While distinguishably drawing the red lines for the validity of an arbitral award, the Telangana High Court in a learned, laudable, landmark and latest judgment titled Roop Singh Bhatty and others vs M/s Shriram City Union Finance Limited in Civil Revision Petition Nos. 1354 and 1934 of 2021 that was delivered finally on April 8, 2022 has held specifically that the provisions of Section 29A of the Arbitration and Conciliation Act, 1996 (A&C Act) are cast in mandatory terms and the mandate of the arbitrator terminates under Section 29A(4) after the expiry of the prescribed period, making the arbitrator functus-officio and the award passed by him a nullity. The Bench comprising of Justice P Naveen Rao and Dr Justice G Radha Rani explicitly held that substitution of Section 29A(1) of the Arbitration and Conciliation Act by the Amendment Act of 2019, amending the time limit for making an award, does not operate retrospectively, and merely because the word substitution is used the amended provision does not relate back to the date of the original provision. The Court held that the disputes raised in the revision petition were covered by the unamended Section 29A. The Court rightly ruled that the arbitrators passed award after one year of entering appearance, and since the arbitrators had become functus officio one year after entering appearance, they were wholly incompetent to deal with the disputes and pass the award.
CRP No.1354 of 2021:
To start with, this commendable, cogent, composed and creditworthy judgment authored by Justice P Naveen Rao for a Bench of Telangana High Court comprising of himself and Justice G Radha Rani sets the ball rolling by first and foremost putting forth in para 1 that:
The respondent, M/s.Shriram City Union Finance Limited has sanctioned a sum of 25,00,000/- to the first petitioner herein. Petitioners 2 and 3 are the Co-borrowers/Guarantors. The petitioners had agreed to repay the loan amount with financial charges, bringing the total payable amount to 45,62,250/- to be payable in 60 installments. The petitioners had failed to pay the full loan amount and committed default.
Needless to say, the Bench then observes in para 2 that:
As loan is not discharged by the petitioners, the respondent invoked the arbitration clause. A Claim Statement was made by the respondents before the sole Arbitrator on 27.04.2016. The petitioners filed their defence statement on 21.12.2016. The Arbitrator passed the award on 27.12.2017.
Truth be told, the Bench then points out in para 3 that:
As the amount quantified by the Arbitrator was not paid, the respondent-M/s. Shriram City Union Finance Limited filed E.P.No.1432 of 2018 in ARB Case No.220 of 2016 in the Court of III Additional District Judge at Warangal, seeking enforcement of the award. The Execution Court over-ruled the objection raised by the petitioners and declared that decree holder is entitled for recovery of amount and allowed Execution Petition. Aggrieved thereby, this revision is filed.
CRP NO.1934 of 2021:
To put things in perspective, the Bench then envisages in para 4 that:
The respondent, M/s. Shriram City Union Finance Limited has sanctioned a sum of 20,00,000/- to the first petitioner herein. Petitioners 2 and 3 are Co-borrowers/ Guarantors. The petitioners had agreed to repay the loan amount with financial charges, bringing the total payable amount to 36,49,980/- to be payable in 60 monthly installments. The petitioners had failed to pay the full loan amount and committed default.
As it turned out, the Bench then states in para 5 that:
As loan is not discharged by the petitioners, the respondent invoked the arbitration clause. A Claim Statement was made by the respondents before the sole Arbitrator on 27.04.2016. The petitioners filed their defence statement on 18.10.2016. The Arbitrator passed the award on 09.08.2017.
Of course, the Bench then notes in para 6 that:
As the amount quantified by the Arbitrator was not paid, the respondent- M/s.Shriram City Union Finance Limited filed E.P.No. 1125 of 2018 in ARB Case No.33 of 2016 in the Court of VII Additional District at Warangal, seeking enforcement of the award.
No doubt, the Bench rightly states in para 8 that:
As the issue raised in both revision petitions is same, both revisions are considered together.
Be it noted, the Bench then stipulates in para 13 that:
Section 29A of the Act, 1996, as it stood when awards were passed mandates that the award should be passed within a period of twelve months from the date Arbitration Tribunal enters appearance. The explanation appended to the provision as it stood at the relevant point of time explains that arbitrator is deemed to have entered appearance when he received notice in writing of his appointment. It is not in dispute that arbitrators entered appearance on 27.04.2016 in both claims. They were therefore required to pass awards within one year from that date and admittedly they did not finalize arbitral proceedings by 27.04.2017.
It is worth noting that the Bench then discloses in para 14 that:
The provision as it stood was in mandatory terms and leaves no scope to infer otherwise. The intention of the Parliament is made abundantly clear from the reading of Sub-sections (3) and (4). Subsection (3) enables parties by consent to extend the time by further period of six months. But it also makes it clear that it should not be extended beyond six months. According to sub-section (4), after the initial period of one year and extended period of six months, if extended by consent, the mandate of the arbitrator terminates. Thus, he becomes functus-officio after that period and, therefore, seizes to be an arbitrator. An arbitrator is a creature of the statute and has to work within the four corners of the Act.
It deserves mentioning that the Bench then reveals in para 15 that:
Section 29A as introduced by Amendment Act notified on 01.01.2016 was substituted by way of Amendment Act dated 09.08.2019.
Sec.6. In Section 29A of the principal Act,- (a) for sub-section (1), the following sub-section shall be substituted, namely:-(1) The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23:
Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-Section (4) of Section 23.;
(b) in sub-section (4), after the proviso, the following provisos shall be inserted, namely:-
Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application:
Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.
The amendment takes care of the drawbacks in the earlier provision.
Without mincing any words, the Bench then holds in para 16 that:
We see no merit in the contention of learned senior counsel that the effect of substitution of Section 29A of the Act, 1996, operates retrospectively and, therefore, award made is legal. As held consistently, merely because word substitution is used, the amended provision does not relate back to the date of original provision that was amended. It depends on the language employed, effect of the amendment and the intendment of the legislature. This issue need not detain further having regard to the intendment of the Parliament. Section 29-A was amended vide Section 6 of the Amendment Act dated 9.8.2019. By notification dated 30.08.2019 the effective dates of commencement of amendments is notified. It reads as under:
S.O. 3154 (E):
In the exercise of the powers conferred by sub-section (2) of Section 1 of the Arbitration and Conciliation (Amendment) Act, 2019 (33 of 2019), the Central Government hereby appoints the 30th August, 2019 as the date on which the provisions of the following sections of the said Act shall come into force:
- Section 1;
- Section 4 to Section 9 (both inclusive);
- Section 11 to Section 13 (both inclusive);
- Section 15
Most significantly and also most remarkably, the Bench then holds in para 17 that:
The disputes raised in these two revisions were covered by unamended Section 29-A. From the dates and events of these two cases, it is apparent that the concerned arbitrators passed awards after one year of entering appearance. They became functus officio one year after entering appearance and were wholly incompetent to deal with the disputes and pass awards. Thus, awards passed by the arbitrators are nullity and void ab initio. In law there do not exist awards and therefore question of enforcement of the awards do not arise. The execution Court grossly erred in not appreciating this aspect.
Finally, the Bench then concludes by holding in para 18 that:
The Civil Revision Petitions are allowed. However, no order as to costs. It is made clear that it is open to respondent-Chit Fund Company to avail appropriate remedy as available in law to recover the money, if any due. Pending miscellaneous petitions if any shall stand closed.
In totality, this brief, brilliant and balanced judgment by Telangana High Court leaves not even an iota of doubt in holding explicitly, elegantly and eloquently that an arbitral award is a nullity if passed beyond prescribed period. It goes without saying that this must be always adhered to. It definitely merits no reiteration that all the Judges must strictly abide by what the Division Bench of the Telangana High Court has held in this case so very commendably in similar such cases!
Sanjeev Sirohi, Advocate,
s/o Col BPS Sirohi, A 82, Defence Enclave,
Sardhana Road, Kankerkhera, Meerut – 250001, Uttar Pradesh
