Arbitration In IndiaIn Absence of contract to contrary, Courts have the jurisdiction to extend the mandate of Arbitral Tribunal

The Hon’ble Delhi High Court, in Religare Finvest Limited v. Widescreen Holdings Private Limited and Ors[ O.M.P. (T)(COMM.) 27/2024, I.A. 7151/2024 decided on 04.04.2024], held that in the absence of a separate application under Section 29A of the A&C Act, the court has the power to extend the Arbitrator’s mandate if no ground for its substitution has been made by the parties.

FACTS

Widescreen Holdings Private Ltd. (hereinafter referred to as the “Respondent”) took a loan amounting to Rs.12,44,52,240/- (Twelve crores forty-four lakhs fifty-two thousand two hundred forty rupees) from Religare Finvest Ltd. (hereinafter referred to as the “Petitioner”) vide Agreement dated _15.02.2014 (hereinafter referred to as the “Loan Agreement”). Whereas, the Respondent No. 2 and 3 acted as guarantors for the loan. A dispute arose between the parties when Respondent No. 1 defaulted on the debt, leading to the invocation of the Arbitration Clause 16.1 of the Loan Agreement that initiated the arbitration proceedings against the Respondents on 07. 05. 2019.

Initially, the Petitioner filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”). However, the same was withdrawn as the parties had mutually appointed a Sole Arbitrator and Arbitration proceedings were commenced.

Thereafter, the Respondent challenged the jurisdiction of the Arbitral Tribunal by filing an application under Section 16 of the A&C Act, alleging that the loan agreement was insufficiently stamped.

The Arbitral  Tribunal allowed  the application under Section 16 of the A&C Act. The Petitioner challenged the order of the Arbitral Tribunal before this Hon’ble Court under Section 37 of the A&C Act vide ARB. A. (COMM.) 6-9/2021, which was allowed vide Order dated 10.01.2022. The Order dated 10.01.2022, directed the Ld. Sole Arbitrator to examine if it was sufficiently stamped under the Indian Stamp Act, 1899.

The Respondents preferred an Special Leave Petition (Hereinafter referred to as the “SLP”) before the Hon’ble Supreme Court against the order dated 10.01.2022, which was dismissed. Further the Respondent filed Miscellaneous Applications submitting the Loan Agreement and challenging applicability of Maharashtra Stamp Act on the Loan Agreement. However, the Applications were rejected by directing the Ld. Sole Arbitrator to decide.

IN the meantime, the Respondents filed applications under Section 33,35 and 38 of the Indian Stamp Act, 1899, which are still pending before the Arbitral Tribunal.

Further, the Respondents had also filed application for termination of the Arbitral proceedings on the ground that the Loan Agreement was insufficiently stamped. However, the application was dismissed by the Arbitral Tribunal.

After 2023, the proceedings did not have any effective hearing. Hence, the Petitioner has filed the present petition under Section 14 and 15 of the A&C Act alleging that the Arbitral Award should have been passed by April 2023. However, the Ld. Sole Arbitrator has become de jure unable to further conduct the Arbitral proceedings under Section 29A of the A&C Act.

ISSUE BEFORE THE SUPREME COURT

Whether the appointed Sole Arbitrator was de jure unable to carry out the Arbitral Proceedings under Section 14(1)(a) Arbitration & Conciliation Act?

CONTENTIONS OF THE PARTIES

The Petitioner contended that there has been no proper hearing in the Arbitration proceedings since 2023. The Petitioner claimed that multiple dates were set for the proceedings, but no meaningful hearings were held owing to the absence of the Arbitral Tribunal and other procedural obstacles.

The petitioner also referenced Section 29A(1) of the A&C Act, which provides for mandatory passing of Arbitral Award within period of 12 months after the completion of the pleadings, which could be further extended for a period of 6 months.

 According to the Petitioner, since the proceedings were not completed within the stipulated time frame, the Arbitral Tribunal failed to pass an Arbitral Award by  April 2023. Therefore the Ld. Sole Arbitrator was de jure incapable of executing his duties as an Arbitrator under section 14(1)(a) of the A&C Act.

The Respondent contended that a huge amount was already spent on the Arbitral proceedings and was unwilling to discontinue the proceedings.

DECISION AND FINDINGS

The Delhi High Court observed that many of the applications decided by the Arbitral Tribunal were challenged by either of the parties. The High Court relied upon Chemical Sales Corporation v. A & A Laxmi Sales and Service Private Limited, [2011 SCC OnLine Del 3847] and  SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited, [2017 SCC OnLine SC 1210] and observed that a lot of procedural hurdles were faced by the Arbitral Tribunal for the mandate was expired and no steps were taken by either of the parties to extend the mandate of the Arbitral Tribunal.

The High Court observed that the delay could not be solely attributed to the arbitral Tribunal and neither of the parties have alleged failure on part of the Ld. Sole Arbitrator to discharge the responsibility. The Ld. Sole Arbitrator cannot be said to have de facto or de jure incapable of acting as the Arbitrator, in terms of Section 14 of the Act.

It was further observed that the mandate of the Arbitral Tribunal was expired but neither of the parties had extended the same as under Section 29A of the A&C Act. The High Court examined the provision of Section 29A of the A&C Act and observed that the Court may extend the mandate of the Arbitral Tribunal.

The High Court dismissed the petition under Section 14 and 15 of the A&C Act and extended the period of the Arbitral Tribunal under Section 29A of the A&C Act for the conclusion of the Arbitral Proceedings and passing of an Arbitral Award.

AMLEGALS REMARKS

The Delhi High Court held that the Courts have jurisdiction to extend the mandate of the Arbitral Tribunal in the absence of a contract to the contrary. It was also held that when the delay was not solely attributable to the Arbitral Tribunal, the Arbitral proceedings cannot be terminated under Section 14 of A&C Act.

-Team AMLEGALS, assisted by Ms. Deepanshi Kapoor (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com