THE ARBITRATION TIME TRAP – WHY SECTION 23(4) DEMANDS URGENT REFORM
INTRODUCTION
The Arbitration and Conciliation (Amendment) Act, 2019, was supposed to be a milestone aimed at streamlining dispute resolution in India. Nonetheless, like various well-intentioned legislative efforts, it has instead opened a Pandora’s Box of ambiguity, particularly with the introduction of Section 23(4) and its interplay with Section 29A (1).
It resulted in creating a legal grey area where courts, arbitrators, and parties struggle to decide whether the six-month timeline for pleadings is mandatory or just a suggestion.
This article makes one thing evident that the law in its current state is inadequate, and it is about time for the legislature to step in and correct it.
THE PROBLEM
The main issue that has thrown arbitration proceedings into disarray is that whether the term “completion of pleadings” under Section 29A (1) include rejoinders and surrejoinders, or if it only refer to the statement of claim and defence? Courts have not been able to reach a consensus. The Hon’ble Karnataka High Court in Buoyant Technology Constellations Pvt Ltd v. Manyata Infrastructure Developers Pvt Ltd held that pleadings are complete when the last permissible pleading is filed, the Delhi High Court echoed a similar sentiment in EMCO Ltd v. Delhi Transco Ltd making it clear that the 12-month arbitration deadline kicks in only after all pleadings including rejoinders are complete.
However, there is no statutory clarity on whether these timelines are flexible or rigid. The Calcutta High Court in Yashovardhan Sinha HUF & Anr v. Satyatej Vyapaar Pvt Ltd has taken the view that Section 23(4) is merely directory, meaning there are no repercussions in an event wherein the six-month deadline is not met. On the other hand, the Delhi High Court in Raj Chawla and Co Stock and Share Brokers v. Nine Media and Information Services Ltd has treated it as mandatory, although its reasoning appears to rely on a non-existent provision in Section 25(3). Interestingly, a Special Leave Petition was also filed by Yashovardhan Sinha against Satyatej Vyapaar Pvt. Ltd. before a three judge bench, which the court denied to entertain at its very outset and the challenge in the Raj Chawla and co case was also dismissed by way of Special Leave Petition dated 27th March 2023
Another important thing to note here is that the courts while interpreting Section 29A have consistently held that it is mandatory in nature. The Supreme Court ruled in State of Bihar v. Bihar Rajya Bhumi Vikas Samiti that failure to comply with Section 29A terminates the arbitrator’s authority and invalidates the proceedings. Additionally, in Roop Singh Bhatty v. Shriram City Union Finance, the Telangana High Court came to the conclusion that awards given after the legally mandated deadline are void.
This makes it evident that, there exist no uniformity and arbitration proceedings across the country remains plagued by unpredictability. In lieu of this, an expert committee in 2023(Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996 to make it alternative in the letter and spirit.) suggested changes to Section 23(4) to make it comprehensible that the six month period is the maximum limit that can be allowed in light of these ongoing problems. It proposed modifications in order to eliminate the ambiguity by guaranteeing a pipeline for completion of proceedings. The report emphasized the necessity of unwavering timelines and underscored that arbitration cannot operate effectively amidst procedural uncertainties.
Yet, despite the expert committee’s recommendations, the Draft Arbitration and Conciliation (Amendment) Bill, 2024, has completely ignored and disregarded the said issue. This is not just an oversight but a legislative failure that will have far-reaching consequences. By neglecting the fundamental issue of procedural timelines, the bill ensures that arbitration in India remains an inefficient, uncertain process marred by judicial intervention.
This reluctance to confront the issue reflects either a failure to recognize arbitration’s increasing importance in India’s legal framework or a lack of political will. Despite the courts struggling with the ambiguity, the legislature remains conspicuously silent, leaving practitioners and arbitrators to navigate through a murky and inconsistent legal landscape. In absence of concrete amendments, arbitration proceedings will continue to be prolonged, undermining the very purpose of alternative dispute resolution.
THE WAY FORWARD: FIX IT NOW OR FACE ENDLESS LITIGATION
If arbitration in India is to be made efficient, we need a lot more than just cosmetic changes. The legislature must enact clear and comprehensive amendments to Sections 23 and 25 to instill procedural certainty in the existing law. Below are certain suggestions that must be made in order for arbitration to remain free from any procedural ambiguities.
Firstly, rather than being aspirational, Section 23(4) needs to become mandatory. It should make it clear that, unless there are exceptional circumstances, pleadings must be finished within six months. Such an act would curtail unnecessary delays, and arbitration proceedings will not drag on endlessly, making the sole purpose of arbitration invalid.
Secondly, the act must explicitly define the term completion of proceedings to encompass all acceptable pleadings including rejoinders and surrejoinders. This would ensure uniformity in the arbitral proceedings and eliminate any room for judicial uncertainty and judicial intervention Moreover, In absence of such a definition the courts will continue to render contradictory decisions which will prolong litigation and cause extraordinary delays.
Third, Section 25 needs to include within its ambit consequences for noncompliance. The Act must enforce penalties if either party violates Section 23(4). The tribunal should be given the authority to go on ex parte or end proceedings outrightly if a statement of claim or defense is not filed within the allotted time frame. In a similar vein, the right to file a rejoinder should be forfeited if the deadline is missed, unless there are exceptional circumstances. This will effectively discourage needless delays in the process.
The entire point of arbitration is to provide a efficient and swift substitute to litigation. But, arbitration will continue to be an unpredictable and ineffective disaster as long as basic and fundamental procedural issues like how to interpret Section 23(4) are not settled. The expert committee’s recommendations must be taken seriously, and the government must take immediate action now before yet another round of litigation erupts over something as fundamental as when the clock starts ticking on an arbitral award. The only way forward is to fix these statutory loopholes once and for all. However, the question still persists: will the legislature finally take arbitration seriously, or will it continue to leave it in a state of perpetual confusion?
* Sarthak is a 5th year student at University Institute of Legal Studies, Chandigarh University