8 July 2020
In Part I of this post, we inter-alia attempted to highlight the law (and perhaps a relevant counter perspective) in relation to the power of the arbitrator to recall its order of termination of arbitral proceedings passed under Section 25(a) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act”). In this post, we attempt to answer whether such a remedy would extend to termination of arbitral proceedings under Section 32(2)(c) of the Act, and other issues incidental thereto.
Whether the arbitrator has power to recall an order terminating the proceedings under Section 32(2)(c) of the Act?
SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited[1], draws a distinction between termination of arbitral proceedings under Section 25(a) and Section 32(2)(c) of the Act, and held that the words ‘unnecessary’ or ‘impossible’ as used in Section 32(2)(c) of the Act cannot cover a situation where proceedings are terminated on account of a default on the part of the Claimant. The Court held as such, on the basis that the words ‘unnecessary’ or ‘impossible’ have been used in a context different than one of default as contemplated under Section 25(a) of the Act. In view of the same, it was inter alia observed that termination of the mandate of an arbitrator under Section 32(3) of the Act would necessarily arise only in case of termination of proceedings under Section 32(2) of the Act. Resultantly, the Hon’ble Supreme Court held that non usage of the phrase “the mandate of the Arbitral Tribunal shall terminate” (as used in Section 32(3) in Section 25(a) of the Act) has to be treated with a purpose and object that if the Claimant shows sufficient cause, the proceedings can be recommenced. In this regard, it is pertinent to note that in the present case, the Hon’ble Supreme Court was examining the scope of arbitrator’s power to recall an order terminating the proceedings under Section 25(a) of the Act and not under Section 32(2)(c) of the Act.
The above question was squarely answered by the Hon’ble Supreme Court in the matter of Sai Babu v. M/S Clariya Steels Private Limited[2]. In the said case, the Hon’ble Supreme Court, while placing reliance on SREI Infrastructure Finance Limited (supra) held that no recall application would lie against an order of termination under Section 32(2)(c) of the Act, since the mandate of the arbitrator is terminated (under Section 32(3) of the Act) upon termination of arbitral proceedings. Further, the Hon’ble Supreme Court went on to appoint a substitute arbitrator under Section 15(2) of the Act with consent of both the parties.
Upon a reading of the provisions of the Act, one may argue that a substitute arbitrator, under Section 15(2) of the Act, would be called into appointment only upon the termination of the mandate of the arbitrator. In this regard, only Sections 12, 13, 14 and 15 of the Act touch upon the termination of the mandate of the arbitrator, and therefore recourse to Section 15(2) of the Act would be available only if the mandate of the arbitrator is terminated under the aforesaid Sections. One may also highlight a fundamental difference between the termination of the mandate of the arbitrator and the termination of the arbitral proceedings, namely that upon the termination of the mandate of the arbitrator, the arbitral proceedings still survive, thereby leaving scope for the appointment of a substitute arbitrator which the Act provides for. However, upon the termination of the arbitral proceedings (which is contemplated under Section 25(a) and Section 32 of the Act) the mandate of the arbitrator also comes to an end. With no arbitral proceedings surviving, the question of appointment of a substitute arbitrator would not arise. A counter perspective may be that Section 15(2) of the Act is independent of Section 15(1) of the Act, and therefore can be attracted even in circumstances referred to in Section 32 of the Act. In this context, guidance may be found by referring to Article 15 of the UNCITRAL Model Law, which reads as:
Article 15. Appointment of substitute arbitrator
Where the mandate of an arbitrator terminates under article 13 or 14 or because of his withdrawal from office for any other reason or because of the revocation of his mandate by agreement of the parties or in any other case of termination of his mandate, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
Concluding remarks:
It appears that the Supreme Court has, in SREI Infrastructure Finance Limited (supra) conducted a judicial bypass, to ensure compliance with the letter and spirit of Section 5[3] of the Act (i.e. judicial non-intervention in arbitral proceedings) by holding that (i) an order under Section 25(a) of the Act can be recalled; and (ii) a substitute arbitrator may be appointed in cases where an order of the arbitrator cannot be recalled, i.e. an order under Section 32(3) of the Act.
Another option available to the Supreme Court in this case was to allow challenge to such an order under Section 25(a) of the Act, under Section 34 of the Act. A view to support such an option may be that an order terminating the arbitral proceedings would surely have the effect of closure of the proceedings and bringing finality thereto. It could be argued that such a view would not leave a party aggrieved thereby remediless, and may not require much judicial creativity and reading into the existing provisions of the Act, at subsequent stages. In fact, such a course of action was framed as an issue by the Court. However, in having answered the central issue as it did, the Court did not feel the need to go into this aspect.
However, despite the law having been cemented as such, a few questions still remain. What if the application for recall of an order passed under Section 25(a) of the Act is also rejected by the Arbitrator? What recourse would an aggrieved party have against such an order? The Act does not contemplate any challenge whatsoever to such an order of recall (clearly, as it does not contemplate the passing of such an order itself). These questions gain significance, as in the event such application for recall is rejected by the arbitrator, the party aggrieved thereby remains ostensibly remediless. She/he would be precluded from either initiating fresh arbitral proceedings or filing a suit on such cause of action. Whilst her/ his entitlement may remain alive, the remedy is washed away, and that too merely on account of a default in compliance with administrative timelines, which may very well be justifiable. Could the intention of the Act be this harsh, especially given that if it were a Suit, the Plaintiff would not be left remediless?
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1](2018) 11 SCC 470
[2](01.05. 2019- SC)
[3]Section 5: Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.
