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Report No. 176

2.21.1 Time limits for completion of arbitral proceedings in India (both international and purely domestic) laid down:

Pending application for extension in Court, arbitration shall go on:

Proposed section 29A:

This subject has gained utmost importance in view of the long delays and expense attached to arbitral awards in India. Under the 1940 Act, there was a provision of four months from date of entering on the reference, for passing of the award, (First Schedule, para 3) subject to parties seeking time from the court for extension. It applied to purely domestic arbitrations but it has been omitted in the present Act for purely domestic as well as international arbitration. The only reason for omission appears to be that frequent applications for extension in the Court added to long delays.

But at the same time, it was not the policy of the new Act that awards can be delayed without any time limit. But the omission of the provision for extension of time and therefore the absence of any time limit has given rise to another problem, namely, that awards are getting delayed before the arbitral tribunal even under the 1996 Act. One view is that this is on account of the absence of a provision as to time limit for passing an award.

Under clause 3 of Schedule I of the old Act of 1940, the award was to be passed within 4 months after the arbitrators 'entered on the reference' or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the court may allow. Section 28(1) of the old Act enabled the court to extend the period from time to time.

Sub-section (2) of section 28 stated that any provision in an arbitration agreement whereby the arbitrator (or umpire) may, except with consent of all the parties to the agreement, enlarge the time for making the award, shall be void and of no effect. In other words, parties, by consent, could extend time but not the arbitrators. This was the position under the old Act.

2.21.2 The Law Commission recommended in its 76th Report on Arbitration Act, 1940, inter alia, that a proviso should be inserted below section 28 so as to provide that no extension should be granted, allowing the making of the award for more than one year after the arbitrator's entering on the reference unless the court, for special and adequate reasons, to be recorded in writing, is satisfied that such an extension is necessary. Accordingly, it recommended the insertion of the following proviso below section 28:

"Provided that no extension shall be granted so as to allow the making of the award more than one year after entering on the reference, unless the court, for special and adequate reasons to be recorded in writing, is satisfied that such extension is necessary."

The 76th Report also recommended in para 11.24, that in order to resolve the conflict in judgments as to what is the meaning of the words 'entering on the reference', an 'Explanation' be added as follows:

"Explanation: For the purposes of this paragraph, the arbitrators shall be deemed 'to enter on the reference' on the first date fixed by the arbitrators for the appearance of the parties before them for the purposes of arbitration."

But, it is not necessary to adopt the above method of computation in view of the provision in sec. 21 of the 1996 Act defining the meaning of the words 'commencement' of arbitration proceedings as "the date on which a request for that dispute to be referred is received by the respondent".

2.21.3 Question is whether any time limit is to be fixed. Of course, under ICC Rules, time limit of six months is prescribed for international arbitration but the Model law does not prescribe any time limit. Art.24(1) of the ICC Rules, 1998 replacing Art. 18(1) of the old Rules, fixed a period of six months from the date of signature or approval by the International Court of Arbitration of the terms of reference. However, the International Court of Arbitration may "pursuant to a reasoned request from the arbitrator or if need be on its own initiative, extend the time limit if it decides, it is necessary to do so (Art. 24(2).

Where an excessive delay is attributable to the arbitrators, the International Court of Arbitration may resort to the provisions of the Rules concerning the replacement of arbitrators, which apply where the arbitrators fail to perform their duties within the stipulated time limits (See Art. 12(2) of the 1998 ICC Rules replacing Art. 2(11) of the previous Rules). For international arbitration, laws of several countries, like France, Dutch, Sweden and Swiss do not fix any periods. (No doubt, prior to 1999, the Swedish and Belgium laws provided six months for international arbitration).

Section 14(2) of the English Act, 1996 permits the Court to extend the time for making the award if the 'Court is satisfied that substantial injustice' would otherwise be done. It was even suggested that certain modes of fee stipulations for each sitting, both for the lawyers and the arbitrators have also contributed to abnormal delays. It is high time that there should be a check at least at the end of two years by a Court of law. The 76th report of the Law Commission recommended for fixing maxim period for the court to extend time.

But we do not want to fix any such limit. Power to grant extension can be given to the court and can be made strict so that awards can be passed faster. In fact, the provision in several countries is to grant such a residuary power to the Court without fixing any further upper limit. The Commission is of the view that a time limit is necessary for international arbitration in India as also for purely domestic arbitration between Indian nationals in India, having regard to the long delays and huge expense involved in arbitration nowadays.

The time limit can be more realistic subject to extension only by the court. Delays ranging from five years to even fourteen years in a single arbitration have come to the Commission's notice. The Supreme Court of India has also referred to these delays of the arbitral tribunal. The point here is that these delays are occurring even in cases where there is no court intervention during the arbitral process. The removal of the time limit is having its own adverse consequences.

There can be a provision for early disposal of the applications for extension, if that is one of the reasons for omitting a provision prescribing a time limit, say one month. Parties can be permitted to extend time by one year. Pending the application for extension, we propose to allow the arbitration proceedings to continue. In fact sec. 29A(4) reads as follows:

"(4) Pending consideration of the application for extension of time before the Court under sub section (3), the arbitration proceedings shall continue before the arbitral tribunal and the Court shall not grant any stay of the arbitral proceedings."

2.21.4 It is, therefore, proposed to implement the recommendation made in the 76th Report of the Law Commission with the modification that an award must be passed at least within one year of the arbitrators entering on the reference. The initial period will be one year. Thereafter, parties can, by consent, extend the period upto a maximum of another one year. Beyond the one year plus the period agreed to by mutual consent, the court will have to grant extension. Applications for extension are to be disposed of within one month.

While granting extension, the court may impose costs and also indicate the future procedure to be followed by the tribunal. There will, therefore, be a further proviso, that further extension beyond the period stated above should be granted by the Court. We are not inclined to suggest a cap on the power of extension as recommended by the Law Commission earlier. There may be cases where the court feels that more than 24 months is necessary.

It can be left to the court to fix an upper limit. It must be provided that beyond 24 months, neither the parties by consent, nor the arbitral tribunal could extend the period. The court's order will be necessary in this regard. But in order to see that delay in disposal of extension applications does not hamper arbitration, we propose to allow arbitration to continue pending disposal of the application.

2.21.5 One other important aspect here is that if there is a delay beyond the initial one year and the period agreed to by the parties (with an upper of another one year) and also any period of extension granted by the Court, there is no point in terminating the arbitration proceedings. We propose it as they should be continued till award is passed. Such a termination may indeed result in waste of time and money for the parties after lot of evidence is led.

In fact, if the proceedings were to terminate and the claimant is to file a separate suit, it will even become necessary to exclude the period spent in arbitration proceedings, if he was not at fault, by amending sec. 43(5) to cover such a situation. But the Commission is of the view that there is a better solution to the problem. The Commission, therefore, proposes to see that an arbitral award is ultimately passed even if the above said delays have taken place.

In order that there is no further delay, the Commission proposes that after the period of initial one year and the further period agreed to by the parties (subject to a maximum of one year) is over, the arbitration proceedings will nearly stand suspended and will get revived as soon as any party to the proceedings files an application in the Court for extension of time. In case none of the parties files an application, even then the arbitral tribunal may seek an extension from the Court. From the moment the application is filed, the arbitration proceedings can be continued.

When the Court takes up the application for extension, it shall grant extension subject to any order as to costs and it shall fix up the time schedule for the future procedure before the arbitral tribunal. It will initially pass an order granting extension of time and fixing the time frame before the arbitral tribunal and will continue to pass further orders till time the award is passed. This procedure will ensure that ultimately an award is passed.

The Arbitration and Conciliation (Amendment) Bill, 2001 Back

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