Saturday 7 July 2012

Time Bound Arbitration? Watch the clock (and yourself)!



Introduction
The Indian Supreme Court in NBCC Ltd. v. J G Engineering Pvt. Ltd.[2] had held that the mandate of an arbitrator terminates with efflux of time where no enlargement of time is possible under the agreement. The consequences of the said decision came to fore in a recent decision of the Bombay High Court.[3]

Facts
The parties entered into a contract which contained the following wordings in the arbitration clause:
The award shall be made in writing and published by the Arbitrator within two years after entering upon the reference or within such extended time not exceeding further twelve months as the Sole Arbitrator shall by writing under his own hands appoint. The parties hereto shall be deemed to have irrevocably given their consent to the Arbitrator to make and publish the award within the period referred to hereinabove and shall not be entitled to raise any objection or protest thereto under any circumstances whatsoever.

When disputes arose the arbitrator was appointed by the order of a Court on 23 February 2001. On 14th June 2001 the first meeting before the arbitrator took place. On 9th July 2002 the arguments commenced and on 21st April 2004 they were concluded. On 14th March 2006 the arbitrator requested the Respondent to purchase stamp paper for publishing the award. The Respondent obliged. The award was eventually published on 17th August 2006. The Respondent made an application before the arbitrator for interpretation of the award but the same was rejected.

The Respondent then challenged the award under S. 34 of the A&C Act, 1996 claiming that the award was bad in law having been published beyond the prescribed time limits in the arbitration clause. The Single Judge of the High Court of Bombay accepted the submission and set aside the award.

The Appellant appealed against the said decision before the Division Bench of the High Court of Bombay.

Submissions
The chief submission by the Appellant was that the Respondent never objected to the award being issued belatedly and in fact participated in the proceedings and impliedly gave consent to enlargement of time for issuance of the award.

The Respondent rebutted the same by submitting that the agreement provided for specific time limits within which the award was to be issued. Thereafter the power of enlargement of time ceased to exist and the arbitrator became functus officio. Thus the award rendered beyond the stipulated time period and the extended time period was null and void and without authority.

Decision
The Division Bench of the Bombay High Court rejected the appeal and held that in view of the judgment of the Supreme Court in the case of NBCC (supra), the mandate of an arbitrator shall terminate if he fails to act without undue delay. The Court further held that the time limit provided in the arbitration agreement in a given case cannot be said to have been extended by the act of one side or by conduct of one side and the arbitrator may not get jurisdiction to proceed further with the matter in case the arbitration agreement provides particular time limit and the same is not extendable as per the arbitration clause in the agreement.

Analysis
S. 14(2) of the A&C Act 1996 states that the mandate of an arbitrator shall terminate if he fails to act without undue delay. Where the arbitration is time bound as per parties’ agreement then the arbitrator as a corollary must issue the award within the prescribed time else he becomes functus officio.

The prescribed time can be extended only in two ways, one if the arbitrator is given suo motu powers to extend the time, or two if the parties themselves extend the time by express agreement or implied waiver of the time limits.[4] Implied waiver is recognized under S. 4 of the A&C Act, 1996.

In the facts of NBCC Ltd. v. J G Engineering Pvt. Ltd. the Respondent had objected to the authority of the arbitrator to continue in office when the time period prescribed in the agreement had expired. This objection was raised before the award was issued and hence a case of implied waiver of the time limits could not be made out therein.

In the facts of the case under review, there were in our opinion several instances of conduct by the Respondent which could be said to amount to waiver of the time limits in the arbitration agreement. The arbitrator entered into reference on 23rd February 2001. Two years and further extension of twelve months results in expiry of time on 23rd February 2004. However beyond this period and until 21st April 2004 the Respondent raised no objection as to the authority of the arbitrator and continued to appear in the proceedings. Further no objection was raised even when the award was issued two years later on 17th August 2006. Such conduct can only amount to waiver. However the Court was correct in holding that merely providing stamp paper to the arbitrator for issuing the award cannot be said to be acquiescence of his authority to continue in office beyond the prescribed period.

Interestingly a month before the judgment under review, in Snehdeep Auto Centre vs. Hindustan Petroleum Corporation Ltd.[5] the Division Bench of the Bombay High Court addressed the same issue. In the facts of that case the time period for issuance of award expired prior to the Respondent making submissions. When no submission was made on the aspect of the expiry of time period for issuance of award, the Court held that the Respondent had waived its rights to object to the continuing mandate of the arbitrator.

While it is clear that the outcome of a challenge to an award issued after the prescribed time will depend upon the facts and circumstances of each case, a successful challenge can lead to potential delay in the arbitral process. It would lead to appointment of a substitute arbitrator under S. 15 and either fresh proceedings before the substitute arbitrator or a continuation of proceedings. The Indian Courts have time and again stated that the latter would be a preferred choice. In certain cases such as in Peak Chemical Corp Inc.v. National Aluminum Co. Ltd. the courts have held that it would not be in the interests of justice to set aside the impugned Award only on the ground of delay and remand it for a fresh determination. While this decision did not involve a challenge to an award issued after the expiry of a prescribed time period, it is nonetheless a practical approach. Although it may more than just bend the contract entered into by the parties.

Nonetheless it is imperative that an arbitrator should responsibly complete the arbitration proceedings and issue an award within prescribed time limits. Best practices in this regard include drawing up schedule of the arbitral proceedings, preferring written submissions over oral hearings, avoiding lengthy discovery, imposition of costs for adjournments, using video-conferencing over physical meetings, obtaining written consent to extension of time limits, etc. Adherence to the same will avoid objections to the mandate of the arbitrator and prevent court intervention in the arbitral process.


[1] Authored by Vikram S. Nankani and Mr. Alok N. Jain. Copyright Economic Laws Practice.
[2] (2010) 1 UJ SC 0310
[3] Bharat Oman Refineries Ltd. vs M/S. Mantech Consultants, Appeal No. 702 of 2011 decided on 2nd May 2012
[4] It is doubtful if the Court has inherent powers to extend time, though the same has been opined by the Supreme Court in NBCC’s case in the affirmative.
[5] Decided on April 16, 2012 (Appeal No. 143 of 2012), Bombay High Court

Friday 6 July 2012

Life After Death of an Arbitrator?


Introduction
The physical existence of a living organism ends in death. Can the same logic bring the existence of an arbitration clause to demise when the named arbitrator therein passes away? The Supreme Court of India addressed this question in a recent judgment.[2]

Facts
The Petitioner and the Respondent entered into an arbitration agreement which read as follows:
“If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with - respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties.”

The two named arbitrators died before disputes arose and the arbitration clause was invoked. The Respondent thus sought appointment of a substitute arbitrator by moving the High Court of Bombay under S. 11 of the A&C Act, 1996.

The Petitioner contested the Respondent’s application on the ground that owing to the demise of the named arbitrators, the arbitration clause had come to an end. The Bombay High Court held in favor of the Respondent by stating that in the absence of any prohibition or debarment, there is no reason for the court to presume an intent on the part of the parties to the effect that a vacancy that arises on account of a failure or inability of a named arbitrator to act cannot be supplied by the court under Section 11. The Bombay High Court appointed an arbitrator.

The Petitioner filed an appeal before the Supreme Court of India by a Special Leave Petition.

Decision
The Supreme Court considered the matter and dismissed the Special Leave Petition on the following grounds: 
  • That a substitute arbitrator can be appointed on the basis of S. 11 which permits a court to appoint an arbitrator, read with S. 14 which lays down the circumstances in which the mandate of an arbitrator terminates, read with S. 15 which permits a court to appoint a substitute arbitrator in such cases. The objective of these sections in the Court’s opinion is to facilitate arbitration and thus ought to be construed to promote efficacy.
  • That the language of the arbitration clause permitted the arbitration clause to survive the death of the named arbitrators.
  • There was no prohibition in appointing a substitute arbitrator as could be construed from the wordings of the agreement.

Analysis
The decision is not entirely new in terms of the ratio. The position was the same under the old Act [3] as outlined in the Supreme Court’s decision in Prabhat Agencies v. U.O.I [4]

What is important is that the Court stressed on the importance of the intentions of parties in determining whether the arbitration clause survives the death of the named arbitrator.

The Petitioner had quite interestingly argued that the rationale for naming the arbitrators was that the parties had reposed faith and confidence in the said individuals. However in our opinion the mere fact of naming an arbitrator in the arbitration clause is not reason enough to establish the converse, i.e. the parties would not arbitrate before any other individual.

This is because the intent to arbitrate is separable from the intent to arbitrate before a particular arbitrator. Naming an arbitrator in the clause can merely establish that parties had chosen an independent and impartial person to preside over their disputes. Upon the demise of such person, the Court can by the same reasoning appoint another independent and impartial person. What must be established is that the named arbitrator was the only person whom the parties wished to preside over their disputes.[5]

The language of the arbitration clause thus becomes important. If there is no discernible intent to prohibit arbitration in the event of the death of the named arbitrator, the Court can appoint a substitute arbitrator. In the present case the Court interpreted the words any time in the clause
If any question or difference or dispute shall arise between the parties hereto or their representatives at any time…

The Court held that the meaning of the words any time indicated that the life of the arbitration clause had no nexus with the life of the named arbitrators, and that the arbitration clause would continue to have a life so long as a question or difference or dispute exists between the parties.

Thus the following adage would apply to arbitration clauses which do not expressly/impliedly bar the arbitration upon the death of the named arbitrator:

Le Roi est mort, vive le Roi,
The King is dead.. Long live the King



[1] Authored by Vikram S. Nankani and Alok N. Jain. Copyright Economic Laws Practice.
[2] 2012 STPL (Web) 327 SC
[3] S. 8(1)(b) gave powers to the Courts to appoint an arbitrator under S. 8(1)(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy.
[4] AIR 1971 SC 2298
[5] Rajinder Jain v. Rakesh Jain, 114 (2004) DLT 723 – here the family disputes were to arbitrated upon by the mother and upon her death no other individual could be appointed owing to the nature of trust and faith reposed in her alone; Rakesh Khanna v. Vishwanath Khanna 62 (1996) DLT 131 – here the clause specifically provided that the parties only had faith and trust in the named arbitrators. In view of this the Court held the vacancy created by the refusal by the named arbitrators could not be supplied

Introductory Post

They say that the first step is the hardest. But here goes...

This blog is an outcome of several factors. A coerced education in law, an accidental but foretold foray into arbitration, graduation during the recent Economic Slowdown, guidance by some of the leading practitioners in arbitration law, and dollops of time after giving up a full time practice in law.

The main contents of this blog will include analysis of the decisions of various courts in India touching the law of arbitration. It will also from time to time update readers of any developments on the legislative front and hopefully include a smattering of articles and debates. The basic intent of this blog is to build an online resource of arbitration material emanating from India.

This blog does not profess to be correct nor does it intend to besmirch those who profess to be correct. It is intended to be a forum for this author and several others to voice their understanding, albeit amateurish, of the developments in the law of arbitration in India and to generate interest in Alternative Dispute Resolution mechanisms. Suggestions, critical insights and feedback of any kind is sought and will be appreciated.

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