Guest Post: ONGC Petro Additions v. Fernas Construction: Infusing Clarity on the Retrospective Resurrection of the Amended Section 29A or complicating it even more?

Tushar Behl & Ankit Singh*

As discussed on the blog previously, the inclusion of Section 26 by way of amendments to the Indian Arbitration and Conciliation Act (“Act”), in the year 2015 cleared the air concerning the debate of retrospectivity by providing, that the amendment would not apply to arbitration proceedings commenced before 23 October 2015.

Another noteworthy provision was Section 29A, which was inserted to address the malady of never-ending adjudication that had troubled the majority of arbitration proceedings in India. The provision deals with the ‘Time-limit for an arbitral award’ and was further modified by the 2019 Amendment Act, which excluded International Commercial Arbitrations (“ICA”) from the purview of the time-line from subsection (1) of Section 29, and modified the time limit of the arbitral award to 12 months from the completion of pleadings, substituting the current period of 12 months commencing from the date of reference.

Subsequently, the position concerning the retrospective application was that the clock shouldn’t turn backward, i.e. the time-line has no retrospective effect.

Interestingly, on 21 July 2020 in the case of ONGC Petro Additions Limited v. Fernas Construction Co. INC, the High Court of Delhi found that the amendments to subsection (1) of Section 29A from its scope are “retrospectively applicable to proceedings commenced after 23 October 2015”.

Decision made by the Court

Disputes arose between ONGC Petro Additions (“Petitioner”) and FERNAS India Pvt. Ltd, the subsidiary of Fernas Construction Co. Inc. (“Respondent”) where the Delhi High Court at first, rejected an anti-arbitration injunction in April 2019 filed by the Respondent. The Respondent was given liberty to approach the tribunal where currently, the issue of Respondent being a proper party is pending adjudication before the tribunal. During the course of the proceedings, the Petitioner filed an application seeking extension of time limit under Section 29A before the Delhi High Court. Vide order dated 25th September 2019, the court extended the time for the tribunal to complete proceedings and render the award by 18 months, effective from 24th June, 2019. During the course of the pending proceedings, Section 29A got amended via 2019 Amendment Act. Having noted, that the Respondent is a company incorporated under the laws of Turkey, the Court categorized the current arbitration in the nature of an ICA and asked the parties to seek clarifications on its order dated 25th September 2019 in light of the 2019 Amendment. The issues before the Court were whether the arbitration proceedings before the tribunal are an ICA and whether the time limit as fixed by this Court vide Order dated September 25, 2019 shall be applicable to the present proceedings?

To answer the question, the Court relied on the decisions made by the Delhi High Court in the case of Shapoorji Pallonji and Co. Pvt. Ltd. V. Jindal India Thermal Power Ltd., [O.M.P (MISC.) (COMM.) 512/2019]  (“Shapoorji”) and MBL Infrastructures Limited v. Rites Ltd.,[O.M.P (MISC.) (COMM) 56/2020] (“MBL”) and found MBL to be per incuriam. Additionally, the Court gave a nod to the decision of the coordinate bench in Shapoorji, that the amendment being ‘procedural’ in nature shall apply to all pending arbitration proceedings as on the date of the amendment.

The Court premised this inference by relying on the decision of the Apex Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd., wherein the Apex Court found Section 29A to be procedural as it does not create any new rights and liabilities, instead, it establishes an apparatus for the tribunal to render the award, thereby determining the rights and liabilities within 12 months. The Court also emphasized the absence of any condition akin to Section 26 of the 2015 amendment act, which was specifically inserted to turn the procedural amendments ‘prospective’. After noting that the 2019 Amendment Act contained no provision para materia to Section 26 of the 2015 Amendment Act, it further went on to hold that:

“d. …The prescription of time limit by Amendment Act of 2015 had not conferred any rights or liabilities on a party rather it was a procedural law establishing a mechanism for the Arbitral Tribunal to render the award, which determine the rights and liabilities of parties in twelve months and surely the removal thereof also does not confer/affect rights of any party to be given effect prospectively.”  This analysis means that nothing contained in the 2019 Amendment Act bars the retrospective application of Section 29 A (1) of the Act.

At first, it seems like the Court has taken the pro-arbitration approach and that the controversy has been put to rest while reaching into a conclusion. However, the said approach has given birth to several apparent concerns.

Unwarranted controversy

Rather than providing the needed clarity, the present decision has laid down the glaring inconsistency with Section 29A of the Act and opened the doors for multiple interpretations of Section 29A of the Act. Firstly, the Court held that “the provisions of Section 29A (1) shall apply to all pending arbitrations seated in India”. The literal interpretation of the same suggests that the time-line of 12 months is mandatory for both international and domestic arbitrations seated in India. Further, the Court also stated that “there is no strict timeline of 12 months prescribed to the proceedings which are in the nature of international commercial arbitration” which does not mandate the 12-month timeline so far as international arbitrations are concerned.

Nonetheless, it can be argued that the latter part provides clarification to the former. However, the specific remarks made by the Court will overrule such clarification and will attract the undue attention of the parties, because it is prima facie contrary to Section 29A(1) of the Act and will undoubtedly result in unnecessary intervention by the courts for prescribing time limits concerning domestic and international arbitrations.

Failing to address the prevailing problem

Firstly, it is imperative to highlight, that in India, despite efforts to make arbitration a speedy dispute resolution mechanism, there might be a plethora of pending arbitration proceedings involving PSUs and other private entities that must be pending from last 3-4 years and might continue for even longer period. Further, going by the mandate of the present decision that Section 29A (1) of the Act is applicable to all pending arbitrations seated in India as on 30 August 2019 and commenced after 23 October 2015, the time apportioned to such arbitration proceedings has already expired.

Secondly, in case, if one of the parties choose to challenge the arbitrator and if that challenge turn out to be successful, and the party approaches the court for reappointment of an arbitrator, to resume the proceeding in accordance with Section 29-A (6) of the Act. Interestingly, the Act in current state do not cater to the concern as to, whether the time taken by the court in reappointment of arbitrator, will be excluded or included within the prescribed time period in Section 29A.

Thirdly, it gives rise to three immeasurably pertinent issues (1) How can such sub-judice arbitration proceedings continue beyond the limited time period envisaged by the Amendment, and (2) if such proceedings cannot be sustained beyond the prescribed period, can parties resort to the court for resolving their dispute and, (3) if they can, will that not effect Section 5 of the Act?

Procedural Fallacy

The Delhi High Court’s decision that Section 29A of the Act applies retrospectively because it is ‘procedural’ in nature may bring about further litigation on the question of retrospectivity of ‘similarly placed issues’. For instance, Section 17 of the 1996 Act empowers an arbitral tribunal to order interim measures. As per the Law Commission’s 246Th Report, an amendment to Section 17 was introduced to provide for judicial enforcement of orders passed under Section 17. Thereon, sub-section 2 to Section 17 was inserted, which provides that the interim measures issued by the tribunal shall be enforceable as an order of the Court. Before the said amendment, parties couldn’t seek court assistance for enforcing interim awards. On an application for the enforcement of an arbitral award pronounced before the Amendment Act, it is highly possible to submit that the Court’s decision that Section 29A of the Act applies retrospectively since it is ‘procedural’ in nature may also imply that Section 17(2) should be applied retrospectively for the ‘enforcement’ of such an arbitral award being procedural and “in relation to arbitration”.

Another occasion could be the Fifth Schedule and the Seventh Schedule [read with Section 12(1)(b)] that lists the various instances giving rise to ‘justifiable doubts as to the independence and impartiality of an arbitrator’. On a challenge under Section 34(2)(a)(v) for setting aside an award on the ground of an improper tribunal, the Court would rely on the Post-Amendment framework, relying on the fifth schedule. However, the tribunal while pronouncing the award would’ve not considered the grounds listed in the fifth schedule simply because it was inserted successively, thereby creating a backfire effect leading to two different grounds in deciding the same issue.

Remarks

In our opinion, the Court has resorted to a wider interpretation and application of Section 29A of the Act, which in the future will act as an example for several other procedural provisions and their scope. Unless the Apex Court or a larger bench of the High Court interprets it otherwise, this judgement will continue to hold field.

There also seems to be an error on the part of the Delhi High Court while interpreting the BCCI judgement. As per the Delhi High Court, the Supreme Court in BCCI observed that “Section 29A being a procedural obligation, does not confer new rights or liabilities on the parties”, and hence confirmed its retrospective applicability. On the contrary, the Supreme Court held that: “It is, inter alia, because timelines for the making of an arbitral award have been laid down for the first time in Section 29A of the Amendment Act that parties were given the option to adopt such timelines which, though procedural in nature, create new obligations in respect of a proceeding already begun under the unamended Act.” This clearly indicates that the Supreme Court declared Section 29A procedural because it created new obligations and not because of the presence of Section 26 of the 2015 Amendment Act.

Moreover, this decision  failed to analyse the correlation between Section 29A and Section 23(4) which walk hand in hand so far as timelines for completion of proceedings and making of an arbitral award is concerned. Section 23(4), as it stands today should be construed to be prospective unlessotherwise provided, either expressly or by necessary implication. Accordingly, Section 29A, must by necessary implication turn prospective in nature since the 12 month clock for the tribunal to render an award starts ticking only from the date of completion of proceedings under Section 23(4).

It seems like this decision has put to rest the very crucial question, qua the applicability of amended provision of Section 29 A (1), however, the courts have not yet faced with peculiar situations like these yet. Such certainty can only be expected with the passage of time. Not to forget, that the decision also contradicts the notion of the High-level committee to review the institutionalisation of arbitration mechanism in India that the amendment act shouldn’t apply retrospectively, for it could lead to uncertainty and inconsistency, thereby causing prejudice to the parties.

For now, this judgement will continue to hold field until the Supreme Court or a larger bench of the Delhi High Court faces the interpretational saga of the applicability of Section 29A(1).


* Tushar Behl, ACIArb, is an advocate and a legal consultant in Supreme Court Committee on Road Safety, Ministry of Road Transport & Highways, Government of India. He is also an Arbitration Clerk at Office of Justice (Retd.) A.M. Sapre, SCI.

Ankit Singh is currently working as an Associate in the Commercial Litigation team of Rab & Rab Associates LLP at Dehradun, Uttarakhand.

Advertisement

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.