Sections 23 and 29(A)(1) of the Arbitration and Conciliation Act were last amended by the Arbitration and Conciliation (Amendment) Act, 2019.

The 2019 Amendment Act inserted a new sub-section (4) to Section 23 of the Act which stipulates that the statement of claim and statement of defence shall be completed within six months from the date the arbitrator(s) receive written notice of their appointment.

It also amended Section 29A(1), requiring arbitral awards in domestic arbitration to be made within twelve months of completing pleadings under Section 23(4). However, in practice, significant ambiguity surrounds the application of the six-month timeline prescribed under Section 23(4) of the Act which has a direct effect on the timelines prescribed under Section 29(A)(1).

This ambiguity has led the courts, arbitrators and parties to interpret the timelines differently, with some considering the timelines in Section 23(4) of the Act directory, while others considering it mandatory.

This article aims to address the ambiguity surrounding the interpretation of Section 23(4) when read with Section 29(A)(1) of the Act.

Interpretation of Section 23(4) of the Act

What constitutes ‘pleadings’ in Section 29(A)(1) when read with Section 23(4) of the Act?

On a close examination, there appears to be a difference in wording in both the sections. Section 23(4) mandates that the “statement of claim and defence shall be completed within six months”, while Section 29A(1) requires that an award in a domestic arbitration shall be made within “twelve months from the date of completion of pleadings under Section 23(4).”

This difference in wording raises the question of whether “completion of pleadings” in Section 29A(1) includes or excludes the filing of rejoinder/ surrejoinder. The issue was recently addressed by the Karnataka High Court in Buoyant Technology Constellations Pvt Ltd v. Manyata Infrastructure Developers Pvt Ltd wherein the Court held that the 12-month timeline under Section 29A(1), read with Section 23(4), begins when pleadings are marked as complete. It clarified that if a surrejoinder to a counterclaim reply is allowed, it forms part of the pleadings, which are deemed complete upon its filing.

The Supreme Court of India upheld the said judgment in an SLP filed by Buoyant Technology, and ruled that when a rejoinder or surrejoinder is filed and accepted by the arbitral tribunal, pleadings under Section 29A are deemed complete on the date the last pleading is filed.

The Delhi High Court in EMCO Ltd v. Delhi Transco Ltd followed the Supreme Court’s ruling in Buoyant Technology and held that if a rejoinder is permitted by the court or arbitral tribunal, it forms part of the “pleadings” under Section 29A(1). The 12-month period under Section 29A(1) begins when the rejoinder is filed. An SLP against the said judgment stood dismissed on November 18, 2024.

Is Section 23(4) of the Act mandatory or directory?

Although Section 23(4) of the Act stipulates that the statement of claim and defence ‘shall’ be completed within six months, there are no consequences for failing to do so, either within Section 23(4) itself or elsewhere in the Act. This has raised a question among practitioners on whether the said provision is mandatory or directory?

The Calcutta High Court in Yashovardhan Sinha HUF & Anr v. Satyatej Vyapaar Pvt Ltd has held that the six-month time period under Section 23(4) of the Act is directory and not mandatory. The Court observed that if the legislature intended Section 23(4) of the Act to be mandatory, consequences for non-compliance would have been included in Section 23(4), or Section 23(1) and Section 25(a) of the Act would have been made subject to Section 23(4) of Act. However, the Court clarified that the intention behind inserting sub-section (4) of Section 23 of the Act was to ensure that pleadings are completed expeditiously, preferably within six months, to preserve the purpose of arbitration as a speedy and effective dispute resolution mechanism.

The Court also observed that reference to Section 23(4) in Section 29A (1) of the Act should be understood as requiring the award to be made within twelve months from the completion of pleadings, not as a requirement to publish the award within eighteen months. Challenge to the said judgment by way of an SLP stood dismissed on March 18, 2024.

In contrast, the Delhi High Court has taken a contrary view in the case of Raj Chawla and Co Stock and Share Brokers v. Nine Media and Information Services Ltd and Another. The Court held that the arbitral tribunal must necessarily render the award within twelve months from the date when pleadings are completed. The Court implied that the six-month period for completing pleadings under Section 23(4) is mandatory, with consequences for non-compliance provided in Section 25(3) of the Act.

However, the authors note that the judgment appears to have inadvertently relied on Section 25(3) of the Act in paragraph 12 of the judgment to come to a finding that the provision is mandatory, whereas no such provision exists in the Act. To that extent, therefore, the said judgment cannot be considered to be laying down the correct legal proposition. However, challenge to the said judgment was dismissed by way of an SLP on March 27, 2023.

Expert committee recommendations and Section 23(4)

In 2023, an expert committee was set up to examine the functioning of arbitration law in India and recommend reforms to the Act. The committee published its report on February 7, 2024. It recommended that Section 23(4) be substituted to clearly define six months as the maximum timeline for the completion of pleadings. Therefore, it proposes to substitute sub-section (4) of Section 23 to provide that the pleadings under this section “be completed expeditiously and, in any event, not later than a period of six months…”

The expert committee’s recommendation to amend Section 23(4) of the Act failed to attract the government’s attention in the recently proposed Draft Arbitration and Conciliation (Amendment) Bill, 2024.

Suggestions for a way forward

The authors believe that while the amendment to Section 23(4) in the expert committee report is a welcome step, it still does not resolve the practical confusion to prescribe any consequences for non-compliance with Section 23(4) of the Act. The authors suggest that the 2024 Bill ought to consider making Section 23(4) a mandatory provision. To ensure that it is treated as a mandatory provision, holistic amendments ought to be made to Sections 23(1), 23(4), and 25 of the Act as under:

Section 23(1) of the Act should be amended to read as:

“23. Statements of claim and defence Pleadings

(1) …shall state his defence in respect of these particulars, and the claimant, may, if so permitted by the arbitral tribunal, file its rejoinder, if any, unless the parties have otherwise agreed ….”

The authors further recommend that Section 23(4) of the Act should be amended to read as:

“Notwithstanding anything contained elsewhere in this Act, the The statement of claim and defence under pleadings under this section shall be completed expeditiously and, in any event, not later than a period of six months….”

Further, the authors suggest that the consequences of failing to comply with Section 23(4) of the Act, must be provided in Section 25 of the Act.

Section 25 of the Act should be amended to read as under:

“25. Default of a party:

Unless otherwise agreed by the parties, where, without showing sufficient cause,—

(a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of section 23 and sub-section (4) of section 23, the arbitral tribunal shall terminate the proceedings;

(b) the respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23 and sub-section (4) of section 23, the arbitral tribunal shall continue the proceedings….

(d) either party fails to communicate their rejoinder in accordance with sub-section (1) of Section 23 and sub-section (4) of section 23, the arbitral tribunal shall continue the proceedings and shall have the discretion to treat the right of the parties to file such rejoinder as having been forfeited.”

The amendments suggested by the authors to Sections 23 and 25 of the Act aim to ensure a speedy arbitration with minimal judicial intervention and to finally put to rest the practical difficulties surrounding the interpretation of Section 23(4) read with Section 29(1)(A) of the Act.

Authors Chand Chopra and Piyush Jain are advocates practicing in Delhi.