Section 23(4) Of Arbitration Act; An Arbitrator's Quagmire

A plain reading of the provision makes it apparent that the sub-section was introduced to accelerate the arbitration process. However, this apparent reason finds no place in the Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment) Bill 2019 which goes to great lengths to state that the reason for bringing in the 2019 amendment is to institutionalize the arbitration process and make India a “hub of arbitration”. I keep aside the argument that the Statement of Objects and Reasons of the 2019 amendment does not give any reasons for justify the incorporation of Section 23(4) as this is not the purpose of this column. But through this column, I view Section 23(4) through the lens of an Arbitrator and use practical examples couched as hypothetical situations in the process. And thereafter, if you, the reader permits, I offer my two cents on the sub-section. I do not intend to labour too much upon authorities or decisions of the Courts on this sub-section, though they are far and few in between. I shall touch upon them if required.

1. The use of the word “shall” in Section 23(4)

Many have commented on the use of the word “shall” in this sub-section. Courts have also offered different opinions in this regard. One view is that it is mandatory, and the other is that it is it is directory since there are no consequences provided for this sub-section's non-compliance. Some may still argue that the consequences for non-compliance, though not in built within Section 23, are still found within the larger ambit of Section 29A of the Arbitration Act. The Supreme Court, through its orders In Re: Cognizance for Extension of Limitation, including in its order dated 23^rd March 2020, may have also tacitly approved a mandatory interpretation for Section 23(4) by excluding periods “prescribed” under Section 23(4) and Section 29A of the Arbitration Act. Would these orders be of precedential value in the context of Section 23(4)? That is a different column for a different day.

But this uncertainty in Section 23(4) has not gone unnoticed. Report of the Expert Committee to Examine the Working of the Arbitration Law submitted to the Law Ministry on 7^th February 2024 has recommended substituting Statement of Claim and Defense with “pleadings” to give it more clarity. The 2024 Amendment Bill however did not incorporate any amendment in the draft inviting comments from the general public.

1. Navigating Section 23(4) - Some food for thought

But while lawmakers, jurists and legal philosophers spar over the intricacies of the sub-section, how does an Arbitrator deal with it in its present form? Let us consider the following hypothetical situations:

Situation No. 1

An Arbitrator receives notice of his appointment on 1^st January 2026. A preliminary meeting is called for. A schedule of completion of pleadings is set out by the Arbitrator. 45 days are given to the Claimant to file its Statement of Claim and another 45 days are given to the Respondent to file its Statement of Defence. The Claimant does file its Statement of Claim on time. Extensions are granted not once, but twice, with costs imposed on the Claimant. On the third occasion, an Arbitrator passes a conditional order stating that if the Statement of Claim is not filed, by 15^th June 2026, the Arbitrator shall terminate the proceedings under Section 25(a) of the Arbitration Act. The Claimant finally files its Statement of Claim running into 300 pages accompanied with 200 documents. The number of pages total to 5000. Is a Respondent not entitled to say, “Look here Mr. Arbitrator, I am aware that Section 23(4) states that the Statement of Claim and Defence is to be completed in 6 months from 1^st January 2026, but you can't expect me to file a Statement of Defence in 15 days!” “The Statement of Claim”, says the Respondent, “ now occupies a fifth of my Office! You have to give me more time to file my Defence”. What is an Arbitrator supposed to do then? Is he supposed to say, “No, Mr. Respondent, Section 23(4) stares me in the face. My hands are tied.” That would simply be bizarre. It is all very well to say that the Arbitrator should not have indulged the Claimant initially by repeatedly granting extensions and should have on the first instance straightaway terminated the proceedings under Section 25(a) or even under Section 32(2)(c); but in reality this simply is not possible. Such a drastic order, if so passed, results in serious consequences for the Claimant and is vulnerable to attack from a Court, notwithstanding Section 5 of the Arbitration Act that minimises “judicial intervention”.

Situation No. 2

An Arbitrator receives notice of his appointment on 1^st January 2026. The Claimant files its Statement of Claim on 1^st March 2026. The Respondent is given time up to 1^st May 2026 to file its Statement of Defence and Counterclaim. On 1^st May 2026, the Respondent seeks an extension to file the Statement of Defence and Counterclaim. Time is granted up to 7^th May 2026 by the Arbitrator. The Respondent files its Statement of Defence on 7^th May 2026 but seeks leave of the Tribunal to file its Counterclaim on 19^th May 2026 separately. The Tribunal grants such permission, however, the Respondent does not file the Counterclaim by 19^th May 2026 and instead seeks leave to file it on 1^st June 2026. The Arbitrator, who by now is quite miffed, imposes heavy costs on the Respondent but takes the Counterclaim on record on 1^st June 2026. The Claimant objects to taking the Counterclaim on record as it is beyond the period prescribed under Section 23(4) of the Arbitration Act. The Respondent counters this objection by stating that it had filed its Statement of Defence within time on 19^th May 2026 and since Section 23(4) only speaks of filing the Statement of Claim and Statement of Defence in six months and not the Counterclaim, this Counterclaim can be filed after the six month period comes to an end. The Claimant rebuts this argument by stating that Section 2 (9) of the Arbitration Act clearly states that reference “to a claim” in Part I of the Arbitration Act includes a reference to a Counterclaim except in cases of Section 25(a) or Section 32(2)(a); therefore, the Counterclaim cannot be taken on record. In such a situation, does the Arbitrator overrule the Claimant's objection or uphold it?

Or better still, if the Counterclaim is filed, not on 1^st June 2026 but on 31^st May 2026, then does the Arbitrator say, “Sorry, Mr. Claimant, I won't let you file a Statement of Defence/Reply to the Counterclaim because the clock as stopped ticking.” That would be ludicrous.

Situation No. 3

An application is filed for urgent interim measures under Section 9 of the Arbitration Act before the Court on 28^th December 2025 who hears the application for some time, and advises parties to appoint an Arbitrator by consent and agitate their interim reliefs before an Arbitrator under Section 17 of the Arbitration Act. The parties consent to the suggestion. The Court directs that the application filed under Section 9 be treated as an application under Section 17 of the Arbitration Act and also directs the appointed Arbitrator to urgently hear the application. The Arbitrator receives notice of its appointment on 1^st January 2026, hears the Section 17 application of the Claimant on 2^nd January 2026 and grants interim relief to the Claimant on 3^rd January 2026. No pleadings in the form of Statement of Claim or Defence are obviously filed at this stage. The Respondent challenges that order under Section 37(2) of the Arbitration Act in appeal. The Court in appeal is of the view that the dispute can be settled and requests parties to explore the possibility of settlement before the Arbitrator by virtue of Section 30 of the Arbitration Act and in the meantime, retains the interim relief granted by the Tribunal. The parties come back to the Arbitrator who makes every effort to facilitate a settlement from January 2026 up to May 2026. But the Arbitrator is met with little success. Settlement talks fail. The Respondent was the spoke in the wheel. With no off ramp in site, the Arbitrator decides to go on with the proceedings and directs parties to complete pleadings by August 2026. However, the Respondent objects on the ground that the time required to complete pleadings has come to an end and uses Section 23(4) as an alibi. In such a situation, is the Arbitrator supposed to terminate the proceedings? I think not.

Other hypothetical situations and examples

Apart from the afore-referred situations, there can be several other situations which could also arise. Such as the necessity of a party to file a Rejoinder to a Statement of Defence after the six month period by applying principles akin to Order VIII Rule 9 of the Code of Civil Procedure, 1908 or amending a Statement of Claim, thereby necessitating a party to file a Statement of Defence to the Amended Statement of Claim or even filing a Counterclaim after the six month period but before issues/points of difference are framed.

The situations set out above, are only some examples of how dynamic an arbitral proceeding can be. Therefore, one would hope that the lived experiences of an Arbitrator, who faces these challenges on a day to day basis, be considered if Section 23(4) is given a new avatar by law makers.

1. My two cents

Should Section 23(4) be amended, and it looks like it eventually will be, the following suggestions may be considered:

1. The six month period, if it is to be retained, shall only apply to Statement of Claims and Statement of Defences and no other pleadings such as Counterclaims, Rejoinders etc. Section 2(9) of the Arbitration Act may also have to accordingly be amended to clarify this.
2. The six month period should not apply to amendment of the Statement of Claims or Statement of Defences. Section 23(4) cannot stand as an impediment in cases where pleadings genuinely require an amendment in consonance with the principles set out in Order VI Rule 17 of the Code of Civil Procedure, 1908.
3. The six month period could be extended by consent of parties by another six month, akin to what is set out in Section 29A (3) of the Arbitration Act that provides that parties can extend the mandate of an arbitrator by consent by a period of six months.
4. If the six month period is to be retained, then the legislature would have to provide a clear consequence within Section 23 or in any other provision in the Act for non-completion of pleadings within six months. That consequence may not necessarily be in the form of a prohibition in filing of a pleading but could also be in some other manner, such as reducing the time of completion of the proceeding under Section 29A(1) of the Arbitration Act or by statutorily incorporating a provision for penalty for each day's delay in filing a pleading. This would synthesise speed with flexibility.

While the aforesaid suggestions may not be perfect, it is hoped that it would give a fresh perspective or insight into the way Section 23(4) needs to be looked at by law makers in future.

Author is an Advocate practicing at Bombay High Court. Views are personal.