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
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