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Impact Of Lockdown Due To COVID-19 On Mandatory Timelines Prescribed Under The Arbitration & Conciliation Act, 1996

Udian Sharma
17 April 2020 4:21 PM GMT
Impact Of Lockdown Due To COVID-19 On Mandatory Timelines Prescribed Under The Arbitration & Conciliation Act, 1996
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The number of cases of COVID-19 has rapidly increased throughout the world, leading to a world-wide crisis. This is not only a health crisis but also has impacted the financial conditions of many countries which are affected by this pandemic. Even in the countries where the reported number of cases infected by the virus is comparatively low, the risk of a financial collapse of the country is high as these countries are maintaining a lockdown to promote self isolation and social distancing.

In India, the Prime Minister on 23rd March, 2020 announced a nationwide lockdown to 'flatten the curve' of the number of infected cases. However, this will also have far reaching consequences to the financial situation of the country. This essential and timely lockdown has also brought the third pillar of the democracy, i.e. the Judiciary to a complete halt. Due to the lockdown, the courts have stopped functioning, except in matters pertaining to extreme urgency and are relying on video conferencing for hearings.

On 24th March, 2020, the Supreme Court took suo moto cognizance of the fact that due to the lockdown the litigants were facing hardships with respect to the period of limitations under the general law (Limitation Act, 1963) or special laws (Arbitration & Conciliation Act 1996, Negotiable Instruments Act 1881, Insolvency and Bankruptcy Code, 2016 etc.). Therefore the Supreme Court passed a blanket order dated 23.03.2020, with a retrospective applicability, holding that the period of limitation in all proceedings before any Court or any Tribunal (whether under the general law or special laws) shall stand extended w.e.f. March 15, 2020, till further orders are passed[1].

The Supreme Court has come to aid to the litigants by extending the period of limitation for court proceedings, however the order dated 23.03.2020 does not relax the mandatory and non-extendable timelines prescribed under the special laws, which are not related to filing of cases in Courts and Tribunals, and have to be strictly followed by both litigants and lawyers.

In view of this difficulty, the Indian Commercial and Arbitration Bar Association (ICABA) on 29th March, 2020 has requested the Chief Justice of India, to extend the timelines related to disposal of cases, as prescribed under the special laws. It was also stated in the letter that "as and when the Courts become fully functional, they will be inundated with such applications, which is clearly not the ideal situation. As and when these concerned parties approach the Court/ Authority/ Tribunal, it will have a snowballing effect, adding to already existing burden and backlog due to the lockdown"[2].

Impact on Section 29A of the Arbitration and Conciliation Act, 1996:

The lockdown in the country due to the outspread of COVID-19, has resulted in a failure to conduct the arbitration proceedings, and thus will eventually lead to an irreparable loss to the litigants and their rights at large. Due to lack of physical movement in the country, the arbitration proceedings are stuck in limbo, which has resulted in inordinate delays in either completion of pleadings/ arguments or in failure to publish the Award.

Section 29A was inserted in the Act by way of the Arbitration and Conciliation (Amendment) Act, 2015[3], and was brought in with an intent to prevent unnecessary delay in passing of the arbitral award, by placing a mandatory restrain on the Arbitral Tribunal to pass the award within 12 months from the date the Arbitral Tribunal entered reference, leading to adjudication of the dispute by the Arbitral Tribunal expeditiously.

Section 29A inter alia provides that the time period is extendable by another 6 months with the consent of parties. Any further extensions can only be granted by the concerned court, either prior to or after the expiry of the time period, failing which the mandate of the arbitral tribunal shall terminate.

After the expiry of 18 months (12 months plus 6 months of extension), the Arbitral Tribunal becomes functus officio, and cannot either conduct any proceedings via video conferencing neither can it pass any Award, will the time both the parties jointly or either of the parties individually file an application before the concerned court within a reasonable period.

The lockdown definitely amounts to a reasonable reason to extend the mandate of the Arbitral Tribunal, however considering a situation where in an arbitration proceeding, the arguments have been concluded by the parties and the Award has thus been reserved by the Arbitral Tribunal, and due to the lockdown, the award passed by the Arbitral Tribunal after the expiry of 18 months will not be legally binding on either of the parties. Therefore there is an urgent need to temporarily dilute the provisions of Section 29A, resulting in suspension/ extension of the statutory timelines for an arbitration proceedings.

Implication of the lockdown on International Commercial Arbitration:

Section 29A was amended vide the Arbitration and Conciliation (Amendment) Act, 2019[4], wherein it was decided that international commercial arbitrations shall be excluded from the purview of the timeline provided in the section, but parties thereto must endeavour to adhere to the same.

The 2019 Amendment to the Act, has inter alia brought in a significant change by making International Commercial Arbitrations beyond the purview of the 18 months adjudication period prescribed under Section 29A. However, the applicability of the 2019 Amendment is prospective, and will only be applicable in cases where the reference has been entered upon by the Arbitral Tribunal after 30th August, 2019.

Therefore even in International Commercial Arbitration, the mandatory timeline as prescribed under Section 29A of the Act has to be followed, in cases where the reference was entered upon by the Arbitral Tribunal before 30th August 2019. Further this will have a cascading effect on foreign parties, which belong to those countries which are either not affected by COVID-19 or are not facing a lockdown.

Measures taken by International Arbitral Institutions across the world in view of COVID-19:

Due to the outspread of COVID-19 throughout the world, it has affected the functioning of various courts and international arbitral tribunal across the world. As the challenged faced by the litigants and the authorities are unprecedented, few measures are being put by these institutions. Following are the steps taken by the International Arbitration Institutions to prevent further outspread of the disease and to secure the rights of the litigants across the world[5]:

  1. ICC International Court of Arbitration
    • ICC International Court of Arbitration has set up a response group for COVID-19.
    • It has issued a statement in which it encouraged parties and tribunals to "keep appraised of developments and to consider discussing their potential impact on pending proceedings, if and when necessary".
    • It further said "With particular regard to attendance of scheduled hearings, other in-person meetings and any related travel by parties, arbitral tribunals, neutrals and others involved in pending proceedings, we urge you to consult any official recommendations or directives applicable (i) at the place of their departure and any transit points; and (ii) at the place where they will be held."
    • It has scheduled all hearings until the end of June in affected areas and are being postponed or changed to virtual meetings.
  2. Hong Kong International Arbitration Centre (HKIAC)
    • HKIAC has started conducting the proceedings through webinars (web seminars)
  3. Singapore International Arbitration Centre (SIAC)
    • SIAC has closed all its offices, with staff working remotely.
  4. Other International Arbitration Centres have issued a checklist, to assist the litigants and the lawyers in regard to the precautions to be taken by them for the pending arbitration proceedings, wherein amongst other things the checklist provides for an automatic suspension of timelines.

Conclusion:

The outspread of COVID-19 has not yet been controlled, and the lockdown to prevent further outspread of the disease may increase from time to time. This may result in more confusion in regard to the mandatory compliances and timelines as prescribed under the special laws.

There being no executive or judicial order extending/ relaxing the timelines, especially in cases of domestic and international arbitrations proceedings, it has already resulted or will result in termination of mandate of various Arbitral Tribunals, which will lead to an irreparable loss to the litigants.

Due to the fact that there being a lockdown in the country, the courts are not functioning except to hear urgent matters and hence cannot be approached by litigants for seeking such extensions, therefore the Supreme Court or institutions like the Indian Council of Arbitration or the Delhi International Arbitration Centre should pass blanket orders or issue statements thereby automatically suspending/ relaxing the mandatory timelines as provided by the Arbitration & Conciliation Act, 1996 and for other special laws as well.

The author is a practicing advocate in the Supreme Court of India, various High Courts and Tribunals, having an expertise in the Alternative Dispute Resolution practice, with a focus on international commercial arbitrations. The author can be contact at udian.s@gmail.com. Views are personal.


[1] Re: Cognizance for Extension of Limitation, 2020 SCCOnLine SC343 (India).

[2] Ankur Mahindro, Request for Issuance of Further Directions in Suo Moto Writ Petition (Civil) No. 3 of 2020 for Extension of Timelines Prescribed by Various Statues, (March 03, 2020).

[3] The Arbitration and Conciliation (Amendment) Act, 2015, Act No. 3 of 2016, (Jan. 01, 2016).

[4] The Arbitration and Conciliation (Amendment) Act, 2019, Act No. 33 of 2019, (Aug. 30, 2019).

[5] Coronavirus (Covid-19) Litigation & Arbitration Legal Development, COVID-19 Disputes: Arbitration and court impacts, Clyde&Co (April 7, 2020), https://www.clydeco.com/insight/article/covid-19-impact-on-courts-and-arbitration.

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