CONUNDRUM WITH COMMENCEMENT OF ARBITRAL PROCEEDINGS AFTER SECURING INTERIM RELIEF
Author – Mayank Bansal
● Mayank is an Associate in the disputes team at Dentons Link Legal, New Delhi. He graduated from Dr. B.R Ambedkar National Law University, Sonepat, in 2024.
Co-Author – Verhsa Sharma
● Versha is a first-year student at Dr. B.R. Ambedkar National Law University, Sonepat. She is actively exploring the nuances of various fields of law through research and writing.
Abstract
In the current arbitration landscape, there are various underlying issues due to legislative gaps,
which enable the defaulting party to adopt delay tactics contrary to the mandate of the Arbitration & Conciliation Act, 1996. For instance, after obtaining interim relief under Section 9, the party may remain idle without taking any steps to commence arbitration, as the time period under Section 9(3) is merely directory, not mandatory. Similarly, since no limitation period has been prescribed under Section 11 for the appointment of an arbitrator after invoking arbitration, the Limitation Act provides a lengthy and inordinate period of three years.
Taking cues from the recent judgment of the Hon’ble Supreme Court in the matter of Arif Azim
vs. Aptech Ltd (2024), this article aims to provide potential solutions to the aforementioned
problems by incorporating strict limitation periods through suitable legislative interventions to
achieve the goal of expeditious resolution of disputes.
Introduction
Section 9 of the Arbitration Act enables an aggrieved party to approach the Court for seeking interim relief against the occurrence of any irreparable harm and injury before or during the arbitral proceedings, but prior to the enforcement of an award under Section 36. However, it is often observed that granting interim relief before the commencement of arbitral proceedings results in undesired consequences, as the party having a favourable interim order tends to sit idle and sleep eternally without taking any further steps to initiate the arbitration process. This practice not only hinders the efficacy of the arbitration mechanism but also severely impedes the timely resolution of disputes.
This article aims to highlight some grave areas in the current arbitration framework that allow a party to adopt delay tactics and gain undue advantage after securing an interim relief under Section 9 of the Arbitration Act. Firstly, the inordinate delay in the commencement of arbitration proceedings post obtaining an interim relief, contrary to the mandate of Section 9(2) of the Arbitration Act has been elaborated upon. Secondly, even after commencing the arbitral proceedings by sending a notice invoking arbitration, the issue pertaining to a prolonged and an excessive limitation period of 3 years for appointment of arbitrator under Section 11 has been highlighted. Lastly, a plausible pathway has been suggested to address the said problem through legislative intervention.
Section 9(2): A Toothless Provision
To curb this deprecating practice of the successful party sitting idle post obtaining an interim relief, the first step was taken by the Hon’ble Supreme Court in the matter of Sundaram Finance Ltd. v. NEPC India, wherein it held that before granting an interim relief under Section 9, the Court must satisfy twin conditions. Firstly, there must be an intention to arbitrate the disputes, and secondly, effective steps have to be taken to commence the arbitral proceedings. The Hon’ble Apex Court emphasised that although at this stage the parties may not have actually commenced the arbitral proceedings, they must demonstrate that they are contemplating or positively acting toward initiating the arbitral proceedings within a reasonable period of time. However, the twin conditions were not only wide and subjective in nature but also it was difficult to determine the reasonable period of time through a straight jacket formula. Thus, it was strongly felt that a legislative intervention was needed.
Considering the urgency, the Parliament, through its historic Amendment in 2015, introduced Section 9(2) to the Arbitration Act, which states that post obtaining an interim relief, the arbitration proceedings shall be commenced within a period of 90 days or within such time as the Court may determine. Though the word ‘shall’ appears to be mandatory in nature, it is followed by a liberal phraseology “or within such time as the Court may determine” which confers discretionary power to the Court to extend the aforesaid period beyond the prescribed 90 days.
The Hon’ble Madras High Court in the case of Shri Chaudhary Avadhesh Kumar vs Volleyball Federation of India unequivocally stated that the period of 90 days is not rigid, and is extendable depending on the facts and circumstances of the case. Very recently, the Hon’ble Delhi Court in the matter of Information TV vs Jitendra Dahyabhai Patel duly affirmed the existing position of law by stating that the 90-days period is not mandatory, and the Courts are entrusted with the power to extend the aforesaid period in appropriate cases, which shall be calculated from the date of issuance of notice invoking arbitration.
It is pertinent to note that Section 9(2) does not provide the consequences for the non-commencement of arbitral proceedings within the prescribed 90 days or the extended period, if any. Recently, the Himachal Pradesh High Court in the matter of Subhash Projects & Marketing vs State of Himachal Pradesh highlighted that delay in commencement of arbitral proceedings will render the interim order otiose and it will be vacated.
At this juncture, an important question arises – whether the non-invocation of arbitration in a timely manner will affect the constitution of arbitral tribunal under Section 11. While answering this question, the Hon’ble Punjab & Haryana Court in the matter of M/s Vatika Limited vs. Hemant Gandhi & Anr. held that though the delay in invocation may result in upliftment of the interim order, the arbitral proceedings under Section 11 will remain untainted and the constitution of arbitral tribunal will not be affected.
Thus, it is evident that a liberal judicial approach coupled with a high element of subjectivity under Section 9(2) enables the party to misuse this provision by keeping the interim order in operation for perpetuity without commencing the arbitral proceedings.
Section 11: Urgency to stop an unending limitation clock
As per the mandate of Section 9(2), after obtaining the interim relief, the next effective step is to commence the arbitration proceedings. Notably, according to Section 21 of the Arbitration Act, the arbitration proceedings commence when a notice invoking arbitration is sent by the Claimant to the other party within a maximum period of 3 years from the date of occurrence of cause of action. In the notice, the Complainant usually recommends the name of the prospective arbitrator in accordance with the dispute resolution clause of the underlying agreement.
However, after sending the notice invoking arbitration, the current arbitration framework is completely silent about the timelines for taking other succeeding steps to actually effectuate the arbitration proceedings. At this juncture, a convoluted situation may emerge as the party securing interim relief may sit indefinitely after merely sending the notice invoking arbitration; thereby, prejudicing the complete arbitral proceedings.
As per the Act, the next step after sending a notice invoking arbitration is the appointment of an arbitrator. Often, it is observed that the parties fail to appoint the arbitrator mutually, or even the notice remains unanswered. At this juncture, Section 11 comes into operation, which enables the party to approach the High Court or Supreme Court for appointment in case of domestic arbitration and international commercial arbitration respectively. However, a bare perusal of Section 11, indicates that no specific limitation period has been prescribed for filing an Application for appointment of an arbitrator.
Very recently, a 3-Judge Bench of Supreme Court in the matter of Arif Azim Co Ltd vs Aptech Ltd confronted with the question as to what is the limitation period for filing a Section 11 Petition. The Hon'ble Apex Court highlighted that since no limitation period has been prescribed, it shall be governed by the Article 137 of the Limitation Act, 1963 which is a residuary provision. Article 137 of the Limitation Act states that when no limitation period has been prescribed, a limitation period of 3 years would be applicable.
After placing reliance on Bharat Sanchar Nigam Limited & Another vs. Nortel Networks India Private Limited, the Apex Court observed that a period of 3 years for filing a Section 11 Application shall be calculated from the date when the right to apply occurs. While discussing the contours of Section 11, the Apex Court stated that the ‘right to apply’ only occurs when a valid invoking arbitration is sent by the Claimant and the other party fails or refuses to appoint the arbitrator in accordance with the agreed procedure. Thus, a period of 3 years shall be counted from the date of expiry of 30 days from the date of receipt of notice invoking arbitration by the other party.
While concluding, the Hon'ble Apex Court unambiguously stated that due to a significant legislative gap, a prolonged, lengthy, and unnecessary period of 3 years has been prescribed merely for filing an application for appointment of arbitrator, which is contrary to the mandate of Arbitration Act. Thus, a legislative Amendment is the need of hour to bridge this lacunae.
Conclusion and Way Forward
In the current arbitration framework, it is imperative to have a fixed limitation period at each and every step to ensure the finality of proceedings and resolution of disputes in a timely manner, which is one of the core objectives of the Arbitration Act. Since Section 9(2) of the Act is merely directory in nature, a substantial time is elapsed deliberately after obtaining an interim order, and no effective steps are taken to initiate the arbitration process. To address this concern, it is recommended that Section 9(2) should be amended in line with Section 34, and an outer extension limit of 30 days shall be fixed beyond the original 90-day period. Thus, if a party fails to initiate the arbitral proceedings in a maximum period of 120 days (90 days + 30 days), the interim order will be vacated automatically.
Similarly, Section 11 of the Arbitration Act also needs to be amended as a period of 3 years is manifestly absurd and unreasonably long. It is recommended that a limitation period of 90 days, coupled with an extension of 30 days, shall be provided for filing an Application for appointment of an arbitrator. The aforesaid legislative Amendments are extremely crucial in setting the pace for the arbitral proceedings at the initial stages, leading to a complete resolution of disputes within the defined timelines.
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