Skip to main content
Browse Law School Education ADR: Arbitration Important Arbitration Cases

READ FULL CASE

Now i’ll discuss another case from 2019, which is that of Jayesh Pandya & Anr v. Subhtex India Ltd & Ors , 2019 SCC OnLine SC 1101.

BRIEF FACTS:

The facts of this case are that the appellants are partners of a partnership firm by the name of Hetali Construction Company and the respondent is a company incorporated under Companies Act, 1956. An arbitration agreement was entered into between the parties on 28th April 2000, which clearly laid down the procedures to be followed by the arbitrator and also mentioned a time limit of four months from the date of service of copy of agreement, within which the arbitrator was to complete the arbitration proceedings and make the award. A proviso was also contained in the agreement, which stated that the arbitrator would have the power to extend the period for making and publishing the award, with the consent of both the parties.

 The first Respondent (Subhtex India Ltd) instituted an application under Section 11 of the 1996 Act. according to the arbitration agreement dated 28 April 2000, wherein a sole arbitrator was appointed by an order dated 14 November 2003. Unfortunately, the sole arbitrator died and a new arbitrator was appointed in his place. The first preliminary meeting before the arbitrator was held on 4 May 2007. According to the Agreement, disposal of the arbitrator for passing of an award in the ordinary course of his business, subject to extension with the consent of both the parties was to expire on 4 September 2007. However, the arbitration procedure could not be complete within the stipulated time.

At this stage, the appellants filed a written application before the Arbitrator stating that the period of four months from the date of first preliminary meeting had expired on 4 September 2007 and the Arbitral Tribunal had become functus officio. The application was rejected by the Arbitrator, which came to be challenged by the appellants under Section 14 of the 1996 Act. The arbitration petition filed by the appellants was dismissed by the High Court, holding that the appellants had, by their conduct, waived their defence to enforce a time bound observance of the time schedule of four months.

Hence, this appeal was filed.

ISSUE:

The issue that was raised in this case was—Whether the Arbitral Tribunal becomes functus officio, if the proceedings are not conducted within the time stipulated in the Arbitration Agreement?

HELD:

The Supreme Court in this case held that the first preliminary meeting was held on 4 May 2007 and that the arbitrator, in terms of the agreement, was to conclude and pass the award within a period of four months, i.e., on 4 September 2007 and in the meantime the appellants recorded their objection of not consenting for extension of time beyond 4 September 2007. Based on these facts and situations, the Court construed that the parties were not in agreement for extension to the mandate of the arbitrator failing which the arbitral proceedings automatically stood terminated.

The Supreme Court observed that the object of the scheme of the Act, 1996 is to secure expeditious resolution of disputes and is based on the fulcrum of promptitude but at the same time the arbitrator is required to adjudicate the disputes in view of the agreed terms of contract and the procedure. 

The Court further held that arbitration proceedings are to be governed and run by the terms as agreed by the parties and that the arbitrator cannot go beyond the clause of the arbitration agreement.

The Court relied on the case of NBCC Limited v. J.G. Engineering Private Limited 2010(2) SCC 385—a 2010 case, the citation of which is provided here, wherein it was held that:

“A perusal of the arbitration agreement quite clearly reveals that the arbitrator has the power to enlarge the time to make and publish the award by mutual consent of the parties. Therefore, it is obvious that the arbitrator has no power to further extend the time beyond that which is fixed without the consent of both the parties to the dispute. It is also an admitted position that the respondent did not give any consent for extension of time of the arbitrator. Thus given the situation, the arbitrator had no power to further enlarge the time to make and publish the award and therefore his mandate had automatically terminated after the expiry of the time fixed by the parties to conclude the proceedings.”

The Court therefore held that where time is fixed for the arbitration and/or schedule of time is limited in arbitration proceedings, as it is recognised by law, there is no reason not to accept the same, and the arbitrator indeed becomes de jure, i.e. unable to perform his functions and the mandate to act as an arbitrator in the proceedings between the parties stands terminated.

RATIO:

The ratio to be derived from here is that—It is important for the arbitrator to complete the proceedings within the time stipulated in the agreement, which otherwise, the arbitrator became de jure (unable to perform his functions after the completion of time prescribed and the mandate to act as an arbitrator in the proceedings between parties stands terminated).

Raw HTML