Dispute Resolution Hotline
July 27, 2020
Delhi High Court clears the air on retrospective applicability of time-lines under Section 29A
The Delhi High Court in its recent ruling of ONGC Petro Additions Ltd. v. Ferns Construction Co. Inc.,1 held that Section 29A of the Arbitration and Conciliation Act, 1996 (“Act”) shall be applicable to all pending arbitrations seated in India as on August 30, 2019 and commenced after 23 October 2015, except international commercial arbitrations. Section 29A of the Act inserted by way of amendment in 2015 (“2015 Amendment”) prescribes the time limit for passing an arbitral award. Pursuant to the report of the High-Level Committee to ‘Review the Institutionalisation of Arbitration Mechanism in India’ under the chairmanship of Justice B. N. Srikrishna, the Arbitration and Conciliation (Amendment) Act, 20192 (“2019 Amendment”) introduced further changes to Section 29A.
Pursuant to an agreement between ONGC Petro Additions Limited (“Petitioner”) and FERNAS India Private Ltd (Indian Subsidiary of Ferns Construction Co. Inc. (“Respondent”)), disputes arose between the parties. The parties invoked the arbitration clause and an Arbitral Tribunal was constituted to adjudicate the disputes. The Respondent had earlier filed an anti-arbitration injunction against the Petitioner contending that it is not bound by the arbitration clause, which was rejected by the Delhi High Court in April 2019; the Delhi High Court granted the Respondent liberty to raise this issue before the Arbitral Tribunal. The issue of Respondent being a proper party is currently pending for determination before the Arbitral Tribunal.
During the course of arbitration, the Petitioner approached the Delhi High Court seeking extension of time limit under Section 29A of the Act. The Hon’ble Single Judge, in his order dated 25 September 2019 extended the time for the Arbitral Tribunal to complete the proceedings and render the award by 18 months, effective from 24 June, 2019.4 However, during the pendency of the proceedings, Section 29A of the Act was amended by the 2019 Amendment. Considering the Respondent is a company incorporated under the laws of Turkey, the current arbitration is in the nature of an International Commercial Arbitration under the Act. In light of the 2019 Amendment, the Arbitral Tribunal asked the parties to seek clarifications from the court on its order dated 25 September 2019.DEVELOPMENTS ON RETROSPECTIVE APPLICATION OF AMENDMENTS TO ARBITRATION ACT
Section 26 of the 2015 Amendment Act explicitly provided for a prospective application of the amendments and came into force on 23 October 2015. As a result, the 2015 Amendment only applied to arbitrations commenced after 23 October 2015. The Supreme Court in BCCI v. Kochi 5 (“BCCI Judgment”) interpreted Section 26 of the 2015 Amendment and distinguished arbitral proceedings from court proceedings in relation to arbitral proceedings. The Supreme Court held that 2015 Amendment is applicable to all arbitral proceedings and court proceedings initiated after 23 October 2015, regardless of the fact that such court proceedings stem out of arbitrations initiated before 23 October 2015. However, Section 87 of the Act, inserted vide the 2019 Amendment, attempted to disregard the BCCI Judgment and provided for a prospective application of 2015 Amendment only to arbitration and court proceedings commenced after 23 October 2015. Section 87 was however struck down in Hindustan Construction Company Limited and Ors. v. Union of India and Ors,6 essentially reviving the applicability of Section 26, as interpreted by the BCCI Judgment.
In this background, the issue before the present court was if the proceedings before the arbitral tribunal are in nature of an international commercial arbitration, whether the time limit as fixed by this Court vide Order dated September 25, 2019 shall be applicable to the present proceedings?CONTENTIONS BY PARTIES
The Delhi High Court’s judgment settles the storm over the applicability of Section 29A on time-line to deliver awards. It clarifies that the said section applies retrospectively.
The Ld. Single Judge held that MBL Infrastructure is per incuriam and not binding on the Court.11 The Ld. Single Judge hailed the decision in Shapoorji as a binding decision and held that since the 2019 Amendment is procedural in nature, it shall apply to all pending arbitrations as on the date of amendment, including the current arbitration proceedings. The Delhi High court based its reasoning on the principle laid down by the Supreme Court in BCCI Judgment, that Section 29A is a procedural law as it does not create new rights and/or liabilities.
The Court further discussed the scope of the impact on rights and liabilities of the parties by any change to law. Relying on Workmen v. Firestone Tyre & Rubber Co. of India (P) Ltd.,12 and the BCCI Judgment, the court held that any amendment to substantive laws affecting the rights and liabilities of a party or imposing a disability must be prospective in nature. On the other hand, any amendment to the provisions of statute dealing merely with matters of procedure shall be retrospective in nature, unless there exist a contrary intention of the legislature.13 The Delhi High Court concluded that Section 29A (1) is applicable to all pending arbitrations seated in India as on 30 August 2019 and commenced after 23 October 2015. For the present case, it was clarified that if the arbitration is adjudicated to be an international commercial arbitration, the arbitral tribunal would not be bound by the time line prescribed vide order of the court dated 25 September 2019.
Section 29A places the 12-month clock to start ticking from the date of completion of pleadings in domestic arbitration. Needless to say, completion of pleadings is a subject-matter of interpretation, which can lead to further delay and a larger issue to be dealt with, which will no doubt shine the spotlight on Section 29A again.
The authors would like to thank Adimesh Lochan for his contribution.
1 OMP(MISC) (COMM) 256/2019, I.A. 4989/2020.
2 The Arbitration and Conciliation (Amendment) Act, 2019 No. 33 of 2019 [S. 29A enforced on 30 August 2019
3 International Commercial Arbitration has been defined under Section 2(1)(f) of the Act to mean arbitrations where one of the parties is (i) an individual residing in a foreign country, or (ii) a company incorporated in a foreign country, or (iii) an association whose management and control is exercised in a foreign country, or (iv) the government of a foreign country.
4 O.M.P (MISC.) (COMM.) 256/2019
5 (2018) 6 SCC 287.
6 AIR 2020 SC 122
7 Thirumalai Chemicals Ltd. v. Union of India (2011) 6 SCC 739 and Rajendra Kumar v. Kalyan (D) by Lrs. (2000) 8 SCC 99
8 Sudhir G. Angur and Ors. v. M. Sanjeev and Ors. (2006) 1 SCC 141
9 Shapoorji Pallonji and Co. Pvt. Ltd v Jindal India Thermal Power Limited
10 State of Assam v. Ripa Sharma (2013) 3 SCC 63
11 National Insurance Co. Ltd. v. Pranay Sethi (2017) 16 SCC 680 and Sandeep Kumar Bafna v. State of Maharastra and Ors. (2014) 16 SCC 623
12 (1973) 1 SCC 813
13 Supra at fn 7
The contents of this hotline should not be construed as legal opinion. View detailed disclaimer.