Sanchayita Lahkar

The High Court of Sikkim at Gangtok, Division Bench comprising Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan, has set aside the judgment of the learned Commercial Court at Gangtok. The Division Bench stated that the arbitral award rendered on 23.02.2023 remained valid under the procedural framework of the Arbitration and Conciliation (Amendment) Act, 2019, and took judicial notice of the Supreme Court's exclusion of the COVID-19 pandemic period for computation of limitation under Section 29-A of the Arbitration and Conciliation Act, 1996. The Commercial Court's decision dated 09.02.2024, which had declared the arbitral award unenforceable, was set aside.

The Union of India, represented by the Chief Engineer, Project Swastik, entered into an agreement with M/s Valecha Shivalaya-Interdril (JV) on 15.12.2009 for formation and surfacing work on the Gangtok-Nathula Road in Sikkim. Due to non-completion of work within the extension period, the appellant terminated the contract on 12.12.2013. The respondent invoked the arbitration clause, leading to the appointment of a sole arbitrator on 21.03.2019.

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The pleadings were completed on 27.01.2022. A critical contention was whether the respondent consented to an extension of time for the arbitrator to pass the award. While the appellant asserted that the respondent had provided such consent on 07.02.2023, the respondent maintained that this consent was conditional and subject to a caveat.

The arbitral award was ultimately passed on 23.02.2023. However, the respondent challenged this award under Section 34 of the Arbitration Act before the Commercial Court at Gangtok. The Commercial Court set aside the award, citing that the arbitrator had become functus officio beyond the timeline stipulated under Section 29-A(1) as amended by the 2015 Amendment.

The Union of India appealed this decision before the High Court of Sikkim under Section 37(1) of the Arbitration and Conciliation Act, 1996.

The Division Bench carefully examined the issue of whether the arbitration proceedings were governed by the amendments introduced by the 2015 Amendment or the 2019 Amendment. The Court observed that as the arbitration proceedings were pending as on 30.08.2019, the 2019 Amendment applied.

Referring to the respondent’s communication dated 07.02.2023, the Bench observed: "However only because Hon’ble Tribunal order dated 27.01.2023, we are extending the period of reference mentioned above, in anticipation of the fact that the Hon’ble Tribunal shall pass order as per the provision of the law for passing the Award." The Court noted that this constituted clear consent under Section 29-A (3), rendering the caveat irrelevant.

The Division Bench further held that the period between 15.03.2020 and 28.02.2022 must be excluded from the computation of limitation, in line with the directions issued by the Hon’ble Supreme Court in Suo Motu Writ Petition (C) No. 3/2020: In Re: Cognizance for Extension of Limitation.

On the matter of judicial precedents, the Court acknowledged the reliance placed by the respondent on decisions of the Delhi High Court (National Skill Development Corporation), Bombay High Court (Mahaveer Realities & Others), and High Court of Telangana (Roop Singh Bhatty). However, the Bench found these cases distinguishable, noting that they were not directly relevant to the facts of the present case.

The Court preferred the legal position laid down by the Delhi High Court in Shapoorji Pallonji & Co. Pvt. Ltd. v. Jindal India Thermal Power Ltd. and ONGC Petro Additions Ltd. v. Ferns Construction Co. Inc., which were affirmed by the Hon’ble Supreme Court in Tata Sons Pvt. Ltd. v. Siva Industries and Holdings Ltd. The Bench observed: "We are also in agreement with the view rendered by the High Court of Orissa in SARA International (P) Ltd., which held that the Arbitration Act, being procedural law, would apply to pending arbitrations as on the date of amendment."

In its final directives, the High Court of Sikkim set aside the judgment dated 09.02.2024 passed by the learned Commercial Court at Gangtok, which had annulled the arbitral award dated 23.02.2023 on the ground that the sole arbitrator had become functus officio. The Division Bench found that the Commercial Court “travelled beyond the four corners of sub-sections (2) and (3) of section 34 of the Arbitration Act by setting aside the arbitral award rendered by the sole Arbitrator on the ground that he had become functus officio beyond the time frame provided in section 29-A(1) of the Arbitration Act as amended by the 2015 Amendment.”

The High Court ruled that the lower court had misapplied the law by relying on the 2015 Amendment to the Arbitration and Conciliation Act, when the applicable version was the 2019 Amendment. The Court expressly held that “section 29-A(1) as amended by the 2019 Amendment and not the 2015 Amendment would govern the procedure to be followed by the arbitrator as the arbitration was pending when the 2019 Amendment was brought into force on 30.08.2019.” This version of the law, the Court explained, altered the timeline for passing arbitral awards to begin from the date of completion of pleadings under section 23(4), rather than the date of reference.

The judgment held that this timeline was not inflexible, noting that “section 29-A(1) does not lay down any sacrosanct timeline as sub-section (3) permits further extension of six months by consent of parties. Even thereafter, sub-section (4) gives the power to the Court to extend the period further by six months.” Since the pleadings had been completed on 27.01.2022 and the respondent had, on 07.02.2023, issued a letter consenting to an extension of the arbitral process, the Court concluded that the award rendered on 23.02.2023 fell well within the statutory deadline. The Court found the caveat attached to the respondent’s consent irrelevant, explaining that “the caveat loses its relevance since the parties have been given the power for extension of time for a period not exceeding six months.”

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Additionally, the Court pointed out that the Commercial Court had failed to account for the Supreme Court’s direction in Suo Moto Writ Petition (C) No. 3/2020, which ordered that “the period between 15.03.2020 till 28.02.2022 shall also stand excluded in computing the period prescribed under section 23(4) and section 29-A of the Arbitration Act.” This exclusion, issued in light of the COVID-19 pandemic, further confirmed that the arbitral award had been delivered within the lawful timeframe.

Accordingly, the Court concluded its directive by stating: “In such circumstances, the impugned judgment and opinion of the learned Commercial Court dated 09.02.2024, is set aside. The parties shall bear their respective costs.” The arbitration appeal was therefore allowed and disposed of in accordance with these findings.

Advocates Representing the Parties:

For the Appellant: Ms Sangita Pradhan, Deputy Solicitor General of India, assisted by Ms Natasha Pradhan and Ms Sittal Balmiki.

For the Respondent: Mr. Sidhant Dwibedi and Mr. Hem Lall Manger.

Case Title: Union of India vs. M/s Valecha Shivalaya – Interdril (JV)

Case Number: Arb. A. No. 03 of 2024

Bench: Chief Justice Biswanath Somadder, Justice Bhaskar Raj Pradhan

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