The Supreme Court of India recently held that an application for extension of the time period for passing an arbitral award under Section 29A(4) read with Section 29A(5) is maintainable even after the expiry of the twelve-month or the extended six-month period, as the case may be.
Bench comprising Justice Sanjiv Khanna and Justice R. Mahadevan heard a batch of pleas wherein the question before the Court was whether an application for extension of time under Section 29A of the Arbitration and Conciliation Act, 19961 can be filed after the expiry of the period for making of the arbitral award.
The Special Leave Petition was filed on behalf of the Senior Lenders, wherein Sr. Counsel Gopal Jain along with Raunak Dhillon, Partner; Madhavi Khanna, Principal Associate and Isha Malik, Senior Associate on behalf of the Cyril Amarchand Mangaldas Team appeared for IDBI Bank Limited in the matter of IDBI Bank Limited v. KMP Expressways Ltd.
Additionally, Senior Advocate Shyam Divan appeared on behalf of KMPEL.
The Court held that the word “terminate” in Section 29A(4) had to be read in the context of the said provision.
"It should not be read as an isolated word with a strict dictionary meaning, but rather in conjunction with the surrounding words and expressions which warrant recognition and consideration. This evinces the legislative intent. Secondly, the legislative preference for the term “terminate” over “suspend” is apparent, since the word “suspend” could cause incongruity and a legal conundrum if no party files an application for an extension of time. In such a scenario, the arbitral proceedings would stand suspended ad infinitum. Therefore, the legislature by using the word “terminate” intends to affirm the principle of party autonomy. Resultantly, if neither party moves an application for an extension of time for making the award, the arbitration proceedings are terminated," the Court held.
The Court further said that the word “terminate” in the contextual form does not reflect termination as if the proceedings have come to a legal and final end, and cannot continue even on filing of an application for extension of time.
"Therefore, termination under Section 29A(4) is not set in stone or absolutistic in character," the Court observed.
It was further held by the Court that the power to extend time period for making of the award vests with the court, and not with the arbitral tribunal. Therefore, the arbitral tribunal may not pronounce the award till an application under Section 29A(5) of the A & C Act is sub-judice before the court
By way of the judgment, the Supreme Court has held:
(i) The word “terminate” in Section 29A(4) has to be read in the context of the said provision. It should not be read as an isolated word with a strict dictionary meaning, but rather in conjunction with the surrounding words and expressions which warrant recognition and consideration;
(ii) The word “terminate” in Section 29A(4) makes the arbitral tribunal functus officio, but not in absolute terms. The word “terminate” is followed by the connecting word “unless”, which qualifies the first part with the subsequent limb of the section, i.e. “unless the court has, either prior to or after the expiry of the period so specified, extended the period.” The expression “prior to or after the expiry of the period so specified” has to be understood with reference to the power of the court to grant an extension of time;
(iii) The termination of the arbitral mandate is conditional upon the non-filing of an extension application and cannot be treated as termination stricto sensu. The word “terminate” in the contextual form does not reflect termination as if the proceedings have come to a legal and final end and cannot continue even on filing of an application for extension of time. Therefore, termination under Section 29A(4) is not set in stone or absolutistic in character;
(iv) Section 29A intends to ensure the timely completion of arbitral proceedings while allowing courts the flexibility to grant extensions when warranted. Prescribing a limitation period, unless clearly stated in words or necessary, should not be accepted. A rigid interpretation would amount to legislating and prescribing a limitation period for filing an application under Section 29A, when the section does not conspicuously so state;
(v) In view of the above discussion, we hold that an application for extension of the time period for passing an arbitral award under Section 29A(4) read with Section 29A(5) is maintainable even after the expiry of the twelve-month or the extended six-month period, as the case may be. The court while adjudicating such extension applications will be guided by the principle of sufficient cause.
(vi) We, accordingly, answer the question in the aforesaid terms. The appeals are directed to be listed in the week commencing 30.09.2024 for final hearing and disposal.
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