January 26 2010
In NBCC Ltd v JG Engineering Pvt Ltd the Supreme Court made an important pronouncement concerning the scope for termination of the mandate of an arbitrator under the Arbitration and Conciliation Act 1996.(1) The court was of the opinion that the mandate of the arbitrator stood terminated on account of his failure to publish the award within the timeframe fixed by the parties to the arbitration.
On March 30 1993 NBCC entered into a contract with JG Engineering for the construction of works at Bhubaneshwar Airport. The work's commencement date was fixed at March 1 1993 and the stipulated completion date was October 31 1994. However, on March 20 1996 NBCC terminated the contract, alleging that JG Engineering had failed to fulfil its obligations under the contract. On May 20 1996 JG Engineering invoked the arbitration clause and sought appointment of an arbitrator for adjudication of the disputes between the parties.
On August 9 1996 the chairman-cum-managing director of NBCC appointed a sole arbitrator to adjudicate the parties' claims and counterclaims. However, during this period NBCC almost entirely closed its regional office in Calcutta, as most of the work carried out there had been completed. According to JG Engineering, this led to three changes of arbitrator. Thus, the arbitration process came to a standstill.
Thereafter, on May 20 2004 JG Engineering filed an application before the Calcutta High Court seeking removal of the then-incumbent arbitrator. The arbitral proceedings were stayed accordingly. On September 20 2004 the high court directed the chairman-cum-managing director of NBCC to appoint a new arbitrator under the terms of the arbitration clause within four weeks of the court order. The high court further directed the appointed arbitrator to conclude the arbitration proceedings within six months of the appointment date.
The appointed sole arbitrator finally concluded the proceedings after a hearing on June 18 2005, a date which was beyond the timeframe stipulated for completion of the proceedings. However, both parties extended the timeframe to conclude the arbitration proceedings and to pass an award accordingly. The timeframe was extended to September 30 2005.
After the expiry of this timeframe, NBCC moved the high court to terminate the mandate of the arbitrator as he had failed to conclude the proceedings within the timeframe established by the parties. Through an interim order, the court restrained the arbitrator from making an award and at the same time refused to accept the award which had been made outside the court's specified timeframe. On March 23 2006 the court accordingly terminated the mandate of the arbitrator on account of his failure to publish the award within the timeframe established by the parties.
On September 12 2007 NBCC challenged the Calcutta High Court's order before the Supreme Court through Special Leave Petition 19471/2007.
The principal question before the Supreme Court was whether the arbitrator could extend the timeframe to make or publish an award without the parties' due consent. If the answer to this question was no, what would be the effect on the mandate of the arbitrator?
The Supreme Court observed that the high court had ordered the appointment of a new arbitrator, who was to conclude the proceeding and pass an award within six months of the appointment date. As NBCC had not filed an appeal against the high court's order, NBCC had therefore accepted the order. Thus, the court ruled that NBCC was estopped from raising any objection against the imposition of the time limit at a later stage.
The Supreme Court further ruled that since the arbitration agreement revealed that the arbitrator had the power to extend the timeframe to make and publish the award only with the parties' mutual consent, it was obvious that the arbitrator had no power to extend the timeframe beyond that which had been established without both parties' consent.
Since JG Engineering had not given the arbitrator consent to extend the timeframe, the arbitrator had no power to extend the timeframe and therefore his mandate automatically stood terminated after the expiry of the timeframe established by the parties to conclude the proceedings. The court opined that an arbitrator becomes functus officio (without authority) in the absence of an extension beyond the agreed period to make and publish the award. After that date, the arbitrator has no authority to continue with the arbitration proceedings.
NBCC argued that in the absence of any statutory period prescribed under the Arbitration and Conciliation Act or the agreement for rendering an award, the court's direction to conclude the arbitration proceedings within the prescribed timeframe would not make an award passed outside that timeframe null and void. The Supreme Court opined that the courts have no power to extend timeframes under the Arbitration and Conciliation Act, unlike under Section 28 of the Arbitration Act 1940. Therefore, the courts have been stripped of the power to extend timeframes in order to make and publish awards. However, the Supreme Court held that a court can opt to do so in the exercise of its inherent power on the application of either party.
Nonetheless, the Supreme Court emphasized that paramount importance must be given to the agreement between the parties. Where the arbitration agreement itself provides a procedure for extending the timeframe and the parties have had recourse thereto and consented to an extension, the court cannot exercise its inherent power in extending the timeframe established by the parties in the absence of either of their consent.
With reference to NBCC's contention that by concluding the proceedings, the arbitrator could not be said to have failed to act so as to fall under the scope of Section 14 of the act,(2) the Supreme Court ruled that where an arbitrator fails to conclude the proceedings as agreed by the parties within the specified timeframe, and where no extension has been agreed by both parties, the mandate of the arbitrator stands automatically terminated under Section 14(1)(a) of the act.
The Supreme Court has further clarified the scope of Section 14(2) of the Arbitration and Conciliation Act with regard to the automatic termination of the mandate of an arbitrator if the arbitrator fails to act within the stipulated timeframe for making and publishing the award. This judgment further highlights that the arbitration agreement between the parties is sacrosanct, as the arbitrator cannot set his or her own timeframe once the parties have decided on this. It is not even open for the court to exercise its inherent powers and extend the timeframe if the parties have established the timeframe and it has not been extended by the parties' mutual consent. The Supreme Court has once again upheld the sanctity of the arbitration agreement between the parties and refused to interfere where the parties had already established the term of the arbitration proceedings.
For further information on this topic please contact Bishwajit Dubey or Tamal Mandal at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 4159 0700), fax (+91 11 2692 4900) or email (email@example.com or firstname.lastname@example.org).
(1) The mandate of an arbitrator shall terminate if-
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause(a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12."
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