2 July 2020
Introduction:
This article analyses the legal basis and the genesis of the power of an arbitrator to recall its order of termination of proceeding on account of default of the Claimant.
India seated arbitral proceedings, whether ad-hoc or institutional, are governed by the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), which is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 (UNCITRAL Model Law). Whilst arbitrators are not bound by the Code of Civil Procedure, 1908 (CPC) or the Indian Evidence Act, 1872[1], they is usually guided by the broad principles enshrined in the said enactments, while conducting the arbitral proceedings. In this regard, it is pertinent to note that under Order IX Rule 13 of CPC, the Court has power to recall its order. Under the said rule, if the Court is satisfied that summons was not duly served on the defendant, or that there was sufficient cause for defendant’s failure to appear when the suit was called on for hearing, the Court is empowered inter-alia to pass an order setting aside an ex- parte decree that may have been passed against the defendant.
Pursuant to Section 25(a) of the Act, unless otherwise agreed by the parties, the arbitrator has power to terminate the arbitral proceedings if the Claimant has, without showing sufficient cause, failed to communicate his statement of claim in accordance with Section 23(1)[2] of the Act.
Further, Section 32 of the Act provides for termination of arbitral proceedings by final arbitration award or an order under Section 32(2) of the Act. Section 32(2) of the Act enumerates 3 (three) additional grounds on which the arbitral proceedings can be terminated. While the first 2 (two) grounds relate to consent of the parties, the third ground is at the discretion of the arbitrator. The said discretionary ground is enumerated in Section 32(2)(c) of the Act which mandates the arbitrator to issue an order of termination of arbitral proceedings where it finds that continuation of the said proceedings has for any other reason become ‘unnecessary’ or ‘impossible’. It is pertinent to note that pursuant to Section 32(3) of the Act the mandate of the arbitrator terminates with the termination of the arbitral proceedings (subject of course to Section 33 and Section 34(4) of the Act).
From the foregoing, it is clear that under Section 25 of the Act, the Claimant is mandated to show “sufficient cause” for its failure to communicate the statement of claim in accordance with Section 23(1) of the Act prior to the arbitrator exercising its power to terminate the arbitral proceedings. Further, a harmonious reading of Section 25(a) and Section 32(3) of the Act would suggest that once the arbitrator has exercised (by way of an order) its power of termination of arbitral proceedings under Section 25(a) of the Act, the mandate of the arbitrator ipso facto comes to an end.
In such an eventuality, a pertinent question arises, namely, what recourse is available to a Claimant aggrieved by such an order of termination (passed under Section 25(a) read with Section 32 of the Act) of the arbitral proceedings. Would the Claimant be left remediless? Would such a Claimant challenge such order of termination before Court (and if so, under what provision of the Act)? Would such a Claimant be entitled to approach the arbitrator (which passed the said order) and would the arbitrator have a power to recall such an order? These questions gain significance on 2 (two) counts: (1) presently, there is no provision under the Act, empowering the arbitrator to recall its order(s), and (2) natural justice demands that no aggrieved party be left remediless.
This question came up for consideration before Hon’ble High Court of Bombay in the matter of M/s. Anuptech Equipments Private Ltd. v. M/s. Ganpati Co-op. Housing society Ltd., Mumbai and Others[3], and also before Hon’ble High Court of Patna in the matter of M/s. Senbo Engineering Ltd. v. State of Bihar and others[4]. In the said cases, both the Hon’ble High Courts held that in the absence of any remedy provided against an order of termination of arbitral proceedings passed under Section 25(a) of the Act, a writ petition under Article 226 of the Constitution of India, 1950 is maintainable to decide the controversies arising out of the said termination order.
Interestingly, the Hon’ble Delhi High Court in the matter of Awasthi Construction Co. v. Govt. of NCT of Delhi and Anr.[5] took a view that the arbitrator does not become functus officio after passing an order under Section 25(a) of the Act and that post termination of proceedings under Section 25(a) of the Act, the arbitrator can recall the said order on sufficient cause being shown. The rationale for the same was that Section 25 of the Act has not provided for termination of proceedings automatically on default by a party but has vested the discretion in the arbitrator to, on sufficient cause being shown condone such default, either before or after the proceedings are terminated. The view taken by the Hon’ble Delhi High Court in Awasthi Construction Co.(supra), was subsequently followed by the Hon’ble Madras High Court in the matter of Bharat Heavy Electricals Limited v. Jyothi Turbopower Services Private Limited and Ors.[6]
However, in a recent matter, in Sharda Engineering Contractors v. South East Central Railway and Ors.[7] the Hon’ble High Court of Chhattisgarh at Bilaspur took a view that the correct remedy against such termination order (under Section 25(a) of the Act) would be to move an application before the jurisdictional Principal Civil Court of original jurisdiction under Section 14(2)[8] of the Act. On a careful reading of Section 14 and Section 25 of the Act, a plausible argument may be raised that orders of termination contemplated under Section 14 of the Act and Section 25 of the Act, are different and operate in entirely different spheres. A strikingly distinguishing factor between the said provisions is that Section 14 of the Act contemplates the termination of the mandate of an arbitrator and is in relation to some failure on account of the arbitrator; whereas Section 25 of the Act contemplates termination of the arbitral proceedings, and relates to the failure on account of a party to the arbitral proceedings. This is more so, in view of the fact that whilst the termination of the arbitral proceedings would necessarily (and subject to certain exception in Section 32 of the Act) lead to the termination of the mandate of the arbitrator, the reverse does not appear to be true.
This issue finally came up before the Hon’ble Supreme Court in the matter of SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited[9] wherein it inter-alia held that there is no impediment in the power of the arbitrator to accept the cause shown and permit the Claimant to file its statement of claim subsequent to termination of proceedings under Section 25(a) of the Act, if the sufficient cause is shown. In this regard, the Hon’ble Supreme Court observed that the scheme of Section 25 of the Act clearly indicated that on sufficient cause being shown, the statement of claim can be permitted to be filed after the time as fixed by Section 23 of the Act has expired, and that there is no lack of jurisdiction in the arbitrator to recall its earlier order terminating the arbitral proceedings if sufficient cause is shown subsequently. The Hon’ble Supreme Court further observed that there is no distinction between showing sufficient cause before or after the proceedings are terminated and if the arbitrator is empowered to condone default on sufficient cause being shown, it does not matter when the same is shown. The rationale behind the said approach was that it would be a pedantic reading of Section 25 of the Act to hold that the power of the arbitrator in such cases (i.e. post termination) stands denuded. The Hon’ble Supreme Court affirmed the view taken by Hon’ble Delhi High Court in the matter of Awasthi Construction Co. (supra) and Hon’ble Madras High Court in Bharat Heavy Electricals Limited (supra).
The said judgement of the Hon’ble Supreme Court, interestingly, draws a distinction between termination of the mandate of an arbitrator under Section 32 of the Act and termination of arbitral proceedings under Section 25 of the Act. This is dealt with further in Part II of this post.
Was this a quick fix by the Hon’ble Supreme Court only for this case, or has the ratio of this case appropriately interpreted the Act and established a sustainable procedure applicable to all factual situations?
Though the Hon’ble Supreme Court may have read-in a remedy to a Claimant against an order passed by the arbitrator under Section 25(a) of the Act, a question that remains for consideration is whether the Act consciously intended to not provide a separate or distinct remedy (against an order of termination passed under Section 25(a) of the Act) to a Claimant who has otherwise delayed the proceedings by not filing his/her statement of claim within the stipulated time. This is especially so, given the fact that the Act is a complete code in itself[10], and intends to facilitate speedy redressal of disputes between parties. Even the right of appeal under the Act is limited, with Section 37 of the Act using the language “An appeal shall lie from the following orders (and from no others) to the Court” making it clear that not all orders passed by the arbitrator would be appealable.
A reading of the Act would also show that the legislature has provided for redressal/remedies where considered necessary. For instance, under Section 14 (1) (a) of the Act, the mandate of an arbitrator can be terminated if any of the grounds noted therein are fulfilled. Despite the unequivocal wordings of Section 14(1)(a) of the Act, the legislature in Section 14(2) of the Act, consciously provides for a remedy to the parties (unless otherwise agreed) to approach the Court for any controversy.
In view of the above, a question arises that, could it be the intention of the legislature to bring finality to an order under Section 25(a) of the Act, and not subject such an order to any challenge such as “re-call” or “review” ? Consequently, SREI Infrastructure Finance Limited (supra), may yet leave room for some questions and ambiguities, some of which are highlighted in Part II of this post.
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1]Section 19(1)
[2]Section 23(1): Within the period of time agreed upon by the parties or determined by the arbitral Tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent shall state his defence in respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements.
[3](1999) AIR Bom 219
[4](2004) AIR Pat 33
[5]2013 (1) Arb. LR 70 (Delhi)(DB)
[6] 2017(1) Article LR 289 (Madras)
[7](16.05.2017 – CGHC)
[8]Section 14 – Failure or impossibility to act:
(1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if –
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.
[9](2018) 11 SCC 470
[10] Mahanagar Telephone Nigam Ltd. vs. Applied Electronics Ltd. (24.11.2016 – SC)
