imposed upon the arbitrator and the supervisory Court by the Arbitration & Conciliation (Amendment) Act 2015 (referred herein as time clauses)  . The author sets out the Indian judicial decisions about the time clauses especially those pertaining to section 29A that mandates the arbitrator to conclude the proceedings within 12 months. It is the case of the author that these “time clauses” cannot be justified either by jurisprudential or policy reasons. They are doing more harm than good for Indian arbitration jurisprudence.

Keyword: time clause, amendment, setting aside, substitution, time-limit 

Full article

The time clauses in Indian Arbitration Act: Doing more harm than good?

In 2015 the Arbitration & Conciliation (Amendment) Act 2015 (henceforth Amending Act) brought about massive amendments to the Arbitration & Conciliation Act 1996. This was followed by the “Report of the High Level Committee to Review the Institutionalization of Arbitration Mechanism in India 2018” This was followed by the Arbitration & Conciliation (Amendment) Act 2019 (henceforth 2019 Amendment) which is only partially notified.

The reforms are directed at multiple directions and can be seen as a byproduct of the evolving consensus in policy circles. However, a unique feature of the Amending Act was an obsession with speeding up the arbitration. This culminated in a series of time limits targeted both at the arbitrator and the Court to decide arbitration-related proceedings. The author identifies these provisions as “time clauses”. The centerpiece of the time clauses was s.29A which mandates that the arbitration must be concluded within a period of 12 months form reference extendable to six months by mutual consent. Thereafter the parties have to approach the Court to extend the time. 

In Part-I the author sets out the understanding on the Indian judiciary on the time clauses, and the changes brought about by the 2019 Amendment.

In Part-II the author assess the various arguments that can be taken for and against such time clauses.

The author concludes that notwithstanding some purported benefits, time clauses are disruptive elements in the arbitration jurisprudence that is probably doing more harm than good. 

Part-I

The Advent of Time Clauses

The Arbitration & Conciliation Act 1996 (henceforth referred to as the Act) did not have a provision on time-limit. However, the Arbitration Act 1940 ( henceforth 1940 Act) did have a similar provision Section 3 of the 1940s Act r/w First Schedule Item 3 mandated that the arbitrator deliver the award within four months from entering reference. Under s.28 of the said Act the Court had the power to extend the time for making the award.

Thereafter it made its appearance in 176th Law Commission Report and found its way in the 2003 Amendment Bill to the Act. (The Arbitration & Conciliation (Amendment) Bill, 2003).The standing committee of Law Ministry felt that provisions of the Bill "gave room for excessive intervention by the courts in arbitration proceedings" (Times of India 9th April 2010). The Bill failed in Parliament.

In between the various Law Commission Reports the Supreme Court of India in NBCC Ltd v JG Engineering, (2010) and of North Eastern Railway v Tripple Engineering Works (2014) intervened and substituted arbitrator in an ongoing arbitration on grounds of delay. In 2011 White Industries won an investment treaty dispute against India because of the delay in enforcing an ICC award. (India v Australia 2011). The deliberations around the ICC report on Time & Cost in Arbitration (ICC 2011) that considered how to reduce unavoidable delays in international arbitration, were ongoing at this time.

All this created certain anxiety about delay in arbitration in India.

Even then,  the 246th law Commission’s Report (Law Commission 2014) came about it neither considered the Supreme Court’s views on delay in arbitration, nor recommended a specific time limit.

Then seemingly out of nowhere s. 29A and its sister time clauses found its way back in the Arbitration & Conciliation (Amendment) Act 2015 that drastically amended the Arbitration & Conciliation Act 1996.

Time clauses are rare international arbitration statutes (Wilske 2008; p24). Neither UNCITRAL Model Law 1985) nor the New York Convention 1958 mention them. They are unknown to the Federal Arbitration Act 1925 (US), or the Arbitration Act 1996 (England), the International Arbitration Act (Singapore). 

It is present in many European arbitration statutes as well as the law in France, Spain, Italy, Taiwan and Turkey. Gary Born considers them to be vestiges of historic statutory codes mandating arbitral procedures (Born 2014; p 2471). It is to be noted that unlike the Indian time clauses most of these time clauses allow the parties to contract out.

There are two kinds of time clauses under the Amendment Act directed at the Court and directed at the tribunal.

Under s.9 of the Act the party seeking interim measures by a court must commence arbitration within a period of ninety days from the date of such order or within such further time as the court may determine.

Thus, under s.11(13) of the Act (Appointment of Arbitrators by the Court), the Court has to decide the application made under this section “as expeditiously as possible”, preferably within a period of sixty days from the date of service of notice on the opposite party. Similarly, the newly inserted s.34 (6) requires the Court to “dispose of expeditiously” of the application, and in any event, “within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.”

The centerpiece of this “policy favouring speed” is section 29A.

Originally it mandated that the arbitrator complete the proceedings within 12 months after the appointment of the (s.29A (1) r/w Explanation). Thereafter the parties through consent can extend the period by six months (s.29A(3)). But subsequently the parties will have to approach the court either for an extension of period or in a termination and substitution proceedings. (s.29A (4)). During these proceedings the court can reduce the fees of the arbitrator or put an exemplary cost on a party if it thinks that the party is responsible for dilatory conduct (S.29A (8)).

Section 29A is to be read in the light of s.29B. Under s.29B(1), before entering into the agreement or thereafter, or at the time the arbitrator is appointed or thereafter, the parties can agree in writing to have their dispute resolved through a fast track procedure. The fast track procedure means the time limit is reduced to six months and certain special procedural rules have been given u/s.29B(3) 

The time limit is supported by a “fee-adjustment” and disclosure requirement on the arbitrator. Thus the arbitrator is required to disclose under s12 (1)(b) of the Act “any circumstances which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months”.

For domestic arbitration, the Fourth schedule has been inserted in the Act, setting the fees for the arbitration which the parties may derogate from by way of agreement.

C.1 Time Clauses directed at the Court

The time clauses directed at the Court are can be considered all “directory” and therefore “non-binding”.

For example in s.34 (6) of the Act require an application for setting aside, is to be disposed of within one year by the Court. However, there is no penalty laid down in case the same is not complied with. 

The Supreme Court of India in The State of Bihar and Ors. Vs. Bihar Rajya Bhumi Vikas Bank Samiti, (2018) held inter-alia that the time limit imposed upon the Court under the Act is a directory in nature, following a long line of case laws pertaining to similar kind of “time clauses” in others statutes.

It is submitted that this logic by analogy can be extended to all “time clauses” directed at the Court.

C.2 Scope and Applicability of section 29A

Applicability of s.29A before the commencement of the Amendment Act

The Supreme Court of India in  BCCI v Kochi Cricket Board (2018) the Supreme Court of India took the view that the 2015 Amendment does not apply to arbitral proceedings commenced before the Amendment ( unless the parties otherwise agree). But the said Amendment applies retrospectively to “court proceedings related to arbitration”. 

Notwithstanding non-applicability of the Amendment Act, including s.29A the Indian Courts have held that even when the provisions of s.29A do not apply the time limit of 12 months is some kind of “template” that ought to be followed.( International Engineers & Project Consultants Ltd. (IEPCL) v. Union of India & Anr., (2017); Joginder Singh Dhaiya v. M.A. Tarde, (2017).

Section 29A is mandatory

The language of s.29A does not allow the parties to contract out. In Harji Engineering Works Pvt. Ltd. v. M/S. Bharat Heavy Electricals Ltd (2016), the Sikkim High Court held that the s.29A is mandatory in nature. The mandatory wording of s.29 A precludes waiver by parties, which that may arise only for those “provisions of this Part from which the parties may derogate” under s.4 of the Act. It remains to be seen if the Supreme Court or the other High Courts in the country come at a different conclusion.

 The circumstances in which the Court can extend the time limit

After the extension of six months by mutual consent, the parties have to approach the Court for extension of any time under s. 29A (5) which the Court shall do if “sufficient cause” is shown. 

In India the Courts have generally viewed the following to constitute sufficient cause namely 

(a) voluminous documents and evidence  

See Abir Infrastructure Pvt. Ltd v. Beas valley Power Corporation, (2018), 

(b) Parties/arbitral tribunal was diligent, and delay is not attributable to them  

International Trenching Pvt. Ltd v. Power Grid Corporation of India Ltd (2017)

(c) amendment or other application moved that requires additional time

See ASF insignia Sez P. ltd v. Punj Lloyd Ltd, (2017 SCConline Del 10124); Bharat Heavy electricals ltd v. M/s Capital Control India pvt ltd, (2017 SCC online Del 10854)

(d) Time and money has been invested and the arbitration is at an evidence stage.

See Vil Rohtak Jind Highway Private Limited v. NHAI, (2018); Tecnimont SPA and Anr v. National Fertilizers Limited, (2018)

The Courts have however refused to extend the time period when the arbitrator is at fault or in contravention to his duties.

See Olympic oil industries v. Practical properties pvt ltd, (2018); FIITJEE Ltd.v. Dushyant Singh and anr, (2018)

There is no limit to which the time can be extended by the Court.

Section 29A(4) uses the expression “unless the Court has, either prior to or after the expiry of the period so specified, extended the period”. This allows the Court to extend the time retrospectively even after the arbitration has proceeded for more than 18 months.

Consequence of failure to adhere to the time limit

After the time limit has been extended for six months as pers. 29A (4) the mandate of the arbitrator is automatically terminated. The question is whether after the efflux of the mandated period the arbitrator becomes de-facto or de jure ineligible and subject to compulsory substitution under the Act.

Contradictory case laws have emerged as to the exact relationship of these sections. 

In Omaxe Infrastructure and Construction Ltd. v. Union of India & Ors., (2017). the Delhi High Court relied on a conjoint reading of . s.14 (Failure or Impossibility to Act) and 15 (Termination of the Mandate and Substitution of the Arbitrator) and s. 29A to substitute the arbitrator.

In direct contradiction to Omaxe the Delhi High Court in Angelique International Limited v. SSJV Projects Pvt. Ltd.(2017)  held that a conjoint reading of Section 14 and Section 29A is not possible. In the learned judge's view, only when the delay is attributable to the tribunal, the court can order reduction of fees of the arbitrator(s), or substitute the arbitrator(s). Section 14, 15 of the Act, on the other hand, must be read with Sections 12 and 13 and invoked only in cases where there is a challenge made to the arbitrator(s) on the grounds of de jure or de facto inability to perform their functions, and not in case of expiry of time limit prescribed under Section 29A.

In Olympic Oil Industries Ltd. v. Practical Properties Pvt. Ltd, (2018)  the respondent was held to be principally responsible for the delay in the arbitral proceedings, and the contention that the delay was solely attributable to the tribunal was rejected. However, the Delhi High Court considered it necessary to appoint ‘an independent arbitrator’.

To broadly summarize the case law for a foreign audience it seems that the Court looks for some discernible “fault” on part of the arbitrator to actually substitute the arbitrator. 

The language of s.29A does not permit setting aside the award.

Before the 2015 Amendment to the Act the Delhi High Court has held in Peak Chemical Corporation v. National Aluminium Co. (2012); Union of India v. NIKO Resources ( 2012 ) that the efflux of time is not per-se a reason to set-aside an award since it is not an enumerated ground for setting aside under s.34. Post Amendment (i.e. post insertion of s.29A) the issue arose de-novo in Chandok Machineries  v. SN Sunderson & Co (2018 )A valid award was challenged for being issued after the expiry of the 12 months limit. The petitioner had delayed the proceedings at various junctures and also refused to give consent for extension of time to render the award, under s. 29A(3). The Delhi High Court refused to set aside the award on the ground that the time and effort into the making of an arbitral award should not be allowed to go waste on mere technicalities

The only effective mandate of s.29A seems to be directed against the arbitrator. The Court often directs certain “head master orders” (authors own terminology) directed at the parties, designed to coerce them to comply with the time limit without actually visiting any penal consequence. These kinds of orders include direct parties to co-operate with each other or direct the arbitrator not to grant unnecessary adjournments, or even direction to record the conduct of the parties in minutes of the meeting of award FCA India Automobiles Pvt. Ltd. (formerly known as Fiat Group Automobiles India Private Limited) v. Torque Motor Cars Pvt. Ltd. & Anr (2018),  or direct the parties to pay the cost of s.29A proceedings  NCC v. Union of India, (2018) 

To summarize the position 29A might trigger a substitution of the arbitrator if he can be shown 

C.3 Time clauses post the 2019 Amendment 

The 2019 Amendment causes considerable flux in the understood positions. 

It amends s.23 (4) requiring the written statement and defense ought to be completed in six months (2019 Amendment s.5) after the appointment of the arbitrator. This is effectively a new time clause for which the statute provides no sanction for its violation. Probably this might be enforced with reference to the arbitrator’s fees. It may be a factor in the Court’s decision to extend the time limit. Essentially another time clause has been added to the Act.

Section 23(4) applies both to domestic and international arbitration.

The Amended s.29A leave international commercial arbitration out of its ambit (2019 Amendment s.6). This is indeed a big relief. But international arbitrations may not be totally safe yet. The 2019 Amendment incorporates a proviso to s.29A(a)(l) that reads 

when the award is in matter of international commercial arbitration the tribunal should decide the matter as expeditiously as possible and endeavour 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

If this provision is justiciable then it can still have implications. For example, the arbitrator’s mandate can be challenged if it can be shown that he is not making an effort to expeditiously resolve the matter, or that an award can be challenged if it has been delivered after a long gap.

The term “pleadings” in the amended s.29A is not clear. The amended s.23 (4) only uses the term “statement of claim and defense”. Does the term pleadings it include an amendment as well? So where does the arbitrator stands if, say,  the pleadings are completed in six months but thereafter there is an application for amendment after two months? When will the time limit be calculated from? 

It is to be noted that s.29A case laws have involved “guerilla amendments” which tend to delay the arbitral process.

The 2019 Amendment provides some relief giving the arbitrator the right to audience in fee adjustment hearings. (2019 Amendment s.6(b))

Undoubtedly these issues will be tested in the Courts in the future.

Part-II

The Good Bad and the Ugly of the time clauses

An assessment of time clauses has to be in terms of two parameters namely (a) whether such clauses are jurisprudentially sound, and  (b) whether they advance the regulatory objective of the amendment.

Time clauses arguably advance some legitimate policy goals. They are as follows:-

A.1 Discipline the arbitrator

An inordinate delay in the proceedings may imply that the arbitrator is seen as having failed to comply with his or her duty or may also be seen as a sign of misconduct on the part of the arbitrator. Under Rule 2.3 of the IBA Rules of Ethics for International Arbitrators a “prospective arbitrator should accept an appointment only if he is able to give to the arbitration the time and attention which the parties are reasonably entitled to expect.” 

In the celebrated case of Chartered Institute of Arbitrators v. John D. Campbell QC,(2011) the arbitrator, a former President of CIArb took 5 years to deliver a 17 page award. The The CIArb Disciplinary Committee held that “delay undermines the raison d’être of arbitration, weakens public confidence in the arbitral process, and denies justice to the winning party during the period of delay.” The arbitrator was fined 3000 pounds and expelled from the CIArb.

The time clause can act as a sword of Democles on the arbitrator preventing any delay or misconduct. The case law on s.29A supports that view since most of the time a termination or substitution is made under is when a fault can be attributed to the arbitrator. 

Per-contra it can be argued that an arbitrator is already disciplined in terms of s.14, 15 (termination of mandate and substitution) and the Court’s power to adjust the Schedule of fees, for his inability to conclude the proceedings in time. The arbitrator as a consummate professional does not really require the further discipline of a time clause. 

A.2 Disciplining rogue parties

The Parties and the arbitrator have the positive duty to participate in the arbitration proceedings in good faith. (Born 2009; pp1005-1009) An intentional delay in the matter geared towards defeating the arbitration or trying to gain a procedural advantage may be seen as a lack of good faith. There is a host of case law on this point including Instinet Technologies v Archipelago Sec.LLC, (2003); Paul Wilson & Co v Partendeerei Hannah Blumenthal, (1983)

There are multiple ways in which parties can be derogation of their duty of good faith. One can seek repeated adjournments, it may engage in repeated uncalled for efforts to remove the arbitrator, seek security for costs in a speculative claim.

The “time clauses “can pre-empt such guerilla tactics precisely by restricting “party autonomy”. Section 29A (8) allow the Court can order exemplary costs imposed upon parties. This costs will be payable, arguably, if a party can be identified having caused the delay. 

But then again, the duty to restrain rogue parties rest with the arbitrator and not the Court.

A.3 Bring about Disruptive Change in Arbitral Practice

Traditionally the Indian arbitration practice has been seen as an extension of “litigation practice”. Thus arbitrators would usually be retired judges or senior counsels, counsels would be litigators who would hold arbitration at 5 o’clock after the rising of the Court or on weekends. These counsels would oftentimes not be adequately trained in the nuances of arbitral jurisprudence. Courts in turn would often not be supportive of arbitration.

Arguably the time pressure could end the “5 o’clock arbitrations” (often derisively called “tea time arbitrations” in Delhi). 

It can for example create a dedicated arbitration bar (Debroy and Jain, 2016) since part-time litigators probably cannot manage a time-bound arbitration. It would almost inevitably give a push towards institutional arbitration in India, which was a stated policy objective of the amended Act. (246th law Commission Report para 9 ) 

Similarly, the institutional time pressure may force procedural innovations across the board 

Since 2014 an arbitration bar has taken shape. However, there is no empirical study connecting the “time clauses” with these developments. Anecdotally many practitioners believe that the time clauses have been helpful in this regard.

Even if the time clauses serve some policy goals they have to be tested against the touchstone of basic requirements of arbitral jurisprudence. Some of the key areas of concern are delineated below.

B.1 Party Autonomy 

It is difficult to justify a mandatory time limit on the tribunal under the New York Convention.  (Born 2014) argues that such clauses violate Article V(1)(d) of the New York Convention, that  recognizes the parties' autonomy to agree upon arbitral procedures, including procedures different from those which the laws of the seat prescribe. Consequently, Article V(1)(d) would not permit a Contracting State to override the parties' agreement on the appropriate length of the arbitral process, based on a mandatory, local, statutory time limit.

The time taken by an arbitration proceeding is a function of complexity of the issues, quantum of the evidence, and the exigency of the parties. Section 29A, in fact, substantially curbs party autonomy by not allowing the parties to choose a different set of deadlines, based on their needs and the complexity of the matter.

Time clauses may lead the arbitrator to deviate from his most fundamental duty, namely to issue an enforceable award. 

Section 29A puts a mechanical duty to finish the proceedings within a certain time period, failing which the arbitrator’s tenure terminates and he may even suffer a reduction of fees. But the arbitrator suffers no sanction if the award is weak and is vulnerable to be set aside. It is possible that in the hurry to conclude the award the arbitrator may disregard the rules of natural justice especially audi alteram partem in one of the four following ways, all of which have been judicially held to be violative of arbitrator’s duties u/Art 18 and 34 of (UNCITRAL Model Law 1985): (a) failing to give one of the parties enough scope to be heard, e.g.  Irvani v Irvani, (2000), (b) curtailing the rights to adduce witnesses and cross examination, e.g.  Henry Bath & Son Ltd v Birgby Products, (1962), (c) the right to legal representation and (d) substituting his own judgment for the evidence adduced by the parties. Common law case-law suggests that in all such cases the award may be set aside.

B3. Judicialize the Arbitration

Time clauses are by their very nature disrespectful of a basic requirement of arbitration jurisprudence namely the doctrine of non-intervention. S.29A essentially allows the Court a review of the arbitral process even before the setting aside proceedings u/s34. 

To quote Justice Saraf Committee (2005) that had been set up to evaluate the 2003 Amendment:

The Committee is, of the opinion that neither any time limit should be fixed as contemplated by the proposed section 29A nor should the court be required to supervise and monitor arbitrations with a view to expediting the completion thereof. None of these steps is conducive to the expeditious completion of the arbitral proceedings. Moreover, court control and supervision over arbitration is neither in the interest of growth of arbitration in India nor in tune with the best international practices in the field of arbitration. The Committee is of the opinion that with the proposed amendment the arbitral tribunal will become an organ of the court rather than a party-structured dispute resolution mechanism.

(Justice Saraf Committee 2003, para 22 as cited in Annexure IV of the 246th Law Commission Report)

This judicialization has two distinct effects. 

First, it expands the scope of litigation around arbitration. The Court has to decide on the respective fault of the parties and the arbitrator and have to enter into the records. It is not clear what the standard of review is, or whether the Court can adduce evidence or is it merely a prima facie review. The case law is unsettled and will be further disrupted by the changes introduced in 2019 Amendment. All this litigation will further delay the arbitration.  

Secondly, the judicialization potentially affects the confidentiality of the proceedings. It is to be noted that the 2019 Amendment has inserted a specific duty on confidentiality on the arbitrator. (S.42A inserted through the 2019 Amendment s.6B). However, the Court does not have any similar duty to maintain confidentiality. To the best of the author’s knowledge neither the Act nor any High Court rules allow for in-camera proceedings in s.29A proceedings.

Conclusion

The time taken by the arbitration ought to be immaterial because the affected parties can be compensated with costs and interests and his interests secured through interim relief. So a thousand-year arbitration it perfectly acceptable if it comes to the fair end. A speedy and fair award is a result of the ecosystem of a professional arbitrator, cooperative parties, enabling arbitration legislation, robust judicial and institutional support. The time clauses in the Indian arbitration jurisprudence seeks to coerce out this outcome. They are therefore based on a dishonest expectation. In the end, they shall actually expand the litigation around the arbitration causing further delay.